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1st Session, 37th Parliament,
49-50 Elizabeth II, 2001
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House of Commons of Canada
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BILL C-22
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An Act to amend the Income Tax Act, the
Income Tax Application Rules, certain
Acts related to the Income Tax Act, the
Canada Pension Plan, the Customs Act,
the Excise Tax Act, the Modernization of
Benefits and Obligations Act and another
Act related to the Excise Tax Act
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Her Majesty, by and with the advice and
consent of the Senate and House of Commons
of Canada, enacts as follows:
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| Short title
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1. This Act may be cited as the Income Tax
Amendments Act, 2000.
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| R.S., c. 1 (5th
Supp.)
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2. (1) The portion of subsection 7(1) of the
Income Tax Act before paragraph (a) is
replaced by the following:
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| Agreement to
issue
securities to
employees
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7. (1) Subject to subsections (1.1) and (8) ,
where a particular qualifying person has
agreed to sell or issue securities of the
particular qualifying person (or of a qualifying
person with which it does not deal at arm's
length) to an employee of the particular
qualifying person (or of a qualifying person
with which the particular qualifying person
does not deal at arm's length),
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(2) Subsection 7(1.3) of the Act is
replaced by the following:
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| Order of
disposition of
securities
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(1.3) For the purposes of this subsection,
subsections (1.1) and (8), subdivision c,
paragraph 110(1)(d.01), subparagraph
110(1)(d.1)(ii) and subsections 110(2.1) and
147(10.4), and subject to subsection (1.31)
and paragraph (14)(c) , a taxpayer is deemed
to dispose of securities that are identical
properties in the order in which the taxpayer
acquired them and, for this purpose ,
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(a) where a taxpayer acquires a particular
security (other than under circumstances to
which subsection (1.1) or (8) or 147(10.1)
applies) at a time when the taxpayer also
acquires or holds one or more other
securities that are identical to the particular
security and are, or were, acquired under
circumstances to which any of subsections
(1.1), (8) or 147(10.1) applied, the taxpayer
is deemed to have acquired the particular
security at the time immediately preceding
the earliest of the times at which the
taxpayer acquired those other securities;
and
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(b) where a taxpayer acquires, at the same
time, two or more identical securities under
circumstances to which either subsection
(1.1) or (8) applied, the taxpayer is deemed
to have acquired the securities in the order
in which the agreements under which the
taxpayer acquired the rights to acquire the
securities were made.
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| Disposition of
newly-acquire
d security
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(1.31) Where a taxpayer acquires, at a
particular time, a particular security under an
agreement referred to in subsection (1) and, on
a day that is no later than 30 days after the day
that includes the particular time, the taxpayer
disposes of a security that is identical to the
particular security, the particular security is
deemed to be the security that is so disposed
of if
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(a) no other securities that are identical to
the particular security are acquired, or
disposed of, by the taxpayer after the
particular time and before the disposition;
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(b) the taxpayer identifies the particular
security as the security so disposed of in the
taxpayer's return of income under this Part
for the year in which the disposition occurs;
and
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(c) the taxpayer has not so identified the
particular security, in accordance with this
subsection, in connection with the
disposition of any other security.
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(3) Paragraph 7(1.4)(a) of the Act is
replaced by the following:
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(a) a taxpayer disposes of rights under an
agreement referred to in subsection (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),
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(4) Paragraph 7(1.4)(d) of the Act is
replaced by the following:
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(d) the taxpayer is deemed (other than for
the purposes of subparagraph (9)(d)(ii)) not
to have disposed of the exchanged option
and not to have acquired the new option,
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(5) Subsection 7(1.5) of the Act is
replaced by the following:
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| Rules where
securities
exchanged
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(1.5) For the purposes of this section and
paragraphs 110(1)(d) to (d.1), where
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(a) a taxpayer disposes of or exchanges
securities of a particular qualifying person
that were acquired by the taxpayer under
circumstances to which either subsection
(1.1) or (8) applied (in this subsection
referred to as the ``exchanged securities ''),
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(b) the taxpayer receives no consideration
for the disposition or exchange of the
exchanged securities other than securities
(in this subsection referred to as the ``new
securities '') of
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(i) the particular qualifying person ,
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(ii) a qualifying person with which the
particular qualifying person does not
deal at arm's length immediately after
the disposition or exchange,
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(iii) a corporation formed on the
amalgamation or merger of the particular
qualifying person and one or more other
corporations,
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(iv) a mutual fund trust to which the
particular qualifying person has
transferred property in circumstances to
which subsection 132.2(1) applied , or
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(v) a qualifying person with which the
corporation referred to in subparagraph
(iii) does not deal at arm's length
immediately after the disposition or
exchange, and
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(c) the total value of the new securities
immediately after the disposition or
exchange does not exceed the total value of
the old securities immediately before the
disposition or exchange,
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the following rules apply:
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(d) the taxpayer is deemed not to have
disposed of or exchanged the exchanged
securities and not to have acquired the new
securities ,
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(e) the new securities are deemed to be the
same securities as, and a continuation of,
the exchanged securities, except for the
purpose of determining if the new securities
are identical to any other securities ,
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(f) the qualifying person that issued the new
securities is deemed to be the same person
as, and a continuation of, the qualifying
person that issued the exchanged
securities , and
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(g) where the exchanged securities were
issued under an agreement, the new
securities are deemed to have been issued
under that agreement.
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| Emigrant
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(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 acquired under
circumstances to which subsection (1.1)
applied solely because of subsection 128.1(4).
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| Rights ceasing
to be
exercisable
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(1.7) For the purposes of paragraphs (1)(b)
and 110(1)(d), where a taxpayer receives at a
particular time one or more particular
amounts in respect of rights of the taxpayer to
acquire securities under an agreement referred
to in subsection (1) ceasing to be exercisable
in accordance with the terms of the agreement,
and the cessation would not, if this Act were
read without reference to this subsection,
constitute a transfer or disposition of those
rights by the taxpayer,
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(a) the taxpayer is deemed to have disposed
of those rights at the particular time to a
person with whom the taxpayer was dealing
at arm's length and to have received the
particular amounts as consideration for the
disposition; and
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(b) for the purpose of determining the
amount, if any, of the benefit that the
taxpayer is deemed by paragraph (1)(b) to
have received as a consequence of the
disposition referred to in paragraph (a), the
taxpayer is deemed to have paid an amount
to acquire those rights equal to the amount,
if any, by which
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(i) the amount paid by the taxpayer to
acquire those rights (determined without
reference to this subsection)
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(ii) the total of all amounts each of which
is an amount received by the taxpayer
before the particular time in respect of
the cessation.
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(6) The portion of subsection 7(2) of the
Act before paragraph (a) is replaced by the
following:
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| Securities
held by
trustee
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(2) If a security is held by a trustee in trust
or otherwise, whether absolutely,
conditionally or contingently, for an
employee, the employee is deemed, for the
purposes of this section and paragraphs
110(1)(d) to (d.1),
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(7) The portion of paragraph 7(6)(a) of
the Act before subparagraph (i) is replaced
by the following:
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(a) for the purposes of this section (other
than subsection (2)) and paragraphs
110(1)(d) to (d.1),
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(8) The portion of subsection 7(7) of the
Act before the definition ``qualifying
person'' is replaced by the following:
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| Definitions
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(7) The definitions in this subsection apply
in this section and in subsection 47(3),
paragraphs 53(1)(j) , 110(1)(d) and (d.01) and
subsections 110(1.5), (1.6) and (2.1) .
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(9) Section 7 of the Act is amended by
adding the following after subsection (7):
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| Deferral in
respect of
non-CCPC
employee
options
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(8) Where a particular qualifying person
(other than a Canadian-controlled private
corporation) has agreed to sell or issue
securities of the particular qualifying person
(or of a qualifying person with which it does
not deal at arm's length) to a taxpayer who is
an employee of the particular qualifying
person (or of a qualifying person with which
the particular qualifying person does not deal
at arm's length), in applying paragraph (1)(a)
in respect of the taxpayer's acquisition of a
security under the agreement, the reference in
that paragraph to ``the taxation year in which
the employee acquired the securities'' shall be
read as a reference to ``the taxation year in
which the employee disposed of or exchanged
the securities'' if
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(a) the acquisition is a qualifying
acquisition; and
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(b) the taxpayer elects, in accordance with
subsection (10), to have this subsection
apply in respect of the acquisition.
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| Meaning of
``qualifying
acquisition''
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(9) For the purpose of subsection (8), a
taxpayer's acquisition of a security under an
agreement made by a particular qualifying
person is a qualifying acquisition if
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(a) the acquisition occurs after February 27,
2000;
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(b) the taxpayer would, if this Act were read
without reference to subsection (8), be
entitled to deduct an amount under
paragraph 110(1)(d) in respect of the
acquisition in computing income for the
taxation year in which the security is
acquired;
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(c) where the particular qualifying person is
a corporation, the taxpayer was not, at the
time immediately after the agreement was
made, a person who would, if the references
in the portion of the definition ``specified
shareholder'' in subsection 248(1) before
paragraph (a) to ``in a taxation year'' and
``at any time in the year'' were read as
references to ``at any time'' and ``at that
time'', respectively, be a specified
shareholder of any of
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(i) the particular qualifying person,
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(ii) any qualifying person that, at that
time, was an employer of the taxpayer
and was not dealing at arm's length with
the particular qualifying person, and
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(iii) the qualifying person of which the
taxpayer had, under the agreement, a
right to acquire a security; and
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(d) where the security is a share,
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(i) it is of a class of shares that, at the time
the acquisition occurs, is listed on a
prescribed stock exchange, and
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(ii) where rights under the agreement
were acquired by the taxpayer as a result
of one or more dispositions to which
subsection (1.4) applied, none of the
rights that were the subject of any of the
dispositions included a right to acquire a
share of a class of shares that, at the time
the rights were disposed of, was not listed
on any prescribed stock exchange.
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| Election for
the purpose of
subsection (8)
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(10) For the purpose of subsection (8), a
taxpayer's election to have that subsection
apply in respect of the taxpayer's acquisition
of a particular security under an agreement
referred to in subsection (1) is in accordance
with this subsection if
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(a) the election is filed, in the prescribed
form and manner at a particular time that is
before January 16 of the year following the
year in which the acquisition occurs, with a
person who would be required to file an
information return in respect of the
acquisition if subsection (8) were read
without reference to paragraph (8)(b);
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(b) the taxpayer is resident in Canada at the
time the acquisition occurs; and
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(c) the specified value of the particular
security does not exceed the amount by
which
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(ii) the total of all amounts each of which
is the specified value of another security
acquired by the taxpayer at or before the
particular time under an agreement
referred to in subsection (1), where
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(A) the taxpayer's right to acquire that
other security first became exercisable
in the year that the taxpayer's right to
acquire the particular security first
became exercisable, and
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(B) at or before the particular time, the
taxpayer has elected in accordance
with this subsection to have subsection
(8) apply in respect of the acquisition
of that other security.
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| Meaning of
``specified
value''
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(11) For the purpose of paragraph (10)(c),
the specified value of a particular security
acquired by a taxpayer under an agreement
referred to in subsection (1) is the amount
determined by the formula
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A/B
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where
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A is the fair market value, determined at the
time the agreement was made, of a
security that was the subject of the
agreement at the time the agreement was
made; and
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B is
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(a) except where paragraph (b) applies, 1,
and
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(b) where the number or type of securities
that are the subject of the agreement has
been modified in any way after the time
the agreement was made, the number of
securities (including any fraction of a
security) that it is reasonable to consider
the taxpayer would, at the time the
particular security was acquired, have a
right to acquire under the agreement in
lieu of one of the securities that was the
subject of the agreement at the time the
agreement was made.
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| Identical
options -
order of
exercise
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(12) Unless the context otherwise requires,
a taxpayer is deemed to exercise identical
rights to acquire securities under agreements
referred to in subsection (1)
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(a) where the taxpayer has designated an
order, in the order so designated; and
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(b) in any other case, in the order in which
those rights first became exercisable and, in
the case of identical rights that first became
exercisable at the same time, in the order in
which the agreements under which those
rights were acquired were made.
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| Revoked
election
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(13) For the purposes of this section (other
than this subsection), an election filed by a
taxpayer to have subsection (8) apply to the
taxpayer's acquisition of a security is deemed
never to have been filed if, before January 16
of the year following the year in which the
acquisition occurs, the taxpayer files with the
person with whom the election was filed a
written revocation of the election.
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| Deferral
deemed valid
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(14) For the purposes of this section and
paragraph 110(1)(d), where a taxpayer files an
election to have subsection (8) apply in
respect of the taxpayer's acquisition of a
particular security and subsection (8) would
not apply to the acquisition if this section were
read without reference to this subsection, the
following rules apply if the Minister so
notifies the taxpayer in writing:
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(a) the acquisition is deemed, for the
purpose of subsection (8), to be a qualifying
acquisition;
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(b) the taxpayer is deemed to have elected,
in accordance with subsection (10), at the
time of the acquisition, to have subsection
(8) apply in respect of the acquisition; and
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(c) if, at the time the Minister sends the
notice, the taxpayer has not disposed of the
security, the taxpayer is deemed (other than
for the purpose of subsection (1.5)) to have
disposed of the security at that time and to
have acquired the security immediately
after that time other than under an
agreement referred to in subsection (1).
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