Bill C-10

Foreign Investment Entities — Accrual

94.3 (1) The definitions in subsections 94.1(1) and 94.2(1), and the definitions in this subsection, apply in this section.

“fresh-start year”, of a non-resident entity in respect of a taxpayer, means a taxation year of the non-resident entity

(a) that ends in a taxation year of the taxpayer that begins after 2006 (or, where this definition applies in respect of a taxation year of the taxpayer that begins before 2007, that ends in a taxation year of the taxpayer that begins on or after the first day of the first taxation year of the taxpayer in respect of which this definition applies) if, at the end of the taxation year of the non-resident entity, the non-resident entity is a foreign investment entity and the taxpayer holds a participating interest, other than an exempt interest, in the non-resident entity; and

(b) that begins immediately after a preceding taxation year of the non-resident entity at the end of which the non-resident entity was not a foreign investment entity or the taxpayer did not hold a participating interest in the non-resident entity.

“income allocation”, of a particular taxpayer in respect of a particular participating interest, in a non-resident entity, held by the particular taxpayer at the end of a particular taxation year of the non-resident entity that ends in a taxation year of the particular taxpayer, means the amount determined by the formula

A × B/C

where

A      is the amount that would be the income of the non-resident entity for the particular taxation year if

(a) except for the purposes of subparagraph (2)(b)(ii), section 91, subsection 107.4(1) and paragraph (f) of the definition “disposition” in subsection 248(1), the non-resident entity had been a taxpayer resident in Canada throughout its existence,

(b) each property held by the non-resident entity at the particular time that is the beginning of a fresh-start year of the non-resident entity in respect of the particular taxpayer had been

(i) disposed of by the non-resident entity immediately before the particular time for proceeds equal to its fair market value at the particular time, and

(ii) reacquired by the non-resident entity at the particular time at a cost equal to that fair market value,

(c) for a fresh-start year of the non-resident entity in respect of the particular taxpayer and for each following taxation year of the non-resident entity, each deduction in computing the non-resident entity’s income that is contingent on a claim by the non-resident entity had been claimed by the non-resident entity to the extent, and only to the extent, designated by the particular taxpayer in prescribed form filed with the Minister with the particular taxpayer’s return of income for the particular taxpayer’s taxation year in which that fresh-start year or the following year, as the case may be, ends,

(d) the non-resident entity had deducted the greatest amounts that it could have claimed or deducted as a reserve under sections 20, 138 and 140 for its taxation year that precedes a fresh-start year of the non-resident entity in respect of the particular taxpayer,

(e) in applying sections 37, 65 to 66.4 and 66.7, the non-resident entity had not existed before a fresh-start year of the non-resident entity in respect of the particular taxpayer,

(f) this Act were read without reference to subsections 20(11) and (12) and 104(4) to (6),

(g) where the non-resident entity holds at any time in the particular taxation year a participating interest in another non-resident entity, the description of D in the definition “mark-to-market formula” in subsection 94.2(1) did not apply in respect of that interest,

(h) paragraph (a) of the definition “exempt interest” in subsection 94.1(1) were read without reference to subparagraph (i) of that paragraph,

(i) the amount included in computing the non-resident entity’s income for the particular taxation year in respect of capital gains were the amount, if any, by which the amount determined under subparagraph 3(b)(i) exceeds the amount determined under subparagraph 3(b)(ii) in respect of the non-resident entity for the particular taxation year,

(j) the amount deducted in computing the non-resident entity’s income for the particular taxation year in respect of capital losses (other than business investment losses) were the amount, if any, by which the amount determined under subparagraph 3(b)(ii) exceeds the amount determined under subparagraph 3(b)(i) in respect of the non-resident entity for the particular taxation year, and

(k) the amount deducted in computing the non-resident entity’s income for the particular taxation year in respect of business investment losses were the amount of its allowable business investment losses for the particular taxation year;

B      is the amount that is the fair market value, at the end of the particular taxation year, of the particular participating interest; and

C      is the fair market value, at the end of the particular taxation year, of all of the participating interests in the non-resident entity (other than an interest that would not be a participating interest, in the non-resident entity, if the definition “participating interest” in subsection 94.1(1) were read without reference to paragraph (d) of that definition).

“loss allocation”, of a particular taxpayer in respect of a participating interest, in a non-resident entity, held by the taxpayer at the end of a particular taxation year of the non-resident entity that ends in a taxation year of the taxpayer, means the amount determined by the formula

(A - B) × C/D

where

A      is the total of all amounts each of which is

(a) an amount that would, if paragraphs (a) to (h) of the description of A in the definition “income allocation” applied in respect of the particular taxpayer and the participating interest, be a loss of the non-resident entity for the particular taxation year from a business or property,

(b) the amount, if any, by which the amount determined under subparagraph 3(b)(ii) exceeds the amount determined under subparagraph 3(b)(i) in respect of the non-resident entity for the particular taxation year, or

(c) an allowable business investment loss of the non-resident entity for the par- ticular taxation year;

B      is the amount that would, if paragraphs (a) to (h) of the description of A in the definition “income allocation” applied in respect of the particular taxpayer and the participating interest, be determined under paragraph 3(c) in respect of the entity for the particular taxation year;

C      is the amount that is the fair market value, at the end of the particular taxation year, of the participating interest; and

D      is the fair market value, at the end of the particular taxation year, of all of the participating interests in the non-resident entity (other than an interest that would not be a participating interest, in the non-resident entity, if the definition “participating interest” in subsection 94.1(1) were read without reference to paragraph (d) of that definition).

“specified tax allocation”, of a taxpayer in respect of a participating interest, in a non-resident entity, held by the taxpayer at the end of a particular taxation year of the non-resident entity that ends in a taxation year of the taxpayer, means the total of all amounts each of which is the amount determined, in respect of the particular taxation year, by the formula

A × (B/C) × D

where

A      is

(a) if that taxation year of the taxpayer begins after 2006 (or, where this definition applies in respect of a taxation year of the taxpayer that begins before 2007, if that taxation year of the taxpayer begins on or after the first day of the first taxation year of the taxpayer in respect of which this definition applies), the income or profits tax paid by the non-resident entity in respect of the particular taxation year, to the extent that that tax can reasonably be considered to be in respect of the income or profits of the non-resident entity included in computing the amount determined in respect of the non-resident entity and the participating interest under the description of A in the definition “income allocation” for the particular taxation year or any of the five taxation years of the non-resident entity that precede the par- ticular taxation year and that end after 2006, and

(b) in any other case, nil;

B      is the amount that is the fair market value, at the end of the particular taxation year, of the participating interest;

C      is the fair market value, at the end of the particular taxation year, of all of the participating interests in the non-resident entity (other than an interest that would not be a participating interest, in the non-resident entity, if the definition “participating interest” in subsection 94.1(1) were read without reference to paragraph (d) of that definition); and

D      is the taxpayer’s relevant tax factor (as defined by subsection 95(1)) for that taxation year of the taxpayer.

(2) In this section,

(a) subsection 94.1(2) applies; and

(b) subsection (3) does not apply to a taxpayer for a particular taxation year of the taxpayer in respect of a particular participating interest, in a non-resident entity, held in the particular taxation year by the taxpayer (and in respect of any other participating interests, in the non-resident entity, that are identical to the particular participating interest and that are held in the particular taxation year by the taxpayer) if

(i) subsection 94.2(3) applies to the taxpayer for the particular taxation year in respect of the particular participating interest,

(ii) the taxpayer is a foreign investment entity at the end of the particular taxation year,

(iii) the Minister sends a written demand to the taxpayer requesting additional information for the purpose of enabling the Minister to determine whether an amount with respect to the particular participating interest would be required under subsection (4) to be added (or permitted under subsection (4) to be deducted) in computing the income of the taxpayer for the particular taxation year, and information that may reasonably be considered to be satisfactory to make the determination is not received by the Minister within 120 days (or within any longer period that is acceptable to the Minister) after the Minister sends the demand,

(iv) the particular participating interest is an interest that would not, at each time in the particular taxation year at which the taxpayer held the particular participating interest (or any of the other participating interests) and at which a taxation year of the non-resident entity ends, be a participating interest, in the non-resident entity, if the definition “participating interest” in subsection 94.1(1) were read without reference to paragraph (d) of that definition,

(v) subsection (3)

(A) applied for a taxation year (referred to in this subparagraph as the “preceding taxation year”) that ended before the particular taxation year of the taxpayer in respect of the particular participating interest, and

(B) did not apply for a taxation year of the taxpayer that was after the preceding taxation year and before the particular taxation year in respect of the particular participating interest,

(vi) subsection 94.2(9) applies to the taxpayer for the particular taxation year in respect of the particular participating interest,

(vii) any of the participating interests in the non-resident entity (other than an interest that would not be a participating interest, in the non-resident entity, if the definition “participating interest” in subsection 94.1(1) were read without reference to paragraph (d) of that definition) are not identical to the particular participating interest, or

(viii) where the non-resident entity is a trust, any amount of income or capital of the trust that any entity or individual may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity or individual of, or the failure by any entity or individual to exercise, a discretionary power.

(3) Subject to paragraph (2)(b), this subsection applies to a taxpayer for a particular taxation year of the taxpayer in respect of a particular participating interest, in a non-resident entity, held in the particular taxation year by the taxpayer if

(a) subsection 94.1(3) applies to the taxpayer for the particular taxation year in respect of the particular participating interest;

(b) either

(i) this subsection applied in respect of an identical participating interest that was held by the taxpayer at any time when the taxpayer held the particular participating interest, or

(ii) the taxpayer has elected that this subsection apply in respect of the particular participating interest, by notifying the Minister in writing in the taxpayer’s return of income filed on or before the taxpayer’s filing-due date for the first taxation year of the taxpayer for which

(A) subsection 94.1(3) applies to the taxpayer in respect of the particular participating interest, or

(B) subsection 94.2(9) does not apply to the taxpayer in respect of the particular participating interest and that immediately follows a taxation year for which subsection 94.2(9) applied to the taxpayer in respect of the particular participating interest;

(c) neither subsection 94.1(4) nor 94.2(3) applied to the taxpayer for a taxation year (referred to in this paragraph as the “preceding taxation year”) that ended before the particular taxation year in respect of the particular participating interest (or in respect of an identical participating interest that was held by the taxpayer at any time when the taxpayer held the particular participating interest), unless subsection 94.2(9) applied for that preceding taxation year to the taxpayer in respect of the particular participating interest (or the identical participating interest);

(d) the particular participating interest is, at each time in the particular taxation year at which the taxpayer held the particular participating interest and at which a taxation year of the non-resident entity ends, capital property of the taxpayer; and

(e) the taxpayer files, with the taxpayer’s return of income filed on or before the taxpayer’s filing-due date for the particular taxation year, prescribed information in prescribed form.

(4) If subsection (3) applies to a taxpayer resident in Canada for a particular taxation year of the taxpayer in respect of a participating interest in a non-resident entity, in computing the taxpayer’s income for the particular taxation year

(a) there shall be added, as income from property from a property that is the participating interest, the positive amount, if any, determined by the formula

A - B - C - D

where

A      is the total of all amounts each of which is the taxpayer’s income allocation in respect of the participating interest for each taxation year of the non-resident entity that ends in the particular taxation year,

B      is the total of all amounts each of which is the taxpayer’s loss allocation in respect of the participating interest for each taxation year of the non-resident entity that ends in the particular taxation year,

C      is the total of all amounts each of which is the specified tax allocation of the taxpayer in respect of the participating interest for each taxation year of the non-resident entity that ends in the particular taxation year, and

D      is the amount, if any, by which

(i) the amount determined under subparagraph (b)(i) in respect of the taxpayer and the participating interest for the taxation year (referred to in this paragraph as the “preceding taxation year”) of the taxpayer that immediately preceded the particular taxation year

exceeds

(ii) the amount determined under subparagraph (b)(ii) in respect of the taxpayer and the participating interest for the preceding taxation year; and

(b) there may be deducted, as a loss from a property that is the participating interest, the lesser of

(i) the absolute value of the negative amount, if any, determined by the formula in paragraph (a) in respect of the taxpayer and the participating interest for the particular taxation year, and

(ii) the amount, if any, by which

(A) the total of all amounts added under paragraph (a) in computing the taxpayer’s income, from a property that is the participating interest, for a taxation year of the taxpayer that ended before the particular taxation year

exceeds

(B) the total of all amounts deductible under this paragraph in computing the taxpayer’s income, from a property that is the participating interest, for a taxation year of the taxpayer that ended before the particular taxation year.

(5) In computing at any time the adjusted cost base to a taxpayer of a participating interest in a non-resident entity

(a) there shall be added the total of all amounts each of which is

(i) the amount added (or that would have been added if this Act were read without reference to subsection 56(4.1) and sections 74.1 to 75), as income from a property that is the participating interest, under paragraph (4)(a) in computing the taxpayer’s income for a taxation year of the taxpayer that ended before, or includes, that time, and

(ii) the product obtained when the amount determined under paragraph (i) of the description of A in the definition “income allocation” in subsection (1) in respect of the taxpayer and the participating interest for a particular taxation year of the non-resident entity that ended in a taxation year of the taxpayer that ended before, or includes, that time and at the end of which particular taxation year the taxpayer held the participating interest is multiplied by the amount that is determined by the fraction B/C described in the formula in that definition and that was used in computing the taxpayer’s income allocation in respect of the participating interest for the particular taxation year; and

(b) there shall be deducted the total of all amounts each of which is

(i) the amount deducted (or that would have been deducted if this Act were read without reference to subsection 56(4.1) and sections 74.1 to 75), as a loss from a property that is the participating interest, under paragraph (4)(b) in computing the taxpayer’s income for a taxation year of the taxpayer that ended before, or includes, that time,

(ii) the product obtained when the amount determined under paragraph (j) of the description of A in the definition “income allocation” in subsection (1) in respect of the taxpayer and the participating interest for a particular taxation year of the non-resident entity that ended in a taxation year of the taxpayer that ended before, or includes, that time and at the end of which particular taxation year the taxpayer held the participating interest is multiplied by the amount that is determined by the fraction C/D described in the formula in the definition “loss allocation” in subsection (1) that was used in computing the taxpayer’s loss allocation in respect of the participating interest for the particular taxation year, and

(iii) the product obtained when the amount determined under paragraph (k) of the description of A in the definition “income allocation” in subsection (1) in respect of the taxpayer and the participating interest for a particular taxation year of the non-resident entity that ended in a taxation year of the taxpayer that ended before, or includes, that time and at the end of which particular taxation year the taxpayer held the participating interest is multiplied by the amount determined by the fraction C/D described in the formula in the definition “loss allocation” in subsection (1) that was used in computing the taxpayer’s loss allocation in respect of the participating interest for the particular taxation year.

Foreign Investment Entities — Relief from Double Taxation

94.4 (1) In this section,

(a) the definitions in subsections 94.1(1) and 94.2(1) apply; and

(b) subsection 94.1(2) applies.

(2) If one or more amounts become, at a particular time in a particular taxation year of a taxpayer that begins after 2006 (or, where this subsection applies in respect of a taxation year of the taxpayer that begins before 2007, in a particular taxation year of the taxpayer that begins on or after the first day of the first taxation year of the taxpayer in respect of which this subsection applies) or in a preceding taxation year of the taxpayer that begins after 2006 (or, where this subsection applies to the taxpayer in respect of a taxation year of the taxpayer that begins before 2007, in a preceding taxation year of the taxpayer that begins on or after the first day of the first taxation year of the taxpayer in respect of which this subsection applies), payable or allocated to the taxpayer by a particular entity or another entity in respect of a participating interest in the particular entity (other than an amount that is proceeds of disposition from a disposition of the participating interest or of a part of it), and the taxpayer is at the particular time resident in Canada,

(a) there may be deducted in computing the taxpayer’s income for the particular taxation year in respect of the participating interest the lesser of

(i) the amount, if any, by which

(A) the total of all amounts each of which is an amount that is in respect of any of those amounts payable or allocated and that is included (otherwise than because of the description of C in the definition “mark-to-market formula” in subsection 94.2(1)) in computing the taxpayer’s income for any of those taxation years

exceeds

(B) the total of all amounts each of which is an amount, in respect of the participating interest,

(I) that is deducted under this paragraph in computing the taxpayer’s income for any of those preceding taxation years, or

(II) where subsection 94.3(3) applied to the taxpayer in respect of the participating interest for any of those taxation years, that would, if the amount determined for D in applying the definition “specified tax allocation” in subsection 94.3(1) were the taxpayer’s relevant tax factor (as defined in subsection 95(1)) minus 1, be the specified tax allocation of the taxpayer in respect of the participating interest for each taxation year of the particular entity that ends in one of those taxation years for which subsection 94.3(3) applied to the taxpayer in respect of the participating interest, and

(ii) the amount, if any, by which

(A) the total of all amounts each of which is

(I) an amount, in respect of the participating interest, that is, or would have been, if this Act were read without reference to subsection 94.2(20), included under subsection 94.1(4) or 94.2(4) in computing the taxpayer’s income for any of those taxation years, or

(II) the amount required by paragraph 94.3(5)(a) to be added in computing at the particular time the adjusted cost base to the taxpayer of the participating interest,

exceeds

(B) the total of all amounts each of which is

(I) the amount required by paragraph 94.3(5)(b) to be deducted in computing at the particular time the adjusted cost base to the taxpayer of the participating interest,

(II) an amount, in respect of the participating interest that is, or would have been, if this Act were read without reference to subsection 94.2(20), deducted under subsection 94.2(4) in computing the taxpayer’s income for any of those taxation years,

(III) an amount, in respect of the participating interest that is deducted under this paragraph in computing the taxpayer’s income for any of those preceding taxation years, or

(IV) the total of all amounts, each of which is an amount that was claimed by the taxpayer under paragraph (4)(a) or (b) in respect of the participating interest for any of those taxation years; and

(b) in computing after the particular time the adjusted cost base to the taxpayer of the participating interest there shall be deducted the amount deductible under paragraph (a) in computing the taxpayer’s income for the particular taxation year in respect of the participating interest.

(3) If one or more particular amounts become payable or allocated to a taxpayer in a particular taxation year of the taxpayer, the taxpayer includes the particular amounts in computing its income for the particular taxation year, and the particular amounts are included in computing, in respect of a particular participating interest of the taxpayer, an amount deducted by the taxpayer under subsection (2) in computing its income for the particular taxation year, the taxpayer may deduct in computing the taxpayer’s income for the particular taxation year in respect of the participating interest the amount determined by the formula

A × B

where

A      is

(a) nil, if the taxpayer is a corporation and the particular amounts are income from a share of the capital stock of a foreign affiliate of the taxpayer, and

(b) the taxpayer’s relevant tax factor (as defined by subsection 95(1)) for the particular taxation year, in any other case; and

B      is the lesser of

(a) 15% of the total of all amounts, if any, determined under subparagraph (2)(a)(ii) in computing the amount deductible by the taxpayer, in respect of the particular participating interest and the particular amounts, under subsection (2) in computing its income for the particular taxation year, and

(b) the amount that

(i) is the part of the non-business income tax (as defined by subsection 126(7)) paid by the taxpayer for the particular taxation year to a government of a country other than Canada that is in respect of the particular amounts, and

(ii) would be deductible under subsection 126(1) by the taxpayer from the tax for the particular taxation year otherwise payable under this Part (within the meaning assigned by paragraph (a) of the definition “tax for the taxation year otherwise payable under this Part” in subsection 126(7)) by the taxpayer if

(A) the taxpayer had not deducted an amount, in respect of the par- ticular amounts, under subsection (2), and

(B) paragraph 126(1.2)(a) did not apply.

(4) If subsection 94.1(4), 94.2(4) or 94.3(4) (as that subsection read in its application to taxation years beginning after 2006) applied to a taxpayer in computing the taxpayer’s income for a particular taxation year of the taxpayer that began before 2007 (each such year referred to in this subsection as a “pre-2007 taxation year”) in respect of a participating interest of the taxpayer in a foreign investment entity

(a) there may be deducted, in computing the taxpayer’s income for the taxpayer’s first taxation year beginning after 2006, such amount as the taxpayer may claim not exceeding the amount, if any, by which

(i) the total of all amounts each of which is an amount included in computing the taxpayer’s income in a pre-2007 taxation year in respect of the participating interest because of subsection 94.1(4), 94.2(4) or 94.3(4)

exceeds

(ii) the total of all amounts each of which is an amount deducted in computing the taxpayer’s income in a pre-2007 taxation year in respect of the participating interest because of subsection 94.2(4), 94.3(4) or 94.4(2) or (3);

(b) there may be added, in computing the taxpayer’s capital loss from the disposition of a capital property for the taxpayer’s first taxation year beginning after 2006, such amount as the taxpayer may claim not exceeding the amount, if any, by which

(i) the total of all amounts each of which is an amount included in computing the taxpayer’s capital gain for a pre-2007 taxation year in respect of the participating interest because of subsection 94.2(4)

exceeds

(ii) the total of

(A) the total of all amounts each of which is an amount included in computing the taxpayer’s capital loss in a pre-2007 taxation year in respect of the participating interest because of subsection 94.2(4), and

(B) the amount, if any, by which the amount determined under subparagraph (a)(ii) exceeds the amount determined under subparagraph (a)(i) in respect of the participating interest; and

(c) in computing the adjusted cost base to the taxpayer at any time after the taxpayer’s first taxation year beginning after 2006, there is to be deducted the total of all amounts each of which is an amount claimed by the taxpayer under paragraph (a) or (b) to the extent that the amount claimed was deducted in computing the taxpayer’s income or added in computing the taxpayer’s capital loss from the disposition of a capital property.

(2) Subsection (1) applies to taxation years that begin after 2006, except that

(a) it also applies to

(i) taxation years of a taxpayer that begin after any of 2002, 2003, 2004 or 2005 if the taxpayer elects, in writing, to have sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxation years of the taxpayer that begin after the year specified in the election 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 is assented to,

(ii) fiscal periods of a partnership that begin after any of 2002, 2003, 2004 or 2005 if a member of the partnership, who has authority to act for the partnership, elects, in writing, to have sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the fiscal periods of the partnership that begin after the year specified in the election and files the election with the Minister of National Revenue on or before the member’s filing-due date for the member’s taxation year in which this Act is assented to, and

(iii) taxation years of the foreign affiliates of a taxpayer that begin after any of 2002, 2003, 2004 or 2005 if the taxpayer elects, in writing, to have sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxation years of the foreign affiliates of the taxpayer that begin after the year specified in the election 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 is assented to;

(b) any election or form referred to in any of sections 94.1 to 94.3 of the Act, as enacted by subsection (1), made by a taxpayer is deemed to have been filed with the Minister of National Revenue

(i) on a timely basis if it is filed with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act is assented to, and

(ii) in the taxpayer’s return of income for the taxpayer’s taxation year identified by the taxpayer in the election, if it is filed with the Minister of National Revenue in writing in the taxpayer’s return of income for the taxpayer’s taxation year that includes the day on which this Act is assented to;

(c) for taxation years that begin before October 30, 2003 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), subparagraph (a)(ii) of the definition “exempt interest” in subsection 94.1(1) of the Act, as enacted by subsection (1), is to be read as follows:

(ii) a qualifying entity, or

(d) for taxation years that begin on or before July 18, 2005 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), subparagraph (a)(ii) of the definition “exempt interest” in subsection 94.1(1) of the Act, as enacted by subsection (1), is to be read without reference to “(other than a controlled foreign affiliate)”;

(e) for taxation years that begin on or before July 18, 2005 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), the definition “investment property” in subsection 94.1(1) of the Act, as enacted by subsection (1), is to be read without reference to its paragraph (k);

(f) for taxation years that begin on or before July 18, 2005 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), paragraph (c) of the definition “significant interest” in subsection 94.1(1) of the Act, as enacted by subsection (1), is to be read as follows:

(c) if the other entity is a non-discretionary trust (as defined in subsection 17(15)), an interest as a beneficiary under the trust, if at that time the particular entity, or the particular entity together with entities related (otherwise than by reason of a right referred to in paragraph 251(5)(b)) to the particular entity, holds such interests under the trust that have a fair market value of 25% or more of the fair market value of all the interests as beneficiaries under the trust.

(g) for taxation years that begin on or before July 18, 2005 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), subparagraph (b)(i) of the definition “specified interest” in subsection 94.1(1) of the Act, as enacted by subsection (1), is to be read as follows:

(i) the entity or individual is at that time a successor beneficiary (as defined by subsection 94(1)) under the trust, or

(h) for taxation years that end before November 9, 2006 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), subparagraph (b)(ii) of the definition “specified interest” in subsection 94.1(1) of the Act, as enacted by subsection (1), is to be read as follows:

(ii) every amount of income and capital of the trust that the entity or individual may receive at or after that time depends on the exercise by any entity or individual of, or the failure by any entity or individual to exercise, a discretionary power.

(i) paragraph 94.1(2)(c) of the Act, as enacted by subsection (1), does not apply, in respect of a taxpayer and a participating interest of the taxpayer in a trust for each of the taxpayer’s taxation years that begin on or before July 18, 2005 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), unless the taxpayer elects, by notifying the Minister of National Revenue in writing on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act is assented to, that this paragraph not apply in respect of the taxpayer and the participating interest;

(j) for taxation years that begin on or before July 18, 2005 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), subsection 94.1(2) of the Act, as enacted by subsection (1), is to be read without reference to its paragraph (t);

(k) for taxation years that begin on or before November 9, 2006 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), paragraph 94.1(2)(w) of the Act, as enacted by subsection (1), is to be read without reference to its subparagraph (i);

(l) for taxation years that begin on or before July 18, 2005 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), paragraph 94.2(9)(d) of the Act, as enacted by subsection (1), is to be read without reference to the expression “(whether immediate or future, whether absolute or contingent or whether conditional on or subject to the exercise of any discretion by any entity or individual)”;

(m) for taxation years that end before November 9, 2006 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), paragraph 94.2(11)(c) of the Act, as enacted by subsection (1), is to be read as follows:

(c) paragraphs (a) and (b) do not apply to the taxpayer for the particular taxation year in respect of the interest if

(i) the taxpayer is an individual and the interest was acquired by the individual more than 60 months before the individual last became resident in Canada unless, at any particular time in the period that begins 60 months before the day on which the individual first became resident in Canada and that ends at the end of the particular taxation year, the total amount of premiums paid in respect of the policy is more than the total amount of premiums that can reasonably be considered to have been contemplated — at the time the policy was first issued — to be paid in respect of the policy as of the particular time,

(ii) under the terms and conditions of the insurance policy, the taxpayer is entitled to receive only

(A) benefits payable as a consequence of the occurrence of risks insured under the policy,

(B) an experience-rated refund of premiums for a year, or

(C) a return of premiums previously paid upon the surrender, cancellation or termination of the insurance policy, or

(iii) the taxpayer can establish to the satisfaction of the Minister that

(A) the interest in the policy was, on the anniversary day of the policy that occurs in the particular taxation year,

(I) an exempt policy, or

(II) a prescribed annuity contract, or

(B) the taxpayer has included in computing the taxpayer’s income for the particular taxation year the amount, if any, required under section 12.2 to be included in computing the taxpayer’s income for the particular taxation year in respect of the interest;

(n) for taxation years that begin on or before July 18, 2005 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), the description of A in the definition “income allocation” in subsection 94.3(1) of the Act, as enacted by subsection (1), is to be read as if its paragraph (f) were replaced by the following:

(f) this Act were read without reference to subsections 20(11) and (12) and 104(4) to (6),

(f.1) in the case where the particular taxpayer is a corporation resident in Canada, dividends received by the non-resident entity in the particular taxation year from a foreign affiliate of the particular taxpayer were included in computing the income of the non-resident entity for the particular taxation year only where

(i) the particular taxpayer did not have a qualifying interest (within the meaning assigned by paragraph 95(2)(m)) in the foreign affiliate at the time the dividends were received, or

(ii) taking into account the application of paragraphs (a) and (h), subsection 94.2(4) applied for the purpose of computing the non-resident entity’s income for the partic- ular taxation year in respect of the non-resident entity’s participating interest in the foreign affiliate,

(o) for taxation years that begin on or before July 18, 2005 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), paragraph (h) of the description of A in the definition “income allocation” in subsection 94.3(1) of the Act, as enacted by subsection (1), is to be read as follows:

(h) the expression “controlled foreign affiliate” in paragraph (a) of the definition “exempt interest” in subsection 94.1(1) referred to a controlled foreign affiliate of the particular taxpayer and not to a controlled foreign affiliate of the non-resident entity,

(p) for taxation years that begin on or before July 18, 2005 (where sections 94.1 to 94.4 of the Act, as enacted by subsection (1), apply to the taxpayer for the taxation year), subparagraphs 94.3(2)(b)(v) to (viii) of the Act, as enacted by subsection (1), are to be read as follows:

(v) subsection (3)

(A) applied for a taxation year (referred to in this subparagraph as the “preceding taxation year”) that ended before the particular taxation year of the taxpayer in respect of the particular participating interest, and

(B) did not apply for a taxation year of the taxpayer that was after the preceding taxation year and before the particular taxation year in respect of the particular participating interest, or

(vi) subsection 94.2(9) applies to the taxpayer for the particular taxation year in respect of the particular participating interest.

19. (1) The portion of subsection 95(1) of the Act before the definition “active business” is replaced by the following:

95. (1) In this subdivision (other than in sections 94 to 94.4),

(2) The portion of the definition “controlled foreign affiliate” in subsection 95(1) of the Act before paragraph (a) is replaced by the following:

“controlled foreign affiliate”, at any time of a taxpayer resident in Canada, means a foreign affiliate of the taxpayer that is, at that time, a controlled foreign affiliate of the taxpayer because of paragraph 94.1(2)(h) or that is, at that time, controlled by

(3) The formula in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:

(A + A.1 + A.2 + B) - (D + E + F + G + H)

(4) The description of C in the definition “foreign accrual property income” in subsection 95(1) of the Act is repealed.

