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

SUBDIVISION IShareholders of Corporations Not Resident in Canada

Marginal note:Dividend from non-resident corporation
  •  (1) In computing the income for a taxation year of a taxpayer resident in Canada, there is to be included any amount received by the taxpayer at any time in the year as, on account or in lieu of payment of, or in satisfaction of, a dividend on a share owned by the taxpayer of the capital stock of a non-resident corporation.

  • Marginal note:Dividend from foreign affiliate

    (2) For the purposes of this Act, an amount is deemed to be a dividend paid or received, as the case may be, at any time on a share of a class of the capital stock of a non-resident corporation that is a foreign affiliate of a taxpayer if the amount is the share’s portion of a pro rata distribution (other than a distribution made in the course of a liquidation and dissolution of the corporation, on a redemption, acquisition or cancellation of the share by the corporation, or on a qualifying return of capital in respect of the share) made at that time by the corporation in respect of all the shares of that class.

  • Marginal note:Qualifying return of capital

    (3) For the purposes of subsection (2), a distribution made at any time by a foreign affiliate of a taxpayer in respect of a share of the capital stock of the affiliate that is a reduction of the paid-up capital of the affiliate in respect of the share and that would, in the absence of this subsection, be deemed under subsection (2) to be a dividend paid or received, at that time, on the share is a qualifying return of capital, at that time, in respect of the share if an election is made under this subsection, in respect of the distribution and in accordance with prescribed rules,

    • (a) by the taxpayer, where there is no person or partnership that meets the conditions in subparagraphs (b)(i) and (ii); or

    • (b) jointly by the taxpayer and each person or partnership that is, at that time,

      • (i) a connected person or partnership in respect of the taxpayer, and

      • (ii) a person or partnership of which the affiliate would, at that time, be a foreign affiliate if paragraph (b) of the definition equity percentage in subsection 95(4) were read as if the reference in that paragraph to “any corporation” were a reference to “any corporation other than a corporation resident in Canada”.

  • Marginal note:Connected person or partnership

    (4) For the purposes of subsection (3), a connected person or partnership in respect of a taxpayer, at any time, is

    • (a) a person that is, at that time, related to the taxpayer, and

    • (b) a partnership a member of which is, at that time,

      • (i) the taxpayer, or

      • (ii) a person that is related to the taxpayer.

  • Marginal note:Exclusion

    (5) No amount paid or received at any time is, for the purposes of this Act, a dividend paid or received on a share of the capital stock of a non-resident corporation that is a foreign affiliate of a taxpayer unless it is so deemed under this Part.

  • Marginal note:Loan from foreign affiliate

    (6) Except where subsection 15(2) applies, if a person or partnership receives at any time a loan from, or becomes at that time indebted to, a creditor that is at that time a foreign affiliate (referred to in subsections (9), (11) and (15) as the “creditor affiliate”) of a taxpayer resident in Canada or that is at that time a partnership (referred to in subsections (9), (11) and (15) as the “creditor partnership”) of which such an affiliate is a member and the person or partnership is at that time a specified debtor in respect of the taxpayer, then the specified amount in respect of the loan or indebtedness is to be included in computing the income of the taxpayer for the taxpayer’s taxation year that includes that time.

  • Marginal note:Back-to-back loans

    (7) For the purposes of this subsection and subsections (6) and (8) to (15), if at any time a person or partnership (referred to in this subsection as the “intermediate lender”) makes a loan to another person or partnership (in this subsection referred to as the “intended borrower”) because the intermediate lender received a loan from another person or partnership (in this subsection referred to as the “initial lender”)

    • (a) the loan made by the intermediate lender to the intended borrower is deemed, at that time, to have been made by the initial lender to the intended borrower (to the extent of the lesser of the amount of the loan made by the initial lender to the intermediate lender and the amount of the loan made by the intermediate lender to the intended borrower) under the same terms and conditions and at the same time as it was made by the intermediate lender; and

    • (b) the loan made by the initial lender to the intermediate lender and the loan made by the intermediate lender to the intended borrower are deemed not to have been made to the extent of the amount of the loan deemed to have been made under paragraph (a).

  • Marginal note:Exceptions to subsection (6)

    (8) Subsection (6) does not apply to

    • (a) a loan or indebtedness that is repaid, other than as part of a series of loans or other transactions and repayments, within two years of the day the loan was made or the indebtedness arose;

    • (b) indebtedness that arose in the ordinary course of the business of the creditor or a loan made in the ordinary course of the creditor’s ordinary business of lending money if, at the time the indebtedness arose or the loan was made, bona fide arrangements were made for repayment of the indebtedness or loan within a reasonable time;

    • (c) a loan that was made, or indebtedness that arose, in the ordinary course of carrying on a life insurance business outside Canada if

      • (i) the loan or indebtedness is owed by the taxpayer or by a subsidiary wholly-owned corporation of the taxpayer,

      • (ii) the taxpayer, or the subsidiary wholly-owned corporation, as the case may be, is a life insurance corporation resident in Canada,

      • (iii) the loan or indebtedness directly relates to a business of the taxpayer, or of the subsidiary wholly-owned corporation, that is carried on outside Canada, and

      • (iv) the interest on the loan or indebtedness is, or would be if it were otherwise income from property, included in the active business income of the creditor, or if the creditor is a partnership, a member of the partnership, under clause 95(2)(a)(ii)(A); and

    • (d) subject to subsection (8.1), an upstream deposit owing to an eligible bank affiliate.

  • Marginal note:Upstream deposit — eligible bank affiliate

    (8.1) For the purposes of this section, if a taxpayer is an eligible Canadian bank and an eligible bank affiliate of the taxpayer is owed, at any time in a particular taxation year of the affiliate or the immediately preceding taxation year, an upstream deposit,

    • (a) the affiliate is deemed to make a loan to the taxpayer immediately before the end of the particular year equal to the amount determined by the following formula, where all amounts referred to in the formula are to be determined using Canadian currency:

      A – B – C

      where

      A
      is 90% of the average of all amounts each of which is, in respect of a calendar month that ends in the particular year, the greatest total amount at any time in the month of the upstream deposits owing to the affiliate,
      B
      is the lesser of
      • (i) the amount, if any, by which the affiliate’s excess liquidity for the particular year exceeds the average of all amounts each of which is, in respect of a calendar month that ends in the particular year, the greatest total amount at any time in the month of eligible Canadian indebtedness owing to the affiliate, and

      • (ii) the amount determined for A, and

      C
      is the amount, if any, by which the amount determined for A for the immediately preceding year exceeds the amount determined for B for the immediately preceding year; and
    • (b) if the formula in paragraph (a) would, in the absence of section 257, result in a negative amount for the particular year,

      • (i) the taxpayer is deemed to repay immediately before the end of the particular year — in an amount equal to the absolute value of the negative amount and in the order in which they arose — loans made by the affiliate under paragraph (a) in a prior taxation year and not previously repaid, and

      • (ii) the repayment is deemed to not be part of a series of loans or other transactions and repayments.

  • Marginal note:Corporations: deduction for amounts included under subsection (6) or (12)

    (9) There may be deducted in computing the income for a taxation year of a corporation resident in Canada a particular amount, in respect of a specified amount included under subsection (6), or an amount included under subsection (12), in computing the corporation’s income for the taxation year in respect of a particular loan or indebtedness, if

    • (a) the corporation demonstrates that the particular amount is the total of all amounts (not to exceed the amount so included) each of which would — if the specified amount in respect of the particular loan or indebtedness were, at the time (referred to in subparagraph (i) and subsection (11) as the “lending time”) the particular loan was made or the particular indebtedness was incurred, instead paid by the creditor affiliate, or the creditor partnership, as the case may be, to the corporation directly as part of one dividend, or indirectly as part of one or more dividends and, if applicable, partnership distributions — reasonably be considered to have been deductible, in respect of the payment, for the corporation’s taxation year in which the specified amount was included in its income under subsection (6), in computing

      • (i) the taxable income of the corporation under any of

        • (A) paragraph 113(1)(a), in respect of the exempt surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation,

        • (B) paragraph 113(1)(a.1), in respect of the hybrid surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation, if the amount of that hybrid surplus is less than or equal to the amount determined by the formula

          [A × (B – 0.5)] + (C × 0.5)

          where

          A
          is the affiliate’s hybrid underlying tax in respect of the corporation at the lending time,
          B
          is the corporation’s relevant tax factor (within the meaning assigned by subsection 95(1)) for the corporation’s taxation year that includes the lending time, and
          C
          is the affiliate’s hybrid surplus in respect of the corporation at the lending time,
        • (C) paragraph 113(1)(b), in respect of the taxable surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation, and

        • (D) paragraph 113(1)(d), in respect of the pre-acquisition surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation to the extent of the adjusted cost base to the corporation, at the lending time, of the shares of the capital stock of the affiliate, and except if the specified debtor is

          • (I) a non-resident person with which the corporation does not deal at arm’s length, or

          • (II) a partnership any member of which is a person described in subclause (I), or

      • (ii) the income of the corporation under subsection 91(5), in respect of the taxable surplus of a foreign affiliate of the corporation, if the specified debtor is a person or partnership described in subclause (i)(D)(I) or (II);

    • (b) that exempt surplus, hybrid surplus, taxable surplus, or adjusted cost base is not relevant in applying this subsection in respect of any other loan made or indebtedness incurred, or in respect of any deduction claimed under subsection 91(5) or 113(1) in respect of a dividend paid, during the period in which the particular loan or indebtedness is outstanding; and

    • (c) that adjusted cost base is not relevant in determining the taxability of any other distribution made during the period in which the particular loan or indebtedness is outstanding.

  • Marginal note:Corporate partners: application of subsection (9)

    (10) In applying subsection (9) to a corporation resident in Canada that is a member of a partnership at the end of a fiscal period of the partnership,

    • (a) each amount that may reasonably be considered to be the corporation’s share (determined in a manner consistent with the determination of the corporation’s share of the income of the partnership under subsection 96(1)) of each specified amount that is required to be included in computing the income of the partnership for that fiscal period under subsection (6), in respect of a particular loan or indebtedness, is deemed to be a specified amount in respect of the particular loan or indebtedness that was included in the corporation’s income, for its taxation year that includes the last day of that fiscal period, under subsection (6);

    • (b) subparagraph (9)(a)(i) is to be read without reference to its clause (D);

    • (c) subparagraph (9)(a)(ii) is to be read as follows:

      • (ii) the income of the partnership, referred to in subsection (10), under subsection 91(5), in respect of the taxable surplus of a foreign affiliate of the partnership, to the extent of the amount that may reasonably be considered to be the corporation’s share of that deduction (determined in a manner consistent with the determination of the corporation’s share of the income of the partnership under subsection 96(1));

    • (d) paragraph (9)(b) is to be read as follows:

      • (b) that exempt surplus, hybrid surplus, or taxable surplus is not relevant in applying this subsection in respect of any other loan made or indebtedness incurred, or in respect of any deduction claimed under subsection 91(5) or 113(1) in respect of a dividend paid, during the period in which the particular loan or indebtedness is outstanding; and

    • (e) subsection (9) is to be read without reference to its paragraph (c).

  • Marginal note:Downstream surplus

    (11) For the purposes of subparagraph (9)(a)(i), the amounts of exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, and underlying foreign tax of the creditor affiliate, or of each foreign affiliate of the corporation that is a member of the creditor partnership, as the case may be, in respect of the corporation, at the lending time are deemed to be the amounts that would be determined, at the lending time, under subparagraph 5902(1)(a)(i) of the Income Tax Regulations if that subparagraph were applicable at the lending time and the references in that subparagraph to “the dividend time” were references to the lending time.

  • Marginal note:Add-back for subsection (9) deduction

    (12) There is to be included in computing the income of a corporation resident in Canada for a particular taxation year any amount deducted by the corporation under subsection (9) in computing the corporation’s income for the taxation year that immediately precedes the particular year.

  • Marginal note:No double deduction

    (13) A corporation may not claim a deduction for a taxation year under subsection (9) in respect of the same portion of the specified amount in respect of a loan or indebtedness for which a deduction is claimed for that year or a preceding year by the corporation, or by a partnership of which the corporation is a member, under subsection (14).

  • Marginal note:Repayment of loan

    (14) There may be deducted in computing the income of a taxpayer for a particular taxation year the amount determined by the formula

    A × B/C

    where

    A
    is the specified amount, in respect of a loan or indebtedness, that is included under subsection (6) in computing the taxpayer’s income for a preceding taxation year,
    B
    is the portion of the loan or indebtedness that was repaid in the particular year, to the extent it is established, by subsequent events or otherwise, that the repayment was not part of a series of loans or other transactions and repayments, and
    C
    is the amount, in respect of the loan or indebtedness, that is referred to in the description of A in the definition specified amount in subsection (15).
  • Marginal note:Definitions

    (15) The following definitions apply in this section.

    eligible bank affiliate

    filiale bancaire admissible

    eligible bank affiliate has the same meaning as in subsection 95(2.43). (filiale bancaire admissible)

    eligible Canadian bank

    banque canadienne admissible

    eligible Canadian bank has the same meaning as in subsection 95(2.43). (banque canadienne admissible)

    eligible Canadian indebtedness

    dettes canadiennes admissibles

    eligible Canadian indebtedness has the same meaning as in subsection 95(2.43). (dettes canadiennes admissibles)

    excess liquidity

    liquidités excédentaires

    excess liquidity has the same meaning as in subsection 95(2.43). (liquidités excédentaires)

    specified amount

    montant déterminé

    specified amount, in respect of a loan or indebtedness that is required by subsection (6) to be included in computing the income of a taxpayer for a taxation year, means the amount determined by the formula

    A × (B – C)

    where

    A
    is the amount of the loan or indebtedness, and
    B
    is, in the case of
    • (a) a creditor affiliate of the taxpayer, the percentage that is or would be, if the taxpayer referred to in subsection (6) were a corporation resident in Canada, the taxpayer’s surplus entitlement percentage (in this definition determined without reference to subsection 5908(1) of the Income Tax Regulations) in respect of the creditor affiliate at the time (referred to in this definition as the “determination time”) referred to in subsection (6), or

    • (b) a creditor partnership of which a foreign affiliate of the taxpayer is a member, the total of each percentage determined, in respect of a member (referred to in this paragraph as a “member affiliate”) of the creditor partnership that is a foreign affiliate of the taxpayer, by the formula

      D × E/F

      where

      D
      is the percentage that is or would be, if the taxpayer were a corporation resident in Canada, the taxpayer’s surplus entitlement percentage in respect of a particular member affiliate at the determination time,
      E
      is the fair market value, at the determination time, of the particular member affiliate’s direct or indirect interest in the creditor partnership, and
      F
      is the fair market value, at the determination time, of all interests in the creditor partnership, and
    C
    is,
    • (a) if the debtor under the loan or indebtedness is

      • (i) another foreign affiliate of the taxpayer, the percentage that is or would be, if the taxpayer were a corporation resident in Canada, the taxpayer’s surplus entitlement percentage in respect of the other affiliate at the determination time, or

      • (ii) a partnership (referred to in this paragraph as the “borrower partnership”) of which one or more other foreign affiliates of the taxpayer are members, the total of each percentage that is determined by the following formula in respect of each such member

        G × H/I

        where

        G
        is the percentage that is or would be, if the taxpayer were a corporation resident in Canada, the taxpayer’s surplus entitlement percentage in respect of a particular member of the borrower partnership at the determination time,
        H
        is the fair market value, at the determination time, of the particular member’s direct or indirect interest in the borrower partnership, and
        I
        is the fair market value, at the determination time, of all interests in the borrower partnership, and
    • (b) in any other case, nil. (montant déterminé)

    specified debtor

    débiteur déterminé

    specified debtor, in respect of a taxpayer resident in Canada, at any time, means

    • (a) the taxpayer;

    • (b) a person with which the taxpayer does not, at that time, deal at arm’s length, other than a non-resident corporation that is at that time a controlled foreign affiliate, within the meaning assigned by section 17, of the taxpayer;

    • (c) a partnership a member of which is at that time a person or partnership that is a specified debtor in respect of the taxpayer because of paragraph (a) or (b); and

    • (d) if the taxpayer is a partnership,

      • (i) any member of the partnership that is a corporation resident in Canada if the creditor affiliate, or member of the creditor partnership, as the case may be, is, at that time, a foreign affiliate of the corporation,

      • (ii) a person with which a corporation referred to in subparagraph (i) does not, at that time, deal at arm’s length, other than a controlled foreign affiliate, within the meaning assigned by section 17, of the partnership or of a member of the partnership that owns, directly or indirectly, an interest in the partnership representing at least 90% of the fair market value of all such interests, or

      • (iii) a partnership a member of which is at that time a person that is a specified debtor in respect of the taxpayer because of subparagraph (i) or (ii). (débiteur déterminé)

    upstream deposit

    dépôt en amont

    upstream deposit has the same meaning as in subsection 95(2.43). (dépôt en amont)

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 90;
  • 2013, c. 34, s. 66;
  • 2014, c. 39, s. 20.
 
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