Income Tax Amendments Act, 2000 (S.C. 2001, c. 17)
Full Document:
Assented to 2001-06-14
Income Tax Amendments Act, 2000
S.C. 2001, c. 17
Assented to 2001-06-14
An Act to amend the Income Tax Act, the Income Tax Application Rules, certain Acts related to the Income Tax Act, the Canada Pension Plan, the Customs Act, the Excise Tax Act, the Modernization of Benefits and Obligations Act and another Act related to the Excise Tax Act
SUMMARY
These amendments implement income tax measures announced in the February 2000 budget and the October 2000 Economic Statement and Budget Update, as well as a variety of amendments to the Income Tax Act and related statutes most of which were originally included in Bill C-43 (first reading in September 2000) or otherwise previously announced. The measures of greater significance are summarized below.
(1) Government’s Five-Year Tax Reduction Plan: provides $100 billion in tax relief by 2004-2005, reducing the federal income tax paid by individuals resident in Canada by 21% on average. Families with children will receive an even larger tax cut — about 27% on average. Measures included will
(a) reduce tax rates at all income levels;
(b) eliminate the 5% deficit reduction surtax;
(c) increase support for families with children through the Canada Child Tax Benefit;
(d) reduce the capital gains inclusion rate;
(e) provide a tax-deferred capital gains rollover for investments in shares of certain small- and medium-sized active business corporations;
(f) provide a tax-deferred rollover for shares received on certain foreign spin-offs;
(g) reduce the 28% general corporate tax rate to 21%; and
(h) defer the taxation of certain stock option benefits, increase the stock option deduction and allow an additional deduction for certain stock option shares donated to charity.
(2) Child Care Expense Deduction: increases the maximum annual amount deductible for child care expenses for each eligible child in respect of whom the disability tax credit may be claimed to $10,000 from $7,000.
(3) Disability Tax Credit: extends the disability tax credit to individuals who, but for extensive therapy, would be markedly restricted in their activities of daily living; provides a supplement for disabled children under the age of 18 years; extends the transferability of the credit to most relatives of a disabled person; and, starting in 2001, increases the amounts on which the credit and the new supplement are calculated to $6,000 and $3,500 from $4,293 and $2,941, respectively.
(4) Caregiver and Infirm Dependant Tax Credits: increases the amount on which each of these credits is calculated to $3,500 from $2,446.
(5) Medical Expense Tax Credit: includes reasonable incremental costs relating to the construction of the principal place of residence of an individual who lacks normal physical development or has a severe and prolonged ability impairment to enable the individual to gain access to, or to be mobile within, the residence.
(6) Donations of Ecological Gifts: halves the normal capital gains inclusion for an ecological gift the value of which has been certified by the Minister of the Environment; and clarifies rules for calculating any capital gain or loss realized as a result of such a gift.
(7) Scholarships, Fellowships and Bursaries: increases by $2,500 the exemption for scholarships, fellowships and bursaries received by a taxpayer in connection with the taxpayer’s enrolment in a program in respect of which the taxpayer may claim the education tax credit.
(8) Education Tax Credit: doubles the monthly amounts on which the credit allowed to full-time and part-time students is based to $400 and $120, respectively.
(9) Clergy Residence Deduction: provides clearer rules for determining the amount deductible in respect of a clergy’s residence.
(10) CPP/QPP Contributions on Self-Employed Earnings: introduces a deduction from business income for one-half of CPP/QPP contributions on self-employed earnings, with the other half of the contributions remaining eligible for the CPP/QPP tax credit.
(11) Thin Capitalization: amends the provisions to have the debt-to-equity ratio calculated on an averaged basis, reduces the acceptable debt-to-equity ratio to 2:1 from 3:1 and repeals the exemption for manufacturers of aircraft and aircraft components.
(12) Non-Resident-Owned Investment Corporations: phases out, over a three-year period, the special income tax regime for this type of corporation.
(13) Weak Currency Debt: limits the deductibility of interest expenses and adjusts foreign exchange gains and losses in respect of weak currency debts and associated hedging transactions.
(14) Government Assistance — SR & ED: categorizes as government assistance provincial deductions for SR & ED that exceed the amount of the SR & ED expenditures.
(15) Foreign Tax Credits — Oil and Gas Production Sharing Agreements: clarifies the eligibility for a business foreign tax credit of certain payments made by Canadian resident taxpayers to foreign governments on account of levies imposed in connection with production sharing agreements.
(16) Foreign Exploration and Development Expenses (FEDE): amends the rules to require that the FEDE of a claimant must relate to either foreign resource property acquired by the claimant or be made for the purpose of enhancing the value of foreign resource property owned, or to be owned, by the claimant; ensures appropriate treatment of FEDE in computing foreign tax credits, and imposes a 30% restriction for the annual deduction of new FEDE balances.
(17) Flow-Through Share Investment Tax Credit: introduces a temporary 15% investment tax credit for certain “grass roots” mineral exploration.
(18) Foreign Branch Banking: provides amendments to the Income Tax Act to accommodate branches of foreign banks operating in Canada.
(19) Capital Dividend Account: permits amounts distributed to a corporation from a trust in respect of capital gains or capital dividends realized or received by the trust to be included in the corporation’s capital dividend account.
(20) Taxpayer Migration: enhances Canada’s ability to tax the gains accrued by emigrants while they were resident in Canada.
(21) Trusts: addresses the tax treatment of property distributed from a Canadian trust to a non-resident beneficiary and introduces new measures dealing with the tax treatment of bare, protective and similar trusts as well as mutual fund trusts, health and welfare trusts and trusts governed by registered retirement savings plans and registered retirement income funds.
(22) Advertising Expenses: implements the income tax aspects of the June 1999 agreement between Canada and the United States concerning periodicals.
(23) Simultaneous Control: confirms that, in a chain of corporations, a corporation is controlled by its immediate parent even where the parent is itself controlled by a third corporation.
(24) Foreign Affiliates Held by Partnerships: ensures that Canadian corporations that are members of a partnership that holds shares of non-resident corporations are provided relief from double taxation on the income derived from those shares and receive the same tax treatment in respect of the disposition of those shares as if they held the shares directly.
(25) Foreign Affiliate Losses: provides that foreign accrual property losses of a foreign affiliate may be carried back three years and forward seven years for the purpose of determining the affiliate’s foreign accrual property income for a particular taxation year.
(26) Capital Tax: extends to the end of 2000 the additional capital tax on life insurance corporations.
(27) Stop-Loss Rule: extends the rule that suspends recognition of a loss when a corporation, trust or partnership transfers depreciable property to transferors who are affiliated persons (including individuals).
(28) Types of Property: amends the corporate divisive reorganization rules to no longer require that each transferee corporation receive its pro-rata share of each type of property in the case of certain public corporate divisive reorganizations.
(29) Replacement Property Rules: provides that the replacement property rules do not apply to shares of the capital stock of corporations.
(30) Limited Liability Partnerships: ensures that a member of a “limited liability partnership” (under provincial law) is not automatically a “limited partner” for the purposes of the Income Tax Act.
(31) Non-Resident Film and Video Actors: applies a new 23% withholding tax on payments to non-resident film and video actors and their corporations, with an option to have the actor and corporation pay regular Part I tax on the net earnings instead.
Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:
SHORT TITLE
Marginal note:Short title
1. This Act may be cited as the Income Tax Amendments Act, 2000.
PART 1R.S., c. 1 (5th Supp.)INCOME TAX ACT
2. (1) The portion of subsection 7(1) of the Income Tax Act before paragraph (a) is replaced by the following:
Marginal note:Agreement to issue securities to employees
7. (1) Subject to subsections (1.1) and (8), where a particular qualifying person has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which it does not deal at arm’s length) to an employee of the particular qualifying person (or of a qualifying person with which the particular qualifying person does not deal at arm’s length),
(2) Subsection 7(1.3) of the Act is replaced by the following:
Marginal note:Order of disposition of securities
(1.3) For the purposes of this subsection, subsections (1.1) and (8), subdivision c, paragraph 110(1)(d.01), subparagraph 110(1)(d.1)(ii) and subsections 110(2.1) and 147(10.4), and subject to subsection (1.31) and paragraph (14)(c), a taxpayer is deemed to dispose of securities that are identical properties in the order in which the taxpayer acquired them and, for this purpose,
(a) where a taxpayer acquires a particular security (other than under circumstances to which subsection (1.1) or (8) or 147(10.1) applies) at a time when the taxpayer also acquires or holds one or more other securities that are identical to the particular security and are, or were, acquired under circumstances to which any of subsections (1.1), (8) or 147(10.1) applied, the taxpayer is deemed to have acquired the particular security at the time immediately preceding the earliest of the times at which the taxpayer acquired those other securities; and
(b) where a taxpayer acquires, at the same time, two or more identical securities under circumstances to which either subsection (1.1) or (8) applied, the taxpayer is deemed to have acquired the securities in the order in which the agreements under which the taxpayer acquired the rights to acquire the securities were made.
Marginal note:Disposition of newly-acquired security
(1.31) Where a taxpayer acquires, at a particular time, a particular security under an agreement referred to in subsection (1) and, on a day that is no later than 30 days after the day that includes the particular time, the taxpayer disposes of a security that is identical to the particular security, the particular security is deemed to be the security that is so disposed of if
(a) no other securities that are identical to the particular security are acquired, or disposed of, by the taxpayer after the particular time and before the disposition;
(b) the taxpayer identifies the particular security as the security so disposed of in the taxpayer’s return of income under this Part for the year in which the disposition occurs; and
(c) the taxpayer has not so identified the particular security, in accordance with this subsection, in connection with the disposition of any other security.
(3) Paragraph 7(1.4)(a) of the Act is replaced by the following:
(a) a taxpayer disposes of rights under an agreement referred to in subsection (1) to acquire securities of a particular qualifying person that made the agreement or of a qualifying person with which it does not deal at arm’s length (which rights and securities are referred to in this subsection as the “exchanged option” and the “old securities”, respectively),
(4) Paragraph 7(1.4)(d) of the Act is replaced by the following:
(d) the taxpayer is deemed (other than for the purposes of subparagraph (9)(d)(ii)) not to have disposed of the exchanged option and not to have acquired the new option,
(5) Subsection 7(1.5) of the Act is replaced by the following:
Marginal note:Rules where securities exchanged
(1.5) For the purposes of this section and paragraphs 110(1)(d) to (d.1), where
(a) a taxpayer disposes of or exchanges securities of a particular qualifying person that were acquired by the taxpayer under circumstances to which either subsection (1.1) or (8) applied (in this subsection referred to as the “exchanged securities”),
(b) the taxpayer receives no consideration for the disposition or exchange of the exchanged securities other than securities (in this subsection referred to as the “new securities”) of
(i) the particular qualifying person,
(ii) a qualifying person with which the particular qualifying person does not deal at arm’s length immediately after the disposition or exchange,
(iii) a corporation formed on the amalgamation or merger of the particular qualifying person and one or more other corporations,
(iv) a mutual fund trust to which the particular qualifying person has transferred property in circumstances to which subsection 132.2(1) applied, or
(v) a qualifying person with which the corporation referred to in subparagraph (iii) does not deal at arm’s length immediately after the disposition or exchange, and
(c) the total value of the new securities immediately after the disposition or exchange does not exceed the total value of the old securities immediately before the disposition or exchange,
the following rules apply:
(d) the taxpayer is deemed not to have disposed of or exchanged the exchanged securities and not to have acquired the new securities,
(e) the new securities are deemed to be the same securities as, and a continuation of, the exchanged securities, except for the purpose of determining if the new securities are identical to any other securities,
(f) the qualifying person that issued the new securities is deemed to be the same person as, and a continuation of, the qualifying person that issued the exchanged securities, and
(g) where the exchanged securities were issued under an agreement, the new securities are deemed to have been issued under that agreement.
Marginal note:Emigrant
(1.6) For the purposes of this section and paragraph 110(1)(d.1), a taxpayer is deemed not to have disposed of a share acquired under circumstances to which subsection (1.1) applied solely because of subsection 128.1(4).
Marginal note:Rights ceasing to be exercisable
(1.7) For the purposes of paragraphs (1)(b) and 110(1)(d), where a taxpayer receives at a particular time one or more particular amounts in respect of rights of the taxpayer to acquire securities under an agreement referred to in subsection (1) ceasing to be exercisable in accordance with the terms of the agreement, and the cessation would not, if this Act were read without reference to this subsection, constitute a transfer or disposition of those rights by the taxpayer,
(a) the taxpayer is deemed to have disposed of those rights at the particular time to a person with whom the taxpayer was dealing at arm’s length and to have received the particular amounts as consideration for the disposition; and
(b) for the purpose of determining the amount, if any, of the benefit that the taxpayer is deemed by paragraph (1)(b) to have received as a consequence of the disposition referred to in paragraph (a), the taxpayer is deemed to have paid an amount to acquire those rights equal to the amount, if any, by which
(i) the amount paid by the taxpayer to acquire those rights (determined without reference to this subsection)
exceeds
(ii) the total of all amounts each of which is an amount received by the taxpayer before the particular time in respect of the cessation.
(6) The portion of subsection 7(2) of the Act before paragraph (a) is replaced by the following:
Marginal note:Securities held by trustee
(2) If a security is held by a trustee in trust or otherwise, whether absolutely, conditionally or contingently, for an employee, the employee is deemed, for the purposes of this section and paragraphs 110(1)(d) to (d.1),
(7) The portion of paragraph 7(6)(a) of the Act before subparagraph (i) is replaced by the following:
(a) for the purposes of this section (other than subsection (2)) and paragraphs 110(1)(d) to (d.1),
(8) The portion of subsection 7(7) of the Act before the definition “qualifying person” is replaced by the following:
Marginal note:Definitions
(7) The definitions in this subsection apply in this section and in subsection 47(3), paragraphs 53(1)(j), 110(1)(d) and (d.01) and subsections 110(1.5), (1.6) and (2.1).
(9) Section 7 of the Act is amended by adding the following after subsection (7):
Marginal note:Deferral in respect of non-CCPC employee options
(8) Where a particular qualifying person (other than a Canadian-controlled private corporation) has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which it does not deal at arm’s length) to a taxpayer who is an employee of the particular qualifying person (or of a qualifying person with which the particular qualifying person does not deal at arm’s length), in applying paragraph (1)(a) in respect of the taxpayer’s acquisition of a security under the agreement, the reference in that paragraph to “the taxation year in which the employee acquired the securities” shall be read as a reference to “the taxation year in which the employee disposed of or exchanged the securities” if
(a) the acquisition is a qualifying acquisition; and
(b) the taxpayer elects, in accordance with subsection (10), to have this subsection apply in respect of the acquisition.
Meaning of “qualifying acquisition”
(9) For the purpose of subsection (8), a taxpayer’s acquisition of a security under an agreement made by a particular qualifying person is a qualifying acquisition if
(a) the acquisition occurs after February 27, 2000;
(b) the taxpayer would, if this Act were read without reference to subsection (8), be entitled to deduct an amount under paragraph 110(1)(d) in respect of the acquisition in computing income for the taxation year in which the security is acquired;
(c) where the particular qualifying person is a corporation, the taxpayer was not, at the time immediately after the agreement was made, a person who would, if the references in the portion of the definition “specified shareholder” in subsection 248(1) before paragraph (a) to “in a taxation year” and “at any time in the year” were read as references to “at any time” and “at that time”, respectively, be a specified shareholder of any of
(i) the particular qualifying person,
(ii) any qualifying person that, at that time, was an employer of the taxpayer and was not dealing at arm’s length with the particular qualifying person, and
(iii) the qualifying person of which the taxpayer had, under the agreement, a right to acquire a security; and
(d) where the security is a share,
(i) it is of a class of shares that, at the time the acquisition occurs, is listed on a prescribed stock exchange, and
(ii) where rights under the agreement were acquired by the taxpayer as a result of one or more dispositions to which subsection (1.4) applied, none of the rights that were the subject of any of the dispositions included a right to acquire a share of a class of shares that, at the time the rights were disposed of, was not listed on any prescribed stock exchange.
Marginal note:Election for the purpose of subsection (8)
(10) For the purpose of subsection (8), a taxpayer’s election to have that subsection apply in respect of the taxpayer’s acquisition of a particular security under an agreement referred to in subsection (1) is in accordance with this subsection if
(a) the election is filed, in the prescribed form and manner at a particular time that is before January 16 of the year following the year in which the acquisition occurs, with a person who would be required to file an information return in respect of the acquisition if subsection (8) were read without reference to paragraph (8)(b);
(b) the taxpayer is resident in Canada at the time the acquisition occurs; and
(c) the specified value of the particular security does not exceed the amount by which
(i) $100,000
exceeds
(ii) the total of all amounts each of which is the specified value of another security acquired by the taxpayer at or before the particular time under an agreement referred to in subsection (1), where
(A) the taxpayer’s right to acquire that other security first became exercisable in the year that the taxpayer’s right to acquire the particular security first became exercisable, and
(B) at or before the particular time, the taxpayer has elected in accordance with this subsection to have subsection (8) apply in respect of the acquisition of that other security.
Meaning of “specified value”
(11) For the purpose of paragraph (10)(c), the specified value of a particular security acquired by a taxpayer under an agreement referred to in subsection (1) is the amount determined by the formula
A / B
where
- A
- is the fair market value, determined at the time the agreement was made, of a security that was the subject of the agreement at the time the agreement was made; and
- B
- is
(a) except where paragraph (b) applies, 1, and
(b) where the number or type of securities that are the subject of the agreement has been modified in any way after the time the agreement was made, the number of securities (including any fraction of a security) that it is reasonable to consider the taxpayer would, at the time the particular security was acquired, have a right to acquire under the agreement in lieu of one of the securities that was the subject of the agreement at the time the agreement was made.
Marginal note:Identical options — order of exercise
(12) Unless the context otherwise requires, a taxpayer is deemed to exercise identical rights to acquire securities under agreements referred to in subsection (1)
(a) where the taxpayer has designated an order, in the order so designated; and
(b) in any other case, in the order in which those rights first became exercisable and, in the case of identical rights that first became exercisable at the same time, in the order in which the agreements under which those rights were acquired were made.
Marginal note:Revoked election
(13) For the purposes of this section (other than this subsection), an election filed by a taxpayer to have subsection (8) apply to the taxpayer’s acquisition of a security is deemed never to have been filed if, before January 16 of the year following the year in which the acquisition occurs, the taxpayer files with the person with whom the election was filed a written revocation of the election.
Marginal note:Deferral deemed valid
(14) For the purposes of this section and paragraph 110(1)(d), where a taxpayer files an election to have subsection (8) apply in respect of the taxpayer’s acquisition of a particular security and subsection (8) would not apply to the acquisition if this section were read without reference to this subsection, the following rules apply if the Minister so notifies the taxpayer in writing:
(a) the acquisition is deemed, for the purpose of subsection (8), to be a qualifying acquisition;
(b) the taxpayer is deemed to have elected, in accordance with subsection (10), at the time of the acquisition, to have subsection (8) apply in respect of the acquisition; and
(c) if, at the time the Minister sends the notice, the taxpayer has not disposed of the security, the taxpayer is deemed (other than for the purpose of subsection (1.5)) to have disposed of the security at that time and to have acquired the security immediately after that time other than under an agreement referred to in subsection (1).
Marginal note:Withholding
(15) Where, because of subsection (8), a taxpayer is deemed by paragraph (1)(a) to have received a benefit from employment in a taxation year, the benefit is deemed to be nil for the purpose of subsection 153(1).
Marginal note:Prescribed form for deferral
(16) Where, at any time in a taxation year, a taxpayer holds a security that was acquired under circumstances to which subsection (8) applied, the taxpayer shall file with the Minister, with the taxpayer’s return of income for the year, a prescribed form containing prescribed information relating to the taxpayer’s acquisition and disposition of securities under agreements referred to in subsection (1).
(10) Subsections (1), (4), (6), (7) and (9) apply to the 2000 and subsequent taxation years except that
(a) a share acquired in 2000 under an agreement referred to in subsection 7(1) of the Act, as enacted by subsection (1), is deemed to comply with the requirements of paragraph 7(9)(d) of the Act, as enacted by subsection (9), if, at all times during the period beginning at the time the agreement was made (determined without reference to subsection 7(1.4) of the Act, as enacted by subsections (3) and (4)) and ending at the time the share was acquired, the class of shares to which the share belongs was listed on a prescribed stock exchange;
(b) an election under subsection 7(10) of the Act, as enacted by subsection (9), to have subsection 7(8) of the Act, as enacted by subsection (9), apply in respect of a security acquired in 2000 is deemed to have been filed in a timely manner if it is filed on or before the day that is 60 days after the day on which this Act receives royal assent; and
(c) a written request under subsection 7(13) of the Act, as enacted by subsection (9), to revoke an election in respect of a security acquired in 2000 is deemed to have been filed in a timely manner if it is filed on or before the day that is 60 days after the day on which this Act receives royal assent.
(11) Subsection (2) applies to securities acquired, but not disposed of, before February 28, 2000 and to securities acquired after February 27, 2000.
(12) Subsection (3) applies to the 1998 and subsequent taxation years.
(13) Subsection 7(1.5) of the Act, as enacted by subsection (5), applies to dispositions and exchanges of securities by a taxpayer that occur after February 27, 2000.
(14) Subsection 7(1.6) of the Act, as enacted by subsection (5), applies after 1992.
(15) Subsection 7(1.7) of the Act, as enacted by subsection (5), applies to amounts received on or after March 16, 2001, other than amounts received on or after that day
(a) pursuant to an agreement in writing made before that day in settlement of claims arising as a result of a cessation occurring before that day; or
(b) pursuant to an order or judgment issued before that day in respect of claims arising as a result of a cessation occurring before that day.
(16) Subsection (8) applies after 1997, except that
(a) it does not apply to a right under an agreement to which subsection 7(7) of the Act, as enacted by subsection 3(7) of chapter 22 of the Statutes of Canada, 1999, does not (except for the purpose of applying paragraph 7(3)(b) of the Act) apply; and
(b) before 2000, the portion of subsection 7(7) of the Act, as enacted by subsection (8), before the definition “qualifying person” shall be read as follows:
(7) The definitions in this subsection apply in this section and in paragraph 110(1)(d) and subsections 110(1.5) and (1.6).
- Date modified: