Income Tax Amendments Act, 2000 (S.C. 2001, c. 17)
Full Document:
Assented to 2001-06-14
25. (1) Clause 40(2)(g)(iv)(A) of the Act is replaced by the following:
(A) a trust governed by a deferred profit sharing plan, an employees profit sharing plan or a registered retirement income fund under which the taxpayer is a beneficiary or immediately after the disposition becomes a beneficiary, or
(2) Paragraph 40(3.14)(a) of the Act is replaced by the following:
(a) by operation of any law governing the partnership arrangement, the liability of the member as a member of the partnership is limited (except by operation of a provision of a statute of Canada or a province that limits the member’s liability only for debts, obligations and liabilities of the partnership, or any member of the partnership, arising from negligent acts or omissions or misconduct that another member of the partnership or an employee, agent or representative of the partnership commits in the course of the partnership business while the partnership is a limited liability partnership);
(3) Section 40 of the Act is amended by adding the following after subsection (3.6):
Marginal note:Losses of non-resident
(3.7) If an individual disposes of a property at any time after having ceased to be resident in Canada, for the purposes of applying subsections 100(4), 107(1) and 112(3) to (3.32) and (7) in computing the individual’s loss from the disposition,
(a) the individual is deemed to be a corporation in respect of dividends received by the individual, or deemed under Part XIII to have been paid to the individual, at a particular time that is after the time at which the individual last acquired the property and at which the individual was non-resident; and
(b) an amount on account of
(i) each taxable dividend received by the individual at a particular time described in paragraph (a), and
(ii) each amount deemed under Part XIII to have been paid to the individual at a particular time described in paragraph (a), as a dividend from a corporation resident in Canada, to the extent that the amount can reasonably be considered to relate to the property,
is deemed to be a taxable dividend that was received by the individual and that was deductible under section 112 in computing the individual’s taxable income or taxable income earned in Canada for the taxation year that includes that particular time.
(4) The portion of subsection 40(9) of the Act before the formula is replaced by the following:
Marginal note:Additions to taxable Canadian property
(9) If a non-resident person disposes of a taxable Canadian property
(a) that the person last acquired before April 27, 1995,
(b) that would not be a taxable Canadian property immediately before the disposition if section 115 were read as it applied to dispositions that occurred on April 26, 1995, and
(c) that would be a taxable Canadian property immediately before the disposition if section 115 were read as it applied to dispositions that occurred on January 1, 1996,
the person’s gain or loss from the disposition is deemed to be the amount determined by the formula
(5) Subsection (1) applies to the 1998 and subsequent taxation years.
(6) Subsection (2) applies after 1997.
(7) Subsection (3) applies to dispositions after December 23, 1998 by individuals who cease to be resident in Canada after October 1, 1996.
(8) Subsection (4) applies to dispositions that occur after April 26, 1995.
26. (1) Subsection 41(1) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.
(2) Subsection (1) applies to taxation years that end after February 27, 2000 except that, for taxation years that include February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference to the fraction “1/2” in subsection 41(1) of the Act, as enacted by subsection (1), shall be read as a reference to the fraction in paragraph 38(a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year.
27. (1) Section 43 of the Act is replaced by the following:
Marginal note:General rule for part dispositions
43. (1) For the purpose of computing a taxpayer’s gain or loss for a taxation year from the disposition of part of a property, the adjusted cost base to the taxpayer, immediately before the disposition, of that part is the portion of the adjusted cost base to the taxpayer at that time of the whole property that can reasonably be regarded as attributable to that part.
Marginal note:Ecological gifts
(2) For the purposes of subsection (1) and section 53, where at any time a taxpayer disposes of a servitude, covenant or easement to which land is subject in circumstances where subsection 110.1(5) or 118.1(12) applies,
(a) the portion of the adjusted cost base to the taxpayer of the land immediately before the disposition that can reasonably be regarded as attributable to the servitude, covenant or easement, as the case may be, is deemed to be equal to the amount determined by the formula
A × B / C
where
- A
- is the adjusted cost base to the taxpayer of the land immediately before the disposition,
- B
- is the amount determined under subsection 110.1(5) or 118.1(12) in respect of the disposition, and
- C
- is the fair market value of the land immediately before the disposition; and
(b) for greater certainty, the cost to the taxpayer of the land shall be reduced at the time of the disposition by the amount determined under paragraph (a).
Marginal note:Payments out of trust income, etc.
(3) Notwithstanding subsection (1), where part of a capital interest of a taxpayer in a trust would, but for paragraph (h) or (i) of the definition “disposition” in subsection 248(1), be disposed of solely because of the satisfaction of a right to enforce payment of an amount by the trust, no part of the adjusted cost base to the taxpayer of the taxpayer’s capital interest in the trust shall be allocated to that part of the capital interest.
(2) Subsection 43(1) of the Act, as enacted by subsection (1), applies after February 27, 1995.
(3) Subsection 43(2) of the Act, as enacted by subsection (1), applies in respect of gifts made after February 27, 1995.
(4) Subsection 43(3) of the Act, as enacted by subsection (1), applies to satisfactions of rights that occur after 1999.
28. (1) The portion of subsection 44(1) of the Act before paragraph (a) is replaced by the following:
Marginal note:Exchanges of property
44. (1) Where at any time in a taxation year (in this subsection referred to as the “initial year”) an amount has become receivable by a taxpayer as proceeds of disposition of a capital property that is not a share of the capital stock of a corporation (which capital property is in this section referred to as the taxpayer’s “former property”) that is either
(2) Subsection (1) applies to shares disposed of after April 15, 1999, other than shares disposed of after that date as a consequence of a public takeover bid or offer filed with a public authority before April 16, 1999.
29. (1) The Act is amended by adding the following after section 44:
Marginal note:Definitions
44.1 (1) The definitions in this subsection apply in this section.
“ACB reduction”
« réduction du prix de base rajusté »
“ACB reduction” of an individual in respect of a replacement share of the individual in respect of a qualifying disposition of the individual means the amount determined by the formula
D × (E / F)
where
- D
- is the permitted deferral of the individual in respect of the qualifying disposition;
- E
- is the qualifying cost to the individual of the replacement share; and
- F
- is the qualifying cost to the individual of all the replacement shares of the individual in respect of the qualifying disposition.
“active business corporation”
« société exploitant activement une entreprise »
“active business corporation” at any time means, subject to subsection (10), a corporation that is, at that time, a taxable Canadian corporation all or substantially all of the fair market value of the assets of which at that time is attributable to assets of the corporation that are
(a) assets used principally in an active business carried on by the corporation or by an active business corporation that is related to the corporation;
(b) shares issued by or debt owing by other active business corporations that are related to the corporation; or
(c) a combination of assets described in paragraphs (a) and (b).
“carrying value”
« valeur comptable »
“carrying value” of the assets of a corporation at any time means the amount at which the assets of the corporation would be valued for the purpose of the corporation’s balance sheet as of that time if that balance sheet were prepared in accordance with generally accepted accounting principles used in Canada at that time, except that an asset of a corporation that is a share or debt issued by a related corporation is deemed to have a carrying value of nil.
“common share”
« action ordinaire »
“common share” means a share prescribed for the purpose of paragraph 110(1)(d).
“eligible pooling arrangement”
« arrangement admissible de mise en commun »
“eligible pooling arrangement” in respect of an individual means an agreement in writing made between the individual and another person or partnership (which other person or partnership is referred to in this definition and subsection (3) as the “investment manager”) where the agreement provides for
(a) the transfer of funds or other property by the individual to the investment manager for the purpose of making investments on behalf of the individual;
(b) the purchase of eligible small business corporation shares with those funds, or the proceeds of a disposition of the other property, within 60 days after receipt of those funds or the other property by the investment manager; and
(c) the provision of a statement of account to the individual by the investment manager at the end of each month that ends after the transfer disclosing the details of the investment portfolio held by the investment manager on behalf of the individual at the end of that month and the details of the transactions made by the investment manager on behalf of the individual during the month.
“eligible small business corporation”
« société admissible exploitant une petite entreprise »
“eligible small business corporation” at any time means, subject to subsection (10), a corporation that, at that time, is a Canadian-controlled private corporation all or substantially all of the fair market value of the assets of which at that time is attributable to assets of the corporation that are
(a) assets used principally in an active business carried on primarily in Canada by the corporation or by an eligible small business corporation that is related to the corporation;
(b) shares issued by or debt owing by other eligible small business corporations that are related to the corporation; or
(c) a combination of assets described in paragraphs (a) and (b).
“eligible small business corporation share”
« action déterminée de petite entreprise »
“eligible small business corporation share” of an individual means a common share issued by a corporation to the individual if
(a) at the time the share was issued, the corporation was an eligible small business corporation; and
(b) immediately before and after the share was issued, the total carrying value of the assets of the corporation and corporations related to it did not exceed $50,000,000.
“permitted deferral”
« montant de report autorisé »
“permitted deferral” of an individual in respect of a qualifying disposition of the individual means the amount determined by the formula
(G / H) × I
where
- G
- is the lesser of the amount included in the description of H and the total of all amounts each of which is the qualifying cost to the individual of a replacement share in respect of the qualifying disposition;
- H
- is the qualifying portion of the individual’s proceeds of disposition from the qualifying disposition; and
- I
- is the qualifying portion of the individual’s capital gain from the qualifying disposition.
“qualifying cost”
« coût admissible »
“qualifying cost” to an individual of particular replacement shares of the individual in respect of a qualifying disposition of the individual that are shares of the capital stock of a particular eligible small business corporation means the lesser of
(a) the total of all amounts each of which is the cost to the individual of such a replacement share; and
(b) the amount by which $2,000,000 exceeds the total of all amounts each of which is the cost to the individual of a share that was a share of the capital stock of the particular eligible small business corporation or of a corporation related to it at the time the particular replacement shares were acquired and that was a replacement share of the individual in respect of another qualifying disposition.
“qualifying disposition”
« disposition admissible »
“qualifying disposition” of an individual (other than a trust) means, subject to subsection (9), a disposition of shares of the capital stock of a corporation where each such share disposed of was
(a) an eligible small business corporation share of the individual;
(b) throughout the period during which the individual owned the share, a common share of an active business corporation; and
(c) throughout the 185-day period that ended immediately before the disposition of the share, owned by the individual.
“qualifying portion of a capital gain”
« partie admissible d’un gain en capital »
“qualifying portion of a capital gain” of an individual from a particular qualifying disposition of the individual means the amount determined by the formula
J × (1 – (K / L))
where
- J
- is the individual’s capital gain from the particular qualifying disposition, determined without reference to this section;
- K
- is the amount, if any, by which the total of
(a) the total of all amounts each of which is the adjusted cost base to the individual of a share of a particular corporation that was the subject of the particular qualifying disposition (which adjusted cost base shall be determined immediately before the share was disposed of and without reference to this section), and
(b) the total of all amounts each of which is the adjusted cost base to the individual of a share of the particular corporation or a corporation related to it at the time of the particular qualifying disposition that was the subject of another qualifying disposition (in respect of which a permitted deferral was deducted under this section by the individual) that occurred at or before the time of the particular qualifying disposition (which adjusted cost base shall be determined immediately before the share was disposed of and without reference to this section)
exceeds
(c) $2,000,000; and
- L
- is the total of all amounts each of which is the adjusted cost base to the individual of a share of the particular corporation that was the subject of the particular qualifying disposition (which adjusted cost base shall be determined immediately before the share was disposed of and without reference to this section).
“qualifying portion of the proceeds of disposition”
« partie admissible du produit de disposition »
“qualifying portion of the proceeds of disposition” of an individual from a qualifying disposition means the amount determined by the formula
M × (N / O)
where
- M
- is the individual’s proceeds of disposition from the qualifying disposition;
- N
- is the individual’s qualifying portion of the capital gain from the qualifying disposition; and
- O
- is the individual’s capital gain from the qualifying disposition, determined without reference to this section.
“replacement share”
« action de remplacement »
“replacement share” of an individual in respect of a qualifying disposition of the individual in a taxation year means an eligible small business corporation share of the individual that is
(a) acquired by the individual in the year or within 60 days after the end of the year, but not later than 120 days after the qualifying disposition occurred; and
(b) designated by the individual in the individual’s return of income for the year to be a replacement share in respect of the qualifying disposition.
Marginal note:Capital gain deferral
(2) Where an individual has made a qualifying disposition in a taxation year,
(a) the individual’s capital gain for the year from the qualifying disposition is deemed to be the amount by which the individual’s capital gain for the year from the qualifying disposition, determined without reference to this section, exceeds the individual’s permitted deferral in respect of the qualifying disposition;
(b) in computing the adjusted cost base to the individual of a replacement share of the individual in respect of the qualifying disposition at any time after its acquisition, there shall be deducted the amount of the ACB reduction of the individual in respect of the replacement share; and
(c) where the qualifying disposition was a disposition of a share that was a taxable Canadian property of the individual, the replacement share of the individual in respect of the qualifying disposition is deemed to be taxable Canadian property of the individual.
Marginal note:Special rule — re eligible pooling arrangements
(3) Except for the purpose of the definition “eligible pooling arrangement” in subsection (1), any transaction entered into by an investment manager under an eligible pooling arrangement on behalf of an individual is deemed to be a transaction of the individual and not a transaction of the investment manager.
Marginal note:Special rule — re acquisitions on death
(4) For the purpose of this section, a share of the capital stock of a corporation, acquired by an individual as a consequence of the death of a person who is the individual’s spouse, common-law partner or parent, is deemed to be a share that was acquired by the individual at the time it was acquired by that person and owned by the individual throughout the period that it was owned by that person, if
(a) where the person was the spouse or common-law partner of the individual, the share was an eligible small business share of the person and subsection 70(6) applied to the individual in respect of the share; or
(b) where the person was the individual’s parent, the share was an eligible small business share of the parent and subsection 70(9.2) applied to the individual in respect of the share.
Marginal note:Special rule — re breakdown of relationships
(5) For the purpose of this section, a share of the capital stock of a corporation, acquired by an individual from a person who was the individual’s former spouse or common-law partner as a consequence of the settlement of rights arising out of their marriage or common-law partnership, is deemed to be a share that was acquired by the individual at the time it was acquired by that person and owned by the individual throughout the period that it was owned by that person if the share was an eligible small business share of the person and subsection 73(1) applied to the individual in respect of the share.
Marginal note:Special rule — re eligible small business corporation share exchanges
(6) For the purpose of this section, where an individual receives shares of the capital stock of a corporation that are eligible small business corporation shares of the individual (in this subsection referred to as the “new shares”) as the sole consideration for the disposition of shares issued by another corporation that were eligible small business corporation shares of the individual (in this subsection referred to as the “exchanged shares”), the new shares are deemed to have been owned by the individual throughout the period that the exchanged shares were owned by the individual if
(a) paragraph 85(1)(h) or subsection 85.1(3) or 87(4) applied to the individual in respect of the new shares; and
(b) the individual’s total proceeds of disposition of the exchanged shares was equal to the total of all amounts each of which was the individual’s adjusted cost base of an exchanged share immediately before the disposition.
Marginal note:Special rule — re active business corporation share exchanges
(7) For the purpose of this section, where an individual receives common shares of the capital stock of a corporation (in this subsection referred to as the “new shares”) as the sole consideration for the disposition of common shares of another corporation (in this subsection referred to as the “exchanged shares”), the new shares are deemed to be eligible small business corporation shares of the individual and shares of the capital stock of an active business corporation that were owned by the individual throughout the period that the exchanged shares were owned by the individual, if
(a) paragraph 85(1)(h) or subsection 85.1(3) or 87(4) applied to the individual in respect of the new shares;
(b) the total of the individual’s proceeds of disposition in respect of the disposition of the exchanged shares was equal to the total of the individual’s adjusted cost bases immediately before the disposition of such shares; and
(c) the disposition of the exchanged shares was a qualifying disposition of the individual.
Marginal note:Special rule — re carrying on an active business
(8) For the purpose of the definitions in subsection (1), a property held at any particular time by a corporation that would, if this Act were read without reference to this subsection, be considered to carry on an active business at that time, is deemed to be used or held by the corporation in the course of carrying on that active business if the property (or other property for which the property is substituted property) was acquired by the corporation, at any time in the 36-month period ending at the particular time, because the corporation
(a) issued a debt or a share of a class of its capital stock in order to acquire money for the purpose of acquiring property to be used in or held in the course of, or making expenditures for the purpose of, earning income from an active business carried on by it;
(b) disposed of property used or held by it in the course of carrying on an active business in order to acquire money for the purpose of acquiring property to be used in or held in the course of, or making expenditures for the purpose of, earning income from an active business carried on by it; or
(c) accumulated income derived from an active business carried on by it in order to acquire property to be used in or held in the course of, or to make expenditures for the purpose of, earning income from an active business carried on by it.
