• 259. (1) The portion of subsection 122.3(1) of the Act before paragraph (a) is replaced by the following:

  Marginal note:Overseas employment tax credit

  • 122.3 (1) If an individual is resident in Canada in a taxation year and, throughout any period of more than six consecutive months that began before the end of the year and included any part of the year (in this section referred to as the “qualifying period”)

• (2) Subsection 122.3(1.1) of the Act is replaced by the following:

  • Marginal note:Excluded income

    (1.1) No amount may be included under paragraph (1)(d) in respect of an individual’s income for a taxation year from the individual’s employment by an employer

    • (a) if

      • (i) the employer carries on a business of providing services and does not employ in the business throughout the year more than five full-time employees,

      • (ii) the individual

        • (A) does not deal at arm’s length with the employer, or is a specified shareholder of the employer, or

        • (B) where the employer is a partnership, does not deal at arm’s length with a member of the partnership, or is a specified shareholder of a member of the partnership, and

      • (iii) but for the existence of the employer, the individual would reasonably be regarded as being an employee of a person or partnership that is not a specified employer; or

    • (b) if at any time in that portion of the qualifying period that is in the taxation year

      • (i) the employer provides the services of the individual to a corporation, partnership or trust with which the employer does not deal at arm’s length, and

      • (ii) the fair market value of all the issued shares of the capital stock of the corporation or of all interests in the partnership or trust, as the case may be, that are held, directly or indirectly, by persons who are resident in Canada is less than 10% of the fair market value of all those shares or interests.

• (3) Subsections (1) and (2) apply to taxation years that begin after the day on which this Act receives royal assent.

260. Subsection 122.5(7) of the Act is replaced by the following:

• 261. (1) Paragraph (a) of the definition “full rate taxable income” in subsection 123.4(1) of the Act is amended by striking out “and” at the end of subparagraph (ii) and by adding the following after subparagraph (ii):

  • (iii) the corporation’s income for the year from a personal services business; and

• (2) The portion of paragraph (b) of the definition “full rate taxable income” in subsection 123.4(1) of the Act before subparagraph (i) is replaced by the following:

  • (b) if the corporation is a Canadian-controlled private corporation throughout the year, the amount by which that portion of the corporation’s taxable income for the year that is subject to tax under subsection 123(1) exceeds the total of

• (3) Subparagraph (b)(iii) of the definition “full rate taxable income” in subsection 123.4(1) of the Act is replaced by the following:

  • (iii) except for a corporation that is, throughout the year, a cooperative corporation (within the meaning assigned by subsection 136(2)) or a credit union, the corporation’s aggregate investment income for the year, within the meaning assigned by subsection 129(4), and

• (4) Subsection (1) applies to taxation years that begin after October 31, 2011.

• (5) Subsection (2) applies to taxation years that end after October 31, 2011.

• (6) Subsection (3) applies to the 2001 and subsequent taxation years.

• 262. (1) Subparagraphs 125(1)(b)(i) and (ii) of the Act are replaced by the following:

  • (i) 100/28 of the total of the amounts that would be deductible under subsection 126(1) from the tax for the year otherwise payable under this Part by it if those amounts were determined without reference to sections 123.3 and 123.4,

  • (ii) the amount determined by multiplying the total of the amounts that would be deductible under subsection 126(2) from the tax for the year otherwise payable under this Part by it, if those amounts were determined without reference to section 123.4, by the relevant factor for the year, and

• (2) The description of B in subsection 125(5.1) of the Act is replaced by the following:

  B

  is the amount determined by the formula

  0.225% × (D – $10 million)

  where

  D

  is

  • (a) if, in both the particular taxation year and the preceding taxation year, the corporation is not associated with any corporation, the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation for the preceding taxation year,

  • (b) if, in the particular taxation year, the corporation is not associated with any corporation but was associated with one or more corporations in the preceding taxation year, the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation for the particular taxation year, or

  • (c) if, in the particular taxation year, the corporation is associated with one or more particular corporations, the total of all amounts each of which is the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation or of any of the particular corporations for its last taxation year that ended in the preceding calendar year.

• (3) Subparagraph 125(1)(b)(i) of the Act, as enacted by subsection (1), applies to taxation years that end after October 31, 2011, except that, for a taxation year that includes that day, that subparagraph, as enacted by subsection (1), is to be read as follows:

  • (i) the total of

    • (A) 10/3 of the total of the amounts that would be deductible under subsection 126(1) from the tax for the year otherwise payable under this Part by it if those amounts were determined without reference to sections 123.3 and 123.4, that the number of days in the taxation year that are on or before October 31, 2011 is of the total of days in the taxation year, and

    • (B) 100/28 of the total of the amounts that would be deductible under subsection 126(1) from the tax for the year otherwise payable under this Part by it if those amounts were determined without reference to sections 123.3 and 123.4, that the number of days in the taxation year that are after October 31, 2011 is of the total of days in the taxation year,

• (4) Subparagraph 125(1)(b)(ii) of the Act, as enacted by subsection (1), applies to the 2003 and subsequent taxation years.

• (5) Subsection (2) applies to taxation years that begin after December 20, 2002, except that, in its application to a corporation described in subsection 181.1(3) of the Act for taxation years of the corporation that began before the day on which this Act receives royal assent, the description of B in subsection 125(5.1) of the Act, as enacted by subsection (2), is to be read as follows:

  B

  is

  • (a) if, in both the particular taxation year and the preceding taxation year, the corporation is not associated with any corporation, the amount that would, but for subsections 181.1(2) and (4), be the corporation’s tax payable under Part I.3 for the preceding taxation year,

  • (b) if, in the particular taxation year, the corporation is not associated with any corporation but was associated with one or more corporations in the preceding taxation year, the amount that would, but for subsections 181.1(2) and (4), be the corporation’s tax payable under Part I.3 for the particular taxation year, and

  • (c) if, in the particular taxation year, the corporation is associated with one or more particular corporations, the amount determined by the formula

    0.225% x (D – E)

    where

    D

    is the total of all amounts each of which is the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation or of any of the particular corporations for its last taxation year that ended in the preceding calendar year, and

    E

    is $10 million.

• 263. (1) Subparagraph 125.1(1)(b)(ii) of the Act is replaced by the following:

  • (ii) the amount determined by multiplying the total of the amounts that would be deductible under subsection 126(2) from the tax for the year otherwise payable under this Part by it, if those amounts were determined without reference to section 123.4, by the relevant factor for the year, and

• (2) The definition bénéfices de fabrication et de transformation au Canada in subsection 125.1(3) of the French version of the Act is replaced by the following:

  « bénéfices de fabrication et de transformation au Canada »

  “Canadian manufacturing and processing profits”

  bénéfices de fabrication et de transformation au Canada En ce qui concerne une société pour une année d’imposition, la partie du total des montants représentant chacun le revenu que la société a tiré pour l’année d’une entreprise exploitée activement au Canada, déterminée en vertu des règles établies à cette fin par règlement pris sur recommandation du ministre des Finances, qui doit s’appliquer à la fabrication ou à la transformation au Canada de marchandises destinées à la vente ou à la location.

• (3) Subparagraphs (l)(i) and (ii) of the definition fabrication ou transformation in subsection 125.1(3) of the French version of the Act are replaced by the following:

  • (i) de la vente ou de la location de marchandises qu’elle a fabriquées ou transformées au Canada,

  • (ii) de la fabrication ou de la transformation au Canada de marchandises destinées à la vente ou à la location, sauf des marchandises qu’elle devait vendre ou louer elle-même.

• (4) Subsection (1) applies to the 2003 and subsequent taxation years.

• 264. (1) The definition “taxable resource income” in subsection 125.11(1) of the Act, as it read immediately before it was repealed by S.C. 2003, c. 28, s. 13(2), is replaced by the following:

  “taxable resource income”

  « revenu imposable provenant de ressources »

  “taxable resource income”, of a taxpayer for a taxation year, is the lesser of

  • (a) the amount, if any, by which the taxpayer’s taxable income for the taxation year exceeds 100/16 of the amount deducted under subsection 125(1) from the taxpayer’s tax otherwise payable under this Part for the year, and

  • (b) the amount determined by the formula

    3(A/B) + C – D – E

    where

    A

    is the total of all amounts each of which is deducted by the taxpayer under paragraph 20(1)(v.1) in computing the taxpayer’s income for the taxation year,

    B

    is the percentage that is the total of

    • (i) that proportion of 100% that the number of days in the taxation year that are before 2003 is of the number of days in the taxation year,

    • (ii) that proportion of 90% that the number of days in the taxation year that are in 2003 is of the number of days in the taxation year,

    • (iii) that proportion of 75% that the number of days in the taxation year that are in 2004 is of the number of days in the taxation year,

    • (iv) that proportion of 65% that the number of days in the taxation year that are in 2005 is of the number of days in the taxation year, and

    • (v) that proportion of 35% that the number of days in the taxation year that are in 2006 is of the number of days in the taxation year,

    C

    is total of all amounts included in computing the taxpayer’s income for the taxation year under paragraph 59(3.2)(b) or (c),

    D

    is the total of all amounts deducted by the taxpayer under any of sections 65 to 66.7, other than subsections 66(4), 66.21(4) and 66.7(2) and (2.3), of this Act, and subsections 17(2) and (6) and section 29 of the Income Tax Application Rules, in computing the taxpayer’s income for the taxation year, and

    E

    is 100/16 of the amount deducted under subsection 125(1) from the taxpayer’s tax otherwise payable under this Part for the year.

• (2) The definition “taxable resource income” in subsection 125.11(1) of the Act, as enacted by subsection (1), is repealed.

• (3) Subsection (1) applies to taxation years that begin after February 27, 2004.

• (4) Subsection (2) applies to taxation years that begin after 2006.

• 265. (1) Section 125.2 of the Act is repealed.

• (2) Subsection (1) applies to taxation years that begin after October 31, 2011.

• 266. (1) Paragraph 125.3(1.1)(b) of the Act is replaced by the following:

  • (b) the amount, if any, by which its tax payable under this Part (determined without reference to this section) for the year exceeds the amount that would, but for subsections 181.1(4) and 190.1(3), be the total of its taxes payable under Parts I.3 and VI for the year.

• (2) Subsection (1) applies to taxation years that begin after October 31, 2011.

• 267. (1) The portion of subsection 126(2.22) of the French version of the Act before paragraph (a) is replaced by the following:

  • Marginal note:Ancien résident — bénéficiaire de fiducie

    (2.22) Lorsqu’un particulier non-résident dispose, au cours d’une année d’imposition donnée, d’un bien qu’il a acquis la dernière fois à un moment (appelé « moment de l’acquisition » au présent paragraphe) à l’occasion d’une distribution effectuée après le 1^er octobre 1996 et à laquelle les alinéas 107(2)a) à c) ne s’appliquent pas par le seul effet du paragraphe 107(5), la fiducie peut déduire de son impôt payable par ailleurs en vertu de la présente partie pour l’année (appelée « année de la distribution » au présent paragraphe) qui comprend le moment de l’acquisition un montant ne dépassant pas le moins élevé des montants suivants :

• (2) The portion of paragraph 126(2.22)(a) of the French version of the Act after subparagraph (ii) and before subparagraph (iii) is replaced by the following:

  s’il est raisonnable de considérer que le montant a été payé sur la partie de tout gain ou bénéfice tiré de la disposition du bien qui s’est accumulée avant la distribution et après le dernier en date des moments ci-après, antérieur à la distribution :

• (3) Subparagraphs 126(2.22)(b)(i) and (ii) of the French version of the Act are replaced by the following:

  • (i) le montant d’impôt en vertu de la présente partie qui était payable par ailleurs par la fiducie pour l’année de la distribution, compte tenu de l’application du présent paragraphe aux dispositions effectuées avant le moment de la disposition,

  • (ii) le montant de cet impôt qui aurait été payable par la fiducie pour l’année de la distribution si le bien n’avait pas été distribué au particulier.

• (4) Section 126 of the Act is amended by adding the following after subsection (4.1):

  • Marginal note:Denial of foreign tax credit

    (4.11) If a taxpayer is a member of a partnership, any income or profits tax paid to the government of a particular country other than Canada — in respect of the income of the partnership for a period during which the taxpayer’s direct or indirect share of the income of the partnership under the income tax laws (referred to in subsection (4.12) as the “relevant foreign tax law”) of any country other than Canada under the laws of which any income of the partnership is subject to income taxation, is less than the taxpayer’s direct or indirect share of the income for the purposes of this Act — is not included in computing the taxpayer’s business-income tax or non-business-income tax for any taxation year.

  • Marginal note:Exceptions

    (4.12) For the purposes of subsection (4.11), a taxpayer is not to be considered to have a lesser direct or indirect share of the income of a partnership under the relevant foreign tax law than for the purposes of this Act solely because of one or more of the following:

    • (a) a difference between the relevant foreign tax law and this Act in the manner of

      • (i) computing the income of the partnership, or

      • (ii) allocating the income of the partnership because of the admission to, or withdrawal from, the partnership of any of its members;

    • (b) the treatment of the partnership as a corporation under the relevant foreign tax law; or

    • (c) the fact that the taxpayer is not treated as a corporation under the relevant foreign tax law.

  • Marginal note:Tiered partnerships

    (4.13) For the purposes of subsections (4.11) and (4.12), if a taxpayer is (or is deemed by this subsection to be) a member of a particular partnership that is a member of another partnership, the taxpayer is deemed to be a member of the other partnership.

• (5) The description of A in subsection 126(4.2) of the Act is replaced by the following:

  A

  is

  • (a) if the foreign tax would otherwise be included in business-income tax, the total of

    • (i) that proportion of 26.5% that the number of days in the taxation year that are in 2011 is of the number of days in the taxation year, and

    • (ii) that proportion of 25% that the number of days in the taxation year that are after 2011 is of the number of days in the taxation year, and

  • (b) if the foreign tax would otherwise be included in non-business-income tax, the total of

    • (i) if the taxpayer is a corporation that is a Canadian-controlled private corporation throughout the taxation year, that proportion of 28% that the number of days in the taxation year that are after 2010 is of the number of days in the taxation year, and

    • (ii) if the taxpayer is not a Canadian-controlled private corporation throughout the taxation year, the total of

      • (A) that proportion of 16.5% that the number of days in the taxation year that are in 2011 is of the number of days in the taxation year, and

      • (B) that proportion of 15% that the number of days in the taxation year that are after 2011 is of the number of days in the taxation year,

• (6) Paragraph 126(4.4)(a) of the Act is replaced by the following:

  • (a) a disposition or acquisition of property deemed to be made by subsection 10(12) or (13), 14(14) or (15) or 45(1), section 70, 128.1 or 132.2, subsections 138(11.3) or 142.5(2), paragraph 142.6(1)(b) or subsections 142.6(1.1) or (1.2) or 149(10) is not a disposition or acquisition, as the case may be; and

• (7) Subparagraph 126(5)(a)(i) of the Act is replaced by the following:

  • (i) the amount obtained by multiplying the taxpayer’s income from the business in the taxing country for the year by the total of

    • (A) that proportion of 26.5% that the number of days in the taxation year that are in 2011 is of the number of days in the taxation year, and

    • (B) that proportion of 25% that the number of days in the taxation year that are after 2011 is of the number of days in the taxation year

• (8) Subsection 126(6) of the Act is amended by striking out “and” at the end of paragraph (b), by adding “and” at the end of paragraph (c) and by adding the following after paragraph (c):

  • (d) if, in computing a taxpayer’s income for a taxation year from a business carried on by the taxpayer in Canada, an amount is included in respect of interest paid or payable to the taxpayer by a person resident in a country other than Canada, and the taxpayer has paid to the government of that other country a non-business income tax for the year with respect to the amount, the amount is, in applying the definition “qualifying incomes” in subsection (7) for the purpose of subsection (1), deemed to be income from a source in that other country.

• (9) The portion of the definition “business-income tax” in subsection 126(7) of the Act before paragraph (a) is replaced by the following:

  “business-income tax”

  « impôt sur le revenu tiré d’une entreprise »

  “business-income tax” paid by a taxpayer for a taxation year in respect of businesses carried on by the taxpayer in a country other than Canada (referred to in this definition as the “business country”) means, subject to subsections (4.1) to (4.2), the portion of any income or profits tax paid by the taxpayer for the year to the government of a country other than Canada that can reasonably be regarded as tax in respect of the income of the taxpayer from a business carried on by the taxpayer in the business country, but does not include a tax, or the portion of a tax, that can reasonably be regarded as relating to an amount that

• (10) The portion of the definition “non-business-income tax” in subsection 126(7) of the Act before paragraph (a) is replaced by the following:

  “non-business-income tax”

  « impôt sur le revenu ne provenant pas d’une entreprise »

  “non-business-income tax” paid by a taxpayer for a taxation year to the government of a country other than Canada means, subject to subsections (4.1) to (4.2), the portion of any income or profits tax paid by the taxpayer for the year to the government of that country that

• (11) Subsections (4), (9) and (10) apply to income or profits tax paid for taxation years of a taxpayer that end after March 4, 2010, except that, for taxation years of the taxpayer that end on or before August 27, 2010,

  • (a) subsection 126(4.11) of the Act, as enacted by subsection (4), is to be read as follows:

    • (4.11) If a taxpayer is a member of a partnership, any income or profits tax paid to the government of a particular country other than Canada — in respect of the income of the partnership for a period during which the taxpayer’s share of the income of the partnership under the income tax laws (referred to in subsection (4.12) as the “relevant foreign tax law”) of any country other than Canada under the laws of which the income of the partnership is subject to income taxation, is less than the taxpayer’s share of the income for the purposes of this Act — is not included in computing the taxpayer’s business-income tax or non-business-income tax for any taxation year.

  • (b) the portion of subsection 126(4.12) of the Act before paragraph (a), as enacted by subsection (4), is to be read as follows:

    • (4.12) For the purposes of subsection (4.11), a taxpayer is not to be considered to have a lesser share of the income of a partnership under the relevant foreign tax law than for the purposes of this Act solely because of one or more of the following:

  • (c) section 126 of the Act is to be read without reference to its subsection (4.13), as enacted by subsection (4).

• (12) Subsections (5) and (7) apply to taxation years that begin after October 31, 2011.

• (13) Subsection (6) applies to dispositions and acquisitions that occur after 1998, except that, in applying paragraph 126(4.4)(a) of the Act, as enacted by subsection (6), to dispositions and acquisitions that occur before June 28, 1999, that paragraph is to be read without reference to “10(12) or (13), 14(14) or (15), or”.

• (14) Subsection (8) applies to amounts received after February 27, 2004.