1st Session, 36th Parliament,
46-47-48 Elizabeth II, 1997-98-99

The House of Commons of Canada

BILL C-72

An Act to amend the Income Tax Act, to implement measures that are consequential on changes to the Canada-U.S. Tax Convention (1980) and to amend the Income Tax Conventions Interpretation Act, the Old Age Security Act, the War Veterans Allowance Act and certain Acts related to the Income Tax Act

      Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

SHORT TITLE

Short title

1. This Act may be cited as the Income Tax Amendments Act, 1998.

PART 1

R.S., c. 1 (5th Supp.); 1994, cc. 7, 8, 13, 21, 28, 29, 38, 41; 1995, cc. 1, 3, 11, 18, 21, 38, 46; 1996, cc. 11, 21, 23; 1997, cc. 10, 12, 25, 26; 1998, cc. 19, 21, 34

INCOME TAX ACT

2. (1) Subparagraph 6(1)(b)(viii) of the Income Tax Act is repealed.

(2) Section 6 of the Act is amended by adding the following after subsection (18):

Benefit re housing loss

(19) For the purpose of paragraph (1)(a), an amount paid at any time in respect of a housing loss (other than an eligible housing loss) to or on behalf of a taxpayer or a person who does not deal at arm's length with the taxpayer in respect of, in the course of or because of, an office or employment is deemed to be a benefit received by the taxpayer at that time because of the office or employment.

Benefit re eligible housing loss

(20) For the purpose of paragraph (1)(a), an amount paid at any time in a taxation year in respect of an eligible housing loss to or on behalf of a taxpayer or a person who does not deal at arm's length with the taxpayer in respect of, in the course of or because of, an office or employment is deemed to be a benefit received by the taxpayer at that time because of the office or employment to the extent of the amount, if any, by which

    (a) one half of the amount, if any, by which the total of all amounts each of which is so paid in the year or in a preceding taxation year exceeds $15,000

exceeds

    (b) the total of all amounts each of which is an amount included in computing the taxpayer's income because of this subsection for a preceding taxation year in respect of the loss.

Housing loss

(21) In this section, ``housing loss'' at any time in respect of a residence of a taxpayer means the amount, if any, by which the greater of

    (a) the adjusted cost base of the residence at that time to the taxpayer or to another person who does not deal at arm's length with the taxpayer, and

    (b) the highest fair market value of the residence within the six-month period that ends at that time

exceeds

    (c) if the residence is disposed of by the taxpayer or the other person before the end of the first taxation year that begins after that time, the lesser of

      (i) the proceeds of disposition of the residence, and

      (ii) the fair market value of the residence at that time, and

    (d) in any other case, the fair market value of the residence at that time.

Eligible housing loss

(22) In this section, ``eligible housing loss'' in respect of a residence designated by a taxpayer means a housing loss in respect of an eligible relocation of the taxpayer or a person who does not deal at arm's length with the taxpayer and, for these purposes, no more than one residence may be so designated in respect of an eligible relocation.

Employer-pro vided housing subsidies

(23) For greater certainty, an amount paid or the value of assistance provided by any person in respect of, in the course of or because of, an individual's office or employment in respect of the cost of, the financing of, the use of or the right to use, a residence is, for the purposes of this section, a benefit received by the individual because of the office or employment.

(3) Subsection (1) applies to the 1998 and subsequent taxation years.

(4) Subsection (2) applies

    (a) to the 2001 and subsequent taxation years in respect of an eligible relocation of an individual in connection with which the individual begins employment at a new work location before October 1998; and

    (b) in any other case, after February 23, 1998.

3. (1) The portion of subsection 7(1) of the Act before paragraph (d) is replaced by the following:

Agreement to issue securities to employees

7. (1) Subject to subsection (1.1), where a particular qualifying person has agreed to sell or issue securities of the particular qualifying person, or of a qualifying person with which it does not deal at arm's length, to an employee of the particular qualifying person or of a qualifying person with which it does not deal at arm's length,

    (a) if the employee has acquired securities under the agreement, a benefit equal to the amount, if any, by which

      (i) the value of the securities at the time the employee acquired them

    exceeds the total of

      (ii) the amount paid or to be paid to the particular qualifying person by the employee for the securities, and

      (iii) the amount, if any, paid by the employee to acquire the right to acquire the securities

    is deemed to have been received, in the taxation year in which the employee acquired the securities, by the employee because of the employee's employment;

    (b) if the employee has transferred or otherwise disposed of rights under the agreement in respect of some or all of the securities to a person with whom the employee was dealing at arm's length, a benefit equal to the amount, if any, by which

      (i) the value of the consideration for the disposition

    exceeds

      (ii) the amount, if any, paid by the employee to acquire those rights

    shall be deemed to have been received, in the taxation year in which the employee made the disposition, by the employee because of the employee's employment;

    (c) if rights of the employee under the agreement have, by one or more transactions between persons not dealing at arm's length, become vested in a person who has acquired securities under the agreement, a benefit equal to the amount, if any, by which

      (i) the value of the securities at the time the person acquired them

    exceeds the total of

      (ii) the amount paid or to be paid to the particular qualifying person by the person for the securities, and

      (iii) the amount, if any, paid by the employee to acquire the right to acquire the securities,

    is deemed to have been received, in the taxation year in which the person acquired the securities, by the employee because of the employee's employment, unless at the time the person acquired the securities the employee was deceased, in which case such a benefit is deemed to have been received by the person in that year as income from the duties of an employment performed by the person in that year in the country in which the employee primarily performed the duties of the employee's employment;

(2) The portion of paragraph 7(1)(e) of the Act before subparagraph (i) is replaced by the following:

    (e) if the employee has died and immediately before death owned a right to acquire securities under the agreement, a benefit equal to the amount, if any, by which

(3) The portion of subsection 7(1.1) of the Act after paragraph (c) is replaced by the following:

in applying paragraph (1)(a) in respect of the employee's acquisition of the share, the reference in that paragraph to ``the taxation year in which the employee acquired the securities'' shall be read as a reference to ``the taxation year in which the employee disposed of or exchanged the securities''.

(4) Section 7 of the Act is amended by adding the following after subsection (1.1):

Non-arm's length relationship with trusts

(1.11) For the purposes of this section, a mutual fund trust is deemed not to deal at arm's length with a corporation only if the trust controls the corporation.

(5) Subsection 7(1.4) of the Act is replaced by the following:

Exchange of options

(1.4) Where

    (a) a taxpayer disposes of rights under an agreement referred to in subsection (1) or (1.1) to acquire securities of a particular qualifying person that made the agreement or of a qualifying person with which it does not deal at arm's length (which rights and securities are referred to in this subsection and paragraph 110(1)(d) as the ``exchanged option'' and the ``old securities'', respectively),

    (b) the taxpayer receives no consideration for the disposition of the exchanged option other than rights under an agreement with a person (in this subsection referred to as the ``designated person'') that is

      (i) the particular person,

      (ii) a qualifying person with which the particular person does not deal at arm's length immediately after the disposition,

      (iii) a corporation formed on the amalgamation or merger of the particular person and one or more other corporations,

      (iv) a mutual fund trust to which the particular person has transferred property in circumstances to which subsection 132.2(1) applied, or

      (v) a qualifying person with which the corporation referred to in subparagraph (iii) does not deal at arm's length immediately after the disposition

    to acquire securities of the designated person or a qualifying person with which the designated person does not deal at arm's length (which rights and securities are referred to in this subsection as the ``new option'' and the ``new securities'', respectively), and

    (c) the amount, if any, by which

      (i) the total value of the new securities immediately after the disposition

    exceeds

      (ii) the total amount payable by the taxpayer to acquire the new securities under the new option

    does not exceed the amount, if any, by which

      (iii) the total value of the old securities immediately before the disposition

    exceeds

      (iv) the amount payable by the taxpayer to acquire the old securities under the exchanged option,

for the purposes of this section,

    (d) the taxpayer is deemed not to have disposed of the exchanged option and not to have acquired the new option,

    (e) the new option is deemed to be the same option as, and a continuation of, the exchanged option, and

    (f) if the designated person is not the particular person, the designated person is deemed to be the same person as, and a continuation of, the particular person.

(6) Subsections 7(2) and (3) of the Act are replaced by the following:

Securities held by trustee

(2) If a security is held by a trustee in trust or otherwise, whether absolutely, conditionally or contingently, for an employee, the employee is deemed, for the purposes of this section and paragraphs 110(1)(d) and (d.1),

    (a) to have acquired the security at the time the trust began to so hold it; and

    (b) to have exchanged or disposed of the security at the time the trust exchanged it or disposed of it to any person other than the employee.

Special provision

(3) If a particular qualifying person has agreed to sell or issue securities of the particular person, or of a qualifying person with which it does not deal at arm's length, to an employee of the particular person or of a qualifying person with which it does not deal at arm's length,

    (a) except as provided by this section, the employee is deemed to have neither received nor enjoyed any benefit under or because of the agreement; and

    (b) the income for a taxation year of any person is deemed to be not less than its income for the year would have been if a benefit had not been conferred on the employee by the sale or issue of the securities.

(7) Subsection 7(6) of the Act is replaced by the following:

Sale to trustee for employees

(6) If a particular qualifying person has entered into an arrangement under which securities of the particular person, or of a qualifying person with which it does not deal at arm's length, are sold or issued by either person to a trustee to be held by the trustee in trust for sale to an employee of the particular person or of a qualifying person with which it does not deal at arm's length,

    (a) for the purposes of this section (other than subsection (2)) and paragraphs 110(1)(d) and (d.1),

      (i) any particular rights of the employee under the arrangement in respect of those securities are deemed to be rights under a particular agreement with the particular person under which the particular person has agreed to sell or issue securities to the employee,

      (ii) any securities acquired under the arrangement by the employee or by a person in whom the particular rights have become vested are deemed to be securities acquired under the particular agreement, and

      (iii) any amounts paid or agreed to be paid to the trustee for any securities acquired under the arrangement by the employee or by a person in whom the particular rights have become vested are deemed to be amounts paid or agreed to be paid to the particular person for securities acquired under the particular agreement; and

    (b) subsection (2) does not apply in respect of securities held by the trustee under the arrangement.

Definitions

(7) The definitions in this subsection apply in this section and in paragraph 110(1)(d).

``qualifying person''
« personne admissible »

``qualifying person'' means a corporation or a mutual fund trust.

``security''
« titre »

``security'' of a qualifying person means

      (a) if the person is a corporation, a share of the capital stock of the corporation; and