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Bill C-70

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(7) Subsection 138(11) of the Act is repealed.

(8) The portion of subsection 138(11.3) of the Act before paragraph (a) is replaced by the following:

Deemed disposition

(11.3) Subject to subsection (11.31), and except for the purposes of paragraph 20(1)(l), the description of A in the definition ``undepreciated capital cost'' in subsection 13(21) and paragraph (b) of the description of F in that definition and any regulations made for the purpose of the definition ``property used by it in the year in, or held by it in the year in the course of'' in subsection (12), where a life insurer resident in Canada, or a non-resident insurer, that carries on an insurance business in Canada and in a country other than Canada, at any time,

(9) Subsection 138(11.3) of the Act is amended by adding the word ``or'' at the end of paragraph (a) and by repealing paragraphs (c) and (d).

(10) Section 138 of the Act is amended by adding the following after subsection (11.3):

Exclusion from deemed disposition

(11.31) Subsection (11.3) does not apply in respect of a change in use of a property of an insurer where subsection 142.5(2) deemed the insurer to have disposed of the property in the taxation year that ended immediately before the change in use.

(11) Subsection 138(11.4) of the Act is replaced by the following:

Deduction of loss

(11.4) Notwithstanding any other provision of this Act, where an insurer has a loss for a taxation year from the disposition, because of subsection (11.3), of a property other than a specified debt obligation (as defined in subsection 142.2(1)), and the loss would, but for this subsection, have been deductible in the year, the loss shall be deductible only in the taxation year in which the taxpayer disposes of the property otherwise than because of subsection (11.3).

(12) Subsection 138(11.41) of the Act is repealed.

(13) Paragraph 138(11.5)(e) of the Act is replaced by the following:

    (e) subject to paragraph (k.1), where the fair market value, at that time, of the consideration (other than shares of the capital stock of the transferee or a right to receive any such shares) received or receivable by the transferor for the transferred property does not exceed the total of the cost amounts to the transferor, at that time, of the transferred property, the proceeds of disposition of the transferor and the cost to the transferee of the transferred property shall be deemed to be the cost amount, at that time, to the transferor of the transferred property, and in any other case, the provisions of subsection 85(1) shall be applied in respect of the transfer,

(14) Paragraph 138(11.5)(k) of the Act is replaced by the following:

    (k) for the purposes of this section, sections 12, 12.3, 12.4, 20, 138.1, 140 and 142, subsections 142.5(5) and (7), paragraphs 142.4(4)(c) and (d), section 148 and Part XII.3, the transferee shall, in its taxation years following its taxation year referred to in paragraph (h), be deemed to be the same person as, and a continuation of, the transferor in respect of the business referred to in paragraph (a), the transferred property referred to in paragraph (b) and the obligations referred to in paragraph (c),

    (k.1) except for the purpose of this subsection, where the provisions of subsection 85(1) are not required to be applied in respect of the transfer,

      (i) the transferor shall be deemed not to have disposed of a transferred property that is a specified debt obligation (other than a mark-to-market property), and

      (ii) the transferee shall be deemed, in respect of a transferred property that is a specified debt obligation (other than a mark-to-market property), to be the same person as, and a continuation of, the transferor,

    and for the purpose of this paragraph, ``mark-to-market property'' and ``specified debt obligation'' have the meanings assigned by subsection 142.2(1),

    (k.2) for the purposes of subsections 112(5) to (5.2) and (5.4) and the definition ``mark-to-market property'' in subsection 142.2(1), the transferee shall be deemed, in respect of the transferred property, to be the same person as, and a continuation of, the transferor,

(15) The definitions ``Canada security'' and ``cost'' in subsection 138(12) of the Act are repealed.

(16) The first formula in the definition ``gross investment revenue'' in subsection 138(12) of the Act is replaced by the following:

A + B + C + D + E + F - G

(17) The description of A in the definition ``gross investment revenue'' in subsection 138(12) of the Act is replaced by the following:

    A is the total of the following amounts included in its gross revenue for the year:

        (a) taxable dividends, and

        (b) amounts received or receivable as, on account of, in lieu of or in satisfaction of, interest, rentals or royalties, other than amounts in respect of debt obligations to which subsection 142.3(1) applies for the year,

(18) The description of E in the definition ``gross investment revenue'' in subsection 138(12) of the Act is replaced by the following:

    E is the total of

      (a) all amounts required by paragraph 142.3(1)(a) to be included in computing its income for the year, and

      (b) all amounts required by subsection 12(3) or 20(14) to be included in computing its income for the year except to the extent that those amounts are included in the computation of A,

(19) The definition ``gross investment revenue'' in subsection 138(12) of the Act is amended by adding the word ``and'' at the end of the description of F and by adding the following after the description of F:

    G is the total of all amounts each of which is

        (a) an amount deemed by subparagraph 16(6)(a)(ii) to be paid by it in respect of the year as interest, or

        (b) an amount deductible under paragraph 142.3(1)(b) in computing its income for the year;

(20) Subsection 138(13) of the Act is replaced by the following:

Variation in ``tax basis'' and ``amortized cost''

(13) Where

    (a) in a taxation year that ended after 1968 and before 1978 an insurer carried on a life insurance business in Canada and an insurance business in a country other than Canada,

    (b) the insurer did not make an election in respect of the year under subsection 138(9) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it applied to that year, and

    (c) the ratio of the value for the year of the insurer's specified Canadian assets to its Canadian investment fund for the year exceeded one,

each of the amounts included or deducted as follows in respect of the year shall be multiplied by the ratio referred to in paragraph (c):

    (d) under paragraph (c), (d), (k) or (l) of the definition ``tax basis'' in subsection 142.4(1) in determining the tax basis of a debt obligation to the insurer, or

    (e) under paragraph (c), (d), (f) or (h) of the definition ``amortized cost'' in subsection 248(1) in determining the amortized cost of a debt obligation to the insurer.

(21) Subsections (1), (3), (7) and (15) apply to taxation years that begin after February 22, 1994 and

    (a) paragraph 138(3)(b) of the Act, as it applies to a taxation year that includes February 22, 1994, shall be read as follows:

    (b) the total of losses sustained in the year by the insurer in respect of Canada securities owned by it that were disposed of by it in the year and before February 23, 1994;

and

    (b) paragraph 138(4)(b) of the Act, as it applies to a taxation year that includes February 22, 1994, shall be read as follows:

    (b) the total of profits or gains made in the year by the insurer in respect of Canada securities owned by it that were disposed of by it in the year and before February 23, 1994; and

(22) Subsections (2), (4), (6), (17), (18) and (20) apply to taxation years that end after February 22, 1994.

(23) Subsection (5) applies to dispositions occurring after October 30, 1994, except the disposition of a debt obligation before July 1995 where

    (a) the disposition is part of a series of transactions or events that began before October 31, 1994;

    (b) as part of the series of transactions or events, the taxpayer who acquired the debt obligation disposed of property before October 31, 1994; and

    (c) it is reasonable to consider that one of the main reasons for the acquisition of the debt obligation by the taxpayer was to obtain a deduction because, as a consequence of the disposition referred to in paragraph (b),

      (i) an amount was included in the taxpayer's income for any taxation year, or

      (ii) an amount was subtracted from a balance of undeducted outlays, expenses or other amounts of the taxpayer and the subtracted amount exceeded the portion, if any, of the balance that could reasonably be considered to be in respect of the property.

(24) Subsections (8) and (10) apply to changes in use of property occurring in taxation years that begin after October 1994.

(25) Subsections (9) and (12) apply to changes in use of property occurring after February 22, 1994.

(26) Subsection (11) applies to property deemed by subsection 138(11.3) of the Act to be disposed of after 1994.

(27) Subsection (13) and paragraph 138(11.5)(k.1) of the Act, as enacted by subsection (14), apply to transfers of insurance businesses occurring after February 22, 1994.

(28) Paragraph 138(11.5)(k) of the Act, as enacted by subsection (14), applies to transfers of insurance businesses occurring after October 1994.

(29) Paragraph 138(11.5)(k.2) of the Act, as enacted by subsection (14), applies to transfers of insurance businesses occurring at any time (including, for greater certainty, transfers occurring before this Act is assented to).

(30) Subsections (16) and (19) apply to taxation years that end after October 16, 1991, except that, in its application to taxation years that end before February 23, 1994, the description of G in the definition ``gross investment revenue'' in subsection 138(12) of the Act, as enacted by subsection (19), shall be read as follows:

    G is the total of all amounts deemed by subparagraph 16(6)(a)(ii) to be paid by it in respect of the year as interest;

58. (1) The Act is amended by adding the following after section 142.1:

FINANCIAL INSTITUTIONS

Interpretation

Definitions

142.2 (1) In this section and sections 142.3 to 142.6,

``financial institution''
« institution financière »

``financial institution'' at any time means

      (a) a corporation that is, at that time,

        (i) a corporation referred to in any of paragraphs (a) to (e) of the definition ``restricted financial institution'' in subsection 248(1),

        (ii) an investment dealer, or

        (iii) a corporation controlled by one or more persons or partnerships each of which is a financial institution at that time, other than a corporation the control of which was acquired by reason of the default of a debtor where it is reasonable to consider that control is being retained solely for the purpose of minimizing any losses in respect of the debtor's default, and

      (b) a trust or partnership more than 50% of the fair market value of all interests in which are held at that time by one or more financial institutions,

    but does not include

      (c) a corporation that is, at that time,

        (i) an investment corporation,

        (ii) a mortgage investment corporation,

        (iii) a mutual fund corporation, or

        (iv) a deposit insurance corporation (as defined in subsection 137.1(5)),

      (d) a trust that is a mutual fund trust at that time, nor

      (e) a prescribed person or partnership;

``investment dealer''
« courtier en valeurs mobilières »

``investment dealer'' at any time means a corporation that is, at that time, a registered securities dealer;

``mark-to-mar ket property''
« bien évalué à la valeur du marché »

``mark-to-market property'' of a taxpayer for a taxation year means property held by the taxpayer in the year that is

      (a) a share,

      (b) where the taxpayer is not an investment dealer, a specified debt obligation that

        (i) was carried at fair market value in the taxpayer's financial statements

          (A) for the year, where the taxpayer held the obligation at the end of the year, and

          (B) for each preceding taxation year that ended after the taxpayer acquired the obligation, or

        (ii) was acquired and disposed of in the year, where it is reasonable to expect that the obligation would have been carried in the taxpayer's financial statements for the year at fair market value if the taxpayer had not disposed of the obligation,

      other than a specified debt obligation of the taxpayer that was (or would have been) carried at fair market value

        (iii) solely because its fair market value was less than its cost to the taxpayer, or

        (iv) because of a default of the debtor, and

      (c) where the taxpayer is an investment dealer, a specified debt obligation,

    but does not include

      (d) a share of a corporation in which the taxpayer has a significant interest at any time in the year, nor

      (e) a prescribed property;