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Bill C-28

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56 ELIZABETH II

——————

CHAPTER 35

An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007 and to implement certain provisions of the economic statement tabled in Parliament on October 30, 2007

[Assented to 14th December, 2007]

Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

SHORT TITLE

Short title

1. This Act may be cited as the Budget and Economic Statement Implementation Act, 2007.

PART 1

AMENDMENTS IN RESPECT OF THE GOODS AND SERVICES TAX/HARMONIZED SALES TAX

R.S., c. E-15

Excise Tax Act

2. (1) Section 217 of the Excise Tax Act is amended by adding the following after paragraph (c):

(c.1) a taxable supply made in Canada of intangible personal property that is a zero-rated supply only because it is included in section 10 or 10.1 of Part V of Schedule VI, other than

(i) a supply that is made to a consumer of the property, or

(ii) a supply of intangible personal property that is acquired for consumption, use or supply exclusively in the course of commercial activities of the recipient of the supply or activities that are engaged in exclusively outside Canada by the recipient of the supply and that are not part of a business or adventure or concern in the nature of trade engaged in by that recipient in Canada,

(2) Subsection (1) applies to supplies made after March 19, 2007.

2001, c. 15, s. 8(1)

3. (1) Paragraph 218.1(1)(d) of the Act is replaced by the following:

(d) every person who is the recipient of a supply that is included in any of paragraphs 217(c.1), (d) or (e) and that is made in a particular participating province

(2) Subsection (1) applies to supplies made after March 19, 2007.

2000, c. 30, s. 64(1)

4. (1) Paragraph 236(1)(b) of the Act is replaced by the following:

(b) one or both of the following situations apply:

(i) subsection 67.1(1) of the Income Tax Act applies, or would apply, if the person were a taxpayer under that Act, to all of the composite amount or that part of it that is, for the purposes of that Act, an amount (other than an amount to which subsection 67.1(1.1) of that Act applies) paid or payable in respect of the human consumption of food or beverages or the enjoyment of entertainment and section 67.1 of that Act deems the composite amount or that part to be 50% of a particular amount,

(ii) subsection 67.1(1.1) of that Act applies, or would apply, if the person were a taxpayer under that Act, to all of the composite amount or that part of it that is, for the purposes of that Act, an amount paid or payable in respect of the consumption of food or beverages by a long-haul truck driver during the driver’s eligible travel period (as those terms are defined in section 67.1 of that Act), and section 67.1 of that Act deems the composite amount or that part to be a percentage of a specified particular amount, and

2000, c. 30, s. 64(1)

(2) The formula and its descriptions in subsection 236(1) of the Act are replaced by the following:

[50% × (A/B) × C] + [40% × (D/B) × C]

where

A is

(i) in the case where subparagraph (b)(i) applies, the particular amount, and

(ii) in any other case, zero,

B is the composite amount,

C is the input tax credit, and

D is

(i) in the case where subparagraph (b)(ii) applies, the specified particular amount, and

(ii) in any other case, zero.

(3) The formula in subsection 236(1) of the Act, as enacted by subsection (2), is replaced by the following:

[50% × (A/B) × C] + [35% × (D/B) × C]

(4) The formula in subsection 236(1) of the Act, as enacted by subsection (3), is replaced by the following:

[50% × (A/B) × C] + [30% × (D/B) × C]

(5) The formula in subsection 236(1) of the Act, as enacted by subsection (4), is replaced by the following:

[50% × (A/B) × C] + [25% × (D/B) × C]

(6) The formula in subsection 236(1) of the Act, as enacted by subsection (5), is replaced by the following:

[50% × (A/B) × C] + [20% × (D/B) × C]

(7) Subsection (1) applies to

(a) amounts in respect of a supply of food, beverages or entertainment if tax under Part IX of the Act in respect of the supply becomes payable, or is paid without having become payable, after March 19, 2007 and no allowance or reimbursement is paid in respect of the supply; and

(b) amounts paid after March 19, 2007 as an allowance or reimbursement in respect of a supply of food, beverages or entertainment.

(8) Subsection (2) applies to

(a) amounts in respect of a supply of food, beverages or entertainment if tax under Part IX of the Act in respect of the supply becomes payable, or is paid without having become payable, after March 19, 2007 and before 2008 and no allowance or reimbursement is paid in respect of the supply; and

(b) amounts paid after March 19, 2007 and before 2008 as an allowance or reimbursement in respect of a supply of food, beverages or entertainment.

(9) Subsection (3) applies to

(a) amounts in respect of a supply of food, beverages or entertainment if tax under Part IX of the Act in respect of the supply becomes payable, or is paid without having become payable, in 2008 and no allowance or reimbursement is paid in respect of the supply; and

(b) amounts paid in 2008 as an allowance or reimbursement in respect of a supply of food, beverages or entertainment.

(10) Subsection (4) applies to

(a) amounts in respect of a supply of food, beverages or entertainment if tax under Part IX of the Act in respect of the supply becomes payable, or is paid without having become payable, in 2009 and no allowance or reimbursement is paid in respect of the supply; and

(b) amounts paid in 2009 as an allowance or reimbursement in respect of a supply of food, beverages or entertainment.

(11) Subsection (5) applies to

(a) amounts in respect of a supply of food, beverages or entertainment if tax under Part IX of the Act in respect of the supply becomes payable, or is paid without having become payable, in 2010 and no allowance or reimbursement is paid in respect of the supply; and

(b) amounts paid in 2010 as an allowance or reimbursement in respect of a supply of food, beverages or entertainment.

(12) Subsection (6) applies to

(a) amounts in respect of a supply of food, beverages or entertainment if tax under Part IX of the Act in respect of the supply becomes payable, or is paid without having become payable, after 2010 and no allowance or reimbursement is paid in respect of the supply; and

(b) amounts paid after 2010 as an allowance or reimbursement in respect of a supply of food, beverages or entertainment.

1993, c. 27, s. 98(3)

5. (1) Subsection 237(3) of the Act is replaced by the following:

Minimum instalment base

(3) For the purposes of subsection (1), if a registrant’s instalment base for a reporting period is less than $3,000, it is deemed to be nil.

(2) Subsection (1) applies to reporting periods beginning after 2007.

1997, c. 10, s. 57(1)

6. (1) Subsection 248(1) of the Act is replaced by the following:

Election for fiscal years

248. (1) A registrant that is a charity on the first day of a fiscal year of the registrant or whose threshold amount for a fiscal year does not exceed $1,500,000 may make an election to have reporting periods that are fiscal years of the registrant, to take effect on the first day of that fiscal year.

1997, c. 10, s. 57(2)

(2) Paragraphs 248(2)(b) and (c) of the Act are replaced by the following:

(b) if the person is not a charity and the threshold amount of the person for the second or third fiscal quarter of the person in a fiscal year of the person exceeds $1,500,000, the beginning of the first fiscal quarter of the person for which the threshold amount exceeds that amount, and

(c) if the person is not a charity and the threshold amount of the person for a fiscal year of the person exceeds $1,500,000, the beginning of that fiscal year.

(3) Subsections (1) and (2) apply to fiscal years beginning after 2007.

7. (1) Schedule VII to the Act is amended by adding the following after section 1.1:

1.2 For the purposes of section 1, subsection 140(2) of the Customs Tariff does not apply in respect of the reference to heading 98.04.

(2) Subsection (1) is deemed to have come into force on January 1, 1998.

PART 2

AMENDMENT RELATING TO EXCISE TAX ON RENEWABLE FUELS

R.S., c. E-15

Excise Tax Act

1993, c. 25, s. 56; 2003, c. 15, ss. 61(1) and 62(1)

8. (1) Sections 23.4 and 23.5 of the Excise Tax Act are repealed.

(2) Subsection (1) comes into force, or is deemed to have come into force, on April 1, 2008.

PART 3

AMENDMENTS RELATING TO INCOME TAX

R.S., c. 1 (5th Supp.)

Income Tax Act

9. (1) Paragraph (a) of the description of B in subsection 12(10.2) of the Income Tax Act is replaced by the following:

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

(i) deemed by subsection (10.4) or 104(5.1) or (14.1) to have been paid out of the taxpayer’s NISA Fund No. 2 before the particular time, or

(ii) deemed by subsection 70(5.4) or 73(5) to have been paid out of another person’s NISA Fund No. 2 on being transferred to the taxpayer’s NISA Fund No. 2 before the particular time,

(2) Section 12 of the Act is amended by adding the following after subsection (10.3):

Acquisition of control — corporate NISA Fund No. 2

(10.4) For the purpose of subsection (10.2), if at any time there is an acquisition of control of a corporation, the balance of the corporation’s NISA Fund No. 2, if any, at that time is deemed to be paid out to the corporation immediately before that time.

(3) Subsections (1) and (2) apply to the balance in a NISA Fund No. 2 to the extent that that balance consists of contributions made to the fund, and amounts earned on those contributions, in the 2008 and subsequent taxation years.

10. (1) The portion of subsection 17(8) of the Act before paragraph (a) is replaced by the following:

Exception

(8) Subsection (1) does not apply to a corporation resident in Canada for a taxation year of the corporation in respect of an amount owing to the corporation by a non-resident person if the non-resident person is a controlled foreign affiliate of the corporation throughout the period in the year during which the amount is owing to the extent that it is established that the amount owing

(2) Section 17 of the Act is amended by adding the following after subsection (8):

Borrowed money

(8.1) Subsection (8.2) applies in respect of money (referred to in this subsection and in subsection (8.2) as “new borrowings”) that a controlled foreign affiliate of a particular corporation resident in Canada has borrowed from the particular corporation to the extent that the affiliate has used the new borrowings

(a) to repay money (referred to in this subsection and in subsection (8.2) as “previous borrowings”) previously borrowed from any person or partnership, if

(i) the previous borrowings became owing after the last time at which the affiliate became a controlled foreign affiliate of the particular corporation, and

(ii) the previous borrowings were, at all times after they became owing, used for a purpose described in subparagraph (8)(a)(i) or (ii); or

(b) to pay an amount owing (referred to in this subsection and in subsection (8.2) as the “unpaid purchase price”) by the affiliate for property previously acquired from any person or partnership, if

(i) the property was acquired, and the unpaid purchase price became owing, by the affiliate after the last time at which it became a controlled foreign affiliate of the particular corporation,

(ii) the unpaid purchase price is in respect of the property, and

(iii) throughout the period that began when the unpaid purchase price became owing by the affiliate and ended when the unpaid purchase price was so paid, the property had been used principally to earn income described in clause (8)(a)(i)(A) or (B).

Deemed use

(8.2) To the extent that this subsection applies in respect of new borrowings, the new borrowings are, for the purpose of subsection (8), deemed to have been used for the purpose for which the proceeds from the previous borrowings were used or were deemed by this subsection to have been used, or to acquire the property in respect of which the unpaid purchase price was payable, as the case may be.

(3) The definition “controlled foreign affiliate” in subsection 17(15) of the Act is replaced by the following:

“controlled foreign affiliate”
« société étrangère affiliée contrôlée »

“controlled foreign affiliate”, at any time, of a taxpayer resident in Canada, means a corporation that would, at that time, be a controlled foreign affiliate of the taxpayer within the meaning assigned by the definition “controlled foreign affiliate” in subsection 95(1) if the word “or” were added at the end of paragraph (a) of that definition and

(a) subparagraph (b)(ii) of that definition were read as “all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons resident in Canada who do not deal at arm’s length with the taxpayer,”; and

(b) subparagraph (b)(iv) of that definition were read as “all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons resident in Canada who do not deal at arm’s length with any relevant Canadian shareholder;”.

(4) Subsections (1) and (2) apply to taxation years that begin after February 23, 1998 and, notwithstanding subsections 152(4) to (5) of the Act, any assessment of the taxpayer’s tax, interest and penalties payable under the Act for any taxation year that begins after February 23, 1998 and ends before October 2, 2007 shall be made that is necessary to take subsections (1) and (2) into account.

(5) Subsection (3) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after February 23, 1998, except that, in applying the definition “controlled foreign affiliate”, in subsection 17(15) of the Act, as enacted by subsection (3),

(a) for taxation years, of a foreign affiliate of a taxpayer, that begin after 2002 and on or before February 27, 2004, that definition is to be read as follows:

“controlled foreign affiliate” has the meaning that would be assigned by the definition “controlled foreign affiliate” in subsection 95(1) for taxation years, of a foreign affiliate of a taxpayer, that begin after 2002 and on or before February 27, 2004, if the word “or” were added at the end of paragraph (a) of that definition and

(b) for taxation years, of a foreign affiliate of a taxpayer, that begin after February 23, 1998 and before 2003, that definition is to be read as follows:

“controlled foreign affiliate” has the meaning that would be assigned by the definition “controlled foreign affiliate” in subsection 95(1) for taxation years, of a foreign affiliate of a taxpayer, that begin after February 23, 1998 and before 2003, if subparagraph (b)(iii) of that definition were read as “each share of the capital stock of a corporation that is owned at that time by the taxpayer and each share of the capital stock of a corporation that is owned at that time by any person resident in Canada with whom the taxpayer does not deal at arm’s length.”.

11. (1) Subsection 18(9) of the Act is amended by striking out the word “and” at the end of paragraph (d), by adding the word “and” at the end of paragraph (e) and by adding the following after paragraph (e):

(f) for the purpose of the definition “eligible child care space expenditure” in subsection 127(9), the portion of an expenditure (other than for the acquisition of depreciable property) that is made or incurred by a taxpayer in a taxation year and that would, but for paragraph (a), have been deductible under this Act in computing the taxpayer’s income for the year, is deemed

(i) not to be made or incurred by the taxpayer in the year, and

(ii) to be made or incurred by the taxpayer in the subsequent taxation year to which the expenditure can reasonably be considered to relate.

(2) Subsection (1) applies to expenses incurred on or after March 19, 2007.

12. (1) The Act is amended by adding the following after section 18.1:

Definitions

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

“aggregate double-dip income”
« revenu total résultant d’un cumul de déductions »

“aggregate double-dip income”, of a particular corporation for a taxation year in respect of an inter-affiliate loan, means the total of the double-dip exempt earnings amount and the double-dip taxable earnings amount of the particular corporation for the taxation year in respect of the inter-affiliate loan.

“double-dip exempt earnings amount”
« montant des gains exonérés résultant d’un cumul de déductions »

“double-dip exempt earnings amount”, of a particular corporation for a taxation year in respect of an inter-affiliate loan owing to a foreign affiliate (referred to in this definition as the “earning foreign affiliate”) of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, means the total of all amounts each of which is the amount, in respect of a share (referred to in this definition as the “specified share”) of the capital stock of a particular foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, determined by the formula

A × [B - (C × D)]

where

A is the participating percentage of the specified share in respect of the earning foreign affiliate at the end of a taxation year of the earning foreign affiliate that ends in the taxation year of the particular corporation;

B is the amount of the re-characterized exempt earnings income of the earning foreign affiliate in respect of the inter-affiliate loan for the taxation year of the earning foreign affiliate;

C is the foreign accrual tax applicable to the amount determined under the description of B; and

D is the relevant tax factor of the particular corporation for the taxation year of the particular corporation.

“double-dip taxable earnings amount”
« montant des gains imposables résultant d’un cumul de déductions »

“double-dip taxable earnings amount” of a particular corporation for a taxation year in respect of an inter-affiliate loan owing to a foreign affiliate (referred to in this definition as the “earning foreign affiliate”), of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, means the total of all amounts each of which is the amount, in respect of a share (referred to in this definition as the “specified share”) of the capital stock of a particular foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, determined by the formula

A × [B - (C × D)]

where

B is the amount of the re-characterized taxable earnings income of the earning foreign affiliate in respect of the inter-affiliate loan for the taxation year of the earning foreign affiliate;

C is the foreign accrual tax applicable to the amount determined under the description of B; and

D is the relevant tax factor of the particular corporation for the taxation year of the particular corporation.

“foreign accrual tax”
« impôt étranger accumulé »

“foreign accrual tax” applicable to an amount of re-characterized income of a foreign affiliate (referred to in this definition as the “earning foreign affiliate”), of a particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, for a taxation year in respect of an inter-affiliate loan owing to the earning foreign affiliate means the total of

(a) the amount equal to that portion of any foreign income or profit taxes that was paid by the earning foreign affiliate or any other foreign affiliate, of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, that can reasonably be regarded as applicable to the re-characterized income, and

(b) the amount that would, if the re-characterized income were an amount included in computing the particular corporation’s income under subsection 91(1) in respect of the earning foreign affiliate, be prescribed in respect of the earning foreign affiliate to be foreign accrual tax that is applicable to the re-characterized income for the purpose of the definition “foreign accrual tax” in subsection 95(1).

“inter-affiliate loan”
« prêt entre sociétés affiliées »

“inter-affiliate loan” in respect of a particular corporation for a taxation year means a debt that is owing to a foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation or to a partnership of which such a foreign affiliate is a member, if the income that the foreign affiliate derives in a taxation year from the interest paid or payable in respect of the debt is re-characterized income of the foreign affiliate for the taxation year.

“participating percentage”
« pourcentage de participation »

“participating percentage” of a share (referred to in this definition as the “specified share”) of the capital stock of a particular foreign affiliate of a particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, held by the particular corporation at the end of a particular taxation year of a non-resident corporation (referred to in this definition as the “earning foreign affiliate”) that ends in the particular corporation’s taxation year, which earning foreign affiliate was, at the end of the particular taxation year, a foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, means the percentage that would, if the earning foreign affiliate were a controlled foreign affiliate of the particular corporation, be determined under subparagraph (b)(i) or (ii) of the definition “participating percentage” in subsection 95(1) in respect of the specified share in respect of the earning foreign affiliate at the end of the particular taxation year.

“re-characterized income”
« revenu redéfini »

“re-characterized income” of a foreign affiliate of a corporation for a taxation year in respect of a debt owing to the foreign affiliate means the total of the re-characterized exempt earnings income and the re-characterized taxable earnings income of the foreign affiliate for the taxation year from the debt.

“re-characterized exempt earnings income”
« montant des gains exonérés redéfinis »

“re-characterized exempt earnings income” of a foreign affiliate of a corporation for a taxation year in respect of a debt owing to the foreign affiliate means that portion of the income of the foreign affiliate for the taxation year from the debt that is included

(a) under subparagraph 95(2)(a)(ii) in computing the income from an active business of the foreign affiliate for the taxation year, or that would be so included if the income were income from property; and

(b) in computing the amount prescribed to be the exempt earnings of the foreign affiliate for the taxation year.

“re-characterized taxable earnings income”
« montant des gains imposables redéfinis »

“re-characterized taxable earnings income” of a foreign affiliate of a corporation for a taxation year in respect of a debt owing to the foreign affiliate means that portion of the income of the foreign affiliate for the taxation year from the debt that is included

(b) in computing the amount prescribed to be the taxable earnings of the foreign affiliate for the taxation year.

“taxable earnings base adjustment”
« montant de rajustement des gains imposables »

“taxable earnings base adjustment” of a partic-ular corporation for a taxation year in respect of a share (referred to in this definition as the “specified share”) of a particular foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation and in respect of an inter-affiliate loan owing to a foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, means the amount determined by the formula

A × B/C

where

A is the amount of interest deduction denied under subsection (2) in respect of the particular corporation in respect of interest relating to the inter-affiliate loan for the taxation year;

B is the amount determined to be the double-dip taxable earnings amount of the particular corporation in respect of the inter-affiliate loan that can be attributed to the specified share for the taxation year; and

C is the aggregate double-dip income of the particular corporation in respect of the inter-affiliate loan for the taxation year.

Double-dip interest not deductible

(2) Notwithstanding any other provision of this Act, in computing the income of a corporation for a taxation year, no amount may be deducted in respect of the corporation’s specified financing expense in respect of an inter-affiliate loan for the taxation year, except to the extent that that specified financing expense exceeds the corporation’s aggregate double-dip income for the taxation year in respect of that inter-affiliate loan.

Specified financing expense

(3) A particular corporation’s specified financing expense in respect of an inter-affiliate loan for a taxation year, is the amount, if any, by which

(a) the total of all amounts of interest paid or payable in the taxation year by the particular corporation on, and other costs referred to in paragraph 20(1)(e) deductible in computing the particular corporation’s income for the taxation year in respect of,

(i) borrowed money, to the extent that it is reasonable to consider that the borrowed money is used, in that taxation year, directly or indirectly, for the purpose of funding, in whole or in part, the inter-affiliate loan, and

(ii) an amount payable for property where it is reasonable to consider that the property, or property substituted for it (or, where the property or property substituted for it is a share of the capital stock of a corporation, property of the corporation or of a person related to the corporation, or property substituted for such property) is used, directly or indirectly, for the purpose of funding, in whole or in part, the inter-affiliate loan,

exceeds

(b) if the particular corporation has subsequently loaned the property referred to in paragraph (a), the total of all amounts that are, in respect of that subsequent loan, included in computing the income of the particular corporation for the taxation year and that relate to the period or periods of use referred to in that paragraph.

Aggregate double-dip income — related parties

(4) Subsection (5) applies to a corporation (referred to in this subsection and subsections (5) to (7) as the “debtor corporation”) and another corporation in respect of a particular taxation year of the debtor corporation and an inter-affiliate loan if

(a) the debtor corporation’s specified financing expense for the particular taxation year in respect of the inter-affiliate loan exceeds the debtor corporation’s aggregate double-dip income for the particular taxation year in respect of the inter-affiliate loan;

(b) the other corporation’s aggregate double-dip income for a taxation year in respect of the inter-affiliate loan exceeds the other corporation’s specified financing expense for that taxation year in respect of the inter-affiliate loan;

(d) at the end of the particular taxation year, the other corporation and the debtor corporation are related.

Deemed effects

(5) If this subsection applies to a debtor corporation and another corporation in respect of a particular taxation year of the debtor corporation and an inter-affiliate loan,

(a) the lesser of the excess determined under paragraph (4)(b) in respect of the other corporation and the excess determined under paragraph (4)(a) in respect of the debtor corporation is deemed to be included in the aggregate double-dip income of the debtor corporation in respect of the inter-affiliate loan and not to be included in the aggregate double-dip income of the other corporation;

(b) this subsection shall not apply to any other corporation in respect of the amount determined under paragraph (a); and

(c) for the purpose of determining the taxable earnings base adjustment of the other corporation, the amount determined under paragraph (a) is deemed to be

(i) an amount of interest deduction denied to it under subsection (2) in respect of interest relating to the inter-affiliate loan for its taxation year referred to in paragraph 4(b), and

(ii) an amount that is included in the aggregate double-dip income in respect of the inter-affiliate loan for its taxation year referred to in paragraph 4(b).

Allocation by debtor corporation

(6) If subsections (4) and (5) apply to more than one other corporation in respect of a debtor corporation and an inter-affiliate loan, the debtor corporation may allocate the excess double-dip incomes of the other corporations against the specified financing expense of the debtor corporation.

Allocation by Minister

(7) If a debtor corporation is entitled to make an allocation under subsection (6) but fails to do so, or does so in a manner that allows an excess to remain under subparagraph (4)(a) in respect of the debtor corporation and an excess to remain under subparagraph (4)(b) in respect of one or more other corporations, the Minister may allocate the excess double-dip incomes of the other corporations against the specified financing expense of the debtor corporation.

Inter-affiliate loans — exceptions

(8) A debt that would, at any time, otherwise be an inter-affiliate loan in respect of a corporation for a taxation year of a particular foreign affiliate is not an inter-affiliate loan at that time, if

(a) it is the case that

(i) another foreign affiliate, of the corporation or a corporation that does not deal at arm’s length with the corporation, owes the debt,

(ii) the particular foreign affiliate and the other foreign affiliate are, at the end of their taxation years that include that time, resident in the same country, and

(iii) the particular foreign affiliate and the other foreign affiliate determine their income, for income tax purposes under the income tax laws of that country, on a consolidated or combined basis; or

(b) it is the case that

(i) the corporation is a taxpayer described in paragraph 95(2)(l)(iv),

(ii) the particular foreign affiliate holds the debt, and the other foreign affiliate owes the debt, in the ordinary course of businesses that are described in subparagraph (a)(i) of the definition “investment business” in subsection 95(1) and conducted principally with persons with which those affiliates deal at arm’s length, and

(iii) the terms and conditions of the debt are substantially the same as the terms and conditions of similar debt entered into between persons dealing at arm’s length.

Partnership rules

(9) If a partnership that holds, directly or indirectly, a share of the capital stock of a specified corporation in respect of the partnership has borrowed money or become liable for an amount payable (in this subsection referred to as the “partnership indebtedness”) the interest in respect of which is deductible under paragraph 20(1)(c),

(a) there shall be added to the income of each corporation or partnership that is a member of the partnership, an amount equal to the member’s specified proportion of the interest and other borrowing costs referred to in paragraph 20(1)(e) that are deductible in computing the partnership’s income in respect of that member’s specified proportion of the partnership indebtedness;

(b) for the purpose of this section and paragraphs 20(1)(c) and (e), an amount equal to the amount added to the member’s income by paragraph (a) shall be deemed to be an amount of interest or other borrowing cost, as the case may be, that is deductible by the member; and

(c) the member shall be deemed to have incurred its specified proportion of the partnership indebtedness and to use the proceeds or property acquired in respect of that indebtedness in the same manner as the partnership.

Interpretation

(10) For the purpose of subsection (9),

(a) a specified corporation in respect of a partnership means a corporation that is, for the purpose of section 95,

(i) a foreign affiliate of a member of the partnership,

(ii) a foreign affiliate of a person with whom the partnership does not deal at arm’s length, or

(iii) a foreign affiliate of a person that does not deal at arm’s length with a member of the partnership; and

(b) the specified proportion of a member of a partnership for a fiscal period of the partnership means the proportion that the member’s share of the total income or loss of the partnership for the partnership’s fiscal period is of the partnership’s total income or loss for that period and, for the purpose of this definition, where that income or loss for a period is nil, that proportion shall be computed as if the partnership had income for that period in the amount of $1,000,000.

(2) Subsection (1) applies in respect of interest and other borrowing costs paid or payable in respect of a period or periods that begin after 2011.

13. (1) The portion of paragraph (e) of the definition “Canadian newspaper” in subsection 19(5) of the Act before clause (iii)(C) is replaced by the following:

(e) a corporation

(i) that is incorporated under the laws of Canada or a province,

(ii) of which the chairperson or other presiding officer and at least 3/4 of the directors or other similar officers are Canadian citizens, and

(iii) that, if it is a corporation having share capital, is

(A) a public corporation a class or classes of shares of the capital stock of which are listed on a designated stock exchange in Canada, other than a corporation controlled by citizens or subjects of a country other than Canada, or

(B) a corporation of which at least 3/4 of the shares having full voting rights under all circumstances, and shares having a fair market value in total of at least 3/4 of the fair market value of all of the issued shares of the corporation, are beneficially owned by Canadian citizens or by public corporations a class or classes of shares of the capital stock of which are listed on a designated stock exchange in Canada, other than a public corporation controlled by citizens or subjects of a country other than Canada,

and, for the purposes of clause (B), where shares of a class of the capital stock of a corporation are owned, or deemed by this definition to be owned, at any time by another corporation (in this definition referred to as the “holding corporation”), other than a public corporation a class or classes of shares of the capital stock of which are listed on a designated stock exchange in Canada, each shareholder of the holding corporation shall be deemed to own at that time that proportion of the number of such shares of that class that

(2) Subsection (1) applies on and after the day on which this Act is assented to.

14. (1) Subsection 20(1) of the Act is amended by adding the following after paragraph (nn):

Recapture of investment tax credits — child care space amount

(nn.1) total of all amounts (other than an amount in respect of a disposition of a depreciable property) added because of subsection 127(27.1) or (28.1) to the taxpayer’s tax otherwise payable under this Part for any preceding taxation year;

(2) Subsection 20(3) of the Act is replaced by the following:

Borrowed money

(3) For greater certainty, if a taxpayer uses borrowed money to repay money previously borrowed, or to pay an amount payable for property described in subparagraph (1)(c)(ii) previously acquired (which previously borrowed money or amount payable in respect of previously acquired property is, in this subsection, referred to as the “previous indebtedness”), subject to subsection 20.1(6), for the purposes of paragraphs (1)(c), (e) and (e.1), section 18.2, subsections 20.1(1) and (2), section 21 and subparagraph 95(2)(a)(ii), and for the purpose of paragraph 20(1)(k) of the Income Tax Act, Chapter 148 of the Revised Statutes of Canada, 1952, the borrowed money is deemed to be used for the purpose for which the previous indebtedness was used or incurred, or was deemed by this subsection to have been used or incurred.

(3) Subsection (1) applies on and after March 19, 2007.

(4) Subsection (2) applies in respect of interest paid or payable in respect of a period or periods that begin after 2011.

15. (1) Subparagraph 38(a.1)(i) of the Act is replaced by the following:

(i) the disposition is the making of a gift to a qualified donee of a share, debt obligation or right listed on a designated stock exchange, a share of the capital stock of a mutual fund corporation, a unit of a mutual fund trust, an interest in a related segregated fund trust (within the meaning assigned by paragraph 138.1(1)(a)) or a prescribed debt obligation, or

(2) Subsection (1) applies in respect of gifts made on or after March 19, 2007, except that, in its application before the day on which this Act is assented to, the reference to “designated stock exchange” in subparagraph 38(a.1)(i) of the Act, as enacted by subsection (1), shall be read as a reference to “prescribed stock exchange”.

16. (1) Paragraph 53(1)(e) of the Act is amended by striking out the word “and” at the end of subparagraph (xii), by adding the word “and” at the end of subparagraph (xiii) and by adding the following after subparagraph (xiii):

(xiv) the total of all amounts each of which is the amount of the taxpayer’s taxable earnings base adjustment (within the meaning assigned by subsection 18.2(1)) in respect of an interest in the partnership for a taxation year that ended before that time;

(2) Paragraph 53(2)(c) of the Act is amended by striking out the word “and” at the end of subparagraph (xi), by adding the word “and” at the end of subparagraph (xii) and by adding the following after subparagraph (xii):

(xiii) the lesser of

(A) the total of all amounts each of which is the amount of a dividend that is included in computing the income of the taxpayer under section 93.1 in respect of the partnership for a taxation year that ended before that time, and

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

(I) an amount deducted by the taxpayer under subsection 91(5.2) for a taxation year that ended before that time in respect of a dividend included in computing the amount determined under clause (A), or

(II) twice the amount deducted by the taxpayer under subsection 91(5.3) for a taxation year that ended before that time in respect of the disposition of a share on which a dividend included in computing the amount determined under clause (A) was paid;

(3) Subsections (1) and (2) apply after 2011.

17. (1) Paragraph 56(3)(a) of the Act is replaced by the following:

(a) the total of all amounts each of which is the amount included under subparagraph (1)(n)(i) in computing the taxpayer’s income for the taxation year in respect of a scholarship, fellowship or bursary received in connection with the taxpayer’s enrolment

(i) in an educational program in respect of which an amount may be deducted under subsection 118.6(2) in computing the taxpayer’s tax payable under this Part for the taxation year, for the immediately preceding taxation year or for the following taxation year, or

(ii) in an elementary or secondary school educational program,

(2) Subsection (1) applies to the 2007 and subsequent taxation years.

18. (1) Subsection 60(x) of the Act is replaced by the following:

Repayment under Canada Education Savings Act

(x) the total of all amounts each of which is an amount paid by the taxpayer in the year as a repayment, under the Canada Education Savings Act or under a designated provincial program (as defined in subsection 146.1(1)), of an amount that was included because of subsection 146.1(7) in computing the taxpayer’s income for the year or a preceding taxation year; and

(2) Subsection (1) applies to the 2007 and subsequent taxation years.

19. (1) Paragraphs (h) and (i) of the definition “principal-business corporation” in subsection 66(15) of the Act are replaced by the following:

(h) the generation of energy using property described in Class 43.1 or 43.2 of Schedule II to the regulations, or any combination thereof, and

(i) the development of projects for which it is reasonable to expect that at least 50% of the capital cost of the depreciable property to be used in each project would be the capital cost of property described in Class 43.1 or 43.2 of Schedule II to the regulations or any combination thereof,

(2) Subsection (1) applies on and after February 23, 2005.

20. (1) The portion of subsection 67.1(1) of the Act before paragraph (a) is replaced by the following:

Expenses for food, etc.

67.1 (1) Subject to subsection (1.1), for the purposes of this Act, other than sections 62, 63, 118.01 and 118.2, an amount paid or payable in respect of the human consumption of food or beverages or the enjoyment of entertainment is deemed to be 50 per cent of the lesser of

(2) Section 67.1 of the Act is amended by adding the following after subsection (1):

Expenses for food and beverages of long-haul truck drivers

(1.1) An amount paid or payable by a long-haul truck driver in respect of the consumption of food or beverages by the driver during an eligible travel period of the driver is deemed to be the amount determined by multiplying the specified percentage in respect of the amount so paid or payable by the lesser of

(a) the amount so paid or payable, and

(b) a reasonable amount in the circumstances.

(3) Section 67.1 of the Act is amended by adding the following after subsection (4):

Definitions

(5) The following definitions apply for the purpose of this section.

“eligible travel period”
« période de déplacement admissible »

“eligible travel period” in respect of a long-haul truck driver is a period during which the driver is away from the municipality or metropolitan area where the specified place in respect of the driver is located for a period of at least 24 continuous hours for the purpose of driving a long-haul truck that transports goods to, or from, a location that is beyond a radius of 160 kilometres from the specified place.

“long-haul truck”
« grand routier »

“long-haul truck” means a truck or a tractor that is designed for hauling freight and that has a gross vehicle weight rating (as that term is defined in subsection 2(1) of the Motor Vehicle Safety Regulations) that exceeds 11 788 kilograms.

“long-haul truck driver”
« conducteur de grand routier »

“long-haul truck driver” means an individual whose principal business or principal duty of employment is driving a long-haul truck that transports goods.

“specified percentage”
« pourcentage déterminé »

“specified percentage” in respect of an amount paid or payable is

(a) 60 per cent, if the amount is paid or becomes payable on or after March 19, 2007 and before 2008;

(b) 65 per cent, if the amount is paid or becomes payable in 2008;

(d) 75 per cent, if the amount is paid or becomes payable in 2010; and

(e) 80 per cent, if the amount is paid or becomes payable after 2010.

“specified place”
« endroit déterminé »

“specified place” means, in the case of an employee, the employer’s establishment to which the employee ordinarily reports to work is located and, in the case of an individual whose principal business is to drive a long-haul truck to transport goods, the place where the individual resides.

(4) Subsections (1) to (3) apply to amounts that are paid, or become payable, on or after March 19, 2007.

21. (1) Paragraph (b) of the definition “excluded security” in subsection 80(1) of the Act is replaced by the following:

(b) a share issued by the corporation to the person under the terms of the debt, where the debt was a bond, debenture or note listed on a designated stock exchange in Canada and the terms for the conversion to the share were not established or substantially modified after the later of February 22, 1994 and the time that the bond, debenture or note was issued;

(2) Subsection (1) applies on and after the day on which this Act is assented to.

22. (1) Paragraph 85(1.1)(i) of the Act is replaced by the following:

(i) a NISA Fund No. 2, if that property is owned by an individual.

(2) Subsection (1) applies to the balance in a NISA Fund No. 2 to the extent that that blance consists of contributions made to the fund, and amounts earned on those contributions, in the 2008 and subsequent taxation years.

23. (1) Paragraph (a) of the definition “public corporation” in subsection 89(1) of the Act is replaced by the following:

(a) a corporation that is resident in Canada at the particular time if at that time a class of shares of the capital stock of the corporation is listed on a designated stock exchange in Canada,

(2) Subsection (1) applies on and after the day on which this Act is assented to.

24. (1) Section 91 of the Act is amended by adding the following after subsection (5):

Deduction of dividend by shareholder

(5.1) Where in a taxation year a corporation resident in Canada receives a dividend on a share of the capital stock of a corporation that was at any time a foreign affiliate of the corporation and subsection (5) does not apply in respect of that dividend, there may be deducted, in respect of such portion of the dividend as is prescribed to have been paid out of the taxable surplus of the affiliate, in computing the corporation’s income for the year, the lesser of

(a) the amount, if any, by which that portion of the dividend exceeds the amount, if any, deductible in respect of the dividend under paragraph 113(1)(b), and

(b) the amount, if any, by which

(i) the total of all amounts required under subparagraph 92(1)(a)(ii) to be added in computing the adjusted cost base to the taxpayer of the share before the dividend was so received by the corporation

exceeds

(ii) the total of all amounts required under paragraph 92(1)(b) to be deducted in computing the adjusted cost base to the taxpayer of the share before the dividend was so received by the taxpayer.

Deduction of dividend by member of partnership

(5.2) Where in a taxation year a corporation is deemed under section 93.1 to have received a dividend from a foreign affiliate, there may be deducted, in respect of such portion of the dividend as is prescribed to have been paid out of the taxable surplus of the affiliate, in computing the corporation’s income for the year, the lesser of

(a) the amount, if any, by which that portion of the dividend exceeds the amount, if any, deductible in respect of the dividend under paragraph 113(1)(b), and

(b) the amount, if any, by which

(i) the total of all amounts required under subparagraph 53(1)(e)(xiv) to be added in computing the adjusted cost base to the taxpayer of the partnership interest that are reasonably attributable to a share in respect of which the dividend was paid

exceeds

(ii) the total of all amounts required under subparagraph 53(2)(c)(xiii) to be deducted in computing the adjusted cost base to the taxpayer of the partnership interest that are reasonably attributable to a share in respect of which the dividend was paid.

Deduction of capital gain by member of partnership

(5.3) Where in a taxation year a taxpayer is a member of a partnership, there may be deducted from the taxpayer’s income for the taxation year an amount equal to the lesser of

(a) ½ the amount of the taxpayer’s specified proportion (within the meaning of paragraph 18.2(10)(b)) of any capital gain that is attributable to a disposition by the partnership of a share of the capital stock of a corporation, and

(b) the amount, if any, by which

(i) the total of all amounts required under subparagraph 53(1)(e)(xiv) to be added in computing the adjusted cost base to the taxpayer of its interest in the partnership that are reasonably attributable to the share

exceeds

(2) Subsection (1) applies after 2011.

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

Adjusted cost base of share of foreign affiliate

92. (1) In computing, at any time in a taxation year, the adjusted cost base to a taxpayer resident in Canada of any share owned by the taxpayer of the capital stock of a foreign affiliate of the taxpayer,

(a) there shall be added in respect of that share

(i) any amount included in respect of that share under subsection 91(1) or (3) in computing the taxpayer’s income for the year or any preceding taxation year (or that would have been required to have been so included in computing the taxpayer’s income but for subsection 56(4.1) and sections 74.1 to 75 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952), and

(ii) the taxable earnings base adjustment (as defined in subsection 18.2(1)) of the taxpayer in respect of the share for the year or any preceding taxation year; and

(b) there shall be deducted in respect of that share

(i) any amount deducted by the taxpayer under subsection 91(2) or (4), and

(ii) any dividend received by the taxpayer before that time, to the extent of the amount deducted by the taxpayer, in respect of the dividend, under subsection 91(5) or (5.1)

in computing the taxpayer’s income for the year or any preceding taxation year (or that would have been deductible by the taxpayer but for subsection 56(4.1) and sections 74.1 to 75 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada,1952).

(2) Subsection (1) applies after 2011.

26. (1) The definitions “active business”, “controlled foreign affiliate”, “income from an active business” and “income from property” in subsection 95(1) of the Act are replaced by the following:

“active business”
« entreprise exploitée activement »

“active business” of a foreign affiliate of a taxpayer means any business carried on by the foreign affiliate other than

(a) an investment business carried on by the foreign affiliate,

(b) a business that is deemed by subsection (2) to be a business other than an active business carried on by the foreign affiliate, or

“controlled foreign affiliate”
« société étrangère affiliée contrôlée »

“controlled foreign affiliate”, at any time, of a taxpayer resident in Canada, means

(a) a foreign affiliate of the taxpayer that is, at that time, controlled by the taxpayer, or

(b) a foreign affiliate of the taxpayer that would, at that time, be controlled by the taxpayer if the taxpayer owned

(i) all of the shares of the capital stock of the foreign affiliate that are owned at that time by the taxpayer,

(ii) all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with the taxpayer,

(iii) all of the shares of the capital stock of the foreign affiliate that are owned at that time by the persons (each of whom is referred to in this definition as a “relevant Canadian shareholder”), in any set of persons not exceeding four (which set of persons shall be determined without ref-erence to the existence of or the absence of any relationship, connection or action in concert between those persons), who

(A) are resident in Canada,

(B) are not the taxpayer or a person described in subparagraph (ii), and

(iv) all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with any relevant Canadian shareholder;

“income from an active business”
« revenu provenant d’une entreprise exploitée activement »

“income from an active business” of a foreign affiliate of a taxpayer for a taxation year includes the foreign affiliate’s income for the taxation year that pertains to or is incident to that active business but does not include

(a) the foreign affiliate’s income from property for the taxation year,

(b) the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate, or

“income from property”
« revenu de biens »

“income from property” of a foreign affiliate of a taxpayer for a taxation year includes the foreign affiliate’s income for the taxation year from an investment business and the foreign affiliate’s income for the taxation year from an adventure or concern in the nature of trade, but does not include

(a) the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate, or

(b) the foreign affiliate’s income for the taxation year that pertains to or is incident to

(i) an active business of the foreign affiliate, or

(ii) a non-qualifying business of the foreign affiliate;

(2) The portion of the definition “excluded property” in subsection 95(1) of the Act before paragraph (a) of that definition and paragraphs (a) to (c) of that definition are replaced by the following:

“excluded property”
« bien exclu »

“excluded property”, at a particular time, of a foreign affiliate of a taxpayer means any property of the foreign affiliate that is

(a) used or held by the foreign affiliate principally for the purpose of gaining or producing income from an active business carried on by it,

(b) shares of the capital stock of another foreign affiliate of the taxpayer where all or substantially all of the fair market value of the property of the other foreign affiliate is attributable to property, of that other foreign affiliate, that is excluded property,

(c) property all or substantially all of the income from which is, or would be, if there were income from the property, income from an active business (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph (2)(a) if that paragraph were read without reference to subparagraph (v)), or

(c.1) property arising under or as a result of an agreement that

(i) provides for the purchase, sale or exchange of currency, and

(ii) either

(A) can reasonably be considered to have been made by the affiliate to reduce its risk, with respect to an amount that was receivable under an agreement that relates to the sale of excluded property or with respect to an amount that was receivable and was a property described in paragraph (c), of fluctuations in the value of the currency in which the amount receivable was denominated, or

(B) can reasonably be considered to have been made by the affiliate to reduce its risk, with respect to any of the following amounts, of fluctuations in the value of the currency in which that amount was denominated:

(I) an amount that was payable under an agreement that relates to the purchase of property that (at all times between the time of the acquisition of the property and the particular time) is excluded property of the affiliate,

(II) an amount of indebtedness, to the extent that the proceeds derived from the issuance or incurring of the indebtedness can reasonably be considered to have been used to acquire property that (at all times between the time of the acquisition of that property and the particular time) is excluded property of the affiliate, or

(III) an amount of indebtedness, to the extent that the proceeds derived from the issuance or incurring of the indebtedness can reasonably be considered to have been used to repay the outstanding balance of

1. an amount that, immediately before the time of that repayment, is described by subclause (I),

2. an amount of indebtedness of the affiliate that, immediately before the time of that repayment, is described by subclause (II), or

3. an amount of indebtedness of the affiliate that, immediately before the time of that repayment, is described by this subclause,

(3) The portion of the description of A in the definition “foreign accrual property income” in subsection 95(1) of the Act before paragraph (a) is replaced by the following:

A is the amount that would, if section 80 did not apply to the affiliate for the year or a preceding taxation year, be the total of all amounts, each of which is the affiliate’s income for the year from property, the affiliate’s income for the year from a business other than an active business or the affiliate’s income for the year from a non-qualifying business of the affiliate, in each case that amount being determined as if each amount described in clause (2)(a)(ii)(D) that was paid or payable, directly or indirectly, by the affiliate to another foreign affiliate of the taxpayer or of a person with whom the taxpayer does not deal at arm’s length were nil where an amount in respect of the income derived by the other foreign affiliate from that amount that was paid or payable to it by the affiliate was added in computing its income from an active business, other than

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

D is the total of all amounts, each of which is the affiliate’s loss for the year from property, the affiliate’s loss for the year from a business other than an active business of the affiliate or the affiliate’s loss for the year from a non-qualifying business of the affiliate, in each case that amount being determined as if there were not included in the affiliate’s income any amount described in any of paragraphs (a) to (d) of the description of A and as if each amount described in clause (2)(a)(ii)(D) that was paid or payable, directly or indirectly, by the affiliate to another foreign affiliate of the taxpayer or of a person with whom the taxpayer does not deal at arm’s length were nil where an amount in respect of the income derived by the other foreign affiliate from that amount that was paid or payable to it by the affiliate was added in computing its income from an active business,

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

E is the amount of the affiliate’s allowable capital losses for the year from dispositions of property (other than excluded property) that can reasonably be considered to have accrued after its 1975 taxation year,

(6) The portion of the definition “investment business” in subsection 95(1) of the Act before paragraph (a) is replaced by the following:

“investment business”
« entreprise de placement »

“investment business” of a foreign affiliate of a taxpayer means a business carried on by the foreign affiliate in a taxation year (other than a business deemed by subsection (2) to be a business other than an active business carried on by the foreign affiliate and other than a non-qualifying business of the foreign affiliate) the principal purpose of which is to derive income from property (including interest, dividends, rents, royalties or any similar returns or substitutes for such interest, dividends, rents, royalties or returns), income from the insurance or reinsurance of risks, income from the factoring of trade accounts receivable, or profits from the disposition of investment property, unless it is established by the taxpayer or the foreign affiliate that, throughout the period in the taxation year during which the business was carried on by the foreign affiliate,

(7) Subparagraph (a)(i) of the definition “investment business” in subsection 95(1) of the Act is replaced by the following:

(i) a business carried on by it as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws

(A) of each country in which the business is carried on through a permanent establishment (as defined by regulation) in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,

(B) of the country in which the business is principally carried on, or

(C) if the affiliate is related to a non-resident corporation, of the country under whose laws that non-resident corporation is governed and any of exists, was (unless that non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, or

(8) The definition “investment business” in subsection 95(1) of the Act is amended by striking out the word “and” at the end of paragraph (a) and by replacing paragraph (b) with the following:

(b) either

(i) the affiliate (otherwise than as a member of a partnership) carries on the business (the affiliate being, in respect of those times, in that period of the year, that it so carries on the business, referred to in paragraph (c) as the “operator”), or

(ii) the affiliate carries on the business as a qualifying member of a partnership (the partnership being, in respect of those times, in that period of the year, that the affiliate so carries on the business, referred to in paragraph (c) as the “operator”), and

(i) more than five employees full time in the active conduct of the business, or

(ii) the equivalent of more than five employees full time in the active conduct of the business taking into consideration only

(A) the services provided by employees of the operator, and

(B) the services provided outside Canada to the operator by any one or more persons each of whom is, during the time at which the services were performed by the person, an employee of

(I) a corporation related to the affiliate (otherwise than because of a right referred to in paragraph 251(5)(b)),

(II) in the case where the operator is the affiliate,

1. a corporation (referred to in this subparagraph as a “providing shareholder”) that is a qualifying shareholder of the affiliate,

2. a designated corporation in respect of the affiliate, or

3. a designated partnership in respect of the affiliate, and

(III) in the case where the operator is the partnership described in subparagraph (b)(ii),

1. any person (referred to in this subparagraph as a “providing member”) who is a qualifying member of that partnership,

2. a designated corporation in respect of the affiliate, or

3. a designated partnership in respect of the affiliate,

if the corporations referred to in subclause (B)(I) and the designated corporations, designated partnerships, providing shareholders or providing members referred to in subclauses (B)(II) and (III) receive compensation from the operator for the services provided to the operator by those employees the value of which is not less than the cost to those corporations, partnerships, shareholders or members of the compensation paid or accruing to the benefit of those employees that performed the services during the time at which the services were performed by those employees;

(9) Subsection 95(1) of the Act is amended by adding the following in alphabetical order:

“eligible trust”
« fiducie admissible »

“eligible trust”, at any time, means a trust, other than a trust

(a) created or maintained for charitable purposes,

(b) governed by an employee benefit plan,

(d) governed by a salary deferral arrangement,

(e) operated for the purpose of administering or providing superannuation, pension, retirement or employee benefits, or

(f) where the amount of income or capital that any entity may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity of, or the failure by any entity to exercise, a discretionary power;

“entity”
« entité »

“entity” includes an association, a corporation, a fund, a natural person, a joint venture, an organization, a partnership, a syndicate and a trust;

“exempt trust”
« fiducie exonérée »

“exempt trust”, at a particular time in respect of a taxpayer resident in Canada, means a trust that, at that time, is a trust under which the interest of each beneficiary under the trust is, at all times that the interest exists during the trust’s taxation year that includes the particular time, a specified fixed interest of the beneficiary in the trust, if at the particular time

(a) the trust is an eligible trust,

(b) there are at least 150 beneficiaries each of whom holds a specified fixed interest, in the trust, that has a fair market value of at least $500, and

(c) the total of all amounts each of which is the fair market value of an interest as a beneficiary under the trust held by a specified purchaser in respect of the taxpayer is not more than 10% of the total fair market value of all interests as a beneficiary under the trust;

“income from a non-qualifying business”
« revenu provenant d’une entreprise non admissible »

“income from a non-qualifying business” of a foreign affiliate of a taxpayer resident in Canada for a taxation year includes the foreign affiliate’s income for the taxation year that pertains to or is incident to that non-qualifying business, but does not include

(a) the foreign affiliate’s income from property for the taxation year, or

(b) the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate;

“non-qualifying business”
« entreprise non admissible »

“non-qualifying business” of a foreign affiliate of a taxpayer at any time means a business carried on by the foreign affiliate through a permanent establishment in a jurisdiction that, at the end of the foreign affiliate’s taxation year that includes that time, is a non-qualifying country, other than

(a) an investment business of the foreign affiliate, or

(b) a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate;

“non-qualifying country”
« pays non admissible »

“non-qualifying country” at any time means a country or other jurisdiction with which

(a) Canada neither has a tax treaty at that time nor has, before that time, signed an agreement that will, on coming into effect, be a tax treaty,

(b) Canada does not have a comprehensive tax information exchange agreement that is in force and has effect at that time, and

(i) begun negotiations for a comprehensive tax information exchange agreement (unless that time is before 2014 and Canada was, on March 19, 2007, in the course of negotiating a comprehensive tax information exchange agreement with that jurisdiction), or

(ii) sought, by written invitation, to enter into negotiations for a comprehensive tax information exchange agreement (unless that time is before 2014 and Canada was, on March 19, 2007, in the course of negotiating a comprehensive tax information exchange agreement with that jurisdiction);

“specified fixed interest”
« participation fixe désignée »

“specified fixed interest”, at any time, of an entity in a trust, means an interest of the entity as a beneficiary under the trust if

(a) the interest includes, at that time, rights of the entity as a beneficiary under the trust to receive, at or after that time and directly from the trust, income and capital of the trust,

(b) the interest was issued by the trust, at or before that time, to an entity, in exchange for consideration and the fair market value, at the time at which the interest was issued, of that consideration was equal to the fair market value, at the time at which it was issued, of the interest,

(c) the only manner in which any part of the interest may cease to be the entity’s is by way of a disposition (determined without reference to paragraph (i) of the definition “disposition” in subsection 248(1) and paragraph 248(8)(c)) by the entity of that part, and

(d) no amount of income or capital of the trust that any entity may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity of, or the failure by any entity to exercise, a discretionary power;

“specified purchaser”
« acheteur déterminé »

“specified purchaser”, at any time, in respect of a particular taxpayer resident in Canada, means an entity that is, at that time,

(a) the particular taxpayer,

(b) an entity resident in Canada with which the particular taxpayer does not deal at arm’s length,

(d) a trust (other than an exempt trust) in which an entity described in any of paragraphs (a) to (c) and (e) and (f) is beneficially interested,

(e) a partnership of which an entity described in any of paragraphs (a) to (d) and (f) is a member, or

(f) an entity (other than an entity described in any of paragraphs (a) to (e)) with which an entity described in any of paragraphs (a) to (e) does not deal at arm’s length;

(10) Paragraph 95(2)(a) of the Act is replaced by the following:

(a) in computing the income or loss from an active business for a taxation year of a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the year or that is a controlled foreign affiliate of the taxpayer throughout the year, there shall be included any income or loss of the particular foreign affiliate for the year from sources in a country other than Canada that would otherwise be income or loss from property of the particular foreign affiliate for the year to the extent that

(i) the income or loss

(A) is derived by the particular foreign affiliate from activities that can reasonably be considered to be directly related to active business activities carried on in a country other than Canada by

(I) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, or

(II) a life insurance corporation that is resident in Canada throughout the year and that is

1. the taxpayer,

2. a person who controls the taxpayer,

3. a person controlled by the taxpayer, or

4. a person controlled by a person who controls the taxpayer, and

(B) would be included in computing the amount prescribed to be the earnings or loss, from an active business carried on in a country other than Canada, of

(I) that other foreign affiliate referred to in subclause (A)(I) if the income were earned by it, or

(II) the life insurance corporation referred to in subclause (A)(II) if that life insurance corporation were a foreign affiliate of the taxpayer and the income were earned by it,

(ii) the income or loss is derived from amounts that were paid or payable, directly or indirectly, to the particular foreign affiliate or a partnership of which the particular foreign affiliate was a member

(A) by a life insurance corporation that is resident in Canada and that is the taxpayer, a person who controls the taxpayer, a person controlled by the taxpayer or a person controlled by a person who controls the taxpayer, to the extent that those amounts that were paid or payable were for expenditures that are deductible in a taxation year of the life insurance corporation by the life insurance corporation in computing its income or loss for a taxation year from carrying on its life insurance business outside Canada and are not deductible in computing its income or loss for a taxation year from carrying on its life insurance business in Canada,

(B) by

(I) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, to the extent that those amounts that were paid or payable are for expenditures that were deductible by that other foreign affiliate in computing the amounts prescribed to be its earnings or loss for a taxation year from an active business (other than an active business carried on in Canada), or

(II) a partnership of which another foreign affiliate of the taxpayer (in respect of which other foreign affiliate the taxpayer has a qualifying interest throughout the year) is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which that other foreign affiliate was a member of the partnership, to the extent that those amounts that were paid or payable are for expenditures that are deductible by the partnership in computing that other foreign affiliate’s share of any income or loss of the partnership, for a fiscal period, that is included in computing the amounts prescribed to be that other foreign affiliate’s earnings or loss for a taxation year from an active business (other than an active business carried on in Canada),

(C) by a partnership of which the particular foreign affiliate is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which the particular foreign affiliate was a member of the partnership, to the extent that those amounts that were paid or payable are for expenditures that are deductible by the partnership in computing the partic-ular foreign affiliate’s share of any income or loss of the partnership, for a fiscal period, that is included in computing the amounts prescribed to be the particular foreign affiliate’s earnings or loss for a taxation year from an active business (other than an active business carried on in Canada), or

(D) by another foreign affiliate (referred to in this clause as the “second affiliate”) of the taxpayer — in respect of which the taxpayer has a qualifying interest throughout the year — to the extent that the amounts are paid or payable by the second affiliate, in respect of any particular period in the year,

(I) under a legal obligation to pay interest on borrowed money used for the purpose of earning income from property, or

(II) on an amount payable for property acquired for the purpose of gaining or producing income from property

where

(III) the property is, throughout the particular period, excluded property of the second affiliate that is shares of the capital stock of a corporation (referred to in this clause as the “third affiliate”) which is, throughout the particular period, a foreign affiliate (other than the particular foreign affiliate) of the taxpayer in respect of which the taxpayer has a qualifying interest,

(IV) the second affiliate and the third affiliate are resident in the same country for each of their taxation years (each of which taxation years is referred to in subclause (V) as a “relevant taxation year” of the second affiliate or of the third affiliate, as the case may be) that end in the year, and

(V) in respect of each of the second affiliate and the third affiliate for each relevant taxation year of that affiliate, either

1. that affiliate is subject to income taxation in that country in that relevant taxation year, or

2. the members or shareholders of that affiliate (which, for the purpose of this sub-subclause, includes a person that has, directly or indi-rectly, an interest, or for civil law a right, in a share of the capital stock of, or in an equity interest in, the affiliate) at the end of that relevant taxation year are subject to income taxation in that country on, in aggregate, all or substantially all of the income of that affiliate for that relevant taxation year in their taxation years in which that relevant taxation year ends,

(iii) the income or loss is derived by the particular foreign affiliate from the factoring of trade accounts receivable acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year to the extent that the accounts receivable arose in the course of an active business carried on in a country other than Canada by that other foreign affiliate,

(iv) the income or loss is derived by the particular foreign affiliate from loans or lending assets acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, to the extent that the loans or lending assets arose in the course of an active business carried on in a country other than Canada by that other foreign affiliate,

(v) the income or loss is derived by the particular foreign affiliate from the disposition of excluded property that is not capital property, or

(vi) the income or loss is derived by the particular foreign affiliate under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the particular foreign affiliate to reduce

(A) its risk — with respect to an amount that increases the amount required by this paragraph to be included in computing the particular foreign affiliate’s income for a taxation year from an active business or that decreases the amount required by this paragraph to be included in computing the particular foreign affiliate’s loss for a taxation year from an active business — of fluctuations in the value of the currency in which the amount was denominated, or

(B) its risk — with respect to an amount that decreases the amount required by this paragraph to be included in computing the particular foreign affiliate’s income for a taxation year from an active business or that increases the amount required by this paragraph to be included in computing the particular foreign affiliate’s loss for a taxation year from an active business — of fluctuations in the value of the currency in which the amount was denominated;

(11) Subparagraphs 95(2)(a.1)(i) and (ii) of the Act are replaced by the following:

(i) it is reasonable to conclude that the cost to any person of the property (other than property that is designated property) is relevant in computing the income from a business carried on by the taxpayer or by a person resident in Canada with whom the taxpayer does not deal at arm’s length or is relevant in computing the income from a business carried on in Canada by a non-resident person with whom the taxpayer does not deal at arm’s length, and

(ii) the property was neither

(A) manufactured, produced, grown, extracted or processed in the country

(I) under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and

(II) in which the affiliate’s business is principally carried on, nor

(B) an interest in real property, or a real right in an immovable, located in, or a foreign resource property in respect of, the country

(I) under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and

(II) in which the affiliate’s business is principally carried on,

(12) Paragraph 95(2)(b) of the Act is replaced by the following:

(b) the provision, by a foreign affiliate of a taxpayer, of services or of an undertaking to provide services

(i) is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, to the extent that the amounts paid or payable in consideration for those services or for the undertaking to provide services

(A) are deductible, or can reasonably be considered to relate to amounts that are deductible, in computing the income from a business carried on in Canada, by

(I) any taxpayer of whom the affiliate is a foreign affiliate, or

(II) another taxpayer who does not deal at arm’s length with

1. the affiliate, or

2. any taxpayer of whom the affiliate is a foreign affiliate, or

(B) are deductible, or can reasonably be considered to relate to an amount that is deductible, in computing the foreign accrual property income of a foreign affiliate of

(I) any taxpayer of whom the affiliate is a foreign affiliate, or

(II) another taxpayer who does not deal at arm’s length with

1. the affiliate, or

2. any taxpayer of whom the affiliate is a foreign affiliate, and

(ii) is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, to the extent that the services are, or are to be, performed by

(A) any taxpayer of whom the affiliate is a foreign affiliate,

(B) another taxpayer who does not deal at arm’s length with

(I) the affiliate, or

(II) any taxpayer of whom the affiliate is a foreign affiliate,

(D) a partnership in which any person or partnership described in any of clauses (A) to (C) has, directly or indirectly, a partnership interest;

(13) Paragraph 95(2)(g) of the Act is replaced by the following:

(g) income earned, a loss incurred or a capital gain or capital loss realized, as the case may be, in a taxation year by a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the taxation year or a particular foreign affiliate of a taxpayer that is a controlled foreign affiliate of the taxpayer throughout the taxation year, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, is deemed to be nil if it is earned, incurred or realized in reference to any of the following sources:

(i) a debt obligation that was owing to

(A) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year (which other foreign affiliate is referred to in this paragraph as a “qualified foreign affiliate”) by the particular affiliate, or

(B) the particular affiliate by a qualified foreign affiliate,

(ii) the redemption, cancellation or acquisition of a share of the capital stock of, or the reduction of the capital of, the particular affiliate or a qualified foreign affiliate (which particular affiliate or which qualified foreign affiliate is referred to in this subparagraph as the “issuing corporation”) by the issuing corporation, or

(iii) the disposition to a qualified foreign affiliate of a share of the capital stock of another qualified foreign affiliate;

(g.01) any income, loss, capital gain or capital loss, derived by a foreign affiliate of a taxpayer under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the foreign affiliate to reduce its risk (with respect to any source, any particular income, gain or loss determined in reference to which is deemed by paragraph (g) to be nil) of fluctuations in the value of currency, is, to the extent of the absolute value of the particular income, gain or loss, deemed to be nil;

(g.02) in applying subsection 39(2) for the purpose of this subdivision (other than sections 94 and 94.1), the gains and losses of a foreign affiliate of a taxpayer in respect of excluded property are to be computed in respect of the taxpayer separately from the gains and losses of the foreign affiliate in respect of property that is not excluded property;

(g.03) if at any time a particular foreign affiliate referred to in paragraph (g) is a member of a partnership or a qualified foreign affiliate referred to in that paragraph is a member of a partnership,

(i) in applying this paragraph, where a debt obligation is owing at that time by a debtor to the partnership of which the particular foreign affiliate is a member, the debt obligation is deemed to be owing at that time by the debtor to the particular foreign affiliate in the proportion that the particular foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,

(ii) in applying this paragraph, where a debt obligation is owing at that time to a creditor by the partnership of which the particular foreign affiliate is a member, the debt obligation is deemed to be owing at that time to the creditor by the particular foreign affiliate in the proportion that the particular foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,

(iii) in applying paragraph (g) and this paragraph, where a debt obligation is owing at that time by a debtor to the partnership of which the qualified foreign affiliate is a member, the debt obligation is deemed to be owing at that time by the debtor to the qualified foreign affiliate in the proportion that the qualified foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,

(iv) in applying paragraph (g) and this paragraph, where a debt obligation is owing at that time to a creditor by the partnership of which the qualified foreign affiliate is a member, the debt obligation is deemed to be owing at that time to the creditor by the qualified foreign affiliate in the proportion that the qualified foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation, and

(v) in computing the particular foreign affiliate’s income or loss from a partnership, any income earned, loss incurred or capital gain or capital loss realized, as the case may be, by the partnership — in respect of the portion of a debt obligation owing to or owing by the partnership that is deemed by any of subparagraphs (i) to (iv) to be a debt obligation owing to or owing by the particular foreign affiliate (referred to in this subparagraph as the “allocated debt obligation”) — because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, that is attrib-utable to the allocated debt obligation is deemed to be nil to the extent that paragraph (g) would, if the rules in subparagraphs (i) to (iv) were applied, have applied to the particular foreign affiliate, to deem to be nil the income earned, loss incurred or capital gain or capital loss realized, as the case may be, by the particular foreign affiliate in respect of the allocated debt obligation, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency;

(14) Paragraph 95(2)(i) of the Act is replaced by the following:

(i) any income, gain or loss of a foreign affiliate of a taxpayer or of a partnership of which a foreign affiliate of a taxpayer is a member (which foreign affiliate or partnership is referred to in this paragraph as the “debtor”), for a taxation year or fiscal period of the debtor, as the case may be, is deemed to be income, a gain or a loss, as the case may be, from the disposition of an excluded property of the debtor, if the income, gain or loss is

(i) derived from the settlement or extinguishment of a debt of the debtor all or substantially all of the proceeds from which

(A) were used to acquire property, if at all times after the time at which the debt became debt of the debtor and before the time of that settlement or extinguishment, the property (or property substituted for the property) was property of the debtor and was, or would if the debtor were a foreign affiliate of the taxpayer be, excluded property of the debtor,

(B) were used at all times to earn income from an active business carried on by the debtor, or

(ii) derived from the settlement or extinguishment of a debt of the debtor all or substantially all of the proceeds from which were used to settle or extinguish a debt referred to in subparagraph (i) or in this subparagraph, or

(iii) derived under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the debtor to reduce its risk, with respect to a debt referred to in subparagraph (i) or (ii), of fluctuations in the value of the currency in which the debt was denominated;

(15) Subparagraph 95(2)(l)(iii) of the Act is replaced by the following:

(iii) the business is carried on by the affiliate as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws

(B) of the country in which the business is principally carried on, or

(C) if the affiliate is related to a non-resident corporation, of the country under whose laws that non-resident corporation is governed and any of exists, was (unless that non-resident corporation was continued in any ju-risdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, and

(16) Subsection 95(2) of the Act is amended by striking out the word “and” at the end of paragraph (l) and by adding the following after paragraph (m):

(n) in applying paragraphs (a) and (g) and subsections (2.2) and (2.21), in applying paragraph (b) of the description of A in the formula in the definition “foreign accrual property income” in subsection (1) and in applying paragraph (d) of the definition “exempt earnings”, and paragraph (c) of the definition “exempt loss”, in subsection 5907(1) of the Regulations, a non-resident corporation is deemed to be, at any time, a foreign affiliate of a particular corporation resident in Canada, and a foreign affiliate of the particular corporation in respect of which the particular corporation has a qualifying interest, if at that time

(i) the non-resident corporation is a foreign affiliate of another corporation that is resident in Canada and that is related (otherwise than because of a right referred to in paragraph 251(5)(b)) to the particular corporation, and

(ii) that other corporation has a qualifying interest in respect of the non-resident corporation;

(o) a particular person is a qualifying member of a partnership at a particular time if, at that time, the particular person is a member of the partnership and

(i) throughout the period, in the fiscal period of the partnership that includes the particular time, during which the member was a member of the partnership, the particular person is, on a regular, continuous and substantial basis

(A) actively engaged in those activities, of the principal business of the partnership carried on in that fiscal period by the partnership, that are other than activities connected with the provision of or the acquisition of funds required for the operation of that principal business, or

(B) actively engaged in those activities, of a particular business carried on in that fiscal period by the particular person (otherwise than as a member of a partnership) that is similar to the principal business carried on in that fiscal period by the partnership, that are other than activities connected with the provision of or the acquisition of funds required for the operation of the particular business, or

(ii) throughout the period, in the fiscal period of the partnership that includes the particular time, during which the particular person was a member of the partnership

(A) the total of the fair market value of all partnership interests in the partnership owned by the particular person was equal to or greater than 1% of the total of the fair market value of all partnership interests in the partnership owned by all members of the partnership, and

(B) the total of the fair market value of all partnership interests in the partnership owned by the particular person or persons (other than trusts) related to the particular person was equal to or greater than 10% of the total of the fair market value of all partnership interests in the partnership owned by all members of the partnership;

(p) a particular person is a qualifying shareholder of a corporation at any time if throughout the period, in the taxation year of the corporation that includes that time, during which the particular person was a shareholder of the corporation

(i) the particular person owned 1% or more of the issued and outstanding shares (having full voting rights under all circumstances) of the capital stock of the corporation,

(ii) the particular person, or the particular person and persons (other than trusts) related to the particular person, owned 10% or more of the issued and outstanding shares (having full voting rights under all circumstances) of the capital stock of the corporation,

(iii) the total of the fair market value of all the issued and outstanding shares of the capital stock of the corporation owned by the particular person is 1% or more of the total fair market value of all the issued and outstanding shares of the capital stock of the corporation, and

(iv) the total of the fair market value of all the issued and outstanding shares of the capital stock of the corporation owned by the particular person or by persons (other than trusts) related to the particular person is 10% or more of the total fair market value of all the issued and outstanding shares of the capital stock of the corporation;

(q) in applying paragraphs (o) and (p),

(i) where interests in any partnership or shares of the capital stock of any corporation (which interests or shares are referred to in this subparagraph as “equity interests”) are, at any time, property of a particular partnership or are deemed under this paragraph to be, at any time, property of the particular partnership, the equity interests are deemed to be owned at that time by each member of the particular partnership in a proportion equal to the proportion of the equity interests that

(A) the fair market value, at that time, of the member’s partnership interest in the particular partnership

is of

(B) the fair market value, at that time, of all members’ partnership interests in the particular partnership, and

(ii) where interests in a partnership or shares of the capital stock of a corporation (which interests or shares are referred to in this subparagraph as “equity interests”) are, at any time, property of a non-discretionary trust (within the meaning assigned by subsection 17(15)) or are deemed under this paragraph to be, at any time, property of such a non-discretionary trust, the equity interests are deemed to be owned at that time by each beneficiary under that trust in a proportion equal to that proportion of the equity interests that

(A) the fair market value, at that time, of the beneficiary’s beneficial interest in the trust

is of

(B) the fair market value, at that time, of all beneficial interests in the trust;

(r) in applying paragraph (a) and in applying paragraph (d) of the definition “exempt earnings”, and paragraph (c) of the definition “exempt loss”, in subsection 5907(1) of the Regulations, a partnership is deemed to be, at any time, a partnership of which a foreign affiliate — of a particular corporation resident in Canada and in respect of which foreign affiliate the particular corporation has a qualifying interest — is a qualifying member, if at that time

(i) a particular foreign affiliate — of another corporation that is resident in Canada and that is related (otherwise than because of a right referred to in paragraph 251(5)(b)) to the particular corporation — is a member of the partnership,

(ii) that other corporation has a qualifying interest in respect of the particular foreign affiliate, and

(iii) the particular foreign affiliate is a qualifying member of the partnership;

(s) in applying the definition “investment business” in subsection (1), a particular corporation is, at any time, a designated corporation in respect of a foreign affiliate of a taxpayer, if at that time

(i) a qualifying shareholder of the foreign affiliate or a person related to such a qualifying shareholder is a qualifying shareholder of the particular corporation,

(ii) the particular corporation

(A) is controlled by a qualifying shareholder of the foreign affiliate, or

(B) would be controlled by a particular qualifying shareholder of the foreign affiliate if the particular qualifying shareholder of the foreign affiliate owned each share of the capital stock of the particular corporation that is owned by a qualifying shareholder of the foreign affiliate or by a person related to a qualifying shareholder of the foreign affiliate, and

(iii) the total of all amounts each of which is the fair market value of a share of the capital stock of the particular corporation owned by a qualifying shareholder of the foreign affiliate or by a person related to a qualifying shareholder of the foreign affiliate is greater than 50% of the total fair market value of all the issued and outstanding shares of the capital stock of the particular corporation;

(t) in applying the definition “investment business” in subsection (1) in respect of a business carried on by a foreign affiliate of a taxpayer in a taxation year, a particular partnership is, at any time, a designated partnership in respect of the foreign affiliate of the taxpayer, if at that time

(i) the foreign affiliate or a person related to the foreign affiliate is a qualifying member of the particular partnership, and

(ii) the total of all amounts — each of which is the fair market value of a partnership interest in the particular partnership held by the foreign affiliate, by a person related to the foreign affiliate or (where the foreign affiliate carries on, at that time, the business as a qualifying member of another partnership) by a qualifying member of the other partnership — is greater than 50% of the total fair market value of all partnership interests in the particular partnership owned by all members of the particular partnership;

(u) if any entity is (or is deemed by this paragraph to be) a member of a particular partnership that is a member of another partnership,

(i) the entity is deemed to be a member of the other partnership for the purpose of

(A) subparagraph (ii),

(B) applying the reference, in paragraph (a), to “a member” of a partnership,

(D) paragraphs (b) and (c) of the definition “investment business” in subsection (1), and

(ii) in applying paragraph (g.03), the entity is deemed to have, directly, rights to the income or capital of the other partnership, to the extent of the entity’s direct and indirect rights to that income or capital;

(v) in applying paragraph (p),

(i) where shares of the capital stock of any corporation (referred to in this paragraph as the “issuing corporation”) are, at any time, owned by a corporation (referred to in this paragraph as the “holding corporation”) or are deemed under this paragraph to be, at any time, owned by a corporation (referred to in this paragraph as the “holding corporation”), those shares are deemed to be owned at that time by each shareholder of the holding corporation in a proportion equal to the proportion of those shares that

(A) the fair market value, at that time, of the shares of the capital stock of the issuing corporation that are owned by the shareholder

is of

(B) the fair market value, at that time, of all the issued and outstanding shares of the capital stock of the issuing corporation, and

(ii) a person who is deemed by subparagraph (i) to own, at any time, shares of the capital stock of a corporation is deemed to be, at that time, a shareholder of the corporation;

(w) where a foreign affiliate of a corporation resident in Canada carries on an active business in more than one country,

(i) where the business is carried on in a country other than Canada, it is deemed to carry on that business in that country only to the extent that the profit or loss from that business can reasonably be attributed to a permanent establishment situated in that country, and

(ii) where the business is carried on in Canada, it is deemed to carry on that business in Canada only to the extent that the income from the active business is subject to tax under this Part;

(x) the loss from an active business, from a non-qualifying business or from property (as the case may be) of a foreign affiliate of a taxpayer resident in Canada for a taxation year is the amount of that loss, if any, that is computed by applying the provisions in this subdivision with respect to the computation of income from the active business, from the non-qualifying business or from property (as the case may be) of the foreign affiliate for the taxation year with any modifications that the circumstances require;

(y) in determining — for the purpose of paragraph (a) and for the purpose of applying subsections (2.2) and (2.21) for the purpose of applying that paragraph — whether a non-resident corporation is, at any time, a foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest, where interests in any partnership or shares of the capital stock of any corporation (which interests or shares are referred to in this paragraph as “equity interests”) are, at that time, property of a particular partnership or are deemed under this paragraph to be, at any time, property of the particular partnership, the equity interests are deemed to be owned at that time by each member of the particular partnership in a proportion equal to the proportion of the equity interests that

(i) the fair market value, at that time, of the member’s partnership interest in the particular partnership

is of

(ii) the fair market value, at that time, of all members’ partnership interests in the particular partnership; and

(z) where a particular foreign affiliate of a taxpayer — in respect of which the taxpayer has a qualifying interest or that is a controlled foreign affiliate of the taxpayer — is a member of a partnership, the particular foreign affiliate’s foreign accrual property income or loss in respect of the taxpayer for a taxation year shall not include any income or loss of the partnership to the extent that the income or loss

(i) is attributable to the foreign accrual property income or loss of a foreign affiliate of the partnership that is also a foreign affiliate of the taxpayer (referred to in this paragraph as the “second foreign affiliate”) in respect of which the taxpayer has a qualifying interest or that is a controlled foreign affiliate of the taxpayer, and

(ii) is, because of paragraph (a) as applied in respect of the taxpayer, included in computing the income or loss from an active business of the second foreign affiliate for a taxation year.

(17) Section 95 of the Act is amended by adding the following after subsection (2):

Rules for the definition “controlled foreign affiliate”

(2.01) In applying paragraph (b) of the definition “controlled foreign affiliate” in subsection (1) and in applying this subsection,

(a) shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, another corporation are deemed to be, at that time, owned by, or property of, as the case may be, each shareholder of the other corporation in the proportion that

(i) the fair market value at that time of the shares of the capital stock of the other corporation that, at that time, are owned by, or are property of, the shareholder

is of

(ii) the fair market value at that time of all the issued and outstanding shares of the capital stock of the other corporation;

(b) shares of the capital stock of a corporation that are, or are deemed by this subsection to be, at any time, property of a partnership, are deemed to be, at that time, owned by, or property of, as the case may be, each member of the partnership in the proportion that

(i) the fair market value at that time of the member’s partnership interest in the partnership

is of

(ii) the fair market value at that time of all partnership interests in the partnership;

(c) shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, a non-discretionary trust (within the meaning assigned by subsection 17(15)) other than an exempt trust (within the meaning assigned by subsection (1)) are deemed to be, at that time, owned by, or property of, as the case may be, each beneficiary of the trust in the proportion that

(i) the fair market value at that time of the beneficiary’s beneficial interest in the trust

is of

(ii) the fair market value at that time of all beneficial interests in the trust; and

(d) all of the shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, a particular trust (other than an exempt trust within the meaning assigned by subsection (1) or a non-discretionary trust within the meaning assigned by subsection 17(15)) are deemed to be, at that time, owned by, or property of, as the case may be,

(i) each beneficiary of the particular trust at that time, and

(ii) each settlor (within the meaning assigned by subsection 17(15)) in respect of the particular trust at that time.

Rule against double-counting

(2.02) In applying the assumption in paragraph (b) of the definition “controlled foreign affiliate” in subsection (1) in respect of a taxpayer resident in Canada to determine whether a foreign affiliate of the taxpayer is at any time a controlled foreign affiliate of the taxpayer, nothing in that paragraph or in subsection (2.01) is to be read or construed as requiring an interest, or for civil law a right, in a share of the capital stock of the foreign affiliate of the taxpayer owned at that time by the taxpayer to be taken into account more than once.

(18) Paragraph 95(2.1)(c) of the Act is replaced by the following:

(i) the business is carried on by the affiliate principally in a country (other than Canada) and principally with persons with whom the affiliate deals at arm’s length, and

(ii) the business activities of the affiliate are regulated in that country; and

(19) Subsection 95(2.2) of the Act is replaced by the following:

Rule re subsection (2)

(2.2) For the purpose of subsection (2), other than paragraph (2)(f), a non-resident corporation that is not a foreign affiliate of a taxpayer in respect of which the taxpayer had a qualifying interest throughout a particular taxation year is deemed to be a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout that particular taxation year if

(a) a person or partnership has, in that particular taxation year, acquired or disposed of shares of the capital stock of that non-resident corporation or of any other corporation and, because of that acquisition or disposition, that non-resident corporation becomes or ceases to be a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest, and

(b) at the beginning of that particular taxation year or at the end of that particular taxation year, the non-resident corporation is a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest.

Rule re subsection (2.2)

(a) the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest, and

(b) the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of another person resident in Canada in respect of which the other person resident in Canada had a qualifying interest, where

(i) the taxpayer is a corporation,

(ii) the taxpayer did not exist at the beginning of the taxation year,

(iii) the particular affiliate became a foreign affiliate of the taxpayer in the taxation year because of a disposition, in the taxation year, of shares of the capital stock of the particular affiliate to the taxpayer by the other person resident in Canada, and

(iv) the other person resident in Canada was, immediately before that disposition, related to the taxpayer.

(20) Paragraph 95(2.3)(b) of the Act is replaced by the following:

(b) the sale or exchange was made by the affiliate in the course of a business conducted principally with persons with whom the affiliate deals at arm’s length, if

(i) the business is principally carried on in the country (other than Canada) under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, or

(ii) the affiliate is a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities and the activities of the business are regulated

(A) under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment (as defined by regulation) in that country,

(B) under the laws of the country (other than Canada) in which the business is principally carried on, or

(C) if the affiliate is related to a corporation, under the laws of the country under the laws of which that related corporation is governed and any of exists, was (unless that related corporation was continued in any ju-risdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union; and

(21) Paragraph 95(2.4)(a) of the Act is replaced by the following:

(a) the income is derived by the affiliate in the course of a business conducted principally with persons with whom the affiliate deals at arm’s length carried on by it as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws

(i) of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued and of each country in which the business is carried on through a permanent establishment (as defined by regulation) in that country,

(ii) of the country in which the business is principally carried on, or

(iii) if the affiliate is related to a corporation, of the country under the laws of which that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, and

(22) Section 95 of the Act is amended by adding the following after subsection (2.4):

Application of paragraph (2)(a.3)

(2.41) Paragraph (2)(a.3) does not apply to a foreign affiliate of a taxpayer resident in Canada in respect of the foreign affiliate’s income for a taxation year derived, directly or indirectly, from indebtedness of persons resident in Canada or from indebtedness in respect of businesses carried on in Canada (referred to in this subsection as the “Canadian indebtedness”) if

(a) the taxpayer is, at the end of the foreign affiliate’s taxation year

(i) a life insurance corporation resident in Canada, the business activities of which are subject by law to the supervision of the Superintendent of Financial Institutions or a similar authority of a province, or

(ii) a corporation resident in Canada that is a subsidiary controlled corporation of a corporation described in subparagraph (i);

(b) the Canadian indebtedness is used or held by the foreign affiliate, throughout the period in the taxation year that that Canadian indebtedness was used or held by the foreign affiliate, in the course of carrying on a business (referred to in this subsection as the “foreign life insurance business”) that is a life insurance business carried on outside Canada (other than a business deemed by paragraph (2)(a.2) to be a separate business other than an active business), the activities of which are regulated

(i) under the laws of the country under whose laws the foreign affiliate is governed and any of exists, was (unless the foreign affiliate was continued in any jurisdiction) formed or organized, or was last continued, and

(ii) under the laws of the country, if any, in which the business is principally carried on;

(c) more than 90% of the gross premium revenue of the foreign affiliate for the taxation year in respect of the foreign life insurance business was derived from the insurance or reinsurance of risks (net of reinsurance ceded) in respect of persons

(i) that were non-resident at the time at which the policies in respect of those risks were issued or effected, and

(ii) that were at that time dealing at arm’s length with the foreign affiliate, the taxpayer and all persons that were related at that time to the foreign affiliate or the taxpayer; and

(d) it is reasonable to conclude that the foreign affiliate used or held the Canadian indebtedness

(i) to fund a liability or reserve of the foreign life insurance business, or

(ii) as capital that can reasonably be considered to have been required for the foreign life insurance business.

Exception re paragraph (2)(a.3)

(2.42) If, at any time in a taxation year of a foreign affiliate of a taxpayer referred to in paragraph (2)(a.3), a life insurance corporation resident in Canada is the taxpayer referred to in paragraph (2)(a.3) or is a person who controls, or is controlled by, such a taxpayer, a particular indebtedness or a particular lease obligation of the life insurance corporation is, for the purposes of that paragraph, deemed, at that time, not to be an indebtedness or a lease obligation of a person resident in Canada, to the extent of the portion of the particular indebtedness or lease obligation that can reasonably be considered to have been issued by the life insurance corporation to the foreign affiliate

(a) in respect of the life insurance corporation’s life insurance business carried on outside Canada; and

(b) not in respect of

(i) the life insurance corporation’s life insurance business carried on in Canada, or

(ii) any other use.

(23) The definition “indebtedness” in subsection 95(2.5) of the Act is replaced by the following:

“indebtedness”
« dette »

“indebtedness” does not include obligations of a particular person under agreements with non-resident corporations providing for the purchase, sale or exchange of currency where

(a) the agreements are swap agreements, forward purchase or sale agreements, forward rate agreements, futures agreements, options or rights agreements, or similar agreements,

(b) the particular person is a bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities resident in Canada, the business activities of which are subject by law to the supervision of a regulating authority in Canada such as the Superintendent of Financial Institutions or a similar authority of a province,

(c) the agreements are entered into by the non-resident corporation in the course of a business conducted principally with persons with whom the non-resident corporation deals at arm’s length, if

(i) the business is principally carried on in the country (other than Canada) under whose laws the non-resident corporation is governed and any of exists, was (unless the non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued, or

(ii) the non-resident corporation is a foreign affiliate of the particular person, or of a person related to the particular person, and

(A) the non-resident corporation is a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, and

(B) the activities of the business are regulated

(I) under the laws of the country under whose laws the non-resident corporation is governed and any of exists, was (unless the non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued and under the laws of each country in which the business is carried on through a permanent establishment (as defined by regulation) in that country,

(II) under the laws of the country (other than Canada) in which the business is principally carried, or

(III) if the affiliate is related to a corporation, under the laws of the country under the laws of which a corporation related to the non-resident corporation is governed and any of exists, was (unless that related corporation was continued in any ju-risdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the Eu-ropean Union, and

(d) the terms and conditions of such agreements are substantially the same as the terms and conditions of similar agreements made by persons dealings at arm’s length;

(24) Subsection 95(3) 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):

(d) the manufacturing or processing outside Canada, in accordance with the taxpayer’s specifications and under a contract between the taxpayer and the affiliate, of tangible property, or for civil law corporeal property, that is owned by the taxpayer if the property resulting from the manufacturing or processing is used or held by the taxpayer in the ordinary course of the taxpayer’s business carried on in Canada.

(25) Section 95 of the Act is amended by adding the following after subsection (3):

Designated property — subparagraph (2)(a.1)(i)

(3.1) Designated property referred to in subparagraph (2)(a.1)(i) is property that is described in the portion of paragraph (2)(a.1) that is before subparagraph (i) that is

(a) property that was sold to non-resident persons other than the affiliate, or sold to the affiliate for sale to non-resident persons, and

(i) that

(A) was — in the course of carrying on a business in Canada — manufactured, produced, grown, extracted or processed in Canada by the taxpayer, or by a person with whom the taxpayer does not deal at arm’s length, or

(B) was — in the course of a business carried on by a foreign affiliate of the taxpayer outside Canada — manufactured or processed from tangible property, or for civil law corporeal property, that, at the time of the manufacturing or processing, was owned by the taxpayer or by a person related to the taxpayer and used or held by the owner in the course of carrying on a business in Canada, if the manufacturing or processing was in accordance with the specifications of the owner of that tangible or corporeal property and under a contract between that owner and that foreign affiliate,

(ii) that was acquired, in the course of carrying on a business in Canada, by a purchaser from a vendor, if

(A) the purchaser is the taxpayer or is a person resident in Canada with whom the taxpayer does not deal at arm’s length, and

(B) the vendor is a person

(I) with whom the taxpayer deals at arm’s length,

(II) who is not a foreign affiliate of the taxpayer, and

(III) who is not a foreign affiliate of a person resident in Canada with whom the taxpayer does not deal at arm’s length, or

(iii) that was acquired by a purchaser from a vendor, if

(A) the purchaser is the taxpayer or is a person resident in Canada with whom the taxpayer does not deal at arm’s length,

(B) the vendor is a foreign affiliate of

(I) the taxpayer, or

(II) a person resident in Canada with whom the taxpayer does not deal at arm’s length, and

(I) under whose laws the vendor is governed and any of exists, was (unless the vendor was continued in any jurisdiction) formed or organized, or was last continued, and

(II) in which the vendor’s business is principally carried on; or

(b) property that is an interest in real property, or a real right in an immovable, located in, or a foreign resource property in respect of, the country

(i) under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and

(ii) in which the affiliate’s business is principally carried on.

(26) The definitions “active business”, “income from an active business” and “income from property” in subsection 95(1) of the Act, as enacted by subsection (1), subsections (3), (4), and (6), the definitions “income from a non-qualifying business”, “non-qualifying business” and “non-qualifying country” in subsection 95(1) of the Act, as enacted by subsection (9), and paragraphs 95(2)(w) and (x) of the Act, as enacted by subsection (16), apply in respect of taxation years, of a foreign affiliate of a taxpayer, that begin after 2008.

(27) The definition “controlled foreign affiliate” in subsection 95(1) of the Act, as enacted by subsection (1), applies to taxation years, of a foreign affiliate of a taxpayer, that begin after 1995, except that

(a) for taxation years, of a foreign affiliate of a taxpayer, that begin after 2002 and on or before February 27, 2004, the definition “controlled foreign affiliate” in subsection 95(1) of the Act, as enacted by subsection (1), is to be read as follows:

“controlled foreign affiliate”, at any time, of a taxpayer resident in Canada, means

(a) a foreign affiliate of the taxpayer that is, at that time, controlled

(i) by the taxpayer,

(ii) by the taxpayer and not more than four other persons resident in Canada, or

(iii) by not more than four persons resident in Canada, other than the taxpayer, or

(b) a foreign affiliate of the taxpayer that would, at that time, be controlled by the taxpayer if the taxpayer owned

(i) all of the shares of the capital stock of the foreign affiliate that are owned at that time by the taxpayer,

(ii) all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with the taxpayer,

(A) are resident in Canada,

(B) are not the taxpayer or a person described in subparagraph (ii), and

(iv) all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with any relevant Canadian shareholder;

(b) for taxation years, of a foreign affiliate of a taxpayer, that begin after 1995 and before 2003, the definition “controlled foreign affiliate” in subsection 95(1) of the Act, as enacted by subsection (1), is to be read as follows:

“controlled foreign affiliate”, at any time of a taxpayer resident in Canada, means a foreign affiliate of the taxpayer that

(a) is, at that time, controlled

(i) by the taxpayer,

(ii) by the taxpayer and not more than four other persons resident in Canada, or

(iii) by not more than four persons resident in Canada, other than the taxpayer, or

(b) would, at that time, be controlled by the taxpayer if the taxpayer owned

(i) each share of the capital stock of a corporation that is owned at that time by the taxpayer and each share of the capital stock of a corporation that is owned at that time by any of not more than four other persons resident in Canada,

(ii) each share of the capital stock of a corporation that is owned at that time by any of not more than four persons resident in Canada (other than the taxpayer), and

(iii) each share of the capital stock of a corporation that is owned at that time by the taxpayer and each share of the capital stock of a corporation that is owned at that time by any person with whom the taxpayer does not deal at arm’s length;

(28) Subject to subsection (46), subsections (2) and (14) apply to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002, except that paragraph 95(2)(i) of the Act, as enacted by subsection (14), shall, in respect of settlements and extinguishments of debt held by a foreign affiliate of the taxpayer that occur in those taxation years and before October 2, 2007, be read as follows:

(i) any gain or loss determined in accordance with subsection 39(2) of a foreign affiliate of a taxpayer is deemed to be a gain or loss, as the case may be, from the disposition of an excluded property if the gain or loss is

(i) derived from the settlement or extinguishment of a debt all or substantially all of the proceeds from which were used at all times to acquire excluded property or to earn income from an active business or for a combination of those uses, or

(ii) derived under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the affiliate to reduce its risk, with respect to a debt referred to in subparagraph (i), of fluctuations in the value of the currency in which the debt was denominated;

(29) Subsection (5) applies in respect of taxation years, of a foreign affiliate of a taxpayer, that end on or after December 20, 2002.

(30) Subject to subsection (46), subsections (7), (15), (18) and (20) to (23) apply to taxation years, of a foreign affiliate of a taxpayer, that begin after 1999.

(31) Subject to subsection (46), subsection (8) applies to taxation years, of a foreign affiliate of a taxpayer, that end after 1999.

(32) Subject to subsection (45), subsection (11) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002.

(33) The definition “entity” in subsection 95(1) of the Act, as enacted by subsection (9), applies in respect of taxation years, of a foreign affiliate of a taxpayer, that begin after 1994.

(34) The definitions “eligible trust”, “exempt trust”, “specified fixed interest” and “specified purchaser” in subsection 95(1) of the Act, as enacted by subsection (9), apply after February 27, 2004, except that, after February 27, 2004 and before October 2, 2007, the definition “specified purchaser” in subsection 95(1) of the Act, as enacted by subsection (9), shall be read as follows:

“specified purchaser”, at any time in respect of a particular taxpayer resident in Canada, means a person or partnership that is, at that time,

(a) the particular taxpayer;

(b) a taxpayer resident in Canada with which the particular taxpayer does not deal at arm’s length;

(d) a non-resident person with which a person described in any of paragraphs (a) to (c) does not deal at arm’s length;

(e) a trust (other than an exempt trust) in which a person or partnership described in any of paragraphs (a) to (d) and (f) is beneficially interested; and

(f) a partnership of which a person or partnership described in any of paragraphs (a) to (e) is a member.

(35) Subject to subsection (46), subsection (10) and paragraph 95(2)(z) of the Act, as enacted by subsection (16), apply to taxation years, of a foreign affiliate of a taxpayer, that end after 1999. However,

(a) subject to paragraph (b), paragraph 95(2)(a) of the Act, as enacted by subsection (10), shall, for taxation years, of a foreign affiliate of a taxpayer, that end after 1999 and begin before 2009, be read as follows:

(a) in computing the income or loss from an active business for a taxation year of a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the year or that is a controlled foreign affiliate of the taxpayer throughout the year, there shall be included any income or loss of the particular foreign affiliate for that year from sources in a country other than Canada that would otherwise be income or loss from property of the particular foreign affiliate for the year to the extent that

(i) the income or loss

(A) is derived by the particular foreign affiliate from activities that can reasonably be considered to be directly related to active business activities carried on in a country other than Canada by

(I) another corporation

1. that is a non-resident corporation to which the particular foreign affiliate and the taxpayer are related throughout the year, or

2. that is a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, or

(II) a life insurance corporation that is resident in Canada throughout the year and that is

1. the taxpayer,

2. a person who controls the taxpayer,

3. a person controlled by the taxpayer, or

4. a person controlled by a person who controls the taxpayer, and

(B) would be included in computing the amount prescribed to be the earnings or loss, from an active business carried on in a country other than Canada, of

(I) the non-resident corporation referred to in sub-subclause (A)(I)1 or the life insurance corporation referred to in subclause (A)(II), if that non-resident corporation or that life insurance corporation were a foreign affiliate of the taxpayer and the income were earned by it, or

(II) the foreign affiliate referred to in sub-subclause (A)(I)2, if the income were earned by it,

(A) by

(I) a non-resident corporation to which the particular foreign affiliate and the taxpayer are related throughout the year, or

(II) a partnership of which a non-resident corporation to which the particular foreign affiliate and the taxpayer are related throughout the year is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which that non-resident corporation was a member of the partnership

to the extent that those amounts that were paid or payable are for expenditures that would, if the non-resident corporation or the partnership were a foreign affiliate of the taxpayer, be deductible by it in computing the amounts prescribed to be its earnings or loss for a taxation year from an active business (other than an active business carried on in Canada),

(B) by

(I) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, or

(II) a partnership of which another foreign affiliate of the taxpayer — in respect of which other foreign affiliate the taxpayer has a qualifying interest throughout the year or to which other foreign affiliate the particular foreign affiliate and the taxpayer are related throughout the year — is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which that other foreign affiliate was a member of the partnership

to the extent that those amounts that were paid or payable are for expenditures that were deductible by the other foreign affiliate or would (if the partnership were a foreign affiliate of the taxpayer) be deductible by the partnership in computing the amounts prescribed to be its earnings or loss for a taxation year from an active business (other than an active business carried on in Canada),

(C) by a partnership of which the particular foreign affiliate is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which the particular foreign affiliate was a member of the partnership, to the extent that those amounts that were paid or payable were for expenditures that would, if the partnership were a foreign affiliate of the taxpayer, be deductible in computing the amounts prescribed to be its earnings or loss for a taxation year from an active business (other than an active business carried on in Canada),

(D) by another foreign affiliate (referred to in this clause as the “second affiliate”) of the taxpayer — in respect of which the taxpayer has a qualifying interest throughout the year or to which the particular foreign affiliate and the taxpayer are related throughout the year — to the extent that the amounts are paid or payable by the second affiliate, in respect of any particular period in the year,

(I) under a legal obligation to pay interest on borrowed money used for the purpose of earning income from property, or

(II) on an amount payable for property acquired for the purpose of gaining or producing income from property

where

(V) in respect of each of the second affiliate and the third affiliate for each relevant taxation year of that affiliate, either

1. that affiliate is subject to income taxation in that country in that relevant taxation year, or

(E) by a life insurance corporation that is resident in Canada and that is the taxpayer, a person who controls the taxpayer, a person controlled by the taxpayer or a person controlled by a person who controls the taxpayer, to the extent that those amounts that were paid or payable were for expenditures that are deductible by the life insurance corporation in computing its income or loss for a taxation year from carrying on its life insurance business outside Canada and are not deductible in computing its income or loss for a taxation year from carrying on its life insurance business in Canada,

(iii) the income or loss is derived by the particular foreign affiliate from the factoring of trade accounts receivable acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from a non-resident corporation to which the particular foreign affiliate and the taxpayer are related throughout the year to the extent that the accounts receivable arose in the course of an active business carried on in a country other than Canada by the non-resident corporation,

(iv) the income or loss is derived by the particular foreign affiliate from loans or lending assets acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from a non-resident corporation to which the particular foreign affiliate and the taxpayer are related throughout the year to the extent that the loans or lending assets arose in the course of an active business carried on in a country other than Canada by the non-resident corporation,

(v) the income or loss is derived by the particular foreign affiliate from the disposition of excluded property that is not capital property, or

(b) if a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act is assented to,

(i) subclauses 95(2)(a)(ii)(D)(III) to (V) of the Act, as enacted by subsection (10), as required to be read by paragraph (a), also apply to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000, except that the references in those subclauses, as those subclauses apply to those taxation years of a foreign affiliate of a taxpayer, to “particular foreign affiliate” shall be read as references to “particular affiliate”; and

(ii) where the taxpayer has not validly made the election provided by subsection (46), clauses 95(2)(a)(ii)(A) to (C) and (E) of the Act, as enacted by subsection (10), as required to be read by paragraph (a), also apply to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000, except that the references in those clauses 95(2)(a)(ii)(A) to (C), as those clauses apply to those taxation years of a foreign affiliate of a taxpayer, to “particular foreign affiliate” shall be read as references to “particular affiliate” and

(A) subclause (II) of that clause 95(2)(a)(ii)(A) shall be read as follows:

(II) a partnership of which a non-resident corporation to which the particular affiliate and the taxpayer are related throughout the year is a member and of which that non-resident corporation is not a specified member at any time in a fiscal period of the partnership that ends in the year

(B) subclause (II) of that clause 95(2)(a)(ii)(B) shall be read as follows:

(II) a partnership of which another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year is a member and of which that other foreign affiliate is not a specified member at any time in a fiscal period of the partnership that ends in the year

(C) by a partnership of which the particular affiliate is a member and of which the particular affiliate is not a specified member at any time in a fiscal period of the partnership that ends in the year, to the extent that those amounts that were paid or payable were for expenditures that would be, if the partnership were a foreign affiliate of the taxpayer, deductible in a taxation year in computing the amounts prescribed to its earnings or loss from an active business carried on by it outside Canada,

(36) Subsection (12) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002, except that, in applying paragraph 95(2)(b) of the Act, as enacted by subsection (12), to taxation years, of a foreign affiliate of the taxpayer, that begin after December 20, 2002 and before February 28, 2004, that paragraph shall be read as follows:

(b) the provision, by a foreign affiliate of a taxpayer, of services or of an undertaking to provide services is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, if

(i) the amount paid or payable in consideration for those services or for the undertaking to provide those services

(A) is deductible, or can reasonably be considered to relate to an amount that is deductible, in computing the income from a business carried on in Canada, by

(I) any taxpayer of whom the affiliate is a controlled foreign affiliate, or

(II) another person who is related to any taxpayer of whom the affiliate is a controlled foreign affiliate, or

(B) is deductible, or can reasonably be considered to relate to an amount that is deductible, in computing the foreign accrual property income of a controlled foreign affiliate of

(I) any taxpayer of whom the affiliate is a controlled foreign affiliate, or

(II) another person who is related to any taxpayer of whom the affiliate is a controlled foreign affiliate, or

(ii) the services are, or are to be, performed by

(A) any taxpayer of whom the affiliate is a controlled foreign affiliate and who is an individual resident in Canada, or

(B) another person who is related to any taxpayer of whom the affiliate is a controlled foreign affiliate and who is an individual resident in Canada;

(37) Subject to subsection (46), paragraphs 95(2)(g) to (g.03) of the Act, as enacted by subsection (13), apply to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002, except that, for taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002 and before 2009, paragraph 95(2)(g) of the Act, as enacted by subsection (13), shall be read as follows:

(g) income earned, a loss incurred or a capital gain or capital loss realized, as the case may be, in a taxation year by a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the taxation year or that is a controlled foreign affiliate of the taxpayer throughout the taxation year, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, is deemed to be nil if it is earned, incurred or realized in reference to any of the following sources:

(i) a debt obligation that was owing to

(A) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year or any other non-resident corporation to which the particular affiliate and the taxpayer are related throughout the year (which other foreign affiliate or other non-resident corporation is referred to in this paragraph as a “qualified foreign corporation”), or

(B) the particular affiliate by a qualified foreign corporation,

(ii) the redemption, cancellation or acquisition of a share of the capital stock of, or the reduction of the capital of, the particular affiliate or a qualified foreign corporation (which particular affiliate or which qualified foreign affiliate is referred to in this subparagraph as the “issuing corporation”) by the issuing corporation, or

(iii) the disposition to a qualified foreign corporation of a share of the capital stock of another qualified foreign corporation;

(38) Subject to subsection (46), paragraphs 95(2)(n) and (p), (r) to (t), (v) and (y) of the Act, as enacted by subsection (16), apply to taxation years, of a foreign affiliate of a taxpayer, that end after 1999. However, if a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act is assented to, paragraph 95(2)(n) of the Act, as enacted by subsection (16), applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994.

(39) Subject to subsection (46), paragraphs 95(2)(o) and (q) of the Act, as enacted by subsection (16), apply to taxation years that end after 1999.

(40) Paragraph 95(2)(u) of the Act, as enacted by subsection (16), applies in respect of taxation years, of foreign affiliates of a taxpayer, that end after 1999. However, if a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act is assented to, paragraph 95(2)(u) of the Act, as enacted by subsection (16), applies in respect of taxation years, of all foreign affiliates of the taxpayer, that begin after 1994.

(41) Subsection (17) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after February 27, 2004.

(42) Subsection 95(2.2) of the Act, as enacted by subsection (19), applies to taxation years, of a foreign affiliate of a taxpayer, that end after 1999. However,

(a) subsection 95(2.2) of the Act, as enacted by subsection (19), shall be read as follows for taxation years, of a foreign affiliate of a taxpayer, that end after 1999 and begin before 2009:

(2.2) For the purpose of subsection (2), other than paragraph (2)(f),

(a) a non-resident corporation that was not a foreign affiliate of a taxpayer in respect of which the taxpayer had a qualifying interest throughout a particular taxation year shall be deemed to be a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest throughout that year where

(i) a person or partnership has, in that year, acquired or disposed of shares of the capital stock of that non-resident corporation or any other corporation and, because of that acquisition or disposition, that non-resident corporation became or ceased to be a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest, and

(ii) at the beginning of that year or at the end of that year, the non-resident corporation was a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest; and

(b) a non-resident corporation that was not related to a taxpayer or to a taxpayer and a foreign affiliate of the taxpayer, as the case may be, throughout a particular taxation year is deemed to be related to the taxpayer or to the taxpayer and the foreign affiliate of the taxpayer throughout that year if

(i) a person or partnership has, in that year, acquired or disposed of shares of the capital stock of the non-resident corporation or any other corporation and, because of that acquisition or disposition, the non-resident corporation became (or would have become, if paragraph 251(5)(b) did not apply to rights contained in the agreement under which the person acquired the shares), or ceased to be, a non-resident corporation that was related to the taxpayer or to the taxpayer and the foreign affiliate of the taxpayer, and

(ii) at the beginning, or at the end, of that year, the non-resident corporation was related to the taxpayer or to the taxpayer and the foreign affiliate of the taxpayer.

(b) if a taxpayer 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 that includes the day on which this Act is assented to, subsection 95(2.2) of the Act, as enacted by subsection (19), also applies to taxation years, of all its foreign affiliates, that begin after 1994 and end before 2000, as though subsection 95(2.2) of the Act, as enacted by subsection (19), read as follows:

(2.2) For the purpose of subsection (2), other than paragraph (2)(f),

(a) a non-resident corporation that was not a foreign affiliate of a taxpayer in respect of which the taxpayer had a qualifying interest throughout a particular taxation year shall be deemed to be a foreign affiliate of a taxpayer in respect of which the taxpayer had a qualifying interest throughout that year where

(i) a person has, in that year, acquired or disposed of shares of the capital stock of that non-resident corporation or any other corporation and, because of that acquisition or disposition, that non-resident corporation became or ceased to be a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest, and

(ii) at the beginning of that year or at the end of that year, the non-resident corporation was a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest; and

(i) a person has, in that year, acquired or disposed of shares of the capital stock of the non-resident corporation or any other corporation and, because of that acquisition or disposition, the non-resident corporation became (or would have become, if paragraph 251(5)(b) did not apply to rights contained in the agreement under which the person acquired the shares), or ceased to be, a non-resident corporation that was related to the taxpayer or to the taxpayer and the foreign affiliate of the taxpayer, and

(ii) at the beginning, or at the end, of that year, the non-resident corporation was related to the taxpayer or to the taxpayer and the foreign affiliate of the taxpayer.

(43) Subsection 95(2.21) of the Act, as enacted by subsection (19), applies to taxation years, of a foreign affiliate of a taxpayer, that end after 1999. However,

(a) for taxation years, of a foreign affiliate of a taxpayer, that end after 1999 and begin before 2009, subsection 95(2.21) of the Act, as enacted by subsection (19), is to be read as follows:

(2.21) Subsection (2.2) does not apply for the purpose of paragraph (2)(a) in respect of any income or loss referred to in that paragraph, of a particular foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the taxation year of the particular affiliate or to which the taxpayer is related throughout the taxation year, to the extent that that income or loss can reasonably be considered to have been realized or to have accrued

(a) before the earlier of

(i) the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest or to which the taxpayer is related, and

(ii) the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of another person resident in Canada in respect of which the other person resident in Canada had a qualifying interest or to which the other person resident in Canada is related, where

(A) the taxpayer is a corporation,

(B) the taxpayer did not exist at the beginning of the taxation year,

(C) the particular affiliate became a foreign affiliate of the taxpayer in the taxation year because of a disposition, in the taxation year, of shares of the capital stock of the particular affiliate to the taxpayer by the other person resident in Canada, and

(D) the other person resident in Canada was, immediately before that disposition, related to the taxpayer; or

(b) before the earlier of

(i) the time at which a non-resident corporation (other than the particular affiliate), or a foreign affiliate of the taxpayer (other than the particular affiliate), referred to in paragraph (2.2)(a) became, as determined without reference to subsection (2.2),

(A) a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest, or

(B) related to the taxpayer and to the particular affiliate, and

(ii) the time at which a non-resident corporation (other than the particular affiliate), or a foreign affiliate of the taxpayer (other than the particular affiliate), referred to in paragraph (2.2)(a) became, as determined without reference to subsection (2.2), a foreign affiliate, of another person resident in Canada, in respect of which the other person resident in Canada had a qualifying interest (or became, as determined without reference to subsection (2.2), related to the other person resident in Canada and to the particular affiliate), where

(A) the taxpayer is a corporation,

(B) the taxpayer did not exist at the beginning of the taxation year,

(D) the other person resident in Canada was, immediately before that disposition, related to the taxpayer.

(b) if a taxpayer makes a valid election under paragraph (42)(b) in respect of all its foreign affiliates, subsection 95(2.21) of the Act, as enacted by subsection (19), being read in the manner described in paragraph (a), also applies to taxation years, of all its foreign affiliates, that begin after 1994 and end before 2000.

(44) Subject to subsection (46), subsection (24) applies to the 2001 and subsequent taxation years of a foreign affiliate of a taxpayer. However, if a taxpayer 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 that includes the day on which this Act is assented to, that subsection applies to taxation years, of all its foreign affiliates, that begin after 1994.

(45) Subsection (25) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002. However, if a taxpayer 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 that includes the day on which this Act is assented to, subsections (11) and (25) apply to taxation years, of all its foreign affiliates, that begin after 1994.

(46) If a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act is assented to,

(a) paragraphs (a), (c) and (c.1) of the definition “excluded property” in subsection 95(1) of the Act, as enacted by subsection (2), subsection (8), paragraphs 95(2)(g.01) and (g.02) of the Act, as enacted by subsection (13), paragraph 95(2)(i) of the Act, as enacted by subsection (14), paragraphs 95(2)(o) to (t) and (z) of the Act, as enacted by subsection (16), subsections (18) and (22) and paragraph 95(3)(d) of the Act, as enacted by subsection (24), apply to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994;

(b) subparagraph 95(2)(a)(i) of the Act, as enacted by subsection (10), read in the manner described in paragraph (35)(a) but read without reference to sub-subclause 95(2)(a)(i)(A)(I)2 of the Act, subclause 95(2)(a)(i)(B)(II) of the Act and the word “or” at the end of subclause 95(2)(a)(i)(B)(I) of the Act, also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000;

(c) clauses 95(2)(a)(ii)(A) to (C) and (E) of the Act and subparagraphs 95(2)(a)(v) and (vi) of the Act, all as enacted by subsection (10), read in the manner described in paragraph (35)(a), also apply to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000, except that the references to “income or loss” in that subparagraph 95(2)(a)(v) and that portion of subparagraph 95(2)(a)(vi) before clause (A) of that subparagraph 95(2)(a)(vi), as those subparagraphs apply to those taxation years of a foreign affiliate of the taxpayer, shall be replaced by a reference to “income”;

(d) paragraph 95(2)(g) of the Act, as enacted by subsection (13), being read in the manner described in subsection (37), also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and before December 21, 2002; and

(e) paragraph 95(2)(i) of the Act, as enacted by subsection (14), as required by subsection (28) to be read, in respect of settlements and extinguishments of debt held by a foreign affiliate of the taxpayer that occur before October 2, 2007 in taxation years, of the foreign affiliate of the taxpayer, that begin after December 20, 2002, also applies in respect of settlements and extinguishments of debt held by a foreign affiliate of the taxpayer that occur in taxation years, of the foreign affiliate of the taxpayer, that begin after 1994 and before December 21, 2002.

(47) If a taxpayer has made what would, but for this subsection, be a valid election under subsection (46) and the taxpayer has, on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day that is the third anniversary of the day on which this Act is assented to, filed with the Minister of National Revenue a notice in writing to revoke the election, the election is deemed, otherwise than for the purpose of this subsection, never to have been made.

(48) Notwithstanding subsections 152(4) to (5) of the Act, any assessment of a taxpayer’s tax, interest and penalties payable under the Act for any taxation year shall be made that is necessary to take an election referred to in any of subsections (35), (38), (40), (42) and (44) to (46), or a revocation referred to in subsection (47), into account.

27. (1) Section 104 of the Act is amended by adding the following after subsection (21.2):

Beneficiaries’ taxable capital gain — QFP taxable capital gain

(21.21) If clause (21.2)(b)(ii)(A) applies to deem, for the purpose of section 110.6, the beneficiary to have a taxable capital gain (referred to in this subsection as the “QFP taxable capital gain”) from a disposition of capital property that is qualified farm property of the beneficiary, for the beneficiary’s taxation year that includes March 19, 2007 and in which the designation year of the trust ends, for the purpose of subsection 110.6(2.3), the beneficiary is, where the trust complies with the requirements of subsection (21.24), deemed to have a taxable capital gain from the disposition of qualified farm property of the beneficiary on or after March 19, 2007 equal to the amount determined by the formula

A × B/C

where

A is the amount of the QFP taxable capital gain;

B is, where the designation year of the trust includes March 19, 2007, the amount that would be determined in respect of the trust for the designation year under paragraph 3(b) in respect of capital gains and capital losses if the only properties referred to in paragraph 3(b) were qualified farm property of the trust that were disposed of by the trust on or after March 19, 2007; and

C is, where the designation year of the trust includes March 19, 2007, the amount that would be determined in respect of the trust for the designation year under paragraph 3(b) in respect of capital gains and capital losses if the only properties referred to in paragraph 3(b) were qualified farm property.

Beneficiaries’ taxable capital gain — QSBC taxable capital gain

(21.22) If clause (21.2)(b)(ii)(B) applies to deem, for the purpose of section 110.6, the beneficiary to have a taxable capital gain (referred to in this subsection as the “QSBC taxable capital gain”) from a disposition of capital property that is a qualified small business corporation share of the beneficiary, for the beneficiary’s taxation year in which the designation year of the trust ends, for the purpose of subsection 110.6(2.3), the beneficiary, where the trust complies with requirements of subsection (21.24), is deemed to have a taxable capital gain from the disposition of a qualified small business corporation share of the beneficiary on or after March 19, 2007 equal to the amount determined by the formula

A × B/C

where

A is the amount of the QSBC taxable capital gain;

B is, where the designation year of the trust includes March 19, 2007, the amount that would be determined in respect of the trust for the designation year under paragraph 3(b) in respect of capital gains and capital losses if the only properties referred to in paragraph 3(b) were qualified small business corporation shares of the trust that were disposed of by the trust on or after March 19, 2007; and

Beneficiaries’ taxable capital gain — QFFP taxable capital gain

(21.23) If clause (21.2)(b)(ii)(C) applies to deem, for the purpose of section 110.6, the beneficiary to have a taxable capital gain (referred to in this subsection as the “QFFP taxable capital gain”), from a disposition of capital property that is qualified fishing property of the beneficiary, for the beneficiary’s taxation year in which the designation year of the trust ends, for the purpose of subsection 110.6(2.3), the beneficiary, where the trust complies with requirements of subsection (21.24), is deemed to have a taxable capital gain from the disposition of qualified fishing property on or after March 19, 2007 equal to the amount determined by the formula

A × B/C

where

A is the amount of the QFFP taxable capital gain;

B is, where the designation year of the trust includes March 19, 2007, the amount that would be determined in respect of the trust for the designation year under paragraph 3(b) in respect of capital gains and capital losses if the only properties referred to in paragraph 3(b) were qualified fishing property that were disposed of by the trust on or after March 19, 2007; and

Trusts to designate amounts

(21.24) A trust shall determine and designate, in its return of income under this part for a designation year of the trust, the following amounts in respect of a beneficiary:

(a) the amount that is, under subsection (21.21), determined to be the beneficiary’s taxable capital gain from the disposition, on or after March 19, 2007, of qualified farm property of the beneficiary,

(b) the amount that is, under subsection (21.22), determined to be the beneficiary’s taxable capital gain from the disposition, on or after March 19, 2007, of qualified small business corporation share of the beneficiary, and

(c) the amount that is, under subsection (21.23), determined to be the beneficiary’s taxable capital gain from the disposition, on or after March 19, 2007, of qualified fishing property of the beneficiary.

(2) Subsection (1) applies to taxation years of trusts that end on or after March 19, 2007.

28. (1) Subparagraph 108(2)(b)(vi) of the Act is replaced by the following:

(vi) where the trust would not be a unit trust at the particular time if this paragraph were read without reference to this subparagraph and subparagraph (iii) were read without reference to clause (F), the units of the trust are listed at any time in the current year or in the following taxation year on a designated stock exchange in Canada, or

(2) Subsection (1) applies on and after the day on which this Act is assented to.

29. (1) The portion of paragraph 110(1)(d.01) of the Act before subparagraph (i) is replaced by the following:

(d.01) subject to subsection (2.1), if the taxpayer disposes of a security acquired in the year by the taxpayer under an agreement referred to in subsection 7(1) by making a gift of the security to a qualified donee, an amount in respect of the disposition of the security equal to 1/2 of the lesser of the benefit deemed by paragraph 7(1)(a) to have been received by the taxpayer in the year in respect of the acquisition of the security and the amount that would have been that benefit had the value of the security at the time of its acquisition by the taxpayer been equal to the value of the security at the time of the disposition, if

(2) Subsection (1) applies in respect of gifts made on or after March 19, 2007.

30. (1) Subsection 110.1(1) of the Act is amended by adding the following after paragraph (a):

Gifts of medicine

(a.1) the total of all amounts in respect of property that is the subject of an eligible medical gift made by the corporation in the taxation year or in any of the five preceding taxation years, each of which is the lesser of

(i) the cost to the corporation of the property, and

(ii) 50% of the amount, if any, by which the corporation’s proceeds of disposition of the property in respect of the gift exceeds the cost to the corporation of the property.

(2) Section 110.1 of the Act is amended by adding the following after subsection (7):

Eligible medical gift

(8) For the purpose of paragraph (1)(a.1), a gift referred to in paragraph (1)(a) is an eligible medical gift of a corporation if

(a) the corporation has directed the donee to apply the gift to charitable activities outside of Canada;

(b) in the case of a gift made on or before October 2, 2007, the property that is the subject of the gift is medicine;

(c) in the case of a gift made after October 2, 2007, the property that is the subject of the gift is a medicine that qualifies as a drug, within the meaning of the Food and Drugs Act, and the drug

(i) meets the requirements of that Act, or would meet those requirements if that Act were read without reference to its subsection 37(1), and

(ii) is not a food, cosmetic or device (as those terms are defined in that Act), a natural health product (as defined in the Natural Health Products Regulations) or a veterinary drug;

(d) the property was, immediately before the making of the gift, described in an inventory in respect of a business of the corporation; and

(e) the donee is a registered charity that has received a disbursement under a program of the Canadian International Development Agency.

(3) Subsections (1) and (2) apply in respect of gifts of property made after March 18, 2007.

31. (1) The formula in paragraph 110.6(2)(a) of the Act is replaced by the following:

[$375,000 - (A + B + C + D)] × E

(2) Section 110.6 of the Act is amended by adding the following after subsection (2.2):

Additional capital gains deduction — taxation year that includes March 19, 2007

(2.3) In computing the taxable income of an individual (other than a trust) for the individ-ual’s taxation year that includes March 19, 2007 (referred to in this subsection as the “transition year”), there may be deducted, where that individual was resident in Canada throughout the transition year and that individual disposed of in the transition year, and on or after March 19, 2007, a qualified small business corporation share of the individual, a qualified farm property of the individual, or a qualified fishing property of the individual, such amount as the individual may claim not exceeding the least of

(a) $125,000,

(b) the amount, if any, by which the individual’s cumulative gains limit at the end of the transition year exceeds the total of all amounts each of which is an amount deducted by the individual under subsection (2), (2.1) or (2.2) in computing the individ-ual’s taxable income for the transition year,

(c) the amount, if any, by which the individual’s annual gains limit for the transition year exceeds the total of all amounts each of which is an amount deducted by the individual under subsection (2), (2.1) or (2.2) in computing the individual’s taxable income for the transition year, and

(d) the amount that would be determined in respect of the individual for the transition year under paragraph 3(b) in respect of capital gains and capital losses if the only properties referred to in that paragraph were qualified small business corporation shares of the individual, qualified farm properties of the individual, and qualified fishing properties of the individual, disposed of by the individual on or after March 19, 2007.

(3) Subsection 110.6(4) of the Act is replaced by the following:

Maximum capital gains deduction

(4) Notwithstanding subsections (2), (2.1) and (2.2), the total amount that may be deducted under this section in computing an individual’s income for a taxation year shall not exceed the total of the amount determined by the formula in paragraph 2(a) and the amount that may be deducted under subsection (2.3), in respect of the individual for the year.

(4) The portion of subsection 110.6(5) of the Act before paragraph (a) is replaced by the following:

Deemed resident in Canada

(5) For the purposes of subsections (2) to (2.3), an individual is deemed to have been resident in Canada throughout a particular taxation year if

(5) The portion of subsection 110.6(6) of the Act before paragraph (a) is replaced by the following:

Failure to report capital gain

(6) Notwithstanding subsections (2) to (2.3), no amount may be deducted under this section in respect of a capital gain of an individual for a particular taxation year in computing the individual’s taxable income for the particular taxation year, if

(6) The portion of subsection 110.6(7) of the Act before paragraph (b) is replaced by the following:

Deduction not permitted

(7) Notwithstanding subsections (2) to (2.3), no amount may be deducted under this section in computing an individual’s taxable income for a taxation year in respect of a capital gain of the individual for the taxation year if the capital gain is from a disposition of property which disposition is part of a series of transactions or events

(a) that includes a dividend received by a corporation to which dividend subsection 55(2) does not apply but would apply if this Act were read without reference to paragraph 55(3)(b); or

(7) Subsection 110.6(8) of the Act is replaced by the following:

Deduction not permitted

(8) Notwithstanding subsections (2) to (2.3), where an individual has a capital gain for a taxation year from the disposition of a property and it can reasonably be concluded, having regard to all the circumstances, that a significant part of the capital gain is attributable to the fact that dividends were not paid on a share (other than a prescribed share) or that dividends paid on such a share in the taxation year or in any preceding taxation year were less than 90% of the average annual rate of return on that share for that year, no amount in respect of that capital gain shall be deducted under this section in computing the individual’s taxable income for the year.

(8) Section 110.6 of the Act is amended by adding the following after subsection (30):

Conditions for the application of subsection (32)

(31) Subsection (32) applies to an individual for a taxation year that begins after March 19, 2007 if

(a) in the taxation year the individual has a taxable capital gain from the disposition, before March 19, 2007, of a qualified small business corporation share of the individual, a qualified farm property of the individual or a qualified fishing property of the individual; and

(b) the total of all amounts each of which is an amount of a taxable capital gain of the individual described in paragraph (a) exceeds the amount that would be determined under paragraph (2)(a) in respect of the individual for the taxation year were the reference to “$375,000” in that paragraph read as a reference to “$250,000” (the amount of which excess is referred to in subsection (32) as the “denied excess”).

Deduction denied

(32) Notwithstanding subsections (2) to (2.3), if this subsection applies to an individual for a taxation year, no amount may be deducted under this section for the taxation year by the individual in respect of the individual’s taxable capital gains for the year described in paragraph (31)(a) to the extent of the denied excess.

(9) Subsection (1) applies to taxation years that begin after March 19, 2007.

(10) Subsections (2) to (5), (7) and (8) apply to taxation years that end on or after March 19, 2007.

(11) Subsection (6) applies to taxation years that end after May 1, 2006, except that for taxation years that end before March 19, 2007, the portion of subsection 110.6(7) of the Act before paragraph (a), as amended by subsection (5), shall be read as follows:

(7) Notwithstanding subsections (2) to (2.2), no amount may be deducted under this section in computing an individual’s taxable income for a taxation year in respect of a capital gain of the individual for the taxation year, if the capital gain is from a disposition of property which disposition is part of a series of transactions or events

32. Section 115 of the Act is amended by adding the following after subsection (2.2):

Non-resident persons — 2010 Olympic and Paralympic Winter Games

(2.3) Notwithstanding subsection (1), no amount is to be included in computing the taxable income earned in Canada for any taxation year of a non-resident person, in respect of any amount paid or payable to that person in respect of activities performed in Canada by that person in connection with the 2010 Olympic Winter Games or the 2010 Paralympic Winter Games, after 2009 and before April 2010, if that person is

(a) an athlete who represents a country other than Canada;

(b) a member of an officially registered support staff associated with a team from a country other than Canada;

(d) the International Olympic Committee;

(e) the International Paralympic Committee;

(f) an international sports federation that is a member of the General Association of International Sports Federations;

(g) an accredited foreign media organization; or

(h) an individual, other than a trust, who is an employee, an officer or a member of a person described in any one or more of paragraphs (a) to (g), or who provides services under contract with one or more persons described in those paragraphs.

33. (1) Paragraph 116(6)(b) of the Act is amended by replacing “prescribed stock exchange” with “recognized stock exchange”.

(2) Subsection (1) applies on and after the day on which this Act is assented to.

34. (1) Section 117 of the Act is amended by adding the following after subsection 117(2):

Tax payable — WITB advance payment

(2.1) The tax payable under this Part on the individual’s taxable income for a taxation year, as computed under subsection (2), is deemed to be the total of the amount otherwise computed under that subsection and, except for the purposes of sections 118 to 118.9, 120.2, 121, 122.3 and subdivision c, the total of all amounts received by the individual in respect of the taxation year under subsection 122.7(7).

(2) Subsection (1) applies to the 2008 and subsequent taxation years.

35. (1) The portion of subsection 117.1(1) of the Act before paragraph (a) is replaced by the following:

Annual adjustment

117.1 (1) The amount of $1,000 referred to in the formula in paragraph 8(1)(s), each of the amounts expressed in dollars in subparagraph 6(1)(b)(v.1), subsection 117(2), the description of B in subsection 118(1), subsection 118(2), paragraph (a) of the description of B in subsection 118(10), subsection 118.01(2), the descriptions of C and F in subsection 118.2(1), subsections 118.3(1), 122.5(3) and 122.51(1) and (2), the amounts of $500 and $1,000 referred to in the description of A, and the amounts of $9,500 and $14,500 referred to in the description of B, in the formula in subsection 122.7(2), the amount of $250 referred to in the description of C, and the amounts of $12,833 and $21,167 referred to in the description of D, in the formula in subsection 122.7(3), and each of the amounts expressed in dollars in Part I.2 in relation to tax payable under this Part or Part I.2 for a taxation year shall be adjusted so that the amount to be used under those provisions for the year is the total of

(2) Subsection (1) applies to the 2008 and subsequent taxation years.

36. (1) Subparagraph (b.1)(ii) of the description of B in subsection 118(1) of the Act is replaced by the following:

(ii) except where subparagraph (i) applies, the individual may deduct an amount under paragraph (b) in respect of the individual’s child who is under the age of 18 years at the end of the taxation year, or could deduct such an amount in respect of that child if paragraph 118(4)(a) did not apply to the individual for the taxation year and if the child had no income for the year, $2,000 for each such child.

(2) Section 118 of the Act is amended by adding the following after subsection (5):

Where subsection (5) does not apply

(5.1) Where, if this Act were read without reference to this subsection, solely because of the application of subsection (5), no individual is entitled to a deduction under paragraph (b) or (b.1) of the description of B in subsection (1) for a taxation year in respect of a child, subsection (5) shall not apply in respect of that child for that taxation year.

(3) Subsections (1) and (2) apply to the 2007 and subsequent taxation years.

37. (1) Paragraph (b) of the definition “eligible public transit pass” in subsection 118.02(1) of the Act is replaced by the following:

(b) identifying the right of an individual who is the holder or owner of the document to use public commuter transit services of that qualified Canadian transit organization

(i) on an unlimited number of occasions and on any day on which the public commuter transit services are offered during an uninterrupted period of at least 28 days, or

(ii) on an unlimited number of occasions during an uninterrupted period of at least five consecutive days, if the combination of that document and one or more other such documents gives the right to the individual to use those public commuter transit services on at least 20 days in a 28-day period.

(2) Subsection 118.02(1) of the Act is amended by adding the following in alphabetical order:

“eligible electronic payment card”
« carte de paiement électronique admissible »

“eligible electronic payment card” means an electronic payment card that is

(a) used by an individual for at least 32 one-way trips, between the place of origin of the trip and its termination, during an uninterrupted period not exceeding 31 days, and

(b) issued by or on behalf of a qualified Canadian transit organization, which organization records and receipts the cost and usage of the electronic payment card and identifies the right, of the individual who is the holder or owner of such a card, to use public commuter transit services of that qualified Canadian transit organization.

(3) The description of C in subsection 118.02(2) of the Act is replaced by the following:

C is the total of all amounts each of which is the portion of the cost of an eligible public transit pass or of an eligible electronic payment card, attributable to the use of public commuter transit services in the taxation year by the individual or by a person who is in the taxation year a qualifying relation of the individual, and

(4) Subsection 118.02(3) of the Act is replaced by the following:

Apportionment of credit

(3) If more than one individual is entitled to a deduction under this section for a taxation year in respect of an eligible public transit pass or of an eligible electronic payment card, the total of all amounts so deductible shall not exceed the maximum amount that would be so deductible for the year by any one of those individuals for that eligible public transit pass or eligible electronic payment card if that individual were the only individual entitled to deduct an amount for the year under this section, and if the individuals cannot agree as to what portion of the amount each can so deduct, the Minister may fix the portions.

(5) Subsections (1) to (4) apply to the 2007 and subsequent taxation years.

38. (1) The definitions “qualifying child” and “qualifying entity” in subsection 118.03(1) of the Act are replaced by the following:

“qualifying child”
« enfant admissible »

“qualifying child” of an individual for a taxation year means a child of the individual who is, at the beginning of the taxation year,

(a) under 16 years of age; or

(b) in the case where an amount is deductible under section 118.3 in computing any person’s tax payable under this Part for the taxation year in respect of that child, under 18 years of age.

“qualifying entity”
« entité admissible »

“qualifying entity” means a person or partnership that offers one or more prescribed programs of physical activity.

(2) The portion of the definition “eligible fitness expense” in subsection 118.03(1) of the Act before paragraph (a) is replaced by the following:

“eligible fitness expense”
« dépense admissible pour activités physiques »

“eligible fitness expense” in respect of a qualifying child of an individual for a taxation year means the amount of a fee paid to a qualifying entity (other than an amount paid to a person that is, at the time the amount is paid, the individual’s spouse or common-law partner or another individual who is under 18 years of age) to the extent that the fee is attributable to the cost of registration or membership of the qualifying child in a prescribed program of physical activity and, for the purposes of this section, that cost

(3) Section 118.03 of the Act is amended by adding the following after subsection (2):

Child fitness tax credit — child with disability

(2.1) For the purpose of computing the tax payable under this Part by an individual for a taxation year there may be deducted in respect of a qualifying child of the individual an amount equal to $500 multiplied by the appropriate percentage for the taxation year if

(a) the amount referred to in the description of B in subsection (2) is $100 or more; and

(b) an amount is deductible in respect of the qualifying child under section 118.3 in computing any person’s tax payable under this Part for the taxation year.

(4) Subsections (1) to (3) apply to the 2007 and subsequent taxation years.

39. (1) Section 118.1 of the Act is amended by adding the following after subsection (14):

Exchange of beneficial interest in trust

(14.1) Where a donee disposes of a beneficial interest in a trust that is a non-qualifying security of an individual in circumstances where paragraph (13)(c) would, but for this subsection, apply in respect of the disposition, and in respect of which the donee receives no consideration other than other non-qualifying securities of the individual, for the purpose of subsection (13) the gift referred to in that subsection is to be read as a reference to a gift of those other non-qualifying securities.

(2) Subparagraph 118.1(16)(c)(ii) of the Act is replaced by the following:

(ii) the individual or any person or partnership with which the individual does not deal at arm’s length uses property of the donee under an agreement that was made or modified after the time that is 60 months before the particular time, and the property was not used in the carrying on of the donee’s charitable activities,

(3) Paragraphs 118.1(18)(b) and (c) of the Act are replaced by the following:

(b) a share (other than a share listed on a designated stock exchange) of the capital stock of a corporation with which the individual or the estate or, where the individual is a trust, a person affiliated with the trust, does not deal at arm’s length immediately after that time;

(b.1) a beneficial interest of the individual or the estate in a trust that

(i) immediately after that time is affiliated with the individual or the estate, or

(ii) holds, immediately after that time, a non-qualifying security of the individual or estate, or held, at or before that time, a share described in paragraph (b) that is, after that time, held by the donee; or

(c) any other security (other than a security listed on a designated stock exchange) issued by the individual or the estate or by any person or partnership with which the individ-ual or the estate does not deal at arm’s length (or, in the case where the person is a trust, with which the individual or estate is affiliated) immediately after that time.

(4) Subsections (1) to (3) apply in respect of gifts made on or after March 19, 2007, except that in applying subsection 118.1(18) of the Act, as amended by subsection (3), before the day on which this Act is assented to, the references to “designated stock exchange” in that subsection 118.1(18) shall be read as references to “prescribed stock exchange”.

40. (1) Clause (a)(ii)(A) of the definition “tax otherwise payable under this Part” in subsection 120(4) of the Act is replaced by the following:

(A) subsection 117(2.1), section 119, subsection 120.4(2) and sections 126, 127, 127.4 and 127.41, and

(2) Subsection (1) applies to the 2008 and subsequent taxation years.

41. (1) Paragraph (d) of the definition “real estate investment trust” in subsection 122.1(1) of the Act is replaced by the following:

(d) at no time in the taxation year is the total fair market value of all properties held by the trust, each of which is a real or immovable property situated in Canada, cash, or a property described in paragraph (a) of the definition “fully exempt interest” in subsection 212(3), less than 75% of the equity value of the trust at that time.

(2) Subsection (1) applies after 2007.

42. (1) The Act is amended by adding the following after section 122.64:

Subdivision a.2