Budget Implementation Act, 2006, No. 2 (S.C. 2007, c. 2)
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Assented to 2007-02-21
PART 2R.S., c. 1 (5th Supp.)AMENDMENTS TO THE INCOME TAX ACT (DIVIDEND TAXATION)
48. (1) Subsection 121 of the Act is replaced by the following:
Marginal note:Deduction for taxable dividends
121. There may be deducted from the tax otherwise payable under this Part by an individual for a taxation year the total of
(a) 2/3 of the amount, if any, that is required by subparagraph 82(1)(b)(i) to be included in computing the individual’s income for the year; and
(b) 11/18 of the amount, if any, that is required by subparagraph 82(1)(b)(ii) to be included in computing the individual’s income for the year.
(2) Subsection (1) applies to dividends paid after 2005.
49. (1) The definition “Canadian-controlled private corporation” in subsection 125(7) of the Act is amended by striking out the word “or” at the end of paragraph (b), by adding the word “or” at the end of paragraph (c) and by adding the following after paragraph (c):
(d) in applying subsection (1), paragraphs 87(2)(vv) and (ww) (including, for greater certainty, in applying those paragraphs as provided under paragraph 88(1)(e.2)), the definitions “excessive eligible dividend designation”, “general rate income pool” and “low rate income pool” in subsection 89(1) and subsections 89(4) to (6), (8) to (10) and 249(3.1), a corporation that has made an election under subsection 89(11) and that has not revoked the election under subsection 89(12);
(2) Subsection (1) applies to taxation years that end after 2005.
50. (1) Paragraph 127.52(1)(f) of the Act is replaced by the following:
(f) subsection 82(1) were read without reference to paragraph 82(1)(b);
(2) Subsection (1) applies to dividends paid after 2005.
51. (1) The Act is amended by adding the following after section 185:
PART III.1ADDITIONAL TAX ON EXCESSIVE ELIGIBLE DIVIDEND DESIGNATIONS
Marginal note:Tax on excessive eligible dividend designations
185.1 (1) A corporation that has made an excessive eligible dividend designation in respect of an eligible dividend paid by it at any time in a taxation year shall, on or before the corporation’s balance-due day for the taxation year, pay a tax under this Part for the taxation year equal to the total of
(a) 20% of the excessive eligible dividend designation, and
(b) if the excessive eligible dividend designation arises because of the application of paragraph (c) of the definition “excessive eligible dividend designation” in subsection 89(1), 10% of the excessive eligible dividend designation.
Marginal note:Election to treat excessive eligible dividend designation as an ordinary dividend
(2) If, in respect of an excessive eligible dividend designation that is not described in paragraph (1)(b) and that is made by a corporation in respect of an eligible dividend (in this subsection and subsection (3) referred to as the “original dividend”) paid by it at a particular time, the corporation would, if this Act were read without reference to this subsection, be required to pay a tax under subsection (1), and it elects in prescribed manner on or before the day that is 90 days after the day of mailing the notice of assessment in respect of that tax that would otherwise be payable under subsection (1), the following rules apply:
(a) notwithstanding the definition “eligible dividend” in subsection 89(1), the amount of the original dividend paid by the corporation is deemed to be the amount, if any, by which
(i) the amount of the original dividend, determined without reference to this subsection
exceeds
(ii) the amount claimed by the corporation in the election not exceeding the excessive eligible dividend designation, determined without reference to this subsection;
(b) an amount equal to the amount claimed by the corporation in the election is deemed to be a separate taxable dividend (other than an eligible dividend) that was paid by the corporation immediately before the particular time;
(c) each shareholder of the corporation who at the particular time held any of the issued shares of the class of shares in respect of which the original dividend was paid is deemed
(i) not to have received the original dividend, and
(ii) to have received at the particular time
(A) as an eligible dividend, the shareholder’s pro rata portion of the amount of any dividend determined under paragraph (a), and
(B) as a taxable dividend (other than an eligible dividend) the shareholder’s pro rata portion of the amount of any dividend determined under paragraph (b); and
(d) a shareholder’s pro rata portion of a dividend paid at any time on a class of the shares of the capital stock of a corporation is that proportion of the dividend that the number of shares of that class held by the shareholder at that time is of the number of shares of that class outstanding at that time.
Marginal note:Concurrence with election
(3) An election under subsection (2) in respect of an original dividend is valid only if
(a) it is made with the concurrence of the corporation and all its shareholders
(i) who received or were entitled to receive all or any portion of the original dividend, and
(ii) whose addresses were known to the corporation; and
(b) either
(i) it is made on or before the day that is 30 months after the day on which the original dividend was paid, or
(ii) each shareholder described in subparagraph (a)(i) concurs with the election, in which case, notwithstanding subsections 152(4) to (5), any assessment of the tax, interest and penalties payable by each of those shareholders for any taxation year shall be made that is necessary to take the corporation’s election into account.
Marginal note:Exception for non-taxable shareholders
(4) If each shareholder who, in respect of an election made under subsection (2), is deemed by subsection (2) to have received a dividend at a particular time is also, at the particular time, a person all of whose taxable income is exempt from tax under Part I,
(a) subsection (3) does not apply to the election; and
(b) the election is valid only if it is made on or before the day that is 30 months after the day on which the original dividend was paid.
Marginal note:Return
185.2 (1) Every corporation resident in Canada that pays a taxable dividend (other than a capital gains dividend within the meaning assigned by subsection 130.1(4) or 131(1)) in a taxation year shall file with the Minister, not later than the corporation’s filing-due date for the taxation year, a return for the year under this Part in prescribed form containing an estimate of the taxes payable by it under this Part for the taxation year.
Marginal note:Provisions applicable to Part
(2) Subsections 150(2) and (3), sections 151, 152, 158 and 159, subsections 161(1) and (11), sections 162 to 167 and Division J of Part I are applicable to this Part with such modifications as the circumstances require.
Marginal note:Joint and several liability from excessive eligible dividend designations
(3) Without limiting the liability of any person under any other provision of this Act, if a Canadian-controlled private corporation or a deposit insurance corporation pays an eligible dividend in respect of which it has made an excessive eligible dividend designation to a shareholder with whom it does not deal at arm’s length, the shareholder is jointly and severally, or solidarily, liable with the corporation to pay that proportion of the corporation’s tax payable under this Part because of the designation that the amount of the eligible dividend received by the shareholder is of the total of all amounts each of which is a dividend in respect of which the designation was made.
Marginal note:Assessment
(4) The Minister may, at any time after the last day on which a corporation may make an election under subsection 185.1(2) in respect of an excessive eligible dividend designation, assess a person in respect of any amount payable under subsection (3) in respect of the designation, and the provisions of Division I of Part I (including, for greater certainty, the provisions in respect of interest payable) apply, with any modifications that the circumstances require, to an assessment made under this subsection as though it were made under section 152.
Marginal note:Rules applicable
(5) If under subsection (3) a corporation and a shareholder have become jointly and severally, or solidarily, liable to pay part or all of the corporation’s tax payable under this Part in respect of an excessive eligible dividend designation described in subsection (3),
(a) a payment at any time by the shareholder on account of the liability shall, to the extent of the payment, discharge their liability after that time; and
(b) a payment at any time by the corporation on account of its liability shall discharge the shareholder’s liability only to the extent of the amount determined by the formula
(A - B) × C/D
where
- A
- is the total of
(i) the amount of the corporation’s liability, immediately before that time, under this Part in respect of the designation, and
(ii) the amount of the payment,
- B
- is the amount of the corporation’s liability, immediately before that time, under this Act,
- C
- is the amount of the eligible dividend received by the shareholder, and
- D
- the total of all amounts each of which is a dividend in respect of which the designation was made.
(2) Subsection (1) applies to taxation years that end after 2005 except that, in respect of a dividend paid before this Act is assented to, an election under subsection 185.1(2) of the Act, as enacted by subsection (1), is deemed to have been made in a timely manner if it is made on or before the day that is 30 months after the day on which this Act is assented to.
52. (1) Subsection 248(1) of the Act is amended by adding the following in alphabetical order:
“aggregate investment income”
« revenu de placement total »
“aggregate investment income” has the meaning assigned by subsection 129(4);
“eligible dividend”
« dividende déterminé »
“eligible dividend” has the meaning assigned by subsection 89(1);
“excessive eligible dividend designation”
« désignation excessive de dividende déterminé »
“excessive eligible dividend designation” has the meaning assigned by subsection 89(1);
“general rate income pool”
« compte de revenu à taux général »
“general rate income pool” has the meaning assigned by subsection 89(1);
“low rate income pool”
« compte de revenu à taux réduit »
“low rate income pool” has the meaning assigned by subsection 89(1);
(2) Subsection (1) applies to taxation years that end after 2005.
53. (1) Section 249 of the Act is amended by adding the following after subsection (3):
Marginal note:Year end on status change
(3.1) If at any time a corporation becomes or ceases to be a Canadian-controlled private corporation, otherwise than because of an acquisition of control to which subsection (4) would, if this Act were read without reference to this subsection, apply,
(a) subject to paragraph (c), the corporation’s taxation year that would, if this Act were read without reference to this subsection, include that time is deemed to end immediately before that time;
(b) a new taxation year of the corporation is deemed to begin at that time;
(c) notwithstanding subsections (1) and (3), the corporation’s taxation year that would, if this Act were read without reference to this subsection, have been its last taxation year that ended before that time is deemed instead to end immediately before that time if
(i) were this Act read without reference to this paragraph, that taxation year would, otherwise than because of paragraph 128(1)(d), section 128.1 and paragraphs 142.6(1)(a) or 149(10)(a), have ended within the 7-day period that ended immediately before that time,
(ii) within that 7-day period no person or group of persons acquired control of the corporation, and the corporation did not become or cease to be a Canadian-controlled private corporation, and
(iii) the corporation elects, in its return of income under Part I for that taxation year to have this paragraph apply; and
(d) for the purpose of determining the corporation’s fiscal period after that time, the corporation is deemed not to have established a fiscal period before that time.
(2) Subsection (1) applies to taxation years that end after 2005.
54. (1) Section 260 of the Act is amended by adding the following after subsection (1):
Marginal note:Eligible dividend
(1.1) This subsection applies to an amount if the amount is received by a person who is resident in Canada, the amount is deemed under subsection (5) to be a taxable dividend, and the amount is either
(a) received as compensation for an eligible dividend, within the meaning assigned by subsection 89(1); or
(b) received as compensation for a taxable dividend (other than an eligible dividend) paid by a corporation to a non-resident shareholder in circumstances where it is reasonable to consider that the corporation would, if that shareholder were resident in Canada, have designated the dividend to be an eligible dividend under subsection 89(14).
(2) The portion of subsection 260(5) of the Act after paragraph (b) is replaced by the following:
as compensation for a taxable dividend paid on a share of the capital stock of a public corporation that is a qualified security shall, to the extent of the amount of that dividend, be deemed to have been received as a taxable dividend and, if subsection (1.1) applies to the amount, as an eligible dividend on the share from the corporation.
(3) Subsections (1) and (2) apply to amounts received as compensation for dividends paid after 2005.
PART 3AMENDMENTS RELATING TO THE EXCISE DUTIES ON CANADIAN WINE AND BEER
2002, c. 22Excise Act, 2001
55. (1) Section 87 of the Excise Act, 2001 is amended by striking out the word “and” at the end of paragraph (a) and by adding the following after that paragraph:
(a.1) in the case of wine on which duty is not imposed because of paragraph 135(2)(a), before the wine is
(i) removed from the licensee’s premises,
(ii) consumed, or
(iii) made available for sale on the premises; and
(2) Subsection (1) is deemed to have come into force on July 1, 2006.
56. (1) Subsection 134(3) of the Act is replaced by the following:
Marginal note:Exceptions
(3) Subsection (1) does not apply to
(a) wine that is produced in Canada and composed wholly of agricultural or plant product grown in Canada; and
(b) wine that is produced by an individual for their personal use and that is consumed in the course of that use.
(2) Subsection (1) applies to wine taken for use after June 2006.
57. (1) Paragraph 135(2)(a) of the Act is replaced by the following:
(a) produced in Canada and composed wholly of agricultural or plant product grown in Canada;
(a.1) produced and packaged by an individual for their personal use; or
(2) Subsection (1) applies to wine packaged after June 2006.
R.S., c. E-14Excise Act
58. (1) Section 2 of the Excise Act is amended by adding the following in alphabetical order:
“person”
« personne »
“person” means an individual, a partnership, a corporation, a trust, the estate of a deceased individual, a government or a body that is a society, a union, a club, an association, a commission or another organization of any kind;
(2) Subsection (1) is deemed to have come into force on July 1, 2006.
59. (1) The Act is amended by adding the following after section 2.1:
Marginal note:Related persons
2.2 For the purposes of this Act, persons are related to each other if they are related persons within the meaning of subsections 251(2) to (6) of the Income Tax Act, except that
(a) a reference in those subsections to “corporation” shall be read as a reference to “corporation or partnership”; and
(b) a reference in those subsections to “shares” or “shareholders” shall, in respect of a partnership, be read as a reference to “rights” or “partners”, respectively.
Marginal note:Associated persons
2.3 (1) For the purposes of this Act, a particular corporation is associated with another corporation if, by reason of subsections 256(1) to (6) of the Income Tax Act, the particular corporation is associated with the other corporation for the purposes of that Act.
Marginal note:Corporations controlled by same person or group
(2) For the purposes of this Act, a person other than a corporation is associated with a particular corporation if the particular corporation is controlled by the person or by a group of persons of which the person is a member and each of whom is associated with each of the others.
Marginal note:Partnership or trust
(3) For the purposes of this Act, a person is associated with
(a) a partnership if the total of the shares of the profits of the partnership to which the person and all other persons who are associated with the person are entitled is more than half of the total profits of the partnership, or would be more than half of the total profits of the partnership if it had profits; and
(b) a trust if the total of the values of the interests in the trust of the person and all other persons who are associated with the person is more than half of the total value of all interests in the trust.
Marginal note:Association with third person
(4) For the purposes of this Act, a person is associated with another person if each of them is associated with the same third person.
Marginal note:Exception
2.4 If a corporation that is a licensed brewer would otherwise be related to another corporation that is also a licensed brewer by reason that the corporations are controlled by individuals connected by blood relationship, marriage or common-law partnership or adoption, the corporations are deemed not to be related for the purposes of section 170.1 if it is established that they deal with each other at arm’s length.
(2) Subsection (1) is deemed to have come into force on July 1, 2006.
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