Bill C-10

Income Tax Amendments Act, 2000

45. (1) Paragraph 53(2)(a) of the Income Tax Amendments Act, 2000 is replaced by the following:

(a) in respect of transfers that occur after 1999 and before 2007, for the purpose of subsection 73(1) of the Act, as enacted by subsection (1), the residence of a transferee trust shall be determined without reference to section 94 of the Act, as it reads in its application to taxation years that began before 2007;

(2) Subsection (1) is deemed to have come into force on June 14, 2001.

46. (1) Subsection 80(19) of the Act is replaced by the following:

(19) Subsections (1) to (4) apply to the 2000 and subsequent taxation years except that, in respect of transfers after 1999 and before 2007, for the purposes of subsection 107(1) of the Act, as enacted by this section, the residence of a transferee trust shall be determined without reference to section 94 of the Act, as it read in its application to taxation years that began before 2007.

(2) Subsection (1) is deemed to have come into force on June 14, 2001.

PART 2

GENERAL AMENDMENTS TO THE INCOME TAX ACT AND OTHER ACTS AS A CONSEQUENCE

Income Tax Act

47. (1) Paragraph 4(3)(a) of the Income Tax Act is replaced by the following:

(a) subject to paragraph (b), all deductions permitted in computing a taxpayer’s income for a taxation year for the purposes of this Part, except any deduction permitted by any of paragraphs 60(b) to (o), (p), (r) and (v) to (x), apply either wholly or in part to a particular source or to sources in a particular place; and

(2) Subsection (1) applies to the 2002 and subsequent taxation years.

48. (1) Section 6 of the Act is amended by adding the following after subsection (3):

(3.1) If an amount (other than an amount to which paragraph (1)(a) applies because of subsection (11)) is receivable at the end of a taxation year by a taxpayer in respect of a covenant, agreed to by the taxpayer more than 36 months before the end of that taxation year, with reference to what the taxpayer is, or is not, to do, and the amount would be included in the taxpayer’s income for the year under this subdivision if it were received by the taxpayer in the year, the amount

(a) is deemed to be received by the taxpayer at the end of the taxation year for services rendered as an officer or during the period of employment; and

(b) is deemed not to be received at any other time.

(2) Subsection 6(15.1) of the French version of the Act is replaced by the following:

(3) Subsection (1) applies to amounts receivable in respect of a covenant agreed to after October 7, 2003.

(4) Subsection (2) applies to taxation years that end after February 21, 1994.

49. (1) The portion of subsection 7(7) of the Act before the definition “qualifying person” is replaced by the following:

(7) The following definitions apply in this section and in subsection 47(3), paragraphs 53(1)(j) and 110(1)(d) and (d.01) and subsections 110(1.5) to (1.8) and (2.1).

(2) Subsection (1) applies after 1998. However,

(a) it does not apply to a right under an agreement to which subsection 7(7) of the Act, as enacted by subsection 3(7) of the Income Tax Amendments Act, 1998, does not (except for the purpose of applying paragraph 7(3)(b) of the Act) apply; and

(b) before 2000, the portion of subsection 7(7) of the Act, as enacted by subsection (1), before the definition “qualifying person” is to be read as follows:

(7) The definitions in this subsection apply in this section and in paragraph 110(1)(d) and subsections 110(1.5) to (1.8).

50. (1) Paragraph 8(1)(b) of the Act is replaced by the following:

(b) amounts paid by the taxpayer in the year as or on account of legal expenses incurred by the taxpayer to collect, or to establish a right to, an amount owed to the taxpayer that, if received by the taxpayer, would be required by this subdivision to be included in computing the taxpayer’s income;

(2) The portion of paragraph 8(1)(i) of the Act before subparagraph (i) is replaced by the following:

(i) an amount paid by the taxpayer in the year, or on behalf of the taxpayer in the year if the amount paid on behalf of the taxpayer is required to be included in the taxpayer’s income for the year, as

(3) Subsection 8(1) of the Act is amended by adding the following after paragraph (l.1):

(l.2) an amount payable by the taxpayer in the year as an employer’s premium under the Act respecting parental insurance, R.S.Q., c. A-29.011 in respect of salary, wages or other remuneration, including gratuities, paid to an individual employed by the taxpayer as an assistant or substitute to perform the duties of the taxpayer’s office or employment if an amount is deductible by the taxpayer for the year under subparagraph (i)(ii) in respect of that individual;

(4) Subsection (1) applies to amounts paid in the 2001 and subsequent taxation years.

(5) Subsection (3) applies to the 2006 and subsequent taxation years.

51. (1) Paragraph 12(1)(x) of the Act is amended by adding the following after subparagraph (v):

(v.1) is not an amount received by the taxpayer in respect of a restrictive covenant, as defined by subsection 56.4(1), that was included, under subsection 56.4(2), in computing the income of a person related to the taxpayer,

(2) Subparagraph 12(1)(x)(vii) of the French version of the Act is replaced by the following:

(3) Section 12 of the Act is amended by adding the following after subsection (2):

(2.01) Paragraph (1)(g) does not defer the inclusion in income of any amount that would, if this section were read without reference to that paragraph, be included in computing the taxpayer’s income in accordance with section 9.

(4) Subsection (1) applies after October 7, 2003.

52. (1) Subsection 13(1) of the Act is replaced by the following:

13. (1) If, at the end of a taxation year, the total of the amounts determined for E to K in the definition “undepreciated capital cost” in subsection (21) in respect of a taxpayer’s depreciable property of a particular prescribed class exceeds the total of the amounts determined for A to D.1 in that definition in respect of that property, the excess shall be included in computing the taxpayer’s income of the year.

(2) Subparagraph 13(4)(c)(ii) of the Act is replaced by the following:

(ii) the amount that has been used by the taxpayer to acquire

(A) if the former property is described in paragraph (a), before the later of the end of the second taxation year following the initial year and 24 months after the end of the initial year, or

(B) in any other case, before the later of the end of the first taxation year following the initial year and 12 months after the end of the initial year,

a replacement property of a prescribed class that has not been disposed of by the taxpayer before the time at which the taxpayer disposed of the former property, and

(3) Section 13 of the Act is amended by adding the following after subsection (4.1):

(4.2) Subsection (4.3) applies in circumstances where

(a) a taxpayer (in this subsection and subsection (4.3) referred to as the “transferor”) has, pursuant to a written agreement with a person or partnership (in this subsection and subsection (4.3) referred to as the “transferee”), at any time disposed of or terminated a former property that is a franchise, concession or licence for a limited period that is wholly attributable to the carrying on of a business at a fixed place;

(b) the transferee acquired the former property from the transferor or, on the termination, acquired a similar property in respect of the same fixed place from another person or partnership; and

(c) the transferor and the transferee jointly elect in their returns of income for their taxation years that include that time to have subsection (4.3) apply in respect of the acquisition and the disposition or termination.

(4.3) Where this subsection applies in respect of an acquisition and a disposition or termination,

(a) if the transferee acquired a similar property referred to in paragraph (4.2)(b), the transferee is deemed to have also acquired the former property at the time that the former property was terminated and to own the former property until the transferee no longer owns the similar property;

(b) if the transferee acquired the former property referred to in paragraph (4.2)(b), the transferee is deemed to own the former property until such time as the transferee owns neither the former property nor a similar property in respect of the same fixed place to which the former property related;

(c) for the purpose of calculating the amount deductible under paragraph 20(1)(a) in respect of the former property in computing the transferee’s income, the life of the former property remaining on its acquisition by the transferee is deemed to be equal to the period that was the life of the former property remaining on its acquisition by the transferor; and

(d) any amount that would, if this Act were read without reference to this subsection, be an eligible capital amount to the transferor or an eligible capital expenditure to the transferee in respect of the disposition or termination of the former property by the transferor is deemed to be

(i) neither an eligible capital amount nor an eligible capital expenditure,

(ii) an amount required to be included in computing the capital cost to the transferee of the former property, and

(iii) an amount required to be included in computing the proceeds of disposition to the transferor in respect of a disposition of the former property.

(4) Subsection (1) applies to taxation years that end after February 23, 1998.

(5) Subsection (2) applies in respect of dispositions that occur in taxation years that end on or after December 20, 2000, except that for those dispositions that occur in taxation years that end before December 20, 2001, clause 13(4)(c)(ii)(B) of the Act, as enacted by subsection (2), is to be read as follows:

(B) in any other case, before the end of the first taxation year following the initial year,

(6) Subsection (3) applies in respect of dispositions and terminations that occur after December 20, 2002.

53. (1) Paragraph 14(3)(a) of the Act is replaced by the following:

(a) the amount determined for E in the definition “cumulative eligible capital” in subsection (5) in respect of the disposition of the property by the transferor or, if the property is the subject of an election under subsection (1.01) by the transferor, 3/4 of the actual proceeds referred to in that subsection,

(2) The description of A in the definition “cumulative eligible capital” in subsection 14(5) of the Act is replaced by the following:

A      is the amount, if any, by which 3/4 of the total of all eligible capital expenditures in respect of the business made or incurred by the taxpayer after the taxpayer’s adjustment time and before that time exceeds the total of all amounts each of which is determined by the formula

1/2 × (A.1 - A.2) × (A.3/A.4)

where

A.1      is the amount required, because of paragraph (1)(b) or 38(a), to be included in the income of a person or partnership (in this definition referred to as the “transferor”) not dealing at arm’s length with the taxpayer in respect of the disposition after December 20, 2002 of a property that was an eligible capital property acquired by the taxpayer directly or indirectly, in any manner whatever, from the transferor and not disposed of by the taxpayer before that time,

A.2      is the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 by the transferor in respect of that disposition,

A.3      is the transferor’s proceeds from that disposition, and

A.4      is the transferor’s total proceeds of disposition of eligible capital property in the taxation year of the transferor in which the property described in A.1 was disposed of,

(3) The description of R in the definition “cumulative eligible capital” in subsection 14(5) of the Act is replaced by the following:

R      is the total of all amounts each of which is an amount included, in computing the taxpayer’s income from the business for a taxation year that ended before that time and after the taxpayer’s adjustment time

(a) in the case of a taxation year that ends after February 27, 2000, under paragraph (1)(a), or

(b) in the case of a taxation year that ended before February 28, 2000,

(i) under subparagraph (1)(a)(iv), as that subparagraph applied in respect of that taxation year, or

(ii) under paragraph (1)(b), as that paragraph applied in respect of that taxation year, to the extent that the amount so included is in respect of an amount included in the amount determined for P;

(4) Section 14 of the Act is amended by adding the following after subsection (5):

(5.1) The description of E in the definition “cumulative eligible capital” in subsection (5) does not apply to an amount that is received or receivable by a taxpayer in a taxation year if that amount is required to be included in the taxpayer’s income because of subsection 56.4(2).

(5) The portion of subsection 14(6) of the Act before paragraph (a) is replaced by the following:

(6) If in a taxation year (in this subsection referred to as the “initial year”) a taxpayer disposes of an eligible capital property (in this section referred to as the taxpayer’s “former property”) and the taxpayer so elects under this subsection in the taxpayer’s return of income for the year in which the taxpayer acquires an eligible capital property that is a replacement property for the taxpayer’s former property, the amount, not exceeding the amount that would otherwise be included in the amount determined for E in the definition “cumulative eligible capital” in subsection (5) (if the description of E in that definition were read without reference to “3/4 of”) in respect of a business, that has been used by the taxpayer to acquire the replacement property before the later of the end of the first taxation year after the initial year and 12 months after the end of the initial year

(6) Subsections (1) to (3) apply to taxation years that end after February 27, 2000, except that the expression “disposition after December 20, 2002 of a property that was an eligible capital property” in the description of A.1 in the description of A in the definition “cumulative eligible capital” in subsection 14(5) of the Act, as enacted by subsection (2), is to be read as the expression “disposition after 2003 of a property that was an eligible capital property” if

(a) the taxpayer referred to in that description of A.1 acquired the property referred to in that description from the transferor referred to in that description;

(b) the property was so acquired under an agreement in writing made before December 21, 2002, between the transferor, or a particular person that controlled the transferor, and another person who dealt at an arm’s length with the transferor and the particular person; and

(c) no clause in the agreement or any other arrangement allows an obligation of any party to the agreement to be changed, reduced or waived in the event of a change to, or an adverse assessment under, the Act.

(7) Subsection (4) applies after October 7, 2003.

(8) Subsection (5) applies in respect of dispositions that occur in taxation years that end on or after December 20, 2001.

54. (1) Subsection 15(1.21) of the French version of the Act is replaced by the following:

(2) Subsection 15(2) of the French version of the Act is replaced by the following:

(3) Subsection (1) applies to taxation years that end after February 21, 1994.

(4) Subsection (2) applies to loans made and indebtedness arising in the 1990 and subsequent taxation years.

55. (1) Subsection 18(1) of the Act is amended by striking out the word “and” at the end of paragraph (u), by adding the word “and” at the end of paragraph (v) and by adding the following after paragraph (v):

(w) except as expressly permitted, an amount that is deemed by subsection 260(5.1) to have been received by another person as an amount described in any of paragraphs 260(5.1)(a) to (c).

(2) Paragraph 18(14)(c) of the Act is replaced by the following:

(c) the disposition is not a disposition that is deemed to have occurred by section 70, subsection 104(4), section 128.1, paragraph 132.2(3)(a) or (c) or subsection 138(11.3) or 149(10);

(3) Subsection (1) applies after 2001.

(4) Subsection (2) applies to dispositions that occur after 1998.

56. (1) Subsection 18.1(15) of the Act is replaced by the following:

(15) Subsections (2) to (13) do not apply to a taxpayer’s matchable expenditure in respect of a right to receive production if

(a) the expenditure is in respect of commissions, or other expenses, related to the issuance of an insurance policy for which all or a portion of a risk has been ceded to the taxpayer; and

(b) the taxpayer and the person to whom the expenditure is made, or is to be made, are both insurers who are subject to the supervision of

(i) the Superintendent of Financial Institutions, if the taxpayer or that person, as the case may be, is an insurer who is required by law to report to the Superintendent of Financial Institutions, or

(ii) the Superintendent of Insurance, or other similar officer or authority, of the province under whose laws the insurer is incorporated, in any other case.

(16) Subsections (2) to (13) do not apply to a taxpayer’s matchable expenditure in respect of a right to receive production if

(a) no portion of the matchable expenditure can reasonably be considered to have been paid to another taxpayer, or to a person or partnership with whom the other taxpayer does not deal at arm’s length, to acquire the right from the other taxpayer;

(b) no portion of the matchable expenditure can reasonably be considered to relate to a tax shelter or a tax shelter investment (within the meaning assigned by subsection 143.2(1)); and

(c) none of the main purposes for making the matchable expenditure can reasonably be considered to have been to obtain a tax benefit for the taxpayer, a person or partnership with whom the taxpayer does not deal at arm’s length, or a person or partnership that holds, directly or indirectly, an interest in the taxpayer.

(17) Paragraph (4)(a) does not apply in determining the amount for a taxation year that may be deducted in respect of a taxpayer’s matchable expenditure in respect of a right to receive production if

(a) before the end of the taxation year in which the matchable expenditure is made, the total of all amounts each of which is included in computing the taxpayer’s income for the year (other than any portion of any of those amounts that is the subject of a reserve claimed by the taxpayer for the year under this Act) in respect of the right to receive production that relates to the matchable expenditure exceeds 80% of the matchable expenditure; and

(b) no portion of the matchable expenditure can reasonably be considered to have been paid to another taxpayer, or to a person or partnership with whom the other taxpayer does not deal at arm’s length, to acquire the right from the other taxpayer.

(2) Subject to subsection (3), subsection (1) applies in respect of expenditures made by a taxpayer on or after September 18, 2001 in respect of a right to receive production, except if

(a) the expenditure was

(i) required to be made under a written agreement made by the taxpayer before September 18, 2001,

(ii) made under, or described in, the terms of a prospectus, preliminary prospectus or registration statement that was, before September 18, 2001, filed with a public authority in Canada in accordance with the securities legislation of Canada or of a province and, if required by law, accepted for filing by the public authority before September 18, 2001, or

(iii) made under, or described in, the terms of an offering memorandum distributed as part of an offering of securities if

(A) the memorandum contains a complete, or substantially complete, description of the securities contemplated in the offering as well as the terms and conditions of the offering,

(B) the memorandum was distributed before September 18, 2001,

(C) solicitations in respect of a sale of the securities contemplated in the offering were made before September 18, 2001, and

(D) the sale of the securities contemplated in the offering was substantially in accordance with the memorandum;

(b) the expenditure was made before 2002;

(c) the expenditure was made in consideration for services that were rendered in Canada before 2002 in respect of an activity, or a business, all or substantially all of which was carried on in Canada;

(d) there is no agreement, or other arrangement, under which the obligation of any taxpayer in respect of the expenditure can, on or after September 18, 2001, be changed, reduced or waived if there is a change to, or an adverse assessment under, the Act;

(e) if the right to receive production is, or is related to, a tax shelter investment, a tax shelter identification number in respect of the tax shelter was obtained before September 18, 2001; and

(f) if the expenditure was made under, or described in, the terms of a document that is a prospectus, a preliminary prospectus, a registration statement or an offering memorandum (and regardless of whether the expenditure was also made under a written agreement)

(i) all of the funds raised pursuant to the document that may reasonably be used to make a matchable expenditure were received by the taxpayer before 2002,

(ii) all or substantially all of the securities distributed pursuant to the document for the purpose of raising the funds described in subparagraph (i) were acquired before 2002 by a person who is not

(A) a promoter, or an agent of a promoter, of the securities, other than an agent of the promoter who acquired the security as principal and not for resale,

(B) a vendor of the right to receive production,

(C) a broker or dealer in securities, other than a person who acquired the security as principal and not for resale, or

(D) a person who does not deal at arm’s length with a person to whom clause (A) or (B) applies, and

(iii) all or substantially all of the funds raised pursuant to the document before 2002 were used to make expenditures that were required to be made pursuant to agreements in writing made before September 18, 2001.

(3) Subsection (1) does not apply to an expenditure made by a taxpayer in respect of a right to receive production in respect of a particular film or video production if

(a) expenditures in respect of the particular film or video production

(i) were made before September 18, 2001 (as determined, for the purpose of this paragraph, without reference to subsection 143.2(10) of the Act, except if a repaid amount for the purposes of that subsection is paid after 2002), or

(ii) were required to be made by the taxpayer under a written agreement made before September 18, 2001 by the taxpayer;

(b) principal photography of the particular film or video production

(i) began before 2002,

(ii) was primarily completed before April 2002, and

(iii) was conducted primarily in Canada;

(c) the expenditure

(i) was made before April 2002 in the course of the taxpayer’s business of providing film production services in respect of the particular film or video production (as determined for the purpose of this subparagraph without reference to subsection 143.2(10) of the Act, except to the extent that a repaid amount for the purposes of that subsection is paid after 2002),

(ii) was made under, or described in, the terms of

(A) a prospectus, preliminary prospectus or registration statement that was, before September 18, 2001, filed with a public authority in Canada in accordance with the securities legislation of Canada or of a province and, if required by law, accepted for filing by the public authority before September 18, 2001, or

(B) an offering memorandum distributed as part of an offering of securities if

(I) the memorandum contains a complete, or substantially complete, description of the securities contemplated in the offering as well as the terms and conditions of the offering,

(II) the memorandum was distributed before September 18, 2001,

(III) solicitations in respect of a sale of the securities contemplated in the offering have been made before September 18, 2001, and

(IV) the sale of the securities contemplated in the offering was substantially in accordance with the memorandum, and

(iii) was not an amount in respect of advertising, marketing, promotion or market research;

(d) except where the particular film or video production is a designated production of the taxpayer, at least 75% of the total of all expenditures, each of which is an expenditure made by the taxpayer in the course of the business referred to in subparagraph (c)(i), is an expenditure described for the purpose of that subparagraph made in consideration for the supply of goods or services that are supplied or rendered in Canada before April 2002 by persons that are subject to tax on the expenditure under Part I or XIII of the Act;

(e) there is no agreement, or other arrangement, under which the obligation of any taxpayer to acquire a security distributed pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum can, after September 18, 2001, be changed, reduced or waived if there is a change to, or an adverse assessment under, the Act;

(f) if the right to receive production is, or is related to, a tax shelter investment, a tax shelter identification number in respect of the tax shelter was obtained before September 18, 2001;

(g) all of the funds raised pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum that may reasonably be used to make a matchable expenditure before April 2002 in respect of the particular film or video production are received by the taxpayer before 2003;

(h) all of the securities distributed pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum for the purpose of raising the funds described in paragraph (g) were acquired before 2002;

(i) all or substantially all of the securities distributed pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum for the purpose of raising the funds described in paragraph (g) were acquired by a person who is not

(i) a promoter, or an agent of a promoter, of the securities, other than an agent of the promoter who acquired the security as principal and not for resale,

(ii) a vendor of the right to receive production,

(iii) a broker or dealer in securities, other than a person who acquired the security as principal and not for resale, or

(iv) a person who does not deal at arm’s length with a person referred to in subparagraph (i) or (ii); and

(j) except where the particular film or video production is a designated production of the taxpayer, all or substantially all of the matchable expenditures made by the taxpayer that are wholly attributable to the principal photography of the particular film or video production are wholly attributable to principal photography conducted in Canada.

(4) For the purpose of paragraphs (3)(d) and (j), a designated production of a taxpayer is

(a) a film or video production in respect of which

(i) all of the expenditures made by the taxpayer in respect of the particular film or video production were required to be made under a written agreement made by the taxpayer before September 18, 2001,

(ii) if the taxpayer is a partnership,

(A) the taxpayer’s expenditures in respect of the particular film or video production were funded, in whole or in part, with funds raised from the initial contribution of capital of members of the taxpayer, pursuant to subscriptions in writing for the issue of units in the taxpayer,

(B) all or substantially all of those written subscriptions were received by the taxpayer on or before September 18, 2001,

(C) at least one member of the taxpayer referred to in subparagraph (i) is a partnership (in this subsection referred to as a “master partnership”),

(D) the subscriptions in writing of all master partnerships for units in the taxpayer were funded, in whole or in part, with funds raised from the initial contribution of capital of members of the master partnerships, pursuant to subscriptions in writing for the issue of units in the master partnerships, and

(E) all or substantially all of the subscriptions in writing referred to in clause (D) were received by the master partnership on or before September 18, 2001,

(iii) if a member of a particular master partnership is a partnership (in this subsection referred to as an “original master partnership”),

(A) the subscriptions in writing of all original master partnerships for units in the particular master partnership were funded, in whole or in part, with funds raised from the initial contribution of capital of members of the original master partnerships, pursuant to subscriptions in writing for the issue of units in the original master partnerships, and

(B) all or substantially all of those written subscriptions were received by the original master partnership on or before September 18, 2001, and

(iv) no member of an original master partnership is a partnership, an interest in which is a tax shelter; or

(b) a film or video production in respect of which

(i) principal photography was all or substantially all complete before September 18, 2001, and

(ii) all or substantially all of the taxpayer’s expenditures were made on or before September 18, 2001 (as determined, for the purpose of this paragraph, without reference to subsection 143.2(10) of the Act, except if a repaid amount for the purposes of that subsection is paid after 2002).

57. (1) Subsection 20(8) of the Act is amended by striking out the word “or” at the end of paragraph (a) and by adding the following after paragraph (b):

(c) the purchaser of the property sold was a corporation that, immediately after the sale,

(i) was controlled, directly or indirectly, in any manner whatever, by the taxpayer,

(ii) was controlled, directly or indirectly, in any manner whatever, by a person or group of persons that controlled the taxpayer, directly or indirectly, in any manner whatever, or

(iii) controlled the taxpayer, directly or indirectly, in any manner whatever; or

(d) the purchaser of the property sold was a partnership in which the taxpayer was, immediately after the sale, a majority interest partner.

(2) Subsection 20(12) of the Act is replaced by the following:

(12) In computing the income of a taxpayer who is resident in Canada at any time in a taxation year from a business or property for the year, there may be deducted any amount that the taxpayer claims that does not exceed the non-business income tax paid by the taxpayer for the year to the government of a country other than Canada (within the meaning assigned by subsection 126(7) read without reference to paragraphs (c) and (e) of the definition “non-business income tax” in that subsection) in respect of that income, other than any of those taxes paid that can, in whole or in part, reasonably be regarded as having been paid by a corporation in respect of income from a share of the capital stock of a foreign affiliate of the corporation.

(3) Paragraph 20(16)(a) of the Act is replaced by the following:

(a) the total of all amounts used to determine A to D.1 in the definition “undepreciated capital cost” in subsection 13(21) in respect of a taxpayer’s depreciable property of a particular class exceeds the total of all amounts used to determine E to K in that definition in respect of that property, and

(4) Subsection 20(16.1) of the Act is replaced by the following:

(16.1) Subsection (16) does not apply

(a) in respect of a passenger vehicle of a taxpayer that has a cost to the taxpayer in excess of $20,000 or any other amount that is prescribed; and

(b) in respect of a taxation year in respect of a property that was a former property deemed by paragraph 13(4.3)(a) or (b) to be owned by the taxpayer, if

(i) within 24 months after the taxpayer last owned the former property, the taxpayer or a person not dealing at arm’s length with the taxpayer acquires a similar property in respect of the same fixed place to which the former property applied, and

(ii) at the end of the taxation year, the taxpayer or the person owns the similar property or another similar property in respect of the same fixed place to which the former property applied.

(5) Subsection (1) applies in respect of property sold by a taxpayer after December 20, 2002. However, if a property so sold pursuant to an agreement in writing made before December 21, 2002 is transferred to the purchaser before 2004

(a) subsection 20(8) of the Act, as it read immediately before the enactment of subsection (1), applies in respect of the property; and

(b) for the purpose of applying paragraph 20(1)(n) of the Act to the taxpayer for a taxation year in respect of the property, a reasonable amount as a reserve in respect of an amount not due in respect of the sale may not exceed the amount that would be reasonable if the proceeds from any subsequent disposition of the property that the purchaser receives before the end of the taxation year were received by the taxpayer.

(6) Subsection (2) applies after December 20, 2002 in respect of taxes paid at any time.

(7) Subsection (3) applies to taxation years that end after February 23, 1998.

(8) Subsection (4) applies in respect of taxation years that end after December 20, 2002.

58. (1) Subclause 37(8)(a)(ii)(B)(V) of the Act is replaced by the following:

(V) the cost of materials consumed or transformed in the prosecution of scientific research and experimental development in Canada, or

(2) Subsection (1) applies to costs incurred after February 23, 1998.

59. (1) The Act is amended by adding the following after section 38:

38.1 If a taxpayer is entitled to an amount of an advantage in respect of a gift of property described in paragraph 38(a.1) or (a.2),

(a) those paragraphs apply only to that proportion of the taxpayer’s capital gain in respect of the gift that the eligible amount of the gift is of the taxpayer’s proceeds of disposition in respect of the gift; and

(b) paragraph 38(a) applies to the extent that the taxpayer’s capital gain in respect of the gift exceeds the amount of the capital gain to which paragraph 38(a.1) or (a.2) applies.

(2) Subsection (1) applies to gifts made after December 20, 2002.

60. (1) Paragraph 40(1.01)(c) of the Act is replaced by the following:

(c) the amount that the taxpayer claims in prescribed form filed with the taxpayer’s return of income for the particular year, not exceeding the eligible amount of the gift, where the taxpayer is not deemed by subsection 118.1(13) to have made a gift of property before the end of the particular year as a consequence of a disposition of the security by the donee or as a consequence of the security ceasing to be a non-qualifying security of the taxpayer before the end of the particular year.

(2) Paragraph 40(2)(a) 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) the purchaser of the property sold is a partnership in which the taxpayer was, immediately after the sale, a majority interest partner;

(3) Paragraph 40(3.14)(a) of the English version of the Act is replaced by the following:

(a) by operation of any law governing the partnership arrangement, the liability of the member as a member of the partnership is limited (except by operation of a provision of a statute of Canada or a province that limits the member’s liability only for debts, obligations and liabilities of the partnership, or any member of the partnership, arising from negligent acts or omissions, from misconduct or from fault of another member of the partnership or an employee, an agent or a representative of the partnership in the course of the partnership business while the partnership is a limited liability partnership);

(4) Paragraph 40(3.5)(b) of the Act is replaced by the following:

(b) a share of the capital stock of a corporation that is acquired in exchange for another share in a transaction is deemed to be a property that is identical to the other share if

(i) section 51, 86, or 87 applies to the transaction, or

(ii) the following conditions are met, namely,

(A) section 85.1 applies to the transaction,

(B) subsection (3.4) applied to a prior disposition of the other share, and

(C) none of the times described in any of subparagraphs (3.4)(b)(i) to (v) has occurred in respect of the prior disposition;

(5) Subsection (1) applies to gifts made after December 20, 2002.

(6) Subsection (2) applies to sales that occur after December 20, 2002.

(7) Subsection (3) applies after June 20, 2001.

(8) Subsection (4) applies to dispositions of property that occur after April 26, 1995, except that it does not apply to any of those dispositions by a person or partnership that occurred before 1996 and that is described in subsection 247(1) of the Income Tax Amendments Act, 1997 unless the person or partnership, as the case may be, made a valid election under subsection 247(2) of that Act.

61. (1) The portion of subsection 43(2) of the Act before the formula in paragraph (a) is replaced by the following:

(2) For the purposes of subsection (1) and section 53, where at any time a taxpayer disposes of a covenant or an easement to which land is subject or, in the case of land in the Province of Quebec, a real servitude, in circumstances where subsection 110.1(5) or 118.1(12) applies,

(a) the portion of the adjusted cost base to the taxpayer of the land immediately before the disposition that can reasonably be regarded as attributable to the covenant, easement or real servitude, as the case may be, is deemed to be equal to the amount determined by the formula

(2) Subsection (1) applies to gifts made after December 20, 2002.

62. (1) The portion of subsection 43.1(1) of the Act before paragraph (a) is replaced by the following:

43.1 (1) Notwithstanding any other provision of this Act, if at any time a taxpayer disposes of a remainder interest in real property (except as a result of a transaction to which subsection 73(3) would otherwise apply or by way of a gift to a donee described in the definition “total charitable gifts”, “total Crown gifts” or “total ecological gifts” in subsection 118.1(1)) to a person or partnership and retains a life estate or an estate pur autre vie (in this section called the “life estate”) in the property, the taxpayer is deemed

(2) Subsection (1) applies to dispositions that occur after February 27, 1995.

63. (1) Paragraphs 44(1)(c) and (d) of the Act are replaced by the following:

(c) if the former property is described in paragraph (a), before the later of the end of the second taxation year following the initial year and 24 months after the end of the initial year, and

(d) in any other case, before the later of the end of the first taxation year following the initial year and 12 months after the end of the initial year,

(2) Subsection 44(7) of the Act is amended by striking out the word “or” at the end of paragraph (a), by adding the word “or” at the end of paragraph (b) and by adding the following after paragraph (b):

(c) the former property of the taxpayer was disposed of to a partnership in which the taxpayer was, immediately after the disposition, a majority interest partner.

(3) Paragraph 44(1)(c) of the Act, as enacted by subsection (1), applies in respect of dispositions that occur in taxation years that end on or after December 20, 2000.

(4) Paragraph 44(1)(d) of the Act, as enacted by subsection (1), applies in respect of dispositions that occur in taxation years that end on or after December 20, 2001.

(5) Subsection (2) applies to dispositions of property by a taxpayer that occur after December 20, 2002. However, if a property so disposed of pursuant to an agreement in writing made before December 21, 2002 is transferred to the purchaser before 2004

(a) subsection 44(7) of the Act, as it read immediately before the enactment of subsection (2), applies in respect of the disposition of property; and

(b) for the purpose of applying subparagraph 44(1)(e)(iii) of the Act to the taxpayer for a taxation year in respect of the property, a reasonable amount as a reserve in respect of the proceeds of disposition may not exceed the amount that would be reasonable if the proceeds from any subsequent disposition of the property that the purchaser receives before the end of the taxation year were received by the taxpayer.

64. (1) The portion of subsection 44.1(6) of the Act before paragraph (b) is replaced by the following:

(6) For the purpose of this section, where an individual receives shares of the capital stock of a particular corporation that are eligible small business corporation shares of the individual (in this subsection referred to as the “new shares”) as the sole consideration for the disposition by the individual of shares issued by the particular corporation or by another corporation that were eligible small business corporation shares of the individual (in this subsection referred to as the “exchanged shares”), the new shares are deemed to have been owned by the individual throughout the period that the exchanged shares were owned by the individual if

(a) section 51, paragraph 85(1)(h), subsection 85.1(1), section 86 or subsection 87(4) applied to the individual in respect of the new shares; and

(2) The portion of subsection 44.1(7) of the Act before paragraph (b) is replaced by the following:

(7) For the purpose of this section, where an individual receives common shares of the capital stock of a particular corporation (in this subsection referred to as the “new shares”) as the sole consideration for the disposition by the individual of common shares of the particular corporation or of another corporation (in this subsection referred to as the “exchanged shares”), the new shares are deemed to be eligible small business corporation shares of the individual and shares of the capital stock of an active business corporation that were owned by the individual throughout the period that the exchanged shares were owned by the individual, if

(a) section 51, paragraph 85(1)(h), subsection 85.1(1), section 86 or subsection 87(4) applied to the individual in respect of the new shares;

(3) Paragraph 44.1(12)(b) of the Act is replaced by the following:

(b) the new shares (or shares for which the new shares are substituted property) were

(i) issued by the corporation that issued the old shares,

(ii) issued by a corporation that, at or immediately after the time of issue of the new shares, was a corporation that was not dealing at arm’s length with

(A) the corporation that issued the old shares, or

(B) the individual, or

(iii) issued, by a corporation that acquired the old shares (or by another corporation related to that corporation), as part of the transaction or event or series of transactions or events that included that acquisition of the old shares; and

(4) Section 44.1 of the Act is amended by adding the following after subsection (12):

(13) For the purpose of this section, an individual is deemed to dispose of shares that are identical properties in the order in which the individual acquired them.

(5) Subsections (1) and (2) apply to dispositions that occur after February 27, 2000.

(6) Subsection (3) applies in respect of dispositions that occur after February 27, 2004.

(7) Subsection (4) applies in respect of dispositions that occur after December 20, 2002. However, if an individual so elects in writing and files the election with the Minister of National Revenue on or before the individual’s filing-due date for the individual’s taxation year in which this Act is assented to, subsection (4) applies, in respect of the individual, to dispositions that occur after February 27, 2000.

65. (1) Paragraph 52(3)(a) of the Act is replaced by the following:

(a) where the stock dividend is a dividend, the amount, if any, by which

(i) the amount of the stock dividend

exceeds

(ii) the amount of the dividend that the shareholder may deduct under subsection 112(1) in computing the shareholder’s taxable income,

(2) Subsection (1) applies in respect of amounts received on or after November 9, 2006.

66. (1) Paragraph 53(1)(b) of the Act is replaced by the following:

(b) where the property is a share of the capital stock of a corporation resident in Canada, the amount, if any, by which

(i) the total of all amounts each of which is the amount of a dividend on the share deemed by subsection 84(1) to have been received by the taxpayer before that time

exceeds

(ii) the portion of the total determined under subparagraph (i) that relates to dividends

(A) in respect of which the taxpayer was permitted a deduction under subsection 112(1) in computing the taxpayer’s taxable income, and

(B) that arose directly or indirectly as a result of a conversion of contributed surplus into paid-up capital;

(2) Paragraph 53(1)(e) of the Act is amended by adding the following after subparagraph (iv):

(iv.1) each amount that is in respect of a specified amount described in subsection 80.2(1) and that is paid by the taxpayer to the partnership, to the extent that the amount paid is not deductible in computing the income of the taxpayer,

(3) Subparagraph 53(2)(c)(iii) of the Act is replaced by the following:

(iii) any amount deemed by subsection 110.1(4) or 118.1(8) to have been the eligible amount of a gift made, or by subsection 127(4.2) to have been an amount contributed, by the taxpayer by reason of the taxpayer’s membership in the partnership at the end of a fiscal period of the partnership ending before that time,

(4) The portion of subsection 53(4) of the Act before paragraph (a) is replaced by the following:

(4) If at any time in a taxation year a person or partnership (in this subsection referred to as the “vendor”) disposes of a specified property and the proceeds of disposition of the property are determined under paragraph 48.1(1)(c), section 70 or 73, subsection 85(1), paragraph 87(4)(a) or (c) or 88(1)(a), subsection 97(2) or 98(2), paragraph 98(3)(f) or (5)(f), subsection 104(4), paragraph 107(2)(a) or (2.1)(a), 107.4(3)(a) or 111(4)(e) or section 128.1,

(5) Subsection (1) applies in respect of dividends received on or after November 9, 2006.

(6) Subsection (2) applies to payments made in taxation years that end after 2002.

(7) Subsection (3) applies in respect of gifts and contributions made after December 20, 2002.

(8) Subsection (4) applies after February 27, 2004.

67. (1) Paragraph (c) of the definition “superficial loss” in section 54 of the Act is replaced by the following:

(c) a disposition deemed by paragraph 33.1(11)(a), subsection 45(1), section 50 or 70, subsection 104(4), section 128.1, paragraph 132.2(3)(a) or (c), subsection 138(11.3) or 142.5(2), paragraph 142.6(1)(b) or subsection 144(4.1) or (4.2) or 149(10) to have been made,

(2) Subsection (1) applies to dispositions that occur after 1998.

68. (1) The portion of subsection 54.1(1) of the English version of the Act before paragraph (a) is replaced by the following:

54.1 (1) A taxation year in which a taxpayer does not ordinarily inhabit the taxpayer’s property as a consequence of the relocation of the place of employment of the taxpayer or the taxpayer’s spouse or common-law partner while the taxpayer or the taxpayer’s spouse or common-law partner, as the case may be, is employed by an employer who is not a person to whom the taxpayer or the taxpayer’s spouse or common-law partner is related is deemed not to be a previous taxation year referred to in paragraph (d) of the definition “principal residence” in section 54 if

(2) Subsection (1) applies to the 2001 and subsequent taxation years except that, if a taxpayer and a person have jointly elected under section 144 of the Modernization of Benefits and Obligations Act, in respect of the 1998, 1999 or 2000 taxation years, subsection (1) applies to the taxpayer and the person in respect of the applicable taxation year and subsequent taxation years.

69. (1) The definition “specified class” in subsection 55(1) of the Act is amended by striking out the word “and” at the end of paragraph (b) and by replacing paragraph (c) with the following:

(c) no holder of the shares is entitled to receive on the redemption, cancellation or acquisition of the shares by the corporation or by any person with whom the corporation does not deal at arm’s length an amount (other than a premium for early redemption) that is greater than the total of the fair market value of the consideration for which the shares were issued and the amount of any unpaid dividends on the shares, and

(d) the shares are non-voting in respect of the election of the board of directors except in the event of a failure or default under the terms or conditions of the shares;

(2) Subsection 55(1) of the Act is amended by adding the following in alphabetical order:

“qualified person”, in relation to a distribution, means a person or partnership with whom the distributing corporation deals at arm’s length at all times during the course of the series of transactions or events that includes the distribution if

(a) at any time before the distribution,

(i) all of the shares of each class of the capital stock of the distributing corporation that includes shares that cause that person or partnership to be a specified shareholder of the distributing corporation (in this definition all of those shares in all of those classes are referred to as the “exchanged shares”) are, in the circumstances described in paragraph (a) of the definition “permitted exchange”, exchanged for consideration that consists solely of shares of a specified class of the capital stock of the distributing corporation (in this definition referred to as the “new shares”), or

(ii) the terms or conditions of all of the exchanged shares are amended (which shares are in this definition referred to after the amendment as the “amended shares”) and the amended shares are shares of a specified class of the capital stock of the distributing corporation,

(b) immediately before the exchange or amendment, the exchanged shares are listed on a prescribed stock exchange,

(c) immediately after the exchange or amendment, the new shares or the amended shares, as the case may be, are listed on a prescribed stock exchange,

(d) the exchanged shares would be shares of a specified class if they were not convertible into, or exchangeable for, other shares,

(e) the new shares or the amended shares, as the case may be, and the exchanged shares are non-voting in respect of the election of the board of directors of the distributing corporation except in the event of a failure or default under the terms or conditions of the shares, and

(f) no holder of the new shares or the amended shares, as the case may be, is entitled to receive on the redemption, cancellation or acquisition of the new shares or the amended shares, as the case may be, by the distributing corporation or by any person with whom the distributing corporation does not deal at arm’s length an amount (other than a premium for early redemption) that is greater than the total of the fair market value of the consideration for which the exchanged shares were issued and the amount of any unpaid dividends on the new shares or on the amended shares, as the case may be;

(3) Clause 55(3)(a)(iii)(B) of the Act is replaced by the following:

(B) property (other than shares of the capital stock of the dividend recipient) more than 10% of the fair market value of which was, at any time during the course of the series, derived from shares of the capital stock of the dividend payer,

(4) Paragraph 55(3.01)(d) of the Act is replaced by the following:

(d) proceeds of disposition are to be determined without reference to

(i) the expression “paragraph 55(2)(a) or” in paragraph (j) of the definition “proceeds of disposition” in section 54, and

(ii) section 93; and

(5) Clause 55(3.1)(b)(i)(B) of the Act is replaced by the following:

(B) the vendor (other than a qualified person in relation to the distribution) was, at any time during the course of the series, a specified shareholder of the distributing corporation or of the transferee corporation, and

(6) Paragraph 55(3.2)(h) of the Act is replaced by the following:

(h) in relation to a distribution each corporation (other than a qualified person in relation to the distribution) that is a shareholder and a specified shareholder of the distributing corporation at any time during the course of a series of transactions or events, a part of which includes the distribution made by the distributing corporation, is deemed to be a transferee corporation in relation to the distributing corporation.

(7) Section 55 of the Act is amended by adding the following after subsection (3.3):

(3.4) In determining whether a person is a specified shareholder of a corporation for the purposes of the definition “qualified person” in subsection (1), subparagraph (3.1)(b)(i) and paragraph (3.2)(h) as it applies for the purpose of subparagraph (3.1)(b)(iii), the expression “not less than 10% of the issued shares of any class of the capital stock of the corporation” in the definition “specified shareholder” in subsection 248(1) is to be read as the expression “not less than 10% of the issued shares of any class of the capital stock of the corporation, other than shares of a specified class (within the meaning of subsection 55(1))”.

(3.5) For the purposes of paragraphs (3.1)(c) and (d), a corporation formed by an amalgamation of two or more corporations (each of which is referred to in this subsection as a “predecessor corporation”) that were related to each other immediately before the amalgamation, is deemed to be the same corporation as, and a continuation of, each of the predecessor corporations.

(8) Section 55 of the Act is amended by adding the following after subsection (5):

(6) A share (in this subsection referred to as the “reorganization share”) is deemed, for the purposes of subsection 116(6) and the definition “taxable Canadian property” in subsection 248(1), to be listed on a prescribed stock exchange if

(a) a dividend, to which subsection (2) does not apply because of paragraph (3)(b), is received in the course of a reorganization;

(b) in contemplation of the reorganization

(i) the reorganization share is issued to a taxpayer by a public corporation in exchange for another share of that corporation (in this subsection referred to as the “old share”) owned by the taxpayer, and

(ii) the reorganization share is exchanged by the taxpayer for a share of another public corporation (in this subsection referred to as the “new share”) in an exchange that would be a permitted exchange if the definition “permitted exchange” were read without reference to paragraph (a) and subparagraph (b)(ii) of that definition;

(c) immediately before the exchange, the old share

(i) is listed on a prescribed stock exchange, and

(ii) is not taxable Canadian property of the taxpayer; and

(d) the new share is listed on a prescribed stock exchange.

(9) Subsection (1) applies in respect of shares issued after December 20, 2002.

(10) Subsections (2), (5) and (6) and subsection 55(3.4) of the Act, as enacted by subsection (7), apply in respect of dividends received after 1999.

(11) Subsections (3) and (4) apply to dividends received after February 21, 1994.

(12) Subsection 55(3.5) of the Act, as enacted by subsection (7), applies in respect of dividends received after April 26, 1995.

(13) Subsection (8) applies to shares that are issued after April 26, 1995.

70. (1) Paragraph 56(1)(a) of the Act is amended by striking out the word “or” at the end of subparagraph (v), by adding the word “or” at the end of subparagraph (vi) and by adding the following after subparagraph (vi):

(vii) a benefit under the Act respecting parental insurance R.S.Q., c. A-29.011;

(2) Subsection 56(1) of the Act is amended by adding the following after paragraph (l.1):

(m) any amount received by the taxpayer, or by a person who does not deal at arm’s length with the taxpayer, in the year on account of a debt in respect of which a deduction was made under paragraph 60(f) in computing the taxpayer’s income for a preceding taxation year;

(3) Paragraph 56(1)(r) of the Act is amended by striking out the word “or” at the end of subparagraph (ii), by adding the word “or” at the end of subparagraph (iii) and by adding the following after subparagraph (iii):

(iv) financial assistance provided under a program established by a government, or government agency, in Canada that provides income replacement benefits similar to income replacement benefits provided under a program established under the Employment Insurance Act;

(4) Section 56 of the Act is amended by adding the following after subsection (11):

(12) If an amount in respect of a foreign retirement arrangement is, as a result of a transaction, an event or a circumstance, considered to be distributed to an individual under the income tax laws of the country in which the arrangement is established, the amount is, for the purpose of paragraph (1)(a), deemed to be received by the individual as a payment out of the arrangement in the taxation year that includes the time of the transaction, event or circumstance.

(5) Subsection (1) applies to the 2006 and subsequent taxation years.

(6) Subsection (2) applies after October 7, 2003.

(7) Subsection (3) applies to the 2003 and subsequent taxation years.

(8) Subsection (4) applies to the 1998 and subsequent taxation years except that, for taxation years that end before 2002, subsection 56(12) of the Act, as enacted by subsection (4), is to be read as follows:

(12) For the purpose of paragraph (1)(a),

(a) if an amount in respect of a foreign retirement arrangement is considered, under section 408A(d)(3)(C) of the Internal Revenue Code of 1986 of the United States (in this subsection referred to as the “Code”), to be distributed to an individual as a result of a conversion of the arrangement after 1998 and before 2002, the amount is deemed to be received by the individual as a payment out of the arrangement in the taxation year that includes the time of the conversion; and

(b) if an individual received an amount as a payment out of or under a foreign retirement arrangement in 1998, or an amount is considered under section 408A(d)(3)(C) of the Code to be distributed to the individual as a result of a conversion of the arrangement in 1998, the individual was resident in Canada at the time of the receipt or conversion and the amount is an amount to which section 408A(d)(3)(A)(iii) of the Code applies,

(i) the amount is deemed not to have been received by the individual, and

(ii) an amount equal to the amount that is included under section 408A(d)(3)(A)(iii) or 408A(d)(3)(E) of the Code in the individual’s gross income for a particular taxable year is deemed to be an amount received by the individual, in the taxation year that includes the day on which the particular taxable year begins, as a payment out of the arrangement, where the expressions “gross income” and “taxable year” in this subparagraph have the meanings assigned to those expressions by the Code.

71. (1) The Act is amended by adding the following after section 56.3:

Restrictive Covenants

56.4 (1) The following definitions apply in this section.

“eligible corporation”, of a taxpayer, means a taxable Canadian corporation of which,

(a) the taxpayer holds, directly or indirectly, shares of the capital stock; and

(b) individuals with whom the taxpayer does not deal at arm’s length (determined without reference to paragraph 251(5)(b)) hold in aggregate, directly or indirectly, less than 10% of the issued and outstanding share capital which holdings have an aggregate fair market value of less than 10% of the fair market value of all of the issued and outstanding shares of that taxable Canadian corporation.

“eligible interest”, of a taxpayer, means capital property of the taxpayer that is

(a) a partnership interest in a partnership that carries on a business;

(b) a share of the capital stock of a corporation that carries on a business; or

(c) a share of the capital stock of a corporation 90% or more of the fair market value of which is attributable to eligible interests in one other corporation.

“goodwill amount”, of a taxpayer, is an amount received or receivable by the taxpayer as consideration for the disposition by the taxpayer of goodwill, and that is required by the description of E in the definition “cumulative eligible capital” in subsection 14(5) to be included in computing the cumulative eligible capital of a business carried on by the taxpayer through a permanent establishment located in Canada.

“permanent establishment” means a permanent establishment as defined for the purpose of subsection 16.1(1).

“restrictive covenant”, of a taxpayer, means an agreement entered into, an undertaking made, or a waiver of an advantage or right by the taxpayer (other than an agreement or undertaking for the disposition of the taxpayer’s property or — except where the obligation being satisfied is in respect of a right to property or services that the taxpayer acquired for less than its fair market value — for the satisfaction of an obligation described in section 49.1 that is not a disposition), whether legally enforceable or not, that affects, or is intended to affect, in any way whatever, the acquisition or provision of property or services by the taxpayer or by another taxpayer that does not deal at arm’s length with the taxpayer.

“taxpayer” includes a partnership.

(2) There is to be included in computing a taxpayer’s income for a taxation year the total of all amounts each of which is an amount in respect of a restrictive covenant of the taxpayer that is received or receivable in the taxation year by the taxpayer or by a taxpayer with whom the taxpayer does not deal at arm’s length (other than an amount that has been included in computing the taxpayer’s income because of this subsection for a preceding taxation year or in the taxpayer’s eligible corporation’s income because of this subsection for the taxation year or a preceding taxation year).

(3) Subsection (2) does not apply to an amount received or receivable by a particular taxpayer in a taxation year in respect of a restrictive covenant granted by the particular taxpayer to another taxpayer (referred to in this subsection and subsection (4) as the “purchaser”) with whom the particular taxpayer deals at arm’s length (determined without reference to paragraph 251(5)(b)), if

(a) section 5 or 6 applied to include the amount in computing the particular taxpayer’s income for the taxation year or would have so applied if the amount had been received in the taxation year;

(b) the amount would, if this Act were read without reference to this section, be required by the description of E in the definition “cumulative eligible capital” in subsection 14(5) to be included in computing the particular taxpayer’s cumulative eligible capital in respect of the business to which the restrictive covenant relates, and the particular taxpayer elects (or if the amount is payable by the purchaser in respect of a business carried on in Canada by the purchaser, the particular taxpayer and the purchaser jointly elect) in prescribed form to apply this paragraph in respect of the amount; or

(c) subject to subsection (10), the amount directly relates to the particular taxpayer’s disposition of property that is, at the time of the disposition, an eligible interest in the partnership or corporation that carries on the business to which the restrictive covenant relates, or that is at that time an eligible interest by virtue of paragraph (c) of the definition “eligible interest” where the other corporation referred to in that paragraph carries on the business to which the restrictive covenant relates, and

(i) the disposition is to the purchaser (or to a person related to the purchaser),

(ii) the amount is consideration for an undertaking by the particular taxpayer not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser (or by a person related to the purchaser),

(iii) the restrictive covenant may reasonably be considered to have been granted to maintain or preserve the value of the eligible interest disposed of to the purchaser;

(iv) if the restrictive covenant is granted on or after July 18, 2005, subsection 84(3) does not apply to the disposition,

(v) neither section 85 nor subsection 97(2) applies to the disposition of the eligible interest by the particular taxpayer,

(vi) the amount is added to the particular taxpayer’s proceeds of disposition, as defined by section 54, for the purpose of applying this Act to the disposition of the particular taxpayer’s eligible interest, and

(vii) the particular taxpayer and the purchaser elect in prescribed form to apply this paragraph in respect of the amount.

(4) An amount paid or payable by a purchaser for a restrictive covenant is

(a) if the amount is required because of section 5 or 6 to be included in computing the income of an employee of the purchaser, to be considered to be wages paid or payable by the purchaser to the employee;

(b) if an election has been made under paragraph (3)(b) in respect of the amount, to be considered to be incurred by the purchaser on account of capital for the purpose of applying the definition “eligible capital expenditure” in subsection 14(5) and not to be an amount paid or payable for all other purposes of the Act; and

(c) if an election has been made under paragraph (3)(c), in respect of the amount and the amount relates to the purchaser’s acquisition of property that is, immediately after the acquisition, an eligible interest of the purchaser, to be included in computing the cost to the purchaser of that interest and considered not to be an amount paid or payable for all other purposes of the Act.

(5) If this subsection applies in respect of a restrictive covenant granted by a taxpayer, section 68 does not apply to deem consideration to be received or receivable by the taxpayer for the restrictive covenant.

(6) Subsection (5) applies to a restrictive covenant if

(a) the restrictive covenant is granted by an individual to another taxpayer with whom the individual deals at arm’s length (referred to in this subsection as the “purchaser”);

(b) the restrictive covenant directly relates to the acquisition from one or more other persons (in this subsection and subsection (8) referred to as the “vendors”) by the purchaser of an interest in the individual’s employer, in a corporation related to that employer or in a business carried on by that employer;

(c) the individual deals at arm’s length with the employer and with the vendors;

(d) the restrictive covenant is an undertaking by the individual not to provide, directly or indirectly, property or services in competition with property or services provided or to be provided by the purchaser (or by a person related to the purchaser) in the course of carrying on the business to which the restrictive covenant relates;

(e) no proceeds are received or receivable by the individual for granting the restrictive covenant; and

(f) the amount that can reasonably be regarded to be consideration for the restrictive covenant is received or receivable only by the vendors.

(7) Subject to subsection (11), subsection (5) applies to a restrictive covenant if

(a) the restrictive covenant is granted by a taxpayer (in this subsection referred to as the “vendor”) to another taxpayer with whom the vendor deals at arm’s length (referred to in this subsection as the “purchaser”);

(b) the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser (or by a person related to the purchaser) in the course of carrying on the business to which the restrictive covenant relates;

(c) no proceeds are received or receivable by the vendor for granting the restrictive covenant;

(d) the amount that can reasonably be regarded as being the consideration for the restrictive covenant is

(i) included by the vendor in computing a goodwill amount of the vendor, or

(ii) received or receivable by a corporation that was an eligible corporation of the vendor when the restrictive covenant was granted and included by the eligible corporation in computing a goodwill amount of the eligible corporation in respect of the business to which the restrictive covenant relates;

(e) the restrictive covenant may reasonably be considered to have been granted to maintain or preserve the value of

(i) goodwill acquired by the purchaser from the vendor, or

(ii) goodwill acquired by the purchaser from the vendor’s eligible corporation; and

(f) neither section 85 nor subsection 97(2) applies to the disposition of the goodwill by the vendor or the vendor’s eligible corporation;

(g) no portion of the amount of consideration that can reasonably be regarded as being in part the consideration for the restrictive covenant is received or receivable, directly or indirectly in any manner whatever, by an individual (in this subsection and subsection (9) referred to as the “non arm’s length individual”) with whom the vendor does not deal at arm’s length or by another taxpayer in which the non arm’s length individual holds, directly or indirectly, an interest; and

(h) the vendor and the purchaser or, if subparagraph (d)(ii) applies, the vendor, the eligible corporation and the purchaser, jointly elect in prescribed form to apply subsection (5) to the restrictive covenant.

(8) Subject to subsection (11), subsection (5) applies to a restrictive covenant granted by a taxpayer if

(a) the restrictive covenant is granted by the taxpayer (in this subsection referred to as the “vendor”) to another taxpayer (in this subsection and subsection (9) referred to as the “purchaser”) with whom the vendor deals at arm’s length (determined without reference to paragraph 251(5)(b));

(b) the restrictive covenant is an undertaking of the vendor not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser (or by a person related to the purchaser) in the course of carrying on the business to which the covenant relates;

(c) it is reasonable to conclude that the restrictive covenant is integral to an agreement in writing

(i) under which the vendor disposes of property (other than property to which subparagraph (ii) applies) to the purchaser for consideration that is received or receivable by the vendor, or

(ii) under which shares of the capital stock of a corporation (in this subsection and subsection (9) referred to as the “target corporation”) are disposed of to the purchaser;

(d) where subparagraph (c)(i) applies, the consideration that can reasonably be regarded as being in part the consideration for the restrictive covenant is received or receivable by the vendor as consideration for the disposition of the property;

(e) where subparagraph (c)(ii) applies, no portion of the amount of consideration that can reasonably be regarded as being in part the consideration for the restrictive covenant is received or receivable, directly or indirectly in any manner whatever, by an individual (in this subsection and subsection (9) referred to as the “non arm’s length individual”) with whom the vendor does not deal at arm’s length or by another taxpayer in which the non arm’s length individual holds, directly or indirectly, an interest;

(f) subsection 84(3) does not apply to the disposition;

(g) neither section 85 nor subsection 97(2) applies to the disposition; and

(h) the restrictive covenant can reasonably be regarded to have been granted to maintain or preserve the fair market value of the vendor’s property disposed of to the purchaser or of the shares of the target corporation disposed of to the purchaser.

(9) If subsection (7) does not apply to a taxpayer’s grant of a restrictive covenant solely because the condition in paragraph (7)(g) has not been satisfied, or if subsection (8) does not apply solely because the condition in paragraph (8)(e) has not been satisfied,

(a) to the extent that the consideration that can reasonably be regarded as being in part the consideration for the restrictive covenant granted by the taxpayer is received or receivable by one or more non arm’s length individuals and taxpayers in which one or more non arm’s length individuals hold, directly or indirectly, an interest (in this subsection referred to as the “allocable portion”), section 68 applies only to that allocable portion;

(b) a joint election may be filed in prescribed form by the taxpayer and each non arm’s length individual and other taxpayer referred to in paragraph (a) to deem the portion of the allocable portion that would otherwise be considered by section 68 to be received or receivable in a taxation year by the taxpayer for granting the restrictive covenant to be received or receivable in the taxation year by the taxpayer as a goodwill amount, if paragraph (7)(g) has not been satisfied, or as proceeds of disposition from the disposition of capital property, if paragraph (8)(e) has not been satisfied;

(c) if paragraph (b) applies to deem consideration to be received or receivable in the taxation year by the taxpayer, except for the purpose of applying this subsection, that consideration is considered not to be received or receivable by each of the non arm’s length individuals and other taxpayers who make the joint election with the taxpayer;

(c.1) if paragraph (b) applies to deem consideration to be received or receivable in a taxation year by the taxpayer and the consideration is actually received or receivable by another taxpayer — referred to in that paragraph — that is a corporation, partnership or trust, that consideration is deemed to have been received by the corporation, partnership or trust, as the case may be, as an agent of the taxpayer if it is transferred to taxpayer within 180 days from the date of receipt; and

(d) for greater certainty, the outlay to the purchaser for the goodwill amount referred to in subsection (7), or the cost of the shares of the target corporation referred to in subsection (8), as the case may be, does not differ from the amount that those amounts would have been if subsection (7) or (8) had applied to all of the consideration paid or payable by the purchaser to the non arm’s length individuals and other taxpayers referred to in paragraph (b) for the goodwill amount or capital stock of the target corporation, as the case may be.

(10) Paragraph (3)(c) does not apply to an amount that would, if this Act were read without reference to subsections (2) to (15), be included in computing a taxpayer’s income from a source that is an office or employment or a business or property under paragraph 3(a).

(11) Subsections (7), (8) and (9) do not apply in respect of a taxpayer’s grant of a restrictive covenant if one of the results of not applying section 68 to the consideration received or receivable in respect of the taxpayer’s grant of the restrictive covenant would be that paragraph 3(a) would not apply to consideration that would, if this Act were read without reference to subsections (2) to (15), be included in computing a taxpayer’s income from a source that is an office or employment or a business or property.

(12) For greater certainty, if subsection (2) applies to include in computing a taxpayer’s income an amount received or receivable by another taxpayer, that amount is not to be included in computing the income of that other taxpayer.

(13) For greater certainty, if subsection (5) applies in respect of a restrictive covenant granted by a taxpayer

(a) the amount referred to in paragraph (6)(f) is to be added in computing the amount received or receivable by the vendors as consideration for the disposition of the interest referred to in paragraph (6)(b);

(b) the amount that could reasonably be regarded as consideration referred to in subparagraph (7)(d)(i) or (ii), as the case may be, is to be added in computing

(i) the amount that is required by the description of E in the definition “cumulative eligible capital” in subsection 14(5) to be included in computing the cumulative eligible capital of a business carried on by the vendor through a permanent establishment located in Canada, or

(ii) the amount that is required by the description of E in the definition “cumulative eligible capital” in subsection 14(5) to be included in computing the cumulative eligible capital of a business carried on by the eligible corporation through a permanent establishment located in Canada; and

(c) the amount that can reasonably be regarded as being in part consideration for a restrictive covenant received or receivable to which subsection (5) applies because of subsection (8) is to be added in computing the consideration

(i) if subparagraph (8)(c)(i) applies, that is received or receivable by the vendor from the disposition of the property, and

(ii) if subparagraph (8)(c)(ii) applies, that is received or receivable by each taxpayer who disposes of shares of the target corporation to the extent that consideration is received or receivable by each such other taxpayer.

(14) For the purpose of paragraphs (3)(b) and (c), (7)(h) and (9)(b) an election in prescribed form filed under any of those provisions is to include a copy of the restrictive covenant and be filed

(a) if the person who granted the restrictive covenant is a person resident in Canada when the restrictive covenant was granted, by the person with the Minister on or before the person’s filing-due date for the taxation year that includes the day on which the restrictive covenant was granted; and

(b) in any other case, with the Minister on or before the day that is six months after the day on which the restrictive covenant is granted.

(15) Section 42 does not apply to an amount received or receivable as consideration for a restrictive covenant.

(2) Subject to subsection (3), subsection (1) applies to

(a) amounts received or receivable by a taxpayer after October 7, 2003 other than to amounts received by the taxpayer before 2005 under a grant of a restrictive covenant made in writing on or before October 7, 2003 between the taxpayer and a purchaser with whom the taxpayer deals at arm’s length; and

(b) amounts paid or payable by a purchaser after October 7, 2003 other than to amounts paid or payable by the purchaser before 2005 under a grant of a restrictive covenant made in writing on or before October 7, 2003 between the purchaser and a taxpayer with whom the purchaser deals at arm’s length.

(3) For the purpose of applying subsection (1) to a restrictive covenant granted by a taxpayer before November 9, 2006,

(a) the definition “restrictive covenant” in subsection 56.4(1) of the Act, as enacted by subsection (1), is to be read without reference to the words “except where the obligation being satisfied is in respect of a right to property or services that the taxpayer acquired for less than its fair market value”;

(b) paragraph 56.4(3)(c) of the Act, as enacted by subsection (1), applies as enacted unless the taxpayer elects, no later than 180 days after this Act is assented to, by filing with the Minister of National Revenue an election in writing that this paragraph apply, in which case paragraph 56.4(3)(c) of the Act, as enacted by subsection (1), shall be read in respect of the restrictive covenant as follows:

(c) the amount directly relates to the partic- ular taxpayer’s disposition of property that is, at the time of the disposition, an eligible interest in the partnership or corporation that carries on the business to which the restrictive covenant relates, or that is at that time an eligible interest by virtue of paragraph (c) of the definition “eligible interest” where the other corporation referred to in that paragraph carries on the business to which the restrictive covenant relates, and

(i) the disposition is to the purchaser (or to a person related to the purchaser),

(ii) the amount is consideration for an undertaking by the particular taxpayer not to provide, directly or indirectly, property or services in competition with the property or services provided or to be provided by the purchaser (or by a person related to the purchaser),

(iii) the amount does not exceed the amount determined by the formula

A - B

where

A      is the amount that would be the fair market value of the particular taxpayer’s eligible interest that is disposed of if all restrictive covenants that may reasonably be considered to relate to a disposition of an interest in the business by any taxpayer were provided for no consideration, and

B      is the amount that would be the fair market value of the particular taxpayer’s eligible interest that is disposed of if no covenant were granted by any taxpayer that held an interest in the business,

(iv) if the restrictive covenant is granted on or after July 18, 2005, subsection 84(3) does not apply to the disposition,

(v) the amount is added to the particular taxpayer’s proceeds of disposition, as defined by section 54, for the purpose of applying this Act to the disposition of the particular taxpayer’s eligible interest, and

(vi) the particular taxpayer and the purchaser elect in prescribed form to apply this paragraph in respect of the amount.

(c) subsection 56.4(7), as enacted by subsection (1), is to be read without reference to paragraphs (f) and (g);

(d) section 56.4, as enacted by subsection (1), is to be read without reference to subsections (10) and (11) in respect of restrictive covenants granted before November 9, 2006; and

(e) an election referred to in subsection 56.4(14) of the Act, as enacted by subsection (1), is deemed to be filed on a timely basis if it is filed on or before the day that is 180 days after the day on which this Act is assented to.

72. (1) Section 60 of the Act is amended by adding the following after paragraph (e):

(f) all debts owing to a taxpayer that are established by the taxpayer to have become bad debts in the taxation year and that are in respect of an amount included because of the operation of subsection 6(3.1) or 56.4(2) in computing the taxpayer’s income in a preceding taxation year;

(g) the amount determined by the formula

A - B

where

A      is the total of all amounts each of which is an amount payable by the taxpayer in respect of self-employed earnings for the taxation year as a premium under the Act respecting parental insurance R.S.Q., c. A-29.011, and

B      is the total of all amounts each of which is an amount that would be payable by the taxpayer as an employee’s premium under the Act respecting parental insurance R.S.Q., c. A-29.011 if those earnings were employment income of the taxpayer for the taxation year;

(2) Clause 60(l)(ii)(B) of the Act is replaced by the following:

(B) under which the taxpayer is the annuitant for a term not exceeding 18 years minus the age in whole years of the taxpayer at the time the annuity was acquired

(3) Paragraph 60(n) of the Act is amended by striking out the word “and” at the end of subparagraph (v) and by adding the following after subparagraph (v):

(v.1) a benefit described in subparagraph 56(1)(a)(vii), and

(4) Paragraph 60(f) of the Act, as enacted by subsection (1), applies after October 7, 2003.

(5) Paragraph 60(g) of the Act, as enacted by subsection (1), and subsection (3) apply to the 2006 and subsequent taxation years.

(6) Subsection (2) applies after 1988.

73. (1) The Act is amended by adding the following after section 60.01:

60.011 (1) For the purpose of subsection (2), a trust is at any particular time a lifetime benefit trust with respect to a taxpayer and the estate of a deceased individual if

(a) immediately before the death of the deceased individual, the taxpayer

(i) was both a spouse or common-law partner of the deceased individual and mentally infirm, or

(ii) was both a child or grandchild of the deceased individual and dependent on the deceased individual for support because of mental infirmity; and

(b) the trust is, at the particular time, a personal trust under which

(i) no person other than the taxpayer may receive or otherwise obtain the use of, during the taxpayer’s lifetime, any of the income or capital of the trust, and

(ii) the trustees

(A) are empowered to pay amounts from the trust to the taxpayer, and

(B) are required — in determining whether to pay, or not to pay, an amount to the taxpayer — to consider the needs of the taxpayer including, without limiting the generality of the foregoing, the comfort, care and maintenance of the taxpayer.

(2) Each of the following is a qualifying trust annuity with respect to a taxpayer:

(a) an annuity that meets the following conditions, namely,

(i) it is acquired after 2005,

(ii) the annuitant under it is a trust that is, at the time the annuity is acquired, a lifetime benefit trust with respect to the taxpayer and the estate of a deceased individual,

(iii) it is for the life of the taxpayer (with or without a guaranteed period), or for a fixed term equal to 90 years minus the age in whole years of the taxpayer at the time it is acquired, and

(iv) if it is with a guaranteed period or for a fixed term, it requires that, in the event of the death of the taxpayer during the guaranteed period or fixed term, any amounts that would otherwise be payable after the death of the taxpayer be commuted into a single payment;

(b) an annuity that meets the following conditions, namely,

(i) it is acquired after 1988,

(ii) the annuitant under it is a trust under which the taxpayer is the sole person beneficially interested (determined without regard to any right of a person to receive an amount from the trust only on or after the death of the taxpayer) in amounts payable under the annuity,

(iii) it is for a fixed term not exceeding 18 years minus the age in whole years of the taxpayer at the time it is acquired, and

(iv) if it is acquired after 2005, it requires that, in the event of the death of the taxpayer during the fixed term, any amounts that would otherwise be payable after the death of the taxpayer be commuted into a single payment; and

(c) an annuity that meets the following conditions, namely,

(i) it is acquired

(A) after 2000 and before 2005 at a time at which the taxpayer was mentally or physically infirm, or

(B) in 2005 at a time at which the taxpayer was mentally infirm,

(ii) the annuitant under it is a trust under which the taxpayer is the sole person beneficially interested (determined without regard to any right of a person to receive an amount from the trust only on or after the death of the taxpayer) in amounts payable under the annuity, and

(iii) it is for the life of the taxpayer (with or without a guaranteed period), or for a fixed term equal to 90 years minus the age in whole years of the taxpayer at the time it is acquired.

(3) For the purpose of paragraph 60(l),

(a) in determining if a qualifying trust annuity with respect to a taxpayer is an annuity described in subparagraph 60(l)(ii), clauses 60(l)(ii)(A) and (B) are to be read without regard to their requirement that the taxpayer be the annuitant under the annuity; and

(b) if an amount paid to acquire a qualifying trust annuity with respect to a taxpayer would, if this Act were read without reference to this subsection, not be considered to have been paid by or on behalf of the taxpayer, the amount is deemed to have been paid on behalf of the taxpayer where

(i) it is paid

(A) by the estate of a deceased individ- ual who was, immediately before death,

(I) a spouse or common-law partner of the taxpayer, or

(II) a parent or grandparent of the taxpayer on whom the taxpayer was dependent for support, or

(B) by the trust that is the annuitant under the qualifying trust annuity, and

(ii) it would, if it had been paid by the taxpayer, be deductible under paragraph 60(l) in computing the taxpayer’s income for a taxation year and the taxpayer elects, in the taxpayer’s return of income under this Part for that taxation year, to have this paragraph apply to the amount.

(2) Subsection (1) applies after 1988 and, for the purpose of applying subparagraph 60.011(3)(b)(ii) of the Act, as enacted by subsection (1), to a taxation year that ends before 2005, a taxpayer is deemed to have made the election referred to in that subparagraph in respect of an amount paid to acquire a qualifying trust annuity if the taxpayer claimed, in their return of income for that taxation year, an amount as a deduction under paragraph 60(l) of the Act in respect of the amount paid to acquire the qualifying trust annuity.

74. (1) The portion of clause (i)(B) of the description of C in paragraph 63(2)(b) of the Act before subclause (I) is replaced by the following:

(B) a person certified in writing by a medical doctor to be a person who

(2) Subsection (1) applies to certifications made after December 20, 2002.

75. (1) The portion of subsection 66(12.6) of the Act before paragraph (a) is replaced by the following:

(12.6) If a person gave consideration under an agreement to a corporation for the issue of a flow-through share of the corporation and, in the period that begins on the day on which the agreement was made and ends 24 months after the end of the month that includes that day, the corporation incurred Canadian exploration expenses (other than an expense deemed by subsection 66.1(9) to be a Canadian exploration expense of the corporation), the corporation may, after it complies with subsection (12.68) in respect of the share and before March of the first calendar year that begins after the period, renounce, effective on the day on which the renunciation is made or on an earlier day set out in the form prescribed for the purpose of subsection (12.7), to the person in respect of the share the amount, if any, by which the portion of those expenses that was incurred on or before the effective date of the renunciation (which portion is in this subsection referred to as the “specified expenses”) exceeds the total of

(2) The portion of subsection 66(12.63) of the Act before paragraph (a) is replaced by the following:

(12.63) Subject to subsections (12.69) to (12.702), if under subsection (12.62) a corporation renounces an amount to a person,

(3) The portion of subsection 66(12.66) of the French version of the Act before paragraph (b) is replaced by the following:

(4) Subparagraph 66(12.66)(b)(iii) of the French version of the Act is replaced by the following:

(5) The portion of subsection 66(12.66) of the English version of the Act after paragraph (e) is replaced by the following:

the corporation is, for the purpose of subsection (12.6), or of subsection (12.601) and paragraph (12.602)(b), as the case may be, deemed to have incurred the expenses on the last day of that preceding year.

(6) Paragraphs (d) and (e) of the definition “Canadian resource property” in subsection 66(15) of the Act are replaced by the following:

(d) any right to a rental or royalty computed by reference to the amount or value of production from an oil or a gas well in Canada, or from a natural accumulation of petroleum or natural gas in Canada, if the payer of the rental or royalty has an interest in, or for civil law a right in, the well or accumulation, as the case may be, and 90% or more of the rental or royalty is payable out of, or from the proceeds of, the production from the well or accumulation,

(e) any right to a rental or royalty computed by reference to the amount or value of production from a mineral resource in Canada, if the payer of the rental or royalty has an interest in, or for civil law a right in, the mineral resource and 90% or more of the rental or royalty is payable out of, or from the proceeds of, the production from the mineral resource,

(7) The definition “flow-through share” in subsection 66(15) of the Act is replaced by the following:

“flow-through share” means a share (other than a prescribed share) of the capital stock of a principal-business corporation, or a right (other than a prescribed right) to acquire a share of the capital stock of a principal-business corporation, issued to a person under an agreement in writing made between the person and the corporation under which the corporation, for consideration that does not include property to be exchanged or transferred by the person under the agreement in circumstances to which any of sections 51, 85, 85.1, 86 and 87 applies, agrees

(a) to incur, in the period that begins on the day on which the agreement was made and ends 24 months after the month that includes that day, Canadian exploration expenses or Canadian development expenses in an amount not less than the consideration for which the share or right is to be issued, and

(b) to renounce, in prescribed form and before March of the first calendar year that begins after that period, to the person in respect of the share or right, an amount in respect of the Canadian exploration expenses or Canadian development expenses so incurred by it not exceeding the consideration received by the corporation for the share or right;

(8) Subsections (1) and (2) apply to renunciations made after December 20, 2002.

(9) Subsection (3) applies to expenses incurred after 1996, except that

(a) subsection (3) does not apply to expenses incurred in January or February 1997 in respect of an agreement that was made in 1995; and

(b) for the purpose of applying paragraph 66(12.66)(a.1) of the French version of the Act, as enacted by subsection (3), to expenses incurred in 1998, any agreement made in 1996 is deemed to have been made in 1997.

