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

Act current to 2017-12-11 and last amended on 2017-07-01. Previous Versions

Marginal note:Interest — authorized foreign bank — interpretation
  •  (1) The following definitions apply in this section.

    branch advance

    avance de succursale

    branch advance of an authorized foreign bank means an amount allocated or provided by, or on behalf of, the bank to, or for the benefit of, its Canadian banking business under terms that were documented, before the amount was so allocated or provided, to the same extent as, and in a form similar to the form in which, the bank would ordinarily document a loan by it to a person with whom it deals at arm’s length. (avance de succursale)

    branch financial statements

    états financiers de succursale

    branch financial statements of an authorized foreign bank for a taxation year means the unconsolidated statements of assets and liabilities and of income and expenses for the year, in respect of its Canadian banking business,

    • (a) that form part of the bank’s annual report for the year filed with the Superintendent of Financial Institutions as required under section 601 of the Bank Act, and accepted by the Superintendent, and

    • (b) if no filing is so required for the taxation year, that are prepared in a manner consistent with the statements in the annual report or reports so filed and accepted for the period or periods in which the taxation year falls,

    except if the Minister demonstrates that the statements are not prepared in accordance with generally-accepted accounting principles in Canada as modified by any specifications applicable to the bank made by the Superintendent of Financial Institutions under subsection 308(4) of the Bank Act (in this definition referred to as “modified GAAP”), in which case it means the statements subject to such modifications as are required to make them comply with modified GAAP. (états financiers de succursale)

    calculation period

    période de calcul

    calculation period of an authorized foreign bank for a taxation year means any one of a series of regular periods into which the year is divided in a designation by the bank in its return of income for the year or, in the absence of such a designation, by the Minister,

    • (a) none of which is longer than 31 days;

    • (b) the first of which commences at the beginning of the year and the last of which ends at the end of the year; and

    • (c) that are, unless the Minister otherwise agrees in writing, consistent with the calculation periods designated for the bank’s preceding taxation year. (période de calcul)

  • Marginal note:Formula elements

    (2) The following descriptions apply for the purposes of the formulae in subsection (3) for any calculation period in a taxation year of an authorized foreign bank:

    A
    is the amount of the bank’s assets at the end of the period;
    BA
    is the amount of the bank’s branch advances at the end of the period;
    IBA
    is the total of all amounts each of which is a reasonable amount on account of notional interest for the period, in respect of a branch advance, that would be deductible in computing the bank’s income for the year if it were interest payable by, and the advance were indebtedness of, the bank to another person and if this Act were read without reference to paragraph 18(1)(v) and this section;
    IL
    is the total of all amounts each of which is an amount on account of interest for the period in respect of a liability of the bank to another person or partnership that would be deductible in computing the bank’s income for the year if this Act were read without reference to paragraph 18(1)(v) and this section; and
    L
    is the amount of the bank’s liabilities to other persons and partnerships at the end of the period.
  • Marginal note:Interest deduction

    (3) In computing the income of an authorized foreign bank from its Canadian banking business for a taxation year, there may be deducted on account of interest for each calculation period of the bank for the year,

    • (a) where the total amount at the end of the period of its liabilities to other persons and partnerships and branch advances is 95% or more of the amount of its assets at that time, an amount not exceeding

      • (i) if the amount of liabilities to other persons and partnerships at that time is less than 95% of the amount of its assets at that time, the amount determined by the formula

        IL + IBA × (0.95 × A - L)/BA

      and

      • (ii) if the amount of those liabilities at that time is greater than or equal to 95% of the amount of its assets at that time, the amount determined by the formula

        IL × (0.95 × A)/L

      and

    • (b) in any other case, the total of

      • (i) the amount determined by the formula

        IL + IBA

      and

      • (ii) the product of

        • (A) the amount claimed by the bank, in its return of income for the year, not exceeding the amount determined by the formula

          (0.95 × A) - (L + BA)

        and

        • (B) the average, based on daily observations, of the Bank of Canada bank rate for the period.

  • Marginal note:Branch amounts

    (4) Only amounts that are in respect of an authorized foreign bank’s Canadian banking business, and that are recorded in the books of account of the business in a manner consistent with the manner in which they are required to be treated for the purposes of the branch financial statements, shall be used to determine

    • (a) the amounts in subsection (2); and

    • (b) the amounts in subsection (3) of an authorized foreign bank’s assets, liabilities to other persons and partnerships, and branch advances.

  • Marginal note:Notional interest

    (5) For the purposes of the description of IBA in subsection (2), a reasonable amount on account of notional interest for a calculation period in respect of a branch advance is the amount that would be payable on account of interest for the period by a notional borrower, having regard to the duration of the advance, the currency in which repayment is required and all other terms, as adjusted by paragraph (c), of the advance, if

    • (a) the borrower were a person that dealt at arm’s length with the bank, that carried on the bank’s Canadian banking business and that had the same credit-worthiness and borrowing capacity as the bank;

    • (b) the advance were a loan by the bank to the borrower; and

    • (c) any of the terms of the advance (excluding the rate of interest, but including the structure of the interest calculation, such as whether the rate is fixed or floating and the choice of any reference rate referred to) that are not terms that would be made between the bank as lender and the borrower, having regard to all the circumstances, including the nature of the Canadian banking business, the use of the advanced funds in the business and normal risk management practices for banks, were instead terms that would be agreed to by the bank and the borrower.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. 2001, c. 17, s. 14.
Marginal note:Weak currency debt — interpretation
  •  (1) The definitions in this subsection apply in this section.

    exchange date

    date de l’échange

    exchange date in respect of a debt of a taxpayer that is at any time a weak currency debt means, if the debt is incurred or assumed by the taxpayer

    • (a) in respect of borrowed money that is denominated in the final currency, the day that the debt is incurred or assumed by the taxpayer; and

    • (b) in respect of borrowed money that is not denominated in the final currency, or in respect of the acquisition of property, the day on which the taxpayer uses the borrowed money or the acquired property, directly or indirectly, to acquire funds that are, or to settle an obligation that is, denominated in the final currency. (date de l’échange)

    hedge

    opération de couverture

    hedge in respect of a debt of a taxpayer that is at any time a weak currency debt means any agreement made by the taxpayer

    • (a) that can reasonably be regarded as having been made by the taxpayer primarily to reduce the taxpayer’s risk, with respect to payments of principal or interest in respect of the debt, of fluctuations in the value of the weak currency; and

    • (b) that is identified by the taxpayer as a hedge in respect of the debt in a designation in prescribed form filed with the Minister on or before the 30th day after the day the taxpayer enters into the agreement. (opération de couverture)

    weak currency debt

    dette en devise faible

    weak currency debt of a taxpayer at a particular time means a particular debt in a foreign currency (in this section referred to as the “weak currency”), incurred or assumed by the taxpayer at a time (in this section referred to as the “commitment time”) after February 27, 2000, in respect of a borrowing of money or an acquisition of property, where

    • (a) any of the following applies, namely,

      • (i) the borrowed money is denominated in a currency (in this section referred to as the “final currency”) other than the weak currency, is used for the purpose of earning income from a business or property and is not used to acquire funds in a currency other than the final currency,

      • (ii) the borrowed money or the acquired property is used, directly or indirectly, to acquire funds that are denominated in a currency (in this section referred to as the “final currency”) other than the weak currency, that are used for the purpose of earning income from a business or property and that are not used to acquire funds in a currency other than the final currency,

      • (iii) the borrowed money or the acquired property is used, directly or indirectly, to settle an obligation that is denominated in a currency (in this section referred to as the “final currency”) other than the weak currency, that is incurred or assumed for the purpose of earning income from a business or property and that is not incurred or assumed to acquire funds in a currency other than the final currency, or

      • (iv) the borrowed money or the acquired property is used, directly or indirectly, to settle another debt of the taxpayer that is at any time a weak currency debt in respect of which the final currency (which is deemed to be the final currency in respect of the particular debt) is a currency other than the currency of the particular debt;

    • (b) the amount of the particular debt (together with any other debt that would, but for this paragraph, be at any time a weak currency debt, and that can reasonably be regarded as having been incurred or assumed by the taxpayer as part of a series of transactions that includes the incurring or assumption of the particular debt) exceeds $500,000; and

    • (c) either of the following applies, namely,

      • (i) if the rate at which interest is payable at the particular time in the weak currency in respect of the particular debt is determined under a formula based on the value from time to time of a reference rate (other than a reference rate the value of which is established or materially influenced by the taxpayer), the interest rate at the commitment time, as determined under the formula as though interest were then payable, exceeds by more than two percentage points the rate at which interest would have been payable at the commitment time in the final currency if

        • (A) the taxpayer had, at the commitment time, instead incurred or assumed an equivalent amount of debt in the final currency on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating) with those modifications that the difference in currency requires, and

        • (B) interest on the equivalent amount of debt referred to in clause (A) was payable at the commitment time, or

      • (ii) in any other case, the rate at which interest is payable at the particular time in the weak currency in respect of the particular debt exceeds by more than two percentage points the rate at which interest would have been payable at the particular time in the final currency if at the commitment time the taxpayer had instead incurred or assumed an equivalent amount of debt in the final currency on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating), with those modifications that the difference in currency requires. (dette en devise faible)

  • Marginal note:Interest and gain

    (2) Notwithstanding any other provision of this Act, the following rules apply in respect of a particular debt of a taxpayer (other than a corporation described in one or more of paragraphs (a), (b), (c) and (e) of the definition specified financial institution in subsection 248(1)) that is at any time a weak currency debt:

    • (a) no deduction on account of interest that accrues on the debt for any period that begins after the day that is the later of June 30, 2000 and the exchange date during which it is a weak currency debt shall exceed the amount of interest that would, if at the commitment time the taxpayer had instead incurred or assumed an equivalent amount of debt, the principal and interest in respect of which were denominated in the final currency, on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating) have accrued on the equivalent debt during that period, with those modifications that the difference in currency requires;

    • (b) the amount, if any, of the taxpayer’s gain or loss (in this section referred to as a “foreign exchange gain or loss”) for a taxation year on the settlement or extinguishment of the debt that arises because of the fluctuation in the value of any currency shall be included or deducted, as the case may be, in computing the taxpayer’s income for the year from the business or the property to which the debt relates; and

    • (c) the amount of any interest on the debt that was, because of this subsection, not deductible is deemed, for the purpose of computing the taxpayer’s foreign exchange gain or loss on the settlement or extinguishment of the debt, to be an amount paid by the taxpayer to settle or extinguish the debt.

  • Marginal note:Hedges

    (3) In applying subsection (2) in circumstances where a taxpayer has entered into a hedge in respect of a debt of the taxpayer that is at any time a weak currency debt, the amount paid or payable in the weak currency for a taxation year on account of interest on the debt, or paid in the weak currency in the year on account of the debt’s principal, shall be decreased by the amount of any foreign exchange gain, or increased by the amount of any foreign exchange loss, on the hedge in respect of the amount so paid or payable.

  • Marginal note:Repayment of principal

    (4) If the amount (expressed in the weak currency) outstanding on account of principal in respect of a debt of the taxpayer that is at any time a weak currency debt is reduced before maturity (whether by repayment or otherwise), the amount (expressed in the weak currency) of the reduction is deemed, except for the purposes of determining the rate of interest that would have been charged on an equivalent loan in the final currency and applying paragraph (b) of the definition weak currency debt in subsection (1), to have been a separate debt from the commitment time.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. 2001, c. 17, s. 14.
 
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