Budget Implementation Act, 2004, No. 2 (S.C. 2005, c. 19)
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Assented to 2005-05-13
PART 3AMENDMENTS TO THE INCOME TAX ACT AND CERTAIN OTHER ACTS AS A CONSEQUENCE AND A COORDINATING AMENDMENT
R.S., c. 1 (5th Supp.)Income Tax Act
29. (1) Section 127.1 of the Act is amended by adding the following after subsection (2.1):
Marginal note:Refundable investment tax credit — associated CCPCs
(2.2) If a particular Canadian-controlled private corporation is associated with another corporation in circumstances where those corporations would not be associated if the Act were read without reference to paragraph 256(1.2)(a), the particular corporation has issued shares to one or more persons who have been issued shares by the other corporation and there is at least one shareholder of the particular corporation who is not a shareholder of the other corporation or one shareholder of the other corporation who is not a shareholder of the particular corporation, the particular corporation is not associated with the other corporation for the purpose of calculating that portion of the particular corporation’s refundable investment tax credit that is in respect of qualified expenditures.
Marginal note:Application of subsection (2.2)
(2.3) Subsection (2.2) applies to the particular corporation and the other corporation referred to in that subsection only if the Minister is satisfied that
(a) the particular corporation and the other corporation are not otherwise associated under this Act; and
(b) the existence of one or more shareholders of the particular corporation who is not a shareholder of the other corporation, or the existence of one or more shareholders of the other corporation who is not a shareholder of the particular corporation, is not for the purpose of satisfying the requirements of subsection (2.2) or 127(10.22).
(2) Subsection (1) applies to taxation years that end after March 22, 2004.
30. (1) The portion of paragraph 131(1)(b) of the Act before subparagraph (i) is replaced by the following:
(b) notwithstanding any other provision of this Act (other than paragraph (5.1)(b)), any amount received by a taxpayer in a taxation year as, on account of, in lieu of payment of or in satisfaction of, the dividend shall not be included in computing the taxpayer’s income for the year as income from a share of the capital stock of the corporation, and
(2) Section 131 of the Act is amended by adding the following after subsection (5):
Marginal note:TCP gains distribution
(5.1) If a mutual fund corporation elects under subsection (1) to treat a dividend as a capital gains dividend, for the purposes of this Part and Part XIII,
(a) each shareholder to whom the dividend is paid is deemed to receive from the corporation, at the time the dividend is paid, a TCP gains distribution equal to the lesser of the amount of the dividend and the shareholder’s pro rata portion at that time of the mutual fund corporation’s TCP gains balance; and
(b) where the dividend is paid to a shareholder who is a non-resident person or a partnership that is not a Canadian partnership,
(i) subparagraph (1)(b)(vii) does not apply to the dividend, to the extent of the TCP gains distribution, and
(ii) the TCP gains distribution is a taxable dividend that, except for the purpose of the definition of “capital gains dividend account” in subsection (6), is not a capital gains dividend.
Marginal note:Application of subsection (5.1)
(5.2) Subsection (5.1) applies to a dividend paid by a mutual fund corporation in a taxation year only if more than 5% of the dividend is received by or on behalf of shareholders each of whom is a non-resident person or is a partnership that is not a Canadian partnership.
(3) Subsection 131(6) of the Act is amended by adding the following in alphabetical order:
“pro rata portion”
« partie proportionnelle »
“pro rata portion”, of a shareholder at any time, of a mutual fund corporation’s TCP gains balance, in respect of a dividend paid by the mutual fund corporation on a class of shares of its capital stock, means the amount determined by the formula
A x B/C
where
- A
- is the mutual fund corporation’s TCP gains balance immediately before that time,
- B
- is the amount received in respect of the dividend by the shareholder, and
- C
- is the total amount of the dividend;
“TCP gains balance”
« solde des gains provenant de BCI »
“TCP gains balance”, of a mutual fund corporation at any time, means the amount, if any, by which
(a) the total of
(i) the mutual fund corporation’s capital gains from dispositions, after March 22, 2004 and at or before that time, of taxable Canadian properties, and
(ii) the TCP gains distributions (including those defined in section 132) received by the mutual fund corporation at or before that time
exceeds
(b) the total of
(i) the mutual fund corporation’s capital losses from dispositions, after March 22, 2004 and at or before that time, of taxable Canadian properties, and
(ii) the total of all amounts deemed, in respect of dividends paid by the mutual fund corporation before that time, to be TCP gains distributions received by shareholders from the mutual fund corporation;
“TCP gains distribution”
« distribution de gains provenant de BCI »
“TCP gains distribution” means a TCP gains distribution described in subsection (5.1).
(4) Subsections (1) to (3) apply after March 22, 2004.
31. (1) Subsection 132(4) of the Act is amended by adding the following in alphabetical order:
“pro rata portion”
« partie proportionnelle »
“pro rata portion”, of a beneficiary, of a mutual fund trust’s TCP gains balance for a taxation year, in respect of an amount designated under subsection 104(21) by the mutual fund trust for the taxation year, means the amount determined by the formula
A x B/C
where
- A
- is the mutual fund trust’s TCP gains balance for the taxation year,
- B
- is the amount the mutual fund trust has designated under that subsection in respect of the beneficiary for the taxation year, and
- C
- is the total of all amounts designated under that subsection by the mutual fund trust for the taxation year;
“TCP gains balance”
« solde des gains provenant de BCI »
“TCP gains balance”, of a mutual fund trust for a particular taxation year, means the amount, if any, by which
(a) the total of
(i) the mutual fund trust’s capital gains from dispositions, after March 22, 2004 and at or before the end of the particular taxation year, of taxable Canadian properties, and
(ii) the TCP gains distributions (including those defined in section 131) received by the mutual fund trust at or before the end of the particular taxation year
exceeds
(b) the total of
(i) the mutual fund trust’s capital losses from dispositions, after March 22, 2004 and at or before the end of the particular taxation year, of taxable Canadian properties, and
(ii) the total of all amounts deemed, in respect of amounts designated by the mutual fund trust under subsection 104(21) for taxation years that preceded the particular taxation year, to be TCP gains distributions received by beneficiaries under the mutual fund trust;
“TCP gains distribution”
« distribution de gains provenant de BCI »
“TCP gains distribution” means a TCP gains distribution described in subsection (5.1).
(2) Section 132 of the Act is amended by adding the following after subsection (5):
Marginal note:TCP gains distribution
(5.1) If a mutual fund trust designates an amount under subsection 104(21) for a taxation year of the trust in respect of a beneficiary under the trust, for the purposes of this Part and Part XIII,
(a) the beneficiary is deemed to have received from the mutual fund trust a TCP gains distribution equal to the lesser of
(i) twice the amount designated, and
(ii) the beneficiary’s pro rata portion of the mutual fund trust’s TCP gains balance for the taxation year; and
(b) where the beneficiary is a non-resident person or a partnership that is not a Canadian partnership,
(i) the amount designated is deemed by subsection 104(21) to be a taxable capital gain of the beneficiary only to the extent that it exceeds one half of the TCP gains distribution, and
(ii) one half of the TCP gains distribution is to be added to the amount otherwise included under subsection 104(13) in computing the income of the beneficiary, and is deemed to be an amount to which paragraph 212(1)(c) applies.
Marginal note:Application of subsection (5.1)
(5.2) Subsection (5.1) applies to an amount designated under subsection 104(21) by a mutual fund trust for a taxation year only if more than 5% of the total of all amounts each of which is an amount designated under that subsection by the mutual fund trust for the taxation year was designated in respect of beneficiaries under the mutual fund trust each of whom is a non-resident person or is a partnership that is not a Canadian partnership.
(3) Subsections (1) and (2) apply after March 22, 2004.
32. (1) The portion of subsection 135(1) of the Act before paragraph (a) is replaced by the following:
Marginal note:Deduction in computing income
135. (1) Notwithstanding anything in this Part, other than subsections (1.1) to (2.1), there may be deducted, in computing the income of a taxpayer for a taxation year, the total of the payments made, pursuant to allocations in proportion to patronage, by the taxpayer
(2) Section 135 of the Act is amended by adding the following after subsection (1):
Marginal note:Limitation where non-arm’s length customer
(1.1) Subsection (1) applies to a payment made by a taxpayer to a customer with whom the taxpayer does not deal at arm’s length only if
(a) the taxpayer is a cooperative corporation described in subsection 136(2) or a credit union; or
(b) the payment is prescribed.
(3) The portion of subsection 135(2) of the Act before paragraph (a) is replaced by the following:
Marginal note:Limitation where non-member customer
(2) If a taxpayer has not made allocations in proportion to patronage in respect of all of the taxpayer’s customers of the year, at the same rate, with appropriate differences for different types, classes, grades or qualities of goods, products or services, the amount that may be deducted by the taxpayer under subsection (1) is an amount equal to the lesser of
(4) Subsections (1) to (3) apply in respect of payments made by a taxpayer after March 22, 2004, except that subsection 135(1.1) of the Act, as enacted by subsection (2), does not apply to the portion, if any, of a qualifying payment in respect of a taxation year that
(a) can reasonably be regarded as having in commercial terms the nature of any one or more of an incentive payment, a rebate or a sales allowance; and
(b) would have been deductible under the Act in computing the income of the paying corporation for the taxation year if that portion had become payable in the taxation year as an incentive payment, a rebate or a sales allowance.
(5) For the purposes of subsections (4) and (6), an amount paid by a corporation is a qualifying payment in respect of a taxation year if
(a) the taxation year began before March 23, 2004, and the amount is paid pursuant to a resolution that was passed by the corporation’s Board of Directors before that date; and
(b) the corporation elects, in writing filed with the Minister of National Revenue on or before the day that is three months after the day on which this Act is assented to, to have this subsection apply to the payment.
(6) If a qualifying payment in respect of a taxation year was not paid within 12 months after the taxation year, but is paid on or before the day that is three months after the day on which this Act is assented to, for the purpose of applying section 135 of the Act and subsection (4) to the taxpayer the amount is deemed to have been paid on March 23, 2004.
(7) If a corporation
(a) before March 23, 2004, recorded in writing its intention to deduct under section 135 of the Act an amount in computing its income for a taxation year the balance-due day for which is before that date,
(b) is liable to pay an amount of tax under Part I of the Act for the taxation year that exceeds the amount to which it would be so liable if the Act were read without reference to subsection 135(1.1), as enacted by subsection (2), and
(c) pays to the Receiver General that excess amount within six months after this Act is assented to,
the corporation is, for the purpose of determining any interest or penalty payable by it under the Act, deemed to have paid that excess amount on its balance-due day for the taxation year.
(8) If a corporation
(a) before March 23, 2004 recorded in writing its intention to deduct under section 135 of the Act an amount in computing its income for a taxation year, and
(b) was required by Part I of the Act to pay before March 23, 2004 a part or instalment of tax that exceeds the amount it would have been so required to pay if the Act were read without reference to subsection 135(1.1), as enacted by subsection (2),
the corporation is not liable to pay interest under subsection 161(2) of the Act, or to pay a penalty under section 163.1 of the Act, in respect of that excess.
- Date modified: