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

Marginal note:Taxable capital employed in Canada
  •  (1) The taxable capital employed in Canada of a corporation for a taxation year (other than a financial institution or a corporation that was throughout the year not resident in Canada) is the prescribed proportion of the corporation’s taxable capital for the year.

  • Marginal note:Taxable capital

    (2) The taxable capital of a corporation (other than a financial institution) for a taxation year is the amount, if any, by which its capital for the year exceeds its investment allowance for the year.

  • Marginal note:Capital

    (3) The capital of a corporation (other than a financial institution) for a taxation year is the amount, if any, by which the total of

    • (a) the amount of its capital stock (or, in the case of a corporation incorporated without share capital, the amount of its members’ contributions), retained earnings, contributed surplus and any other surpluses at the end of the year,

    • (b) the amount of its reserves for the year, except to the extent that they were deducted in computing its income for the year under Part I,

    • (b.1) the amount of its deferred unrealized foreign exchange gains at the end of the year,

    • (c) the amount of all loans and advances to the corporation at the end of the year,

    • (d) the amount of all indebtedness of the corporation at the end of the year represented by bonds, debentures, notes, mortgages, hypothecary claims, banker’s acceptances or similar obligations,

    • (e) the amount of any dividends declared but not paid by the corporation before the end of the year,

    • (f) the amount of all other indebtedness (other than any indebtedness in respect of a lease) of the corporation at the end of the year that has been outstanding for more than 365 days before the end of the year, and

    • (g) the total of all amounts, each of which is the amount, if any, in respect of a partnership in which the corporation held a membership interest at the end of the year, either directly or indirectly through another partnership, determined by the formula

       (A – B) × C/D

      where

      A
      is the total of all amounts that would be determined under paragraphs (b) to (d) and (f) in respect of the partnership for its last fiscal period that ends at or before the end of the year if
      • (a) those paragraphs applied to partnerships in the same manner that they apply to corporations, and

      • (b) those amounts were computed without reference to amounts owing by the partnership

        • (i) to any corporation that held a membership interest in the partnership either directly or indirectly through another partnership, or

        • (ii) to any partnership in which a corporation described in subparagraph (i) held a membership interest either directly or indirectly through another partnership,

      B
      is the partnership’s deferred unrealized foreign exchange losses at the end of the period,
      C
      is the share of the partnership’s income or loss for the period to which the corporation is entitled either directly or indirectly through another partnership, and
      D
      is the partnership’s income or loss for the period

    exceeds the total of

    • (h) the amount of its deferred tax debit balance at the end of the year,

    • (i) the amount of any deficit deducted in computing its shareholders’ equity (including, for this purpose, the amount of any provision for the redemption of preferred shares) at the end of the year,

    • (j) any amount deducted under subsection 135(1) in computing its income under Part I for the year, to the extent that the amount can reasonably be regarded as being included in the amount determined under any of paragraphs 181.2(3)(a) to 181.2(3)(g) in respect of the corporation for the year, and

    • (k) the amount of its deferred unrealized foreign exchange losses at the end of the year.

  • Marginal note:Investment allowance

    (4) The investment allowance of a corporation (other than a financial institution) for a taxation year is the total of all amounts each of which is the carrying value at the end of the year of an asset of the corporation that is

    • (a) a share of another corporation,

    • (b) a loan or advance to another corporation (other than a financial institution),

    • (c) a bond, debenture, note, mortgage, hypothecary claim or similar obligation of another corporation (other than a financial institution),

    • (d) long-term debt of a financial institution,

    • (d.1) a loan or advance to, or a bond, debenture, note, mortgage, hypothecary claim or similar obligation of, a partnership each member of which was, throughout the year,

      • (i) another corporation (other than a financial institution) that was not exempt from tax under this Part (otherwise than because of paragraph 181.1(3)(d)), or

      • (ii) another partnership described in this paragraph,

    • (e) an interest in a partnership, or

    • (f) a dividend payable to the corporation at the end of the year on a share of the capital stock of another corporation,

    other than a share of the capital stock of, a dividend payable by, or indebtedness of, a corporation that is exempt from tax under this Part (otherwise than because of paragraph 181.1(3)(d)).

  • Marginal note:Value of interest in partnership

    (5) For the purposes of subsection (4) and this subsection, the carrying value at the end of a taxation year of an interest of a corporation or of a partnership (each of which is referred to in this subsection as the “member”) in a particular partnership is deemed to be the member’s specified proportion, for the particular partnership’s last fiscal period that ends at or before the end of the taxation year, of the amount that would, if the particular partnership were a corporation, be the particular partnership’s investment allowance at the end of that fiscal period.

  • Marginal note:Loan

    (6) For the purpose of subsection 181.2(4), where a corporation made a particular loan to a trust that neither

    • (a) made any loans or advances to nor received any loans or advances from, nor

    • (b) acquired any bond, debenture, note, mortgage, hypothecary claim or similar obligation of nor issued any bond, debenture, note, mortgage, hypothecary claim or similar obligation to

    a person not related to the corporation, as part of a series of transactions in which the trust made a loan to another corporation (other than a financial institution) to which the corporation is related, the least of

    • (c) the amount of the particular loan,

    • (d) the amount of the loan from the trust to the other corporation, and

    • (e) the amount, if any, by which

      • (i) the total of all amounts each of which is the amount of a loan from the trust to any corporation

      exceeds

      • (ii) the total of all amounts each of which is the amount of a loan (other than the particular loan) from any corporation to the trust

    at any time shall be deemed to be the amount of a loan from the corporation to the other corporation at that time.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 181.2;
  • 1994, c. 7, Sch. II, s. 147, Sch. VIII, s. 106;
  • 1998, c. 19, s. 195;
  • 2001, c. 17, s. 221;
  • 2013, c. 34, s. 325.
Marginal note:Taxable capital employed in Canada of financial institution
  •  (1) The taxable capital employed in Canada of a financial institution for a taxation year is the total of

    • (a) the total of all amounts each of which is the carrying value at the end of the year of an asset of the financial institution (other than property held by the institution primarily for the purpose of resale that was acquired by the financial institution, in the year or the preceding taxation year, as a consequence of another person’s default, or anticipated default, in respect of a debt owed to the institution) that is tangible, or for civil law corporeal, property used in Canada and, in the case of a financial institution that is an insurance corporation, that is non-segregated property, within the meaning assigned by subsection 138(12),

    • (b) the total of all amounts each of which is an amount in respect of a partnership in which the financial institution has an interest at the end of the year equal to that proportion of

      • (i) the total of all amounts each of which is the carrying value of an asset of the partnership, at the end of its last fiscal period ending at or before the end of the year, that is tangible, or for civil law corporeal, property used in Canada

      that

      • (ii) the financial institution’s share of the partnership’s income or loss for that period

      is of

      • (iii) the partnership’s income or loss for that period, and

    • (c) an amount that is equal to

      • (i) in the case of a financial institution other than an insurance corporation, that proportion of its taxable capital for the year that its Canadian assets at the end of the year is of its total assets at the end of the year,

      • (ii) in the case of an insurance corporation that was resident in Canada at any time during the year and carried on a life insurance business at any time in the year, the total of

        • (A) that proportion of the amount, if any, by which the total of

          • (I) its taxable capital for the year, and

          • (II) the amount prescribed for the year in respect of the corporation

          exceeds

          • (III) the amount prescribed for the year in respect of the corporation

          that its Canadian reserve liabilities as at the end of the year is of the total of

          • (IV) its total reserve liabilities as at the end of the year, and

          • (V) the amount prescribed for the year in respect of the corporation, and

        • (B) [Repealed, 2009, c. 2, s. 61]

      • (iii) in the case of an insurance corporation that was resident in Canada at any time in the year and throughout the year did not carry on a life insurance business, that proportion of its taxable capital for the year that the total amount of its Canadian premiums for the year is of its total premiums for the year, and

      • (iv) in the case of an insurance corporation that was throughout the year not resident in Canada and carried on an insurance business in Canada at any time in the year, its taxable capital for the year.

  • Marginal note:Taxable capital of financial institution

    (2) The taxable capital of a financial institution for a taxation year is the amount, if any, by which its capital for the year exceeds its investment allowance for the year.

  • Marginal note:Capital of financial institution

    (3) The capital of a financial institution for a taxation year is

    • (a) in the case of a financial institution, other than an authorized foreign bank or an insurance corporation, the amount, if any, by which the total at the end of the year of

      • (i) the amount of its long-term debt,

      • (ii) the amount of its capital stock (or, in the case of an institution incorporated without share capital, the amount of its members’ contributions), retained earnings, contributed surplus and any other surpluses, and

      • (iii) the amount of its reserves for the year, except to the extent that they were deducted in computing its income under Part I for the year,

      exceeds the total of

      • (iv) the amount of its deferred tax debit balance at the end of the year,

      • (v) the amount of any deficit deducted in computing its shareholders’ equity (including, for this purpose, the amount of any provision for the redemption of preferred shares) at the end of the year, and

      • (vi) any amount deducted under subsection 130.1(1) or 137(2) in computing its income under Part I for the year, to the extent that the amount can reasonably be regarded as being included in the amount determined under subparagraph 181.3(3)(a)(i), 181.3(3)(a)(ii) or 181.3(3)(a)(iii) in respect of the institution for the year;

    • (b) in the case of an insurance corporation that was resident in Canada at any time in the year and carried on a life insurance business at any time in the year, the amount, if any, by which the total at the end of the year of

      • (i) the amount of its long-term debt, and

      • (ii) the amount of its capital stock (or, in the case of an insurance corporation incorporated without share capital, the amount of its members’ contributions), retained earnings, contributed surplus and any other surpluses

      exceeds the total of

      • (iii) the amount of its deferred tax debit balance at the end of the year, and

      • (iv) the amount of any deficit deducted in computing its shareholders’ equity (including, for this purpose, the amount of any provision for the redemption of preferred shares) at the end of the year;

    • (c) in the case of an insurance corporation that was resident in Canada at any time in the year and throughout the year did not carry on a life insurance business, the amount, if any, by which the total at the end of the year of

      • (i) the amount of its long-term debt,

      • (ii) the amount of its capital stock (or, in the case of an insurance corporation incorporated without share capital, the amount of its members’ contributions), retained earnings, contributed surplus and any other surpluses, and

      • (iii) the amount of its reserves for the year, except to the extent that they were deducted in computing its income under Part I for the year,

      exceeds the total of

      • (iv) the amount of its deferred tax debit balance at the end of the year,

      • (v) the amount of any deficit deducted in computing its shareholders’ equity (including, for this purpose, the amount of any provision for the redemption of preferred shares) at the end of the year,

      • (vi) the total amount of its deferred acquisition expenses in respect of its property and casualty insurance business in Canada, to the extent that it can reasonably be attributed to an amount included in the amount determined under subparagraph 181.3(3)(c)(iii), and

      • (vii) any amount recoverable through reinsurance, to the extent that it can reasonably be regarded as being included in the amount determined under subparagraph (iii) in respect of a claims reserve;

    • (d) in the case of an insurance corporation that was throughout the year not resident in Canada and carried on an insurance business in Canada at any time in the year, the total at the end of the year of

      • (i) the amount that is the greater of

        • (A) the amount, if any, by which

          • (I) the corporation’s surplus funds derived from operations (as defined in subsection 138(12)) as of the end of the year, computed as if no tax were payable under this Part or Part VI for the year

          exceeds the total of all amounts each of which is

          • (II) an amount on which the corporation was required to pay, or would but for subsection 219(5.2) have been required to pay, tax under Part XIV for a preceding taxation year, except the portion, if any, of the amount on which tax was payable, or would have been payable, because of subparagraph 219(4)(a)(i.1), and

          • (III) an amount on which the corporation was required to pay, or would but for subsection 219(5.2) have been required to pay, tax under subsection 219(5.1) for the year because of the transfer of an insurance business to which subsection 138(11.5) or 138(11.92) has applied, and

        • (B) the corporation’s attributed surplus for the year,

      • (ii) any other surpluses relating to its insurance businesses carried on in Canada,

      • (iii) the amount of its long-term debt that may reasonably be regarded as relating to its insurance businesses carried on in Canada, and

      • (iv) the amount, if any, by which

        • (A) the amount of its reserves for the year (other than its reserves in respect of amounts payable out of segregated funds) that may reasonably be regarded as having been established in respect of its insurance businesses carried on in Canada

        exceeds the total of

        • (B) the total of all amounts each of which is the amount of a reserve (other than a reserve described in subparagraph 138(3)(a)(i)) to the extent that it was included in the amount determined under clause 181.3(3)(d)(iv)(A) and was deducted in computing its income under Part I for the year,

        • (C) the total of all amounts each of which is the amount of a reserve described in subparagraph 138(3)(a)(i) to the extent that it was included in the amount determined under clause 181.3(3)(d)(iv)(A) and was deductible under subparagraph 138(3)(a)(i) in computing its income under Part I for the year,

        • (D) the total of all amounts each of which is the amount outstanding (including any interest accrued thereon) as at the end of the year in respect of a policy loan (within the meaning assigned by subsection 138(12)) made by the corporation, to the extent that it was deducted in computing the amount determined under clause 181.3(3)(d)(iv)(C),

        • (E) the total amount of its deferred acquisition expenses in respect of its property and casualty insurance business in Canada, to the extent that it can reasonably be attributed to an amount included in the amount determined under clause 181.3(3)(d)(iv)(A), and

        • (F) the total of all amounts each of which is an amount recoverable through reinsurance, to the extent that it can reasonably be regarded as being included in the amount determined under clause (A) in respect of a claims reserve; and

    • (e) in the case of an authorized foreign bank, the total of

      • (i) 10% of the total of all amounts, each of which is the risk-weighted amount at the end of the year of an on-balance sheet asset or an off-balance sheet exposure of the bank in respect of its Canadian banking business that the bank would be required to report under the OSFI risk-weighting guidelines if those guidelines applied and required a report at that time, and

      • (ii) the total of all amounts, each of which is an amount at the end of the year in respect of the bank’s Canadian banking business that

        • (A) if the bank were a bank listed in Schedule II to the Bank Act, would be required under the risk-based capital adequacy guidelines issued by the Superintendent of Financial Institutions and applicable at that time to be deducted from the bank’s capital in determining the amount of capital available to satisfy the Superintendent’s requirement that capital equal a particular proportion of risk-weighted assets and exposures, and

        • (B) is not an amount in respect of a loss protection facility required to be deducted from capital under the Superintendent’s guidelines respecting asset securitization applicable at that time.

  • Marginal note:Investment allowance of financial institution

    (4) The investment allowance for a taxation year of a corporation that is a financial institution is

    • (a) in the case of a corporation that was resident in Canada at any time in the year, the total of all amounts each of which is the carrying value at the end of the year of an eligible investment of the corporation;

    • (b) in the case of an insurance corporation that was throughout the year not resident in Canada, the total of all amounts each of which is the carrying value at the end of the year of an eligible investment of the corporation that was used or held by it in the year in the course of carrying on an insurance business in Canada;

    • (c) in the case of an authorized foreign bank, the total of all amounts each of which is the amount at the end of the year, before the application of risk weights, that the bank would be required to report under the OSFI risk-weighting guidelines if those guidelines applied and required a report at that time, of an eligible investment used or held by the bank in the year in the course of carrying on its Canadian banking business; and

    • (d) in any other case, nil.

  • Marginal note:Interpretation

    (5) For the purpose of subsection (4),

    • (a) an eligible investment of a corporation is a share of the capital stock or long-term debt (and, where the corporation is an insurance corporation, is non-segregated property within the meaning assigned by subsection 138(12)) of a financial institution that at the end of the year

      • (i) is related to the corporation,

      • (ii) is not exempt from tax under this Part, and

      • (iii) is resident in Canada or can reasonably be regarded as using the proceeds of the share or debt in a business carried on by the institution through a permanent establishment (as defined by regulation) in Canada; and

    • (b) a credit union and another credit union of which the credit union is a shareholder or member are deemed to be related to each other.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 181.3;
  • 1994, c. 7, Sch. II, s. 148, Sch. VIII, s. 107, c. 21, s. 83;
  • 1998, c. 19, s. 196;
  • 2001, c. 17, s. 163;
  • 2009, c. 2, s. 61;
  • 2013, c. 34, ss. 148, 326.
 
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