M is the individual's proceeds of disposition from the qualifying disposition;
	N is the individual's qualifying portion of the capital gain from the qualifying disposition; and
	O is the individual's capital gain from the qualifying disposition, determined without reference to this section.
``replacement share'' « action de remplacement »	``replacement share'' of an individual in respect of a qualifying disposition of the individual in a taxation year means an eligible small business corporation share of the individual that is
	(a) acquired by the individual in the year or within 60 days after the end of the year, but not later than 120 days after the qualifying disposition occurred; and
	(b) designated by the individual in the individual's return of income for the year to be a replacement share in respect of the qualifying disposition.
Capital gain deferral	(2) Where an individual has made a qualifying disposition in a taxation year,
	(a) the individual's capital gain for the year from the qualifying disposition is deemed to be the amount by which the individual's capital gain for the year from the qualifying disposition, determined without reference to this section, exceeds the individual's permitted deferral in respect of the qualifying disposition;
	(b) in computing the adjusted cost base to the individual of a replacement share of the individual in respect of the qualifying disposition at any time after its acquisition, there shall be deducted the amount of the ACB reduction of the individual in respect of the replacement share; and
	(c) where the qualifying disposition was a disposition of a share that was a taxable Canadian property of the individual, the replacement share of the individual in respect of the qualifying disposition is deemed to be taxable Canadian property of the individual.
Special rule - re eligible pooling arrangements	(3) Except for the purpose of the definition ``eligible pooling arrangement'' in subsection (1), any transaction entered into by an investment manager under an eligible pooling arrangement on behalf of an individual is deemed to be a transaction of the individual and not a transaction of the investment manager.
Special rule - re acquisitions on death	(4) For the purpose of this section, a share of the capital stock of a corporation, acquired by an individual as a consequence of the death of a person who is the individual's spouse, common-law partner or parent, is deemed to be a share that was acquired by the individual at the time it was acquired by that person and owned by the individual throughout the period that it was owned by that person, if
	(a) where the person was the spouse or common-law partner of the individual, the share was an eligible small business share of the person and subsection 70(6) applied to the individual in respect of the share; or
	(b) where the person was the individual's parent, the share was an eligible small business share of the parent and subsection 70(9.2) applied to the individual in respect of the share.
Special rule - re breakdown of relationships	(5) For the purpose of this section, a share of the capital stock of a corporation, acquired by an individual from a person who was the individual's former spouse or common-law partner as a consequence of the settlement of rights arising out of their marriage or common-law partnership, is deemed to be a share that was acquired by the individual at the time it was acquired by that person and owned by the individual throughout the period that it was owned by that person if the share was an eligible small business share of the person and subsection 73(1) applied to the individual in respect of the share.
Special rule - re eligible small business corporation share exchanges	(6) For the purpose of this section, where an individual receives shares of the capital stock of a corporation that are eligible small business corporation shares of the individual (in this subsection referred to as the ``new shares'') as the sole consideration for the disposition of shares issued by another corporation that were eligible small business corporation shares of the individual (in this subsection referred to as the ``exchanged shares''), the new shares are deemed to have been owned by the individual throughout the period that the exchanged shares were owned by the individual if
	(a) paragraph 85(1)(h) or subsection 85.1(3) or 87(4) applied to the individual in respect of the new shares; and
	(b) the individual's total proceeds of disposition of the exchanged shares was equal to the total of all amounts each of which was the individual's adjusted cost base of an exchanged share immediately before the disposition.
Special rule - re active business corporation share exchanges	(7) For the purpose of this section, where an individual receives common shares of the capital stock of a corporation (in this subsection referred to as the ``new shares'') as the sole consideration for the disposition of common shares of another corporation (in this subsection referred to as the ``exchanged shares''), the new shares are deemed to be eligible small business corporation shares of the individual and shares of the capital stock of an active business corporation that were owned by the individual throughout the period that the exchanged shares were owned by the individual, if
	(a) paragraph 85(1)(h) or subsection 85.1(3) or 87(4) applied to the individual in respect of the new shares;
	(b) the total of the individual's proceeds of disposition in respect of the disposition of the exchanged shares was equal to the total of the individual's adjusted cost bases immediately before the disposition of such shares; and
	(c) the disposition of the exchanged shares was a qualifying disposition of the individual.
Special rule - re carrying on an active business	(8) For the purpose of the definitions in subsection (1), a property held at any particular time by a corporation that would, if this Act were read without reference to this subsection, be considered to carry on an active business at that time, is deemed to be used or held by the corporation in the course of carrying on that active business if the property (or other property for which the property is substituted property) was acquired by the corporation, at any time in the 36-month period ending at the particular time, because the corporation
	(a) issued a debt or a share of a class of its capital stock in order to acquire money for the purpose of acquiring property to be used in or held in the course of, or making expenditures for the purpose of, earning income from an active business carried on by it;
	(b) disposed of property used or held by it in the course of carrying on an active business in order to acquire money for the purpose of acquiring property to be used in or held in the course of, or making expenditures for the purpose of, earning income from an active business carried on by it; or
	(c) accumulated income derived from an active business carried on by it in order to acquire property to be used in or held in the course of, or to make expenditures for the purpose of, earning income from an active business carried on by it.
Special rule - re qualifying disposition	(9) A disposition of a common share of an active business corporation (in this subsection referred to as the ``subject share'') by an individual that, but for this subsection, would be a qualifying disposition of the individual is deemed not to be a qualifying disposition of the individual unless the active business of the corporation referred to in paragraph (a) of the definition ``active business corporation'' in subsection (1) was carried on primarily in Canada
	(a) at all times in the period that began at the time the individual last acquired the subject share and ended at the time of disposition, if that period is less than 730 days; or
	(b) in any other case, for at least 730 days in the period referred to in paragraph (a).
Special rule - re exceptions	(10) For the purpose of this section, an eligible small business corporation and an active business corporation at any time do not include a corporation that is, at that time,
	(a) a professional corporation;
	(b) a specified financial institution;
	(c) a corporation the principal business of which is the leasing, rental, development or sale, or any combination of those activities, of real property owned by it; or
	(d) a corporation more than 50 per cent of the fair market value of the property of which (net of debts incurred to acquire the property) is attributable to real property.
Determina- tion rule	(11) In determining whether a share owned by an individual is an eligible small business corporation share of the individual, this Act shall be read without reference to section 48.1.
Anti-avoidanc e rule	(12) The permitted deferral of an individual in respect of a qualifying disposition of shares issued by a corporation (in this subsection referred to as ``new shares'') is deemed to be nil where
	(a) the new shares (or shares for which the new shares are substituted property) were issued to the individual or a person related to the individual as part of a series of transactions or events in which
	(i) shares of the capital stock of a corporation (in this subsection referred to as the ``old shares'') were disposed of by the individual or a person related to the individual, or
	(ii) the paid-up capital of old shares or the adjusted cost base to the individual or to a person related to the individual of the old shares was reduced;
	(b) the new shares (or shares for which the new shares are substituted property) were issued by the corporation that issued the old shares or were issued by a corporation that, at or immediately after the time of issue of those shares, was a corporation that was not dealing at arm's length with the corporation that issued the old shares; and
	(c) it is reasonable to conclude that one of the main reasons for the series of transactions or events or a transaction in the series was to permit the individual, persons related to the individual, or the individual and persons related to the individual to become eligible to deduct under subsection (2) permitted deferrals in respect of qualifying dispositions of new shares (or shares substituted for the new shares) the total of which would exceed the total that those persons would have been eligible to deduct under subsection (2) in respect of permitted deferrals in respect of qualifying dispositions of old shares.
	(2) Subsection (1) applies to dispositions that occur after February 27, 2000 except that, for dispositions that occurred after February 27, 2000 and before October 18, 2000,
	(a) the definition ``active business corporation'' in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read without reference to the words ``subject to subsection (10)'' and as if the reference to the words ``carried on'' in paragraph (a) of that definition were read as a reference to ``carried on primarily in Canada'';
	(b) the definition ``eligible small business corporation'' in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read without reference to the words ``subject to subsection (10)'';
	(c) the definition ``eligible small business corporation share'' in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read as follows:
	``eligible small business corporation share'' of an individual means a common share issued by a corporation to the individual if
	(a) at the time the share was issued, the corporation was an eligible small business corporation;
	(b) immediately before the share was issued, the total carrying value of the assets of the corporation and corporations related to it did not exceed $2,500,000; and
	(c) immediately after the share was issued, the total carrying value of the assets of the corporation and corporations related to it did not exceed $10,000,000..
	(d) the definition ``qualifying cost'' in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read as if the reference to ``$2,000,000'' in paragraph (b) of that definition were read as a reference to ``$500,000'';
	(e) the definition ``qualifying disposition'' in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read without reference to the words ``subject to subsection (9)'';
	(f) the definition ``qualifying portion of a capital gain'' in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read as if the reference to ``$2,000,000'' in paragraph (c) of the description of K in that definition were read as a reference to ``$500,000''; and
	(g) section 44.1 of the Act, as enacted by subsection (1), shall be read without reference to subsections 44.1(9) and (10) of the Act, as enacted by subsection (1).
	30. (1) Subsection 45(1) of the Act is amended by striking out the word ``and'' at the end of paragraph (b), by adding the word ``and'' at the end of paragraph (c) and by adding the following after paragraph (c):
	(d) in applying this subsection in respect of a non-resident taxpayer, a reference to ``gaining or producing income'' shall be read as a reference to ``gaining or producing income from a source in Canada''.
	(2) Subsection (1) applies after October 1, 1996.
	31. (1) The portion of subsection 46(1) of the Act before paragraph (a) is replaced by the following:
Personal-use property	46. (1) Where a taxpayer has disposed of a personal-use property (other than an excluded property disposed of in circumstances to which subsection 110.1(1), or the definition ``total charitable gifts'', ``total cultural gifts'' or ``total ecological gifts'' in subsection 118.1(1), applies) of the taxpayer, for the purposes of this subdivision
	(2) The portion of subsection 46(2) of the Act before paragraph (a) is replaced by the following:
Where part only of property disposed of	(2) Where a taxpayer has disposed of part of a personal-use property (other than a part of an excluded property disposed of in circumstances to which subsection 110.1(1), or the definition ``total charitable gifts'', ``total cultural gifts'' or ``total ecological gifts'' in subsection 118.1(1), applies) owned by the taxpayer and has retained another part of the property, for the purposes of this subdivision
	(3) Section 46 of the Act is amended by adding the following after subsection (4):
Excluded property	(5) For the purpose of this section, ``excluded property'' of a taxpayer means property acquired by the taxpayer, or by a person with whom the taxpayer does not deal at arm's length, in circumstances in which it is reasonable to conclude that the acquisition of the property relates to an arrangement, plan or scheme that is promoted by another person or partnership and under which it is reasonable to conclude that the property will be the subject of a gift to which subsection 110.1(1), or the definition ``total charitable gifts'', ``total cultural gifts'' or ``total ecological gifts'' in subsection 118.1(1), applies.
	(4) Subsections (1) to (3) apply to property acquired after February 27, 2000.
	32. (1) Section 47 of the Act is amended by adding the following after subsection (2):
Securities acquired by employee	(3) For the purpose of subsection (1), a security (within the meaning assigned by subsection 7(7)) acquired by a taxpayer after February 27, 2000 is deemed not to be identical to any other security acquired by the taxpayer if
	(a) the security is acquired in circumstances to which any of subsections 7(1.1), (1.5) or (8) or 147(10.1) applies; or
	(b) the security is a security to which subsection 7(1.31) applies.
	(2) Subsection (1) applies after 1999.
	33. (1) Subparagraph 48.1(1)(a)(ii) of the Act is replaced by the following:
	(ii) immediately after that time, ceases to be a small business corporation because a class of its or another corporation's shares is listed on a prescribed stock exchange, and
	(2) Subsection (1) applies to corporations that cease to be small business corporations after 1999.
	(3) Where a corporation ceases to be a Canadian-controlled private corporation in a taxation year solely because of the application of subsection 113(2) of this Act, an election under subsection 48.1(1) of the Act, as enacted by subsection (1), that is made by an individual in respect of the 1999 or 2000 taxation year is deemed to have been made on time if the election is made on or before the individual's filing-due date for the taxation year in which this Act receives royal assent.
	34. (1) Paragraph 49(5)(b) of the Act is replaced by the following:
	(b) for the purposes of subsections (2) to (4) and subparagraph (b)(iv) of the definition ``disposition'' in subsection 248(1), the original option and each extension or renewal of it is deemed to be the same option; and
	(2) Subsection (1) applies to options granted after December 23, 1998.
	35. (1) Subsections 52(1) and (1.1) of the Act are replaced by the following:
Cost of certain property the value of which included in income	52. (1) Where
	(a) a taxpayer acquired property after 1971 (other than an annuity contract, a right as a beneficiary under a trust to enforce payment of an amount by the trust to the taxpayer, property acquired in circumstances to which subsection (2) or (3) applies or property acquired from a trust in satisfaction of all or part of the taxpayer's capital interest in the trust), and
	(b) an amount in respect of its value was
	(i) included, otherwise than under section 7, in computing
	(A) the taxpayer's taxable income or taxable income earned in Canada, as the case may be, for a taxation year during which the taxpayer was non-resident, or
	(B) the taxpayer's income for a taxation year throughout which the taxpayer was resident in Canada, or