(10) Subsection (6) applies to rights acquired after December 20, 2002.

(11) Subsection (7) applies to agreements made after December 20, 2002.

76. (1) Section 66.7 of the Act is amended by adding the following after subsection (10):

(10.1) For the purposes of subsections (1) to (5) and the definition “original owner” in subsection 66(15), if at any particular time there has been an amalgamation within the meaning assigned by subsection 87(1), other than an amalgamation to which subsection 87(1.2) applies, of two or more corporations (each of which is referred to in this subsection as a “predecessor corporation”) to form one corporate entity (referred to in this subsection as the “new corporation”) and immediately before the particular time a predecessor corporation was a member of a partnership that owned a Canadian resource property or a foreign resource property,

(a) the predecessor corporation is deemed

(i) to have owned, immediately before the particular time, that portion of each Canadian resource property and of each foreign resource property owned by the partnership at the particular time that is equal to the predecessor corporation’s percentage share of the total of the amounts that would be paid to all members of the partnership if the partnership were wound up immediately before the particular time, and

(ii) to have disposed of those portions to the new corporation at the particular time;

(b) the new corporation is deemed to have, by way of the amalgamation, acquired those portions at the particular time; and

(c) the income of the new corporation for a taxation year that ends after the particular time that can reasonably be attributable to production from those properties is deemed to be the lesser of

(i) the new corporation’s share of the part of the income of the partnership for fiscal periods of the partnership that end in the year that can reasonably be regarded as being attributable to production from those properties, and

(ii) the amount that would be determined under subparagraph (i) for the year if the new corporation’s share of the income of the partnership for the fiscal periods of the partnership that end in the year were determined on the basis of the percentage share referred to in paragraph (a).

(2) Subsection (1) applies to amalgamations that occur after 1996.

77. (1) The portion of section 68 of the Act before paragraph (a) is replaced by the following:

68. If an amount received or receivable from a person can reasonably be regarded as being in part the consideration for the disposition of a particular property of a taxpayer, for the provision of particular services by a taxpayer or for a restrictive covenant as defined by subsection 56.4(1) granted by a taxpayer,

(2) Section 68 of the Act is amended by striking out the word “and” at the end of paragraph (a), by adding the word “and” at the end of paragraph (b) and by adding the following after paragraph (b):

(c) the part of the amount that can reasonably be regarded as being consideration for the restrictive covenant is deemed to be an amount received or receivable by the taxpayer in respect of the restrictive covenant irrespective of the form or legal effect of the contract or agreement, and that part is deemed to be an amount paid or payable to the taxpayer by the person to whom the restrictive covenant was granted.

(3) Subsections (1) and (2) apply on and after February 27, 2004, other than to a taxpayer’s grant of a restrictive covenant made in writing by the taxpayer before February 27, 2004 between the taxpayer and a person with whom the taxpayer deals at arm’s length.

78. (1) Paragraph 69(1)(b) of the English version of the Act is amended by striking out the word “and” at the end of subparagraph (iii).

(2) Subsection (1) applies to dispositions that occur after December 23, 1998.

79. (1) The portion of subsection 70(3) of the French version of the Act before paragraph (a) is replaced by the following:

(2) The portion of subsection 70(6) of the French version of the Act before paragraph (a) is replaced by the following:

(3) The portion of subsection 70(6.1) of the French version of the Act before paragraph (a) is replaced by the following:

(4) The portion of paragraph 70(7)(b) of the French version of the Act before subparagraph (i) is replaced by the following:

80. The portion of subsection 72(2) of the French version of the Act before paragraph (a) is replaced by the following:

81. (1) Subsection 73(2) of the Act is replaced by the following:

(2) If a transferee is deemed by subsection (1) to have acquired any particular depreciable property of a prescribed class of a taxpayer for an amount determined under paragraph (1)(b) and the capital cost to the taxpayer of the particular property exceeds the amount determined under that paragraph, in applying sections 13 and 20 and any regulations made under paragraph 20(1)(a)

(a) the capital cost to the transferee of the particular property is deemed to be the amount that was the capital cost to the taxpayer of the particular property; and

(b) the excess is deemed to have been allowed to the transferee in respect of the particular property under regulations made under paragraph 20(1)(a) in computing income for taxation years before the acquisition of the particular property.

(2) Subsection (1) applies to transfers that occur after 1999.

82. (1) The Act is amended by adding the following after section 75.1:

75.2 Where an amount paid to acquire a qualifying trust annuity with respect to a taxpayer was deductible under paragraph 60(l) in computing the taxpayer’s income,

(a) any amount that is paid out of or under the annuity at any particular time after 2005 and before the death of the taxpayer is deemed to have been received out of or under the annuity at the particular time by the taxpayer, and not to have been received by any other taxpayer; and

(b) if the taxpayer dies after 2005

(i) an amount equal to the fair market value of the annuity at the time of the taxpayer’s death is deemed to have been received, immediately before the taxpayer’s death, by the taxpayer out of or under the annuity, and

(ii) for the purpose of subsection 70(5), the annuity is to be disregarded in determining the fair market value (immediately before the taxpayer’s death) of the taxpayer’s interest in the trust that is the annuitant under the annuity.

(2) Subsection (1) applies after 2005.

83. (1) Section 80.2 of the Act is replaced by the following:

80.2 (1) Subsections (2) to (13) apply if

(a) in a taxation year, a taxpayer, under the terms of a contract, pays to a person (referred to in this section as the “recipient”) an amount (referred to in this section as the “specified amount”) that may reasonably be considered to be received by the recipient as a reimbursement of, or a contribution or an allowance in respect of, an amount (referred to in this section as the “original amount”)

(i) that was described by paragraph 18(1)(m) and was paid or payable by the recipient, or

(ii) that was, in respect of the recipient, an amount described by paragraph 12(1)(o);

(b) the original amount is paid or became payable or receivable in a taxation year or fiscal period of the recipient that begins before 2007; and

(c) the taxpayer is resident in Canada or carries on business in Canada when the specified amount is paid.

(2) If the specified amount is paid in a taxation year of the taxpayer that begins before 2008, the eligible portion of the specified amount, referred to in subsection (11), is deemed to be a payment described by paragraph 18(1)(m). If, however, the specified amount is paid in a taxation year of the taxpayer that begins after 2007, the specified amount is deemed, for the purpose of applying this section to the taxpayer, to be nil.

(3) For the purpose of applying paragraph 18(1)(m) for the taxpayer’s taxation year in which the specified amount was paid, the amount to which that paragraph applies is to be determined for that taxation year

(a) if the taxpayer was in existence at the time the original amount became receivable by a person referred to in subparagraph 12(1)(o)(i) or became payable to a person referred to in subparagraph 18(1)(m)(i), as if the specified amount were paid by the taxpayer at that time; and

(b) in any other case, as if

(i) the taxpayer were in existence and had a calendar taxation year at the time the original amount became receivable by a person referred to in subparagraph 12(1)(o)(i) or became payable to a person referred to in subparagraph 18(1)(m)(i), and

(ii) the specified amount were paid by the taxpayer at that time.

(4) Subsection (3) does not apply to a specified amount paid by a taxpayer if

(a) the recipient is a partnership;

(b) the original amount became receivable by a person referred to in subparagraph 12(1)(o)(i) or became payable to a person referred to in subparagraph 18(1)(m)(i), in a particular fiscal period of the partnership;

(c) the taxpayer is a member of the partnership at the end of the particular fiscal period; and

(d) the taxpayer paid the specified amount before the end of the taxation year of the taxpayer in which that particular fiscal period ends.

(5) A specified amount paid by the taxpayer to a partnership is deemed to have been paid on the last day of a particular taxation year of the taxpayer, and not at the time it was paid, if

(a) the taxpayer paid an amount to the partnership in the particular taxation year (referred to in this subsection as the “initial payment”);

(b) the initial payment was paid before September 17, 2004;

(c) the initial payment is an amount to which subsection (3) did not apply because of subsection (4);

(d) the taxpayer’s share of the original amount in respect of the initial payment is greater than the initial payment;

(e) the specified amount is equal to or less than the difference between the taxpayer’s share of the original amount in respect of the initial payment and the initial payment;

(f) the taxpayer elects in the taxpayer’s return of income for the taxpayer’s taxation year that includes the time at which the specified amount would, if this Act were read without reference to this subsection, have been paid, to have this subsection apply to the specified amount; and

(g) the specified amount is paid before 2006.

(6) The recipient shall include in computing the recipient’s income for the taxation year or fiscal period in which the original amount was paid or became payable or receivable, the amount, if any, by which the eligible portion of the specified amount exceeds the portion of the original amount that was included in computing the income of the recipient for the taxation year or fiscal period because of paragraph 12(1)(o) or that was not deductible in computing the income of the recipient for the taxation year or fiscal period because of paragraph 18(1)(m).

(7) For the purpose of subsection (6), the portion of the original amount that was included in computing the income of the recipient or that was not deductible in computing the income of the recipient is the amount that would be included in computing the income of the recipient under paragraph 12(1)(o) or that would not be deductible in computing the income of the recipient under paragraph 18(1)(m), if the original amount were equal to the eligible portion of the specified amount.

(8) The recipient shall include, in computing the recipient’s income for its taxation year or fiscal period in which the original amount was paid or became payable or receivable, the amount, if any, by which the specified amount exceeds the eligible portion of the specified amount.

(9) Subject to paragraphs 18(1)(a) and (b), the taxpayer may deduct in computing the taxpayer’s income for the taxpayer’s taxation year in which the specified amount was paid, the amount, if any, by which the specified amount exceeds the eligible portion of the specified amount.

(10) Except for the purposes of this section and subparagraph 53(1)(e)(iv.1),

(a) the taxpayer is deemed not to have paid, and not to have been obligated to pay, the specified amount; and

(b) the recipient is deemed not to have received, and not to have been entitled to receive, the specified amount.

(11) The eligible portion of a specified amount is

(a) an amount equal to the specified amount if

(i) the specified amount was paid before September 17, 2004,

(ii) the original amount is a tax imposed under a provincial law on the production of

(A) petroleum, natural gas or related hydrocarbons from a natural accumulation of petroleum or natural gas (other than a mineral resource) located in Canada, or from an oil or gas well located in Canada if the petroleum, natural gas or related hydrocarbons are not, before extraction, owned by the Crown in right of Canada or a province, or

(B) metals, minerals or coal from a mineral resource located in Canada if the metals, minerals or coal are not, before extraction, owned by the Crown in right of Canada or a province,

(iii) the specified amount does not exceed the taxpayer’s share of the original amount, or

(iv) the original amount is a prescribed amount; and

(b) the taxpayer’s share of the original amount, in any other case.

(12) A taxpayer’s share of an original amount in respect of a specified amount paid by the taxpayer to a recipient in respect of a property is the amount that may reasonably be considered to be the taxpayer’s share of the total of all amounts described in paragraph 12(1)(o) or 18(1)(m) in respect of the property, which share may not exceed the total of

(a) that proportion of the total of all amounts described in paragraph 12(1)(o) or 18(1)(m) in respect of the property that the taxpayer’s share of production from the property payable to the taxpayer as a royalty, which royalty is computed without reference to the costs of exploration or production, is of the total production from the property, and

(b) that proportion of the total of all amounts described in paragraph 12(1)(o) or 18(1)(m) in respect of the property (other than those amounts which the recipient has received or is entitled to receive as a reimbursement, contribution or allowance in respect of a royalty described in paragraph (a)) that the taxpayer’s share of the income from the property is of the total income from the property.

(13) For the purpose of applying Part XII of the Income Tax Regulations, an original amount in respect of which a specified amount is received is deemed, for the taxation year in which the original amount was paid or became payable or receivable, not to include an amount equal to the eligible portion of the specified amount.

(2) Subsection (1) applies in respect of specified amounts paid after 2001.

(3) Where a person is liable to an amount of tax under Part I of the Act for a taxation year that exceeds the amount to which the person would be liable if section 80.2 of the Act applied as it read on December 31, 2001, the person is deemed, for the purpose of determining any interest or penalty payable by that person, to have paid the excess on that person’s balance-due date, if

(a) the person’s balance-due date for the taxation year was before September 17, 2004; and

(b) the excess was paid to the Receiver General before March 2005.

(4) Notwithstanding subsections 152(4) to (5) of the Act, all assessments, determinations, and redeterminations may be made as necessary to give effect to subsections (1) to (3).

84. (1) Clause 82(1)(a)(ii)(B) of the Act is replaced by the following:

(B) where the taxpayer is an individual, the total of all amounts each of which is, or is deemed by paragraph 260(12)(b) to have been, an amount paid by the taxpayer in the year and deemed by subsection 260(5.1) to have been received by another person as a taxable dividend,

(2) Subsection (1) applies

(a) to amounts paid in respect of arrangements made after 2001, except that, in its application to amounts paid in respect of an arrangement made before December 21, 2002, clause 82(1)(a)(ii)(B) of the Act, as enacted by subsection (1), is to be read without reference to the expression “or is deemed by paragraph 260(12)(b) to have been” unless an election referred to in paragraph 187(25)(b) of this Act has been made in respect of the arrangement; and

(b) to amounts paid in respect of arrangements made after November 2, 1998 and before 2002, if the parties to the arrangement have made the election referred to in paragraph 187(25)(b) of this Act, except that in its application to those arrangements made before 2002, the reference to “subsection 260(5.1)” in clause 82(1)(a)(ii)(B) of the Act, as enacted by subsection (1), is to be read as a reference to “subsection 260(5)”.

85. (1) Subsection 84(4.1) of the Act is replaced by the following:

(4.1) Any amount paid by a public corporation on the reduction of the paid-up capital in respect of any class of shares of its capital stock, otherwise than by way of a redemption, acquisition or cancellation of any shares of that class or by way of a transaction described in subsection (2) or section 86, is deemed to have been paid by the corporation and received by the person to whom it was paid, as a dividend, unless

(a) the amount may reasonably be considered to be derived from proceeds of disposition realized by the public corporation, or by a person or partnership in which the public corporation had a direct or indirect interest at the time that the proceeds were realized, from a transaction that occurred

(i) outside the ordinary course of the business of the corporation, or of the person or partnership that realized the proceeds, and

(ii) within the period that commenced 24 months before the payment; and

(b) no amount that may reasonably be considered to be derived from those proceeds was paid by the public corporation on a previous reduction of the paid-up capital in respect of any class of shares of its capital stock.

(2) Subsection (1) applies to amounts paid after 1996, except that in respect of those amounts paid before February 27, 2004, subsection 84(4.1) of the Act, as enacted by subsection (1), is to be read as follows:

(4.1) Any amount paid by a public corporation on the reduction of the paid-up capital in respect of any class of shares of its capital stock, otherwise than by way of a redemption, acquisition or cancellation of any shares of that class or by way of a transaction described in subsection (2) or in section 86, is deemed to have been paid by the corporation and received by the person to whom it was paid, as a dividend, unless the amount may reasonably be considered to be derived from proceeds of disposition realized by the public corporation, or by a person or partnership in which the public corporation had a direct or indirect interest at the time that the proceeds were realized, from a transaction that occurred outside the ordinary course of the business of the public corporation, or of the person or partnership that realized the proceeds.

86. (1) Paragraph 85(1)(d.1) of the Act is replaced by the following:

(d.1) for the purpose of determining after the disposition time the amount to be included under paragraph 14(1)(b) in computing the corporation’s income, there shall be added to the amount otherwise determined for C in that paragraph the amount determined by the formula

1/2 × [(A × B/C) - 2(D - E)] + F + G

where

A      is the amount, if any, determined for Q in the definition “cumulative eligible capital” in subsection 14(5) in respect of the taxpayer’s business immediately before the time of the disposition,

B      is the fair market value immediately before the disposition time of the eligible capital property disposed of to the corporation by the taxpayer,

C      is the total of the fair market value immediately before the disposition time of all eligible capital property of the taxpayer in respect of the business and each amount that was described in B in respect of an earlier disposition made after the taxpayer’s adjustment time,

D      is the amount, if any, that would be included under subsection 14(1) in computing the taxpayer’s income as a result of the disposition if the values determined for C and D in paragraph 14(1)(b) were zero,

E      is the amount, if any, that would be included under subsection 14(1) in computing the taxpayer’s income as a result of the disposition if the value determined for D in paragraph 14(1)(b) were zero,

F      is the total of all amounts, each of which is an amount determined under this paragraph as it applied to the taxpayer in respect of a disposition to the corporation on or before the disposition time, and

G      is the total of all amounts, each of which is an amount determined under subparagraph 88(1)(c.1)(ii) as it applied to the taxpayer in respect of a winding-up before the disposition time;

(2) Subsection 85(1) of the Act is amended by adding the following after paragraph (d.1):

(d.11) for the purpose of determining after the time of the disposition (referred to in this paragraph and in paragraphs (d.1) and (d.12) as the “disposition time”) the amount to be included under paragraph 14(1)(a) or (b) in computing the corporation’s income, there shall be added to the amount otherwise determined for each of A and F in the definition “cumulative eligible capital” in subsection 14(5) the amount, if any, determined by the formula

(A × B/C) + D + E

where

A      is the amount, if any, that would be determined for F in that definition in respect of the taxpayer’s business at the beginning of the taxpayer’s following taxation year if the taxpayer’s taxation year that includes the disposition time had ended immediately after the disposition time and if, in respect of the disposition, this Act were read without reference to paragraph (d.12),

B      is the fair market value immediately before the disposition time of the eligible capital property disposed of to the corporation by the taxpayer,

C      is the fair market value immediately before the disposition time of all eligible capital property of the taxpayer in respect of the business and each amount that was described in B in respect of an earlier disposition made after the taxpayer’s adjustment time (within the meaning in subsection 14(5)),

D      is the total of all amounts, each of which is an amount determined under this paragraph as it applied to the taxpayer in respect of a disposition to the corporation on or before the disposition time, and

E      is the total of all amounts, each of which is an amount determined under subparagraph 88(1)(c.1)(i) as it applied to the taxpayer in respect of a winding-up before the disposition time;

(d.12) for the purpose of determining after the disposition time the amount to be included under paragraph 14(1)(a) or (b) in computing the taxpayer’s income, the amount, if any, determined by the formula in paragraph (d.11) in respect of the disposition is to be deducted from each of the amounts otherwise determined

(i) by subparagraph 14(1)(a)(ii), and

(ii) for the description of B in paragraph 14(1)(b);

(3) Subsection (1) applies to taxation years of a corporation that end after December 20, 2002.

(4) Subsection (2) applies in respect of the disposition of an eligible capital property by a taxpayer to a corporation unless

(a) the disposition by the taxpayer occurred before December 21, 2002; and

(b) the corporation disposed of the eligible capital property, before June 7, 2007 and in a taxation year of the corporation ending after February 27, 2000, to a person with whom the corporation was dealing at arm’s length at the time of that disposition by the corporation.

87. (1) Subparagraphs 86.1(2)(c)(ii) and (iii) of the Act are replaced by the following:

(ii) at the time of the distribution, the shares of the class that includes the original shares are widely held and

(A) are actively traded on a prescribed stock exchange in the United States, or

(B) are required, under the Securities Exchange Act of 1934 of the United States, as amended from time to time, to be registered with the Securities and Exchange Commission of the United States and are so registered, and

(iii) under the provisions of the Internal Revenue Code of 1986 of the United States, as amended from time to time, that apply to the distribution, the shareholders of the particular corporation who are resident in the United States are not taxable in respect of the distribution;

(2) Subparagraph 86.1(2)(e)(i) of the Act is replaced by the following:

(i) that, at the time of the distribution, the shares of the class that includes the original shares are shares described in subparagraph (c)(ii) or (d)(ii),

(3) Subparagraph 86.1(2)(e)(vi) of the Act is replaced by the following:

(vi) in the case of a distribution that is not prescribed, that the distribution is not taxable under the provisions of the Internal Revenue Code of 1986 of the United States, as amended from time to time, that apply to the distribution,

(4) Subsections (1) to (3) apply to distributions made after 1999 except that, with respect to a distribution in respect of original shares described in clause 86.1(2)(c)(ii)(B) of the Act, as enacted by subsection (1),

(a) information referred to in paragraph 86.1(2)(e) of the Act is deemed to be provided to the Minister of National Revenue on a timely basis if it is provided to that Minister before the 90th day after the day on which this Act is assented to; and

(b) an election referred to in paragraph 86.1(2)(f) of the Act is deemed to be filed on a timely basis if it is filed with the Minister of National Revenue before the 90th day after the day on which this Act is assented to.

88. (1) Subsection 87(2) of the Act is amended by adding the following after paragraph (g.4):

(g.5) for the purpose of section 135, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(2) Paragraph 87(2)(j.91) of the Act is replaced by the following:

(j.91) for the purpose of determining the amount deductible under subsection 181.1(4) or 190.1(3) by the new corporation for any taxation year, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation, except that this paragraph does not affect the determination of the fiscal period of any corporation or the tax payable by any corporation for any taxation year that ends before the amalgamation;

(3) Subsection 87(2) of the Act is amended by adding the following after paragraph (l.3):

(l.4) for the purposes of subsection 13(4.3) and paragraph 20(16.1)(b), the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(4) Subsection 87(2) of the Act is amended by adding the following after paragraph (m.1):

(m.2) for the purpose of computing the fair market value of property under subsection 248(35), the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(5) Subsection 87(2) of the Act is amended by adding the following after paragraph (q):

(r) an election made under subsection 144(10) by a predecessor corporation is deemed to be an election made by the new corporation;

(6) Paragraph 87(2)(mm) of the Act is repealed.

(7) Section 87 of the Act is amended by adding the following after subsection (2.2):

(2.3) For the purpose of applying this section to an amalgamation governed by section 689 of An Act respecting financial services cooperatives, R.S.Q., c. C-67.3, an investment deposit of a credit union is deemed to be a share of a separate class of the capital stock of a predecessor corporation in respect of the amalgamation the adjusted cost base and paid up capital of which to the credit union is equal to the adjusted cost base to the credit union of the investment deposit immediately before the amalgamation if

(a) immediately before the amalgamation, the investment deposit is an investment deposit to which section 425 of the Savings and Credit Unions Act, R.S.Q., c. C-4.1, applies to the investment fund of that predecessor corporation; and

(b) on the amalgamation the credit union disposes of the investment deposit for consideration that consists solely of shares of a class of the capital stock of the new corporation.

(8) Paragraphs 87(4.4)(c) and (d) of the Act are replaced by the following:

(c) for the consideration under the agreement

(i) a share (in this subsection referred to as the “old share”) of the predecessor corporation that was a flow-through share (other than a right to acquire a share) was issued to the person before the amalgamation, or

(ii) a right was issued to the person before the amalgamation to acquire a share that would, if it were issued, be a flow-through share, and

(d) the new corporation

(i) issues, on the amalgamation and in consideration for the disposition of the old share, a share (in this subsection referred to as a “new share”) of any class of its capital stock to the person (or to any person or partnership that subsequently acquired the old share) and the terms and conditions of the new share are the same as, or substantially the same as, the terms and conditions of the old share, or

(ii) is, because of the right referred to in subparagraph (c)(ii), obliged after the amalgamation to issue to the person a share of any class of the new corporation’s capital stock that would, if it were issued, be a flow-through share,

(9) Subsection 87(9) of the Act is amended by adding the following after paragraph (a.2):

(a.21) for the purpose of paragraph (4.4)(d)

(i) each parent share received by a shareholder of a predecessor corporation is deemed to be a share of the capital stock of the new corporation issued to the shareholder by the new corporation on the merger, and

(ii) any obligation of the parent to issue a share of any class of its capital stock to a person in circumstances described in subparagraph (4.4)(d)(ii) is deemed to be an obligation of the new corporation to issue a share to the person;

(10) Subsection (1) applies to amalgamations that occur, and to windings-up that begin, after 1997.

(11) Subsections (2) and (3) apply to amalgamations that occur, and to windings-up that begin, after December 20, 2002.

(12) Subsection (4) applies in respect of gifts of property made after 6:00 p.m. (Eastern Standard Time) on December 4, 2003.

(13) Subsection (5) applies to amalgamations that occur, and to windings-up that begin, after 1994.

(14) Subsection (6) applies to amalgamations that occur, and to windings-up that begin, after March 20, 2003.

(15) Subsection (7) applies to amalgamations that occur after June, 2001.

(16) Subsections (8) and (9) apply to amalgamations that occur after 1997.

