Jobs and Growth Act, 2012 (S.C. 2012, c. 31)
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Assented to 2012-12-14
PART 1AMENDMENTS TO THE INCOME TAX ACT AND RELATED REGULATIONS
R.S., c. 1 (5th Supp.)Income Tax Act
45. (1) The Act is amended by adding the following after section 207.6:
Marginal note:Tax payable on prohibited investment
207.61 (1) A custodian of a retirement compensation arrangement shall pay a tax under this Part for a calendar year if, at any time in the year,
(a) the arrangement acquires property that is a prohibited investment for the arrangement; or
(b) subject property of the arrangement becomes a prohibited investment for the arrangement after March 29, 2012.
Marginal note:Amount of tax payable
(2) The amount of tax payable in respect of each property described in subsection (1) is 50% of the fair market value of the property at the time referred to in that subsection.
Marginal note:Refund
(3) If in a calendar year an RCA trust disposes of a property in respect of which a tax is imposed under subsection (1) on the custodian of the retirement compensation arrangement, the custodian is entitled to a refund for the year of an amount equal to
(a) the amount of the tax so imposed, unless paragraph (b) applies; or
(b) nil,
(i) if it is reasonable to consider that the custodian, or a specified beneficiary of the arrangement, knew, or ought to have known, at the time the property was acquired by the arrangement, that it was, or would become, a property described in subsection (1), or
(ii) if the property is not disposed of by the arrangement before the end of the calendar year following the calendar year in which the tax arose, or any later time that the Minister considers reasonable in the circumstances.
Marginal note:Deemed disposition and reacquisition
(4) If, at any time, a property held by an RCA trust ceases to be, or becomes, a prohibited investment for the RCA trust, the RCA trust is deemed to have disposed of the property immediately before that time for proceeds of disposition equal to the fair market value of the property at that time and to have reacquired the property at that time at a cost equal to that fair market value.
Marginal note:Tax payable in respect of advantage
207.62 (1) A custodian of a retirement compensation arrangement shall pay a tax under this Part for a calendar year if, in the year, an advantage in relation to the arrangement is extended to, or is received or receivable by, an RCA trust under the arrangement, a specified beneficiary of the arrangement or any person who does not deal at arm’s length with the specified beneficiary.
Marginal note:Amount of tax payable
(2) The amount of tax payable in respect of an advantage described in subsection (1) is
(a) in the case of a benefit, the fair market value of the benefit;
(b) in the case of a loan or an indebtedness, the amount of the loan or indebtedness; and
(c) in the case of an RCA strip, the amount of the RCA strip.
Marginal note:Joint liability
207.63 If a custodian of a retirement compensation arrangement is liable to pay a tax under section 207.61 or 207.62, a specified beneficiary of the arrangement is jointly and severally, or solidarily, liable for that tax to the extent that the specified beneficiary participated in, assented to or acquiesced in the making of, the transaction or event or series of transactions or events that resulted in the liability.
Marginal note:Waiver of tax payable
207.64 If a person would otherwise be liable to pay a tax under this Part because of any of sections 207.61 to 207.63, the Minister may waive or cancel all or part of the liability if the Minister considers it just and equitable to do so having regard to all the circumstances, including
(a) whether the tax arose as a consequence of reasonable error; and
(b) the extent to which the transaction or event or series of transactions or events that gave rise to the tax also gave rise to another tax under this Act.
Marginal note:Deemed distribution
207.65 For the purposes of the definition “refundable tax” in subsection 207.5(1), tax paid under section 207.61 or 207.62 by a custodian of a retirement compensation arrangement out of property held in connection with the arrangement is deemed to be a distribution under the arrangement for the taxation year in which the tax is paid to the extent that the tax has not been refunded, waived or cancelled.
(2) Subsection (1) applies after March 28, 2012. For the purposes of section 207.61 of the Act, as enacted by subsection (1), an amendment to the terms of a promissory note, or similar debt obligation, that is subject property of a retirement compensation arrangement acquired before March 29, 2012 to provide for commercially reasonable payments of principal and interest is deemed not to be a disposition or an acquisition of the note or obligation.
46. (1) The Act is amended by adding the following after Part XI.3:
PART XI.4TAX ON EXCESS EPSP AMOUNTS
Marginal note:Excess EPSP amount
207.8 (1) In this Part, “excess EPSP amount”, of a specified employee for a taxation year in respect of an employer, means the amount determined by the formula
A – (20% × B)
where
- A
- is the portion of the total of all amounts paid by the employer of the specified employee (or by a corporation with which the employer does not deal at arm’s length) to a trust governed by an employees profit sharing plan that is allocated for the year to the specified employee; and
- B
- is the specified employee’s total income for the year from an office or employment with the employer computed without reference to paragraph 6(1)(d) and sections 7 and 8.
Marginal note:Tax payable
(2) If a specified employee has an excess EPSP amount for a taxation year, the specified employee shall pay a tax for the year equal to the amount determined by the formula
(A + B) × C
where
- A
- is 29%;
- B
- is
(a) if the specified employee is resident in Quebec at the end of the year, 0%,
(b) if the specified employee is resident in a province other than Quebec at the end of the year, the highest percentage rate of tax, including surtaxes but not taxes that are limited to a maximum amount, imposed by the province for the year on the income of an individual who is a resident of the province, or
(c) in any other case, 14%; and
- C
- is the total of all excess EPSP amounts of the specified employee for the year.
Marginal note:Waiver or cancellation
(3) If a specified employee would otherwise be liable to pay a tax under subsection (2), the Minister may waive or cancel all or part of the liability if the Minister considers it just and equitable to do so having regard to all the circumstances.
