Bill C-25

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	A - C
	(2) The definition ``farm loss'' in subsection 111(8) of the Act is amended by adding the word ``and'' at the end of the description of A and by repealing the description of B.
	(3) The first formula in the definition ``non-capital loss'' in subsection 111(8) of the Act is replaced by the following:
	(A + B) - (D + D.1 + D.2)
	(4) The description of C in the definition ``non-capital loss'' in subsection 111(8) of the Act is repealed.
	(5) Subsections (1) to (4) apply to the 1998 and subsequent taxation years.
	20. (1) Section 111.1 of the Act is replaced by the following:
Order of applying provisions	111.1 In computing an individual's taxable income for a taxation year, the provisions of this Division shall be applied in the following order: sections 110, 110.2 , 111, 110.6 and 110.7.
	(2) Subsection (1) applies to the 1998 and subsequent taxation years.
	21. (1) The Act is amended by adding the following after section 115.1:
	Non-Resident Funds with Canadian Service Providers
Definitions	115.2 (1) The definitions in this subsection apply in this section.
``Canadian service provider'' « fournisseur de services canadien »	``Canadian service provider'' means
	(a) a corporation resident in Canada;
	(b) a trust resident in Canada; or
	(c) a Canadian partnership.
``designated services'' « services déterminés »	``designated services'' provided to a fund in relation to qualified investments of the fund means any one or more of the following services:
	(a) investment management and advice with respect to qualified investments, regardless of whether the manager has discretionary authority to buy or sell;
	(b) purchasing qualified investments, exercising rights incidental to ownership of qualified investments such as voting, conversion, exchange and sale, and entering into and executing agreements with respect to such purchasing and the exercising of such rights; and
	(c) investment administration services with respect to qualified investments, such as having custody of investments, calculating and reporting investment values, executing investment transactions and transactions with investors in and beneficiaries of the fund, communicating with investors and beneficiaries, record-keeping, accounting, auditing, legal services and marketing.
``investment turnover rate'' « taux de rotation des capitaux »	``investment turnover rate'' of a fund for a year means the number determined by the formula
	(A - B)/C
	where
	A is the total amount received or receivable by the fund in respect of dispositions by it during the year of property (other than investments redeemed at maturity and investments redeemed unilaterally by their issuers),
	B is
	(a) in the case of a non-resident investment fund, the amount by which the amount paid by the fund during the year to fund investors in respect of either dispositions of property by the fund or the redemption or repurchase of interests in the fund exceeds the total amount of contributions invested in the fund by fund investors during the year, and
	(b) in the case of a non-resident pension fund, the amount by which the amount of benefits paid by the fund during the year exceeds the amount of contributions made to the fund during the year, and
	C is the average of all amounts each of which is the fair market value of all properties of the fund at a valuation time in the year, but in no case shall the interval between any two valuation times be less than 28 days or more than 31 days,
	and where all amounts are expressed in the currency in which the accounts of the fund are ordinarily prepared.
``non-resident investment fund'' « fonds de placement non-résident »	``non-resident investment fund'' means
	(a) a non-resident corporation,
	(b) a non-resident trust, or
	(c) a partnership no member of which is resident in Canada,
	the only undertaking of which is the investing of its funds in property.
``non-resident pension fund'' « caisse de retraite non-résidente »	``non-resident pension fund'' means a non-resident corporation or non-resident trust the principal purpose of which is to administer or provide benefits under one or more superannuation, pension or retirement funds or plans or one or more funds or plans established to provide employee benefits, provided that
	(a) at least 80% of the persons who, as a consequence of their current or past employment, are or may be entitled to benefits under such funds or plans are not resident in Canada; and
	(b) it is not reasonable to expect that any person will receive from the corporation or trust benefits the value of which exceeds 20% of the total value of property held by the corporation or trust.
``promoter'' « promoteur »	``promoter'' of a fund means a person or partnership that initiates or directs the founding, organization or substantial reorganization of the fund, or a person or partnership affiliated with such a person or partnership.
``qualified investment'' « placement admissible »	``qualified investment'' of a qualified non-resident fund means
	(a) a share of the capital stock of a corporation, or an interest in a partnership, trust, entity, fund or organization, other than a share or an interest
	(i) that is either
	(A) not listed on a prescribed stock exchange, or
	(B) listed on a prescribed stock exchange, if the qualified non-resident fund, together with all persons with whom the fund does not deal at arm's length, owns 25% or more of the issued shares of any class of the capital stock of the corporation or of the total value of interests in the partnership, entity, trust, fund or organization, as the case may be, and
	(ii) of which more than 50% of the fair market value is derived from one or more of
	(A) real property situated in Canada,
	(B) Canadian resource property, and
	(C) timber resource property;
	(b) indebtedness;
	(c) annuities;
	(d) commodities or commodities futures purchased or sold, directly or indirectly in any manner whatever, on a commodities or commodities futures exchange;
	(e) currency; and
	(f) options, interests, rights and forward and futures agreements in respect of property described in any of paragraphs (a) to (e) or this paragraph, and agreements under which obligations are derived from the price of property described in any of those paragraphs or from payments made in respect of such a property by its issuer to holders of the property, whether or not the agreement creates any rights in or obligations regarding the referenced property itself.
``qualified non-resident fund'' « fonds non-résident admissible »	``qualified non-resident fund'' means
	(a) a non-resident pension fund; or
	(b) a non-resident investment fund in which no particular person or partnership (other than a qualified non-resident fund) holds, directly or indirectly through one or more other holders of an interest in the fund, an interest the fair market value of which exceeds 20% of the total value of all interests in the fund and, for the purpose of this definition,
	(i) a particular person or partnership is deemed to hold each interest in the fund held by a person or partnership affiliated with the particular person or partnership, and
	(ii) a non-resident investment fund that was a qualified non-resident fund on the last day of its first fiscal period is deemed to be a qualified non-resident fund at any time during its first fiscal period that it was a non-resident investment fund.
Not carrying on business in Canada	(2) For the purposes of subsection 115(1) and Part XIV, a qualified non-resident fund is not considered to be carrying on business in Canada in a taxation year solely by reason of engaging a Canadian service provider to provide in Canada in the year designated services in relation to qualified investments of the fund if
	(a) the fund has not, at any time before the end of the year, directly or through its agents, directed any promotion of interests in the fund principally at, or sold such interests to, persons that the fund knew or ought to have known after reasonable inquiry were resident in Canada or partnerships that the fund knew or ought to have known after reasonable inquiry had members that were resident in Canada;
	(b) the fund has not, at any time before the end of the year, filed any document with a public authority in Canada in accordance with the securities legislation of Canada or of any province in order to permit the distribution of interests in the fund to persons resident in Canada; and
	(c) either
	(i) the Canadian service provider deals with the fund and the fund's promoters at arm's length throughout the year, or
	(ii) the fund's investment turnover rate for the year does not exceed three.
	(2) Subsection (1) applies to taxation years that end after 1998 except that, for taxation years that end before 2002, paragraph (a) of the definition ``non-resident pension fund'' in subsection 115.2(1) of the Act, as enacted by subsection (1), shall be read as follows:
	(a) either
	(i) such funds or plans principally relate to duties of employment performed outside Canada, or
	(ii) at least 80% of the persons who, as a consequence of their current or past employment, are or may be entitled to benefits under such funds or plans are not resident in Canada; and
	22. (1) Subsection 117(1) of the Act is replaced by the following:
Tax payable under this Part	117. (1) For the purposes of this Division, except section 120 (other than subparagraph (a)(ii) of the definition ``tax otherwise payable under this Part'' in subsection 120(4)), tax payable under this Part, tax otherwise payable under this Part and tax under this Part shall be computed as if this Part were read without reference to Division E.1.
	(2) Subsection 117(6) of the Act is repealed.
	(3) Subsections (1) and (2) apply to the 1998 and subsequent taxation years except that, in its application to the 1998 and 1999 taxation years, the reference to ``subparagraph (a)(ii)'' in subsection 117(1) of the Act, as enacted by subsection (1), shall be read as a reference to ``paragraph (b)''.
	23. (1) The portion of subsection 117.1(1) of the Act before subparagraph (d)(ii) is replaced by the following:
Annual adjustment	117.1 (1) Each of the amounts expressed in dollars in subsection 117(2), the description of B in subsection 118(1), subsections 118(2), 118.2(1), 118.3(1), 122.5(3) and 122.51(1) and (2) and Part I.2 in relation to tax payable under this Part or Part I.2 for a taxation year shall be adjusted so that the amount to be used under those provisions for the year is the total of
	(a ) the amount that would, but for subsection (3), be the amount to be used under those provisions for the preceding taxation year, and
	(b ) the product obtained by multiplying
	(i) the amount referred to in paragraph (a )
	by
	(2) Subsection 117.1(2) of the Act is repealed.
	(3) Subsection (1) applies to the 2001 and subsequent taxation years.
	(4) Subsection (2) applies to the 1999 and subsequent taxation years.
	24. (1) Subparagraphs (a)(i) and (ii) of the description of B in subsection 118(1) of the Act are replaced by the following:
	(i) $7,131 , and
	(ii) the amount determined by the formula
	$6,055 - (C - $606 )
	where
	C is the greater of $606 and the income of the individual's spouse for the year or, where the individual and the individual's spouse are living separate and apart at the end of the year because of a breakdown of their marriage, the spouse's income for the year while married and not so separated,
	(2) Subparagraphs (b)(iii) and (iv) of the description of B in subsection 118(1) of the Act are replaced by the following:
	(iii) $7,131 , and
	(iv) the amount determined by the formula
	$6,055 - (D - $606 )
	where
	D is the greater of $606 and the dependent person's income for the year,
	(3) The portion of paragraph (b.1) of the description of B in subsection 118(1) of the Act before subparagraph (i) is replaced by the following:
Supplemen- tary amount	(b.1) for each individual (otherl than a trust), 1/2 of the amount, if any, by which the total of
	(4) Paragraph (b.1) of the description of B in subsection 118(1) of the Act is repealed.

Bill C-25

Non-Resident Funds with Canadian Service Providers