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(b) in determining the consequences of the
disposition in subparagraph (a)(i),
subsection 142.4(11) does not apply to any
payment received by the taxpayer after the
particular time.
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| Beginning to
use property
in a Canadian
business
|
(1.2) If at a particular time a taxpayer that
is a non-resident financial institution (other
than a life insurance corporation) begins to
use, in connection with a business or part of a
business carried on by the taxpayer in Canada,
a property that is a mark-to-market property of
the taxpayer for the year that includes the
particular time or a specified debt obligation,
but that is not a property that was acquired by
the taxpayer at the particular time, the
taxpayer is deemed
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(a) to have disposed of the property
immediately before the time that was
immediately before the particular time for
proceeds equal to its fair market value at the
time of disposition; and
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(b) to have reacquired the property at the
particular time at a cost equal to those
proceeds.
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| Specified debt
obligation
marked to
market
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(1.3) In applying subsection (1.1) to a
taxpayer in respect of a property in a taxation
year,
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(a) the definition ``mark-to-market
property'' in subsection 142.2(1) shall be
applied as if the year ended immediately
before the particular time referred to in
subsection (1.1); and
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(b) if the taxpayer does not have financial
statements for the period ending
immediately before the particular time
referred to in subsection (1.1), references in
the definition to financial statements for the
year shall be read as references to the
financial statements that it is reasonable to
expect would have been prepared if the year
had ended immediately before the
particular time.
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| Deemed
disposition
not applicable
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(2) For the purposes of this Act, the
determination of when a taxpayer acquired a
share shall be made without regard to a
disposition or acquisition that occurred
because of subsection 142.5(2) or subsection
(1), (1.1) or (1.2).
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(2) Subsection (1) applies after June 27,
1999 in respect of an authorized foreign
bank, and after August 8, 2000 in any other
case.
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138. (1) The Act is amended by adding the
following after section 142.6:
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| Definitions
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142.7 (1) The definitions in this subsection
apply in this section.
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``Canadian
affiliate''
« filiale
canadienne »
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``Canadian affiliate'' of an entrant bank at any
particular time means a Canadian
corporation that was, immediately before
the particular time, affiliated with the
entrant bank and that was, at all times
during the period that began on February
11, 1999 and ended immediately before the
particular time,
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(a) affiliated with either
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(ii) a foreign bank (within the meaning
assigned by section 2 of the Bank Act)
that is affiliated with the entrant bank
at the particular time; and
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(ii) a corporation authorized under the
Trust and Loan Companies Act to carry
on the business of offering to the public
its services as trustee, or
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(iii) a corporation of which the
principal activity in Canada consists of
any of the activities referred to in
subparagraphs 518(3)(a)(i) to (v) of
the Bank Act and in which the entrant
bank or a non-resident person
affiliated with the entrant bank holds
shares under the authority, directly or
indirectly, of an order issued by the
Minister of Finance or the Governor in
Council under subsection 521(1) of
that Act.
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``eligible
property''
« bien
admissible »
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``eligible property'' of a Canadian affiliate at
any time means a property described in any
of paragraphs 85(1.1)(a) to (g.1) that is,
immediately before that time, used or held
by it in carrying on its business in Canada.
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``entrant
bank''
« banque
entrante »
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``entrant bank'' means a non-resident
corporation that is, or has applied to the
Superintendent of Financial Institutions to
become, an authorized foreign bank.
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``qualifying
foreign
merger''
« fusion
étrangère
détermi-
née »
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``qualifying foreign merger'' means a merger
or combination of two or more corporations
that would be a ``foreign merger'' within
the meaning assigned by subsection 87(8.1)
if that subsection were read without
reference to the words ``and otherwise than
as a result of the distribution of property to
one corporation on the winding-up of
another corporation.
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| Qualifying
foreign
merger
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(2) Where an entrant bank was formed as
the result of a qualifying foreign merger, after
February 11, 1999, of two or more
corporations (referred to in this subsection as
``predecessors''), and at the time immediately
before the merger, there were one or more
Canadian corporations (referred to in this
subsection as ``predecessor affiliates''), each
of which at that time would have been a
Canadian affiliate of a predecessor if the
predecessor were an entrant bank at that time,
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(a) for the purpose of the definition
``Canadian affiliate'' in subsection (1),
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(i) each predecessor affiliate is deemed to
have been affiliated with the entrant bank
throughout the period that began on
February 11, 1999 and ended at the time
of the merger,
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(ii) the expression ``entrant bank'' in
subparagraph (b)(iii) of the definition is
deemed to include a predecessor, and
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(iii) if two or more of the predecessor
affiliates are amalgamated or merged at
any time after February 11, 1999 to form
a new corporation, the new corporation is
deemed to have been affiliated with the
entrant bank throughout the period that
began on February 11, 1999 and ended at
the time of the amalgamation or merger
of the predecessor affiliates; and
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(b) if at least one of the predecessors
complied with the terms of subsection
(11)(a), the entrant bank is deemed to have
complied with those terms.
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| Branch-establi
shment
rollover
|
(3) If a Canadian affiliate of an entrant bank
transfers an eligible property to the entrant
bank, the entrant bank begins immediately
after the transfer to use or hold the transferred
property in its Canadian banking business and
the Canadian affiliate and the entrant bank
jointly elect, in accordance with subsection
(11), to have this subsection apply in respect
of the transfer, subsections 85(1) (other than
paragraph (e.2)), (1.1), (1.4) and (5) apply,
with any modifications that the circumstances
require, in respect of the transfer, except that
the portion of subsection 85(1) before
paragraph (a) shall be read as follows:
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``85. (1) Where a taxpayer that is a
Canadian affiliate of an entrant bank (within
the meanings assigned by subsection
142.7(1)) has, in a taxation year, disposed of
any of the taxpayer's property to the entrant
bank (referred to in this subsection as the
``corporation''), if the taxpayer and the
corporation have jointly elected under
subsection 142.7(3), the following rules
apply:''.
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| Deemed fair
market value
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(4) If a Canadian affiliate of an entrant bank
and the entrant bank make an election under
subsection (3) in respect of a transfer of
property by the Canadian affiliate to the
entrant bank, for the purposes of subsections
15(1), 52(2), 69(1), (4) and (5), 246(1) and
247(2) in respect of the transfer, the fair
market value of the property is deemed to be
the amount agreed by the Canadian affiliate
and the entrant bank in their election.
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| Specified debt
obligations
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(5) If a Canadian affiliate of an entrant bank
transfers a specified debt obligation to the
entrant bank in a transaction in respect of
which an election is made under subsection
(3), the Canadian affiliate is a financial
institution in its taxation year in which the
transfer is made, and the amount that the
Canadian affiliate and the entrant bank agree
on in their election in respect of the obligation
is equal to the tax basis of the obligation within
the meaning assigned by subsection 142.4(1),
the entrant bank is deemed, in respect of the
obligation, for the purposes of sections 142.2
to 142.4 and 142.6, to be the same corporation
as, and a continuation of, the Canadian
affiliate.
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| Mark-to-mark
et property
|
(6) If a Canadian affiliate of an entrant bank
described in paragraph (11)(a) transfers at any
time within the period described in paragraph
(11)(c) to the entrant bank a property that is,
for the Canadian affiliate's taxation year in
which the property is transferred, a
mark-to-market property of the Canadian
affiliate,
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(a) for the purposes of subsections 112(5) to
(5.21) and (5.4), the definition
``mark-to-market property'' in subsection
142.2(1) and subsection 142.5(9), the
entrant bank is deemed, in respect of the
property, to be the same corporation as and
a continuation of, the Canadian affiliate;
and
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(b) for the purpose of applying subsection
142.5(2) in respect of the property, the
Canadian affiliate's taxation year in which
the property is transferred is deemed to have
ended immediately before the time the
property was transferred.
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| Reserves
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(7) If
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(a), at a particular time,
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(i) a Canadian affiliate of an entrant bank
transfers to the entrant bank property that
is a loan or lending asset, or a right to
receive an unpaid amount in respect of a
disposition before the particular time of
property by the affiliate, or
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(ii) the entrant bank assumes an
obligation of the Canadian affiliate that is
an instrument or commitment described
in paragraph 20(1)(l.1) or an obligation
in respect of goods, services, lands or
chattels described in subparagraph
20(1)(m)(i), (ii) or (iii),
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(b) the property is transferred or the
obligation is assumed for an amount equal
to its fair market value at the particular
time,
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(c) the entrant bank begins immediately
after the particular time to use or hold the
property or owe the obligation in its
Canadian banking business, and
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(d) the Canadian affiliate and the entrant
bank jointly elect in accordance with
subsection (11) to have this subsection
apply in respect of the transfer or
assumption,
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then
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(e) in applying paragraphs 20(1)(l), (l.1),
(m), (n) and (p) in respect of the obligation
or property, the taxation year of the affiliate
that would, but for this paragraph, include
the particular time is deemed to end
immediately before the particular time, and
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(f) in computing the income of the Canadian
affiliate and the entrant bank for taxation
years that end on or after the particular time,
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(i) any amount deducted under paragraph
20(1)(l), (l.1), (m) or (n) by the Canadian
affiliate in respect of the property or
obligation in computing its income for its
taxation year that ended immediately
before the particular time, or under
paragraph 20(1)(p) in computing its
income for that year or for a preceding
taxation year (to the extent that the
amount has not been included in the
affiliate's income under paragraph
12(1)(i)), is deemed to have been so
deducted by the entrant bank in
computing its income for its last taxation
year that ended before the particular time
and not to have been deducted by the
Canadian affiliate,
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(ii) in applying paragraph 20(1)(m), an
amount in respect of the goods, services,
land or chattels that was included under
paragraph 12(1)(a) in computing the
Canadian affiliate's income from a
business is deemed to have been so
included in computing the entrant bank's
income from its Canadian banking
business for a preceding taxation year,
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(iii) in applying paragraph 20(1)(n) in
respect of a property described in
subparagraph (a)(i) and paragraphs (b),
(c) and (d) sold by the Canadian affiliate
in the course of a business, the property
is deemed to have been disposed of by the
entrant bank (and not by the Canadian
affiliate) at the time it was disposed of by
the Canadian affiliate, and the amount in
respect of the sale that was included in
computing the Canadian affiliate's
income from a business is deemed to
have been included in computing the
entrant bank's income from its Canadian
banking business for its taxation year that
includes the time at which the property
was so disposed of, and
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(iv) in applying paragraph 40(1)(a) or
44(1)(e) in respect of a property
described in subparagraph (a)(i) and
paragraphs (b), (c) and (d) disposed of by
the Canadian affiliate, the property is
deemed to have been disposed of by the
entrant bank (and not by the Canadian
affiliate) at the time it was disposed of by
the Canadian affiliate, the amount
determined under subparagraph
40(1)(a)(i) or 44(1)(e)(i) in respect of the
Canadian affiliate is deemed to be the
amount determined under that
subparagraph in respect of the entrant
bank, and any amount claimed by the
Canadian affiliate under subparagraph
40(1)(a)(iii) or 44(1)(e)(iii) in computing
its gain from the disposition of the
property for its last taxation year that
ended before the particular time is
deemed to have been so claimed by the
entrant bank for its last taxation year that
ended before the particular time.
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| Assumption
of debt
obligation
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(8) If a Canadian affiliate of an entrant bank
described in paragraph (11)(a) transfers at any
time within the period described in paragraph
(11)(c) property to the entrant bank, and any
part of the consideration for the transfer is the
assumption by the entrant bank in respect of its
Canadian banking business of a debt
obligation of the Canadian affiliate,
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(a) where the Canadian affiliate and the
entrant bank jointly elect in accordance
with subsection (11) to have this paragraph
apply,
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(A) the value of that part of the
consideration for the transfer of the
property, and
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(B) for the purpose of determining the
consequences of the assumption of the
obligation and any subsequent
settlement or extinguishment of it, the
value of the consideration given to the
entrant bank for the assumption of the
obligation,
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are deemed to be an amount (in this
paragraph referred to as the ``assumption
amount'') equal to the amount
outstanding on account of the principal
amount of the obligation at that time, and
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(ii) the assumption amount shall not be
considered a term of the transaction that
differs from that which would have been
made between persons dealing at arm's
length solely because it is not equal to the
fair market value of the obligation at that
time;
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(b) where the obligation is denominated in
a foreign currency, and the Canadian
affiliate and the entrant bank jointly elect in
accordance with subsection (11) to have
this paragraph apply,
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(i) the amount of any income, loss,
capital gain or capital loss in respect of
the obligation due to the fluctuation in
the value of the foreign currency relative
to Canadian currency realized by
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(A) the Canadian affiliate on the
assumption of the obligation is
deemed to be nil, and
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(B) the entrant bank on the settlement
or extinguishment of the obligation
shall be determined based on the
amount of the obligation in Canadian
currency at the time it became an
obligation of the Canadian affiliate,
and
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(ii) for the purpose of an election made in
respect of the obligation under paragraph
(a), the amount outstanding on account
of the principal amount of the obligation
at that time is the total of all amounts each
of which is an amount that was advanced
to the Canadian affiliate on account of
principal, that remains outstanding at
that time, and that is determined using the
exchange rate that applied between the
foreign currency and Canadian currency
at the time of the advance; and
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(c) for the purpose of applying paragraphs
20(1)(e) and (f) in respect of the debt
obligation, the obligation is deemed not to
have been settled or extinguished by virtue
of its assumption by the entrant bank and
the entrant bank is deemed to be the same
corporation as, and a continuation of, the
Canadian affiliate.
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| Branch-establi
shment
dividend
|
(9) Notwithstanding any other provision of
this Act, the rules in subsection (10) apply if
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(a) a dividend is paid by a Canadian affiliate
of an entrant bank to the entrant bank or to
a person that is affiliated with the Canadian
affiliate and that is resident in the country in
which the entrant bank is resident, or
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(b) a dividend is deemed to be paid for the
purposes of this Part or Part XIII (other than
by paragraph 214(3)(a)) as a result of a
transfer of property from the Canadian
affiliate to such a person,
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and the Canadian affiliate and the entrant bank
jointly elect in accordance with subsection
(11) to have subsection (10) apply in respect of
the dividend.
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| Treatment of
dividend
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(10) If the conditions in subsection (9) are
met,
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(a) the dividend is deemed (except for the
purposes of subsections 112(3) to (7)) not to
be a taxable dividend; and
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(b) there is added to the amount otherwise
determined under paragraph 219(1)(g) in
respect of the entrant bank for its first
taxation year that ends after the time at
which the dividend is paid, the amount of
the dividend less, where the dividend is paid
by means of, or arises as a result of, a
transfer of eligible property in respect of
which the Canadian affiliate and the entrant
bank have jointly elected under subsection
(3), the amount by which the fair market
value of the property transferred exceeds
the amount the Canadian affiliate and the
entrant bank have agreed on in their
election.
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| Elections
|
(11) An election under subsection (3) or (7),
paragraph (8)(a) or (b) or subsection (10), (12)
or (14) is valid only if
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(a) the entrant bank by which the election is
made has, on or before the day that is 6
months after the day on which the Income
Tax Amendments Act, 2000 receives royal
assent, complied with paragraphs 1.1(b)
and (c) of the ``Guide to Foreign Bank
Branching'' in respect of the establishment
and commencement of business of a foreign
bank branch in Canada issued by the Office
of the Superintendent of Financial
Institutions, as it read on December 31,
2000;
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(b) the election is made in prescribed form
on or before the earlier of the filing-due date
of the Canadian affiliate and the filing-due
date of the entrant bank, for the taxation
year that includes the time at which
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(i) in the case of an election under
subsection (3) or (7), paragraph (8)(a) or
(b) or subsection (10), the dividend,
transfer or assumption to which the
election relates is paid, made or effected,
or
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(ii) in the case of an election under
subsection (12), the dissolution order was
granted or the winding up commenced;
and
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(c) in the case of an election under
subsection (3) or (7), paragraph (8)(a) or (b)
or subsection (10), the dividend, transfer or
assumption to which the election relates is
paid, made or effected within the period that
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(i) begins on the day on which the
Superintendent makes an order in respect
of the entrant bank under subsection
534(1) of the Bank Act, and
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(ii) ends on the later of
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(I) the day that is one year after the
day referred to subparagraph (i), and
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(II) the day that is three years after
the day on which the Income Tax
Amendments Act, 2000 receives
royal assent, and
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