Marginal note:Return and payment of tax
(4) Every person who is liable to pay tax under this Part for a taxation year shall
(a) on or before the person’s filing-due date for the year, file with the Minister a return for the year under this Part in prescribed form and containing prescribed information; and
(b) on or before the person’s balance-due day for the year, pay to the Receiver General the amount of tax payable under this Part by the person for the year.
Marginal note:Provisions applicable to this Part
(5) Subsections 150(2) and (3), sections 152, 155 to 156.1, 158 to 160.1, 161 and 161.2 to 167 and Division J of Part I apply to this Part with any modifications that the circumstances require.
(2) Subsection (1) applies to the 2012 and subsequent taxation years, except that it does not apply in respect of payments made to a trust governed by an employees profit sharing plan
(a) before March 29, 2012; or
(b) before 2013 pursuant to an obligation arising under a written agreement or arrangement entered into before March 29, 2012.
47. (1) The definition “registered life insurance policy” in subsection 211(1) of the Act is replaced by the following:
“registered life insurance policy”
« police d’assurance-vie agréée »
“registered life insurance policy” means a life insurance policy issued or effected as or under a pooled registered pension plan, a registered retirement savings plan, a deferred profit sharing plan or a registered pension plan;
(2) Subsection (1) comes into force or is deemed to have come into force on the day on which the Pooled Registered Pension Plans Act comes into force.
48. (1) Paragraph 212(1)(h) of the Act is amended by adding the following before subparagraph (iii):
(ii) an amount distributed from a pooled registered pension plan that has been designated by the administrator of the plan in accordance with subsection 147.5(18),
(2) The portion of subparagraph 212(1)(h)(iii.1) of the Act before clause (B) is replaced by the following:
(iii.1) the portion of the payment that is transferred by the payer on behalf of the non-resident person, pursuant to an authorization in prescribed form, to a pooled registered pension plan, registered pension plan, registered retirement savings plan or registered retirement income fund and that
(A) because of any of subsections 146(21), 147.3(9) and 147.5(22) would not, if the non-resident person had been resident in Canada throughout the taxation year in which the payment was made, be included in computing the non-resident person’s income, or
(3) Subsections (1) and (2) come into force or are deemed to have come into force on the day on which the Pooled Registered Pension Plans Act comes into force.
49. (1) The Act is amended by adding the following after section 212.2:
Marginal note:Foreign affiliate dumping — conditions for application
212.3 (1) Subsection (2) applies to an investment in a non-resident corporation (in this section referred to as the “subject corporation”) made at any time (in this section referred to as the “investment time”) by a corporation resident in Canada (in this section referred to as the “CRIC”) if
(a) the subject corporation is immediately after the investment time, or becomes as part of a transaction or event or series of transactions or events that includes the making of the investment, a foreign affiliate of the CRIC;
(b) the CRIC is at the investment time, or becomes as part of a transaction or event or series of transactions or events that includes the making of the investment, controlled by a non-resident corporation (in this section referred to as the “parent”); and
(c) neither subsection (16) nor (18) applies in respect of the investment.
Marginal note:Foreign affiliate dumping — consequences
(2) If this subsection applies to an investment in a subject corporation made by a CRIC,
(a) for the purposes of this Part and subject to subsections (3) and (7), the CRIC is deemed to have paid to the parent, and the parent is deemed to have received from the CRIC, at the investment time, a dividend equal to the total of all amounts each of which is the portion of the fair market value at the investment time of any property (not including shares of the capital stock of the CRIC) transferred, any obligation assumed or incurred, or any benefit otherwise conferred, by the CRIC, or of any property transferred to the CRIC which transfer results in the reduction of an amount owing to the CRIC, that can reasonably be considered to relate to the investment; and
(b) in computing the paid-up capital in respect of any class of shares of the capital stock of the CRIC at any time that is at or after the investment time, there is to be deducted the amount of any increase in the paid-up capital in respect of the class, determined without reference to this section, that can reasonably be considered to relate to the investment.
Marginal note:Dividend substitution election
(3) If a CRIC, all corporations that are, at the investment time, qualifying substitute corporations in respect of the CRIC, and the parent (or the parent and another non-resident corporation that is at the investment time controlled by the parent) jointly elect in writing under this subsection in respect of an investment, amounts are agreed on in respect of classes of shares of the capital stock of any of the CRIC and one or more of the qualifying substitute corporations, the total of the amounts agreed on equals the amount of the dividend that would, in the absence of this subsection, be deemed under paragraph (2)(a) to be paid and received, and the election is filed with the Minister on or before the earliest of the filing-due dates of the CRIC and the qualifying substitute corporations for their respective taxation years that include the investment time, then
(a) the dividend that would, in the absence of this subsection, be deemed under paragraph (2)(a) to have been paid by the CRIC to the parent and received by the parent from the CRIC
(i) is reduced by the total of all amounts each of which is an amount agreed on in the election in respect of a class of shares of the capital stock of a qualifying substitute corporation, and
(ii) is, as reduced by the application of subparagraph (i), deemed to be paid to, and received by, the parent or the other non-resident corporation (if the other non-resident corporation has elected under this subsection), as one or more dividends in the amounts, and in respect of the classes of shares of the capital stock of the CRIC, agreed on in the election; and
(b) a dividend is deemed, at the investment time, to be paid to either the parent or the other non-resident corporation, as the case may be, by each qualifying substitute corporation in respect of which an amount has been agreed on in the election, and received by the parent, or the other non-resident corporation, from that qualifying substitute corporation, in the amount, and in respect of each class referred to in subparagraph (a)(i), agreed on in the election.
Marginal note:Qualifying substitute corporation
(4) For the purposes of this section, “qualifying substitute corporation”, at any time in respect of a CRIC, means a corporation resident in Canada
(a) that is, at that time, controlled by the parent;
(b) that has, at that time, an equity percentage (as defined in subsection 95(4)) in the CRIC; and
(c) shares of the capital stock of which are, at that time, owned by the parent or another non-resident corporation with which the parent does not, at that time, deal at arm’s length.
Marginal note:Modification of terms — paragraph (10)(e)
(5) In the case of an investment described in paragraph (10)(e), the CRIC is deemed for the purposes of paragraph (2)(a) to transfer to the subject corporation property that relates to the investment, the fair market value of which property is
(a) if the investment is described in subparagraph (10)(e)(i), the amount owing in respect of the debt obligation referred to in that subparagraph immediately after the investment time, or
(b) if the investment is described in subparagraph (10)(e)(ii), the fair market value of the shares referred to in that subparagraph immediately after the investment time.
Marginal note:Application of subsection (7)
(6) Subsection (7) applies if paragraph (2)(a) or (3)(b) applies to an investment in a subject corporation made by a CRIC and
(a) if an election is made under subsection (3) in respect of the investment,
(i) each class of shares of the capital stock of the CRIC or of a qualifying substitute corporation, in respect of which an amount has been agreed on in the election, is a class of which the parent, or another non-resident corporation with which the parent does not, at the investment time, deal at arm’s length, owns shares, and
(ii) the election results in the greatest possible amount that is the total of all amounts each of which would, if subparagraph (7)(b)(i) applied in respect of the investment, be a reduction of paid-up capital in respect of a share of the capital stock of the CRIC, or a qualifying substitute corporation, that is owned by the parent or another non-resident corporation with which the parent does not, at the investment time, deal at arm’s length; or
(b) in any other case, the following conditions are met:
(i) either
(A) there was only one class of issued and outstanding shares of the capital stock of the CRIC at the investment time, or
(B) the CRIC demonstrates that an amount of paid-up capital in respect of one or more classes of shares of the capital stock of the CRIC arose from one or more transfers of property to the CRIC and that
(I) in the case of an investment described in paragraph (10)(f), all the property transferred was used by the CRIC to make, in whole or in part, the direct acquisition referred to in that paragraph, and
(II) in any other case, all the property transferred was used by the CRIC to make, in whole or in part, the investment; and
(ii) at the investment time, each share of the capital stock of the CRIC that was not owned by the parent was owned by
(A) a person who was dealing at arm’s length with the CRIC, or
(B) a non-resident person who was not dealing at arm’s length with the CRIC.
Marginal note:Reduction of deemed dividend
(7) If this subsection applies, the following rules apply:
(a) the amount of any dividend deemed under this section to have been paid by the CRIC or a qualifying substitute corporation and to have been received by a non-resident corporation in respect of the investment is to be reduced by the lesser of
(i) the amount that would, in the absence of this subsection, be deemed to be paid and received as a dividend under this section, and
(ii) one of
(A) if paragraph (6)(a) applies, the amount of paid-up capital in respect of the class of shares in respect of which the dividend is deemed to be paid,
(B) if clause (6)(b)(i)(A) applies, the amount of paid-up capital in respect of the class referred to in that clause immediately before the investment time, or
(C) if clause (6)(b)(i)(B) applies, the total of all amounts of paid-up capital, determined under that clause, in respect of a class of shares of the capital stock of the CRIC; and
(b) in computing the paid-up capital in respect of a class of shares of the capital stock of the CRIC or a qualifying substitute corporation, as the case may be, at any time that is at or after the investment time, there is to be deducted
(i) if clause (a)(ii)(A) applies, the amount determined under paragraph (a) in respect of the class, and
(ii) if clause (a)(ii)(B) or (C) applies, the amount determined under paragraph (a) that can reasonably be considered to relate to the class.
Marginal note:Paid-up capital adjustment
(8) In computing the paid-up capital at any time after March 28, 2012 in respect of a class of shares of the capital stock of a corporation, there is to be added an amount equal to the lesser of
(a) the amount, if any, by which
(i) the total of all amounts deemed by subsection 84(3), (4) or (4.1) to be a dividend on shares of the class paid after March 28, 2012 and before that time by the corporation
exceeds
(ii) the total that would be determined under subparagraph (i) if this Act were read without reference to paragraphs (2)(b) and (7)(b) and subsection (9), and
(b) the amount, if any, by which
(i) the total of all amounts required by paragraph (2)(b) or (7)(b) to be deducted in computing the paid-up capital in respect of the class before that time
exceeds
(ii) the total of all amounts required by subsection (9) to be added in computing the paid-up capital in respect of the class before that time.
Marginal note:Paid-up capital reinstatement
(9) If, in respect of an investment in a subject corporation made by a CRIC that is described in paragraph (10)(a), (b) or (f), an amount is required by paragraph (2)(b) or (7)(b) to be deducted in computing the paid-up capital in respect of a class of shares of the capital stock of a particular corporation, and the particular corporation reduces, at a time subsequent to the investment time, the paid-up capital in respect of the class, then the paid-up capital in respect of the class is to be increased, immediately before the subsequent time, by the least of
(a) the amount of the reduction of the paid-up capital at the subsequent time,
(b) the amount, if any, by which
(i) the amount required by paragraph (2)(b) or (7)(b), as the case may be, to be deducted, in respect of the investment, in computing the paid-up capital in respect of the class
exceeds
(ii) the total of all amounts required under this subsection to be added, in respect of the investment, to the paid-up capital of the class in respect of a reduction of paid-up capital made before the subsequent time, and
(c) an amount that
(i) if the property distributed on the reduction of paid-up capital is shares of the capital stock of the subject corporation (in this paragraph referred to as the “subject shares”) or shares of the capital stock of a foreign affiliate of the particular corporation that were substituted for the subject shares, is equal to the fair market value of the subject shares, or the portion of the fair market value of the substituted shares that may reasonably be considered to relate to the subject shares, as the case may be, at the subsequent time,
(ii) the particular corporation demonstrates that it has received directly or indirectly after the investment time and no more than 180 days before the subsequent time
(A) as proceeds from the disposition of the subject shares, or as the portion of the proceeds from the disposition of the substituted shares that may reasonably be considered to relate to the subject shares, other than as proceeds from a disposition in respect of which the related acquisition is one to which subsection (18) applies, or
(B) as a dividend or reduction of paid-up capital in respect of a class of subject shares, or the portion of a dividend or reduction of paid-up capital in respect of a class of substituted shares that may reasonably be considered to relate to the subject shares, or
(iii) if neither subparagraph (i) nor (ii) applies, is equal to nil.
Marginal note:Investment in subject corporation
(10) In this section, “investment”, in a subject corporation made by a CRIC, means any of
(a) an acquisition of shares of the capital stock of the subject corporation by the CRIC;
(b) a contribution of capital to the subject corporation by the CRIC, which is deemed to include any transaction or event under which a benefit is conferred on the subject corporation by the CRIC;
(c) a transaction under which an amount becomes owing by the subject corporation to the CRIC, other than an amount owing
(i) that arises in the ordinary course of the business of the CRIC and that is repaid, other than as part of a series of loans or other transactions and repayments, within 180 days after the day on which the amount becomes owing, or
(ii) that is a pertinent loan or indebtedness immediately after the time of the transaction;
(d) an acquisition of a debt obligation of the subject corporation by the CRIC from a person, other than
(i) if the acquisition is made in the ordinary course of the business of the CRIC, a debt obligation acquired from a person with which the CRIC deals at arm’s length at the time of the acquisition, or
(ii) a debt obligation that is a pertinent loan or indebtedness immediately after the time of the acquisition;
(e) an extension of
(i) the maturity date of a debt obligation (other than a debt obligation that is a pertinent loan or indebtedness immediately after the time of the extension) owing by the subject corporation to the CRIC, or
(ii) the redemption, acquisition or cancellation date of shares of the capital stock of the subject corporation owned by the CRIC;
(f) an indirect acquisition by the CRIC of shares of the capital stock of the subject corporation that results from a direct acquisition by the CRIC of shares of the capital stock of another corporation resident in Canada, of which the subject corporation is a foreign affiliate, if the total fair market value of all the shares that are held directly or indirectly by the other corporation and are shares of foreign affiliates of the other corporation exceeds 75% of the total fair market value (determined without reference to debt obligations of any corporation resident in Canada in which the other corporation has a direct or indirect interest) of all of the properties owned by the other corporation; and
(g) an acquisition by the CRIC of an option in respect of, or an interest in, or for civil law a right in, shares of the capital stock of, an amount owing by (other than an amount owing described in subparagraph (c)(i) or (ii)), or a debt obligation of (other than a debt obligation described in subparagraph (d)(i) or (ii)), the subject corporation.
Marginal note:Pertinent loan or indebtedness
(11) For the purposes of subsection (10) and subject to subsection 17.1(3), “pertinent loan or indebtedness”, at any time, means an amount owing at that time by the subject corporation to the CRIC in respect of which all of the following apply:
(a) either
(i) the amount became owing after March 28, 2012, or
(ii) the amount became owing before March 29, 2012 and is a debt obligation for which the maturity date was extended after March 28, 2012 and at or before that time;
(b) the amount owing is not an amount owing described in subparagraph (10)(c)(i) or a debt obligation described in subparagraph (10)(d)(i); and
(c) the CRIC and the parent jointly elect in writing under this paragraph in respect of the amount owing and file the election with the Minister on or before the filing-due date of the CRIC
(i) in the case of an amount owing described in subparagraph (a)(i), for the year in which the amount became owing, or
(ii) in the case of an amount owing described in subparagraph (a)(ii), for the year in which the extension was made.
Marginal note:Late-filed elections
(12) Where an election referred to in subsection (3) or paragraph (11)(c) was not made on or before the day on or before which the election was required by that paragraph to be made, the election is deemed to have been made on that day if the election is made on or before the day that is three years after that day and the penalty in respect of the election is paid by the CRIC when the election is made.
Marginal note:Penalty for late-filed election
(13) For the purposes of subsection (12), the penalty in respect of an election referred to in that subsection is the amount equal to the product obtained by multiplying $100 by the number of months each of which is a month all or part of which is during the period commencing with the day on or before which the election is required by subsection (3) or paragraph (11)(c), as the case may be, to be made and ending on the day on which the election is made.
Marginal note:Rules for paragraph (10)(f)
(14) For the purposes of paragraph (10)(f),
(a) the condition in that paragraph is deemed to be satisfied at the time of the acquisition if
(i) any property (other than shares of foreign affiliates of the other corporation that is referred to in that paragraph) held directly or indirectly by that other corporation is disposed of, after the time of the acquisition, directly or indirectly by that corporation as part of a series of transactions or events that includes the acquisition, and
(ii) at any time that is subsequent to the time of the acquisition and that is in the period during which the series occurs, the condition in that paragraph would have been satisfied had the acquisition occurred at the subsequent time; and
(b) the fair market value of properties held directly or indirectly by the other corporation is not to be taken into account more than once in determining whether the condition in that paragraph is satisfied.
Marginal note:Control
(15) For the purposes of this section and paragraph 128.1(1)(c.3), a CRIC that would, in the absence of this subsection, be controlled at any time
(a) by more than one non-resident corporation is deemed not to be controlled at that time by any such non-resident that controls at that time another non-resident corporation that controls at that time the CRIC, unless the application of this subsection would otherwise result in no non-resident corporation controlling the CRIC; and
(b) by a particular non-resident corporation is deemed not to be controlled at that time by the particular corporation if the particular corporation is controlled at that time by another corporation that is at that time
(i) resident in Canada, and
(ii) not controlled by any non-resident person.
Marginal note:Exception — more closely connected business activities
(16) Subject to subsection (19), subsection (2) does not apply to an investment in a subject corporation made by a CRIC if the CRIC demonstrates that all of the following conditions are met:
(a) the business activities carried on by the subject corporation and all other corporations (those other corporations in this subsection and subsection (17) referred to as the “subject subsidiary corporations”) in which the subject corporation has, at the investment time, an equity percentage (as defined in subsection 95(4)) are at the investment time, and are expected to remain, on a collective basis, more closely connected to the business activities carried on in Canada by the CRIC, or by any corporation resident in Canada with which the CRIC does not, at the investment time, deal at arm’s length, than to the business activities carried on by any non-resident corporation with which the CRIC, at the investment time, does not deal at arm’s length, other than
(i) the subject corporation,
(ii) the subject subsidiary corporations, and
(iii) any corporation that is, immediately before the investment time, a controlled foreign affiliate of the CRIC for the purposes of section 17,
(b) officers of the CRIC had and exercised the principal decision-making authority in respect of the making of the investment and a majority of those officers were, at the investment time, persons each of whom was resident, and working principally,
(i) in Canada, or
(ii) in a country in which a particular corporation is resident if the particular corporation (in this subsection and subsection (17) referred to as a “connected affiliate”) is a controlled foreign affiliate of the CRIC for the purposes of section 17 and carries on business activities that are, at the investment time, and are expected to remain, at least as closely connected to those of the subject corporation and the subject subsidiary corporations, on a collective basis, as the business activities carried on in Canada by the CRIC, or any corporation resident in Canada with which the CRIC does not, at the investment time, deal at arm’s length, as the case may be, are to those of the subject corporation and the subject subsidiary corporations, on a collective basis; and
(c) at the investment time, it is reasonably expected that
(i) officers of the CRIC will have and exercise the ongoing principal decision-making authority in respect of the investment,
(ii) a majority of those officers will be persons each of whom will be resident, and working principally, in Canada or in a country in which a connected affiliate is resident, and
(iii) the performance evaluation and compensation of the officers of the CRIC who are resident, and work principally, in Canada, or in a country in which a connected affiliate is resident, will be based on the results of operations of the subject corporation to a greater extent than will be the performance evaluation and compensation of any officer of a non-resident corporation (other than the subject corporation, a corporation controlled by the subject corporation or a connected affiliate) that does not deal at arm’s length with the CRIC.
Marginal note:Dual officers
(17) For the purposes of paragraphs (16)(b) and (c), any person who is an officer of the CRIC and of a non-resident corporation with which the CRIC, at the investment time, does not deal at arm’s length (other than the subject corporation, a subject subsidiary corporation or a connected affiliate) is deemed to not be resident, and to not work principally, in a country in which a connected affiliate is resident.
Marginal note:Exception — corporate reorganizations
(18) Subject to subsections (19) and (20), subsection (2) does not apply to an investment in a subject corporation made by a CRIC if
(a) the investment is described in paragraph (10)(a) and is an acquisition of shares of the capital stock of the subject corporation
(i) from a corporation resident in Canada
(A) to which the CRIC is, immediately before the investment time, related (determined without reference to paragraph 251(5)(b)), and
(B) that is, at no time that is in the period during which the series of transactions or events that includes the making of the investment occurs and that is before the investment time, dealing at arm’s length (determined without reference to paragraph 251(5)(b)) with the CRIC, or
(ii) on an amalgamation described in subsection 87(1) of two or more corporations (each of which is in this subparagraph referred to as a “predecessor corporation”) to form the CRIC if
(A) all of the predecessor corporations are, immediately before the amalgamation, related to each other (determined without reference to paragraph 251(5)(b)), and
(B) none of the predecessor corporations deal at arm’s length (determined without reference to paragraph 251(5)(b)) with another predecessor corporation at any time that is in the period during which the series of transactions or events that includes the making of the investment occurs and that is before the investment time;
(b) the investment is described in paragraph (10)(a) and is an acquisition of shares of the capital stock of the subject corporation in which the shares are acquired by the CRIC
(i) in an exchange to which subsection 51(1) applies,
(ii) as consideration for a disposition of shares to which subsection 85.1(3) applies (determined without reference to subsection 85.1(4)),
(iii) in the course of a reorganization of the capital of the subject corporation to which subsection 86(1) applies,
(iv) as a result of a foreign merger (as defined in subsection 87(8.1)) under which the subject corporation was formed,
(v) on a liquidation and dissolution to which subsection 88(3) applies,
(vi) on a redemption of shares of another non-resident corporation that is, immediately before the investment time, a foreign affiliate of the CRIC, or
(vii) as a dividend or a reduction of paid-up capital in respect of the shares of another non-resident corporation that is, immediately before the investment time, a foreign affiliate of the CRIC;
(c) the investment is an indirect acquisition referred to in paragraph (10)(f) that results from a direct acquisition of shares of the capital stock of another corporation resident in Canada
(i) from a corporation
(A) to which the CRIC is, immediately before the investment time, related (determined without reference to paragraph 251(5)(b)), and
(B) that is, at no time that is in the period during which the series of transactions or events that includes the making of the investment occurs and that is before the investment time, dealing at arm’s length (determined without reference to paragraph 251(5)(b)) with the CRIC,
(ii) on an amalgamation described in subsection 87(1) of two or more corporations (each of which is in this subparagraph referred to as a “predecessor corporation”) to form the CRIC if
(A) all of the predecessor corporations are, immediately before the amalgamation, related to each other (determined without reference to paragraph 251(5)(b)), and
(B) none of the predecessor corporations deal at arm’s length (determined without reference to paragraph 251(5)(b)) with another predecessor corporation at any time that is in the period during which the series of transactions or events that includes the making of the investment occurs and that is before the investment time,
(iii) in an exchange to which subsection 51(1) applies,
(iv) in the course of a reorganization of the capital of the other corporation to which subsection 86(1) applies, or
(v) to the extent that an investment (other than one described in paragraph (10)(f)) is made in the subject corporation by the other corporation, or by a particular corporation resident in Canada to which the CRIC and the other corporation are related at the investment time, using property transferred, directly or indirectly, by the CRIC to the other corporation or the particular corporation, as the case may be, if the two investments
(A) occur within 30 days of each other, and
(B) are part of the same series of transactions or events; or
(d) the investment is an acquisition of shares of the capital stock of the subject corporation that is described in paragraph (10)(a), or an indirect acquisition referred to in paragraph (10)(f) that results from a direct acquisition of shares of the capital stock of another corporation resident in Canada, under which the shares of the subject corporation or the other corporation, as the case may be, are received by the CRIC as the sole consideration for an exchange of a debt obligation owing to the CRIC, other than an exchange to which subsection 51(1) applies.
Marginal note:Preferred shares
(19) Subsection (16) and paragraphs (18)(b) and (d) do not apply to an acquisition of shares of the capital stock of a subject corporation by a CRIC if, having regard to all the terms and conditions of the shares and any agreement in respect of the shares, the shares may not reasonably be considered to fully participate in the profits of the subject corporation and any appreciation in the value of the subject corporation, unless the subject corporation would be a subsidiary wholly-owned corporation of the CRIC throughout the period during which the series of transactions or events that includes the acquisition occurs if the CRIC owned all of the shares of the capital stock of the subject corporation that are owned by any of
(a) the CRIC;
(b) a corporation resident in Canada that is a subsidiary wholly-owned corporation of the CRIC; and
(c) a corporation resident in Canada of which the CRIC is a subsidiary wholly-owned corporation.
Marginal note:Assumption of debt on liquidation or distribution
(20) Subsection (2) applies to an investment in a subject corporation made by a CRIC that is an acquisition of shares of the capital stock of the subject corporation described in any of subparagraphs (18)(b)(v) to (vii) to the extent of the lesser of
(a) the total of all amounts each of which is the amount of a debt obligation assumed by the CRIC in respect of the liquidation and dissolution, redemption, dividend or reduction of paid-up capital, as the case may be, and
(b) the fair market value of the shares at the investment time.
Marginal note:Persons deemed not to be related
(21) If it can reasonably be considered that one of the main purposes of one or more transactions or events is to cause two or more persons to be related to each other so that, in the absence of this subsection, subsection (2) would not apply because of subsection (18) to an investment in a subject corporation made by a CRIC, those persons are deemed not to be related to each other for the purposes of subsection (18).
Marginal note:Mergers
(22) For the purposes of this section and subsections 219.1(3) and (4),
(a) if there has been an amalgamation to which subsection 87(11) applies,
(i) the new corporation referred to in that subsection is deemed to be the same corporation as, and a continuation of, the parent and each subsidiary referred to in that subsection, and
(ii) the new corporation is deemed not to acquire any property of the parent, or of any subsidiary, as a result of the amalgamation; and
(b) if there has been a winding-up to which subsection 88(1) applies,
(i) the parent referred to in that subsection is deemed to be the same corporation as, and a continuation of, the subsidiary referred to in that subsection, and
(ii) the parent is deemed not to acquire any property of the subsidiary as a result of the winding-up.
Marginal note:Indirect investment
(23) Subsection (2) applies to an investment in a subject corporation made by a CRIC to which, in the absence of this subsection, subsection (2) would not apply because of subsection (16), to the extent that one or more properties received by the subject corporation from the CRIC as a result of the investment, or property substituted for any such property, may reasonably be considered to have been used by the subject corporation, directly or indirectly as part of a series of transactions or events that includes the making of the investment, in a transaction or event to which subsection (2) would have applied if the CRIC had entered into the transaction, or participated in the event, as the case may be, instead of the subject corporation.
Marginal note:Indirect funding
(24) Subsection (2) does not apply to an investment in a subject corporation made by a CRIC to which, in the absence of this subsection, subsection (2) would apply, if the CRIC demonstrates that
(a) all the properties received by the subject corporation from the CRIC as a result of the investment were used, at a particular time that is within 30 days after the investment time and at all times after the particular time, by the subject corporation to make a loan to a particular corporation that was, at the time of the loan, a controlled foreign affiliate of the CRIC for the purposes of section 17;
(b) the particular corporation is, throughout the period that begins at the investment time and during which the series of transactions or events that includes the making of the loan occurs, a corporation in which an investment made by the CRIC would not be subject to subsection (2) because of subsection (16); and
(c) the particular corporation uses, throughout the period during which the loan is outstanding, the proceeds of the loan in an active business (as defined in subsection 95(1)) carried on by it in the country in which it is resident.
Marginal note:Partnerships
(25) For the purposes of this section, subsection 17.1(1) (as it applies in respect of a pertinent loan or indebtedness as defined in subsection (11)), paragraph 128.1(1)(c.3) and subsection 219.1(2),
(a) any transaction entered into, or event participated in, by a partnership is deemed to have been entered into, or participated in, as the case may be, by each member of the partnership in the proportion that the fair market value, at the time of the transaction or event, of the member’s interest — held directly or indirectly through one or more other partnerships — in the partnership is of the fair market value, at that time, of all direct interests in the partnership;
(b) if at any time, based on the assumptions contained in paragraph 96(1)(c), property would be owned by a partnership, that property is deemed to be owned at that time by each member of the partnership in the proportion that the fair market value, at that time, of the member’s interest — held directly or indirectly through one or more other partnerships — in the partnership is of the fair market value, at that time, of all direct interests in the partnership;
(c) if at any time there is an increase (including, for greater certainty, as a result of a particular acquisition of an interest in a partnership in which, immediately prior to the particular acquisition, the member did not have an interest) in the portion of a property that is deemed under paragraph (b) to be owned by a member of a partnership, the member is deemed at that time
(i) to acquire the additional portion of the property, and
(ii) to transfer property that relates to the acquisition of the additional portion and that has a fair market value equal to the fair market value at that time of the additional portion;
(d) if at any time, based on the assumptions contained in paragraph 96(1)(c), an amount would be owing by a partnership, that amount is deemed to be owed by each member of the partnership in the proportion that the fair market value, at that time, of the member’s interest — held directly or indirectly through one or more other partnerships — in the partnership is of the fair market value, at that time, of all direct interests in the partnership;
(e) if a member of a partnership enters into a transaction, or participates in an event, with the partnership, paragraph (a) does not apply to the transaction or event to the extent that the transaction or event would, in the absence of this paragraph, be deemed by paragraph (a) to have been entered into, or participated in, as the case may be, by the member; and
(f) a person or partnership that is (or is deemed by this paragraph to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership.
(2) Subject to subsection (3), subsection (1) applies in respect of transactions and events that occur after March 28, 2012. However,
(a) subsection (1) does not apply to transactions that occur before 2013 between parties that deal at arm’s length with each other if
(i) either
(A) in the case of an indirect acquisition referred to in paragraph 212.3(10)(f) of the Act, as enacted by subsection (1), the CRIC referred to in that paragraph is obligated to complete the direct acquisition referred to in that paragraph under the terms of an agreement in writing entered into before March 29, 2012 between the CRIC and a public corporation that is the other corporation resident in Canada referred to in that paragraph, or
(B) the parties are obligated to complete the transaction under the terms of an agreement in writing entered into between the parties before March 29, 2012, and
(ii) no party to the agreement may be excused from the obligation as a result of amendments to the Act; and
(b) any election referred to in subsection 212.3(3) or paragraph 212.3(11)(c) of the Act, as enacted by subsection (1), that would otherwise be required to be filed with the Minister of National Revenue on or before the day that is 120 days after the day on which this Act receives royal assent is deemed to have been filed with the Minister on a timely basis if it is filed with the Minister on or before the day that is 365 days after the day on which this Act receives royal assent.
(3) If a corporation resident in Canada (in this subsection referred to as the “CRIC”) and a non-resident corporation that controls the CRIC jointly elect in writing under this subsection in respect of all transactions and events to which subsection 212.3(2) of the Act, as enacted by subsection (1), would, in the absence of this subsection, apply and file the election with the Minister of National Revenue on or before the day that is the later of the CRIC’s filing-due date for the CRIC’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, then, in respect of transactions and events that occur before August 14, 2012, section 212.3 of the Act, as enacted by subsection (1), is to be read without reference to its subsections (3) to (7), (9), (11) to (14), (17) to (22) and (24) and the following rules apply:
(a) subsections 212.3(1) and (2) of the Act are to be read as follows:
212.3 (1) Subsection (2) applies to an investment in a non-resident corporation (referred to in this section as the “subject corporation”) that is made, at any time, by a corporation resident in Canada (referred to in this section as the “CRIC”) if
(a) the subject corporation is, immediately after that time, or becomes, as part of a transaction or event or series of transactions or events that includes the investment, a foreign affiliate of the CRIC;
(b) the CRIC is at that time controlled by another non-resident corporation (referred to in this section as the “parent”); and
(c) the investment may not reasonably be considered to have been made by the CRIC, instead of being made or retained by the parent or another non-resident person that does not deal at arm’s length with the parent, primarily for bona fide purposes other than to obtain a tax benefit (as defined in subsection 245(1)).
(2) If this subsection applies to an investment in a subject corporation,
(a) for the purposes of this Part, the CRIC is deemed to have paid to the parent at the time the investment was made, and the parent is deemed to have received from the CRIC at that time, a dividend equal to the total of all amounts each of which is the fair market value, at that time, of any property (not including shares of the capital stock of the CRIC) transferred, or obligation assumed or incurred, by the CRIC in respect of the investment; and
(b) in computing the paid-up capital at any time after March 28, 2012 of any class of shares of the capital stock of the CRIC, there is to be deducted the amount of any increase, because of the investment, in the paid-up capital in respect of the shares of the class, computed without reference to this section.
(b) subsection 212.3(8) of the Act is to be read as follows:
(8) In computing the paid-up capital at any time after March 28, 2012 in respect of a class of shares of the capital stock of a corporation, there is to be added an amount equal to the lesser of
(a) the amount, if any, by which
(i) the total of all amounts deemed by subsection 84(3), (4) or (4.1) to be a dividend on shares of the class paid after March 28, 2012 and before that time by the corporation,
exceeds
(ii) the total that would be determined under subparagraph (i) if this Act were read without reference to paragraph (2)(b); and
(b) the total of all amounts required by paragraph (2)(b) to be deducted in computing the paid-up capital in respect of the class before that time.
(c) subsection 212.3(10) of the Act is to be read as follows:
(10) For the purposes of this section, an investment made in a subject corporation by a CRIC means any of
(a) an acquisition of shares of the capital stock of the subject corporation by the CRIC;
(b) a contribution of capital to the subject corporation by the CRIC;
(c) a transaction under which an amount became owing by the subject corporation to the CRIC, other than an amount owing that arises in the ordinary course of the business of the CRIC and that is repaid within a commercially reasonable period;
(d) an acquisition of a debt obligation of the subject corporation by the CRIC from another person, other than, if the acquisition was made in the ordinary course of the business of the CRIC, an acquisition from a person with which the CRIC dealt, at the time of the acquisition, at arm’s length;
(e) an acquisition by the CRIC of an option in respect of, or an interest in, or for civil law a right in, shares of the capital stock, or a debt obligation, of the subject corporation; and
(f) any transaction or event that is similar in effect to any of the transactions described in paragraphs (a) to (e).
(d) subsections 212.3(15) and (16) of the Act are to be read as follows:
(15) For the purposes of this section and paragraph 128.1(1)(c.3), a CRIC that is controlled by more than one non-resident corporation is deemed not to be controlled by any such non-resident that controls another non-resident corporation that controls the CRIC, unless the application of this subsection would otherwise result in no non-resident corporation controlling the CRIC.
(16) In determining whether paragraph (1)(c) applies, the following factors are to be given primary consideration:
(a) whether the business activities carried on by the subject corporation and any other corporation in which the subject corporation has, at the time referred to in subsection (1), an equity percentage (as defined in subsection 95(4)) are at that time, and are expected to remain, more closely connected to the business activities carried on by the CRIC (or by a corporation resident in Canada that is a subsidiary wholly-owned corporation of the CRIC or that is a corporation of which the CRIC is a subsidiary wholly-owned corporation) than to the business activities carried on by any non-resident corporation (other than the subject corporation or any corporation in which the subject corporation has such an equity percentage) with which the CRIC, at that time, does not deal at arm’s length;
(b) whether the terms or conditions of any shares of the subject corporation that are owned by the CRIC at that time, or any agreement in respect of the shares or their issue, are such that the CRIC does not fully participate in the profits of the subject corporation or any appreciation in the value of the subject corporation (for greater certainty, the fact that the shares owned by the CRIC do fully participate in the profits of the subject corporation and any appreciation in the value of the subject corporation is not a relevant factor);
(c) whether the investment was made at the direction or request of a non-resident corporation with which the CRIC was not, at that time, dealing at arm’s length;
(d) whether, in the case of an investment described in paragraph (10)(a), (d), (e) or (f), negotiations with the vendor in respect of the investment were initiated by senior officers of the CRIC who were resident in, and worked principally in, Canada or, if the vendor initiated the transaction, the vendor’s principal point of contact was an officer of the CRIC who was resident in, and worked principally in, Canada;
(e) whether senior officers of the CRIC who were resident in, and worked principally in, Canada had and exercised the principal decision-making authority in respect of the making of the investment, and have and exercise the principal decision making authority in respect of the investment;
(f) whether the performance evaluation or compensation of senior officers of the CRIC who are resident in, and work principally in, Canada is connected to the results of operations of the subject corporation to a greater extent than the performance evaluation or compensation of any senior officers of a non-resident corporation (other than the subject corporation or a corporation controlled by the subject corporation) that does not deal at arm’s length with the CRIC is so connected; and
(g) whether senior officers of the subject corporation report to, and are functionally accountable to, senior officers of the CRIC who are resident in, and work principally in, Canada to a greater extent than to any senior officers of any non-resident corporation (other than the subject corporation) that does not deal at arm’s length with the CRIC.
(e) subsection 212.3(23) of the Act is to be read as follows:
(23) A particular investment by a CRIC in a subject corporation that would, in the absence of this subsection, be excluded from the application of subsection (2) because of paragraph (1)(c) is not to be so excluded to the extent that one or more properties, if any, received by the subject corporation from the CRIC as a result of the particular investment, or property substituted for any such property, may reasonably be considered to have been used by the subject corporation, directly or indirectly as part of a transaction or event or series of transactions or events that includes the particular investment, to make another investment in a non-resident corporation that would, if the other investment had been made by the CRIC, have been subject to subsection (2).
(f) subsection 212.3(25) of the Act is to be read as follows:
(25) For the purposes of this section, paragraph 128.1(1)(c.3) and subsection 219.1(2),
(a) any transaction entered into by a partnership is deemed to have been entered into by each member of the partnership in proportion to the fair market value of the member’s direct or indirect interest in the partnership;
(b) property that would, in the absence of this paragraph, be owned by a partnership is deemed to be owned by each member of the partnership in proportion to the fair market value of the member’s direct or indirect interest in the partnership; and
(c) amounts that would, in the absence of this paragraph, be owing by a partnership are deemed to be owed by each member of the partnership in proportion to the fair market value of the member’s direct or indirect interest in the partnership.
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