Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Act current to 2017-09-27 and last amended on 2017-07-01. Previous Versions

Expenditure — Limitations

Marginal note:Definitions
  •  (1) The following definitions apply in this section.

    expenditure

    dépense

    expenditure of a taxpayer means an expense, expenditure or outlay made or incurred by the taxpayer, or a cost or capital cost of property acquired by the taxpayer. (dépense)

    option

    option

    option means

    • (a) a security that is issued or sold by a taxpayer under an agreement referred to in subsection 7(1); or

    • (b) an option, warrant or similar right, issued or granted by a taxpayer, giving the holder the right to acquire an interest in the taxpayer or in another taxpayer with whom the taxpayer does not, at the time the option, warrant or similar right is issued or granted, deal at arm’s length. (option)

    taxpayer

    contribuable

    taxpayer includes a partnership. (contribuable)

  • Marginal note:Options — limitation

    (2) In computing a taxpayer’s income, taxable income or tax payable or an amount considered to have been paid on account of the taxpayer’s tax payable, an expenditure of the taxpayer is deemed not to include any portion of the expenditure that would — if this Act were read without reference to this subsection — be included in determining the expenditure because of the taxpayer having granted or issued an option on or after November 17, 2005.

  • Marginal note:Corporate shares — limitation

    (3) In computing a corporation’s income, taxable income or tax payable or an amount considered to have been paid on account of the corporation’s tax payable, an expenditure of the corporation that would — if this Act were read without reference to this subsection — include an amount because of the corporation having issued a share of its capital stock at any particular time on or after November 17, 2005 is reduced by

    • (a) if the issuance of the share is not a consequence of the exercise of an option, the amount, if any, by which the fair market value of the share at the particular time exceeds

      • (i) if the transaction under which the share is issued is a transaction to which section 85, 85.1 or 138 applies, the amount determined under that section to be the cost to the issuing corporation of the property acquired in consideration for issuing the share, or

      • (ii) in any other case, the amount of the consideration that is the fair market value of the property transferred or issued to, or the services provided to, the issuing corporation for issuing the share; and

    • (b) if the issuance of the share is a consequence of the exercise of an option, the amount, if any, by which the fair market value of the share at the particular time exceeds the amount paid, pursuant to the terms of the option, by the holder to the issuing taxpayer for issuing the share.

  • Marginal note:Non-corporate interests — limitation

    (4) In computing a taxpayer’s (other than a corporation’s) income, taxable income or tax payable or an amount considered to have been paid on account of the taxpayer’s tax payable, an expenditure of the taxpayer that would — if this Act were read without reference to this subsection — include an amount because of the taxpayer having issued an interest, or because of an interest being created, in itself at any particular time on or after November 17, 2005 is reduced by

    • (a) if the issuance or creation of the interest is not a consequence of the exercise of an option, the amount, if any, by which the fair market value of the interest at the particular time exceeds

      • (i) if the transaction under which the interest is issued is a transaction to which paragraph 70(6)(b) or 73(1.01)(c), subsection 97(2) or section 107.4 or 132.2 applies, the amount determined under that provision to be the cost to the taxpayer of the property acquired for the interest, or

      • (ii) in any other case, the amount of the consideration that is the fair market value of the property transferred or issued to, or the services provided to, the taxpayer for the interest; and

    • (b) if the issuance or creation of the interest is a consequence of the exercise of an option, the amount, if any, by which the fair market value of the interest at the particular time exceeds the amount paid, pursuant to the terms of the option, by the holder to the taxpayer for the interest.

  • Marginal note:Clarification

    (5) For greater certainty,

    • (a) subsection (2) does not apply to reduce an expenditure that is a commission, fee or other amount for services rendered by a person as a salesperson, agent or dealer in securities in the course of the issuance of an option;

    • (b) subsections (3) and (4) do not apply to reduce an expenditure of a taxpayer to the extent that the expenditure does not include an amount determined to be an excess under those subsections;

    • (c) this section does not apply to determine the cost or capital cost of property determined under subsection 70(6), section 73, 85 or 85.1, subsection 97(2) or section 107.4, 132.2 or 138; and

    • (d) this section does not apply to determine the amount of a taxpayer’s expenditure if the amount of the expenditure as determined under section 69 is less than the amount that would, if this subsection were read without reference to this paragraph, be the amount of the expenditure as determined under this section.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. 2013, c. 34, s. 294.

Expenditure — Limit for Contingent Amount

Marginal note:Definitions
  •  (1) The following definitions apply in this section.

    contingent amount

    montant éventuel

    contingent amount, of a taxpayer at any time (other than a time at which the taxpayer is a bankrupt), includes an amount to the extent that the taxpayer, or another taxpayer that does not deal at arm’s length with the taxpayer, has a right to reduce the amount at that time. (montant éventuel)

    expenditure

    dépense

    expenditure, of a taxpayer, means an expense, expenditure or outlay made or incurred by the taxpayer, or a cost or capital cost of property acquired by the taxpayer. (dépense)

    right to reduce

    droit de réduire

    right to reduce means a right to reduce or eliminate an amount in respect of an expenditure at any time, including, for greater certainty, a right to reduce that is contingent upon the occurrence of an event, or in any other way contingent, if it is reasonable to conclude, having regard to all the circumstances, that the right will become exercisable. (droit de réduire)

    taxpayer

    contribuable

    taxpayer includes a partnership. (contribuable)

  • Marginal note:Limitation of amount of expenditure

    (2) For the purposes of this Act, if in a taxation year of a taxpayer an expenditure of the taxpayer occurs, the amount of the expenditure at any time is the lesser of

    • (a) the amount of the expenditure at the time calculated under this Act without reference to this section, and

    • (b) the least amount of the expenditure calculated by reducing the amount of the expenditure determined under paragraph (a) by the amount that is the amount, if any, by which

      • (i) the total of all amounts each of which is a contingent amount of the taxpayer in the year in respect of the expenditure

      exceeds

      • (ii) the total of all amounts each of which is

        • (A) an amount paid by the taxpayer to obtain a right to reduce an amount in respect of the expenditure, or

        • (B) a limited-recourse amount for the purposes of paragraph 143.2(6)(b) that reduces the expenditure under subsection 143.2(6) to the extent that the amount is also a contingent amount described in subparagraph (i) in respect of the expenditure.

  • Marginal note:Payment of contingent amount

    (3) For the purposes of this Act, if in a particular taxation year, a taxpayer pays all or a portion of a contingent amount referred to in paragraph (2)(b) that reduces the amount of the taxpayer’s expenditure referred to in paragraph (2)(a), the portion of the contingent amount paid by the taxpayer in the particular year for the purpose of earning income, and to that extent only, is deemed

    • (a) to have been incurred by the taxpayer in the particular year;

    • (b) to have been incurred for the same purpose and to have the same character as the expenditure so reduced; and

    • (c) to have become payable by the taxpayer in respect of the particular year.

  • Marginal note:Subsequent years

    (4) Subject to subsection (6), if at any time in a taxation year that is after a taxation year in which an expenditure of the taxpayer occurred, the taxpayer, or another taxpayer not dealing at arm’s length with the taxpayer, has a right to reduce an amount in respect of the expenditure (in this subsection and subsection (5) referred to as the “prior expenditure”) that would, if the taxpayer or the other taxpayer had had the right to reduce in a particular taxation year that ended before the time, have resulted in subsection (2) applying in the particular taxation year to reduce or eliminate the amount of the prior expenditure, the taxpayer’s subsequent contingent amount in respect of the prior expenditure, as determined under subsection (5), is deemed, to the extent subsection (2) and this subsection have not previously applied in respect of the expenditure,

    • (a) to be an amount received by the taxpayer at the time in the course of earning income from a business or property from a person described in subparagraph 12(1)(x)(i); and

    • (b) to be an amount referred to in subparagraph 12(1)(x)(iv).

  • Marginal note:Subsequent contingent amount

    (5) For the purposes of subsection (4), a taxpayer’s subsequent contingent amount in respect of a prior expenditure of the taxpayer is the amount, if any, by which

    • (a) the maximum amount by which the amount (in this subsection referred to as the “particular amount”) in respect of the prior expenditure may be reduced pursuant to a right to reduce the particular amount

    exceeds

    • (b) the amount, if any, paid to obtain the right to reduce the particular amount.

  • Marginal note:Anti-avoidance

    (6) If a taxpayer, or another taxpayer that does not deal at arm’s length with the taxpayer, has a right to reduce an amount in respect of an expenditure of the taxpayer in a taxation year that is after the taxation year in which the expenditure otherwise occurred, determined without reference to subsection (3), the taxpayer is deemed to have the right to reduce in the taxation year in which that expenditure otherwise occurred if it is reasonable to conclude having regard to all the circumstances that one of the purposes for having the right to reduce after the end of the year in which the expenditure otherwise occurred was to avoid the application of subsection (2) to the amount of the expenditure.

  • Marginal note:Assessments

    (7) Notwithstanding subsections 152(4) to (5), such assessments, determinations and redeterminations may be made as are necessary to give effect to this section.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. 2013, c. 34, s. 295.
 
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