Budget and Economic Statement Implementation Act, 2007 (S.C. 2007, c. 35)
Full Document:
Assented to 2007-12-14
10. (1) The portion of subsection 17(8) of the Act before paragraph (a) is replaced by the following:
Marginal note:Exception
(8) Subsection (1) does not apply to a corporation resident in Canada for a taxation year of the corporation in respect of an amount owing to the corporation by a non-resident person if the non-resident person is a controlled foreign affiliate of the corporation throughout the period in the year during which the amount is owing to the extent that it is established that the amount owing
(2) Section 17 of the Act is amended by adding the following after subsection (8):
Marginal note:Borrowed money
(8.1) Subsection (8.2) applies in respect of money (referred to in this subsection and in subsection (8.2) as “new borrowings”) that a controlled foreign affiliate of a particular corporation resident in Canada has borrowed from the particular corporation to the extent that the affiliate has used the new borrowings
(a) to repay money (referred to in this subsection and in subsection (8.2) as “previous borrowings”) previously borrowed from any person or partnership, if
(i) the previous borrowings became owing after the last time at which the affiliate became a controlled foreign affiliate of the particular corporation, and
(ii) the previous borrowings were, at all times after they became owing, used for a purpose described in subparagraph (8)(a)(i) or (ii); or
(b) to pay an amount owing (referred to in this subsection and in subsection (8.2) as the “unpaid purchase price”) by the affiliate for property previously acquired from any person or partnership, if
(i) the property was acquired, and the unpaid purchase price became owing, by the affiliate after the last time at which it became a controlled foreign affiliate of the particular corporation,
(ii) the unpaid purchase price is in respect of the property, and
(iii) throughout the period that began when the unpaid purchase price became owing by the affiliate and ended when the unpaid purchase price was so paid, the property had been used principally to earn income described in clause (8)(a)(i)(A) or (B).
Marginal note:Deemed use
(8.2) To the extent that this subsection applies in respect of new borrowings, the new borrowings are, for the purpose of subsection (8), deemed to have been used for the purpose for which the proceeds from the previous borrowings were used or were deemed by this subsection to have been used, or to acquire the property in respect of which the unpaid purchase price was payable, as the case may be.
(3) The definition “controlled foreign affiliate” in subsection 17(15) of the Act is replaced by the following:
“controlled foreign affiliate”
« société étrangère affiliée contrôlée »
“controlled foreign affiliate”, at any time, of a taxpayer resident in Canada, means a corporation that would, at that time, be a controlled foreign affiliate of the taxpayer within the meaning assigned by the definition “controlled foreign affiliate” in subsection 95(1) if the word “or” were added at the end of paragraph (a) of that definition and
(a) subparagraph (b)(ii) of that definition were read as “all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons resident in Canada who do not deal at arm’s length with the taxpayer,”; and
(b) subparagraph (b)(iv) of that definition were read as “all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons resident in Canada who do not deal at arm’s length with any relevant Canadian shareholder;”.
(4) Subsections (1) and (2) apply to taxation years that begin after February 23, 1998 and, notwithstanding subsections 152(4) to (5) of the Act, any assessment of the taxpayer’s tax, interest and penalties payable under the Act for any taxation year that begins after February 23, 1998 and ends before October 2, 2007 shall be made that is necessary to take subsections (1) and (2) into account.
(5) Subsection (3) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after February 23, 1998, except that, in applying the definition “controlled foreign affiliate”, in subsection 17(15) of the Act, as enacted by subsection (3),
(a) for taxation years, of a foreign affiliate of a taxpayer, that begin after 2002 and on or before February 27, 2004, that definition is to be read as follows:
- “controlled foreign affiliate”
“controlled foreign affiliate” has the meaning that would be assigned by the definition “controlled foreign affiliate” in subsection 95(1) for taxation years, of a foreign affiliate of a taxpayer, that begin after 2002 and on or before February 27, 2004, if the word “or” were added at the end of paragraph (a) of that definition and
(a) subparagraph (b)(ii) of that definition were read as “all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons resident in Canada who do not deal at arm’s length with the taxpayer,”; and
(b) subparagraph (b)(iv) of that definition were read as “all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons resident in Canada who do not deal at arm’s length with any relevant Canadian shareholder;”.
(b) for taxation years, of a foreign affiliate of a taxpayer, that begin after February 23, 1998 and before 2003, that definition is to be read as follows:
- “controlled foreign affiliate”
“controlled foreign affiliate” has the meaning that would be assigned by the definition “controlled foreign affiliate” in subsection 95(1) for taxation years, of a foreign affiliate of a taxpayer, that begin after February 23, 1998 and before 2003, if subparagraph (b)(iii) of that definition were read as “each share of the capital stock of a corporation that is owned at that time by the taxpayer and each share of the capital stock of a corporation that is owned at that time by any person resident in Canada with whom the taxpayer does not deal at arm’s length.”.
11. (1) Subsection 18(9) of the Act is amended by striking out the word “and” at the end of paragraph (d), by adding the word “and” at the end of paragraph (e) and by adding the following after paragraph (e):
(f) for the purpose of the definition “eligible child care space expenditure” in subsection 127(9), the portion of an expenditure (other than for the acquisition of depreciable property) that is made or incurred by a taxpayer in a taxation year and that would, but for paragraph (a), have been deductible under this Act in computing the taxpayer’s income for the year, is deemed
(i) not to be made or incurred by the taxpayer in the year, and
(ii) to be made or incurred by the taxpayer in the subsequent taxation year to which the expenditure can reasonably be considered to relate.
(2) Subsection (1) applies to expenses incurred on or after March 19, 2007.
12. (1) The Act is amended by adding the following after section 18.1:
Marginal note:Definitions
18.2 (1) The following definitions apply in this section.
“aggregate double-dip income”
« revenu total résultant d’un cumul de déductions »
“aggregate double-dip income”, of a particular corporation for a taxation year in respect of an inter-affiliate loan, means the total of the double-dip exempt earnings amount and the double-dip taxable earnings amount of the particular corporation for the taxation year in respect of the inter-affiliate loan.
“double-dip exempt earnings amount”
« montant des gains exonérés résultant d’un cumul de déductions »
“double-dip exempt earnings amount”, of a particular corporation for a taxation year in respect of an inter-affiliate loan owing to a foreign affiliate (referred to in this definition as the “earning foreign affiliate”) of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, means the total of all amounts each of which is the amount, in respect of a share (referred to in this definition as the “specified share”) of the capital stock of a particular foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, determined by the formula
A × [B - (C × D)]
where
- A
- is the participating percentage of the specified share in respect of the earning foreign affiliate at the end of a taxation year of the earning foreign affiliate that ends in the taxation year of the particular corporation;
- B
- is the amount of the re-characterized exempt earnings income of the earning foreign affiliate in respect of the inter-affiliate loan for the taxation year of the earning foreign affiliate;
- C
- is the foreign accrual tax applicable to the amount determined under the description of B; and
- D
- is the relevant tax factor of the particular corporation for the taxation year of the particular corporation.
“double-dip taxable earnings amount”
« montant des gains imposables résultant d’un cumul de déductions »
“double-dip taxable earnings amount” of a particular corporation for a taxation year in respect of an inter-affiliate loan owing to a foreign affiliate (referred to in this definition as the “earning foreign affiliate”), of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, means the total of all amounts each of which is the amount, in respect of a share (referred to in this definition as the “specified share”) of the capital stock of a particular foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, determined by the formula
A × [B - (C × D)]
where
- A
- is the participating percentage of the specified share in respect of the earning foreign affiliate at the end of a taxation year of the earning foreign affiliate that ends in the taxation year of the particular corporation;
- B
- is the amount of the re-characterized taxable earnings income of the earning foreign affiliate in respect of the inter-affiliate loan for the taxation year of the earning foreign affiliate;
- C
- is the foreign accrual tax applicable to the amount determined under the description of B; and
- D
- is the relevant tax factor of the particular corporation for the taxation year of the particular corporation.
“foreign accrual tax”
« impôt étranger accumulé »
“foreign accrual tax” applicable to an amount of re-characterized income of a foreign affiliate (referred to in this definition as the “earning foreign affiliate”), of a particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, for a taxation year in respect of an inter-affiliate loan owing to the earning foreign affiliate means the total of
(a) the amount equal to that portion of any foreign income or profit taxes that was paid by the earning foreign affiliate or any other foreign affiliate, of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, that can reasonably be regarded as applicable to the re-characterized income, and
(b) the amount that would, if the re-characterized income were an amount included in computing the particular corporation’s income under subsection 91(1) in respect of the earning foreign affiliate, be prescribed in respect of the earning foreign affiliate to be foreign accrual tax that is applicable to the re-characterized income for the purpose of the definition “foreign accrual tax” in subsection 95(1).
“inter-affiliate loan”
« prêt entre sociétés affiliées »
“inter-affiliate loan” in respect of a particular corporation for a taxation year means a debt that is owing to a foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation or to a partnership of which such a foreign affiliate is a member, if the income that the foreign affiliate derives in a taxation year from the interest paid or payable in respect of the debt is re-characterized income of the foreign affiliate for the taxation year.
“participating percentage”
« pourcentage de participation »
“participating percentage” of a share (referred to in this definition as the “specified share”) of the capital stock of a particular foreign affiliate of a particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, held by the particular corporation at the end of a particular taxation year of a non-resident corporation (referred to in this definition as the “earning foreign affiliate”) that ends in the particular corporation’s taxation year, which earning foreign affiliate was, at the end of the particular taxation year, a foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, means the percentage that would, if the earning foreign affiliate were a controlled foreign affiliate of the particular corporation, be determined under subparagraph (b)(i) or (ii) of the definition “participating percentage” in subsection 95(1) in respect of the specified share in respect of the earning foreign affiliate at the end of the particular taxation year.
“re-characterized income”
« revenu redéfini »
“re-characterized income” of a foreign affiliate of a corporation for a taxation year in respect of a debt owing to the foreign affiliate means the total of the re-characterized exempt earnings income and the re-characterized taxable earnings income of the foreign affiliate for the taxation year from the debt.
“re-characterized exempt earnings income”
« montant des gains exonérés redéfinis »
“re-characterized exempt earnings income” of a foreign affiliate of a corporation for a taxation year in respect of a debt owing to the foreign affiliate means that portion of the income of the foreign affiliate for the taxation year from the debt that is included
(a) under subparagraph 95(2)(a)(ii) in computing the income from an active business of the foreign affiliate for the taxation year, or that would be so included if the income were income from property; and
(b) in computing the amount prescribed to be the exempt earnings of the foreign affiliate for the taxation year.
“re-characterized taxable earnings income”
« montant des gains imposables redéfinis »
“re-characterized taxable earnings income” of a foreign affiliate of a corporation for a taxation year in respect of a debt owing to the foreign affiliate means that portion of the income of the foreign affiliate for the taxation year from the debt that is included
(a) under subparagraph 95(2)(a)(ii) in computing the income from an active business of the foreign affiliate for the taxation year, or that would be so included if the income were income from property; and
(b) in computing the amount prescribed to be the taxable earnings of the foreign affiliate for the taxation year.
“taxable earnings base adjustment”
« montant de rajustement des gains imposables »
“taxable earnings base adjustment” of a partic-ular corporation for a taxation year in respect of a share (referred to in this definition as the “specified share”) of a particular foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation and in respect of an inter-affiliate loan owing to a foreign affiliate of the particular corporation or of a corporation that does not deal at arm’s length with the particular corporation, means the amount determined by the formula
A × B/C
where
- A
- is the amount of interest deduction denied under subsection (2) in respect of the particular corporation in respect of interest relating to the inter-affiliate loan for the taxation year;
- B
- is the amount determined to be the double-dip taxable earnings amount of the particular corporation in respect of the inter-affiliate loan that can be attributed to the specified share for the taxation year; and
- C
- is the aggregate double-dip income of the particular corporation in respect of the inter-affiliate loan for the taxation year.
Marginal note:Double-dip interest not deductible
(2) Notwithstanding any other provision of this Act, in computing the income of a corporation for a taxation year, no amount may be deducted in respect of the corporation’s specified financing expense in respect of an inter-affiliate loan for the taxation year, except to the extent that that specified financing expense exceeds the corporation’s aggregate double-dip income for the taxation year in respect of that inter-affiliate loan.
Marginal note:Specified financing expense
(3) A particular corporation’s specified financing expense in respect of an inter-affiliate loan for a taxation year, is the amount, if any, by which
(a) the total of all amounts of interest paid or payable in the taxation year by the particular corporation on, and other costs referred to in paragraph 20(1)(e) deductible in computing the particular corporation’s income for the taxation year in respect of,
(i) borrowed money, to the extent that it is reasonable to consider that the borrowed money is used, in that taxation year, directly or indirectly, for the purpose of funding, in whole or in part, the inter-affiliate loan, and
(ii) an amount payable for property where it is reasonable to consider that the property, or property substituted for it (or, where the property or property substituted for it is a share of the capital stock of a corporation, property of the corporation or of a person related to the corporation, or property substituted for such property) is used, directly or indirectly, for the purpose of funding, in whole or in part, the inter-affiliate loan,
exceeds
(b) if the particular corporation has subsequently loaned the property referred to in paragraph (a), the total of all amounts that are, in respect of that subsequent loan, included in computing the income of the particular corporation for the taxation year and that relate to the period or periods of use referred to in that paragraph.
Marginal note:Aggregate double-dip income — related parties
(4) Subsection (5) applies to a corporation (referred to in this subsection and subsections (5) to (7) as the “debtor corporation”) and another corporation in respect of a particular taxation year of the debtor corporation and an inter-affiliate loan if
(a) the debtor corporation’s specified financing expense for the particular taxation year in respect of the inter-affiliate loan exceeds the debtor corporation’s aggregate double-dip income for the particular taxation year in respect of the inter-affiliate loan;
(b) the other corporation’s aggregate double-dip income for a taxation year in respect of the inter-affiliate loan exceeds the other corporation’s specified financing expense for that taxation year in respect of the inter-affiliate loan;
(c) the other corporation’s taxation year referred to in paragraph (b) ends in the particular taxation year; and
(d) at the end of the particular taxation year, the other corporation and the debtor corporation are related.
Marginal note:Deemed effects
(5) If this subsection applies to a debtor corporation and another corporation in respect of a particular taxation year of the debtor corporation and an inter-affiliate loan,
(a) the lesser of the excess determined under paragraph (4)(b) in respect of the other corporation and the excess determined under paragraph (4)(a) in respect of the debtor corporation is deemed to be included in the aggregate double-dip income of the debtor corporation in respect of the inter-affiliate loan and not to be included in the aggregate double-dip income of the other corporation;
(b) this subsection shall not apply to any other corporation in respect of the amount determined under paragraph (a); and
(c) for the purpose of determining the taxable earnings base adjustment of the other corporation, the amount determined under paragraph (a) is deemed to be
(i) an amount of interest deduction denied to it under subsection (2) in respect of interest relating to the inter-affiliate loan for its taxation year referred to in paragraph 4(b), and
(ii) an amount that is included in the aggregate double-dip income in respect of the inter-affiliate loan for its taxation year referred to in paragraph 4(b).
Marginal note:Allocation by debtor corporation
(6) If subsections (4) and (5) apply to more than one other corporation in respect of a debtor corporation and an inter-affiliate loan, the debtor corporation may allocate the excess double-dip incomes of the other corporations against the specified financing expense of the debtor corporation.
Marginal note:Allocation by Minister
(7) If a debtor corporation is entitled to make an allocation under subsection (6) but fails to do so, or does so in a manner that allows an excess to remain under subparagraph (4)(a) in respect of the debtor corporation and an excess to remain under subparagraph (4)(b) in respect of one or more other corporations, the Minister may allocate the excess double-dip incomes of the other corporations against the specified financing expense of the debtor corporation.
Marginal note:Inter-affiliate loans — exceptions
(8) A debt that would, at any time, otherwise be an inter-affiliate loan in respect of a corporation for a taxation year of a particular foreign affiliate is not an inter-affiliate loan at that time, if
(a) it is the case that
(i) another foreign affiliate, of the corporation or a corporation that does not deal at arm’s length with the corporation, owes the debt,
(ii) the particular foreign affiliate and the other foreign affiliate are, at the end of their taxation years that include that time, resident in the same country, and
(iii) the particular foreign affiliate and the other foreign affiliate determine their income, for income tax purposes under the income tax laws of that country, on a consolidated or combined basis; or
(b) it is the case that
(i) the corporation is a taxpayer described in paragraph 95(2)(l)(iv),
(ii) the particular foreign affiliate holds the debt, and the other foreign affiliate owes the debt, in the ordinary course of businesses that are described in subparagraph (a)(i) of the definition “investment business” in subsection 95(1) and conducted principally with persons with which those affiliates deal at arm’s length, and
(iii) the terms and conditions of the debt are substantially the same as the terms and conditions of similar debt entered into between persons dealing at arm’s length.
Marginal note:Partnership rules
(9) If a partnership that holds, directly or indirectly, a share of the capital stock of a specified corporation in respect of the partnership has borrowed money or become liable for an amount payable (in this subsection referred to as the “partnership indebtedness”) the interest in respect of which is deductible under paragraph 20(1)(c),
(a) there shall be added to the income of each corporation or partnership that is a member of the partnership, an amount equal to the member’s specified proportion of the interest and other borrowing costs referred to in paragraph 20(1)(e) that are deductible in computing the partnership’s income in respect of that member’s specified proportion of the partnership indebtedness;
(b) for the purpose of this section and paragraphs 20(1)(c) and (e), an amount equal to the amount added to the member’s income by paragraph (a) shall be deemed to be an amount of interest or other borrowing cost, as the case may be, that is deductible by the member; and
(c) the member shall be deemed to have incurred its specified proportion of the partnership indebtedness and to use the proceeds or property acquired in respect of that indebtedness in the same manner as the partnership.
Marginal note:Interpretation
(10) For the purpose of subsection (9),
(a) a specified corporation in respect of a partnership means a corporation that is, for the purpose of section 95,
(i) a foreign affiliate of a member of the partnership,
(ii) a foreign affiliate of a person with whom the partnership does not deal at arm’s length, or
(iii) a foreign affiliate of a person that does not deal at arm’s length with a member of the partnership; and
(b) the specified proportion of a member of a partnership for a fiscal period of the partnership means the proportion that the member’s share of the total income or loss of the partnership for the partnership’s fiscal period is of the partnership’s total income or loss for that period and, for the purpose of this definition, where that income or loss for a period is nil, that proportion shall be computed as if the partnership had income for that period in the amount of $1,000,000.
(2) Subsection (1) applies in respect of interest and other borrowing costs paid or payable in respect of a period or periods that begin after 2011.
- Date modified: