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Bill C-70

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42-43-44 ELIZABETH II

CHAPTER 21

An Act to amend the Income Tax Act, the Income Tax Application Rules and related Acts

[Assented to 22nd June, 1995]

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

R.S., c. 1 (5th Supp.); 1994, cc. 7, 8, 13, 21, 28, 29, 38, 41

INCOME TAX ACT

PART I

AMENDMENTS RELATING TO DEBT FORGIVENESS AND FORECLOSURE

1. (1) Subsection 6(15) of the Income Tax Act is replaced by the following:

Forgiveness of employee debt

(15) For the purpose of paragraph (1)(a),

    (a) a benefit shall be deemed to have been enjoyed by a taxpayer at any time an obligation issued by any debtor (including the taxpayer) is settled or extinguished; and

    (b) the value of that benefit shall be deemed to be the forgiven amount at that time in respect of the obligation.

Forgiven amount

(15.1) For the purpose of subsection (15), the ``forgiven amount'' at any time in respect of an obligation issued by a debtor has the meaning that would be assigned by subsection 80(1) if

    (a) the obligation were a commercial obligation (within the meaning assigned by subsection 80(1)) issued by the debtor;

    (b) no amount included in computing income because of the obligation being settled or extinguished at that time were taken into account;

    (c) the definition ``forgiven amount'' in subsection 80(1) were read without reference to paragraphs (f) and (h) of the description of B in that definition; and

    (d) section 80 were read without reference to paragraphs (2)(b) and (q) of that section.

(2) Subsection (1) applies to taxation years that end after February 21, 1994.

2. (1) The portion of subsection 13(7.1) of the Act before paragraph (a) is replaced by the following:

Deemed capital cost of certain property

(7.1) For the purposes of this Act, where section 80 applied to reduce the capital cost to a taxpayer of a depreciable property or a taxpayer deducted an amount under subsection 127(5) or (6) in respect of a depreciable property or received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance other than

(2) Paragraph 13(7.1)(c) of the Act is replaced by the following:

    (c) the capital cost of the property to the taxpayer, determined without reference to this subsection, subsection (7.4) and section 80, and

(3) Subsection 13(7.1) of the Act is amended by striking out the word ``and'' at the end of paragraph (e), by adding the word ``and'' at the end of paragraph (f) and by adding the following after paragraph (f):

    (g) all amounts by which the capital cost of the property to the taxpayer is required because of section 80 to be reduced at or before that time.

(4) Paragraph (h) of the definition ``proceeds of disposition'' in subsection 13(21) of the Act is replaced by the following:

      (h) any amount included because of section 79 in computing a taxpayer's proceeds of disposition of the property;

(5) The formula in the definition ``undepreciated capital cost'' in subsection 13(21) of the Act is replaced by the following:

(A + B + C + D) - (E + E.1 +
F + G + H + I + J)

(6) The definition ``undepreciated capital cost'' in subsection 13(21) of the Act is amended by adding the following after the description of E:

    E.1 is the total of all amounts each of which is an amount by which the undepreciated capital cost to the taxpayer of depreciable property of that class is required (otherwise than because of a reduction in the capital cost to the taxpayer of depreciable property) to be reduced at or before that time because of subsection 80(5),

(7) Subsections (1) to (6) apply to taxation years that end after February 21, 1994.

3. (1) The second formula in the definition ``cumulative eligible capital'' in subsection 14(5) of the Act is replaced by the following:

(P + P.1 + Q) - R

(2) The definition ``cumulative eligible capital'' in subsection 14(5) of the Act is amended by adding the following after the description of P:

    P.1 is the total of all amounts each of which is an amount by which the cumulative eligible capital of the taxpayer in respect of the business is required to be reduced at or before that time because of subsection 80(7);

(3) Section 14 of the Act is amended by adding the following after subsection (9):

Deemed eligible capital expenditure

(10) For the purposes of this Act, where a taxpayer received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, property the cost of which is an eligible capital expenditure of the taxpayer in respect of a business, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance, that eligible capital expenditure shall at any time be deemed to be the amount, if any, by which the total of

    (a) that eligible capital expenditure, determined without reference to this subsection, and

    (b) such part, if any, of the assistance as the taxpayer repaid before

      (i) the taxpayer ceased to carry on the business, and

      (ii) that time

    under a legal obligation to pay all or any part of the assistance

exceeds

    (c) the amount of the assistance the taxpayer received or is entitled to receive before the earlier of that time and the time the taxpayer ceases to carry on the business.

Receipt of public assistance

(11) For the purpose of subsection (10), where at any time a taxpayer who is a beneficiary under a trust or a member of a partnership received or is entitled to receive assistance from a government, municipality or other public authority, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance, the amount of the assistance that can reasonably be considered to be in respect of, or for the acquisition of, property the cost of which was an eligible capital expenditure of the trust or partnership shall be deemed to have been received at that time by the trust or partnership, as the case may be, as assistance from the government, municipality or other public authority for the acquisition of such property.

(4) Subsections (1) and (2) apply to taxation years that end after February 21, 1994.

(5) Subsection (3) applies to assistance that a taxpayer receives or becomes entitled to receive after February 21, 1994 and repayments of such assistance.

4. (1) Subsection 15(1.2) of the Act is replaced by the following:

Forgiveness of shareholder debt

(1.2) For the purpose of subsection (1), the value of the benefit where an obligation issued by a debtor is settled or extinguished at any time shall be deemed to be the forgiven amount at that time in respect of the obligation.

Forgiven amount

(1.21) For the purpose of subsection (1.2), the ``forgiven amount'' at any time in respect of an obligation issued by a debtor has the meaning that would be assigned by subsection 80(1) if

    (a) the obligation were a commercial obligation (within the meaning assigned by subsection 80(1)) issued by the debtor;

    (b) no amount included in computing income (otherwise than because of paragraph 6(1)(a)) because of the obligation being settled or extinguished were taken into account;

    (c) the definition ``forgiven amount'' in subsection 80(1) were read without reference to paragraphs (f) and (h) of the description B in that definition; and

    (d) section 80 were read without reference to paragraphs (2)(b) and (q) of that section.

(2) Subsection (1) applies to taxation years that end after February 21, 1994.

5. (1) The portion of subsection 18(9.3) of the Act before paragraph (b) is replaced by the following:

Interest on debt obligations

(9.3) Where at any time in a taxation year of a borrower a debt obligation of the borrower is settled or extinguished or the holder of the obligation acquires or reacquires property of the borrower in circumstances in which section 79 applies in respect of the debt obligation and the total of

    (a) all amounts each of which is an amount paid at or before that time in satisfaction, in whole or in part, of the obligation to pay interest on the debt obligation in respect of a period or part of a period that is after that time, and

(2) Paragraphs 18(9.3)(e) and (f) of the Act are replaced by the following:

    (e) for the purpose of applying section 79 in respect of the borrower, the principal amount at that time of the debt obligation shall be deemed to be equal to the amount, if any, by which

      (i) the principal amount at that time of the debt obligation

    exceeds

      (ii) the excess amount, and

    (f) the excess amount shall be deducted at that time in computing the forgiven amount in respect of the obligation (within the meaning assigned by subsection 80(1)).

(3) The portion of subsection 18(9.3) of the Act before paragraph (a), as enacted by subsection (1), and paragraph 18(9.3)(e) of the Act, as enacted by subsection (2), apply to the 1992 and subsequent taxation years.

(4) Paragraph 18(9.3)(a) of the Act, as enacted by subsection (1), and paragraph 18(9.3)(f) of the Act, as enacted by subsection (2), apply to taxation years that end after February 21, 1994, except that they do not apply to any obligation settled or extinguished

    (a) before February 22, 1994;

    (b) after February 21, 1994

      (i) under the terms of an agreement in writing entered into on or before that date, or

      (ii) under the terms of any amendment to such an agreement, where that amendment was entered into in writing before July 12, 1994 and the amount of the settlement or extinguishment was not substantially greater than the settlement or extinguishment provided under the terms of the agreement;

    (c) before 1996 pursuant to a restructuring of debt in connection with a proceeding commenced in a court in Canada before February 22, 1994;

    (d) before 1996 in connection with a proposal (or notice of intention to make a proposal) that was filed under the Bankruptcy and Insolvency Act, or similar legislation of a country other than Canada, before February 22, 1994; or

    (e) before 1996 in connection with a written offer that was made by, or communicated to, the holder of the obligation before February 22, 1994.

6. (1) Paragraph 20(1)(n) of the Act is replaced by the following:

Reserve for unpaid amounts

    (n) where an amount included in computing the taxpayer's income from the business for the year or for a preceding taxation year in respect of property sold in the course of the business is payable to the taxpayer after the end of the year and, except where the property is real property, all or part of the amount was, at the time of the sale, not due until at least 2 years after that time, a reasonable amount as a reserve in respect of such part of the amount as can reasonably be regarded as a portion of the profit from the sale;

(2) Subsection 20(1) of the Act is amended by adding the following after paragraph (hh):

Repayment of obligation

    (hh.1) 3/4 of any amount (other than an amount to which paragraph 14(10)(b) applies in respect of the taxpayer) repaid by the taxpayer in the year under a legal obligation to repay all or part of an amount to which paragraph 14(10)(c) applies in respect of the taxpayer;

(3) Subsection 20(1) of the Act is amended by striking out the word ``and'' at the end of paragraph (ss), by adding the word ``and'' at the end of paragraph (tt) and by adding the following after paragraph (tt):

Debt forgiveness

    (uu) any amount deducted in computing the taxpayer's income for the year because of paragraph 80(15)(a) or subsection 80.01(10).

(4) Subsections (1) and (3) apply to taxation years that end after February 21, 1994.

(5) Subsection (2) applies to amounts repaid after February 21, 1994.

7. (1) Paragraph 28(1)(d) of the Act is replaced by the following:

    (d) the total of all amounts each of which is an amount included in computing the taxpayer's income for the year from the business because of subsection 13(1), 14(1), 80(13) or (17) or 80.3(3) or (5),

(2) Paragraph 28(1)(g) of the Act is replaced by the following:

    (g) the total of all amounts each of which is an amount deducted for the year under paragraph 20(1)(a), (b) or (uu), subsection 20(16) or 24(1), section 30 or subsection 80.3(2) or (4) in respect of the business,

(3) Subsections (1) and (2) apply to taxation years that end after February 21, 1994.

8. (1) The portion of subsection 31(1) of the Act after paragraph (b) is repealed.

(2) Section 31 of the Act is amended by adding the following after subsection (1):

Restricted farm loss

(1.1) For the purposes of this Act, a taxpayer's ``restricted farm loss'' for a taxation year is the amount, if any, by which

    (a) the amount determined under subparagraph (1)(a)(i) in respect of the taxpayer for the year

exceeds

    (b) the total of the amount determined under subparagraph (1)(a)(ii) in respect of the taxpayer for the year and all amounts each of which is an amount by which the taxpayer's restricted farm loss for the year is required to be reduced because of section 80.

(3) Subsections (1) and (2) apply to taxation years that end after February 21, 1994.

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