(5) The definition “relevant tax factor” in subsection 95(1) of the Act is replaced by the following:

“relevant tax factor”, of a person or partnership for a taxation year, means

(a) in the case of a corporation, or of a partnership all the members of which, other than non-resident persons, are corporations, the quotient obtained by the formula

1/(A - B)

where

A      is the percentage set out in paragraph 123(1)(a), and

B      is

(i) in the case of a corporation, the percentage that is the corporation’s general rate reduction percentage (as defined by section 123.4) for the taxation year, and

(ii) in the case of a partnership, the percentage that would be determined under subparagraph (i) in respect of the partnership if the partnership were a corporation whose taxation year is the partnership’s fiscal period, and

(b) in any other case, 2.2;

(6) The portion of subsection 95(2) of the Act before paragraph (a) is replaced by the following:

(2) For the purposes of this subdivision (other than sections 94 to 94.4),

(7) Subsection 95(2) of the Act is amended by adding the following after paragraph (g.2):

(g.3) if, in a particular taxation year of a particular foreign affiliate of a particular taxpayer that ends in a taxation year of the particular taxpayer the particular foreign affiliate holds a participating interest in a particular non-resident entity (in this paragraph as defined by subsection 94.1(1)), in computing the foreign accrual property income of the particular foreign affiliate in respect of the particular taxpayer for the particular taxation year, sections 94.1 to 94.4 apply to the particular foreign affiliate in respect of the participating interest as if

(i) the particular foreign affiliate were a taxpayer resident in Canada throughout the particular taxation year,

(ii) subparagraph (a)(i) of the definition “exempt interest” in subsection 94.1(1) applied to the particular foreign affiliate in respect of the participating interest only where

(A) the particular foreign affiliate is a controlled foreign affiliate of the par- ticular taxpayer at the end of the particular taxation year, and

(B) the particular non-resident entity is a controlled foreign affiliate of the particular taxpayer at the end of the particular non-resident entity’s taxation year that ends in the particular taxation year,

(iii) an exempt interest (in this paragraph, as defined by subsection 94.1(1)) of the particular foreign affiliate in a non-resident entity included a participating interest

(A) that is held, in the particular taxation year, by the particular foreign affiliate, and

(B) that is, throughout the period, in the particular taxation year, during which the particular foreign affiliate held the participating interest, property used or held by the particular foreign affiliate principally for the purpose of gaining or producing income from a business that is not an investment business,

(iv) the definition “fresh-start year” in subsection 94.3(1) did not apply and a reference in section 94.3 to a fresh-start year, of the particular non-resident entity in respect of the particular foreign affiliate, were a reference to a taxation year of the particular non-resident entity

(A) that ends in a taxation year of the particular foreign affiliate that begins after 2006,

(B) that begins immediately after a preceding taxation year of the particular non-resident entity at the end of which

(I) the particular non-resident entity was not a foreign investment entity,

(II) the particular foreign affiliate did not hold a participating interest in the particular non-resident entity (other than an exempt interest), or

(III) the particular foreign affiliate was not a controlled foreign affiliate of the particular taxpayer,

(C) at the end of which the particular non-resident entity is a foreign investment entity in which the particular foreign affiliate holds a participating interest that is not an exempt interest, and

(D) at any time in which the particular foreign affiliate is a controlled foreign affiliate of the particular taxpayer,

(v) an election for the particular taxation year made under paragraph (a) of the definition “carrying value”, or paragraph (a) of the definition “financial statements”, in subsection 94.1(1), paragraph 94.1(2)(e), (h) or (j), subparagraph (a)(iii) of the description of D in the definition “mark-to-market formula” in subsection 94.2(1), subparagraph 94.2(2)(b)(i) or 94.2(3)(b)(iii) or paragraph 94.3(3)(b) were required to be filed under that provision in respect of the particular foreign affiliate for the purpose of computing the particular foreign affiliate’s foreign accrual property income in respect of the particular taxpayer, by, and only by, the particular taxpayer, with the Minister on or before the filing-due date of the particular taxpayer for the particular taxpayer’s taxation year in which the particular taxation year ends,

(vi) the Minister were required, in sending a written demand under subparagraph 94.1(2)(e)(iii), any of paragraphs 94.1(2)(i) or (p) to (r) or 94.2(2)(d), or subparagraph 94.3(2)(b)(iii), to send the demand to the particular taxpayer,

(vii) the amount determined under the definition “deferral amount” in subsection 94.2(1) did not include the portion of that amount that can reasonably be considered to have accrued during the period that the particular foreign affiliate was not a foreign affiliate of any person described in any of subparagraphs (f)(iii) to (vii),

(viii) the reference in subsection 94.2(19) to “in computing the capital dividend account of the corporation” were read in respect of the particular foreign affiliate as a reference to “and the corporation is a foreign affiliate, of a taxpayer, to which paragraph 95(2)(g.3) applies, in computing the amount prescribed to be the foreign affiliate’s exempt surplus and taxable surplus in respect of the taxpayer”,

(ix) any form, information or notification, in respect of a participating interest in a non-resident entity held in the particular taxation year by the particular foreign affiliate, that is required under any of sections 94.1 to 94.4 to be filed or included with the particular foreign affiliate’s return of income for the particular taxation year were required to be filed or included with, and only with, the particular taxpayer’s return of income for the particular taxpayer’s taxation year in which the par- ticular taxation year ends, and

(x) designations and notifications made, and information provided, by the particular taxpayer in a form referred to in subparagraph (ix) were made or provided by the particular foreign affiliate;

(8) Subsection 95(5) of the Act is replaced by the following:

(5) For the purposes of this subdivision (other than sections 94 to 94.4), an income bond or income debenture issued by a non-resident corporation is deemed to be a share of the capital stock of the corporation unless any interest or other similar periodic amount paid by the corporation on or in respect of the bond or debenture was, under the laws of the country in which the corporation was resident, deductible in computing the amount on which the corporation was liable to pay income or profits tax imposed by the government of that country.

(9) The portion of subsection 95(6) of the Act before paragraph (a) is replaced by the following:

(6) For the purposes of this subdivision (other than sections 90 and 94 to 94.4),

(10) Subsection 95(7) of the Act is replaced by the following:

(7) For the purposes of subsection 52(3) and this subdivision (other than sections 94 to 94.4), the amount of any stock dividend paid by a foreign affiliate of a corporation resident in Canada is deemed to be, in respect of the corporation, nil.

(11) Subsections (1) to (4) and (6) to (10) apply to taxation years, of a foreign affiliate of a taxpayer, that begin after 2006, except that they also apply to a taxation year of a foreign affiliate of a taxpayer that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that taxation year of the foreign affiliate.

(12) Subsection (5) applies to the 2002 and subsequent taxation years.

20. (1) Paragraph 96(1)(d) of the Act is amended by striking out the word “and” at the end of subparagraph (i), by adding the word “and” at the end of subparagraph (ii) and by adding the following after subparagraph (ii):

(iii) where at any time in the taxation year (in this subparagraph referred to as the “particular taxation year”) the partnership’s property includes a participating interest in a particular non-resident entity (in this subparagraph as defined by subsection 94.1(1)), sections 94.1 to 94.4 apply to the partnership for the particular taxation year in respect of the participating interest

(A) where the taxpayer is resident in Canada and, at the end of the particular non-resident entity’s taxation years that end in the particular taxation year of the partnership, the particular non-resident entity is not a controlled foreign affiliate of the partnership, as if the participating interest were not an exempt interest that is described by subparagraph (a)(i) of the definition “exempt interest” in subsection 94.1(1),

(B) where the taxpayer is a foreign affiliate (referred to in this clause as the “foreign affiliate”) of another taxpayer resident in Canada at the end of the foreign affiliate’s taxation years that end in a particular taxation year of the other taxpayer, as if, in computing the foreign accrual property income of the foreign affiliate in respect of the other taxpayer for those taxation years of the foreign affiliate,

(I) subparagraph (a)(i) of the definition “exempt interest” in subsection 94.1(1) applied only where

1. the foreign affiliate is a controlled foreign affiliate of the other taxpayer at the end of the foreign affiliate’s taxation years that end in the particular taxation year of the other taxpayer, and

2. the particular non-resident entity is a controlled foreign affiliate of the partnership at the end of the particular non-resident entity’s taxation years that end in the foreign affiliate’s taxation years that end in the other taxpayer’s particular taxation year, and

(II) where the participating interest is, throughout the period, in the particular taxation year, during which the participating interest was the partnership’s property, property used or held by the partnership principally for the purpose of gaining or producing income from a business that is not an investment business (in this subclause, within the meaning assigned by section 95), the participating interest were an exempt interest (in this subclause, as defined by subsection 94.1(1)) of the partnership,

(C) as if the definition “fresh-start year” in subsection 94.3(1) did not apply and a reference in section 94.3 to a fresh-start year, of the particular non-resident entity in respect of the partnership, were a reference to a taxation year of the particular non-resident entity

(I) that ends in a taxation year of the partnership that begins after 2006 (or, where sections 94.1 to 94.4 apply to a taxation year of the partnership that begins before 2007, that ends in a taxation year of the partnership that begins on or after the first day of the first taxation year of the partnership to which sections 94.1 to 94.4 apply),

(II) that begins immediately after a preceding taxation year of the par- ticular non-resident entity, at the end of which the particular non-resident entity was not a foreign investment entity or at the end of which the partnership property did not include a participating interest in the particular non-resident entity (other than an exempt interest, in this subparagraph as defined in subsection 94.1(1) as modified by this subparagraph), and

(III) at the end of which the particular non-resident entity is a foreign investment entity in which the partnership owns a participating interest that is not an exempt interest,

(D) as if the expression “in the return of income for which the taxpayer elects” in paragraph 94.1(2)(h) were replaced by the expression “in respect of which a member of the taxpayer elects”,

(E) as if subparagraph 94.1(2)(h)(ii) were replaced by the following:

(ii) the non-resident entity is

(A) where the taxpayer is a partnership and an election under this paragraph is being made for the purpose of computing the income from the partnership of a member of the partnership that is a taxpayer resident in Canada, a foreign affiliate of the partnership and of the member in respect of which the partnership and the member has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)) at the end of the non-resident entity’s taxation years referred to in clause 96(1)(d)(iii)(A), or

(B) where the taxpayer is a partnership and an election under this paragraph is being made for the purpose of computing the income from the partnership of a member of the partnership that is a foreign affiliate of another taxpayer resident in Canada, a foreign affiliate of the partnership and of the other taxpayer resident in Canada in respect of which the partnership and the other taxpayer has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)) at the end of the non-resident entity’s taxation years referred to in clause 96(1)(d)(iii)(B),

(F) as if subparagraph 94.1(2)(h)(iii) were replaced by the following:

(iii) an entity that was at any time a member of the taxpayer has not made in respect of the taxpayer any other election under this paragraph in respect of the non-resident entity;

(G) as if an election for a particular taxation year of the partnership made under paragraph (a) of the definition “carrying value” or paragraph (a) of the definition “financial statements” in subsection 94.1(1), paragraph 94.1(2)(e), (h) or (j), subparagraph (a)(iii) of the description of D in the definition “mark-to-market formula” in subsection 94.2(1), subparagraph 94.2(2)(b)(i) or 94.2(3)(b)(iii), or paragraph 94.3(3)(b), were required to be filed under that provision in respect of the partnership by the taxpayer with the Minister on or before the taxpayer’s filing-due date for the taxpayer’s taxation year in which the particular taxation year ends,

(H) as if the Minister were required, in sending a written demand under subparagraph 94.1(2)(e)(iii), any of paragraphs 94.1(2)(i), (p) to (r) or (w) or 94.2(2)(d), or subparagraph 94.3(2)(b)(iii), to send the demand to the taxpayer,

(I) as if any form, information or notification, in respect of a participating interest, in a non-resident entity, that is partnership property in the particular taxation year, that is required under any of sections 94.1 to 94.4 to be filed or included with a return of income were required to be filed or included with the taxpayer’s return of income for the taxpayer’s taxation year in which the particular taxation year ends, and

(J) as if designations and notifications made, and information provided, by the taxpayer in the form referred to in clause (I) were made or provided by the partnership;

(2) Section 96 of the Act is amended by adding the following after subsection (1.8):

(1.9) If an exempt taxpayer (as defined in subsection 94.1(1)) for a taxation year is a member of a partnership at any time in the year, in applying paragraphs (1)(f) and (g) and 53(1)(e) and (2)(c) to the taxpayer for a fiscal period of the partnership that ends in the year this Act is to be read without reference to sections 94.1 to 94.4.

(3) The portion of subsection 96(3) of the Act before paragraph (a) is replaced by the following:

(3) If a taxpayer who was a member of a partnership at any time in a fiscal period has, for any purpose relevant to the computation of the taxpayer’s income from the partnership for the fiscal period, made or executed an agreement, designation or election under or in respect of the application of any of subsections 13(4), (4.2) and (16) and 14(1.01) and (6), section 15.2, subsections 20(9) and 21(1) to (4), section 22, subsection 29(1), section 34, clause 37(8)(a)(ii)(B), subsections 44(1) and (6), 50(1) and 80(5) and (9) to (11), section 80.04, subsection 86.1(2), sections 94.1 to 94.3, paragraph 95(2)(g.3) and subsections 97(2), 139.1(16) and (17) and 249.1(4) and (6) that, if this Act were read without reference to this subsection, would be a valid agreement, designation or election,

(4) Subsection 96(9) of the Act is replaced by the following:

(9) For the purposes of applying subsection (8) and this subsection,

(a) where it can reasonably be considered that one of the main reasons that a member of a partnership is resident in Canada is to avoid the application of subsection (8), the member is deemed not to be resident in Canada; and

(b) where at any time a particular partnership is a member of another partnership,

(i) each person or partnership that is, at that time, a member of the particular partnership is deemed to be a member of the other partnership at that time,

(ii) each person or partnership that becomes a member of the particular partnership at that time is deemed to become a member of the other partnership at that time, and

(iii) each person or partnership that ceases to be a member of the particular partnership at that time is deemed to cease to be a member of the other partnership at that time.

(5) Subsections (1) and (2) apply to fiscal periods that begin after 2006, except that those subsections also apply to a fiscal period of a partnership that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that fiscal period of the partnership.

(6) Subsection (3) applies to taxation years that end after February 27, 2000. However, subsection 96(3) of the Act, as enacted by subsection (3), is

(a) before December 21, 2002, to be read without reference to “, (4.2)”; and

(b) before 2007 (or, where sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to a fiscal period of the partnership that begins before 2007, before the first day of the first fiscal period of the partnership to which sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply), to be read without reference to “sections 94.1 to 94.3, paragraph 95(2)(g.3)”.

(7) Subsection (4) applies to fiscal periods that begin after June 22, 2000.

21. (1) The portion of subsection 97(2) of the Act before paragraph (a) is replaced by the following:

(2) Notwithstanding any other provision of this Act other than subsection 13(21.2), where a taxpayer at any time in a taxation year disposes of any property (other than a specified participating interest) that is a capital property, Canadian resource property, foreign resource property, eligible capital property or inventory of the taxpayer to a partnership that immediately after that time is a Canadian partnership of which the taxpayer is a member, if the taxpayer and all the other members of the partnership jointly so elect in prescribed form within the time referred to in subsection 96(4),

(2) Subsection (1) applies to dispositions that occur in taxation years that begin after 2006, except that that subsection also applies to dispositions of a taxpayer that occur in a taxation year of the taxpayer that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that taxation year of the taxpayer.

22. (1) Section 98 of the Act is amended by adding the following after subsection (6):

(7) If at a particular time a partnership ceases to exist, the partnership is, at the time (in this subsection referred to as the “disposition time”) that is immediately before the time that is immediately before the time that is immediately before the particular time, deemed

(a) to have disposed of each of its properties that is at the disposition time a specified participating interest for proceeds of disposition equal to the property’s fair market value at the disposition time; and

(b) to have acquired the property immediately after the disposition time at a cost equal to that fair market value.

(2) Subsection (1) applies to fiscal periods that begin after 2006, except that that subsection also applies to a fiscal period of a partnership that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that fiscal period of the partnership.

23. (1) Subparagraph 104(4)(a)(i.1) of the Act is replaced by the following:

(i.1) is a trust that was created by the will of a taxpayer who died after 1971 to which property was transferred in circumstances to which paragraph 70(5.2)(b) or (d) (as that paragraph read in its application to taxation years that began before 2007 or, where sections 94.1 to 94.4 apply to a taxation year of a taxpayer that begins before 2007, as that paragraph read in its application to taxation years of the taxpayer that began before the first day of the first such taxation year) or paragraph (5.2)(c) or (6)(d) applied and that, immediately after any such property vested indefeasibly in the trust as a consequence of the death of the taxpayer, was a trust,

(2) Subsection 104(4) of the Act is amended by adding the following after paragraph (a.4):

(a.5) where the trust is deemed by subsection 94(3) to be resident in Canada for a taxation year for the purpose of computing the trust’s income for the taxation year, the day (in that taxation year) on which, because a contributor (in this paragraph, as defined by subsection 94(1)) either ceases to be resident in Canada or ceases to be a contributor to the trust because of the application at any time of paragraph 94(2)(t), there is no resident contributor (in this paragraph, as defined by subsection 94(1)) to the trust (or the only resident contributors to the trust are entities (in this paragraph, as defined by subsection 94(1)) each of which is an entity the maximum amount recoverable from which under the provisions referred to in paragraph 94(3)(d) is limited to the entities’ recovery limits determined under subsection 94(8)), unless subsection 94(5) applies in respect of the contributor ceasing on the day to be a resident contributor to the trust;

(3) Paragraph 104(4)(c) of the Act is replaced by the following:

(c) the day that is 21 years after any day (other than a day determined under any of paragraphs (a) to (a.5)) that is, because of this subsection, a day on which the trust is deemed to have disposed of each such property.

(4) Section 104 of the Act is amended by adding the following after subsection (4):

(4.1) In determining whether property is capital property for the purpose of subsection (4), this Act is to be read without reference to subparagraph 39(1)(a)(ii.3).

(5) The portion of subsection 104(6) of the Act before paragraph (a) is replaced by the following:

(6) Subject to subsections (7) to (7.1), for the purposes of this Part, there may be deducted in computing the income of a trust for a taxation year

(6) Section 104 of the Act is amended by adding the following after subsection (7):

(7.01) If a trust is deemed by subsection 94(3) to be resident in Canada for a taxation year for the purpose of computing the trust’s income for the year, the maximum amount deductible under subsection (6) in computing its income for the year is the amount, if any, by which

(a) the maximum amount that, if this Act were read without reference to this subsection, would be deductible under subsection (6) in computing its income for the year,

exceeds

(b) the total of

(i) the portion of the trust’s designated income for the year (within the meaning assigned by section 210) that became payable in the year to a non-resident beneficiary under the trust in respect of an interest of the non-resident as a beneficiary under the trust, and

(ii) all amounts each of which is determined by the formula

A × B

where

A      is an amount (other than an amount described in subparagraph (i)) that

(A) is paid or credited (having the meaning assigned by Part XIII) in the year to the trust,

(B) would, if this Act were read without reference to subparagraph 94(3)(a)(viii), paragraph 212(2)(b) and sections 216 and 217, be an amount as a consequence of the payment or crediting of which the trust would have been liable to tax under Part XIII, and

(C) becomes payable in the year by the trust to a non-resident beneficiary under the trust in respect of an interest of the non-resident as a beneficiary under the trust, and

B      is

(A) 0.35, if the trust can establish to the satisfaction of the Minister that the non-resident beneficiary to whom the amount described in the description of A is payable is resident in a country with which Canada has a tax treaty under which the income tax that Canada may impose on the beneficiary in respect of the amount is limited, and

(B) 0.6, in any other case.

(7) Paragraph 104(21.3)(a) of the Act is replaced by the following:

(a) the total of all amounts each of which is an allowable capital loss (other than an allowable business investment loss) of the trust for the year from the disposition of a capital property, and

(8) Subsection 104(24) of the Act is replaced by the following:

(24) For the purposes of subparagraph 53(2)(h)(i.1), paragraph (c) of the definition “specified charity” in subsection 94(1), subsection 94(8) and subsections (6), (7), (7.01), (13) and (20), an amount is deemed not to have become payable to a beneficiary in a taxation year unless it was paid in the year to the beneficiary or the beneficiary was entitled in the year to enforce payment of it.

(9) Subsections (1) to (6) and (8) apply to trust taxation years that begin after 2006. Subsection (1) also applies to a taxation year of a trust that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that taxation year of the trust. Subsections (2), (3), (5), (6) and (8) also apply to trust taxation years that begin

(a) after 2000, if the trust makes a valid election under paragraph 17(2)(a) of this Act;

(b) after 2001, if the trust makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c) after 2002, if the trust makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d) after 2003, if the trust makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e) after 2004, if the trust makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f) after 2005, if the trust makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

(10) Subsection (7) applies to trust taxation years that begin after 2000.

24. (1) Paragraph 107(1.1)(b) of the Act is amended by striking out the word “or” at the end of subparagraph (i), by adding the word “or” at the end of subparagraph (ii) and by adding the following after subparagraph (ii):

(iii) at a time in a taxation year at which that cost is relevant, the interest is a participating interest in respect of which subsection 94.1(3) or 94.2(9) applies to the taxpayer for that taxation year.

(2) Section 107 of the Act is amended by adding the following after subsection (4):

(4.01) Subsection (2.1) applies (and subsection (2) does not apply) at any time to a distribution to a beneficiary by a trust of a property that is at that time a specified participating interest.

(3) Subsection (1) applies to taxation years that begin after 2006, except that that subsection also applies to a taxation year of a taxpayer that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that taxation year of the taxpayer.

(4) Subsection (2) applies to distributions that occur in taxation years that begin after 2006, except that that subsection also applies to distributions that occur in a taxation year of the taxpayer that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that taxation year of the taxpayer.

25. (1) Subsection 107.4(1) of the Act is amended by striking out the word “and” at the end of paragraph (i), by adding the word “and” at the end of paragraph (j) and by adding the following after paragraph (j):

(k) the property is not, immediately before the disposition, a specified participating interest.

(2) Subsection (1) applies to dispositions that occur in taxation years that begin after 2006, except that that subsection also applies to dispositions that occur in a taxation year of the taxpayer that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that taxation year of the taxpayer.

26. (1) The definition “income interest” in subsection 108(1) of the Act is replaced by the following:

“income interest”, of a taxpayer in a trust, means a right (whether immediate or future and whether absolute or contingent) of the taxpayer as a beneficiary under a personal trust to, or to receive, all or any part of the income of the trust and, at any timeafter 1999

(a) subject to paragraph (b), includes a right (other than a right acquired before 2000 and disposed of before March 2000) to enforce payment of an amount by the trust that arises as a consequence of any such right; and

(b) does not include a participating interest in respect of which subsection 94.1(3) or 94.2(9) applies to the taxpayer for the taxpayer’s taxation year that includes that time;

(2) The portion of the definition “cost amount” in subsection 108(1) before paragraph (a) is replaced by the following:

“cost amount” to a taxpayer at any time of a capital interest or part of it, as the case may be, in a trust, means (notwithstanding subsection 248(1) and except for the purposes of section 107.4 and, if that time is in a taxation year of the trust that began before 2007 (or, where sections 94.1 to 94.4 apply to a taxation year of the trust that begins before 2007, if that time is in a taxation year of the trust that began before the first day of the first such taxation year to which those sections apply), except in respect of a capital interest in a trust that is at that time a foreign affiliate of the taxpayer),

(3) Paragraph (a.1) of the definition “trust” in subsection 108(1) of the Act is replaced by the following:

(a.1) a trust (other than a trust described in paragraph (a) or (d), a trust to which subsection 7(2) or (6) applies or a trust prescribed for the purpose of subsection 107(2)) all or substantially all of the property of which is held for the purpose of providing benefits to individuals each of whom is provided with benefits in respect of, or because of, an office or employment or former office or employment of any indi- vidual,

(4) The portion of subsection 108(3) of the Act before paragraph (a) is replaced by the following:

(3) For the purposes of the definitions “income interest” in subsection (1), “lifetime benefit trust”in subsection 60.011(1) and “exempt foreign trust” in subsection 94(1), the income of a trust is its income computed without reference to the provisions of this Act and, for the purposes of the definition “pre-1972 spousal trust” in subsection (1) and paragraphs 70(6)(b) and (6.1)(b), 73(1.01)(c) and 104(4)(a), the income of a trust is its income computed without reference to the provisions of this Act, minus any dividends included in that income

(5) The portion of subsection 108(7) of the Act before paragraph (a) is replaced by the following:

(7) For the purposes of paragraph 53(2)(h), paragraph (b) of the definition “exempt amount” in subsection 94(1), subsection 107(1), paragraph (j) of the definition “excluded right or interest” in subsection 128.1(10) and paragraph (b) of the definition “personal trust” in subsection 248(1),

(6) Subsections (1) to (3) apply to trust taxation years that begin after 2006. Subsections (1) and (2) also apply to trust taxation years that begin before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that taxation year of the trust. Subsection (3) also applies to trust taxation years that begin

(a) after 2000, if the trust makes a valid election under paragraph 17(2)(a) of this Act;

(b) after 2001, if the trust makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c) after 2002, if the trust makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d) after 2003, if the trust makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e) after 2004, if the trust makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f) after 2005, if the trust makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

(7) Subsection (4) applies to trust taxation years that begin after 2000.

(8) Subsection (5) applies in determining after 2006 (or, where section 94 of the Act, as enacted by subsection 17(1), applies to a taxation year of the trust that begins before 2007, on or after the first day of the first such taxation year to which that section applies), whether an interest in a trust has been acquired for consideration.

27. (1) Clause 113(1)(b)(i)(A) of the Act is replaced by the following:

(A) the corporation’s relevant tax factor for the year

(2) Clause 113(1)(c)(i)(B) of the Act is replaced by the following:

(B) the corporation’s relevant tax factor for the year, and

(3) Subsections (1) and (2) apply after 2000.

28. (1) The portion of section 114 of the Act before paragraph (a) is replaced by the following:

114. Notwithstanding subsection 2(2) and subject to subsection 94.2(5), the taxable income for a taxation year of an individual who is resident in Canada throughout part of the year and non-resident throughout another part of the year is the amount, if any, by which

(2) Subsection (1) applies to taxation years that begin after 2006, except that that subsection also applies to a taxation year of a taxpayer that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that taxation year of the taxpayer.

29. (1) Subparagraph 115(1)(a)(vii) of the Act is replaced by the following:

(vii) in the case of an authorized foreign bank,

(A) the amount claimed by the bank to the extent that the inclusion of the amount in income

(I) increases any amount deductible by the bank under subsection 126(1) for the year, and

(II) does not increase an amount deductible by the bank under section 127 for the year, and

(B) all amounts required by paragraph 12(1)(k) to be included in computing the bank’s income, except to the extent that

(I) subparagraph (ii) or clause (A) applies to those amounts, or

(II) those amounts are in respect of a business of the bank that is not its Canadian banking business,

(2) Subsection (1) applies to taxation years that begin after July 18, 2005.

30. (1) The portion of subsection 122(2) of the Act before paragraph (a) is replaced by the following:

(2) Subsection (1) does not apply for a taxation year of an inter vivos trust that is not a mutual fund trust and that

(2) Subsection 122(2) of the Act is amended by adding the following after paragraph (d):

(d.1) was not a trust to which a contribution (as defined by section 94 as it reads for trust taxation years that begin in 2007) was made after June 22, 2000;

(3) Subsections (1) and (2) apply to trust taxation years that begin after 2002.

31. (1) Paragraph 126(1)(a) of the Act is replaced by the following:

(a) the part of any non-business income tax paid by the taxpayer for the year to the government of a country other than Canada that the taxpayer claims,

(2) Section 126 of the Act is amended by adding the following after subsection (1.1):

(1.2) Subsection (1) does not apply to non-business income tax paid by

(a) a taxpayer, in respect of a particular amount that is included in computing, in respect of the taxpayer, the amount determined under subparagraph 94.4(2)(a)(i) in respect of a participating interest of the taxpayer, if the taxpayer made a deduction under subsection 94.4(3) in respect of the particular amount; and

(b) a corporation in respect of income from a share of the capital stock of a foreign affiliate of the corporation.

(3) Subsections (1) and (2) apply to taxation years that begin after 2006, except that those subsections also apply to a taxation year of a taxpayer that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that taxation year of the taxpayer.

32. (1) Section 128.1 of the Act is amended by adding the following after subsection (1):

(1.1) Paragraph (1)(b) does not apply, at a time in a particular taxation year of a trust, to the trust if the trust is resident in Canada for the particular taxation year for the purpose of computing its income.

(2) Subsection (1) applies to trust taxation years that begin after 2006. Subsection (1) also applies to trust taxation years that begin

(a) after 2000, if the trust makes a valid election under paragraph 17(2)(a) of this Act;

(b) after 2001, if the trust makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c) after 2002, if the trust makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d) after 2003, if the trust makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e) after 2004, if the trust makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f) after 2005, if the trust makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

33. (1) Paragraph 149(10)(c) of the Act is replaced by the following:

(c) for the purposes of applying sections 37, 65 to 66.4, 66.7, 94.1 to 94.4, 111 and 126, subsections 127(5) to (35) and section 127.3 to the corporation, the corporation is deemed to be a new corporation the first taxation year of which began at that time; and

(2) Subsection (1) applies to each corporation that, after 2006 (or, if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to a taxation year of the corporation that begins before 2007, on or after the first day of the first such taxation year), becomes or ceases to be exempt from tax on its taxable income under Part I of the Act.

34. (1) Subparagraph 152(4)(b)(vi) of the Act is replaced by the following:

(vi) is made in order to give effect to the application of subsection 94(9) or (10) or 118.1(15) or (16).

(2) Subsection (1) applies after 2006, except that, if section 94 of the Act, as enacted by subsection 17(1), applies to a taxation year of a taxpayer that begins before 2007, subsection (1) applies on or after the first day of the first such taxation year of the taxpayer to which that section 94 applies.

35. (1) Section 160 of the Act is amended by adding the following after subsection (2):

(2.1) The Minister may at any time assess a taxpayer in respect of any amount payable because of paragraph 94(3)(d) or (e) and the provisions of this Division (including, for greater certainty, the provisions in respect of interest payable) apply, with any modifications that the circumstances require, in respect of an assessment made under this section as though it had been made under section 152 in respect of taxes payable under this Part.

(2) The portion of subsection 160(3) of the Act before paragraph (a) is replaced by the following:

(3) Where a particular taxpayer has become jointly and severally, or solidarily, liable with another taxpayer under this section or because of paragraph 94(3)(d) or (e) in respect of part or all of a liability under this Act of the other taxpayer,

(3) Subsections (1) and (2) apply to assessments made after 2006, except that, if section 94 of the Act, as enacted by subsection 17(1), applies to a taxation year of a taxpayer that begins before 2007, subsection (1) applies to assessments made on or after the first day of the first such taxation year of the taxpayer to which that section 94 applies.

36. (1) Paragraph (c) of the description of A in subsection 162(10.1) of the French version of the Act is replaced by the following:

(2) Paragraph (d) of the description of A in subsection 162(10.1) of the English version of the Act is replaced by the following:

(d) where the return is required to be filed under section 233.2 in respect of a trust, 5% of the total of all amounts each of which is the fair market value, at the time it was made, of a contribution of the person or partnership made to the trust before the end of the last taxation year of the trust in respect of which the return is required,

(3) Section 162 of the Act is amended by adding the following after subsection (10.1):

(10.11) In paragraph (d) of the description of A in subsection (10.1), subsections 94(1), (2) and (9) apply, except that the references to the expression “(other than a restricted property)” in the definition “arm’s length transfer” in subsection 94(1) are to be read as references to the expression “(other than property that is not described in any of subclauses (b)(i)(A)(I) to (III) but to which paragraph 94(2)(g) applies)”.

(4) The portion of subsection 162(10.3) of the Act before paragraph (a) is replaced by the following:

(10.3) For the purposes of paragraph (f) of the description of A in subsection (10.1) and subsection (10.2), in determining whether a non-resident corporation is a foreign affiliate or a controlled foreign affiliate of a partnership,

(5) Subsection 162(10.4) of the Act is repealed.

(6) Subsections (1) to (5) apply to returns in respect of taxation years that begin after 2006. Subsections (1) to (5) also apply to returns in respect of taxation years that begin

(a) after 2000, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) of this Act;

(b) after 2001, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c) after 2002, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d) after 2003, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e) after 2004, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f) after 2005, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

37. (1) Paragraph 163(2.4)(b) of the Act is replaced by the following:

(b) where the return is required to be filed under section 233.2 in respect of a trust, the greater of

(i) $24,000, and

(ii) 5% of the total of all amounts each of which is the fair market value, at the time it was made, of a contribution of the person or partnership made to the trust before the end of the last taxation year of the trust in respect of which the return is required;

(2) Section 163 of the Act is amended by adding the following after subsection (2.4):

(2.41) In subparagraph (2.4)(b)(ii), subsections 94(1), (2) and (9) apply, except that the references to the expression “(other than a restricted property)” in the definition “arm’s length transfer” in subsection 94(1) are to be read as references to the expression “(other than property that is not described in any of subclauses (b)(i)(A)(I) to (III) but to which paragraph 94(2)(g) applies)”.

(3) The portion of subsection 163(2.6) of the Act before paragraph (a) is replaced by the following:

(2.6) For the purposes of paragraph (2.4)(d) and subsection (2.5), in determining whether a non-resident corporation is a foreign affiliate or a controlled foreign affiliate of a partnership,

(4) Subsection 163(2.91) of the Act is repealed.

(5) Subsections (1) to (4) apply to returns in respect of taxation years that begin after 2006. Subsections (1) to (4) also apply to returns in respect of taxation years that begin

(a) after 2000, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) of this Act;

(b) after 2001, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c) after 2002, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d) after 2003, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e) after 2004, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f) after 2005, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

38. (1) Subsection 215(1) of the Act is replaced by the following:

215. (1) When a person pays, credits or provides, or is deemed to have paid, credited or provided, an amount on which an income tax is payable under this Part, or would be so payable if this Act were read without reference to subparagraph 94(3)(a)(viii) and to subsection 216.1(1), the person shall, notwithstanding any agreement or law to the contrary, deduct or withhold from it the amount of the tax and forthwith remit that amount to the Receiver General on behalf of the non-resident person on account of the tax and shall submit with the remittance a statement in prescribed form.

(2) Subsection (1) applies to trust taxation years that begin after 2006. It also applies to trust taxation years that begin

(a) after 2000, if the trust makes a valid election under paragraph 17(2)(a) of this Act;

(b) after 2001, if the trust makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c) after 2002, if the trust makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d) after 2003, if the trust makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e) after 2004, if the trust makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f) after 2005, if the trust makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

39. (1) Section 216 of the Act is amended by adding the following after subsection (4):

(4.1) If a trust is deemed by subsection 94(3) to be resident in Canada for a taxation year for the purpose of computing the trust’s income for the year, a person who is otherwise required by subsection 215(3) to remit in the year, in respect of the trust, an amount to the Receiver General in payment of tax on rent on real or immovable property or on a timber royalty may elect in prescribed form filed with the Minister under this subsection not to remit under subsection 215(3) in respect of amounts received after the election is made, and if that election is made, the elector shall,

(a) when any amount is available out of the rent or royalty received for remittance to the trust, deduct 25% of the amount available and remit the amount deducted to the Receiver General on behalf of the trust on account of the trust’s tax under Part I; and

(b) if the trust does not file a return for the year as required by section 150, or does not pay the tax that the trust is liable to pay under Part I for the year within the time required by that Part, on the expiration of the time for filing or payment, as the case may be, pay to the Receiver General, on account of the trust’s tax under Part I, the amount by which the full amount that the elector would otherwise have been required to remit in the year in respect of the rent or royalty exceeds the amounts that the elector has remitted in the year under paragraph (a) in respect of the rent or royalty.

(2) Subsection (1) applies to trust taxation years that begin after 2006, except that

(a) that subsection also applies to a trust taxation year beginning before 2007 if section 94 of the Act, as enacted by subsection 17(1), applies to that taxation year of the trust; and

(b) an election referred to in subsection 216(4.1) of the Act, as enacted by subsection (1), is deemed to have been filed with the Minister of National Revenue on a timely basis if it is filed with the Minister of National Revenue on or before the trust’s filing-due date for the taxation year of the trust that includes the day on which this Act is assented to.

40. (1) The definitions “specified beneficiary” and “specified foreign trust” in subsection 233.2(1) of the Act are repealed.

(2) Subsections 233.2(2) and (3) of the Act are replaced by the following:

(2) In this section and paragraph 233.5(c.1), subsections 94(1), (2) and (10) to (13) apply, except that the references to the expression “(other than a restricted property)” in the definition “arm’s length transfer” in subsection 94(1) are to be read as references to the expression “(other than property that is not described in any of subclauses (b)(i)(A)(I) to (III) but to which paragraph 94(2)(g) applies)”.

(3) Subsection 233.2(4) of the Act is replaced by the following:

(4) A person shall file an information return in prescribed form, in respect of a taxation year of a particular trust (other than an exempt trust or a trust described in any of paragraphs (c) to (h) of the definition “exempt foreign trust” in subsection 94(1)), with the Minister on or before the person’s filing-due date for the person’s taxation year in which the particular trust’s taxation year ends if

(a) the particular trust is non-resident at a specified time in that taxation year of the particular trust;

(b) the person is a contributor, a connected contributor or a resident contributor to the particular trust; and

(c) the person

(i) is resident in Canada at that specified time, and

(ii) is not, at that specified time,

(A) a mutual fund corporation,

(B) a non-resident-owned investment corporation,

(C) a person all of whose taxable income for the person’s taxation year that includes that time is exempt from tax under Part I,

(D) a mutual fund trust,

(E) a trust described in any of paragraphs (a) to (e.1) of the definition “trust” in subsection 108(1),

(F) a registered investment,

(G) a trust in which all persons beneficially interested are persons described in clauses (A) to (F), or

(H) a person who is a contributor to the particular trust by reason only of being a contributor to a trust described in any of clauses (C) to (G).

(4.1) In this section and sections 162, 163 and 233.5, a person’s obligations under subsection (4) (except to the extent that they are waived in writing by the Minister) are to be determined as if a transfer or loan were a contribution to which paragraph (4)(b) applied, an arrangement or entity were a non-resident trust throughout the calendar year that includes the time referred to in paragraph (a) and that calendar year were a taxation year of the arrangement or entity, if

(a) the person at any time, directly or indirectly, transferred or loaned the property to be held

(i) under the arrangement and the arrangement is governed by laws that are not laws of Canada or a province, or

(ii) by the entity and the entity is a non-resident entity (as defined by subsection 94.1(1));

(b) the transfer or loan is not an arm’s length transfer;

(c) the transfer or loan is not solely in exchange for property that would be described in paragraphs (a) to (i) of the definition “specified foreign property” in subsection 233.3(1) if that definition were read without reference to paragraphs (j) to (q);

(d) the arrangement or entity is not a trust in respect of which the person would, if this Act were read without reference to this subsection, be required to file an information return for a taxation year that includes that time; and

(e) the arrangement or entity is, for a taxation year or fiscal period of the arrangement or entity that includes that time, not

(i) an exempt foreign trust (as defined in subsection 94(1)),

(ii) a foreign affiliate in respect of which the person is a reporting entity (within the meaning assigned by subsection 233.4(1)), or

(iii) an exempt trust.

(4) Subsections (1) to (3) apply to returns in respect of trust taxation years that begin after 2006. Subsections (1) to (3) also apply to returns in respect of trust taxation years that begin

(a) after 2000, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) of this Act;

(b) after 2001, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c) after 2002, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d) after 2003, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e) after 2004, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f) after 2005, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

However, for returns in respect of trust taxation years that end on or before July 18, 2005, paragraphs 233.2(4)(a) and (b) of the Act, as enacted by subsection (3), are to be read as follows:

(a) the particular trust is non-resident at the end of that taxation year of the particular trust;

(b) a contribution has been made by the person to the particular trust at any time in that taxation year of the particular trust or in a preceding taxation year of the particular trust; and

(5) A return required to be filed by a person because of subsection 233.2(4) of the Act, as enacted by subsection (3), is deemed to have been filed with the Minister of National Revenue on a timely basis if it is filed with the Minister of National Revenue on or before the person’s filing-due date for the person’s taxation year that includes the day on which this Act is assented to.

41. (1) Subparagraph (a)(iv) of the definition “bien étranger déterminé” in subsection 233.3(1) of the French version of the Act is replaced by the following:

(2) Paragraph (a) of the definition “bien étranger déterminé” in subsection 233.3(1) of the French version of the Act is amended by adding the following after subparagraph (iv):

(3) Subparagraph (b)(iii) of the definition “bien étranger déterminé” in subsection 233.3(1) of the French version of the Act is repealed.

(4) Paragraph (d) of the definition “specified foreign property” in subsection 233.3(1) of the English version of the Act is replaced by the following:

(d) an interest in a non-resident trust,

(5) The definition “specified foreign property” in subsection 233.3(1) of the English version of the Act is amended by adding the following after paragraph (d):

(d.1) an interest in an insurance policy that is deemed by subsection 94.2(11) to be a participating interest in a non-resident entity,

(6) Paragraph (l) of the definition “specified foreign property” in subsection 233.3(1) of the English version of the Act is repealed.

(7) Subsections (1), (3), (4) and (6) apply to returns in respect of trust taxation years that begin after 2006. Subsections (1), (3), (4) and (6) also apply to returns in respect of trust taxation years that begin

(a) after 2000, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) of this Act;

(b) after 2001, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c) after 2002, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d) after 2003, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e) after 2004, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f) after 2005, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

(8) Subsections (2) and (5) apply to returns for taxation years that begin after 2006.

42. (1) Subsection 233.4(1) of the Act is amended by adding the word “and” at the end of paragraph (a) and by repealing paragraph (b).

(2) Subparagraph 233.4(1)(c)(ii) of the Act is replaced by the following:

(ii) of which a non-resident corporation is a foreign affiliate at any time in the fiscal period.

(3) The portion of subsection 233.4(2) of the Act before paragraph (a) is replaced by the following:

(2) For the purpose of this section, in determining whether a non-resident corporation is a foreign affiliate or a controlled foreign affiliate of a taxpayer resident in Canada or of a partnership

(4) Subsections (1) to (3) apply to taxation years and fiscal periods that begin after 2006. Subsections (1) to (3) also apply to taxation years and fiscal periods that begin

(a) after 2000, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2001, 2002, 2003, 2004, 2005 or 2006 and the trust makes a valid election under paragraph 17(2)(a) of this Act;

(b) after 2001, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2002, 2003, 2004, 2005 or 2006 and the trust makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c) after 2002, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2003, 2004, 2005 or 2006 and the trust makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d) after 2003, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2004, 2005 or 2006 and the trust makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e) after 2004, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2005 or 2006 and the trust makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f) after 2005, if the taxation year or fiscal period relates to a trust the taxation year of which begins in 2006 and the trust makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

43. (1) Paragraph 233.5(c) of the Act is replaced by the following:

(c) if the return is required to be filed under section 233.2 in respect of a trust, at the time of each transaction, if any, entered into by the person or partnership after March 5, 1996 and before June 23, 2000 that gave rise to the requirement to file a return for a taxation year of the trust that began before 2007 or that affects the information to be reported in the return, it was reasonable to expect that sufficient information would be available to the person or partnership to comply with section 233.2 in respect of each taxation year of the trust that began before 2007;

(c.1) if the return is required to be filed under section 233.2, at the time of each contribution (determined with reference to subsection 233.2(2)) made by the person or partnership after June 22, 2000 that gives rise to the requirement to file the return or that affects the information to be reported in the return, it was reasonable to expect that sufficient information would be available to the person or partnership to comply with section 233.2;

(c.2) if the return is required to be filed under section 233.4 by a person or partnership in respect of a corporation that is a controlled foreign affiliate for the purpose of that section of the person or partnership, at the time of each transaction, if any, entered into by the person or partnership after March 5, 1996 that gives rise to the requirement to file the return or that affects the information to be reported in the return, it was reasonable to expect that sufficient information would be available to the person or partnership to comply with section 233.4; and

(2) Subsection (1) applies to returns in respect of taxation years that begin after 2006. Subsection (1) also applies to returns in respect of taxation years that begin

(a) in 2001, 2002, 2003, 2004, 2005 or 2006, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) of this Act;

(b) in 2002, 2003, 2004, 2005 or 2006, if the return relates to a trust that makes a valid election under paragraph 17(2)(a) or (b) of this Act;

(c) in 2003, 2004, 2005 or 2006, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (c) of this Act;

(d) in 2004, 2005 or 2006, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (d) of this Act;

(e) in 2005 or 2006, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (e) of this Act; and

(f) in 2006, if the return relates to a trust that makes a valid election under any of paragraphs 17(2)(a) to (f) of this Act.

44. (1) The definition “amount” in subsection 248(1) of the Act is amended by striking out the word “and” at the end of paragraph (b) and by adding the following after paragraph (b):

(b.1) in the case of a stock dividend paid by a corporation that is, when the dividend is paid, a non-resident corporation, the “amount” of any stock dividend is, except where subsection 95(7) applies to the dividend, the greater of

(i) the amount by which the paid-up capital of the corporation that paid the dividend is increased by reason of the payment of the dividend, and

(ii) the fair market value of the share or shares paid as a stock dividend at the time of payment, and

(2) The definition “controlled foreign affiliate” in subsection 248(1) of the Act is replaced by the following:

“controlled foreign affiliate” has, except as expressly otherwise provided in this Act, the meaning assigned by subsection 95(1);

(3) The definition “cost amount” in subsection 248(1) of the Act is amended by adding the following after paragraph (c.1):

(c.2) where the cost at that time to the taxpayer of the property is determined under subsection 94.2(13), the cost so determined,

(4) The definition “disposition” in subsection 248(1) of the Act is amended by adding the following after paragraph (b):

(b.1) where the property is an interest in a life insurance policy, a disposition within the meaning of section 148,

(5) The definition “inventory” in subsection 248(1) of the Act is replaced by the following:

“inventory” means a description of property of a taxpayer (other than a property in respect of which subsection 94.1(4) or 94.2(3) applies to the taxpayer for a taxation year) the cost or value of which is relevant in computing the taxpayer’s income from a business for a taxation year or would have been so relevant if the income from the business had not been computed in accordance with the cash method and, with respect to a farming business, includes all of the livestock held in the course of carrying on the business;

(6) The definition “share” in subsection 248(1) of the Act is replaced by the following:

“share”, except as the context otherwise requires, means a share or a fraction of a share of the capital stock of a corporation and, for greater certainty, a share of the capital stock of a corporation includes a share of the capital of a cooperative corporation (within the meaning assigned by subsection 136(2)), a share of the capital of an agricultural cooperative corporation (within the meaning assigned by subsection 135.1(1)) and a share of the capital of a credit union;

(7) Subsection 248(1) of the Act is amended by adding the following in alphabetical order:

“foreign accrual property income” has the meaning assigned by section 95;

“foreign investment entity” has the meaning assigned by section 94.1;

“participating interest” has the meaning assigned by section 94.1;

“specified participating interest” means a property of a taxpayer that is

(a) a participating interest of the taxpayer, other than an exempt interest (as defined by subsection 94.1(1)) of the taxpayer, in a foreign investment entity, or

(b) a participating interest of the taxpayer in a tracking entity (in this paragraph, as defined by subsection 94.2(1)), other than

(i) an exempt interest (as would be defined by subsection 94.1(1) if the definition “exempt interest” in that subsection were read without reference to subparagraphs (a)(i) and (ii) of that definition) of the taxpayer, in a tracking entity, or

(ii) a participating interest in respect of which subsection 94.2(9) does not apply to the taxpayer solely because of paragraph 94.2(9)(e);

(8) Subsection 248(3) of the Act is replaced by the following:

(3) For the purposes of this Act,

(a) if at any time property is subject to a usufruct, right of use or habitation, or substitution,

(i) the usufruct, right of use or habitation, or substitution, as the case may be, is deemed to be at that time

(A) a trust, and

(B) where the usufruct, right of use or habitation, or substitution, as the case may be, is created by will, a trust created by will,

(ii) the property is deemed

(A) where the usufruct, right of use or habitation, or substitution, as the case may be, arises on the death of a testator, to have been transferred to the trust on and as a consequence of the death of the testator, and not otherwise, and

(B) where the usufruct, right of use or habitation, or substitution, as the case may be, arises otherwise, to have been transferred (at the time it first became subject to the usufruct, right of use or habitation, or substitution, as the case may be) to the trust by the person that granted the usufruct, right of use or habitation, or substitution, and

(iii) the property is deemed to be, throughout the period in which it is subject to the usufruct, right of use or habitation, or substitution, as the case may be, held by the trust, and not otherwise;

(b) an arrangement (other than a partnership, an arrangement described in paragraph (c) or an arrangement that is a trust determined without reference to this paragraph) is deemed to be a trust and property subject to rights and obligations under the arrangement is, if the arrangement is deemed by this paragraph to be a trust, deemed to be held in trust and not otherwise, where the arrangement

(i) is established before October 31, 2003 by or under a written contract that

(A) is governed by the laws of the Province of Quebec, and

(B) provides that, for the purposes of this Act, the arrangement shall be considered to be a trust, and

(ii) creates rights and obligations that are substantially similar to the rights and obligations under a trust (determined without reference to this subsection);

(c) an arrangement (other than an arrangement that is a trust determined without reference to this paragraph) is deemed to be a trust and property subject to rights and obligations under the arrangement is, if the arrangement is deemed by this paragraph to be a trust, deemed to be held in trust and not otherwise, where the arrangement is

(i) established before 2010,

(ii) established by or under a written contract that is governed by the laws of the Province of Quebec,

(iii) entered into between an individual and a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee, and

(iv) established under or pursuant to a specimen plan or fund that

(A) is presented as a declaration of trust or provides that, for the purposes of this Act, the arrangement shall be considered to be a trust, and

(B) is approved by the Minister for the purpose of section 146 or 146.3 of the Act;

(d) a person who has a right (whether immediate or future and whether absolute or contingent) to receive all or part of the income or capital in respect of property that is referred to in paragraph (a) or (b) is deemed to be beneficially interested in the trust; and

(e) notwithstanding that a property is at any time subject to a servitude, the property is deemed to be beneficially owned by a person at that time if, at that time, the person has in relation to the property

(i) the right of ownership,

(ii) a right as a lessee under an emphyteusis, or

(iii) a right as a beneficiary in a trust.

(9) Subsection (1) applies to dividends declared on or after July 18, 2005.

(10) Subsections (2) to (4), (6) and (7) apply to taxation years that begin after 2006, except that those subsections also apply to a taxation year of a taxpayer that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that taxation year of the taxpayer.

(11) Subsection (5) applies to fiscal periods that begin after 2006, except that that subsection also applies to a fiscal period of a partnership that begins before 2007 if sections 94.1 to 94.4 of the Act, as enacted by subsection 18(1), apply to that fiscal period of the partnership.

(12) Subsection (8) applies to taxation years that begin after October 30, 2003.

(13) For taxation years that begin after 1988 and before October 31, 2003, paragraph 248(3)(d) of the Act shall, in its application to arrangements established under or pursuant to a specimen plan or fund approved by the Canada Revenue Agency for the purpose of section 146 or 146.3 of the Act and entered into between an individual and a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee, be read without reference to

(a) clause (i)(B) of that paragraph, if the specimen plan or fund is presented as a declaration of trust but does not provide that, for the purposes of the Act, the arrangement shall be considered to be a trust; and

(b) subparagraph (ii) of that paragraph.