Bill C-36

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Royal Assent

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	45 ELIZABETH II
	CHAPTER 21
	An Act to amend the Income Tax Act, the Excise Act, the Excise Tax Act, the Office of the Superintendent of Financial Institutions Act, the Old Age Security Act and the Canada Shipping Act
	[Assented to 20th June, 1996]
	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 Budget Amendment Act.
	PART I
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	INCOME TAX ACT
	*2. (1) Subsection 4(4) of the Income Tax Act* is repealed.**
	(2) Subsection (1) applies to taxation years that end after July 19, 1995.
	3. (1) Subsection 11(1) of the Act is replaced by the following:
Proprietor of business	11. (1) Subject to sections 34.1 and 34.2, where an individual is a proprietor of a business, the individual's income from the business for a taxation year is deemed to be the individual's income from the business for the fiscal periods of the business that end in the year.
	(2) Subsection (1) applies to the 1995 and subsequent taxation years.
	4. (1) Subparagraph 12(1)(x)(vi) of the Act is replaced by the following:
	(vi) except as provided by subsection 127(11.1), (11.5) or (11.6), does not reduce, for the purpose of an assessment made or that may be made under this Act, the cost or capital cost of the property or the amount of the outlay or expense, as the case may be,
	(2) Subsection (1) applies to taxation years that begin after 1995.
	5. (1) Subsection 18(9) of the Act is amended by striking out the word ``and'' at the end of paragraph (c) and by replacing paragraph (d) with the following:
	(d) for the purpose of paragraph (a), an outlay or expense of a taxpayer is deemed not to include any payment referred to in subparagraph 37(1)(a)(ii) or (iii) that
	(i) is made by the taxpayer to a person or partnership with which the taxpayer deals at arm's length, and
	(ii) is not an expenditure described in subparagraph 37(1)(a)(i); and
	(e) for the purposes of section 37 and the definition ``qualified expenditure'' in subsection 127(9), the portion of an expenditure that is made or incurred by a taxpayer in a taxation year and that would, but for paragraph (a), have been deductible under section 37 in computing the taxpayer's income for the year, is deemed
	(i) not to be made or incurred by the taxpayer in the year, and
	(ii) to be made or incurred by the taxpayer in the subsequent taxation year to which the expenditure can reasonably be considered to relate.
	(2) Paragraph 18(12)(b) of the Act is replaced by the following:
	(b) where the conditions set out in subparagraph (a)(i) or (ii) are met, the amount for the work space that is deductible in computing the individual's income for the year from the business shall not exceed the individual's income for the year from the business, computed without reference to the amount and sections 34.1 and 34.2; and
	(3) Paragraph 18(9)(d) of the Act, as enacted by subsection (1), applies to payments made after 1995.
	(4) Paragraph 18(9)(e) of the Act, as enacted by subsection (1), applies to expenditures made or incurred at any time.
	(5) Subsection (2) applies to the 1995 and subsequent taxation years.
	6. (1) Section 24.1 of the Act is repealed.
	(2) Subsection (1) applies to appointments made after 1995.
	7. (1) Subsection 25(1) of the Act is replaced by the following:
Fiscal period of business disposed of by individual	25. (1) Where an individual was the proprietor of a business and disposed of it during a fiscal period of the business, the fiscal period may, if the individual so elects and subsection 249.1(4) does not apply in respect of the business, be deemed to have ended at the time it would have ended if the individual had not disposed of the business during the fiscal period.
	(2) Subsection (1) applies to fiscal periods that begin after 1994.
	8. (1) The Act is amended by adding the following after section 34:
Additional business income	34.1 (1) Where
	(a) an individual (other than a testamentary trust) carries on a business in a taxation year,
	(b) a fiscal period of the business begins in the year and ends after the end of the year (in this subsection referred to as the ``particular period''), and
	(c) the individual has elected under subsection 249.1(4) in respect of the business and the election has not been revoked,
	there shall be included in computing the individual's income for the year from the business, the amount determined by the formula
	(A - B) x C D
	where
	A is the total of the individual's income from the business for the fiscal periods of the business that end in the year,
	B is the lesser of
	(i) the total of all amounts each of which is an amount included in the value of A in respect of the business and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
	(ii) the total of all amounts deducted under section 110.6 in computing the individual's taxable income for the year,
	C is the number of days on which the individual carries on the business that are both in the year and in the particular period, and
	D is the number of days on which the individual carries on the business that are in fiscal periods of the business that end in the year.
Additional income election	(2) Where
	(a) an individual (other than a testamentary trust) begins carrying on a business in a taxation year and not earlier than the beginning of the first fiscal period of the business that begins in the year and ends after the end of the year (in this subsection referred to as the ``particular period''), and
	(b) the individual has elected under subsection 249.1(4) in respect of the business and the election has not been revoked,
	there shall be included in computing the individual's income for the year from the business the lesser of
	(c) the amount designated in the individual's return of income for the year, and
	(d) the amount determined by the formula
	(A - B) x C D
	where
	A is the individual's income from the business for the particular period,
	B is the lesser of
	(i) the total of all amounts each of which is an amount included in the value of A in respect of the business and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
	(ii) the total of all amounts deducted under section 110.6 in computing the individual's taxable income for the taxation year that includes the end of the particular period,
	C is the number of days on which the individual carries on the business that are both in the year and in the particular period, and
	D is the number of days on which the individual carries on the business that are in the particular period.
Deduction	(3) There shall be deducted in computing an individual's income for a taxation year from a business the amount, if any, included under subsection (1) or (2) in computing the individual's income for the preceding taxation year from the business.
Deemed December 31, 1995 income	(4) For the purpose of section 34.2, where
	(a) at the end of 1994 an individual carried on a particular business no fiscal period of which ended at that time, and
	(b) an amount is included under subsection (1) in computing the individual's income for the 1995 taxation year in respect of
	(i) the particular business, or
	(ii) another business that would, if subsection 34.2(3) applied for the purpose of this subparagraph, be included in the particular business,
	subject to subsection (7), the December 31, 1995 income of the individual in respect of the particular business or the other business, as the case may be, is deemed to be the amount that would have been so included if the descriptions of A and B in subsection (1) were read as follows:
	``A is the total of the individual's income from the business for the fiscal periods of the business that end in the year (determined as if paragraphs 34.2(2)(a) to (d) applied in computing that income),
	B is the lesser of
	(i) the total of all amounts each of which is an amount included in the value of A in respect of the business and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
	(ii) the total of the maximum amounts deductible under section 110.6 in computing the individual's taxable income for the year,''.
Deemed December 31, 1995 income	(5) For the purpose of section 34.2, where
	(a) at the end of 1994 an individual carried on a particular business no fiscal period of which ended at that time, and
	(b) an amount is included under subsection (2) in computing the individual's income for the 1995 taxation year in respect of another business that would, if subsection 34.2(3) applied for the purpose of this paragraph, be included in the particular business,
	the December 31, 1995 income of the individual in respect of the other business is deemed to be the amount that would have been so included if the descriptions of A and B in paragraph (2)(d) were read as follows:
	``A is the individual's income from the business for the particular period (determined as if paragraphs 34.2(2)(a) to (d) applied in computing that income),
	B is the lesser of
	(i) the total of all amounts each of which is an amount included in the value of A in respect of the business and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
	(ii) the total of the maximum amounts deductible under section 110.6 in computing the individual's taxable income for the taxation year that includes the end of the particular period,''.
Deemed December 31, 1995 income	(6) For the purpose of section 34.2, where
	(a) at the end of 1995 an individual carries on a business as a member of a partnership no fiscal period of which ended at the end of 1994,
	(b) the business was carried on by a professional corporation as a member of the partnership at the end of 1994,
	(c) the professional corporation transferred its interest in the partnership to the individual before the end of 1995,
	(d) the individual is a practising member of the professional body under the authority of which the professional corporation practised the profession,
	(e) the individual was a specified shareholder of the professional corporation immediately before the transfer,
	(f) the professional corporation does not have a share of the income or loss of the partnership for the first fiscal period of the partnership that ends after the end of 1995, and
	(g) an amount is included under subsection (2) in computing the individual's income for the 1995 taxation year in respect of the business,
	the December 31, 1995 income of the individual in respect of the business is deemed to be the amount that would have been so included if the descriptions of A and B in paragraph (2)(d) were read as follows:
	``A is the individual's income from the business for the particular period (determined as if paragraphs 34.2(2)(a) to (d) applied in computing that income),
	B is the lesser of
	(i) the total of all amounts each of which is an amount included in the value of A in respect of the business and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
	(ii) the total of the maximum amounts deductible under section 110.6 in computing the individual's taxable income for the taxation year that includes the end of the particular period,''
	and, for the purpose of computing the values of C and D in paragraph (2)(d), the individual is deemed to carry on the business on the days on which the corporation carried on the business.
Maximum December 31, 1995 income	(7) Where an amount was included under subsection (1) in computing an individual's income for the 1995 taxation year from a business and
	(a) the individual's December 31, 1995 income otherwise determined under subsection (4) in respect of the business for the purpose of section 34.2

Bill C-36

45 ELIZABETH II

CHAPTER 21

SHORT TITLE

PART I

INCOME TAX ACT