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

Full Document:  

Act current to 2018-07-05 and last amended on 2018-07-01. Previous Versions

Marginal note:Amounts to be included in respect of share of foreign affiliate
  •  (1) In computing the income for a taxation year of a taxpayer resident in Canada, there shall be included, in respect of each share owned by the taxpayer of the capital stock of a controlled foreign affiliate of the taxpayer, as income from the share, the percentage of the foreign accrual property income of any controlled foreign affiliate of the taxpayer, for each taxation year of the affiliate ending in the taxation year of the taxpayer, equal to that share’s participating percentage in respect of the affiliate, determined at the end of each such taxation year of the affiliate.

  • Marginal note:Conditions for application of subsection (1.2)

    (1.1) Subsection (1.2) applies at a particular time in respect of a particular foreign affiliate of a taxpayer resident in Canada if

    • (a) an amount would be included under subsection (1) in computing the income of the taxpayer, in respect of a share of the particular affiliate or another foreign affiliate of the taxpayer that has an equity percentage (as defined in subsection 95(4)) in the particular affiliate, for the taxation year of the particular affiliate (determined without reference to subsection (1.2)) that includes the particular time (referred to in this subsection and subsection (1.3) as the “ordinary taxation year” of the particular affiliate), if the ordinary taxation year of the particular affiliate ended at the particular time;

    • (b) immediately after the particular time, there is

      • (i) an acquisition of control of the taxpayer, or

      • (ii) a triggering event that can reasonably be considered to result in a change in the aggregate participating percentage of the taxpayer in respect of the particular affiliate for the ordinary taxation year of the particular affiliate;

    • (c) if subparagraph (b)(i) applies, all or a portion of an amount described in paragraph 95(2)(f) that accrued to the particular affiliate during the portion of the ordinary taxation year of the particular affiliate before the particular time is excluded in computing the income of another taxpayer because paragraph 95(2)(f.1) applies as a result of the taxpayer being, at a time before the acquisition of control, a designated acquired corporation of the other taxpayer; and

    • (d) if subparagraph (b)(ii) applies, none of the following is the case:

      • (i) the change referred to in that subparagraph

        • (A) is a decrease, and

        • (B) is equal to the total of all amounts each of which is the increase — that can reasonably be considered to result from the triggering event — in the aggregate participating percentage of another taxpayer, in respect of the particular affiliate for the ordinary taxation year of the particular affiliate, if the other taxpayer

          • (I) is a person resident in Canada, other than a person that is — or a trust, any of the beneficiaries under which is — by reason of a statutory provision, exempt from tax under this Part, and

          • (II) is related to the taxpayer,

            1 if the triggering event results from a winding-up of the taxpayer to which subsection 88(1) applies, at the particular time, and

            2 in any other case, immediately after the particular time,

      • (ii) the triggering event is on an amalgamation as defined in subsection 87(1),

      • (iii) the triggering event is an excluded acquisition or disposition, in respect of the ordinary taxation year of the particular affiliate, and

      • (iv) if one or more triggering events — all of which are described in subparagraph (b)(ii) and in respect of which none of the conditions in subparagraphs (i) to (iii) are satisfied — occur in the ordinary taxation year of the particular affiliate, the percentage determined by the following formula is not greater than 5%:

        A — B

        where

        A
        is the total of all amounts each of which is the decrease — which can reasonably be considered to result from a triggering event described in subparagraph (b)(ii) (other than a triggering event that satisfies the conditions in subparagraph (i) or (ii)) — in the aggregate participating percentage of the taxpayer in respect of the particular affiliate for the ordinary taxation year of the particular affiliate, and
        B
        is the total of all amounts each of which is the increase — which can reasonably be considered to result from a triggering event described in subparagraph (b)(ii) (other than a triggering event that satisfies the conditions in subparagraph (i) or (ii)) — in the aggregate participating percentage of the taxpayer in respect of the particular affiliate for the ordinary taxation year of the particular affiliate.
  • Marginal note:Deemed year-end

    (1.2) If this subsection applies at a particular time in respect of a foreign affiliate of a particular taxpayer resident in Canada, then for the purposes of this section and section 92,

    • (a) in respect of the particular taxpayer and each connected person, or connected partnership, in respect of the particular taxpayer, the affiliate’s taxation year that would, in the absence of this subsection, have included the particular time is deemed to have ended at the time (referred to in this section as the “stub-period end time”) that is immediately before the particular time;

    • (b) if the affiliate is, immediately after the particular time, a foreign affiliate of the particular taxpayer or a connected person, or connected partnership, in respect of the particular taxpayer, the affiliate’s next taxation year after the stub-period end time is deemed, in respect of the particular taxpayer or the connected person or connected partnership, as the case may be, to begin immediately after the particular time; and

    • (c) in determining the foreign accrual property income of the affiliate for the taxation year referred to in paragraph (a) in respect of the particular taxpayer or a connected person or connected partnership, in respect of the particular taxpayer, all transactions or events that occur at the particular time are deemed to occur at the stub-period end time.

  • Marginal note:Definitions

    (1.3) The following definitions apply in this subsection and subsections (1.1) and (1.2).

    aggregate participating percentage

    aggregate participating percentage, of a taxpayer in respect of a foreign affiliate of the taxpayer for a taxation year of the affiliate, means the total of all amounts, each of which is the participating percentage, in respect of the affiliate, of a share of the capital stock of a corporation that is owned by the taxpayer at the end of the taxation year. (pourcentage de participation total)

    connected person

    connected person, in respect of a particular taxpayer, means a person that — at or immediately after the particular time at which subsection (1.2) applies in respect of a foreign affiliate of the particular taxpayer — is resident in Canada and

    • (a) does not deal at arm’s length with the particular taxpayer; or

    • (b) deals at arm’s length with the particular taxpayer, if

      • (i) the foreign affiliate is a foreign affiliate of the person at the particular time, and

      • (ii) the aggregate participating percentage of the person in respect of the foreign affiliate for the affiliate’s ordinary taxation year may reasonably be considered to have increased as a result of the triggering event that gave rise to the application of subsection (1.2). (personne rattachée)

    connected partnership

    connected partnership, in respect of a particular taxpayer, means a partnership if, at or immediately after the particular time at which subsection (1.2) applies in respect of a foreign affiliate of the particular taxpayer,

    • (a) the particular taxpayer or a connected person in respect of the particular taxpayer is, directly or indirectly through one or more partnerships, a member of the partnership; or

    • (b) if paragraph (a) does not apply,

      • (i) the foreign affiliate is a foreign affiliate of the partnership at the particular time, and

      • (ii) the aggregate participating percentage of the partnership in respect of the foreign affiliate for the affiliate’s ordinary taxation year may reasonably be considered to have increased as a result of the triggering event that gave rise to the application of subsection (1.2). (société de personnes rattachée)

    excluded acquisition or disposition

    excluded acquisition or disposition, in respect of a taxation year of a foreign affiliate of a taxpayer, means an acquisition or disposition of an equity interest in a corporation, partnership or trust that can reasonably be considered to result in a change in the aggregate participating percentage of the taxpayer in respect of the affiliate for the taxation year of the affiliate, if

    • (a) the change is less than 1%; and

    • (b) it cannot reasonably be considered that one of the main reasons the acquisition or disposition occurs as a separate acquisition or disposition from one or more other acquisitions or dispositions is to avoid the application of subsection (1.2). (acquisition ou disposition exclue)

    triggering event

    triggering event means

    • (a) an acquisition or disposition of an equity interest in a corporation, partnership or trust;

    • (b) a change in the terms or conditions of a share of the capital stock of a corporation or the rights as a member of a partnership or as a beneficiary under a trust; and

    • (c) a disposition or change of a right referred to in paragraph 95(6)(a). (événement déclencheur)

  • Marginal note:Election for application of subsection (1.2)

    (1.4) If the conditions in subsection (1.1) are not met at a particular time in respect of a particular foreign affiliate of a taxpayer resident in Canada, subsection (1.2) applies in respect of the particular affiliate at that time if

    • (a) the conditions in paragraph (1.1)(a) are met in respect of the particular affiliate at the particular time;

    • (b) immediately after the particular time there is a disposition of shares of the capital stock of the particular affiliate or another foreign affiliate of the taxpayer that had an equity percentage (as defined in subsection 95(4)) in the particular affiliate by

      • (i) the taxpayer, or

      • (ii) a controlled foreign affiliate of the taxpayer; and

    • (c) the taxpayer and all specified corporations jointly elect in writing to apply subsection (1.2) in respect of the disposition and file the election with the Minister on or before the day that is the earliest filing-due date for all taxpayers making the election in respect of the taxation year in which the transaction to which the election relates occurred, and for this purpose, a specified corporation means a corporation that at or immediately after the particular time meets the following conditions:

      • (i) the corporation is resident in Canada,

      • (ii) the corporation does not deal at arm’s length with the taxpayer, and

      • (iii) the particular affiliate is a foreign affiliate of the corporation, or of a partnership of which the corporation is, directly or indirectly through one or more partnerships, a member.

  • (1.5) [Repealed, 2017, c. 33, s. 28]

  • Marginal note:Reserve where foreign exchange restriction

    (2) Where an amount in respect of a share has been included in computing the income of a taxpayer for a taxation year by virtue of subsection 91(1) or 91(3) and the Minister is satisfied that, by reason of the operation of monetary or exchange restrictions of a country other than Canada, the inclusion of the whole amount with no deduction for a reserve in respect thereof would impose undue hardship on the taxpayer, there may be deducted in computing the taxpayer’s income for the year such amount as a reserve in respect of the amount so included as the Minister deems reasonable in the circumstances.

  • Marginal note:Reserve for preceding year to be included

    (3) In computing the income of a taxpayer for a taxation year, there shall be included each amount in respect of a share that was deducted by virtue of subsection 91(2) in computing the taxpayer’s income for the immediately preceding year.

  • Marginal note:Amounts deductible in respect of foreign taxes

    (4) Where, by virtue of subsection 91(1), an amount in respect of a share has been included in computing the income of a taxpayer for a taxation year or for any of the 5 immediately preceding taxation years (in this subsection referred to as the “income amount”), there may be deducted in computing the taxpayer’s income for the year the lesser of

    • (a) the product obtained when

      • (i) the portion of the foreign accrual tax applicable to the income amount that was not deductible under this subsection in any previous year

      is multiplied by

      • (ii) the taxpayer’s relevant tax factor for the year, and

    • (b) the amount, if any, by which the income amount exceeds the total of the amounts in respect of that share deductible under this subsection in any of the 5 immediately preceding taxation years in respect of the income amount.

  • Marginal note:Denial of foreign accrual tax

    (4.1) For the purposes of the definition foreign accrual tax in subsection 95(1), foreign accrual tax applicable to a particular amount included in computing a taxpayer’s income under subsection (1) for a taxation year of the taxpayer in respect of a particular foreign affiliate of the taxpayer is not to include the amount that would, in the absence of this subsection, be foreign accrual tax applicable to the particular amount if, at any time in the taxation year (referred to in this subsection as the “affiliate year”) of the particular affiliate that ends in the taxation year of the taxpayer,

    • (a) a specified owner in respect of the taxpayer is considered,

      • (i) under the income tax laws (referred to in subsections (4.5) and (4.6) as the “relevant foreign tax law”) of any country other than Canada under the laws of which any income of a particular corporation — that is, at any time in the affiliate year, a pertinent person or partnership in respect of the particular affiliate — is subject to income taxation, to own less than all of the shares of the capital stock of the particular corporation that are considered to be owned by the specified owner for the purposes of this Act, or

      • (ii) under the income tax laws (referred to in subsections (4.5) and (4.6) as the “relevant foreign tax law”) of any country other than Canada under the laws of which any income of a particular partnership — that is, at any time in the affiliate year, a pertinent person or partnership in respect of the particular affiliate — is subject to income taxation, to have a lesser direct or indirect share of the income of the particular partnership than the specified owner is considered to have for the purposes of this Act; or

    • (b) where the taxpayer is a partnership, the direct or indirect share of the income of the partnership of any member of the partnership that is, at any time in the affiliate year, a person resident in Canada or a foreign affiliate of such a person is, under the income tax laws (referred to in subsection (4.6) as the “relevant foreign tax law”) of any country other than Canada under the laws of which any income of the partnership is subject to income taxation, less than the member’s direct or indirect share of that income for the purposes of this Act.

  • Marginal note:Specified owner

    (4.2) For the purposes of subsections (4.1) and (4.5), a specified owner, at any time, in respect of a taxpayer means the taxpayer or a person or partnership that is, at that time,

    • (a) a partnership of which the taxpayer is a member;

    • (b) a foreign affiliate of the taxpayer;

    • (c) a partnership a member of which is a foreign affiliate of the taxpayer; or

    • (d) a person or partnership referred to in any of subparagraphs (4.4)(a)(i) to (iii).

  • Marginal note:Pertinent person or partnership

    (4.3) For the purposes of this subsection and subsection (4.1), a pertinent person or partnership, at any time, in respect of a particular foreign affiliate of a taxpayer means the particular affiliate or a person or partnership that is, at that time,

    • (a) another foreign affiliate of the taxpayer

      • (i) in which the particular affiliate has an equity percentage, or

      • (ii) that has an equity percentage in the particular affiliate;

    • (b) a partnership a member of which is at that time a pertinent person or partnership in respect of the particular affiliate under this subsection; or

    • (c) a person or partnership referred to in any of subparagraphs (4.4)(b)(i) to (iii).

  • Marginal note:Series of transactions

    (4.4) For the purposes of subsections (4.2) and (4.3), if, as part of a series of transactions or events that includes the earning of the foreign accrual property income that gave rise to the particular amount referred to in subsection (4.1), a foreign affiliate (referred to in this subsection as the “funding affiliate”) of the taxpayer or of a person (referred to in this subsection as the “related person”) resident in Canada that is related to the taxpayer, or a partnership (referred to in this subsection as the “funding partnership”) of which such an affiliate is a member, directly or indirectly provided funding to the particular affiliate, or a partnership of which the particular affiliate is a member, otherwise than by way of loans or other indebtedness that are subject to terms or conditions made or imposed, in respect of the loans or other indebtedness, that do not differ from those that would be made or imposed between persons dealing at arm’s length or by way of an acquisition of shares of the capital stock of any corporation, then

    • (a) if the funding affiliate is, or the funding partnership has a member that is, a foreign affiliate of the related person, the following persons and partnerships are deemed, at all times during which the foreign accrual property income is earned by the particular affiliate, to be specified owners in respect of the taxpayer:

      • (i) the related person,

      • (ii) each foreign affiliate of the related person, and

      • (iii) each partnership a member of which is a person referred to in subparagraph (i) or (ii); and

    • (b) the following persons and partnerships are deemed, at all times during which the foreign accrual property income is earned by the particular affiliate, to be pertinent persons or partnerships in respect of the particular affiliate:

      • (i) the funding affiliate or the funding partnership,

      • (ii) a non-resident corporation

        • (A) in which the funding affiliate has an equity percentage, or

        • (B) that has an equity percentage in the funding affiliate, and

      • (iii) a partnership a member of which is a person or partnership referred to in subparagraph (i) or (ii).

  • Marginal note:Exception — hybrid entities

    (4.5) For the purposes of subparagraph (4.1)(a)(i), a specified owner in respect of the taxpayer is not to be considered, under the relevant foreign tax law, to own less than all of the shares of the capital stock of a corporation that are considered to be owned for the purposes of this Act solely because the specified owner or the corporation is not treated as a corporation under the relevant foreign tax law.

  • Marginal note:Exceptions — partnerships

    (4.6) For the purposes of subparagraph (4.1)(a)(ii) and paragraph (4.1)(b), a member of a partnership is not to be considered to have a lesser direct or indirect share of the income of the partnership under the relevant foreign tax law than for the purposes of this Act solely because of one or more of the following:

    • (a) a difference between the relevant foreign tax law and this Act in the manner of

      • (i) computing the income of the partnership, or

      • (ii) allocating the income of the partnership because of the admission to, or withdrawal from, the partnership of any of its members;

    • (b) the treatment of the partnership as a corporation under the relevant foreign tax law; or

    • (c) the fact that the member is not treated as a corporation under the relevant foreign tax law.

  • Marginal note:Deemed ownership

    (4.7) For the purposes of subsection (4.1), if a specified owner owns, for the purposes of this Act, shares of the capital stock of a corporation and the dividends, or similar amounts, in respect of those shares are treated under the income tax laws of any country other than Canada under the laws of which any income of the corporation is subject to income taxation as interest or another form of deductible payment, the specified owner is deemed to be considered, under those tax laws, to own less than all of the shares of the capital stock of the corporation that are considered to be owned by the specified owner for the purposes of this Act.

  • Marginal note:Amounts deductible in respect of dividends received

    (5) Where in a taxation year a taxpayer resident in Canada has received a dividend on a share of the capital stock of a corporation that was at any time a controlled foreign affiliate of the taxpayer, there may be deducted, in respect of such portion of the dividend as is prescribed to have been paid out of the taxable surplus of the affiliate, in computing the taxpayer’s income for the year, the lesser of

    • (a) the amount by which that portion of the dividend exceeds the amount, if any, deductible in respect thereof under paragraph 113(1)(b), and

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

      • (i) the total of all amounts required by paragraph 92(1)(a) to be added in computing the adjusted cost base to the taxpayer of the share before the dividend was so received by the taxpayer

      exceeds

      • (ii) the total of all amounts required by paragraph 92(1)(b) to be deducted in computing the adjusted cost base to the taxpayer of the share before the dividend was so received by the taxpayer.

  • (5.1) to (5.3) [Repealed, 2009, c. 2, s. 23]

  • Marginal note:Idem

    (6) Where a share of the capital stock of a foreign affiliate of a taxpayer that is a taxable Canadian corporation is acquired by the taxpayer from another corporation resident in Canada with which the taxpayer is not dealing at arm’s length, for the purpose of subsection 91(5), any amount required by section 92 to be added or deducted, as the case may be, in computing the adjusted cost base to the other corporation of the share shall be deemed to have been so required to be added or deducted, as the case may be, in computing the adjusted cost base to the taxpayer of the share.

  • Marginal note:Shares acquired from a partnership

    (7) For the purpose of subsection (5), where a taxpayer resident in Canada acquires a share of the capital stock of a corporation that is immediately after the acquisition a foreign affiliate of the taxpayer from a partnership of which the taxpayer, or a corporation resident in Canada with which the taxpayer was not dealing at arm’s length at the time the share was acquired, was a member (each such person referred to in this subsection as the “member”) at any time during any fiscal period of the partnership that began before the acquisition,

    • (a) that portion of any amount required by subsection 92(1) to be added to the adjusted cost base to the partnership of the share of the capital stock of the foreign affiliate equal to the amount included in the income of the member because of subsection 96(1) in respect of the amount that was included in the income of the partnership because of subsection (1) or (3) in respect of the foreign affiliate and added to that adjusted cost base, and

    • (b) that portion of any amount required by subsection 92(1) to be deducted from the adjusted cost base to the partnership of the share of the capital stock of the foreign affiliate equal to the amount by which the income of the member from the partnership under subsection 96(1) was reduced because of the amount deducted in computing the income of the partnership under subsection (2), (4) or (5) and deducted from that adjusted cost base

    is deemed to be an amount required by subsection 92(1) to be added or deducted, as the case may be, in computing the adjusted cost base to the taxpayer of the share.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 91;
  • 1994, c. 7, Sch. II, s. 68;
  • 2001, c. 17, s. 68;
  • 2007, c. 35, s. 24;
  • 2009, c. 2, s. 23;
  • 2013, c. 34, s. 226;
  • 2017, c. 33, s. 28.
 
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