• Marginal note:Deemed dividends

  (16) For the purposes of this Part,

  • (a) an amount paid or credited as interest by a corporation resident in Canada, or by a partnership, in a taxation year of the corporation to a non-resident person is deemed to have been paid by the corporation as a dividend, and not to have been paid or credited by the corporation or the partnership as interest, to the extent that an amount in respect of the interest

    • (i) is not deductible in computing the income of the corporation for the year because of subsection 18(4), or

    • (ii) is included in computing the income of the corporation for the year under paragraph 12(1)(l.1); and

  • (b) to the extent that amounts paid or credited to a non-resident person in the year are deemed by paragraph (a) to have been paid by a corporation as dividends, the corporation may designate in its return of income under Part I for the year which amounts paid or credited as interest to the non-resident person in the year are deemed to have been paid as dividends and not as interest.

• Marginal note:Deemed interest payments

  (17) For the purposes of subsection (16),

  • (a) interest payable (other than interest payable pursuant to a legal obligation to pay interest on an amount of interest) by a corporation resident in Canada, or by a partnership, in respect of a taxation year of the corporation, but that has not been paid or credited in the year, is deemed to have been paid immediately before the end of the year and not to have been paid or credited at any other time; and

  • (b) if subsection (6) or (7) deems a payment of interest to have been made to a non-resident person in respect of a debt or other obligation of a corporation, interest that, at the time of the transfer or assignment, is payable by the corporation in respect of the debt or other obligation and has not been paid or credited is deemed to have been paid by the corporation immediately before that time to the non-resident person.

Marginal note:Corporate emigration

• 219.1 (1) If a taxation year of a corporation (in this subsection and subsection (2) referred to as the “emigrating corporation”) is deemed by paragraph 128.1(4)(a) to have ended at any time, the emigrating corporation shall, on or before its filing-due date for the year, pay a tax under this Part for the year equal to the amount determined by the formula

  25% × (A – B)

  where

  A

  is the fair market value of all the property owned by the emigrating corporation immediately before that time; and

  B

  is the total of

  • (a) the paid-up capital in respect of all the shares of the capital stock of the emigrating corporation immediately before that time,

  • (b) all amounts (other than amounts payable by the emigrating corporation in respect of dividends and amounts payable under this section) each of which is a debt owing by the emigrating corporation, or an obligation of the emigrating corporation to pay an amount, that is outstanding at that time, and

  • (c) if a tax was payable by the emigrating corporation under subsection 219(1) or this section for a preceding taxation year that began before 1996 and after the emigrating corporation last became resident in Canada, four times the total of all amounts that would, but for sections 219.2 and 219.3 and any tax treaty, have been so payable.

• Marginal note:Foreign affiliate dumping — emigrating corporation

  (2) The paid-up capital referred to in paragraph (a) of the description of B in subsection (1) is deemed to be nil if

  • (a) one or more shares of the emigrating corporation are, at the time the emigrating corporation ceases to be resident in Canada, owned by another corporation resident in Canada;

  • (b) the other corporation is controlled, at that time, by a non-resident corporation; and

  • (c) the emigrating corporation is, immediately after that time — or becomes, as part of a transaction or event or series of transactions or events that includes the emigrating corporation ceasing to be resident in Canada — a foreign affiliate of the other corporation.

• Marginal note:Application of subsection (4)

  (3) Subsection (4) applies if

  • (a) a corporation ceases to be resident in Canada at any time (referred to in subsection (4) as the “emigration time”);

  • (b) an amount is required by paragraph 212.3(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 the corporation because of an investment in a subject corporation made by a CRIC that is described in paragraph 212.3(10)(a), (b) or (f);

  • (c) subsection 212.3(9) has not applied in respect of any reduction of the paid-up capital in respect of a class of shares of the capital stock of the corporation or a specified predecessor corporation (as defined in subsection 95(1)) of the corporation; and

  • (d) subsection (2) does not apply in respect of the cessation of residence.

• Marginal note:Paid-up capital reinstatement

  (4) If this subsection applies, the paid-up capital referred to in paragraph (a) of the description of B in subsection (1) is to be increased, immediately before the time that is immediately before the emigration time, by the lesser of

  • (a) the total of all amounts each of which is an amount by which the paid-up capital of a class of shares of the capital stock of the corporation was required by paragraph 212.3(2)(b) or (7)(b) to be reduced in respect of an investment in a subject corporation made by the CRIC that is described in paragraph 212.3(10)(a), (b) or (f), and

  • (b) the total of all amounts each of which is

    • (i) the fair market value of a share of the capital stock of a subject corporation that is owned by the corporation immediately before the emigration time, or

    • (ii) the portion of the fair market value of a particular share of the capital stock of a foreign affiliate of the corporation owned by the corporation immediately before the emigration time that may reasonably be considered to relate to a share of the capital stock of a subject corporation that was previously owned by the corporation and for which the particular share was substituted.

• Marginal note:Assigned meanings from section 212.3

  (5) For the purposes of subsections (3) and (4), “CRIC” and “subject corporation” have the meaning assigned to those terms by subsection 212.3(1) and “investment” has the same meaning as in subsection 212.3(10).

• Marginal note:No penalty — certain deemed payments

  (8.5) Subsection (8) does not apply to a corporation in respect of

  • (a) an amount of interest deemed by subsection 214(16) to have been paid as a dividend by the corporation unless, if the Act were read without reference to subsection 214(16), a penalty under subsection (8) would have applied in respect of the amount; and

  • (b) an amount deemed by subsection 247(12) to have been paid as a dividend by the corporation.

• (vii) to an official solely for the purposes of the administration or enforcement of the Pension Benefits Standards Act, 1985, the Pooled Registered Pension Plans Act or a similar law of a province,

• (b) an authority engaged in administering a law of a province similar to the Pension Benefits Standards Act, 1985 or the Pooled Registered Pension Plans Act,

• Marginal note:Deemed dividends to non-residents

  (12) For the purposes of Part XIII, if a particular corporation that is a resident of Canada for the purposes of Part XIII would have a transfer pricing capital adjustment or a transfer pricing income adjustment for a taxation year, if the particular corporation, or a partnership of which the particular corporation is a member, had undertaken no transactions or series of transactions other than those in which a particular non-resident person, or a partnership of which the particular non-resident person is a member, that does not deal at arm’s length with the particular corporation (other than a corporation that was for the purposes of section 17 a controlled foreign affiliate of the particular corporation throughout the period during which the transaction or series of transactions occurred) was a participant,

  • (a) a dividend is deemed to have been paid by the particular corporation and received by the particular non-resident person immediately before the end of the taxation year; and

  • (b) the amount of the dividend is the amount, if any, by which

    • (i) the amount that would be the portion of the total of the particular corporation’s transfer pricing capital adjustment and transfer pricing income adjustment for the taxation year that could reasonably be considered to relate to the particular non-resident person if

      • (A) the only transactions or series of transactions undertaken by the particular corporation were those in which the particular non-resident person was a participant, and

      • (B) the definition “transfer pricing capital adjustment” in subsection (1) were read without reference to the references therein to “1/2 of” and “3/4 of”

    exceeds

    • (ii) the amount that would be the portion of the total of the particular corporation’s transfer pricing capital setoff adjustment, and transfer pricing income setoff adjustment, for the taxation year that could reasonably be considered to relate to the particular non-resident person if

      • (A) the only transactions or series of transactions undertaken by the particular corporation were those in which the particular non-resident person was a participant, and

      • (B) the definition “transfer pricing capital adjustment” in subsection (1) were read without reference to the references therein to “1/2 of” and “3/4 of”.

• Marginal note:Repatriation

  (13) If a dividend is deemed by subsection (12) to have been paid by a corporation and received by a non-resident person, and a particular amount has been paid with the concurrence of the Minister by the non-resident person to the corporation,

  • (a) the amount of the dividend may be reduced by the amount (in this subsection referred to as the “reduction”) that the Minister considers appropriate, having regard to all the circumstances, and

  • (b) subsections 227(8.1) and (8.3) apply as if

    • (i) the amount of the dividend were not reduced, and

    • (ii) on the day on which the particular amount was paid, the corporation paid to the Receiver General an amount equal to the amount that would be required to be withheld and remitted under Part XIII in respect of the reduction.

• Marginal note:Repatriation — interest

  (14) If the amount of a dividend is reduced under paragraph (13)(a), the amount of interest payable by a taxpayer because of paragraph (13)(b) may be reduced to the amount that the Minister considers appropriate, having regard to all the circumstances, including the provision of reciprocal treatment by the country in which the non-resident person referred to in subsection (13) is resident.

• Marginal note:Non-application of provisions

  (15) Section 15, subsections 56(2) and 212.3(2) and section 246 do not apply in respect of an amount to the extent that a dividend is deemed by subsection (12) (determined without reference to subsection (13)) to have been paid in respect of the amount.