Her Excellency the Governor General recommends to the House of Commons the appropriation of public revenue under the circumstances, in the manner and for the purposes set out in a measure entitled “An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023”.

Part 1 implements certain measures in respect of the Income Tax Act and the Income Tax Regulations by

It also makes related and consequential amendments to the Excise Tax Act and the Excise Act, 2001.

Part 2 enacts the Digital Services Tax Act and its regulations. That Act provides for the implementation of an annual tax of 3% on certain types of digital services revenue earned by businesses that meet certain revenue thresholds. It sets out rules for the purposes of establishing liability for the tax and also sets out applicable reporting and filing requirements. To promote compliance with its provisions, that Act includes modern administration and enforcement provisions generally aligned with those found in other taxation statutes. Finally, this Part also makes related and consequential amendments to other texts to ensure proper implementation of the tax and cohesive and efficient administration by the Canada Revenue Agency.

Part 3 implements certain Goods and Services Tax/Harmonized Sales Tax (GST/HST) measures by

Part 4 implements certain excise measures by

Part 5 enacts and amends several Acts in order to implement various measures.

Subdivision A of Division 1 of Part 5 amends Subdivision A of Division 16 of Part 6 of the Budget Implementation Act, 2018, No. 1 to clarify the scope of certain non-financial activities in which federal ‚financial institutions may engage and to remove certain discrepancies between the English and French versions of that Act.

Subdivision B of Division 1 of Part 5 amends the Trust and Loan Companies Act, the Bank Act and the Insurance Companies Act to, among other things, permit federal financial institutions governed by those Acts to hold certain meetings by virtual means without having to obtain a court order and to permit voting during those meetings by virtual means.

Division 2 of Part 5 amends the Canada Labour Code to, among other things, provide a leave of absence of three days in the event of a pregnancy loss and modify certain provisions related to bereavement leave.

Division 3 of Part 5 enacts the Canada Water Agency Act. That Act establishes the Canada Water Agency, whose role is to assist the Minister of the Environment in exercising or performing that Minister’s powers, duties and functions in relation to fresh water. The Division also makes consequential amendments to other Acts.

Division 4 of Part 5 amends the Tobacco and Vaping Products Act to, among other things,

(a) authorize the making of regulations respecting fees or charges to be paid by tobacco and vaping product manufacturers for the purpose of recovering the costs incurred by His Majesty in right of Canada in relation to the carrying out of the purpose of that Act;

(b) provide for related administration and enforcement measures; and

(c) require information relating to the fees or charges to be made available to the public.

Division 5 of Part 5 amends the Canadian Payments Act to, among other things, provide that additional persons are entitled to be members of the Canadian Payments Association and clarify the composition of that Association’s Stakeholder Advisory Council.

Division 6 of Part 5 amends the Competition Act to, among other things,

The Division also amends the Competition Tribunal Act to prevent the Competition Tribunal from awarding costs against His Majesty in right of Canada, except in specified circumstances.

Finally, the Division makes a consequential amendment to one other Act.

Division 7 of Part 5 amends the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act to exclude from their application prescribed public post-secondary educational institutions.

Subdivision A of Division 8 of Part 5 amends the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to, among other things,

It also amends the Budget Implementation Act, 2023, No. 1 in relation to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and makes consequential amendments to other Acts and a regulation.

Subdivision B of Division 8 of Part 5 amends the Criminal Code to, among other things,

It also makes consequential amendments to the Seized Property Management Act and the Forfeited Property Sharing Regulations.

Division 9 of Part 5 retroactively amends section 42 of the Federal-Provincial Fiscal Arrangements Act to specify the payments about which information must be published on a Government of Canada website, as well as the information that must be published.

Division 10 of Part 5 amends the Public Sector Pension Investment Board Act to increase the number of directors in the Public Sector Pension Investment Board, as well as to provide for consultation with the portion of the National Joint Council of the Public Service of Canada that represents employees when certain candidates are included on the list for proposed appointment as directors.

Division 11 of Part 5 enacts the Department of Housing, Infrastructure and Communities Act, which establishes the Department of Housing, Infrastructure and Communities, confers on the Minister of Infrastructure and Communities various responsibilities relating to public infrastructure and confers on the Minister of Housing various responsibilities relating to housing and the reduction and prevention of homelessness. The Division also makes consequential amendments to other Acts and repeals the Canada Strategic Infrastructure Fund Act.

Division 12 of Part 5 amends the Employment Insurance Act to, among other things, create a benefit of 15 weeks for claimants who are carrying out responsibilities related to

(a) the placement with the claimant of one or more children for the purpose of adoption; or

(b) the arrival of one or more new-born children of the claimant into the claimant’s care, in the case where the person who will be giving or gave birth to the child or children is not, or is not intended to be, a parent of the child or children.

The Division also amends the Canada Labour Code to create a leave of absence of up to 16 weeks for an employee to carry out such responsibilities.

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

• Partnership — interest and financing expenses add back

  (l.‍2) the amount determined by the formula

  A × B

  where

  A

  is the total of all amounts each of which is an amount determined under paragraph (h) of the description of A in the definition interest and financing expenses in subsection 18.‍2(1) in respect of the taxpayer for the taxation year, and

  B

  is

  (i) if the taxpayer is an excluded entity for the year (as defined in subsection 18.‍2(1)), nil, and

  (ii) in any other case, the proportion determined under the first formula in subsection 18.‍2(2) in respect of the taxpayer for the year;

• Retirement compensation arrangement

  (n.‍3) the total of all amounts received by the taxpayer in the year in the course of a business out of or under a retirement compensation arrangement (including amounts received in respect of the arrangement under subsection 207.‍71(3)) to which the taxpayer, another person who carried on a business that was acquired by the taxpayer, or any person with whom the taxpayer or that other person does not deal at arm’s length, has contributed an amount that was deductible under paragraph 20(1)‍(r) in computing the contributor’s income for a taxation year;

• Investment tax credit

  (t) the amount deducted under subsection 127(5) or (6) or 127.‍44(3) in respect of a property acquired or an expenditure made in a preceding taxation year in computing the taxpayer’s tax payable for a preceding taxation year to the extent that it was not included in computing the taxpayer’s income for a preceding taxation year under this paragraph or is not included in an amount determined under paragraph 13(7.‍1)‍(e) or 37(1)‍(e), subparagraph 53(2)‍(c)‍(vi), (c)‍(vi.‍1) or (h)‍(ii) or for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.‍1(6);

• Investment tax credit

  (t) the amount deducted under subsection 127(5) or (6), 127.‍44(3) or 127.‍45(6) in respect of a property acquired or an expenditure made in a preceding taxation year in computing the taxpayer’s tax payable for a preceding taxation year to the extent that it was not included in computing the taxpayer’s income for a preceding taxation year under this paragraph or is not included in an amount determined under paragraph 13(7.‍1)‍(e) or 37(1)‍(e), subparagraph 53(2)‍(c)‍(vi) to (c)‍(vi.‍2) or (h)‍(ii) or for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.‍1(6);

Source of income

(2.‍02) For the purposes of this Act, if a particular amount is included in computing the income of a taxpayer for a taxation year because of paragraph (1)‍(l.‍1) or (l.‍2) and the particular amount is in respect of another amount that is deductible by a partnership in computing its income from a particular source or from sources in a particular place, the particular amount is deemed to be from the particular source or from sources in the particular place, as the case may be.

• (d.‍2) a FHSA,

Hybrid mismatch arrangements — definitions

12.‍7 (1) The definitions in subsection 18.‍4(1) apply in this section.

Secondary rule — conditions for application

(2) Subsection (3) applies in respect of a payment of which a taxpayer is a recipient if

• (a) the payment arises under a hybrid mismatch arrangement; and

• (b) there is a foreign deduction component of the hybrid mismatch arrangement.

Secondary rule — consequences

(3) Subject to subsection 18.‍4(5), if this subsection applies in respect of a payment of which a taxpayer is a recipient, an amount equal to the hybrid mismatch amount in respect of the payment shall be

• (a) included in computing the taxpayer’s income from the same source as the payment; and

• (b) included in computing the taxpayer’s income for the last taxation year of the taxpayer that begins at or before the end of the first foreign taxation year of any entity in which an amount in respect of the payment, in the absence of any foreign expense restriction rule, would be — or would reasonably be expected to be — deductible in computing relevant foreign income or profits of the entity.

Deemed capital cost of certain property

(7.‍1) For the purposes of this Act, where section 80 applied to reduce the capital cost to a taxpayer of a depreciable property or a taxpayer deducted an amount under subsection 127(5) or (6) or 127.‍44(3) in respect of a depreciable property or received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance other than

Deemed capital cost of certain property

(7.‍1) For the purposes of this Act, where section 80 applied to reduce the capital cost to a taxpayer of a depreciable property or a taxpayer deducted an amount under subsection 127(5) or (6), 127.‍44(3) or 127.‍45(6) in respect of a depreciable property or received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance other than

• (e) where the property was acquired in a taxation year ending before the particular time, all amounts deducted under subsection 127(5) or (6) or 127.‍44(3) by the taxpayer for a taxation year ending before the particular time,

• (e) where the property was acquired in a taxation year ending before the particular time, all amounts deducted under subsection 127(5) or (6), 127.‍44(3) or 127.‍45(6) by the taxpayer for a taxation year ending before the particular time,

Capital expenditures — Classes 59 and 60

(7.‍6) If a taxpayer has incurred an expenditure on account of capital, and the amount of the expenditure would have been included in the taxpayer’s undepreciated capital cost of property included in Class 59 or 60 of Schedule II to the Income Tax Regulations if the taxpayer had acquired a property as a result of the expenditure, then the taxpayer is deemed to have acquired a property, included in Class 59 or 60, as the case may be, at a cost equal to the amount of the expenditure, at the time that the expenditure is incurred.

• (a) subject to paragraph (b), for the purposes of the description of A in the definition undepreciated capital cost in subsection (21) and of sections 127, 127.‍1 and 127.‍44, the property is deemed

• (a) subject to paragraph (b), for the purposes of the description of A in the definition undepreciated capital cost in subsection (21) and of sections 127, 127.‍1, 127.‍44 and 127.‍45, the property is deemed

When s. 15(2) not to apply — employee ownership trusts

(2.‍51) Subsection (2) does not apply to a loan made or a debt that arose in respect of a qualifying business transfer if

• (a) immediately following the qualifying business transfer,

  • (i) the lender or creditor is a qualifying business, and

  • (ii) the borrower is the employee ownership trust that controls the qualifying business described in subparagraph (i);

• (b) the sole purpose of the loan or the debt is to facilitate the qualifying business transfer; and

• (c) at the time the loan was made or the debt incurred, bona fide arrangements were made for repayment of the loan or debt within 15 years of the qualifying business transfer.

Limitation on deduction of interest

(4) Notwithstanding any other provision of this Act (other than subsection (8)), in computing the income for a taxation year of a corporation or a trust from a business (other than the Canadian banking business of an authorized foreign bank) or property, no deduction shall be made in respect of that proportion of any amount that would, in the absence of this subsection and section 18.‍2, be deductible in computing that income in respect of interest paid or payable by it on outstanding debts to specified non-residents that

Definitions

18.‍2 (1) The following definitions apply in this section and section 18.‍21.

absorbed capacity of a taxpayer for a taxation year means the lesser of

• (a) the taxpayer’s cumulative unused excess capacity for the year, determined as if the taxpayer’s absorbed capacity for the year were nil, and

• (b) the amount determined by the formula

  A − (B + C)

  where

  A

  is the taxpayer’s interest and financing expenses for the year,

  B

  is

  (i) if subsection 18.‍21(2) applies in respect of the taxpayer for the year, the amount determined in respect of the taxpayer for the year under that subsection, and

  (ii) in any other case, the amount determined by the formula

  D × E

  where

  D

  is the taxpayer’s ratio of permissible expenses for the year, and

  E

  is the taxpayer’s adjusted taxable income for the year, and

  C

  is the taxpayer’s interest and financing revenues for the year.‍ (capacité absorbée)

adjusted taxable income of a taxpayer for a taxation year means the amount determined by the formula

affiliate taxation year of a controlled foreign affiliate means the period for which the accounts of the affiliate have been ordinarily made up, but no such period may exceed 53 weeks.‍ (année d’imposition de la société affiliée)

cumulative unused excess capacity of a taxpayer for a particular taxation year means the total of all amounts each of which is

• (a) the excess capacity of the taxpayer for the particular year, or

• (b) the excess capacity of the taxpayer for any of the three immediately preceding taxation years, if the taxpayer’s excess capacity for each of those years is determined according to the following rules:

  • (i) if the taxpayer has an amount of transferred capacity for any taxation year (referred to in this definition as the “transfer year”) preceding the particular year,

    • (A) there are to be reductions to the taxpayer’s excess capacity for the transfer year and the three taxation years immediately preceding the transfer year (each referred to in this subparagraph as a “relevant year”) in a total amount equal to the total of all amounts each of which is an amount of transferred capacity of the taxpayer for the transfer year (referred to in this definition as the “total transferred capacity amount”), and

    • (B) the amount by which the taxpayer’s excess capacity for a particular relevant year is to be reduced is equal to the lesser of

      • (I) the taxpayer’s excess capacity for the particular relevant year, determined taking into consideration any reductions to that excess capacity under

        • 1 this subparagraph, in respect of amounts of transferred capacity for years preceding the transfer year, and

        • 2 subparagraph (ii), in respect of amounts of absorbed capacity for the transfer year and any years preceding the transfer year, and

      • (II) the amount, if any, by which the total transferred capacity amount for the transfer year exceeds the reductions, under this subparagraph in respect of that total transferred capacity amount, to the taxpayer’s excess capacity for any relevant years preceding the particular relevant year, and

  • (ii) if the taxpayer has an amount of absorbed capacity for a taxation year (referred to in this definition as the “absorbed capacity year”),

    • (A) there are to be reductions to the taxpayer’s excess capacity for the three taxation years immediately preceding the absorbed capacity year (each referred to in this subparagraph as a “relevant year”) in a total amount equal to the amount of absorbed capacity for the absorbed capacity year, and

    • (B) the amount by which the taxpayer’s excess capacity for a particular relevant year is to be reduced is equal to the lesser of

      • (I) the taxpayer’s excess capacity for the particular relevant year, determined taking into account any reductions to that excess capacity under

        • 1 subparagraph (i), in respect of amounts of transferred capacity for years preceding the absorbed capacity year, and

        • 2 this subparagraph, in respect of amounts of absorbed capacity for years preceding the absorbed capacity year, and

      • (II) the amount, if any, by which the amount of absorbed capacity for the absorbed capacity year exceeds the reductions under this subparagraph in respect of that amount of absorbed capacity to the taxpayer’s excess capacity for the relevant years preceding the particular relevant year.‍ (capacité excédentaire cumulative inutilisée)

eligible group entity, in respect of a taxpayer resident in Canada, at any time, means a corporation, or a trust, resident in Canada

• (a) that is, at that time, related (other than because of a right referred to in paragraph 251(5)‍(b)) to the taxpayer;

• (b) that would, at that time, be affiliated with the taxpayer if section 251.‍1 were read without reference to the definition controlled in subsection 251.‍1(3);

• (c) that is a trust in respect of which the taxpayer’s interest in the trust is not a fixed interest (as defined in subsection 94(1)); or

• (d) that is a beneficiary of the taxpayer, if the taxpayer is a trust, whose interest in the taxpayer is not a fixed interest (as defined in subsection 94(1)) (other than a beneficiary that is a registered charity, or a non-profit organization, with whom the taxpayer deals at arm’s length).‍ (entité admissible du groupe)

excess capacity of a taxpayer for a taxation year means

• (a) if subsection 18.‍21(2) applies in respect of the taxpayer for the year, nil; and

• (b) in any other case, the amount determined by the formula

  A − B − C

  where

  A

  is the amount determined by the formula

  D × E + F

  where

  D

  is the ratio of permissible expenses of the taxpayer for the year,

  E

  is the adjusted taxable income of the taxpayer for the year, and

  F

  is the amount determined by the formula

  G − H × I

  where

  G

  is the interest and financing revenues of the taxpayer for the year,

  H

  is the ratio of permissible expenses of the taxpayer for the year, and

  I

  is the lesser of

  (i) the amount by which the interest and financing revenues of the taxpayer for the year exceed the interest and financing expenses of the taxpayer for the year, and

  (ii) either

  (A) if the adjusted taxable income of the taxpayer for the year would, in the absence of section 257, be a negative amount, the absolute value of the negative amount, or

  (B) in any other case, nil,

  B

  is the interest and financing expenses of the taxpayer for the year, and

  C

  is the amount deductible by the taxpayer under paragraph 111(1)‍(a.‍1) in the year.‍ (capacité excédentaire)

excluded entity for a particular taxation year means

• (a) a corporation that is throughout the particular year a Canadian-controlled private corporation in respect of which the amount determined for C in paragraph 125(5.‍1)‍(a) for the year is less than $50,000,000;

• (b) a particular taxpayer resident in Canada, if $1,000,000 is not less than the amount determined by the formula

  A − B

  where

  A

  is the total of all amounts, each of which is the interest and financing expenses or the exempt interest and financing expenses of

  (i) the particular taxpayer for the particular taxation year, or

  (ii) another taxpayer resident in Canada for a taxation year (referred to in this subparagraph as the “relevant taxation year”) ending in the particular taxation year, if the other taxpayer is an eligible group entity in respect of the particular taxpayer at the end of the relevant taxation year, and

  B

  is the amount that would be determined for A if

  (i) the reference in the description of A to “the interest and financing expenses or the exempt interest and financing expenses” were read as a reference to “the interest and financing revenues”, and

  (ii) the interest and financing revenues of a financial institution group entity were excluded; or

• (c) a taxpayer resident in Canada if

  • (i) all or substantially all of the businesses, if any, and all or substantially all of the undertakings and activities of

    • (A) the taxpayer are, throughout the particular year, carried on in Canada, and

    • (B) each eligible group entity in respect of the taxpayer are, throughout the eligible group entity’s taxation year that ends in the particular year, carried on in Canada,

  • (ii) throughout the year, it is the case that

    A ≥ B

    where

    A

    is $5,000,000, and

    B

    is the greater of

    (A) the total of all amounts, each of which is the amount at which the shares of the capital stock of a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member, would be valued for the purpose of the balance sheet of the taxpayer or the eligible group entity if that balance sheet were prepared in accordance with generally accepted accounting principles used in Canada, other than any amount or portion of an amount that is already included under this clause because the value of the shares of the capital stock of a particular foreign affiliate reflects the value of shares of the capital stock of another foreign affiliate that is owned, directly or indirectly, by the particular foreign affiliate, or

    (B) the total of all amounts, each of which is the amount that can reasonably be considered to be the proportionate share, of the taxpayer or an eligible group entity in respect of the taxpayer, of the fair market value of all property of a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member, other than a property that is shares of the capital stock of another corporation that is a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member,

  • (iii) no person or partnership is, at any time in the particular year,

    • (A) a specified shareholder or a specified beneficiary (as those terms are defined in subsection 18(5)) of the taxpayer, or of any eligible group entity in respect of the taxpayer, that is not resident in Canada, or

    • (B) a partnership more than 50% of the fair market value of all interests in which can reasonably be considered to be held, directly or indirectly through one or more trusts or partnerships, by non-resident persons, if the property of the partnership includes,

      • (I) if the taxpayer or the eligible group entity in respect of the taxpayer is a corporation, shares, or a right to acquire shares, of the capital stock of the taxpayer or an eligible group entity in respect of the taxpayer that, either alone or together with shares, or rights to acquire shares, held by persons or partnerships with whom the partnership does not deal at arm’s length,

        • 1 provide 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or

        • 2 have 25% or more of the fair market value of all capital stock in the corporation, or

      • (II) if the taxpayer or the eligible group entity in respect of the taxpayer is a trust, an interest, or a right to acquire an interest, as a beneficiary in the taxpayer or an eligible group entity in respect of the taxpayer that, either alone or together with interests, or rights to acquire interests, held by persons or partnerships with whom the partnership does not deal at arm’s length, has 25% or more of the fair market value of all interests as a beneficiary in the trust, and

  • (iv) all or substantially all of the interest and financing expenses of the taxpayer and of each eligible group entity in respect of the taxpayer for the particular year are paid or payable to persons or partnerships that are not, at any time in the particular year, tax-indifferent persons or partnerships that do not deal at arm’s length with the taxpayer or any eligible group entity in respect of the taxpayer.‍ (entité exclue)

excluded interest, for a taxation year or fiscal period, means an amount of interest or a lease financing amount, if

• (a) the amount is paid in, or payable in or in respect of, the year or period by a corporation or partnership (in this definition referred to as the “payer”) to another corporation or partnership (in this definition referred to as the “payee”) in respect of a debt or a lease in respect of a particular property;

• (b) throughout the period during which the amount accrued (in this definition referred to as the “relevant period”)

  • (i) if the amount is interest, the debt is owed by the payer to the payee, or

  • (ii) if the amount is a lease financing amount, the lease is between the payer and payee;

• (c) where the payer is not a financial institution group entity, the payee is not a financial institution group entity;

• (d) throughout the relevant period and at the time of payment

  • (i) each of the payer and payee is

    • (A) a taxable Canadian corporation, or

    • (B) a partnership, no member of which is a natural person, a trust or a corporation that is not a taxable Canadian corporation, and

  • (ii) one of the following conditions is met:

    • (A) if the payee is a partnership, all the members of the payee (other than another partnership) are eligible group entities in respect of

      • (I) if the payer is a partnership, each member of the payer (other than another partnership), and

      • (II) in any other case, the payer, or

    • (B) if the payee is not a partnership, the payee is an eligible group entity in respect of

      • (I) if the payer is a partnership, each member of the payer (other than another partnership), and

      • (II) in any other case, the payer; and

• (e) the payer — or, if the payer is a partnership, each member of the payer — and the payee — or, if the payee is a partnership, each member of the payee — file with the Minister, in respect of the year or period of both the payer and the payee, a joint election in writing in prescribed manner under this paragraph that

  • (i) specifies

    • (A) the amount of the interest or lease financing amount,

    • (B) if the amount is interest, the amounts outstanding, at the beginning and end of the relevant period, as or on account of the debt in respect of which this paragraph applies, and

    • (C) if the amount is a lease financing amount, the fair market value of the particular property at the time the lease began, and

  • (ii) is filed on or before the earliest of the filing-due date of

    • (A) the payer for its year,

    • (B) the payee for its year, and

    • (C) if the payer or the payee is a partnership, any member of the payer or payee for the member’s taxation year that includes the end of the fiscal period of the payer or the payee, as the case may be.‍ (intérêts exclus)

excluded lease for a taxation year of a taxpayer means a lease

• (a) to which the rules in subsection 16.‍1(1) apply;

• (b) that would not be considered to be a lease for a term of more than one year for purposes of paragraph (b) of the definition specified leasing property in subsection 1100(1.‍11) of the Income Tax Regulations; or

• (c) that is in respect of property

  • (i) that would not be considered, at the time the lease was entered into, to have a fair market value in excess of $25,000 for purposes of paragraph (c) of that definition, or

  • (ii) that would be considered, at all times in the taxation year, exempt property for purposes of subsection 1100(1.‍13) of the Income Tax Regulations.‍ (bail exclu)

exempt interest and financing expenses of a taxpayer for a taxation year means the total of all amounts, each of which would, if the description of A in the definition interest and financing expenses were read without reference to “exempt interest and financing expenses”, be included in interest and financing expenses of the taxpayer for that year, and that is incurred in respect of a borrowing or other financing (referred to in this definition as the “borrowing”), if 

• (a) the taxpayer or a partnership of which the taxpayer is a member entered into an agreement with a public sector authority to design, build and finance — or to design, build, finance, maintain and operate — property that the public sector authority, or another public sector authority, owns or has a leasehold interest in or right to acquire;

• (b) the borrowing was entered into in respect of the agreement;

• (c) it can reasonably be considered that all or substantially all of the amount is directly or indirectly borne by a public sector authority referred to in paragraph (a); and

• (d) the amount was paid or payable to

  • (i) a person that deals at arm’s length with the taxpayer or the partnership of which the taxpayer is a member, or

  • (ii) a particular person that does not deal at arm’s length with the taxpayer or the partnership of which the taxpayer is a member if it may reasonably be considered that all or substantially all of the amount paid or payable to the particular person was paid or payable by the particular person to one or more persons that deal at arm’s length with the taxpayer or the partnership of which the taxpayer is a member.‍ (dépenses d’intérêts et de financement exonérées)

financial holding corporation, for a taxation year, means a corporation (other than a corporation described in any of paragraphs (a) to (f) of the definition financial institution group entity) if, throughout the year,

• (a) the fair market value of the capital stock of the corporation is primarily attributable to any combination of shares or indebtedness of one or more entities described in any of paragraphs (a) to (f) of the definition financial institution group entity that are controlled by the corporation; or

• (b) the corporation is incorporated under the Insurance Companies Act and shares of the capital stock of the corporation are listed on a designated stock exchange.‍ (société de portefeuille financière)

financial institution group entity means a taxpayer that at any time in a taxation year is

• (a) a bank;

• (b) a credit union;

• (c) an insurance corporation;

• (d) an entity authorized under the laws of Canada or a province to carry on the business of offering its services as a trustee to the public;

• (e) an entity whose principal business consists of one or more of

  • (i) the lending of money to persons with whom the entity deals at arm’s length,

  • (ii) the purchasing of debt obligations issued by persons with whom the entity deals at arm’s length, or

  • (iii) activities which principally give rise to amounts described in paragraphs (a) to (d) of the description of A in the definition interest and financing revenues and are principally conducted with persons with whom the entity deals at arm’s length;

• (f) a particular entity that is an eligible group entity in respect of an entity described in any of paragraphs (a) to (e), if the particular entity, or a partnership of which the particular entity is a member and from which the particular entity primarily derives its income,

  • (i) is authorized under provincial securities laws to engage in, and primarily engages in, the business of

    • (A) dealing in securities, or

    • (B) providing portfolio management, investment advice, fund administration or fund management; or

  • (ii) primarily engages in the business of providing portfolio management, investment advice, fund administration or fund management, including any services connected to those activities, in respect of real estate; or

• (g) a particular entity (other than a financial holding corporation) that is an eligible group entity in respect of any entity described in any of paragraphs (a) to (f) if all or substantially all of the activities of the particular entity are ancillary to the activities or business carried on by one or more entities described in paragraphs (a) to (f) that are eligible group entities in respect of the particular entity.‍ (entité du groupe d’institutions financières)

fixed interest commercial trust at any time means a trust resident in Canada, if at that time

• (a) the only beneficiaries that may for any reason receive, at or after that time and directly from the trust, any of the income or capital of the trust are beneficiaries that hold fixed interests (as defined in subsection 94(1)) in the trust; and

• (b) any of the conditions set out in clauses (h)‍(ii)‍(A) to (C) in the definition exempt foreign trust in subsection 94(1) is met.‍ (fiducie commerciale à participation fixe)

foreign accrual property loss of a foreign affiliate for an affiliate taxation year has the meaning assigned by subsection 5903(3) of the Income Tax Regulations.‍ (perte étrangère accumulée, relative à des biens)

interest and financing expenses of a taxpayer for a particular taxation year means the amount determined by the formula

interest and financing revenues of a taxpayer for a taxation year means the amount determined by the formula

lease financing amount means an amount that is the portion of a particular payment in respect of a particular lease entered into by a taxpayer that would be considered to be on account of interest if

• (a) the lessee had received a loan at the time the particular lease began and in a principal amount equal to the fair market value at that time of the property that is the subject of the particular lease;

• (b) interest had been charged on the principal amount of the loan outstanding from time to time at the rate — determined in accordance with section 4302 of the Income Tax Regulations — in effect at the time described in paragraph (a), compounded semi-annually not in advance; and

• (c) the particular payment was a blended payment of principal and interest, calculated in accordance with paragraph (b), on the loan applied firstly on account of interest on principal, secondly on account of interest on unpaid interest and thirdly on account of principal.‍ (montant du crédit-bail)

public sector authority means His Majesty in right of Canada, His Majesty in right of a province, an entity referred to in any of paragraphs 149(1)‍(c) to (d.‍6), a hospital authority (as defined in subsection 123(1) of the Excise Tax Act) or a registered charity that is a public college, school authority or university (each as defined in subsection 123(1) of the Excise Tax Act).‍ (administration du secteur public)

ratio of permissible expenses of a taxpayer for a taxation year means the percentage that is

• (a) if the taxpayer’s taxation year begins on or after October 1, 2023, and before January 1, 2024, 40%, other than for the purpose of determining the taxpayer’s cumulative unused excess capacity for any taxation year that begins on or after January 1, 2024; and

• (b) if the taxpayer’s taxation year begins on or after January 1, 2024, and for the purposes referred to in paragraph (a) for which 40% is not the applicable percentage, 30%.‍ (ratio des dépenses admissibles)

received capacity means an amount of received capacity of a transferee for a taxation year as determined under subsection (4).‍ (capacité reçue)

relevant affiliate interest and financing expenses of a controlled foreign affiliate of a taxpayer (determined as though the definition taxpayer in this subsection did not include the words “or a partnership”) for an affiliate taxation year means, subject to subsection (19), the total of all amounts (other than an amount that is deductible in computing any income or loss of the affiliate that is included in computing the affiliate’s income or loss from an active business because of paragraph 95(2)‍(a) or an amount that is described in clause 95(2)‍(a)‍(ii)‍(D) and treated as nil for the purposes of determining an amount for A or D in the definition foreign accrual property income in subsection 95(1)), each of which would be the affiliate’s interest and financing expenses (determined without regard to paragraph (j) of the description of A in the definition interest and financing expenses) for the affiliate taxation year for the purposes of determining, in respect of the taxpayer for the affiliate taxation year, each amount referred to in subparagraph 95(2)‍(f)‍(i) or (ii), if

• (a) the references in the definition interest and financing expenses to “in the absence of this section” were read as references to “in the absence of clause 95(2)‍(f.‍11)‍(ii)‍(D)”; and

• (b) clause 95(2)‍(f.‍11)‍(ii)‍(A) were read without regard to the reference to subsection 18.‍2(2).‍ (dépenses d’intérêts et de financement de la société affiliée pertinentes)

relevant affiliate interest and financing revenues of a controlled foreign affiliate of a taxpayer (determined as though the definition taxpayer in this subsection did not include the words “or a partnership”) for an affiliate taxation year means, subject to subsection (19), the total of all amounts (other than an amount included in computing the affiliate’s income or loss from an active business under paragraph 95(2)‍(a) or (2.‍44)‍(b)), each of which would be the affiliate’s interest and financing revenues (determined without regard to paragraph (g) of the description of A in the definition interest and financing revenues) for the affiliate taxation year for the purposes of determining, in respect of the taxpayer for the affiliate taxation year, each amount referred to in subparagraph 95(2)‍(f)‍(i) or (ii), if clause 95(2)‍(f.‍11)‍(ii)‍(A) were read without regard to the reference to subsection 18.‍2(2).‍ (revenus d’intérêts et de financement de la société affiliée pertinents)

relevant inter-affiliate interest, of a controlled foreign affiliate of a taxpayer for an affiliate taxation year, means an amount of interest to the extent that the amount

• (a) is paid or payable by the affiliate to, or received or receivable by the affiliate from, a controlled foreign affiliate (in this definition referred to as the “other affiliate”) of

  • (i) the taxpayer, or

  • (ii) a taxpayer that is an eligible group entity in respect of the taxpayer; and

• (b) would, in the absence of subsection (19), be included in

  • (i) if the amount is paid or payable by the affiliate, the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year and the other affiliate’s relevant affiliate interest and financing revenues for an affiliate taxation year, or

  • (ii) if the amount is received or receivable by the affiliate, the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year and the other affiliate’s relevant affiliate interest and financing expenses for an affiliate taxation year.‍ (intérêts pertinents entre sociétés affiliées)

special purpose loss corporation, for a taxation year, means a particular corporation that 

• (a) is an eligible group entity in respect of a financial holding corporation to which the particular corporation has interest paid or payable in the year;

• (b) is formed or exists solely for the purpose of generating a loss of the particular corporation; and

• (c) would, in the absence of this section, have a loss for the year that is, or will be, utilized by a financial institution group entity that is an eligible group entity in respect of the particular corporation.‍ (société à usage déterminé ayant subi des pertes)

specified participating percentage of a taxpayer, in respect of a controlled foreign affiliate of the taxpayer for an affiliate taxation year, means the percentage that would be the taxpayer’s aggregate participating percentage (as defined in subsection 91(1.‍3)), determined without regard to clause 95(2)‍(f.‍11)‍(ii)‍(D), in respect of the affiliate for the affiliate taxation year, if the definition participating percentage in subsection 95(1) were read without reference to

• (a) its paragraph (a); and

• (b) the portion of its paragraph (b) before its subparagraph (b)‍(i).‍ (pourcentage de participation déterminé)

specified pre-regime loss of a taxpayer, in respect of a taxation year, means the taxpayer’s non-capital loss for a preceding taxation year, if

• (a) the preceding year ends before February 4, 2022;

• (b) the taxpayer files with the Minister, in respect of the loss, an election in writing in prescribed manner under this definition;

• (c) the election specifies

  • (i) the loss,

  • (ii) each amount deducted, in respect of the loss, by the taxpayer under paragraph 111(1)‍(a) in computing its taxable income

    • (A) for the year, and

    • (B) each taxation year that precedes the year, and

  • (iii) the taxpayer’s adjusted taxable income for the year; and

• (d) the election is filed on or before the filing-due date of the taxpayer for the year.‍ (perte antérieure au régime déterminée)

tax-indifferent means a person or partnership that is

• (a) a person exempt from tax under section 149;

• (b) a non-resident person;

• (c) a partnership more than 50% of the fair market value of all interests in which can reasonably be considered to be held, directly or indirectly through one or more trusts or partnerships, by any combination of persons described in paragraph (a) or (b); or

• (d) a trust resident in Canada if more than 50% of the fair market value of all interests as beneficiaries under the trust can reasonably be considered to be held, directly or indirectly through one or more trusts or partnerships, by any combination of persons described in paragraph (a) or (b).‍ (indifférent relativement à l’impôt)

taxpayer has the meaning assigned by subsection 248(1), but does not include a natural person or a partnership.‍ (contribuable)

transaction includes an arrangement or event.‍ (opération)

transferred capacity means an amount of transferred capacity of a transferor for a taxation year as determined under subsection (4).‍ (capacité transférée)

Excessive interest and financing expenses limitation

(2) Notwithstanding any other provision of this Act, in computing the income for a taxation year of a taxpayer (other than an excluded entity for the year) from a business or property or the taxable income of the taxpayer for the year, no deduction shall be made — and in determining the amount under paragraph 3(b) in respect of the taxpayer for the year, no reduction shall be made — in respect of any amount that is described in any of paragraphs (a) to (g) and (i) of the description of A in the definition interest and financing expenses in subsection (1) that would, in the absence of this section, be deductible in computing that income or taxable income — or would reduce that amount determined under paragraph 3(b) — to the extent of the proportion of that amount that is determined by the formula

Amount deemed deducted

(3) All or any portion, of a particular amount described in paragraph (c) or (d) of the description of A in the definition interest and financing expenses in subsection (1), that would, in the absence of subsection (2), have been deducted in computing the income of a taxpayer for a taxation year but that is not deductible because of subsection (2), is deemed to have been deductible and to have been deducted in the year for purposes of determining, in respect of any taxpayer at any time, such of the following amounts to which the particular amount relates:

• (a) the total depreciation (as defined in subsection 13(21)) allowed for property of a prescribed class;

• (b) the amount the taxpayer may deduct under subsection 66(4);

• (c) the cumulative Canadian exploration expense (as defined in subsection 66.‍1(6));

• (d) the cumulative Canadian development expense (as defined in subsection 66.‍2(5));

• (e) the cumulative foreign resource expense (as defined in subsection 66.‍21(1)) in respect of a country;

• (f) the cumulative Canadian oil and gas property expense (as defined in subsection 66.‍4(5)); and

• (g) the amount the taxpayer may deduct under subsections 66.‍7(1), (2) or (2.‍3) to (5).

Transfer of cumulative unused excess capacity

(4) For the purposes of this section, a taxpayer and another taxpayer (referred to in this section as the “transferor” and the “transferee”, respectively) may jointly elect in prescribed form to designate an amount equal to all or a portion of the transferor’s cumulative unused excess capacity, and that amount is an amount of transferred capacity of the transferor for a taxation year and an amount of received capacity of the transferee for a taxation year, if

• (a) the taxation year of the transferor ends in the taxation year of the transferee;

• (b) each of the transferor and the transferee is

  • (i) a taxable Canadian corporation or a fixed interest commercial trust throughout its taxation year, and

  • (ii) an eligible group entity in respect of the other at the end of its taxation year;

• (c) where the transferor is a financial institution group entity or a financial holding corporation for its taxation year, the transferee is, for its taxation year,

  • (i) a financial institution group entity,

  • (ii) a financial holding corporation, or

  • (iii) a special purpose loss corporation;

• (d) the election or amended election

  • (i) specifies the amount of the transferred capacity, and

  • (ii) is filed with the Minister by the transferor

    • (A) on or before the later of the filing-due date of

      • (I) the transferor for its taxation year, and

      • (II) the transferee for its taxation year, or

    • (B) on or before the day that is 90 days after the day of sending of

      • (I) a notice of assessment of tax payable under this Part by the transferor or the transferee for their respective taxation years, or

      • (II) a notification that no tax is payable under this Part by the transferor or the transferee for their respective taxation years;

• (e) the total of all amounts each of which would, if this subsection were read without reference to this paragraph, be an amount of transferred capacity of the transferor for its taxation year in respect of any transferee, does not exceed the transferor’s cumulative unused excess capacity for the year;

• (f) if the transferee is a financial holding corporation and the transferor is a financial institution group entity, it is the case that

  A ≥ B

  where

  A

  is the total of all amounts, each of which is an amount that is included in computing the income of the financial holding corporation for its taxation year in respect of excluded interest, the payer of which is, for the taxation year of the payer in which the interest is payable,

  (i) a financial institution group entity, or

  (ii) a special purpose loss corporation, if the amount gives rise to a loss of the special purpose loss corporation that is, or will be, utilized solely by a financial institution group entity, and

  B

  is the total of all amounts, each of which would, in the absence of this paragraph, be an amount that is both

  (i) received capacity of the financial holding corporation for its taxation year, and

  (ii) transferred capacity of a financial institution group entity for one of its taxation years;

• (g) if the transferee is a special purpose loss corporation and the transferor is a financial institution group entity, it is the case that

  C ≥ D

  where

  C

  is the total of all amounts, each of which is an amount that

  (i) would, in the absence of this section, be deductible in computing the income of the special purpose loss corporation for its taxation year,

  (ii) is paid or payable to a financial holding corporation,

  (iii) meets the conditions set out in paragraphs (a) to (d) of the definition excluded interest, and

  (iv) would, in the absence of this section, give rise to a loss that is, or will be, utilized solely by a financial institution group entity, and

  D

  is the total of all amounts, each of which would, in the absence of this paragraph, be an amount that is both

  (i) received capacity of the special purpose loss corporation for its taxation year, and

  (ii) transferred capacity of a financial institution group entity for one of its taxation years;

• (h) an amended election has not been filed in accordance with this section;

• (i) where the election is an amended election,

  • (i) the following conditions are met:

    • (A) in the absence of any assessment, the condition set out in paragraph (e) would be met in respect of a prior election under this subsection made by the transferor and transferee for their respective taxation years, and

    • (B) subsection (9) does not apply to a tax benefit in respect of a prior election for the taxation year of the transferor or transferee, or

  • (ii) the Minister grants permission to amend the prior election under subsection (5); and

• (j) the transferee files an information return in accordance with subsection (6) for the calendar year in which the transferee’s taxation year ends.

Late or amended election

(5) The Minister may extend the time for making an election, or grant permission to amend an election, under subsection (4) if

• (a) the transferor and the transferee demonstrate to the satisfaction of the Minister that

  • (i) the transferor, the transferee and each other eligible group entity in respect of the transferor and transferee made reasonable efforts to determine all amounts that may reasonably be considered relevant in making the election, and

  • (ii) the election or amended election, as the case may be, is filed as soon as circumstances permit; and

• (b) in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the election to be made or amended.

Summary — cumulative unused excess capacity transfers

(6) If one or more elections are filed under subsection (4), in which amounts are designated as received capacity of a particular transferee for a taxation year ending in a calendar year, the particular transferee shall file with the Minister for the calendar year an information return in prescribed form within six months after the end of the calendar year in respect of

• (a) each such election; and

• (b) each election filed under subsection (4) for a taxation year ending in the calendar year, by any other transferee that is an eligible group entity in respect of the particular transferee at the end of the other transferee’s taxation year.

Summary — filing by designated filer

(7) For the purposes of this section, if any taxpayer is required to file an information return for a calendar year under subsection (6), the taxpayer is deemed to have filed the information return if

• (a) an information return under subsection (6) is filed for the calendar year by any other taxpayer (in this subsection referred to as the “designated filer” in respect of the taxpayer for the year) that is an eligible group entity in respect of the taxpayer at the end of the taxpayer’s taxation year ending in the calendar year; and

• (b) the taxpayer jointly elects, with each other transferee described in paragraph (6)‍(b), to designate under this paragraph the designated filer to be a designated filer in respect of the taxpayer and each other transferee for the calendar year.

Assessment

(8) If an election or an amended election has been made under subsection (4), the Minister shall, notwithstanding subsections 152(4) and (5), assess or reassess the tax, interest or penalties payable under this Act by any taxpayer for any relevant taxation year as is necessary to give effect to the election or amended election.

Anti-avoidance — group status

(9) If, at any time, a particular taxpayer is, becomes or ceases to be an eligible group entity, in respect of another taxpayer, a financial institution group entity or a financial holding corporation and it may reasonably be considered, having regard to all the circumstances, that one of the main purposes of the particular taxpayer being, becoming or ceasing to be an eligible group entity, in respect of the other taxpayer, a financial institution group entity or a financial holding corporation is to enable any taxpayer to obtain a tax benefit (within the meaning of subsection 245(1)), the particular taxpayer is deemed not to be, to have become, or to remain, as the case may be, an eligible group entity, in respect of the other taxpayer, a financial institution group entity or a financial holding corporation, as the case may be, at that time.

Benefits conferred

(10) For the purposes of this Part, if a transferor and a transferee file an election (including an amended election) under subsection (4), no benefit is considered to have been conferred on the transferee as a consequence of the election.

Consideration for election

(11) For the purposes of this Part, if property is acquired at any time by a transferor as consideration for filing an election or amended election with a transferee under subsection (4)

• (a) where the property was owned by the transferee immediately before that time,

  • (i) the transferee is deemed to have disposed of the property at that time for proceeds equal to the fair market value of the property at that time, and

  • (ii) no amount may be deducted in computing the transferee’s income as a consequence of the transfer of the property, except any amount arising as a consequence of subparagraph (i);

• (b) the cost at which the property was acquired by the transferor at that time is deemed to be equal to the fair market value of the property at that time; and

• (c) the transferor is not required to add an amount in computing income solely because of the acquisition at that time of the property.

Partnerships

(12) For the purposes of this section,

• (a) a person or partnership that is (or is deemed by this paragraph to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership; and

• (b) a person’s share of the income or loss of a partnership includes the person’s direct or indirect, through one or more other partnerships, share of that income or loss.

Anti-avoidance — interest and financing revenues and expenses

(13) A particular amount that would, in the absence of this subsection, be included under the description of A in the definition interest and financing revenues, or the description of B in the definition interest and financing expenses, in computing the income or loss of a taxpayer for a taxation year, must not be so included, if

• (a) an amount in respect of the particular amount is deductible in computing the foreign accrual property income of a corporation that is a foreign affiliate, but not a controlled foreign affiliate, of the taxpayer or of a person or partnership that does not deal at arm’s length with the taxpayer;

• (b) the particular amount is received or receivable, directly or indirectly and in whole or in part, by the taxpayer, or a partnership of which it is a member, from

  • (i) a person that does not deal at arm’s length with the taxpayer and that is

    • (A) an excluded entity,

    • (B) a natural person, or

    • (C) if the taxpayer is not a financial institution group entity or a financial holding corporation, a financial institution group entity or a financial holding corporation, or

  • (ii) a partnership of which a person described in subparagraph (i) is a member; or

• (c) one of the main purposes of a transaction or series of transactions is to include the particular amount under the description of A in the definition interest and financing revenues, or the description of B in the definition interest and financing expenses, in computing the income or loss of the taxpayer for a taxation year and

  • (i) the transaction or series results in an amount that

    • (A) is not included in the description of B in the definition interest and financing revenues, or the description of A in the definition interest and financing expenses, in computing the income or loss of the taxpayer, or of a person not dealing at arm’s length with the taxpayer, for a taxation year, and

    • (B) is deductible in computing the income of loss for a taxation year of the taxpayer or a person or partnership not dealing at arm’s length with the taxpayer, or

  • (ii) it can reasonably be considered that, in the absence of the transaction or series, the particular amount or an amount for which the particular amount was substituted

    • (A) would have been included in computing the income or loss for a taxation year (other than as a dividend) of the taxpayer, or a person or partnership not dealing at arm’s length with the taxpayer, and

    • (B) would not have been included under the description of A in the definition interest and financing revenues, or the description of B in the definition interest and financing expenses, in computing the income or loss of the taxpayer or a person not dealing at arm’s length with the taxpayer.

Anti-avoidance — excluded entity

(14) For the purposes of subparagraph (c)‍(iv) of the definition excluded entity, a person or partnership is deemed to be tax-indifferent and not to deal at arm’s length with the taxpayer or any eligible group entity in respect of the taxpayer throughout a taxation year of the taxpayer if

• (a) any portion of the interest and financing expenses of the taxpayer for the year is paid or payable by the taxpayer or any eligible group entity in respect of the taxpayer to the person or partnership as part of a transaction or series of transactions; and

• (b) it can reasonably be considered that one of the main purposes of the transaction or series is to avoid that portion of the interest and financing expenses being paid or payable to a person or partnership that is tax-indifferent and does not deal at arm’s length with the taxpayer or any eligible group entity in respect of the taxpayer.

Deemed eligible group entities

(15) If two taxpayers are eligible group entities in respect of a third taxpayer, they are deemed to be eligible group entities in respect of each other.

Eligible group entities — related

(16) For the purposes of paragraph (a) of the definition eligible group entity in subsection (1)

• (a) despite subsection 104(1), a reference to a person that is a trust does not include a reference to the trustee or other persons that own or control the trust property; and

• (b) a corporation or a trust is deemed not to be related to a taxpayer where the corporation or trust would, but for this paragraph, be related to the taxpayer solely because the taxpayer is controlled by His Majesty in right of Canada, His Majesty in right of a province or an entity referred to in any of paragraphs 149(1)‍(c) to (d.‍6).

Eligible group entities — affiliated

(17) For the purposes of paragraph (b) of the definition eligible group entity in subsection (1), a corporation or a trust is deemed not to be affiliated with a taxpayer where that corporation or trust would, but for this subsection, be affiliated with the taxpayer solely because

• (a) the taxpayer is controlled by His Majesty in right of Canada, His Majesty in right of a province or an entity referred to in any of paragraphs 149(1)‍(c) to (d.‍6); or

• (b) if the corporation or trust is a registered charity or a non-profit organization with whom the taxpayer deals at arm’s length, the corporation or trust is a majority-interest beneficiary (within the meaning of subsection 251.‍1(3)) of the taxpayer.

Filing requirement

(18) Each taxpayer shall file with its return of income for the taxation year a prescribed form containing prescribed information for the purpose of determining the deductibility of its interest and financing expenses and determining its exempt interest and financing expenses.

Relevant inter-affiliate interest

(19) If an amount is paid or payable by a controlled foreign affiliate (referred to in this subsection as the “payer affiliate”) of a taxpayer and received or receivable by a controlled foreign affiliate (referred to in this subsection as the “recipient affiliate”) of the taxpayer, or a taxpayer that is an eligible group entity in respect of the taxpayer, and the amount is relevant inter-affiliate interest of the payer affiliate for an affiliate taxation year (referred to in this subsection as the “payer affiliate year”) and of the recipient affiliate for an affiliate taxation year (referred to in this subsection as the “recipient affiliate year”),

• (a) the amount included, in respect of the relevant inter-affiliate interest, in the payer affiliate’s relevant affiliate interest and financing expenses for the payer affiliate year is the lesser of

  • (i) the relevant inter-affiliate interest, and

  • (ii) the amount determined by the formula

    A + B

    where

    A

    is the amount determined by the formula

    (C − D) × E ÷ C

    where

    C

    is the total of all amounts, each of which would — if the relevant inter-affiliate interest were not paid or payable — be, in respect of the payer affiliate for the payer affiliate year, the specified participating percentage of

    (A) the taxpayer, or

    (B) another taxpayer that is an eligible group entity in respect of the taxpayer, and

    D

    is the total of all amounts, each of which is, in respect of the recipient affiliate for the recipient affiliate year, the specified participating percentage of

    (A) the taxpayer, or

    (B) another taxpayer that is an eligible group entity in respect of the taxpayer, and

    E

    is the relevant inter-affiliate interest, and

    B

    is the lesser of

    (A) the relevant inter-affiliate interest, and

    (B) the amount determined by the formula

    (F − G) × H ÷ I

    where

    F

    is the payer affiliate’s relevant affiliate interest and financing revenues for the payer affiliate year,

    G

    is the amount that would be the payer affiliate’s relevant affiliate interest and financing expenses for the payer affiliate year if the payer affiliate had no relevant inter-affiliate interest for the payer affiliate year,

    H

    is the amount determined for E, and

    I

    is the total of all amounts, each of which is an amount of relevant inter-affiliate interest of the payer affiliate for the payer affiliate year that would, in the absence of this paragraph, be included in the payer affiliate’s relevant affiliate interest and financing expenses; and

• (b) the amount included, in respect of the relevant inter-affiliate interest, in the recipient affiliate’s relevant affiliate interest and financing revenues for the recipient affiliate year is the lesser of

  • (i) the amount referred to in E, and

  • (ii) the amount determined by the formula

    J × K ÷ L

    where

    J

    is the amount determined for B,

    K

    is the amount determined for C, and

    L

    is the amount determined for D.

Group ratio — definitions

18.‍21 (1) The following definitions apply in this section.

acceptable accounting standards means International Financial Reporting Standards and the generally accepted accounting principles of

• (a) Canada;

• (b) Australia;

• (c) Brazil;

• (d) member states of the European Union;

• (e) member states of the European Economic Area;

• (f) Hong Kong (China);

• (g) Japan;

• (h) Mexico;

• (i) New Zealand;

• (j) the People’s Republic of China;

• (k) the Republic of India;

• (l) the Republic of Korea;

• (m) Singapore;

• (n) Switzerland;

• (o) the United Kingdom; and

• (p) the United States.‍ (principes comptables acceptables)

consolidated financial statements means financial statements prepared in accordance with a relevant acceptable accounting standard in which the assets, liabilities, income, expenses and cash flows of two or more entities are presented as those of a single economic entity and, for greater certainty, the financial statements include the notes to the financial statements.‍ (états financiers consolidés)

consolidated group means two or more entities, other than an equity-accounted entity but including an ultimate parent, (each such entity referred to in this section as a “member of the consolidated group”) in respect of which consolidated financial statements are required to be prepared for financial reporting purposes or would be so required if the entities were subject to International Financial Reporting Standards.‍ (groupe consolidé)

equity-accounted entity means an entity the net income or loss of which is included in the consolidated financial statements of a consolidated group under the equity method of accounting.‍ (entité comptabilisée à la valeur de consolidation)

equity interest means

• (a) a share of the capital stock of a corporation;

• (b) an interest as a beneficiary under a trust;

• (c) an interest as a member of a partnership; or

• (d) any similar interest in respect of any entity.‍ (participation au capital)

fair value amount means any amount reflected in the net income or net loss reported in the consolidated financial statements of a consolidated group for a relevant period where

• (a) the carrying value of any asset or liability of the consolidated group is measured using the fair value method of accounting; and

• (b) the amount reflects a change in the carrying value of the asset or liability during the relevant period and is included in either the description of C or H in the definition group adjusted net book income.‍ (montant de la juste valeur)

group adjusted net book income, of a consolidated group for a relevant period, means the amount determined by the formula

group net interest expense, of a consolidated group for a relevant period, means the amount determined by the formula

group ratio, of a consolidated group for a relevant period, means

• (a) except where paragraph (b) applies, the percentage determined by the formula

  1.‍1 × A ÷ B

  where

  A

  is the group net interest expense of the consolidated group for the relevant period, and

  B

  is the group adjusted net book income of the consolidated group for the relevant period; and

• (b) if the group adjusted net book income of the consolidated group for the relevant period is nil, nil.‍ (ratio de groupe)

net fair value amount means the positive or negative amount that is the total of all amounts, each of which is a positive or negative fair value amount in the consolidated financial statements of the consolidated group for a relevant period.‍ (montant de la juste valeur net)

relevant period means a period in respect of which the consolidated financial statements of a consolidated group are presented.‍ (période pertinente)

specified interest expense, of a consolidated group for a relevant period, means the amount determined by the formula

specified interest income, of a consolidated group for a relevant period, means the amount determined by the formula

specified non-member, of a consolidated group for a relevant period, means a particular person or partnership that is not a member of the consolidated group and that, at any time in the period,

• (a) does not deal at arm’s length with a member of the group;

• (b) alone or together with persons or partnerships with whom the particular person or partnership does not deal at arm’s length owns, or has the right to acquire, one or more equity interests in a member of the group that

  • (i) provide 25% or more of the votes that could be cast at an annual meeting of the shareholders of the member, if the member is a corporation, or

  • (ii) have 25% or more of the fair market value of all equity interests in the member; or

• (c) is a person or partnership in respect of which a member of the group — alone or together with persons or partnerships with whom the member does not deal at arm’s length — owns, or has the right to acquire, one or more equity interests in the particular person or partnership that

  • (i) provide 25% or more of the votes that could be cast at an annual meeting of the shareholders of the particular person, if the particular person is a corporation, or

  • (ii) have 25% or more of the fair market value of all equity interests in the particular person or partnership.‍ (non-membre déterminé)

ultimate parent means a particular entity if

• (a) the particular entity is not His Majesty in right of Canada, His Majesty in right of a province or an entity referred to in any of paragraphs 149(1)‍(c) to (d.‍6);

• (b) it holds directly or indirectly an interest in one or more other entities in respect of which it is required to prepare consolidated financial statements for financial reporting purposes, or would be so required if it was subject to International Financial Reporting Standards; and 

• (c) no entity (other than an entity described in paragraph (a)) holds, directly or indirectly, in the particular entity an interest that is described in paragraph (b).‍ (mère ultime)

Allocated group ratio amount

(2) A taxpayer and each corporation or trust that is, throughout the relevant period, an eligible group entity in respect of that taxpayer and a member of the same consolidated group as the taxpayer (the taxpayer and each of the corporations or trusts being referred to in this subsection and subsection (4) as a “Canadian group member”) may, if the taxpayer is a taxpayer described in subsection (7), elect, and otherwise jointly elect in respect of their taxation years ending in the relevant period (each referred to in this subsection and subsection (4) as a “relevant taxation year”) to allocate amounts in respect of each relevant taxation year and the amount allocated to a member for a relevant taxation year is the amount determined in respect of that member for that relevant taxation year for the purposes of this section and subsection 18.‍2(2), if

• (a) the consolidated financial statements of the consolidated group for the relevant period are audited financial statements;

• (b) the election or amended election

  • (i) specifies the amount allocated to each Canadian group member for each relevant taxation year, and

  • (ii) is filed with the Minister by the taxpayer or a Canadian group member of the taxpayer on or before

    • (A) the latest filing-due date of a Canadian group member for a relevant taxation year, or

    • (B) the day that is 90 days after the sending of

      • (I) a notice of assessment of tax payable under this Part by a Canadian group member for a relevant taxation year, or

      • (II) a notification that no tax is payable under this Part by a Canadian group member for a relevant taxation year;

• (c) the total of all amounts, each of which is an amount allocated to a Canadian group member for a relevant taxation year, does not exceed the least of

  • (i) the total of all amounts in respect of a member each of which is determined by the formula

    A × B

    where

    A

    is the group ratio of the consolidated group for the relevant period, and

    B

    is the adjusted taxable income of the member for each relevant taxation year,

  • (ii) the group net interest expense of the consolidated group in respect of the relevant period, and

  • (iii) the total of all amounts, each of which would, in the absence of section 257, be the adjusted taxable income of a member for each relevant taxation year;

• (d) an amended election has not been filed in accordance with this section; and

• (e) where the election is an amended election,

  • (i) the following conditions are met:

    • (A) in the absence of any assessment, the condition set out in paragraph (c) would be met in respect of a prior election under this subsection made by the Canadian group members for a relevant taxation year under this subsection, and

    • (B) subsection 18.‍2(9) does not apply to a tax benefit in respect of a prior election for the relevant period, or

  • (ii) the Minister grants permission to amend the prior election under subsection (3).

Late or amended election

(3) The Minister may extend the time for making an election or grant permission to amend or revoke an election under subsection (2) if

• (a) the Canadian group members demonstrate to the satisfaction of the Minister that

  • (i) they made reasonable efforts to determine all amounts that may reasonably be considered relevant in making the election, and

  • (ii) the election or amended election, as the case may be, is filed as soon as circumstances permit; and

• (b) in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the election to be made, amended or revoked.

Fair value adjustments — election

(4) For the purposes of calculating group adjusted net book income, the following rules apply:

• (a) no amounts may be included in paragraph (d) of the description of F or in the description of K in the definition group adjusted net book income for any relevant period unless the Canadian group members jointly elect, for the first relevant taxation year in respect of which the Canadian group members jointly elect under subsection (2), to include net fair value amounts in calculating group adjusted net book income for the relevant period in which the first relevant taxation year ends;

• (b) if an election to include net fair value amounts in the calculation is not made in the first relevant taxation year, each Canadian group member is deemed not to have so elected in that taxation year and any subsequent taxation year; and

• (c) if an election to include net fair value amounts in the calculation is made in the first relevant taxation year, each Canadian group member is deemed to have so elected in that taxation year and any subsequent taxation year.

Assessment

(5) If an election or amended election has been made under subsection (2), the Minister shall, notwithstanding subsections 152(4) and (5), assess or reassess the tax, interest or penalties payable under this Act by any taxpayer for any relevant taxation year as is necessary to give effect to the election or amended election.

Use of accounting terms

(6) For the purposes of the definitions consolidated financial statements, consolidated group, equity-accounted entity, fair value amount, group adjusted net book income, specified interest expense, specified interest income and ultimate parent in subsection (1), a term that is not defined under this Act has the meaning assigned to the term for financial reporting purposes under the relevant acceptable accounting standards.

Single member group

(7) For the purposes of this section, if a taxpayer resident in Canada is not a member of a consolidated group for a relevant period,

• (a) the taxpayer is deemed to be an eligible group entity in respect of itself;

• (b) the taxpayer is deemed to be

  • (i) a member of a consolidated group that comprises only itself, and

  • (ii) the ultimate parent of the group; and

• (c) the taxpayer’s financial statements are deemed to be consolidated financial statements.