89. (1) Paragraph 88(1)(c.1) of the Act is replaced by the following:

(c.1) for the purpose of determining after the winding-up the amount to be included under subsection 14(1) in computing the parent’s income in respect of the business carried on by the subsidiary immediately before the winding-up

(i) there shall be added to the amount otherwise determined for each of the descriptions of A and F in the definition “cumulative eligible capital” in subsection 14(5), the total of all amounts, each of which is the amount, if any,

(A) determined for the description of F in that definition in respect of that business immediately before the winding up,

(B) determined under this subparagraph as it applied to the subsidiary in respect of a winding-up before that time, or

(C) determined under paragraph 85(1)(d.11) as it applied to the subsidiary in respect of a disposition to the subsidiary before that time, and

(ii) there shall be added to the amount determined for the description of C in the formula in paragraph 14(1)(b), the total of all amounts, each of which is an amount that is

(A) one-half of the amount, if any, determined for the description of Q in that definition in respect of that business immediately before the winding up,

(B) determined under this subparagraph as it applied to the subsidiary in respect of a winding-up before that time, or

(C) determined under paragraph 85(1)(d.1) as it applied to the subsidiary in respect of a disposition to the subsidiary before that time;

(2) Paragraph 88(1)(c.3) of the Act is amended by striking out the word “or” at the end of subparagraph (iv) and by adding the following after subparagraph (v):

(vi) a share of the capital stock of the subsidiary or a debt owing by it, if the share or debt, as the case may be, was owned by the parent immediately before the winding-up, or

(vii) a share of the capital stock of a corporation or a debt owing by a corporation, if the fair market value of the share or debt, as the case may be, was not, at any time after the beginning of the winding-up, wholly or partly attributable to property distributed to the parent on the winding-up;

(3) Subparagraph 88(1)(c.4)(i) of the Act is replaced by the following:

(i) a share of the capital stock of the parent that was

(A) received as consideration for the acquisition of a share of the capital stock of the subsidiary by the parent or by a corporation that was a specified subsidiary corporation of the parent immediately before the acquisition, or

(B) issued for consideration that consists solely of money,

(4) Paragraph 88(1)(e.6) of the Act is replaced by the following:

(e.6) if a subsidiary has made a gift in a taxation year (in this section referred to as the “gift year”), for the purposes of computing the amount deductible under section 110.1 by the parent for its taxation years that end after the subsidiary was wound up, the parent is deemed to have made a gift, in each of its taxation years in which a gift year of the subsidiary ended, equal to the amount, if any, by which the total of all amounts, each of which is the amount of a gift or, in the case of a gift made after December 20, 2002, the eligible amount of the gift, made by the subsidiary in the gift year exceeds the total of all amounts deducted under section 110.1 by the subsidiary in respect of those gifts;

(5) The portion of paragraph 88(1.1)(e) of the Act before subparagraph (i) is replaced by the following:

(e) where control of the parent has been acquired by a person or group of persons at any time after the commencement of the winding-up, or control of the subsidiary has been acquired by a person or group of persons at any time whatever, no amount in respect of the subsidiary’s non-capital loss or farm loss for a taxation year ending before that time is deductible in computing the taxable income of the parent for a particular taxation year ending after that time, except that such portion of the subsidiary’s non-capital loss or farm loss as may reasonably be regarded as its loss from carrying on a business and, where a business was carried on by the subsidiary in that year, such portion of the non-capital loss as may reasonably be regarded as being in respect of an amount deductible under paragraph 110(1)(k) in computing its taxable income for the year is deductible only

(6) Subsection (1) applies in respect of the disposition of an eligible capital property by a subsidiary to a parent unless

(a) the disposition by the subsidiary occurred before December 21, 2002; and

(b) the parent disposed of the eligible capital property, before November 9, 2006, and in a taxation year of the parent ending after February 27, 2000, to a person with whom the parent did not deal at arm’s length at the time of that disposition by the parent.

(7) Subsections (2) and (3) apply to windings-up that begin after 1997.

(8) Subsection (4) applies to windings-up that begin after December 20, 2002.

(9) Subsection (5) applies to windings-up that begin after May 1996.

90. (1) Clause (a)(i)(A) of the definition “capital dividend account” in subsection 89(1) of the Act is replaced by the following:

(A) the amount of the corporation’s capital gain — computed without reference to subparagraphs 52(3)(a)(ii) and 53(1)(b)(ii) — from the disposition (other than a disposition that is the making of a gift after December 8, 1997 that is not a gift described in subsection 110.1(1)) of a property in the period beginning at the beginning of its first taxation year that began after the corporation last became a private corporation and that ended after 1971 and ending immediately before the particular time (in this definition referred to as “the period”)

(2) Clause (a)(ii)(A) of the definition “capital dividend account” in subsection 89(1) of the Act is replaced by the following:

(A) the amount of the corporation’s capital loss — computed without reference to subparagraphs 52(3)(a)(ii) and 53(1)(b)(ii) — from the disposition (other than a disposition that is the making of a gift after December 8, 1997 that is not a gift described in subsection 110.1(1)) of a property in the period

(3) The portion of paragraph (f) of the definition “compte de dividendes en capital” in subsection 89(1) of the French version of the Act before clause (i)(B) is replaced by the following:

(4) The portion of paragraph (g) of the definition “compte de dividendes en capital” in subsection 89(1) of the French version of the Act before subparagraph (ii) is replaced by the following:

(5) Paragraph (b) of the definition “taxable Canadian corporation” in subsection 89(1) of the Act is replaced by the following:

(b) was not, by reason of a statutory provision other than paragraph 149(1)(t), exempt from tax under this Part;

(6) Subsections (1) and (2) apply in respect of a disposition that occurs on or after November 9, 2006.

(7) Subsections (3) and (4) apply to elections in respect of capital dividends that become payable after 1997.

(8) Subsection (5) applies in respect of taxation years that end after 1999.

91. (1) Section 96 of the Act is amended by adding the following after subsection (1):

(1.01) If, at any time in a fiscal period of a partnership, a taxpayer ceases to be a member of the partnership

(a) for the purposes of subsection (1) and sections 34.1, 34.2, 101, 103 and 249.1, and notwithstanding paragraph 98.1(1)(d), the taxpayer is deemed to be a member of the partnership at the end of the fiscal period; and

(b) for the purposes of the application of paragraph (2.1)(b) and subparagraphs 53(1)(e)(i) and (viii) and (2)(c)(i) to the taxpayer, the fiscal period of the partnership is deemed to end

(i) immediately before the time at which the taxpayer is deemed by subsection 70(5) to have disposed of the interest in the partnership, where the taxpayer ceased to be a member of the partnership because of the taxpayer’s death, and

(ii) immediately before the time that is immediately before the time that the taxpayer ceased to be a member of the partnership, in any other case.

(2) Paragraph 96(2.4)(a) of the English version of the Act is replaced by the following:

(a) by operation of any law governing the partnership arrangement, the liability of the member as a member of the partnership is limited (except by operation of a provision of a statute of Canada or a province that limits the member’s liability only for debts, obligations and liabilities of the partnership, or any member of the partnership, arising from negligent acts or omissions, from misconduct or from fault of another member of the partnership or an employee, an agent or a representative of the partnership in the course of the partnership business while the partnership is a limited liability partnership);

(3) Subsection (1) applies in respect of a taxpayer

(a) in the case where the taxpayer ceases to be a member of a partnership because of the taxpayer’s death, to the 2003 and subsequent taxation years; and

(b) in any other case, to the 1995 and subsequent taxation years.

(4) Subsection (2) applies after June 20, 2001.

(5) If a taxpayer, who is a member of a partnership at the end of a particular fiscal period, of the partnership, that ends in the taxpayer’s 2000 taxation year, so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year in which this Act is assented to,

(a) subsection 96(1.7) of the Act does not apply to the taxpayer’s 2000 taxation year;

(b) the taxpayer is deemed to have a capital gain, a capital loss or a business investment loss in respect of the partnership for the particular fiscal period equal to the amount of the taxable capital gain, the allowable capital loss or the allowable business investment loss in respect of the partnership for the particular fiscal period, as the case may be, multiplied by the reciprocal of the fraction in paragraph 38(a) of the Act that applies to the partnership for the particular fiscal period;

(c) the amount of a capital gain, a capital loss or a business investment loss determined under paragraph (b) is deemed to be a capital gain, a capital loss or a business investment loss, as the case may be, of the taxpayer from a disposition of a capital property on the day that the particular fiscal period ends; and

(d) except as provided by this subsection, no amount shall be included in computing the taxpayer’s taxable capital gains, allowable capital losses and allowable business investment losses in respect of the taxable capital gains, allowable capital losses and allowable business investment losses of the partnership for the particular fiscal period.

92. Subsection 99(1) of the Act is replaced by the following:

99. (1) Subject to subsection (2), if, at any particular time in a fiscal period of a partnership, the partnership would, if this Act were read without reference to subsection 98(1), have ceased to exist, the fiscal period is deemed to have ended immediately before the time that is immediately before that particular time.

93. (1) Section 100 of the Act is amended by adding the following after subsection (4):

(5) A taxpayer who pays an amount at any time in a taxation year is deemed to have a capital loss from a disposition of property for the year if

(a) the taxpayer disposed of an interest in a partnership before that time or, because of subsection (3), acquired before that time a right to receive property of a partnership;

(b) that time is after the disposition or acquisition, as the case may be;

(c) the amount would have been described in subparagraph 53(1)(e)(iv) had the taxpayer been a member of the partnership at that time; and

(d) the amount is paid pursuant to a legal obligation of the taxpayer to pay the amount.

(2) Subsection (1) applies to the 1995 and subsequent taxation years.

94. (1) The portion of subsection 104(1.1) of the Act before paragraph (a) is replaced by the following:

(1.1) Notwithstanding subsection 248(25), for the purposes of subsection (1), paragraph (4)(a.4), subparagraph 73(1.02)(b)(ii) and paragraph 107.4(1)(e), a person or partnership is deemed not to be a beneficiary under a trust at a particular time if the person or partnership is beneficially interested in the trust at the particular time solely because of

(2) Paragraph 104(4)(a.2) of the French version of the Act is replaced by the following:

(3) Paragraph 104(5.3)(b.1) of the French version of the Act is replaced by the following:

(4) Subsection 104(19) of the Act is replaced by the following:

(19) A portion of a taxable dividend received by a trust, in a particular taxation year of the trust, on a share of the capital stock of a taxable Canadian corporation is, for the purposes of this Act other than Part XIII, deemed to be a taxable dividend on the share received by a taxpayer, in the taxpayer’s taxation year in which the particular taxation year ends, and is, for the purposes of paragraphs 82(1)(b) and 107(1)(c) and (d) and section 112, deemed not to have been received by the trust, if

(a) an amount equal to that portion

(i) is designated by the trust, in respect of the taxpayer, in the trust’s return of income under this Part for the particular taxation year, and

(ii) may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that, because of paragraph (13)(a) or subsection (14) or section 105, was included in computing the income for that taxation year of the taxpayer;

(b) the taxpayer is in the particular taxation year a beneficiary under the trust;

(c) the trust is, throughout the particular taxation year, resident in Canada; and

(d) the total of all amounts each of which is an amount designated, under this subsection, by the trust in respect of a beneficiary under the trust in the trust’s return of income under this Part for the particular taxation year is not greater than the total of all amounts each of which is the amount of a taxable dividend, received by the trust in the particular taxation year, on a share of the capital stock of a taxable Canadian corporation.

(5) Subsection 104(21) of the Act is replaced by the following:

(21) For the purposes of sections 3 and 111, except as they apply for the purposes of section 110.6, and subject to paragraph 132(5.1)(b), an amount in respect of a trust’s net taxable capital gains for a particular taxation year of the trust is deemed to be a taxable capital gain, for the taxation year of a taxpayer in which the particular taxation year ends, from the disposition by the taxpayer of capital property if

(a) the amount

(i) is designated by the trust, in respect of the taxpayer, in the trust’s return of income under this Part for the particular taxation year, and

(ii) may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that, because of paragraph (13)(a) or subsection (14) or section 105, was included in computing the income for that taxation year of the taxpayer;

(b) the taxpayer is

(i) in the particular taxation year, a beneficiary under the trust, and

(ii) resident in Canada, unless the trust is, throughout the particular taxation year, a mutual fund trust;

(c) the trust is, throughout the particular taxation year, resident in Canada; and

(d) the total of all amounts each of which is an amount designated, under this subsection, by the trust in respect of a beneficiary under the trust in the trust’s return of income under this Part for the particular taxation year is not greater than the trust’s net taxable capital gains for the particular taxation year.

(6) Paragraph 104(21.6)(g) of the Act is replaced by the following:

(f.1) if the deemed gains are in respect of capital gains of the trust from dispositions of property after February 27, 2000 and before October 17, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended after October 17, 2000, the deemed gains are deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year and in the period that began after February 27, 2000 and ended before October 18, 2000;

(g) if the deemed gains are in respect of capital gains of the trust from dispositions of property after February 27, 2000 and before October 17, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended before October 18, 2000, the deemed gains are deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer’s taxation year; and

(7) Subsection 104(22) of the Act is replaced by the following:

(22) For the purposes of this subsection, subsection (22.1) and section 126, an amount in respect of a trust’s income for a particular taxation year of the trust from a source in a country other than Canada is deemed to be income of a taxpayer, for the taxation year of the taxpayer in which the particular taxation year ends, from that source if

(a) the amount

(i) is designated by the trust, in respect of the taxpayer, in the trust’s return of income under this Part for the particular taxation year, and

(ii) may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that, because of paragraph (13)(a) or subsection (14), was included in computing the income for that taxation year of the taxpayer;

(b) the taxpayer is in the particular taxation year a beneficiary under the trust;

(c) the trust is, throughout the particular taxation year, resident in Canada; and

(d) the total of all amounts each of which is an amount designated, under this subsection in respect of that source, by the trust in respect of a beneficiary under the trust in the trust’s return of income under this Part for the particular taxation year is not greater than the trust’s income for the particular taxation year from that source.

(8) Paragraphs 104(23)(a) and (b) of the Act are repealed.

(9) Subsection (1) applies to the 1998 and subsequent taxation years.

(10) Subsections (4), (5) and (7) apply to taxation years that end after February 27, 2004, except that, for taxation years that end on or before July 18, 2005, the reference to “paragraph (13)(a)” in subparagraph 104(19)(a)(ii) of the Act, as enacted by subsection (4), in subparagraph 104(21)(a)(ii) of the Act, as enacted by subsection (5), and in subparagraph 104(22)(a)(ii) of the Act, as enacted by subsection (7), is to be read as a reference to “subsection (13)”.

(11) Paragraph 104(21.6)(f.1) of the Act, as enacted by subsection (6), applies to taxation years that end after February 27, 2000.

(12) Paragraph 104(21.6)(g) of the Act, as enacted by subsection (6), applies to trust taxation years that end after December 20, 2002.

(13) Subsection (8) applies after December 20, 2002.

95. Subsection 106(3) of the French version of the Act is replaced by the following:

96. (1) Subsection 107(1) of the Act is amended by striking out the word “and” at the end of paragraph (c), by adding the word “and” at the end of paragraph (d) and by adding the following after paragraph (d):

(e) if the capital interest is not a capital property of the taxpayer, notwithstanding the definition “cost amount” in subsection 108(1), its cost amount is deemed to be the amount, if any, by which

(i) the amount that would, if this Act were read without reference to this paragraph and the definition “cost amount” in subsection 108(1), be its cost amount

exceeds

(ii) the total of all amounts, each of which is an amount in respect of the capital interest that has become payable to the taxpayer before the disposition and that would be described in subparagraph 53(2)(h)(i.1) if that subparagraph were read without reference to its subclause (B)(I).

(2) Section 107 of the Act is amended by adding the following after subsection (1.1):

(1.2) For the purpose of section 10, the fair market value at any time of a capital interest in a trust is deemed to be equal to the amount that is the total of

(a) the amount that would, if this Act were read without reference to this subsection, be its fair market value at that time, and

(b) the total of all amounts, each of which is an amount that would be described, in respect of the capital interest, in subparagraph 53(2)(h)(i.1) if that subparagraph were read without reference to its subclause (B)(I), that has become payable to the taxpayer before that time.

(3) The portion of subsection 107(2) of the French version of the Act before paragraph (a) is replaced by the following:

(4) Subparagraph 107(2)(b.1)(iii) of the Act is replaced by following:

(iii) in any other case, 50%;

(5) The portion of paragraph 107(2)(c) of the Act before subparagraph (i) is replaced by the following:

(c) the taxpayer’s proceeds of disposition of the capital interest in the trust (or of the part of it) disposed of by the taxpayer on the distribution are deemed to be equal to the amount, if any, by which

(6) The portion of paragraph 107(2)(d) of the French version of the Act before subparagraph (i) is replaced by the following:

(7) Subparagraph 107(2)(d.1)(iii) of the Act is replaced by the following:

(iii) the property was deemed by paragraph 51(1)(f), 85(1)(i) or 85.1(1)(a), subsection 85.1(5) or 87(4) or (5) or paragraph 97(2)(c) to be taxable Canadian property of the trust; and

(8) The portion of paragraph 107(2)(f) of the French version of the Act before subparagraph (i) is replaced by the following:

(9) The portion of subparagraph 107(2)(f)(ii) of the French version of the Act after the formula is replaced by the following:

(10) Subsection 107(2.001) of the French version of the Act is replaced by the following:

(11) The portion of subsection 107(2.002) of the French version of the Act before paragraph (b) is replaced by the following:

(12) The portion of subsection 107(2.01) of the French version of the Act before paragraph (a) is replaced by the following:

(13) The portion of subsection 107(2.1) of the French version of the Act before paragraph (a) is replaced by the following:

(14) The portion of paragraph 107(2.1)(c) of the French version of the Act before subparagraph (i) is replaced by the following:

(15) The portion of subparagraph 107(2.1)(d)(iii) of the French version of the Act before clause (B) is replaced by the following:

(16) Paragraph 107(2.1)(e) of the French version of the Act is replaced by the following:

(17) Subsection 107(2.11) of the French version of the Act is replaced by the following:

(18) The portion of subsection 107(2.2) of the French version of the Act before paragraph (a) is replaced by the following:

(19) The portion of subsection 107(4) of the French version of the Act before paragraph (a) is replaced by the following:

(20) Paragraph 107(4)(b) of the French version of the Act is replaced by the following:

(21) The portion of subsection 107(4.1) of the French version of the Act before paragraph (b) is replaced by the following:

(22) Subparagraph 107(4.1)(b)(ii) of the French version of the Act is replaced by the following:

(23) Paragraph 107(4.1)(d) of the French version of the Act is replaced by the following:

(24) Subsection 107(5) of the Act is replaced by the following:

(4.2) Subsection (2.1) applies (and subsection (2) does not apply) at any time to property distributed after December 20, 2002 to a beneficiary by a personal trust or a trust prescribed for the purpose of subsection (2), if

(a) at a particular time before December 21, 2002 there was a qualifying disposition (within the meaning assigned by subsection 107.4(1)) of the property, or of other property for which the property is substituted, by a particular partnership or a particular corporation, as the case may be, to a trust; and

(b) the beneficiary is neither the particular partnership nor the particular corporation.

(5) Subsection (2.1) applies (and subsection (2) does not apply) in respect of a distribution of a property (other than a share of the capital stock of a non-resident-owned investment corporation or property described in any of subparagraphs 128.1(4)(b)(i) to (iii)) by a trust to a non-resident taxpayer (including a partnership other than a Canadian partnership) in satisfaction of all or part of the taxpayer’s capital interest in the trust.

(25) The portion of subsection 107(5.1) of the French version of the Act before paragraph (a) is replaced by the following:

(26) Paragraph 107(5.1)(b) of the French version of the Act is replaced by the following:

(27) Subsections (1) and (2) apply to dispositions that occur, and valuations made,

(a) after 2001 in respect of qualified trust units, as defined in subsection 260(1) of the Act, as amended by subsection 194(5), in respect of which an amount described in paragraph 260(5.1)(b) of the Act, as enacted by subsection 194(6), or that would have been so described had no election been made under subsection 194(10), is paid after 2001 and before February 28, 2004, except that subparagraph 107(1)(e)(ii) of the Act, as enacted by subsection (1), and paragraph 107(1.2)(b) of the Act, as enacted by subsection (2), shall, with respect to amounts described in subclause 53(2)(h)(i.1)(B)(I) of the Act that were payable on or before 2002, be read without reference to the words “if that subparagraph were read without reference to its subclause (B)(I)”; and

(b) in any other case, after February 27, 2004, except that, subject to paragraph (a),

(i) subsection (1) does not apply to a disposition by a taxpayer after February 27, 2004 and before 2005 pursuant to an agreement in writing made by the taxpayer on or before February 27, 2004, and

(ii) subparagraph 107(1)(e)(ii) of the Act, as enacted by subsection (1), and paragraph 107(1.2)(b) of the Act, as enacted by subsection (2), shall, with respect to amounts described in subclause 53(2)(h)(i.1)(B)(I) of the Act that were payable on or before February 27, 2004, be read without reference to the words “if that subparagraph were read without reference to its subclause (B)(I)”.

(28) Subsection (4) and subsection 107(4.2) of the Act, as enacted by subsection (24), apply to distributions made after December 20, 2002.

(29) Subsection (5) applies to distributions made after 1999.

(30) Subsection (7) applies in determining after October 1, 1996 whether property is taxable Canadian property.

(31) Subsection 107(5) of the Act, as enacted by subsection (24), applies to distributions made after February 27, 2004.

97. The portion of section 107.1 of the French version of the Act before paragraph (a) is replaced by the following:

98. (1) The portion of section 107.2 of the French version of the Act before paragraph (a) is replaced by the following:

(2) Paragraph 107.2(b) of the French version of the Act is replaced by the following:

99. (1) The portion of subsection 107.4(1) of the Act before paragraph (a) is replaced by the following:

107.4 (1) In this section, a “qualifying disposition” of a property means a disposition of the property before December 21, 2002 by a person or partnership, and a disposition of property after December 20, 2002 by an individual, (which person, partnership or individual is referred to in this subsection as the “contributor”) as a result of a transfer of the property to a particular trust where

(2) Paragraph 107.4(1)(c) of the Act is replaced by the following:

(c) the particular trust is resident in Canada at the time of the transfer;

(3) Paragraph 107.4(1)(d) of the Act is repealed.

(4) Subparagraphs 107.4(1)(g)(ii) and (iii) of the French version of the Act are replaced by the following:

(5) Paragraph 107.4(3)(f) of the Act is replaced by the following:

(f) if the property was deemed to be taxable Canadian property of the transferor by this paragraph or paragraph 44.1(2)(c), 51(1)(f), 85(1)(i) or 85.1(1)(a), subsection 85.1(5) or 87(4) or (5) or paragraph 97(2)(c) or 107(2)(d.1), the property is deemed to be taxable Canadian property of the transferee trust;

(6) Subsections (1) and (3) are deemed to have come into force on December 20, 2002.

(7) Subsection (2) applies to dispositions that occur after February 27, 2004.

(8) Subsection (5) applies

(a) to dispositions that occur after December 23, 1998; and

(b) in respect of the 1996 and subsequent taxation years, to transfers of capital property that occurred before December 24, 1998.

100. (1) The portion of the definition “testamentary trust” in subsection 108(1) of the Act before paragraph (a) is replaced by the following:

“testamentary trust”, in a taxation year, means a trust that arose on and as a consequence of the death of an individual (including a trust referred to in subsection 248(9.1)), other than

(2) The definition “testamentary trust” in subsection 108(1) of the Act is amended by striking out the word “and” at the end of paragraph (b), by adding the word “and” at the end of paragraph (c) and by adding the following after paragraph (c):

(d) a trust that, at any time after December 20, 2002 and before the end of the taxation year, incurs a debt or any other obligation owed to, or guaranteed by, a beneficiary or any other person or partnership (which beneficiary, person or partnership is referred to in this paragraph as the “specified party”) with whom any beneficiary of the trust does not deal at arm’s length, other than a debt or other obligation

(i) incurred by the trust in satisfaction of the specified party’s right as a beneficiary under the trust

(A) to enforce payment of an amount of the trust’s income or capital gains payable at or before that time by the trust to the specified party, or

(B) to otherwise receive any part of the capital of the trust,

(ii) owed to the specified party, if the debt or other obligation arose because of a service (for greater certainty, not including any transfer or loan of property) rendered by the specified party to, for or on behalf of the trust, or

(iii) owed to the specified party, if

(A) the debt or other obligation arose because of a payment made by the specified party for or on behalf of the trust,

(B) in exchange for the payment, the trust transfers property, the fair market value of which is not less than the principal amount of that debt or other obligation, to the specified party within 12 months after the payment was made (or, where written application has been made to the Minister by the trust within that 12 months, within any longer period that the Minister considers reasonable in the circumstances), and

(C) it is reasonable to conclude that the specified party would have been willing to make the payment if the specified party dealt at arm’s length with the trust, except where the trust is the individual’s estate and that payment was made within the first 12 months after the individual’s death (or, where written application has been made to the Minister by the estate within that 12 months, within any longer period that the Minister considers reasonable in the circumstances);

(3) The portion of the definition “trust” in subsection 108(1) of the Act after paragraph (e.1) and before paragraph (f) is replaced by the following:

and, in applying subsections 104(4), (5), (5.2), (12), (14) and (15) at any time, does not include

(4) Paragraph (a) of the definition “coût indiqué” in subsection 108(1) of the French version of the Act is replaced by the following:

(5) Subparagraphs (g)(v) and (vi) of the definition “fiducie” in subsection 108(1) of the French version of the Act are replaced by the following:

(6) The definition “montant de réduction admissible” in subsection 108(1) of the French version of the Act is replaced by the following:

(7) Subsections (1) and (2) apply to taxation years that end after December 20, 2002, except that

(a) a transfer that is required, by clause (d)(iii)(B) of the definition “testamentary trust” in subsection 108(1) of the Act, as enacted by subsection (2), to be made within 12 months after a payment was made is deemed to be made in a timely manner if it is made no later than 12 months after this Act is assented to; and

(b) for those taxation years that end before the day on which this Act is assented to, the reference to “within the first 12 months after the individual’s death” in clause (d)(iii)(C) of the definition “testamentary trust” in subsection 108(1) of the Act, as enacted by subsection (2), shall be read as a reference to “after the individual’s death and no later than 12 months after the day on which the Income Tax Amendments Act, 2006 is assented to”.

(8) Subsection (3) applies to the 1998 and subsequent taxation years.

101. (1) Paragraph 110(1)(k) of the Act is replaced by the following:

(k) three times the tax payable under subsection 191.1(1) by the taxpayer for the year.

(2) Subsection 110(1.7) of the Act is replaced by the following:

(1.7) If the amount payable by a taxpayer to acquire securities under an agreement referred to in subsection 7(1) is reduced at any particular time and the conditions in subsection (1.8) are satisfied in respect of the reduction,

(a) the rights (referred to in this subsection and subsection (1.8) as the “old rights”) that the taxpayer had under the agreement immediately before the particular time are deemed to have been disposed of by the taxpayer immediately before the particular time;

(b) the rights (referred to in this subsection and subsection (1.8) as the “new rights”) that the taxpayer has under the agreement at the particular time are deemed to be acquired by the taxpayer at the particular time; and

(c) the taxpayer is deemed to receive the new rights as consideration for the disposition of the old rights.

(1.8) The following are the conditions in respect of the reduction:

(a) that the taxpayer would not be entitled to a deduction under paragraph (1)(d) if the taxpayer acquired securities under the agreement immediately after the particular time and this section were read without reference to subsection (1.7); and

(b) that the taxpayer would be entitled to a deduction under paragraph (1)(d) if the taxpayer

(i) disposed of the old rights immediately before the particular time,

(ii) acquired the new rights at the par- ticular time as consideration for the disposition, and

(iii) acquired securities under the agreement immediately after the particular time.

(3) Subsection (1) applies to the 2003 and subsequent taxation years.

(4) Subsection (2) applies to reductions that occur after 1998.

(5) An election by a taxpayer under subsection 7(10) of the Act to have subsection 7(8) of the Act apply is deemed to have been filed in a timely manner if

(a) it is filed on or before the 60th day after the day on which this Act is assented to;

(b) it is in respect of a security acquired by the taxpayer before the day on which this Act is assented to;

(c) the taxpayer is entitled to a deduction under paragraph 110(1)(d) of the Act in respect of the acquisition; and

(d) the taxpayer would not have been so entitled if subsection 110(1.7) of the Act, as enacted by subsection (2), did not apply.

102. (1) The portion of paragraph 110.1(1)(a) of the Act before subparagraph (i) is replaced by the following:

(a) the total of all amounts each of which is the eligible amount of a gift (other than a gift described in paragraph (b), (c) or (d)) made by the corporation in the year or in any of the five preceding taxation years to

(2) Paragraph 110.1(1)(a) of the Act is amended by adding the following after subparagraph (iv):

(iv.1) a municipal or public body performing a function of government in Canada,

(3) The description of B in paragraph 110.1(1)(a) of the Act is replaced by the following:

B      is the total of all amounts, each of which is that proportion of the corporation’s taxable capital gain for the taxation year in respect of a gift made by the corporation in the taxation year (in respect of which gift an eligible amount is described in this paragraph for the taxation year) that the eligible amount of the gift is of the corporation’s proceeds of disposition in respect of the gift,

(4) Clause (B) in the description of D in paragraph 110.1(1)(a) of the Act is replaced by the following:

(B) the total of all amounts each of which is determined in respect of a disposition that is the making of a gift of property of the class by the corporation in the year (in respect of which gift an eligible amount is described in this paragraph for the taxation year) equal to the lesser of

(I) that proportion, of the amount by which the proceeds of disposition of the property exceeds any outlays and expenses, to the extent that they were made or incurred by the corporation for the purpose of making the disposition, that the eligible amount of the gift is of the corporation’s proceeds of disposition in respect of the gift, and

(II) that proportion, of the capital cost to the corporation of the property, that the eligible amount of the gift is of the corporation’s proceeds of disposition in respect of the gift;

(5) The portion of paragraph 110.1(1)(b) of the Act before subparagraph (i) is replaced by the following:

(b) the total of all amounts each of which is the eligible amount of a gift (other than a gift described in paragraph (c) or (d)) made by the corporation to Her Majesty in right of Canada or of a province

(6) Paragraphs 110.1(1)(c) and (d) of the Act are replaced by the following:

(c) the total of all amounts each of which is the eligible amount of a gift (other than a gift described in paragraph (d)) of an object that the Canadian Cultural Property Export Review Board has determined meets the criteria set out in paragraphs 29(3)(b) and (c) of the Cultural Property Export and Import Act, which gift was made by the corporation in the year or in any of the five preceding taxation years to an institution or a public authority in Canada that was, at the time the gift was made, designated under subsection 32(2) of that Act either generally or for a specified purpose related to that object; and

(d) the total of all amounts each of which is the eligible amount of a gift of land (including a covenant or an easement to which land is subject or, in the case of land in the Province of Quebec, a real servitude) if

(i) the fair market value of the gift is certified by the Minister of the Environment,

(ii) the land is certified by that Minister, or by a person designated by that Minister, to be ecologically sensitive land, the conservation and protection of which is, in the opinion of that Minister or the designated person, important to the preservation of Canada’s environmental heritage, and

(iii) the gift was made by the corporation in the year or in any of the five preceding taxation years to

(A) Her Majesty in right of Canada or of a province,

(B) a municipality in Canada,

(C) a municipal or public body performing a function of government in Canada, or

(D) a registered charity one of the main purposes of which is, in the opinion of that Minister, the conservation and protection of Canada’s environmental heritage, and that is approved by that Minister or the designated person in respect of the gift.

(7) The portion of subsection 110.1(2) of the Act before paragraph (a) is replaced by the following:

(2) An eligible amount of a gift shall not be included for the purpose of determining a deduction under subsection (1) unless the making of the gift is evidenced by filing with the Minister

(8) Subsection 110.1(3) of the Act is replaced by the following:

(2.1) Subsection (3) applies in circumstances where

(a) a corporation makes a gift at any time of

(i) capital property to a donee described in paragraph (1)(a), (b) or (d), or

(ii) in the case of a corporation not resident in Canada, real or immovable property situated in Canada to a prescribed donee who provides an undertaking, in a form satisfactory to the Minister, to the effect that the property will be held for use in the public interest; and

(b) the fair market value of the property otherwise determined at that time exceeds

(i) in the case of depreciable property of a prescribed class, the lesser of the undepreciated capital cost of that class at the end of the taxation year of the corporation that includes that time (determined without reference to the proceeds of disposition designated in respect of the property under subsection (3)) and the adjusted cost base to the corporation of the property immediately before that time, and

(ii) in any other case, the adjusted cost base to the corporation of the property immediately before that time.

(3) If this subsection applies in respect of a gift by a corporation of property, and the corporation designates an amount in respect of the gift in its return of income under section 150 for the year in which the gift is made, the amount so designated is deemed to be its proceeds of disposition of the property and, for the purpose of subsection 248(31), the fair market value of the gift, but the amount so designated may not exceed the fair market value of the property otherwise determined and may not be less than the greater of

(a) in the case of a gift made after December 20, 2002, the amount of the advantage, if any, in respect of the gift, and

(b) the amount determined under subparagraph (2.1)(b)(i) or (ii), as the case may be, in respect of the property.

(9) Subsection 110.1(4) of the Act is replaced by the following:

(4) If at the end of a fiscal period of a partnership a corporation is a member of the partnership, its share of any amount that would, if the partnership were a person, be the eligible amount of a gift made by the partnership to any donee is, for the purpose of this section, deemed to be the eligible amount of a gift made to that donee by the corporation in its taxation year in which the fiscal period of the partnership ends.

(10) The portion of paragraph 110.1(5)(b) of the Act before subparagraph (i) is replaced by the following:

(b) where the gift is a covenant or an easement to which land is subject or, in the case of land in the Province of Quebec, a real servitude, the greater of

(11) Subsections (1), (3) to (7), (9) and (10) apply to gifts made after December 20, 2002.

(12) Subsection (2) applies to gifts made after May 8, 2000.

(13) For gifts made after May 8, 2000 and before December 21, 2002, subparagraph 110.1(1)(d)(i) of the Act is to be read as follows:

(i) Her Majesty in right of Canada or of a province, a municipality in Canada or a municipal or public body performing a function of government in Canada, or

(14) Subsection (8) applies to gifts made after 1999 except that, for gifts made after 1999 and before December 21, 2002, the reference to “subsection 248(31)” in subsection 110.1(3) of the Act, as enacted by subsection (8), is to be read as a reference to “subsection (1)”.

103. (1) Subsection 110.6(14) of the Act is amended by adding the following after paragraph (d):

(2) Subsection (1) applies

(a) to dispositions that occur after December 20, 2002; and

(b) to dispositions made by a taxpayer after 1999, if the taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year in which this Act is assented to.

104. (1) Subsection 111(1.1) of the Act is amended by striking out the word “and” at the end of paragraph (a), by adding the word “and” at the end of paragraph (b) and by adding the following after paragraph (b):

(c) the amount, if any, that the Minister determines to be reasonable in the circumstances, after considering the application of subsections 104(21.6), 130.1(4), 131(1) and 138.1(3.2) to the taxpayer for the particular year.

(2) The description of C in the definition “pre-1986 capital loss balance” in subsection 111(8) of the Act is replaced by the following:

C      is the total of all amounts deducted under section 110.6 in computing the individual’s taxable income for taxation years that ended before 1988 or begin after October 17, 2000,

(3) Subsections (1) and (2) apply to the 2000 and subsequent taxation years.

105. (1) The portion of subsection 116(5.2) of the Act before paragraph (a) is replaced by the following:

(5.2) If a non-resident person has, in respect of a disposition, or a proposed disposition, in a taxation year to a taxpayer of property (other than excluded property) that is a life insurance policy in Canada, a Canadian resource property, a property (other than capital property) that is real property, or an immovable, situated in Canada, a timber resource property, depreciable property that is a taxable Canadian property, eligible capital property that is a taxable Canadian property or any interest in, or for civil law any right in, or any option in respect of, a property to which this subsection applies (whether or not that property exists),

(2) Paragraph 116(6)(f) of the Act is replaced by the following:

(f) property of an authorized foreign bank that carries on a Canadian banking business;

(3) Subsection (1) applies after December 23, 1998.

(4) Subsection (2) applies after June 27, 1999.

106. (1) The description of C in subparagraph (a)(ii) of the description of B in subsection 118(1) of the English version of the Act is replaced by the following:

C      is the greater of $606 and the income of the individual’s spouse or common-law partner for the year or, where the individual and the individual’s spouse or common-law partner are living separate and apart at the end of the year because of a breakdown of their marriage or common-law partnership, the spouse’s or common-law partner’s income for the year while married or in a common-law partnership and not so separated,

(2) Paragraph (a) of the definition “pension income” in subsection 118(7) of the Act is amended by adding the following after subparagraph (iii):

(iii.1) a payment (other than a payment described in subparagraph (i)) payable on a periodic basis under a money purchase provision (within the meaning assigned by subsection 147.1(1)) of a registered pension plan,

(3) Subsection (1) applies to the 2001 and subsequent taxation years except that, if a taxpayer and a person have jointly elected under section 144 of the Modernization of Benefits and Obligations Act, in respect of the 1998, 1999 or 2000 taxation years, subsection (1) applies to the taxpayer and the person in respect of the applicable taxation year and subsequent taxation years.

(4) Subsection (2) applies to the 2004 and subsequent taxation years.

107. (1) The definition “total ecological gifts” in subsection 118.1(1) of the Act is replaced by the following:

“total ecological gifts”, in respect of an individual for a taxation year, means the total of all amounts each of which is the eligible amount of a gift (other than a gift described in the definition “total cultural gifts”) of land (including a covenant or an easement to which land is subject or, in the case of land in the Province of Quebec, a real servitude) if

(a) the fair market value of the gift is certified by the Minister of the Environment,

(b) the land is certified by that Minister, or by a person designated by that Minister, to be ecologically sensitive land, the conservation and protection of which is, in the opinion of that Minister or the designated person, important to the preservation of Canada’s environmental heritage, and

(c) the gift was made by the individual in the year or in any of the five preceding taxation years to

(i) Her Majesty in right of Canada or of a province,

(ii) a municipality in Canada,

(iii) a municipal or public body performing a function of government in Canada, or

(iv) a registered charity one of the main purposes of which is, in the opinion of that Minister, the conservation and protection of Canada’s environmental heritage, and that is approved by that Minister or the designated person in respect of the gift,

to the extent that those amounts were not included in determining an amount that was deducted under this section in computing the individual’s tax payable under this Part for a preceding taxation year;

(2) The portion of the definition “total charitable gifts” in subsection 118.1(1) of the Act before paragraph (a) is replaced by the following:

“total charitable gifts”, in respect of an individ- ual for a taxation year, means the total of all amounts each of which is the eligible amount of a gift (other than a gift described in the definition “total Crown gifts”, “total cultural gifts” or “total ecological gifts”) made by the individual in the year or in any of the five preceding taxation years (other than in a year for which a deduction under subsection 110(2) was claimed in computing the individual’s taxable income) to

(3) Paragraph (d) of the definition “total charitable gifts” in subsection 118.1(1) of the Act is replaced by the following:

(d) a municipality in Canada,

(d.1) a municipal or public body performing a function of government in Canada,

(4) The portion of the definition “total Crown gifts” in subsection 118.1(1) of the Act before paragraph (a) is replaced by the following:

“total Crown gifts”, in respect of an individual for a taxation year, means the total of all amounts each of which is the eligible amount of a gift (other than a gift described in the definition “total cultural gifts” or “total ecological gifts”) made by the individual in the year or in any of the five preceding taxation years to Her Majesty in right of Canada or of a province, to the extent that those amounts were

(5) The portion of the definition “total cultural gifts” in subsection 118.1(1) of the Act before paragraph (a) is replaced by the following:

“total cultural gifts”, in respect of an individual for a taxation year, means the total of all amounts each of which is the eligible amount of a gift

(6) The description of B in subparagraph (a)(iii) of the definition “total gifts” in subsection 118.1(1) of the Act is replaced by the following:

B      is the total of all amounts, each of which is that proportion of the individ- ual’s taxable capital gain for the taxation year in respect of a gift made by the individual in the taxation year (in respect of which gift an eligible amount is included in the individual’s total charitable gifts for the taxation year) that the eligible amount of the gift is of the individual’s proceeds of disposition in respect of the gift,

(7) Clause (B) in the description of D in subparagraph (a)(iii) of the definition “total gifts” in subsection 118.1(1) of the Act is replaced by the following:

(B) the total of all amounts each of which is determined in respect of a disposition that is the making of a gift of property of the class made by the individual in the year (in respect of which gift an eligible amount is included in the individual’s total charitable gifts for the taxation year) equal to the lesser of

(I) that proportion, of the amount by which the proceeds of disposition of the property exceed any outlays and expenses, to the extent that they were made or incurred by the individual for the purpose of making the disposition, that the eligible amount of the gift is of the individual’s proceeds of disposition in respect of the gift, and

(II) that proportion, of the capital cost to the individual of the property, that the eligible amount of the gift is of the individual’s proceeds of disposition in respect of the gift, and

(8) The portion of subsection 118.1(2) of the Act before paragraph (a) is replaced by the following:

(2) An eligible amount of a gift shall not be included in the total charitable gifts, total Crown gifts, total cultural gifts or total ecological gifts of an individual unless the making of the gift is evidenced by filing with the Minister

(9) Subsection 118.1(6) of the Act is replaced by the following:

(5.4) Subsection (6) applies in circumstances where

(a) an individual

(i) makes a gift (by the individual’s will or otherwise) at any time of capital property to a donee described in the definition “total charitable gifts”, “total Crown gifts” or “total ecological gifts” in subsection (1), or

(ii) who is non-resident, makes a gift (by the individual’s will or otherwise) at any time of real or immovable property situated in Canada to a prescribed donee who provides an undertaking, in a form satisfactory to the Minister, to the effect that the property will be held for use in the public interest; and

(b) the fair market value of the property otherwise determined at that time exceeds

(i) in the case of depreciable property of a prescribed class, the lesser of the undepreciated capital cost of that class at the end of the taxation year of the individual that includes that time (determined without reference to proceeds of disposition designated in respect of the property under subsection (6)) and the adjusted cost base to the individual of the property immediately before that time, and

(ii) in any other case, the adjusted cost base to the individual of the property immediately before that time.

(6) If this subsection applies in respect of a gift by an individual of property, and the individual or the individual’s legal representative designates an amount in respect of the gift in the individual’s return of income under section 150 for the year in which the gift is made, the amount so designated is deemed to be the individual’s proceeds of disposition of the property and, for the purpose of subsection 248(31), the fair market value of the gift, but the amount so designated may not exceed the fair market value of the property otherwise determined and may not be less than the greater of

(a) in the case of a gift made after December 20, 2002, the amount of the advantage, if any, in respect of the gift, and

(b) the amount determined under subparagraph (5.4)(b)(i) or (ii), as the case may be, in respect of the property.

(10) Paragraph 118.1(7)(b) of the French version of the Act is replaced by the following:

(11) Paragraph 118.1(7)(d) of the English version of the Act is replaced by the following:

(d) the amount that the individual or the individual’s legal representative designates in the individual’s return of income under section 150 for the year in which the gift is made is deemed to be the individual’s proceeds of disposition of the work of art and, for the purpose of subsection 248(31), the fair market value of the work of art, but the amount so designated may not exceed the fair market value otherwise determined of the work of art and may not be less than the greater of

(i) the amount of the advantage, if any, in respect of the gift, and

(ii) the cost amount to the individual of the work of art.

(12) Paragraph 118.1(7.1)(b) of the French version of the Act is replaced by the following:

(13) Paragraph 118.1(7.1)(d) of the English version of the Act is replaced by the following:

(d) the individual is deemed to have received at the particular time proceeds of disposition in respect of the work of art equal to the greater of its cost amount to the individual at that time and the amount of the advantage, if any, in respect of the gift.

(14) Subsection 118.1(8) of the Act is replaced by the following:

(8) If at the end of a fiscal period of a partnership an individual is a member of the partnership, the individual’s share of any amount that would, if the partnership were a person, be the eligible amount of a gift made by the partnership to any donee is, for the purpose of this section, deemed to be the eligible amount of a gift made to that donee by the individual in the individual’s taxation year in which the fiscal period of the partnership ends.

(15) Paragraphs 118.1(13)(b) and (c) of the Act are replaced by the following:

(b) if the security ceases to be a non-qualifying security of the individual at a subsequent time that is within 60 months after the particular time and the donee has not disposed of the security at or before the subsequent time, the individual is deemed to have made a gift to the donee of property at the subsequent time and the fair market value of that property is deemed to be the lesser of the fair market value of the security at the subsequent time and the fair market value of the security at the particular time that would, if this Act were read without reference to this subsection, have been included in calculating the individual’s total charitable gifts or total Crown gifts for a taxation year;

(c) if the security is disposed of by the donee within 60 months after the particular time and paragraph (b) does not apply to the security, the individual is deemed to have made a gift to the donee of property at the time of the disposition and the fair market value of that property is deemed to be the lesser of the fair market value of any consideration (other than a non-qualifying security of the individual or a property that would be a non-qualifying security of the individual if the individual were alive at that time) received by the donee for the disposition and the fair market value of the security at the particular time that would, if this Act were read without reference to this subsection, have been included in calculating the individual’s total charitable gifts or total Crown gifts for a taxation year; and

(16) Subsections (1), (2), (4) to (8) and (10) to (15) apply to gifts made after December 20, 2002. In addition, for gifts made after May 8, 2000 but before December 21, 2002, paragraph (a) of the definition “total ecological gifts” in subsection 118.1(1) of the Act is to be read as follows:

(a) Her Majesty in right of Canada or of a province, a municipality in Canada or a municipal or public body performing a function of government in Canada, or

(17) Subsection (3) applies to gifts made after May 8, 2000.

(18) Subsection (9) applies to gifts made after 1999 except that, for gifts made after 1999 but before December 21, 2002, the reference to “subsection 248(31)” in subsection 118.1(6) of the Act, as enacted by subsection (9), shall be read as a reference to “subsection (1)”.

108. (1) Subparagraph 118.2(2)(c)(i) of the Act is replaced by the following:

(i) the patient is, and has been certified in writing by a medical practitioner to be, a person who, by reason of mental or physical infirmity, is and is likely to be for a long-continued period of indefinite duration dependent on others for the patient’s personal needs and care and who, as a result, requires a full-time attendant,

(2) Paragraphs 118.2(2)(d) and (e) of the Act are replaced by the following:

(d) for the full-time care in a nursing home of the patient, who has been certified in writing by a medical practitioner to be a person who, by reason of lack of normal mental capacity, is and in the foreseeable future will continue to be dependent on others for the patient’s personal needs and care;

(e) for the care, or the care and training, at a school, an institution or another place of the patient, who has been certified in writing by an appropriately qualified person to be a person who, by reason of a physical or mental handicap, requires the equipment, facilities or personnel specially provided by that school, institution or other place for the care, or the care and training, of individuals suffering from the handicap suffered by the patient;

(3) Subparagraph 118.2(2)(g)(ii) of the Act is replaced by the following:

(ii) one individual who accompanied the patient, where the patient was, and has been certified in writing by a medical practitioner to be, incapable of travelling without the assistance of an attendant

(4) Paragraph 118.2(2)(h) of the Act is replaced by the following:

(h) for reasonable travel expenses (other than expenses described in paragraph (g)) incurred in respect of the patient and, where the patient was, and has been certified in writing by a medical practitioner to be, incapable of travelling without the assistance of an attendant, in respect of one individual who accompanied the patient, to obtain medical services in a place that is not less than 80 km from the locality where the patient dwells if the circumstances described in subparagraphs (g)(iii) to (v) apply;

(5) The portion of paragraph 118.2(2)(l.1) of the French version of the Act before subparagraph (i) is replaced by the following:

(6) Subsections (1) to (5) apply to certifications made after December 20, 2002.

109. (1) Paragraph 118.3(2)(a) of the French version of the Act is replaced by the following:

(2) Subsection (1) applies to the 2001 and subsequent taxation years except that, if a taxpayer and a person have jointly elected under section 144 of the Modernization of Benefits and Obligations Act, in respect of the 1998, 1999 or 2000 taxation years, subsection (1) applies to the taxpayer and the person in respect of the applicable taxation year and subsequent taxation years.

110. Subparagraph 118.5(1)(a)(iii) of the Act is replaced by the following:

(iii) are paid on behalf of, or reimbursed to, the individual by the individual’s employer and the amount paid or reimbursed is not included in the individual’s income,

111. (1) Subparagraph (a)(i) of the definition “designated educational institution” in subsection 118.6(1) of the Act is replaced by the following:

(i) a university, college or other educational institution designated by the lieutenant governor in council of a province as a specified educational institution under the Canada Student Loans Act, designated by an appropriate authority under the Canada Student Financial Assistance Act, or designated by the Minister of Education of the Province of Quebec for the purposes of An Act respecting financial assistance for education expenses, R.S.Q, c. A-13.3, or

(2) Subsection (1) applies to the 1998 and subsequent taxation years.

112. (1) Section 118.7 of the Act is replaced by the following:

118.7 For the purpose of computing the tax payable under this Part by an individual for a taxation year, there may be deducted an amount determined by the formula

A × B

where

A      is the appropriate percentage for the year; and

B      is the total of

(a) the total of all amounts each of which is an amount payable by the individual as an employee’s premium for the year under the Employment Insurance Act, not exceeding the maximum amount of such premiums payable by the individual for the year under that Act,

(a.1) the total of all amounts each of which is an amount payable by the individual as an employee’s premium for the year under the Act respecting parental insurance, R.S.Q., c. A-29.011, not exceeding the maximum amount of such premiums payable by the individual for the year under that Act,

(a.2) the amount, if any, by which the total of all amounts each of which is an amount payable by the individual in respect of self-employed earnings for the year as a premium under the Act respecting parental insurance, R.S.Q., c. A-29.011, (not exceeding the maximum amount of such premiums payable by the individual for the year under that Act) exceeds the amount deductible under paragraph 60(g) in computing the individ- ual’s income for the year,

(b) the total of all amounts each of which is an amount payable by the individual for the year as an employee’s contribution under the Canada Pension Plan or under a provincial pension plan defined in section 3 of that Act, not exceeding the maximum amount of such contributions payable by the individual for the year under the plan, and

(c) the amount by which

(i) the total of all amounts each of which is an amount payable by the individual in respect of self-employed earnings for the year as a contribution under the Canada Pension Plan or under a provincial pension plan within the meaning assigned by section 3 of that Act (not exceeding the maximum amount of such contributions payable by the individual for the year under the plan)

exceeds

(ii) the amount deductible under paragraph 60(e) in computing the individ- ual’s income for the year.

(2) Subsection (1) applies to the 2006 and subsequent taxation years.

113. (1) Paragraph 120.2(3)(b) of the Act is replaced by the following:

(b) the amount that, if this Act were read without reference to section 120, would be the individual’s tax payable under this Part for the year if the individual were not entitled to any deduction under any of sections 126, 127 and 127.4, and

(2) Subsection (1) applies to the 2000 and subsequent taxation years.

114. (1) The portion of paragraph 120.31(3)(b) of the Act before subparagraph (i) is replaced by the following:

(b) if the eligible taxation year ended before the taxation year preceding the year of receipt, an amount equal to the amount that would be calculated as interest payable on the amount, if any, by which the amount determined under paragraph (a) in respect of the eligible taxation year exceeds the taxpayer’s tax payable under this Part for that year, if the amount that would be calculated as interest payable on that excess were calculated

(2) Subsection (1) applies to the 1995 and subsequent taxation years.

115. (1) The portion of subparagraph (b)(ii) of the definition “split income” in subsection 120.4(1) of the English version of the Act before clause (A) is replaced by the following:

(ii) can reasonably be considered to be income derived from the provision of property or services by a partnership or trust to, or in support of, a business carried on by

(2) The portion of clause (c)(ii)(C) of the definition “split income” in subsection 120.4(1) of the English version of the Act before subclause (I) is replaced by the following:

(C) to be income derived from the provision of property or services by a partnership or trust to, or in support of, a business carried on by

(3) Subsections (1) and (2) apply in computing split income of a specified individual for taxation years that begin after December 20, 2002, other than in computing an amount included in that income that is from a trust or partnership for a taxation year or fiscal period of the trust or partnership that began before December 21, 2002.

116. (1) The portion of subsection 122.3(1) of the Act before paragraph (a) is replaced by the following:

122.3 (1) If an individual is resident in Canada in a taxation year and, throughout any period of more than six consecutive months that began before the end of the year and included any part of the year (in this section referred to as the “qualifying period”)

(2) Subsection 122.3(1.1) of the Act is replaced by the following:

(1.1) No amount may be included under paragraph (1)(d) in respect of an individual’s income for a taxation year from the individual’s employment by an employer

(a) if

(i) the employer carries on a business of providing services and does not employ in the business throughout the year more than five full-time employees,

(ii) the individual

(A) does not deal at arm’s length with the employer, or is a specified shareholder of the employer, or

(B) where the employer is a partnership, does not deal at arm’s length with a member of the partnership, or is a specified shareholder of a member of the partnership, and

(iii) but for the existence of the employer, the individual would reasonably be regarded as being an employee of a person or partnership that is not a specified employer; or

(b) if at any time in that portion of the qualifying period that is in the taxation year

(i) the employer provides the services of the individual to a corporation, partnership or trust with which the employer does not deal at arm’s length, and

(ii) the fair market value of all the issued shares of the capital stock of the corporation or of all interests in the partnership or trust, as the case may be, that are held, directly or indirectly, by persons who are resident in Canada is less than 10% of the fair market value of all those shares or interests.

(3) Subsections (1) and (2) apply to taxation years that begin after the day on which this Act is assented to.

117. (1) Subparagraph 125(1)(b)(ii) of the Act is replaced by the following:

(ii) three times the total of the amounts that would be deductible under subsection 126(2) from the tax for the year otherwise payable under this Part by it if those amounts were determined without reference to section 123.4, and

(2) The description of B in subsection 125(5.1) of the Act is replaced by the following:

B      is the amount determined by the formula

0.225% × (D - $10 million)

where

D      is

(a) if, in both the particular taxation year and the preceding taxation year, the corporation is not associated with any corporation, the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation for the preceding taxation year,

(b) if, in the particular taxation year, the corporation is not associated with any corporation but was associated with one or more corporations in the preceding taxation year, the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation for the particular taxation year, or

(c) if, in the particular taxation year, the corporation is associated with one or more particular corporations, the total of all amounts each of which is the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation or of any of the particular corporations for its last taxation year that ended in the preceding calendar year.

(3) Subsection (1) applies to the 2003 and subsequent taxation years.

(4) Subsection (2) applies to taxation years that begin after December 20, 2002, except that, in its application to a corporation described in subsection 181.1(3) for taxation years of the corporation that began before this Act is assented to, the description of B in subsection 125(5.1) of the Act, as enacted by subsection (2), shall be read as follows:

B      is

(a) if, in both the particular taxation year and the preceding taxation year, the corporation is not associated with any corporation, the amount that would, but for subsections 181.1(2) and (4), be the corporation’s tax payable under Part I.3 for the preceding taxation year,

(b) if, in the particular taxation year, the corporation is not associated with any corporation but was associated with one or more corporations in the preceding taxation year, the amount that would, but for subsections 181.1(2) and (4), be the corporation’s tax payable under Part I.3 for the particular taxation year, and

(c) if, in the particular taxation year, the corporation is associated with one or more particular corporations, the amount determined by the formula

0.225% x (D - E)

where

D      is the total of all amounts each of which is the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation or of any of the particular corporations for its last taxation year that ended in the preceding calendar year, and

E      is $10 million.

118. (1) Subparagraph 125.1(1)(b)(ii) of the Act is replaced by the following:

(ii) three times the total of the amounts that would be deductible under subsection 126(2) from the tax for the year otherwise payable under this Part by the corporation if those amounts were determined without reference to section 123.4, and

(2) The definition “bénéfices de fabrication et de transformation au Canada” in subsection 125.1(3) of the French version of the Act is replaced by the following:

(3) Subparagraphs (l)(i) and (ii) of the definition “fabrication ou transformation” in subsection 125.1(3) of the French version of the Act are replaced by the following:

(4) Subsection (1) applies to the 2003 and subsequent taxation years.

119. (1) The definition “taxable resource income” in subsection 125.11(1) of the Act is replaced by the following:

“taxable resource income”, of a taxpayer for a taxation year, is the lesser of

(a) the amount, if any, by which the taxpayer’s taxable income for the taxation year exceeds 100/16 of the amount deducted under subsection 125(1) from the taxpayer’s tax otherwise payable under this Part for the year, and

(b) the amount determined by the formula

3(A/B) + C - D - E

where

A      is the total of all amounts each of which is deducted by the taxpayer under paragraph 20(1)(v.1) in computing the taxpayer’s income for the taxation year,

B      is the percentage that is the total of

(i) that proportion of 100% that the number of days in the taxation year that are before 2003 is of the number of days in the taxation year,

(ii) that proportion of 90% that the number of days in the taxation year that are in 2003 is of the number of days in the taxation year,

(iii) that proportion of 75% that the number of days in the taxation year that are in 2004 is of the number of days in the taxation year,

(iv) that proportion of 65% that the number of days in the taxation year that are in 2005 is of the number of days in the taxation year, and

(v) that proportion of 35% that the number of days in the taxation year that are in 2006 is of the number of days in the taxation year,

C      is total of all amounts included in computing the taxpayer’s income for the taxation year under paragraph 59(3.2)(b) or (c),

D      is the total of all amounts deducted by the taxpayer under any of sections 65 to 66.7, other than subsections 66(4), 66.21(4) and 66.7(2) and (2.3), of this Act, and subsections 17(2) and (6) and section 29 of the Income Tax Application Rules, in computing the taxpayer’s income for the taxation year, and

E      is 100/16 of the amount deducted under subsection 125(1) from the taxpayer’s tax otherwise payable under this Part for the year.

(2) Subsection (1) applies to taxation years that begin after February 27, 2004.

120. (1) The definition “investor” in subsection 125.4(1) of the Act is repealed.

(2) The definitions “assistance” and “salary or wages” in subsection 125.4(1) of the Act are replaced by the following:

“assistance” means an amount, other than a prescribed amount or an amount deemed under subsection (3) to have been paid, that would be included under paragraph 12(1)(x) in computing a taxpayer’s income for any taxation year if that paragraph were read without reference to

(a) subparagraphs 12(1)(x)(v) to (viii), if the amount were received

(i) from a person or partnership described in subparagraph 12(1)(x)(ii), or

(ii) in circumstances where clause 12(1)(x)(i)(C) applies; and

(b) subparagraphs 12(1)(x)(v) to (vii), in any other case.

“salary or wages” does not include an amount

(a) described in section 7;

(b) determined by reference to profits or revenues; or

(c) paid to a person in respect of services rendered by the person at a time when the person was non-resident, unless the person was at that time a Canadian citizen.

(3) The definition “Canadian film or video production certificate” in subsection 125.4(1) of the Act is replaced by the following:

“Canadian film or video production certificate” means a certificate issued in respect of a production by the Minister of Canadian Heritage certifying that the production is a Canadian film or video production in respect of which that Minister is satisfied that

(a) except where the production is a treaty co-production (as defined by regulation), an acceptable share of revenues from the exploitation of the production in non-Canadian markets is, under the terms of any agreement, retained by

(i) a qualified corporation that owns or owned an interest in, or for civil law a right in, the production,

(ii) a prescribed taxable Canadian corporation related to the qualified corporation, or

(iii) any combination of corporations described in subparagraph (i) or (ii); and

(b) public financial support of the production would not be contrary to public policy.

(4) The portion of the definition “labour expenditure” in subsection 125.4(1) of the Act before subparagraph (b)(i) is replaced by the following:

“labour expenditure”, of a corporation for a taxation year in respect of a Canadian film or video production, means, in the case of a corporation that is not a qualified corporation for the taxation year, nil, and in the case of a corporation that is a qualified corporation for the taxation year, subject to subsection (2), the total of the following amounts to the extent that they are reasonable in the circumstances and included in the cost to, or in the case of depreciable property the capital cost to, the corporation, or any other person or partnership, of the production:

(a) the salary or wages directly attributable to the production that are incurred after 1994 and in the taxation year, or the preceding taxation year, by the corporation for the stages of production of the property, from the production commencement time to the end of the post-production stage, and paid by it in the taxation year or within 60 days after the end of the taxation year (other than amounts incurred in that preceding taxation year that were paid within 60 days after the end of that preceding taxation year),

(b) that portion of the remuneration (other than salary or wages and other than remuneration that relates to services rendered in the preceding taxation year and that was paid within 60 days after the end of that preceding taxation year) that is directly attributable to the production of property, that relates to services rendered after 1994 and in the taxation year, or that preceding taxation year, to the corporation for the stages of production, from the production commencement time to the end of the post-production stage, and that is paid by it in the taxation year or within 60 days after the end of the taxation year to

(5) The portion of the definition “qualified labour expenditure” in subsection 125.4(1) of the Act before paragraph (a) is replaced by the following:

“qualified labour expenditure”, of a corporation for a taxation year in respect of a Canadian film or video production, means the lesser of

(6) The portion of the description of A in paragraph (b) of the definition “qualified labour expenditure” in subsection 125.4(1) of the Act before subparagraph (ii) is replaced by the following:

A      is 60% of the amount by which

(i) the total of all amounts each of which is an expenditure by the corporation in respect of the production that is included in the cost to, or in the case of depreciable property the capital cost to, the corporation or any other person or partnership of the production at the end of the taxation year,

exceeds

(7) Subsection 125.4(1) of the Act is amended by adding the following in alphabetical order:

“production commencement time”, in respect of a Canadian film or video production, means the earlier of

(a) the time at which principal photography of the production begins, and

(b) the latest of

(i) the time at which a qualified corporation that has an interest in, or for civil law a right in, the production, or the parent of the corporation, first makes an expenditure for salary or wages or other remuneration for activities, of scriptwriters, that are directly attributable to the development by the corporation of script material of the production,

(ii) the time at which the corporation or the parent of the corporation acquires a property, on which the production is based, that is a published literary work, screenplay, play, personal history or all or part of the script material of the production, and

(iii) two years before the date on which principal photography of the production begins.

“script material”, in respect of a production, means written material describing the story on which the production is based and, for greater certainty, includes a draft script, an original story, a screen story, a narration, a television production concept, an outline or a scene-by-scene schematic, synopsis or treatment.

(8) The portion of subsection 125.4(2) of the Act before paragraph (b) is replaced by the following:

(2) For the purposes of the definitions “labour expenditure” and “qualified labour expenditure” in subsection (1),

(a) remuneration does not include remuneration

(i) determined by reference to profits or revenues, or

(ii) in respect of services rendered by a person at a time when the person was non-resident, unless the person was at that time a Canadian citizen;

(9) Subsection 125.4(2) of the Act is amended by striking out the word “and” at the end of paragraph (b), by adding the word “and” at the end of paragraph (c) and by adding the following after paragraph (c):

(d) an expenditure incurred in respect of a film or video production by a qualified corporation (in this paragraph referred to as the “co-producer”) in respect of goods supplied or services rendered by another qualified corporation to the co-producer in respect of the production is not a labour expenditure to the co-producer or, for the purpose of applying of this section to the co-producer, a cost or capital cost of the production.

(10) Subsection 125.4(4) of the Act is replaced by the following:

(4) This section does not apply to a Canadian film or video production if the production — or an interest in a person or partnership that has, directly or indirectly, an interest in, or for civil law a right in, the production — is a tax shelter investment for the purpose of section 143.2.

(11) Subsection 125.4(6) of the Act is replaced by the following:

(6) If an omission or incorrect statement was made for the purpose of obtaining a Canadian film or video production certificate in respect of a production, or if the production is not a Canadian film or video production,

(a) the Minister of Canadian Heritage may

(i) revoke the certificate, or

(ii) if the certificate was issued in respect of productions included in an episodic television series, revoke the certificate in respect of one or more episodes in the series;

(b) for greater certainty, for the purposes of this section, the expenditures and cost of production in respect of productions included in an episodic television series that relate to an episode in the series in respect of which a certificate has been revoked are not attributable to a Canadian film or video production; and

(c) for the purpose of subparagraph (3)(a)(i), a certificate that has been revoked is deemed never to have been issued.

(12) Section 125.4 of the Act is amended by adding the following after subsection (6):

(7) The Minister of Canadian Heritage shall issue guidelines respecting the circumstances under which the conditions in paragraphs (a) and (b) of the definition of “Canadian film or video production certificate” in subsection (1) are satisfied. For greater certainty, these guidelines are not statutory instruments as defined in the Statutory Instruments Act.

(13) Subsections (1) and (10) apply

(a) to taxation years that end after November 14, 2003; and

(b) in respect of a film or video production in respect of which a corporation has, in a return of income filed before November 14, 2003, claimed an amount under subsection 125.4(3) of the Act in respect of a labour expenditure incurred after 1997.

(14) Subsections (2) and (4) to (9) apply

(a) to film or video productions for which the production commencement time of the corporation (or, if there is more than one qualified corporation in respect of the production, of all such corporations) is on or after November 14, 2003; and

(b) to a corporation in respect of a film or video production for which the production commencement time of any corporation is before November 14, 2003

(i) if the earliest labour expenditure of the corporation (or, if there is more than one qualified corporation in respect of the production, of all such corporations) in respect of the production is made after 2003, or

(ii) if the corporation elects (or, if there is more than one qualified corporation in respect of the production, all such corporations jointly elect), in writing, and the election is filed with the Minister of National Revenue on or before the earliest filing-due date of any qualified corporation in respect of the production for that corporation’s taxation year that includes the day on which this Act is assented to, and the earliest labour expenditure of all such qualified corporations in respect of the production is made

(A) after the last taxation year of any such corporation that ended before November 14, 2003, or

(B) if the first taxation year of all such corporations includes November 14, 2003, in that taxation year.

(15) The earliest labour expenditure referred to in subsection (14) is to be determined under the provisions of subsection 125.4(1) or (2) of the Act that would apply if subsections (2) and (4) to (9) had not been enacted.

(16) Subsection (3) applies in respect of film or video productions in respect of which certificates are issued by the Minister of Canadian Heritage after December 20, 2002, except that, in respect of those film or video productions in respect of which certificates are issued by the Minister of Canadian Heritage before 2004, the definition “Canadian film or video production certificate” in subsection 125.4(1) of the Act, as enacted by subsection (3), is to be read as follows:

“Canadian film or video production certificate” means a certificate issued in respect of a production by the Minister of Canadian Heritage

(a) certifying that the production is a Canadian film or video production in respect of which that Minister is satisfied that

(i) except where the production is a treaty co-production (as defined by regulation), an acceptable share of revenues from the exploitation of the production in non-Canadian markets is, under the terms of any agreement, retained by

(A) a qualified corporation that owns or owned an interest in, or for civil law a right in, the production,

(B) a prescribed taxable Canadian corporation related to the qualified corporation, or

(C) any combination of corporations described in clause (A) or (B), and

(ii) public financial support of the production would not be contrary to public policy; and

(b) estimating amounts relevant for the purpose of determining the amount deemed under subsection (3) to have been paid in respect of the production.

(17) Subsection (11) applies after November 14, 2003.

(18) Subsection (12) applies in respect of film or video productions in respect of which certificates are issued by the Minister of Canadian Heritage after December 20, 2002, except that, in respect of those film or video productions in respect of which certificates are issued by the Minister of Canadian Heritage before 2004, the reference to “paragraphs (a) and (b)” in subsection 125.4(7) of the Act, as enacted by subsection (12), is to be read as a reference to “subparagraphs (a)(i) and (ii)”.

121. (1) The portion of subsection 126(2.22) of the French version of the Act before paragraph (a) is replaced by the following:

(2) The portion of paragraph 126(2.22)(a) of the French version of the Act after subparagraph (ii) and before subparagraph (iii) is replaced by the following:

(3) Subparagraphs 126(2.22)(b)(i) and (ii) of the French version of the Act are replaced by the following:

(4) Paragraph 126(4.4)(a) of the Act is replaced by the following:

(a) a disposition or acquisition of property deemed to be made by subsection 10(12) or (13), 14(14) or (15) or 45(1), section 70, 128.1 or 132.2, subsections 138(11.3) or 142.5(2), paragraph 142.6(1)(b), or subsections 142.6(1.1) or (1.2) or 149(10) is not a disposition or acquisition, as the case may be; and

(5) Subsection 126(6) of the Act is amended by striking out the word “and” at the end of paragraph (b), by adding the word “and” at the end of paragraph (c) and by adding the following after paragraph (c):

(d) if, in computing a taxpayer’s income for a taxation year from a business carried on by the taxpayer in Canada, an amount is included in respect of interest paid or payable to the taxpayer by a person resident in a country other than Canada, and the taxpayer has paid to the government of that other country a non-business income tax for the year with respect to the amount, the amount is, in applying the definition “qualifying incomes” in subsection (7) for the purpose of subsection (1), deemed to be income from a source in that other country.

(6) Subsection (4) applies to dispositions and acquisitions that occur after 1998, except that, in applying paragraph 126(4.4)(a) of the Act, as enacted by subsection (4), to dispositions and acquisitions that occur before June 28, 1999, that paragraph is to be read without reference to “10(12) or (13), 14(14) or (15), or”.

(7) Subsection (5) applies to amounts received after February 27, 2004.

122. (1) Section 126.1 of the Act is repealed.

(2) Subsection (1) applies in respect of forms filed after March 20, 2003.

123. (1) Paragraphs 127(1)(a) and (b) of the French version of the Act are replaced by the following:

(2) The definition “revenu pour l’année tiré des opérations forestières dans la province” in subsection 127(2) of the French version of the Act is repealed.

(3) The definition “impôt sur les opérations forestières” in subsection 127(2) of the French version of the Act is replaced by the following:

(4) Subsection 127(2) of the French version of the Act is amended by adding the following in alphabetical order:

(5) The portion of subsection 127(3) of the Act before paragraph (a) is replaced by the following:

(3) There may be deducted from the tax otherwise payable by a taxpayer under this Part for a taxation year in respect of the total of all amounts each of which is the eligible amount of a monetary contribution that is referred to in the Canada Elections Act and that is made by the taxpayer in the year to a registered party, a provincial division of a registered party, a registered association or a candidate, as those terms are defined in that Act,

(6) Subsection 127(4.2) of the Act is replaced by the following:

(4.2) If at the end of a fiscal period of a partnership a taxpayer is a member of the partnership, the taxpayer’s share of the total that would, if the partnership were a person and its fiscal period were its taxation year, be the total referred to in subsection (3) in respect of the partnership for that taxation year is deemed for the purpose of that subsection to be a monetary contribution made by the taxpayer in the taxpayer’s taxation year in which the fiscal period of the partnership ends.

(7) Paragraphs 127(27)(b) and (c) of the Act are replaced by the following:

(b) the cost, or a portion of the cost, of the particular property was a qualified expenditure, or would if this Act were read without reference to subsection (26) be a qualified expenditure, to the taxpayer,

(c) the cost, or the portion of the cost, of the particular property is included, or would if this Act were read without reference to subsection (26) be included, in an amount, a percentage of which can reasonably be considered to be included in computing the taxpayer’s investment tax credit at the end of the taxation year, and

(8) The portion of subsection 127(27) of the Act after paragraph (d) is replaced by the following:

there shall be added to the taxpayer’s tax otherwise payable under this Part for the year the lesser of

(e) the amount that can reasonably be considered to be included in the taxpayer’s investment tax credit at the end of any taxation year, or that would be so included if this Act were read without reference to subsection (26), in respect of the particular property, and

(f) the amount that is the percentage — that is the sum of each percentage described in paragraph (c) that has been applied to compute the taxpayer’s investment tax credit in respect of the particular property — of

(i) in the case where the particular property or the other property is disposed of to a person who deals at arm’s length with the taxpayer,

(A) the proceeds of disposition of the property, if the property

(I) is the particular property and is neither first term shared-use equipment nor second term shared-use equipment, or

(II) is the other property,

(B) 25% of the proceeds of disposition of the property, if the property is the particular property, is first term shared-use equipment and is not second term shared-use equipment, and

(C) 50% of the proceeds of disposition of the property, if the property is the particular property and is second term shared-use equipment, and

(ii) in the case where the particular property or the other property is converted to commercial use or is disposed of to a person who does not deal at arm’s length with the taxpayer,

(A) the fair market value of the property, if the property

(I) is the particular property and is neither first term shared-use equipment nor second term shared-use equipment, or

(II) is the other property,

(B) 25% of the fair market value of the property at the time of its conversion or disposition, if the particular property is first term shared-use equipment and is not second term shared-use equipment, and

(C) 50% of the fair market of the property at the time of its conversion or disposition, if the particular property is second term shared-use equipment.

(9) Subsections (5) and (6) apply to monetary contributions made after December 20, 2002, except that, for monetary contributions made before 2004, the reference to “to a registered party, a provincial division of a registered party, a registered association or a candidate” in subsection 127(3) of the Act, as amended by subsection (5), is to be read as a reference to “to a registered party or a candidate”.

(10) Subsections (7) and (8) apply to dispositions and conversions that occur after December 20, 2002.

124. (1) Paragraph (b) of the definition “approved share” in subsection 127.4(1) of the Act is replaced by the following:

(b) a share issued by a prescribed labour-sponsored venture capital corporation that is not a registered labour-sponsored venture capital corporation if, at the time of the issue, no province under the laws (described in section 6701 of the Income Tax Regulations) of which the corporation is registered or established provides assistance in respect of the acquisition of the share;

(2) Paragraphs (a) and (b) of the definition “qualifying trust” in subsection 127.4(1) of the English version of the Act are replaced by the following:

(a) a trust governed by a registered retirement savings plan, under which the individ- ual is the annuitant, that is not a spousal or common-law partner plan (in this definition having the meaning assigned by subsection 146(1)) in relation to another individual, or

(b) a trust governed by a registered retirement savings plan, under which the individ- ual or the individual’s spouse or common-law partner is the annuitant, that is a spousal or common-law partner plan in relation to the individual or the individual’s spouse or common-law partner, if the individual and no other person claims a deduction under subsection (2) in respect of the share;

(3) Subsection (1) applies to acquisitions of shares that occur after 2003.

(4) Subsection (2) applies to the 2001 and subsequent taxation years except that, if a taxpayer and a person have jointly elected under section 144 of the Modernization of Benefits and Obligations Act, in respect of the 1998, 1999 or 2000 taxation years, subsection (2) applies to the taxpayer and the person in respect of the applicable taxation year and subsequent taxation years.

125. (1) Paragraph 127.52(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) this Act were read without reference to subsection 104(21.6);

(2) Subsection (1) applies to the 2000 and subsequent taxation years.

126. (1) Paragraph 128.1(7)(b) of the French version of the Act is replaced by the following:

(2) Paragraph 128.1(7)(d) of the French version of the Act is replaced by the following:

(3) Subparagraph 128.1(7)(e)(i) of the French version of the Act is replaced by the following:

(4) Subparagraphs 128.1(7)(f)(i) and (ii) of the French version of the Act are replaced by the following:

(5) The portion of paragraph 128.1(7)(g) of the French version of the Act before subparagraph (i) is replaced by the following:

(6) The portion of paragraph 128.1(7)(i) of the French version of the Act before subparagraph (i) is replaced by the following:

127. (1) Clause 129(3)(a)(ii)(C) of the Act is replaced by the following:

(C) three times the total of amounts deducted under subsection 126(2) from its tax for the year otherwise payable under this Part, and

(2) Subsection (1) applies to the 2003 and subsequent taxation years.

128. (1) Paragraph 132(6)(c) of the Act is replaced by the following:

(c) it complied with prescribed conditions.

(2) Subsection (1) applies to the 2000 and subsequent taxation years.

129. (1) Paragraph 132.11(1)(b) of the Act is replaced by the following:

(b) if the trust’s taxation year ends on December 15 because of paragraph (a), subject to subsection (1.1), each subsequent taxation year of the trust is deemed to be the period that begins at the beginning of December 16 of a calendar year and ends at the end of December 15 of the following calendar year or at any earlier time that is determined under paragraph 132.2(3)(b) or subsection 142.6(1); and

(2) Paragraph 132.11(1)(c) of the French version of the Act is replaced by the following:

(3) Subsection 132.11(4) of the Act is replaced by the following:

(4) Notwithstanding subsection 104(24), for the purposes of subsections (5) and (6) and 104(6) and (13) and paragraph (i) of the definition “disposition” in subsection 248(1) each amount that is paid, or that becomes payable, by a trust to a beneficiary after the end of a particular taxation year of the trust that ends on December 15 of a calendar year because of subsection (1) and before the end of that calendar year, is deemed to have been paid or to have become payable, as the case may be, to the beneficiary at the end of the particular year and not at any other time.

(4) Subsection (1) applies after 1998, except that, in applying paragraph 132.11(1)(b) of the Act, as enacted by subsection (1), to taxation years that end before 2000, that paragraph is to be read without reference to “subject to subsection (1.1)”.

(5) Subsection (2) applies to the 1998 and subsequent taxation years.

(6) Subsection (3) applies to amounts that, after 1999, are paid or have become payable by a trust.

130. (1) Section 132.2 of the Act is replaced by the following:

132.2 (1) The following definitions apply in this section.

“first post-exchange year”, of a fund in respect of a qualifying exchange, means the taxation year of the fund that begins immediately after the acquisition time.

“qualifying exchange” means a transfer at any time (in this section referred to as the “transfer time”) of all or substantially all of the property of a mutual fund corporation or a mutual fund trust to a mutual fund trust (in this section referred to as the “transferor” and “transferee”, respectively, and as the “funds”) if

(a) all or substantially all of the shares issued by the transferor and outstanding immediately before the transfer time are within 60 days after the transfer time disposed of to the transferor;

(b) no person disposing of shares of the transferor to the transferor within that 60-day period (otherwise than pursuant to the exercise of a statutory right of dissent) receives any consideration for the shares other than units of the transferee; and

(c) the funds jointly so elect, by filing a prescribed form with the Minister on or before the election’s due date.

“share” means a share of the capital stock of a mutual fund corporation and a unit of a mutual fund trust.

(2) In respect of a qualifying exchange, a time referred to in the following list immediately follows the time that precedes it in the list

(a) the transfer time;

(b) the first intervening time;

(c) the acquisition time;

(d) the beginning of the funds’ first post-exchange years;

(e) the depreciables disposition time;

(f) the second intervening time; and

(g) the depreciables acquisition time.

(3) In respect of a qualifying exchange,

(a) each property of a fund, other than property disposed of by the transferor to the transferee at the transfer time and depreciable property, is deemed to have been disposed of, and to have been reacquired by the fund, at the first intervening time, for an amount equal to the lesser of

(i) the fair market value of the property at the transfer time, and

(ii) the greater of

(A) its cost amount, and

(B) the amount that the fund designates in respect of the property in a notification to the Minister accompanying the election in respect of the qualifying exchange;

(b) subject to paragraph (l), the last taxation years of the funds that began before the transfer time are deemed to have ended at the acquisition time, and their first post-exchange years are deemed to have begun immediately after those last taxation years ended;

(c) each depreciable property of a fund (other than property to which subsection (5) applies and property to which paragraph (d) would, if this Act were read without reference to this paragraph, apply) is deemed to have been disposed of, and to have been reacquired, by the fund at the second intervening time for an amount equal to the lesser of

(i) the fair market value of the property at the depreciables disposition time, and

(ii) the greater of

(A) the lesser of its capital cost and its cost amount to the disposing fund at the depreciables disposition time, and

(B) the amount that the fund designates in respect of the property in a notification to the Minister accompanying the election in respect of the qualifying exchange;

(d) if at the second intervening time the undepreciated capital cost to a fund of depreciable property of a prescribed class exceeds the fair market value of all the property of that class, the excess is to be deducted in computing the fund’s income for the taxation year that includes the transfer time and is deemed to have been allowed in respect of property of that class under regulations made for the purpose of paragraph 20(1)(a);

(e) except as provided in paragraph (m), the transferor’s cost of any particular property received by the transferor from the transferee as consideration for the disposition of the property is deemed to be

(i) nil, if the particular property is a unit of the transferee, and

(ii) the particular property’s fair market value at the transfer time, in any other case;

(f) the transferor’s proceeds of disposition of any units of the transferee that were disposed of by the transferor at any particular time that is within 60 days after the day that includes the transfer time in exchange for shares of the transferor, are deemed to be equal to the cost amount of the units to the transferor immediately before the particular time;

(g) if, at any particular time that is within 60 days after the day that includes the transfer time, a taxpayer disposes of shares of the transferor to the transferor in exchange for units of the transferee

(i) the taxpayer’s proceeds of disposition of the shares and the cost to the taxpayer of the units are deemed to be equal to the cost amount to the taxpayer of the shares immediately before the particular time,

(ii) where all of the taxpayer’s shares of the transferor have been so disposed of, for the purpose of applying section 39.1 in respect of the taxpayer after that disposition, the transferee is deemed to be the same entity as the transferor,

(iii) for the purpose of the definition “designated beneficiary” in section 210, the units are deemed not to have been held at any time by the transferor, and

(iv) where the taxpayer is at the particular time affiliated with one or both of the funds,

(A) those units are deemed not to be identical to any other units of the transferee,

(B) if the taxpayer is the transferee, and the units cease to exist when the taxpayer acquires them (or, for greater certainty, when the taxpayer would but for that cessation have acquired them), the taxpayer is deemed

(I) to have acquired those units at the particular time, and

(II) to have disposed of those units immediately after the particular time for proceeds of disposition equal to the cost amount to the taxpayer of those units at the particular time, and

(C) in any other case, for the purpose of computing any gain or loss of the taxpayer from the taxpayer’s first disposition, after the particular time, of each of those units,

(I) if that disposition is a renunciation or surrender of the unit by the taxpayer for no consideration, and is not in favour of any person other than the transferee, the taxpayer’s proceeds of disposition of that unit are deemed to be equal to that unit’s cost amount to the taxpayer immediately before that disposition, and

(II) if subclause (I) does not apply, the taxpayer’s proceeds of disposition of that unit are deemed to be equal to the greater of that unit’s fair market value and its cost amount to the taxpayer immediately before that disposition;

(h) where a share to which paragraph (g) applies would, if this Act were read without reference to this paragraph, cease to be a qualified investment (within the meaning assigned by subsection 146(1), 146.1(1) or 146.3(1) or section 204) as a consequence of the qualifying exchange, the share is deemed to be a qualified investment until the earlier of the day that is 60 days after the day that includes the transfer time and the time at which it is disposed of in accordance with paragraph (g);

(i) there shall be added to the amount determined under the description of A in the definition “refundable capital gains tax on hand” in subsection 132(4) in respect of the transferee for its taxation years that begin after the transfer time the amount, if any, by which

(i) the transferor’s refundable capital gains tax on hand (within the meaning assigned by subsection 131(6) or 132(4), as the case may be) at the end of its taxation year that includes the transfer time

exceeds

(ii) the transferor’s capital gains refund (within the meaning assigned by paragraph 131(2)(a) or 132(1)(a), as the case may be) for that year;

(j) no amount in respect of a non-capital loss, net capital loss, restricted farm loss, farm loss or limited partnership loss of a fund for a taxation year that began before the transfer time is deductible in computing the taxable income of either of the funds for a taxation year that begins after the transfer time;

(k) if the transferor is a mutual fund trust, for the purposes of subsections 132.1(1) and (3) to (5), the transferee is deemed after the transfer time to be the same mutual fund trust as, and a continuation of, the transferor;

(l) if the transferor is a mutual fund corporation

(i) for the purpose of subsection 131(4) but, for greater certainty, without having any effect on the computation of any amount determined under this Part, the transferor is deemed in respect of any share disposed of in accordance with paragraph (g) to be a mutual fund corporation at the time of the disposition, and

(ii) for the purpose of Part I.3 but, for greater certainty, without having any effect on the computation of any amount determined under this Part, the transferor’s taxation year that, if this Act were read without reference to this paragraph, would have included the transfer time is deemed to have ended immediately before the transfer time;

(m) for the purpose of determining the funds’ capital gains redemptions (as defined in subsection 131(6) or 132(4), as the case may be), for their taxation years that include the transfer time,

(i) the total of the cost amounts to the transferor of all its properties at the end of the year is deemed to be the total of all amounts each of which is

(A) the transferor’s proceeds of disposition of a property that was transferred to a transferee on the qualifying exchange, or

(B) the cost amount to the transferor at the end of the year of a property that was not transferred on the qualifying exchange, and

(ii) the transferee is deemed not to have acquired any property that was transferred to it on the qualifying exchange; and

(n) except as provided in subparagraph (l)(i), the transferor is, notwithstanding subsections 131(8) and 132(6), deemed to be neither a mutual fund corporation nor a mutual fund trust for taxation years that begin after the transfer time.

(4) If a transferor transfers a property, other than a depreciable property, to a transferee in a qualifying exchange

(a) the transferee is deemed to have acquired the property at the acquisition time and not to have acquired the property at the transfer time; and

(b) the transferor’s proceeds of disposition of the property and the transferee’s cost of the property are deemed to be the lesser of

(i) the fair market value of the property at the transfer time, and

(ii) the greatest of

(A) the cost amount to the transferor of the property at the transfer time,

(B) the amount that the funds agree on in respect of the property in their election, and

(C) the fair market value at the transfer time of the consideration (other than units of the transferee) received by the transferor for the disposition of the property.

(5) If a transferor transfers a depreciable property to a transferee in a qualifying exchange,

(a) the transferor is deemed to have disposed of the property at the depreciables disposition time, and not to have disposed of the property at the transfer time;

(b) the transferee is deemed to have acquired the property at the depreciables acquisition time, and not to have acquired the property at the transfer time;

(c) the transferor’s proceeds of disposition of the property and the transferee’s cost of the property are deemed to be the lesser of

(i) the fair market value of the property at the transfer time, and

(ii) the greatest of

(A) the lesser of its capital cost and its cost amount to the transferor immediately before the depreciables disposition time,

(B) the amount that the funds agree on in respect of the property in their election, and

(C) the fair market value at the transfer time of the consideration (other than units of the transferee) received by the transferor for the disposition of the property;

(d) where the capital cost of the property to the transferor exceeds the transferor’s proceeds of disposition of the property under paragraph (c), for the purposes of sections 13 and 20 and any regulations made for the purpose of paragraph 20(1)(a),

(i) the property’s capital cost to the transferee is deemed to be the amount that was its capital cost to the transferor, and

(ii) the excess is deemed to have been allowed to the transferee in respect of the property under regulations made for the purpose of paragraph 20(1)(a) in computing income for taxation years ending before the transfer time; and

(e) where two or more depreciable properties of a prescribed class are disposed of by the transferor to the transferee in the same qualifying exchange, paragraph (c) applies as if each property so disposed of had been separately disposed of in the order designated by the transferor at the time of making the election in respect of the qualifying exchange or, if the transferor does not so designate any such order, in the order designated by the Minister.

(6) The due date of an election referred to in paragraph (c) of the definition “qualifying exchange” in subsection (1) is

(a) the day that is 6 months after the day that includes the transfer time; and

(b) on joint application by the funds, any later day that the Minister accepts.

(7) The Minister may, on joint application by the funds on or before the due date of an election referred to in paragraph (c) of the definition “qualifying exchange” in subsection (1), grant permission to amend or revoke the election.

(2) The definitions “first post-exchange year” and “share” in subsection 132.2(1), and subsections 132.2(2) to (5), of the Act, as enacted by subsection (1), apply to qualifying exchanges that occur after 1998 except that, if a qualifying exchange occurred before July 18, 2005 and the transferee has, before that day, filed a return of income, for any taxation year, that identified the realization of any loss that would not have been realized if paragraphs 132.2(3)(f) and (g) of the Act, as enacted by subsection (1), had applied in respect of the qualifying exchange, those paragraphs shall be read in their application to the qualifying exchange as follows:

(f) the transferor’s proceeds of disposition of any units of the transferee that were received by the transferor as consideration for the disposition of the property, and that were disposed of by the transferor within 60 days after the day that includes the transfer time in exchange for shares of the transferor, are deemed to be nil;

(g) if, within 60 days after the day that includes the transfer time, a taxpayer disposes of shares of the transferor to the transferor in exchange for units of the transferee

(i) the taxpayer’s proceeds of disposition of the shares and the cost to the taxpayer of the units are deemed to be equal to the cost amount to the taxpayer of the shares immediately before the transfer time,

(ii) where all of the taxpayer’s shares of the transferor have been so disposed of, for the purpose of applying section 39.1 in respect of the taxpayer after that disposition, the transferee is deemed to be the same entity as the transferor, and

(iii) for the purpose of the definition “designated beneficiary” in section 210, the units are deemed not to have been held at any time by the transferor;

(3) For qualifying exchanges that occurred after June 1994 and before 1999, paragraph 132.2(1)(j) of the Act is to be read as follows:

(j) where shares of the transferor have been disposed of by a taxpayer to the transferor in exchange for units of the transferee within 60 days after the transfer time,

(i) the taxpayer’s proceeds of disposition of the shares and the cost to the taxpayer of the units are deemed to be equal to the cost amount to the taxpayer of the shares immediately before the transfer time,

(ii) if all of the taxpayer’s shares of the transferor have been so disposed of, for the purposes of applying section 39.1 in respect of the taxpayer after that disposition, the transferee is deemed to be the same entity as the transferor, and

(iii) for the purpose of the definition “designated beneficiary” in section 210, the units are deemed not to have been held at any time by the transferor;

(4) The definition “qualifying exchange” in subsection 132.2(1), and subsections 132.2(6) and (7), of the Act, as enacted by subsection (1), apply to qualifying exchanges that occur after June 1994.

(5) If a valid election referred to in paragraph (c) of the definition “qualifying exchange” in subsection 132.2(2) of the Act was made, the election continues to have the effect of having section 132.2 of the Act, as modified from time to time, apply to the transfer.

(6) If a valid election referred to in subsection 159(4) of the Income Tax Amendments Act, 1997 was made in respect of a qualifying exchange to read subsection 132.2(1) of the Income Tax Act without reference to paragraph 132.2(1)(p) of that Act, the election is, on the application of subsection (1), deemed to have the effect of reading subsection 132.2(3) of the Act, as enacted by subsection (1), in respect of the qualifying exchange without reference to paragraph 132.2(3)(i).

131. (1) Subsection 134.1(2) of the Act is replaced by the following:

(2) For the purposes of applying subsections 104(10) and (11) and 133(6) to (9) (other than the definition “non-resident-owned investment corporation” in subsection 133(8)), section 212 and any tax treaty, a corporation described in subsection (1) is deemed to be a non-resident-owned investment corporation in its first non-NRO year in respect of dividends paid in that year on shares of its capital stock to a non-resident person, to a trust for the benefit of non-resident persons or their unborn issue or to a non-resident-owned investment corporation.

(2) Subsection (1) applies to a corporation that ceases to be a non-resident-owned investment corporation because of a transaction or an event that occurs, or a circumstance that arises, in a taxation year of the corporation that ends after February 27, 2000.

132. (1) Subsection 136(1) of the Act is replaced by the following:

136. (1) Notwithstanding any other provision of this Act, a cooperative corporation that would, if this Act were read without reference to this section, be a private corporation is deemed not to be a private corporation except for the purposes of sections 15.1, 123.4, 125, 125.1, 127, 127.1, 152 and 157, the definition “mark-to-market property” in subsection 142.2(1) and the definition “small business corporation” in subsection 248(1) as it applies for the purpose of paragraph 39(1)(c).

(2) Subsection 136(2) of the Act is amended by striking out the word “and” at the end of paragraph (b) and by replacing paragraph (c) with the following:

(c) at least 90% of its members are individ- uals, other cooperative corporations, or corporations or partnerships that carry on the business of farming; and

(d) at least 90% of its shares, if any, are held by members described in paragraph (c) or by trusts governed by registered retirement savings plans, registered retirement income funds or registered education savings plans, the annuitants or subscribers under which are members described in that paragraph.

(3) Subsection (1) applies to the 2001 and subsequent taxation years.

(4) Subsection (2) applies to the 1998 and subsequent taxation years.

133. (1) The definition “member” in subsection 137(6) of the Act is replaced by the following:

“member”, of a credit union, means

(a) a person who is recorded as a member on the records of the credit union and is entitled to participate in and use the services of the credit union, and

(b) a registered retirement savings plan, a registered retirement income fund or a registered education savings plan, the annuitant or subscriber under which is a person described in paragraph (a).

(2) Subsection 137(7) of the Act is replaced by the following:

(7) Notwithstanding any other provision of this Act, a credit union that would, if this Act were read without reference to this section, be a private corporation is deemed not to be a private corporation except for the purposes of sections 123.1, 123.4, 125, 127, 127.1, 152 and 157 and the definition “small business corporation” in subsection 248(1) as it applies for the purpose of paragraph 39(1)(c).

(3) Subsection (1) applies to the 1996 and subsequent taxation years.

(4) Subsection (2) applies to the 2001 and subsequent taxation years.

134. (1) Subsection 137.1(2) of the Act is replaced by the following:

(2) The following amounts shall not be included in computing the income of a deposit insurance corporation for a taxation year:

(a) any premium or assessment received, or receivable, by the corporation in the year from a member institution; and

(b) any amount received by the corporation in the year from another deposit insurance corporation to the extent that that amount can reasonably be considered to have been paid out of amounts referred to in paragraph (a) received by that other deposit insurance corporation in any taxation year.

(2) Subsection 137.1(4) of the Act is amended by striking out the word “or” at the end of paragraph (c) and by adding the following after paragraph (c):

(d) any amount paid by it to another deposit insurance corporation that is, because of paragraph (2)(b), not included in computing the income of that other deposit insurance corporation; or

(3) Subsections (1) and (2) apply to the 1998 and subsequent taxation years.

135. (1) Subsection 138(2) of the Act is replaced by the following:

(2) Notwithstanding any other provision of this Act,

(a) if a life insurer resident in Canada carries on an insurance business in Canada and in a country other than Canada in a taxation year, its income or loss for the year from carrying on an insurance business is the amount of its income or loss for the taxation year from carrying on the insurance business in Canada;

(b) if a life insurer resident in Canada carries on an insurance business in Canada and in a country other than Canada in a taxation year, for greater certainty,

(i) in computing the insurer’s income or loss for the taxation year from the insurance business carried on by it in Canada, no amount is to be included in respect of the insurer’s gross investment revenue for the taxation year derived from property used or held by it in the course of carrying on an insurance business that is not designated insurance property for the taxation year of the insurer, and

(ii) in computing the insurer’s taxable capital gains or allowable capital losses for the taxation year from dispositions of capital property (referred to in this subparagraph as “insurance business property”) that, at the time of the disposition, was used or held by the insurer in the course of carrying on an insurance business,

(A) there is to be included each taxable capital gain or allowable capital loss of the insurer for the taxation year from a disposition in the taxation year of an insurance business property that was a designated insurance property for the taxation year of the insurer, and

(B) there is not to be included any taxable capital gain or allowable capital loss of the insurer for the taxation year from a disposition in the taxation year of an insurance business property that was not a designated insurance property for the taxation year of the insurer;

(c) if a non-resident insurer carries on an insurance business in Canada in a taxation year, its income or loss for the taxation year from carrying on an insurance business is the amount of its income or loss for the taxation year from carrying on the insurance business in Canada; and

(d) if a non-resident insurer carries on an insurance business in Canada in a taxation year,

(i) in computing the non-resident insurer’s income or loss for the taxation year from the insurance business carried on by it in Canada, no amount is to be included in respect of the non-resident insurer’s gross investment revenue for the taxation year derived from property used or held by it in the course of carrying on an insurance business that is not designated insurance property for the taxation year of the non-resident insurer, and

(ii) in computing the non-resident insurer’s taxable capital gains or allowable capital losses for the taxation year from dispositions of capital property (referred to in this subparagraph as “insurance business property”) that, at the time of the disposition, was used or held by the non-resident insurer in the course of carrying on an insurance business,

(A) there is to be included each taxable capital gain or allowable capital loss of the non-resident insurer for the taxation year from a disposition in the taxation year of an insurance business property that was a designated insurance property for the taxation year of the non-resident insurer, and

(B) there is not to be included any taxable capital gain or allowable capital loss of the non-resident insurer for the taxation year from a disposition in the taxation year of an insurance business property that was not a designated insurance property for the taxation year of the non-resident insurer.

(2) Paragraph 138(11.91)(d) of the French version of the Act is repealed.

(3) Subsection 138(11.91) of the English version of the Act is amended by adding the word “and” at the end of paragraph (d.1), by striking out the word “and” at the end of paragraph (e) and by repealing paragraph (f).

(4) Subsections (1) to (3) apply to taxation years that end after 1999.

136. (1) Paragraph 142.6(1)(b) of the Act is replaced by the following:

(b) if the taxpayer becomes a financial institution, the taxpayer is deemed to have disposed, immediately before the end of its particular taxation year that ends immediately before the particular time, of each of the following properties held by the taxpayer for proceeds equal to the property’s fair market value at the time of that disposition:

(i) a specified debt obligation, or

(ii) a mark-to-market property of the taxpayer for the particular taxation year or for the taxpayer’s taxation year that includes the particular time;

(2) Paragraph 142.6(1)(d) of the Act is replaced by the following:

(d) the taxpayer is deemed to have reacquired, at the end of its taxation year that ends immediately before the particular time, each property deemed by paragraph (b) or (c) to have been disposed of by the taxpayer, at a cost equal to the proceeds of disposition of the property.

(3) Subsections (1) and (2) apply to taxation years that end after 1998.

137. (1) Subsection 142.7(8) of the Act is amended by striking out the word “and” at the end of paragraph (b), by adding the word “and” at the end of paragraph (c) and by adding the following after paragraph (c):

(d) for the purpose of applying subparagraph 212(1)(b)(vii) in respect of the debt obligation, the obligation is deemed to have been issued by the entrant bank at the time that the obligation was issued by the Canadian affiliate.

(2) Subsection (1) applies after June 27, 1999.

138. (1) The portion of subsection 143(3.1) of the Act before the description of B in paragraph (b) is replaced by the following:

(3.1) For the purposes of section 118.1, if the eligible amount of a gift made in a taxation year by an inter vivos trust referred to in subsection (1) in respect of a congregation would, but for this subsection, be included in the total charitable gifts, total Crown gifts, total cultural gifts or total ecological gifts of the trust for the year and the trust so elects in its return of income under this Part for the year,

(a) the trust is deemed not to have made the gift; and

(b) each participating member of the congregation is deemed to have made, in the year, such a gift the eligible amount of which is the amount determined by the formula

A × B/C

where

A      is the eligible amount of the gift made by the trust,

(2) Subsection (1) applies to gifts made after December 20, 2002.

139. (1) The heading before section 143.2 of the Act is replaced by the following: