Income Tax Regulations (C.R.C., c. 945)

Regulations are current to 2017-11-20 and last amended on 2017-07-01. Previous Versions

 [Repealed, 2013, c. 40, s. 109]

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations. SOR/2005-264, s. 9;
  • 2009, c. 2, s. 107;
  • 2011, c. 24, s. 85;
  • 2013, c. 40, s. 109.

 [Repealed, SOR/2005-264, s. 9]

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending regulations. SOR/2000-62, s. 3;
  • SOR/2001-216, s. 9;
  • SOR/2005-264, s. 9.

PART LIDeferred Income Plans, Investments in Small Business

  •  (1) In this Part,

    designated rate

    designated rate, at any time, means 150 per cent of the highest of the prime rates generally quoted at that time by the banks to which Schedule A to the Bank Act applies; (taux déterminé)

    eligible corporation

    eligible corporation, at any time, means

    • (a) a particular corporation that is a taxable Canadian corporation all or substantially all of the property of which is at that time

      • (i) used in a qualifying active business carried on by the particular corporation or by a corporation controlled by it,

      • (ii) shares of the capital stock of one or more eligible corporations that are related to the particular corporation, or debt obligations issued by those eligible corporations, or

      • (iii) any combination of the properties described in subparagraphs (i) and (ii),

    • (a.1) a specified holding corporation, or

    • (b) a venture capital corporation described in section 6700,

    but does not include

    • (c) a corporation (other than a mutual fund corporation) that is

      • (i) a trader or dealer in securities,

      • (ii) a bank,

      • (iii) a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as a trustee,

      • (iv) a credit union,

      • (v) an insurance corporation, or

      • (vi) a corporation the principal business of which is the lending of money or the purchasing of debt obligations or a combination of them,

    • (d) a corporation controlled by one or more non-resident persons,

    • (e) a venture capital corporation, other than a venture capital corporation described in section 6700, or

    • (f) a corporation that has made an election in respect of a particular taxation year under subparagraph (iv) of the description of B in paragraph 204.82(2.2)(c.1) of the Act, if that time is in the 12-month period that begins on the day that is six months after the day on which the particular taxation year ends; (société admissible)

    qualifying active business

    qualifying active business, at any time, means any business carried on primarily in Canada by a corporation, but does not include

    • (a) a business (other than a business of leasing property other than real property) the principal purpose of which is to derive income from property (including interest, dividends, rent and royalties), or

    • (b) a business of deriving gains from the disposition of property (other than property in the inventory of the business),

    and, for the purposes of this definition, a business carried on primarily in Canada by a corporation, at any time, includes a business carried on by the corporation if, at that time,

    • (c) at least 50 per cent of the full time employees of the corporation and all corporations related thereto employed in respect of the business are employed in Canada, or

    • (d) at least 50 per cent of the salaries and wages paid to employees of the corporation and all corporations related thereto employed in respect of the business are reasonably attributable to services rendered in Canada; (entreprise admissible exploitée activement)

    qualifying obligation

    qualifying obligation, at any time, means a bond, debenture, mortgage, note or other similar obligation of a corporation described in paragraph 149(1)(o.2) or (o.3) of the Act, if

    • (a) the obligation was issued by the corporation after October 31, 1985,

    • (b) the corporation used all or substantially all of the proceeds of the issue of the obligation within 90 days after the receipt thereof to acquire

      • (i) small business securities,

      • (ii) interests of a limited partner in small business investment limited partnerships,

      • (iii) interests in small business investment trusts, or

      • (iv) any combination of the properties described in subparagraphs (i) to (iii)

      and, except as provided in subsection 5104(1), the corporation was the first person (other than a broker or dealer in securities) to have acquired the properties and the corporation has owned the properties continuously since they were so acquired,

    • (c) the corporation does not hold, and no group of persons who do not deal with each other at arm’s length and of which it is a member holds, more than 30 per cent of the outstanding shares of any class of voting stock of another corporation, except where all or any part of those shares were acquired in specified circumstances, within the meaning of subsection 5104(2),

    • (d) the recourse of the holder of the obligation against the corporation with respect to the obligation is limited to the properties acquired with the proceeds of the issue of the obligation and any properties substituted therefor, and

    • (e) the properties acquired with the proceeds of the issue of the obligation have not been disposed of, unless the disposition occurred within the 90 day period immediately preceding that time; (titre admissible)

    specified holding corporation

    specified holding corporation, at any time, means a taxable Canadian corporation where

    • (a) all or substantially all of the collective property of the corporation and of all other corporations controlled by it (each of which other corporations is referred to in this definition as a “controlled corporation”), other than shares in the capital stock of the corporation or of a corporation related to it and debt obligations issued by it or by a corporation related to it, is at that time used in a qualifying active business carried on by the corporation, and

    • (b) all or substantially all of the property of the corporation is at that time

      • (i) property used in a qualifying active business carried on by the corporation or a controlled corporation,

      • (ii) shares of the capital stock of one or more controlled corporations or eligible corporations related to the corporation,

      • (iii) debt obligations issued by one or more controlled corporations or eligible corporations related to the corporation, or

      • (iv) any combination of the properties described in subparagraphs (i), (ii) and (iii),

    and in a determination of whether property is used in a qualifying active business for the purposes of paragraph (a),

    • (c) where a business is carried on by a controlled corporation,

      • (i) the business shall be deemed to be a business carried on only by the corporation, and

      • (ii) the controlled corporation shall be deemed to be the corporation in the application of paragraphs (c) and (d) of the definition qualifying active business, and

    • (d) if a business of the corporation is substantially similar to one or more other businesses of the corporation, all those businesses shall be deemed collectively to be one business of the corporation; (société de portefeuille déterminé)

    specified property

    specified property means property described in any of paragraphs (a), (b), (c), (f) and (g) of the definition qualified investment in section 204 of the Act. (bien déterminé)

  • (2) For the purposes of this Part and clause (b)(iii)(A) of the definition eligible investment in subsection 204.8(1) of the Act, a small business security of a person, at any time, is property of that person that is, at that time,

    • (a) a share of the capital stock of an eligible corporation,

    • (b) a debt obligation of an eligible corporation (other than a venture capital corporation described in section 6700) that does not by its terms or any agreement related to the obligation restrict the corporation from incurring other debts and that is

      • (i) secured solely by a floating charge on the assets of the corporation and that by its terms or any agreement related thereto is subordinate to all other debt obligations of the corporation (other than a small business security issued by the corporation, or a debt obligation that is owing by the corporation to a shareholder of the corporation or a person related to a shareholder of the corporation and that is not secured in any manner whatever), or

      • (ii) not secured in any manner whatever,

      other than a debt obligation that

      • (iii) where the debt obligation specifies an invariant rate of interest, has an effective annual rate of return that exceeds the designated rate for the day on which the obligation was issued, and

      • (iv) in any other case, may have an effective annual rate of return at a particular time that exceeds the designated rate at the particular time,

    • (c) an option or right granted by an eligible corporation in conjunction with the issue of a share or debt obligation that qualifies as a small business security to acquire a share of the capital stock of the corporation, or

    • (d) an option or right granted for no consideration by an eligible corporation to a holder of a share that qualifies as a small business security to acquire a share of the capital stock of the corporation

    if, immediately after the time of acquisition thereof,

    • (e) the aggregate of the cost amounts to the person of all shares, options, rights and debt obligations of the eligible corporation and all corporations associated therewith held by the person does not exceed $10,000,000, and

    • (f) the total assets (determined in accordance with generally accepted accounting principles, on a consolidated or combined basis, where applicable) of the eligible corporation and all corporations associated with it do not exceed $50,000,000

    and includes

    • (g) property of the person that is, at that time,

      • (i) a qualifying obligation, or

      • (ii) [Repealed, SOR/2005-264, s. 10]

      • (iii) a security (in this subparagraph referred to as the “new security”) described in any of paragraphs (a) to (d), where the new security was issued at a particular time

        • (A) in exchange for, on the conversion of, or in respect of rights pertaining to a security (in this paragraph referred to as the “former security”) that would, if this subsection were read without reference to this subparagraph and paragraph (h), be a small business security of the person immediately before the particular time, and

        • (B) pursuant to an agreement entered into before the particular time and at or before the time that the former security was last acquired by the person, or

    • (h) where the person is a small business investment corporation, small business investment limited partnership or small business investment trust, property of the person that is, at that time, a security (in this paragraph referred to as the “new security”) described in any of paragraphs (a) to (d), where the new security was issued at a particular time not more than 5 years before that time in exchange for, on the conversion of, or in respect of rights pertaining to a security that would, if this subsection were read without reference to this paragraph, be a small business security of the person immediately before the particular time.

  • (2.1) Where all or part of the property of a person consists of the shares of the capital stock of a venture capital corporation described in section 6700, options or rights granted by the corporation, or debt obligations of the corporation,

    • (a) the aggregate of the cost amounts to the person of all such property shall be deemed for the purposes of paragraph (2)(e) not to exceed $10,000,000; and

    • (b) the total assets (determined in accordance with generally accepted accounting principles, on a consolidated or combined basis, where applicable) of the corporation and all corporations associated with it shall be deemed for the purposes of paragraph (2)(f) not to exceed $50,000,000.

  • (3) For the purposes of subsection (2),

    • (a) in determining the effective annual rate of return in respect of a debt obligation of an eligible corporation, the value of any right to convert the debt obligation or any part thereof into, or to exchange the debt obligation or any part thereof for, shares of the capital stock of the corporation or an option or right to acquire such shares shall not be considered; and

    • (b) a corporation shall be deemed not to be associated with another at any time where the corporation would not be associated with the other if

      • (i) the references to “controlled, directly or indirectly, in any manner whatever” in section 256 of the Act (other than subsection (5.1) thereof) were read as references to “controlled”, and

      • (ii) such rights described in subsection 256(1.4) of the Act and shares, as were held at that time by a small business investment corporation, small business investment limited partnership or small business investment trust, were disregarded.

  • (4) [Repealed, SOR/2005-264, s. 10]

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending regulations. SOR/86-390, s. 5;
  • SOR/87-134, s. 1;
  • SOR/90-606, s. 4;
  • SOR/92-123, s. 2;
  • SOR/94-471, s. 4;
  • SOR/94-686, ss. 29(F), 50(F), 62, 78(F), 79(F);
  • SOR/98-281, s. 1;
  • SOR/99-102, s. 2;
  • SOR/2001-289, ss. 1, 7, 8(E);
  • SOR/2005-264, s. 10.
 
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