Marginal note:Special rule — re qualifying disposition
(9) A disposition of a common share of an active business corporation (in this subsection referred to as the “subject share”) by an individual that, but for this subsection, would be a qualifying disposition of the individual is deemed not to be a qualifying disposition of the individual unless the active business of the corporation referred to in paragraph (a) of the definition “active business corporation” in subsection (1) was carried on primarily in Canada
(a) at all times in the period that began at the time the individual last acquired the subject share and ended at the time of disposition, if that period is less than 730 days; or
(b) in any other case, for at least 730 days in the period referred to in paragraph (a).
Marginal note:Special rule — re exceptions
(10) For the purpose of this section, an eligible small business corporation and an active business corporation at any time do not include a corporation that is, at that time,
(a) a professional corporation;
(b) a specified financial institution;
(c) a corporation the principal business of which is the leasing, rental, development or sale, or any combination of those activities, of real property owned by it; or
(d) a corporation more than 50 per cent of the fair market value of the property of which (net of debts incurred to acquire the property) is attributable to real property.
Marginal note:Determination rule
(11) In determining whether a share owned by an individual is an eligible small business corporation share of the individual, this Act shall be read without reference to section 48.1.
Marginal note:Anti-avoidance rule
(12) The permitted deferral of an individual in respect of a qualifying disposition of shares issued by a corporation (in this subsection referred to as “new shares”) is deemed to be nil where
(a) the new shares (or shares for which the new shares are substituted property) were issued to the individual or a person related to the individual as part of a series of transactions or events in which
(i) shares of the capital stock of a corporation (in this subsection referred to as the “old shares”) were disposed of by the individual or a person related to the individual, or
(ii) the paid-up capital of old shares or the adjusted cost base to the individual or to a person related to the individual of the old shares was reduced;
(b) the new shares (or shares for which the new shares are substituted property) were issued by the corporation that issued the old shares or were issued by a corporation that, at or immediately after the time of issue of those shares, was a corporation that was not dealing at arm’s length with the corporation that issued the old shares; and
(c) it is reasonable to conclude that one of the main reasons for the series of transactions or events or a transaction in the series was to permit the individual, persons related to the individual, or the individual and persons related to the individual to become eligible to deduct under subsection (2) permitted deferrals in respect of qualifying dispositions of new shares (or shares substituted for the new shares) the total of which would exceed the total that those persons would have been eligible to deduct under subsection (2) in respect of permitted deferrals in respect of qualifying dispositions of old shares.
(2) Subsection (1) applies to dispositions that occur after February 27, 2000 except that, for dispositions that occurred after February 27, 2000 and before October 18, 2000,
(a) the definition “active business corporation” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read without reference to the words “subject to subsection (10)” and as if the reference to the words “carried on” in paragraph (a) of that definition were read as a reference to “carried on primarily in Canada”;
(b) the definition “eligible small business corporation” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read without reference to the words “subject to subsection (10)”;
(c) the definition “eligible small business corporation share” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read as follows:
- “eligible small business corporation share”
“eligible small business corporation share” of an individual means a common share issued by a corporation to the individual if
(a) at the time the share was issued, the corporation was an eligible small business corporation;
(b) immediately before the share was issued, the total carrying value of the assets of the corporation and corporations related to it did not exceed $2,500,000; and
(c) immediately after the share was issued, the total carrying value of the assets of the corporation and corporations related to it did not exceed $10,000,000.
(d) the definition “qualifying cost” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read as if the reference to “$2,000,000” in paragraph (b) of that definition were read as a reference to “$500,000”;
(e) the definition “qualifying disposition” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read without reference to the words “subject to subsection (9)”;
(f) the definition “qualifying portion of a capital gain” in subsection 44.1(1) of the Act, as enacted by subsection (1), shall be read as if the reference to “$2,000,000” in paragraph (c) of the description of K in that definition were read as a reference to “$500,000”; and
(g) section 44.1 of the Act, as enacted by subsection (1), shall be read without reference to subsections 44.1(9) and (10) of the Act, as enacted by subsection (1).
- Date modified: