Income Tax Amendments Act, 2000 (S.C. 2001, c. 17)
Full Document:
Assented to 2001-06-14
71. (1) The Act is amended by adding the following after section 93:
Marginal note:Shares held by a partnership
93.1 (1) For the purpose of determining whether a non-resident corporation is a foreign affiliate of a corporation resident in Canada for the purposes of subsections (2) and 20(12), sections 93 and 113, paragraph 128.1(1)(d), (and any regulations made for the purposes of those provisions), section 95 (to the extent that that section is applied for the purposes of those provisions) and section 126, where based on the assumptions contained in paragraph 96(1)(c), at any time shares of a class of the capital stock of a corporation are owned by a partnership or are deemed under this subsection to be owned by a partnership, each member of the partnership is deemed to own at that time that number of those shares that is equal to the proportion of all those shares that
(a) the fair market value of the member’s interest in the partnership at that time
is of
(b) the fair market value of all members’ interests in the partnership at that time.
Marginal note:Where dividends received by a partnership
(2) Where, based on the assumptions contained in paragraph 96(1)(c), at any time shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada (in this subsection referred to as “affiliate shares”) are owned by a partnership and at that time the affiliate pays a dividend on affiliate shares to the partnership (in this subsection referred to as the “partnership dividend”),
(a) for the purposes of sections 93 and 113 and any regulations made for the purposes of those sections, each member of the partnership is deemed to have received the proportion of the partnership dividend that
(i) the fair market value of the member’s interest in the partnership at that time
is of
(ii) the fair market value of all members’ interests in the partnership at that time;
(b) for the purposes of sections 93 and 113 and any regulations made for the purposes of those sections, the proportion of the partnership dividend deemed by paragraph (a) to have been received by a member of the partnership at that time is deemed to have been received by the member in equal proportions on each affiliate share that is property of the partnership at that time;
(c) for the purpose of applying section 113, in respect of the dividend referred to in paragraph (a), each affiliate share referred to in paragraph (b) is deemed to be owned by each member of the partnership; and
(d) notwithstanding paragraphs (a) to (c),
(i) where the corporation resident in Canada is a member of the partnership, the amount deductible by it under section 113 in respect of the dividend referred to in paragraph (a) shall not exceed the portion of the amount of the dividend included in its income pursuant to subsection 96(1), and
(ii) where another foreign affiliate of the corporation resident in Canada is a member of the partnership, the amount included in that other affiliate’s income in respect of the dividend referred to in paragraph (a) shall not exceed the amount that would be included in its income pursuant to subsection 96(1) in respect of the partnership dividend received by the partnership if the value for H in the definition “foreign accrual property income” in subsection 95(1) were nil and this Act were read without reference to this subsection.
(2) Subsection 93.1(1) of the Act, as enacted by subsection (1), applies in determining whether a non-resident corporation is, at any time after November 1999, a foreign affiliate of a taxpayer and, where a taxpayer so elects and notifies the Minister of National Revenue in writing before 2002 of its election, that subsection also applies in determining (other than for the purposes of subsection 20(12) and section 126 of the Act) whether a non-resident corporation was, at any time after 1972 and before December 1999, a foreign affiliate of the taxpayer.
(3) Subsection 93.1(2) of the Act, as enacted by subsection (1), applies in respect of dividends received after November 1999.
72. (1) Subparagraphs 94(1)(c)(i) and (ii) of the Act are replaced by the following:
(i) the trust is deemed for the purposes of this Part and sections 233.3 and 233.4 to be a person resident in Canada no part of whose taxable income is exempt because of section 149 from tax under this Part and whose taxable income for the year is the amount, if any, by which the total of
(A) the amount, if any, that would but for this subparagraph be its taxable income earned in Canada for the year,
(B) the amount that would be its foreign accrual property income for the year if
(I) except for the purpose of applying subsections 104(4) to (5.2) to days after 1998 that are determined under subsection 104(4), the trust were a non-resident corporation all the shares of which were owned by a person who was resident in Canada,
(II) the description of A in the definition “foreign accrual property income” in subsection 95(1) were, in respect of dividends received after 1998, read without reference to paragraph (b) of that description,
(III) the descriptions of B and E in that definition were, in respect of dispositions that occur after 1998, read without reference to “other than dispositions of excluded property to which none of paragraphs (2)(c), (d) and (e) apply”,
(IV) the value of C in that definition were nil, and
(V) for the purposes of computing the trust’s foreign accrual property income, the consequences of the application of subsections 104(4) to (5.2) applied in respect of days after 1998 that are determined under subsection 104(4),
(C) the amount, if any, by which the total of all amounts each of which is an amount required by subsection 91(1) or (3) to be included in computing its income for the year exceeds the total of all amounts each of which is an amount deducted by it for that year under subsection 91(2), (4) or (5), and
(D) the amount, if any, required by section 94.1 to be included in computing its income for the year
exceeds
(E) the amount, if any, by which the total of all amounts each of which is an amount deducted by it under subsection 91(2), (4) or (5) in computing its income for the year exceeds the total of all amounts each of which is an amount included in computing its income for the year because of subsection 91(1) or (3), and
(ii) for the purposes of section 126,
(A) the amount that would be determined under subparagraph (i) in respect of the trust for the year, if that subparagraph were read without reference to clause (i)(A), is deemed to be income of the trust for the year from sources in the country other than Canada in which the trust would, but for subparagraph (i), be resident, and
(B) any income or profits tax paid by the trust for the year (other than any tax paid because of this section), to the extent that it can reasonably be regarded as having been paid in respect of that income, is deemed to be non-business income tax paid by the trust to the government of that country, and
(2) Subsection (1) applies to the 1999 and subsequent taxation years.
73. (1) The formula in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:
(A+A.1+A.2+B+C) – (D+E+F+G+H)
(2) The description of A.1 in the definition “foreign accrual property income” in subsection 95(1) of the Act is amended by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.
(3) The description of F in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:
- F
- is the amount claimed by the taxpayer, which amount may not be greater than the amount prescribed to be the deductible loss of the affiliate for the year, and
(4) The definition “foreign accrual property income” in subsection 95(1) of the Act is amended by striking out the word “and” at the end of the description of F, by adding the word “and” at the end of the description of G and by adding the following after the description of G:
- H
- is
(a) where the affiliate was a member of a partnership at the end of the fiscal period of the partnership that ended in the year and the partnership received a dividend at a particular time in that fiscal period from a corporation that was, for the purposes of sections 93 and 113, a foreign affiliate of the taxpayer at that particular time, the portion of the amount of that dividend that is included in the value of A in respect of the affiliate for the year and that is deemed by paragraph 93.1(2)(a) to have been received by the affiliate for the purposes of sections 93 and 113, and
(b) in any other case, nil;
(5) The portion of paragraph 95(2)(a.3) of the Act before subparagraph (iii) is replaced by the following:
(a.3) in computing the income from a business other than an active business for a taxation year of a foreign affiliate of a taxpayer there shall be included the income of the affiliate for the year derived directly or indirectly from indebtedness and lease obligations (which, for the purposes of this paragraph, includes the income of the affiliate for the year from the purchase and sale of indebtedness and lease obligations on its own account, but does not include excluded income)
(i) of persons resident in Canada, or
(ii) in respect of businesses carried on in Canada
unless more than 90% of the gross revenue of the affiliate derived directly or indirectly from indebtedness and lease obligations (other than excluded revenue) was derived directly or indirectly from indebtedness and lease obligations of non-resident persons with whom the affiliate deals at arm’s length and, where this paragraph applies to include income of the affiliate for the year in the income of the affiliate from a business other than an active business,
(6) Paragraph 95(2)(g) of the Act is replaced by the following:
(g) where, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout a taxation year of the particular affiliate has earned income or incurred a loss or realized a capital gain or a capital loss in the year, in reference to
(i) a debt obligation that was owing to
(A) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year or any other non-resident corporation to which the particular affiliate and the taxpayer are related throughout the year (referred to in this paragraph as a “qualified foreign corporation”), or
(B) the particular affiliate by a qualified foreign corporation,
(ii) the redemption, cancellation or acquisition of a share of the capital stock of, or the reduction of the capital of, the particular affiliate or another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, or
(iii) the disposition to a qualified foreign corporation of a share of the capital stock of another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year,
that income, gain or loss, as the case may be, is deemed to be nil;
(7) Subsection 95(2) of the Act is amended by adding the following after paragraph (g.1):
(g.2) for the purpose of computing the foreign accrual property income of a foreign affiliate of any taxpayer resident in Canada for a taxation year of the affiliate, an election made pursuant to paragraph 86.1(2)(f) in respect of a distribution received by the affiliate in a particular taxation year of the affiliate is deemed to have been filed under that paragraph by the affiliate if
(i) where there is only one taxpayer resident in Canada in respect of whom the affiliate is a controlled foreign affiliate, the election is filed by the taxpayer with the taxpayer’s return of income for the taxpayer’s taxation year in which the particular year of the affiliate ends, and
(ii) where there is more than one taxpayer resident in Canada in respect of whom the affiliate is a controlled foreign affiliate, all of those taxpayers jointly elect in writing and each of them files the joint election with the Minister with their return of income for their taxation year in which the particular year of the affiliate ends;
(8) Paragraph 95(2)(h) of the Act is repealed.
(9) The portion of subsection 95(2.2) of the Act before paragraph (a) is replaced by the following:
Marginal note:Rule for subsection (2)
(2.2) For the purpose of subsection (2),
(10) Subsection 95(2.5) of the Act is amended by adding the following in alphabetical order:
“excluded income” and “excluded revenue”
« revenu exclu »
“excluded income” and “excluded revenue” for a taxation year in respect of a foreign affiliate of a taxpayer mean, respectively, income or revenue, that is
(a) derived directly or indirectly from a specified deposit with a prescribed financial institution,
(b) derived directly or indirectly from a lease obligation of a person (other than the taxpayer or a person that does not deal at arm’s length with the taxpayer) relating to the use of property outside Canada, or
(c) included in computing the affiliate’s income for the year from carrying on a business through a permanent establishment in Canada;
(11) The portion of paragraph 95(6)(a) of the Act before subparagraph (i) is replaced by the following:
(a) where any person or partnership has a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently, to, or to acquire, shares of the capital stock of a corporation or interests in a partnership and
(12) Subparagraph 95(6)(a)(ii) of the Act is replaced by the following:
(ii) it can reasonably be considered that the principal purpose for the existence of the right is to permit any person to avoid, reduce or defer the payment of tax or any other amount that would otherwise be payable under this Act, those shares or partnership interests, as the case may be, are deemed to be owned by that person or partnership; and
(13) Paragraph 95(6)(b) of the Act is replaced by the following:
(b) where a person or partnership acquires or disposes of shares of the capital stock of a corporation or interests in a partnership, either directly or indirectly, and it can reasonably be considered that the principal purpose for the acquisition or disposition is to permit a person to avoid, reduce or defer the payment of tax or any other amount that would otherwise be payable under this Act, that acquisition or disposition is deemed not to have taken place, and where the shares or partnership interests were unissued by the corporation or partnership immediately before the acquisition, those shares or partnership interests, as the case may be, are deemed not to have been issued.
(14) Subsections (1), (4) and (11) to (13) apply after November 1999.
(15) Subsection (2) applies to taxation years that end after February 27, 2000 except that, where a taxation year of a foreign affiliate of a taxpayer includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference to the word “twice” in the description of A.1 in the definition “foreign accrual property income” in subsection 95(1) of the Act, as enacted by subsection (2), shall be read as a reference to the expression “the fraction that is the reciprocal of the fraction in paragraph 38(a), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the foreign affiliate for the year, multiplied by”.
(16) Subsection (3) applies to taxation years of foreign affiliates that begin after November 1999.
(17) Subsections (5) and (10) apply to taxation years of foreign affiliates that begin after 1999 except that, where a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxation year that includes the day on which this Act receives royal assent, paragraph 95(2)(a.3) of the Act, as enacted by subsection (5), and subsection 95(2.5) of the Act, as enacted by subsection (10), apply to taxation years, of all of the taxpayer’s foreign affiliates, that begin after 1994 except that, where there has been a change in the taxation year of a particular foreign affiliate of a taxpayer in 1994 and after February 22, 1994, the enacted provisions apply to taxation years of the particular foreign affiliate of the taxpayer that end after 1994, unless
(a) the particular foreign affiliate had requested that change in the taxation year in writing before February 22, 1994 from the income taxation authority of the country in which it was resident and subject to income taxation; or
(b) the first taxation year of the particular foreign affiliate that began after 1994 began at a time in 1995 that is earlier than the time that it would have begun if there had not been that change in the taxation year of the particular foreign affiliate,
and, notwithstanding subsections 152(4) to (5) of the Act, any assessment of a taxpayer’s tax payable under the Act for any of those taxation years shall be made that is necessary to take into account the application of subsections (5) and (10).
(18) Subsections (6), (8) and (9) apply to taxation years of a foreign affiliate of a taxpayer that begin after November 1999 except that, where the taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day of the taxpayer’s filing-due date for the taxation year that includes the day on which this Act receives royal assent, those subsections apply to taxation years, of all of its foreign affiliates, that began after 1994 and, notwithstanding subsections 152(4) to (5) of the Act, any assessment of a taxpayer’s tax payable under the Act for any of those taxation years shall be made that is necessary to take into account the application of subsections (6), (8) and (9).
(19) Subsection (7) applies to distributions received after 1997 except that the election referred to in paragraph 95(2)(g.2) of the Act, as enacted by subsection (7), is deemed to be filed on a timely basis if it is filed with the Minister of National Revenue before the day that is 90 days after the day on which this Act receives royal assent.
- Date modified: