Bill C-43

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First Reading

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	2nd Session, 36th Parliament, 48-49 Elizabeth II, 1999-2000
	The House of Commons of Canada
	BILL C-43
	An Act to amend the Income Tax Act, the Income Tax Application Rules and certain Acts related to the Income Tax Act
	Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:
	PART 1
R.S., c. 1 (5th Supp.)	INCOME TAX ACT
	*1. (1) Paragraph 7(1.4)(a) of the Income Tax Act* is replaced by the following:**
	(a) a taxpayer disposes of rights under an agreement referred to in subsection (1) or (1.1) to acquire securities of a particular qualifying person that made the agreement or of a qualifying person with which it does not deal at arm's length (which rights and securities are referred to in this subsection as the ``exchanged option'' and the ``old securities'', respectively),
	(2) Section 7 of the Act is amended by adding the following after subsection (1.5):
Emigrant	(1.6) For the purposes of this section and paragraph 110(1)(d.1), a taxpayer is deemed not to have disposed of a share solely because of subsection 128.1(4).
	(3) Subsection (1) applies to the 1998 and subsequent taxation years.
	(4) Subsection (2) applies after 1992.
	2. (1) Paragraph 8(1)(a) of the Act is repealed.
	(2) Subsection 8(10) of the Act is replaced by the following:
Certificate of employer	(10) An amount otherwise deductible for a taxation year under paragraph (1)(f), (h) or (h.1) or subparagraph (1)(i)(ii) or (iii) by a taxpayer shall not be deducted unless a prescribed form signed by the taxpayer's employer certifying that the conditions set out in that paragraph or subparagraph, as the case may be, were met in the year in respect of the taxpayer is filed with the taxpayer's return of income for the year.
	(3) Subsections (1) and (2) apply to the 1998 and subsequent taxation years.
	3. (1) Section 10 of the Act is amended by adding the following after subsection (11):
Removing property from inventory	(12) If at any time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer in Canada immediately before that time, a property that was immediately before that time described in the inventory of the business or the part of the business, as the case may be, (other than a property that was disposed of by the taxpayer at that time), the taxpayer is deemed
	(a) to have disposed of the property immediately before that time for proceeds of disposition equal to its fair market value at that time; and
	(b) to have received those proceeds immediately before that time in the course of carrying on the business or the part of the business, as the case may be.
Adding property to inventory	(13) If at any time a property becomes included in the inventory of a business or part of a business that a non-resident taxpayer carries on in Canada after that time (other than a property that was, otherwise than because of this subsection, acquired by the taxpayer at that time), the taxpayer is deemed to have acquired the property at that time at a cost equal to its fair market value at that time.
Work in progress	(14) For the purposes of subsections (12) and (13), property that is included in the inventory of a business includes property that would be so included if paragraph 34(a) did not apply.
	(2) Subsection (1) applies after December 23, 1998.
	4. (1) Paragraph 12(1)(c) of the Act is replaced by the following:
Interest	(c) subject to subsections (3) and (4.1 ), any amount received or receivable by the taxpayer in the year (depending on the method regularly followed by the taxpayer in computing the taxpayer's income) as, on account of, in lieu of payment of or in satisfaction of, interest to the extent that the interest was not included in computing the taxpayer's income for a preceding taxation year;
	(2) Subsection (1) applies to taxation years that end after September 1997.
	5. (1) The definition ``disposition of property'' in subsection 13(21) of the Act is repealed.
	(2) Paragraph 13(21.2)(a) of the Act is replaced by the following:
	(a) a person or partnership (in this subsection referred to as the ``transferor'') disposes at a particular time (otherwise than in a disposition described in any of paragraphs (c) to (g) of the definition ``superficial loss'' in section 54) of a depreciable property of a particular prescribed class of the transferor,
	(3) Subparagraph 13(21.2)(e)(ii) of the Act is replaced by the following:
	(ii) where two or more properties of a prescribed class of the transferor are disposed of at the same time, subparagraph (i) applies as if each property so disposed of had been separately disposed of in the order designated by the transferor or, if the transferor does not designate an order, in the order designated by the Minister,
	(4) Subsection (1) applies to transactions and events that occur after December 23, 1998.
	(5) Subsections (2) and (3) apply after November 1999 except that, if an individual (other than a trust) so elects in writing and files the election with the Minister of National Revenue on or before the individual's filing-due date for the taxation year in which this Act receives royal assent, subsection (2) does not apply in respect of the disposition of a property by the individual before July 2000
	(a) to a person who was obliged on November 30, 1999 to acquire the property pursuant to the terms of an agreement in writing made on or before that day; or
	(b) in a transaction, or as part of a series of transactions, the arrangements for which, evidenced in writing, were substantially advanced before December 1999, other than a transaction or series of transactions a main purpose of which can reasonably be considered to have been to enable an unrelated person to obtain the benefit of
	(i) any deduction in computing income, taxable income, taxable income earned in Canada or tax payable under the Act, or
	(ii) any balance of undeducted outlays, expenses or other amounts.
	6. (1) Section 17 of the Act is amended by adding the following after subsection (11):
Determina- tion of whether persons related	(11.1) For the purpose of this section, in determining whether persons are related to each other at any time, any rights referred to in subparagraph 251(5)(b)(i) that exist at that time are deemed not to exist at that time to the extent that the exercise of those rights is prohibited at that time under a law, of the country under the law of which the corporation was formed or last continued and is governed, that restricts the foreign ownership or control of the corporation.
Back-to-back loans	(11.2) For the purposes of paragraph (3)(b), where a non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the ``intermediate lender'') makes a loan to a non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the ``intended borrower'') because the intermediate lender received a loan from another non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the ``initial lender''), the loan that was made by the intermediate lender to the intended borrower is deemed to have been made by the initial lender (and not by the intermediate lender) to the intended borrower (to the extent of the lesser of the amount of the loan made by the initial lender to the intermediate lender and the amount of the loan made by the intermediate lender to the intended borrower) under the same terms and conditions and at the same time as it was made by the intermediate lender.
	(2) The definition ``exempt loan or transfer'' in subsection 17(15) of the Act is replaced by the following:
``exempt loan or transfer'' « prêt ou transfert de biens exclu »	``exempt loan or transfer'' means
	(a ) a loan or transfer of property made by a corporation to a person or partnership where
	(i ) at the time of the loan or transfer, the corporation was not related to the person or to any member of the partnership, as the case may be,
	(ii ) the loan or transfer of property was not part of a series of transactions or events at the end of which the corporation was related to the person or to any member of the partnership, as the case may be, and
	(iii ) the terms and conditions of the loan or transfer (determined without reference to any other loan or transfer of property to either a person related to the corporation or to a partnership any member of which was related to the corporation) are such that persons dealing at arm's length would have been willing to enter into them at the time that they were entered into;
	(b) a dividend paid by a corporation resident in Canada on shares of a class of its capital stock; and
	(c) a payment made by a corporation resident in Canada on a reduction of the paid-up capital in respect of shares of a class of its capital stock (not exceeding the total amount of the reduction).
	(3) Subsections (1) and (2) apply to taxation years that begin after February 23, 1998.
	7. (1) Subparagraph 18(9)(a)(ii) of the Act is replaced by the following:
	(ii) as, on account of , in lieu of payment of or in satisfaction of, interest, taxes (other than taxes imposed on an insurer in respect of insurance premiums of a non-cancellable or guaranteed renewable accident and sickness insurance policy, or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less) , rent or royalties in respect of a period that is after the end of the year, or
	(2) Section 18 of the Act is amended by adding the following after subsection (9.01):
Application of subsection (9) to insurers	(9.02) For the purpose of subsection (9), an outlay or expense made or incurred by an insurer on account of the acquisition of an insurance policy (other than a non-cancellable or guaranteed renewable accident and sickness insurance policy or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less) is deemed to be an expense incurred as consideration for services rendered consistently throughout the period of coverage of the policy.
	(3) Subsections (1) and (2) apply to taxation years that begin after 1999 except that, where a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer's filing-due date for the taxpayer's taxation year in which this Act receives royal assent, they apply to taxation years that end after 1997.
	8. (1) Subsection 18.1(15) of the Act is replaced by the following:
Non- applicability of section 18.1	(15) Subject to subsections (1) and (14), this section does not apply to a taxpayer's matchable expenditure in respect of a right to receive production if
	(a) no portion of the expenditure can reasonably be considered to have been paid to another taxpayer, or to a person with whom the other taxpayer does not deal at arm's length, to acquire the right from the other taxpayer and
	(i) the taxpayer's expenditure cannot reasonably be considered to relate to a tax shelter or tax shelter investment (as defined in section 143.2) and none of the main purposes for making the expenditure is that the taxpayer, or a person with whom the taxpayer does not deal at arm's length, obtain a tax benefit, or
	(ii) before the end of the taxation year in which the expenditure is made, the total of all amounts each of which is included in computing the taxpayer's income for the year (other than any portion of such an amount that is the subject of a reserve claimed by the taxpayer for the year under this Act) in respect of the right to receive production to which the matchable expenditure relates exceeds 80% of the expenditure; or
	(b) the expenditure is in respect of commissions or other expenses related to the issuance of an insurance policy for which all or a portion of a risk has been ceded to the taxpayer (in this paragraph referred to as the ``reinsurer'') and both the reinsurer and the person to whom the expenditure is made or is to be made are insurers subject to the supervision of
	(i) the Superintendent of Financial Institutions, in the case of an insurer that is required by law to report to the Superintendent of Financial Institutions, or
	(ii) in any other case, the Superintendent of Insurance or other similar officer or authority of the province under whose laws the insurer is incorporated.
	(2) Subsection (1) applies to expenditures made after November 17, 1996.
	9. (1) The portion of subsection 19(1) of the Act before subparagraph (b)(i) is replaced by the following:
Limitation re advertising expense - newspapers	19. (1) In computing income, no deduction shall be made in respect of an otherwise deductible outlay or expense of a taxpayer for advertising space in an issue of a newspaper for an advertisement directed primarily to a market in Canada unless
	(a) the issue is a Canadian issue of a Canadian newspaper; or
	(b) the issue is an issue of a newspaper that would be a Canadian issue of a Canadian newspaper except that
	(2) The definition ``substantially the same'' in subsection 19(5) of the Act is repealed.
	(3) The definition ``Canadian issue'' in subsection 19(5) of the Act is replaced by the following:
``Canadian issue'' « édition canadienne »	``Canadian issue'' of a newspaper means an issue, including a special issue ,
	(a ) the type of which, other than the type for advertisements or features, is set in Canada,
	(b ) all of which, exclusive of any comics supplement, is printed in Canada,
	(c ) that is edited in Canada by individuals resident in Canada, and
	(d ) that is published in Canada;
	(4) The portion of the definition ``Canadian newspaper or periodical'' in subsection 19(5) of the Act before paragraph (a) is replaced by the following:
``Canadian newspaper'' « journal canadien »	``Canadian newspaper'' means a newspaper the exclusive right to produce and publish issues of which is held by one or more of the following:
	(5) Section 19 of the Act is amended by adding the following after subsection (5):
Interpreta- tion	(5.1) In this section, each of the following is deemed to be a Canadian citizen:
	(a) a trust or corporation described in paragraph 149(1)(o) or (o.1) formed in connection with a pension plan that exists for the benefit of individuals a majority of whom are Canadian citizens;
	(b) a trust described in paragraph 149(1)(r) or (x), the annuitant in respect of which is a Canadian citizen;
	(c) a mutual fund trust, within the meaning assigned by subsection 132(6), other than a mutual fund trust the majority of the units of which are held by citizens or subjects of a country other than Canada;
	(d) a trust, each beneficiary of which is a person, partnership, association or society described in any of paragraphs (a) to (e) of the definition ``Canadian newspaper'' in subsection (5); and
	(e) a person, association or society described in paragraph (c) or (d) of the definition ``Canadian newspaper'' in subsection (5).
	(6) Subsections 19(6) to (8) of the Act are replaced by the following:
Trust property	(6) Where the right that is held by any person, partnership, association or society described in the definition ``Canadian newspaper'' in subsection (5) to produce and publish issues of a newspaper is held as property of a trust or estate, the newspaper is not a Canadian newspaper unless each beneficiary under the trust or estate is a person, partnership, association or society described in that definition.
Grace period	(7) A Canadian newspaper that would, but for this subsection , cease to be a Canadian newspaper, is deemed to continue to be a Canadian newspaper until the end of the 12th month that follows the month in which it would, but for this subsection, have ceased to be a Canadian newspaper.

Bill C-43

BILL C-43

PART 1

INCOME TAX ACT