Economic Action Plan 2014 Act, No. 2 (S.C. 2014, c. 39)
Full Document:
Assented to 2014-12-16
23. (1) The definitions “connected contributor” and “resident contributor” in subsection 94(1) of the Act are replaced by the following:
“connected contributor”
« contribuant rattaché »
“connected contributor”, to a trust at a particular time, means a contributor to the trust at the particular time, other than a person all of whose contributions to the trust made at or before the particular time were made at a non-resident time of the person.
“resident contributor”
« contribuant résident »
“resident contributor”, to a trust at any time, means a person that is, at that time, resident in Canada and a contributor to the trust, but — if the trust was created before 1960 by a person who was non-resident when the trust was created — does not include an individual (other than a trust) who has not, after 1959, made a contribution to the trust.
(2) Paragraph 94(4)(b) of the Act is replaced by the following:
(b) subsections (8.1) and (8.2), paragraph (14)(a), subsections 70(6) and 73(1), the definition “Canadian partnership” in subsection 102(1), paragraph 107.4(1)(c), the definition “qualified disability trust” in subsection 122(3) and paragraph (a) of the definition “mutual fund trust” in subsection 132(6);
(3) Subparagraph 94(11)(b)(ii) of the Act is replaced by the following:
(ii) would be deemed to be resident in Canada immediately before that time because of paragraph (3)(a) if this section, as it read in its application to the 2013 taxation year, were read without reference to paragraph (a) of the definition “connected contributor” in subsection (1) and paragraph (a) of the definition “resident contributor” in that subsection,
(4) Subsections (1) and (3) apply to taxation years that end after February 10, 2014, except that those subsections do not apply in respect of a trust to taxation years that end before 2015 if the following conditions are satisfied:
(a) no contributions are made to the trust after February 10, 2014 and before 2015; and
(b) if the trust were to have a particular taxation year that ended after 2013 and before February 11, 2014,
(i) the trust would be non-resident for the purpose of computing its income for the particular year, and
(ii) if the definitions “connected contributor” and “resident contributor” in subsection 94(1) of the Act were read for the particular year without reference to their paragraphs (a), the trust would be resident in Canada for the purpose of computing its income for the particular year.
(5) Subsection (2) applies to the 2016 and subsequent taxation years.
24. (1) The portion of subsection 94.2(1) of the Act before paragraph (a) is replaced by the following:
Marginal note:Investments in non-resident commercial trusts
94.2 (1) Subsection (2) applies to a beneficiary under a trust, and to any particular person of which any such beneficiary is a controlled foreign affiliate, at any time if
(2) Subsection (1) applies to taxation years that end after February 10, 2014, except that it does not apply in respect of a trust to taxation years that end before 2015 if the following conditions are satisfied:
(a) no contributions are made to the trust after February 10, 2014 and before 2015; and
(b) if the trust were to have a particular taxation year that ended after 2013 and before February 11, 2014,
(i) the trust would be non-resident for the purpose of computing its income for the particular year, and
(ii) if the definitions “connected contributor” and “resident contributor” in subsection 94(1) of the Act were read for the particular year without reference to their paragraphs (a), the trust would be resident in Canada for the purpose of computing its income for the particular year.
25. (1) The definition “foreign accrual tax” in subsection 95(1) of the Act is replaced by the following:
“foreign accrual tax”
« impôt étranger accumulé »
“foreign accrual tax” applicable to any amount included under subsection 91(1) in computing a taxpayer’s income for a taxation year of the taxpayer in respect of a particular foreign affiliate of the taxpayer means, subject to subsection 91(4.1),
(a) the portion of any income or profits tax that may reasonably be regarded as applicable to that amount and that is paid by
(i) the particular affiliate,
(ii) another foreign affiliate (in paragraph (b) referred to as the “shareholder affiliate”) of the taxpayer where
(A) the other affiliate has an equity percentage in the particular affiliate,
(B) the income or profits tax is paid to a country other than Canada, and
(C) the other affiliate, and not the particular affiliate, is liable for that tax under the laws of that country, or
(iii) another foreign affiliate of the taxpayer in respect of a dividend received, directly or indirectly, from the particular affiliate, if that other affiliate has an equity percentage in the particular affiliate, and
(b) any amount prescribed in respect of the particular affiliate or the shareholder affiliate, as the case may be, to be foreign accrual tax applicable to that amount;
(2) The definition “non-qualifying country” in subsection 95(1) of the Act is replaced by the following:
“non-qualifying country”
« pays non admissible »
“non-qualifying country”, at any time, means a country or other jurisdiction
(a) with which Canada neither has a tax treaty at that time nor has, before that time, signed an agreement that will, on coming into effect, be a tax treaty,
(a.1) for which, if the time is after February 2014, the Convention on Mutual Administrative Assistance in Tax Matters — concluded at Strasbourg on January 25, 1988, as amended from time to time by a protocol, or other international instrument, as ratified by Canada — is at that time not in force and does not have effect,
(b) with which Canada does not have a comprehensive tax information exchange agreement that is in force and has effect at that time, and
(c) with which Canada has, more than 60 months before that time, either
(i) begun negotiations for a comprehensive tax information exchange agreement (unless that time is before 2014 and Canada was, on March 19, 2007, in the course of negotiating a comprehensive tax information exchange agreement with that jurisdiction), or
(ii) sought, by written invitation, to enter into negotiations for a comprehensive tax information exchange agreement (unless that time is before 2014 and Canada was, on March 19, 2007, in the course of negotiating a comprehensive tax information exchange agreement with that jurisdiction);
(3) Paragraph (a) of the description of H in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:
(a) if the affiliate was a member of a partnership at the end of the fiscal period of the partnership that ended in the year and the partnership received a dividend at a particular time in that fiscal period from a corporation that would be, if the reference in subsection 93.1(1) to “corporation resident in Canada” were a reference to “taxpayer resident in Canada”, a foreign affiliate of the taxpayer for the purposes of sections 93 and 113 at that particular time, then the portion of the amount of that dividend that is included in the value determined for A in respect of the affiliate for the year and that would be, if the reference in subsection 93.1(2) to “corporation resident in Canada” were a reference to “taxpayer resident in Canada”, deemed by paragraph 93.1(2)(a) to have been received by the affiliate for the purposes of sections 93 and 113, and
(4) Section 95 of the Act is amended by adding the following after subsection (1):
Marginal note:British Virgin Islands
(1.1) For the purposes of paragraph (b) of the definition “non-qualifying country” in subsection (1), the British Overseas Territory of the British Virgin Islands is deemed to have a comprehensive tax information exchange agreement with Canada that is in force and has effect after 2013 and before March 11, 2014.
(5) Subparagraph 95(2)(a)(i) of the Act is replaced by the following:
(i) the income or loss
(A) is derived by the particular foreign affiliate from activities of the particular foreign affiliate, or of a particular partnership of which the particular foreign affiliate is a member, to the extent that the activities occur while the particular affiliate is a qualifying member of the particular partnership that can reasonably be considered to be directly related to active business activities carried on in a country other than Canada by
(I) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year,
(II) a life insurance corporation that is resident in Canada throughout the year and that is
1. the taxpayer,
2. a person who controls the taxpayer,
3. a person controlled by the taxpayer, or
4. a person controlled by a person who controls the taxpayer,
(III) the particular foreign affiliate or a partnership of which the particular foreign affiliate is a member, to the extent that the activities occur while the particular affiliate is a qualifying member of the partnership, or
(IV) a partnership of which another foreign affiliate of the taxpayer, in respect of which the taxpayer has a qualifying interest throughout the year, is a member, to the extent that the activities occur while the other affiliate is a qualifying member of the partnership, and
(B) if any of subclauses (A)(I), (II) and (IV) applies, would be included in computing the amount prescribed to be the earnings or loss, from an active business carried on in a country other than Canada, of
(I) that other foreign affiliate referred to in subclause (A)(I) or (IV), if the income were earned by it, or
(II) the life insurance corporation referred to in subclause (A)(II), if that life insurance corporation were a foreign affiliate of the taxpayer and the income were earned by it,
(6) Clause 95(2)(a)(ii)(D) of the Act is amended by adding “and” at the end of subclause (III) and by replacing subclauses (IV) and (V) with the following:
(IV) in respect of each of the second affiliate and the third affiliate, for each of their taxation years (each of which is referred to in this subclause as a “relevant taxation year”) that end in the year, either
1. that affiliate is subject to income taxation in a country other than Canada in that relevant taxation year, or
2. the members or shareholders of that affiliate (which, for the purposes of this sub-subclause, includes a person that has, directly or indirectly, an interest, or for civil law a right, in a share of the capital stock of, or in an equity interest in, the affiliate) at the end of that relevant taxation year are subject to income taxation in a country other than Canada on, in aggregate, all or substantially all of the income of that affiliate for that relevant taxation year in their taxation years in which that relevant taxation year ends,
(7) The portion of subparagraph 95(2)(a.1)(ii) of the English version of the Act before clause (A) is replaced by the following:
(ii) the property was not
(8) Subparagraph 95(2)(a.1)(ii) of the Act is amended by striking out “nor” at the end of clause (A), by adding “or” at the end of clause (B) and by adding the following after clause (B):
(C) an indebtedness, or a lease obligation, of a person resident in Canada or in respect of a business carried on in Canada, that was purchased and sold by the affiliate on its own account,
(9) The portion of paragraph 95(2)(a.1) of the Act after subparagraph (ii) and before subparagraph (iii) is replaced by the following:
unless more than 90% of the gross revenue of the affiliate for the year from the sale of property is derived from the sale of such property (other than a property described in subparagraph (ii) the cost of which to any person is a cost referred to in subparagraph (i) or a property the income from the sale of which is not included in computing the income from a business other than an active business of the affiliate under this paragraph because of subsection (2.31)) to persons with whom the affiliate deals at arm’s length (which, for this purpose, includes a sale of property to a non-resident corporation with which the affiliate does not deal at arm’s length for sale to persons with whom the affiliate deals at arm’s length) and, where this paragraph applies to include income of the affiliate from the sale of property in the income of the affiliate from a business other than an active business,
(10) Subsection 95(2) of the Act is amended by adding the following after paragraph (a.2):
(a.21) for the purposes of paragraph (a.2), one or more risks insured by a foreign affiliate of a taxpayer that, if this Act were read without reference to this paragraph, would not be risks in respect of a person, property or business described in any of subparagraphs (a.2)(i) to (iii) (in this paragraph referred to as the “foreign policy pool”) are deemed to be risks in respect of a person resident in Canada if
(i) the affiliate, or a person or partnership that does not deal at arm’s length with the affiliate, enters into one or more agreements or arrangements in respect of the foreign policy pool,
(ii) the affiliate’s risk of loss or opportunity for gain or profit in respect of the foreign policy pool, in combination with its risk of loss or opportunity for gain or profit in respect of the agreements or arrangements, can reasonably be considered to be — or could reasonably be considered to be if the affiliate had entered into the agreements or arrangements entered into by the person or partnership — determined, in whole or in part, by reference to one or more criteria in respect of one or more risks insured by another person or partnership (in this paragraph referred to as the “tracked policy pool”), which criteria are
(A) the fair market value of the tracked policy pool,
(B) the revenue, income, loss or cash flow from the tracked policy pool, or
(C) any other similar criteria, and
(iii) 10% or more of the tracked policy pool consists of risks in respect of a person, property or business described in any of subparagraphs (a.2)(i) to (iii);
(a.22) if the conditions in paragraph (a.21) are satisfied in respect of a foreign affiliate of a taxpayer, or a foreign affiliate of another taxpayer if that other taxpayer does not deal at arm’s length with the taxpayer, and a particular foreign affiliate of the taxpayer, or a partnership of which the particular affiliate is a member, has entered into one or more agreements or arrangements described in that paragraph,
(i) activities performed in connection with those agreements or arrangements are deemed to be a separate business, other than an active business, carried on by the particular affiliate to the extent that those activities can reasonably be considered to be performed for the purpose of obtaining the result described in subparagraph (a.21)(ii), and
(ii) any income of the particular affiliate from the business (including income that pertains to or is incident to the business) is deemed to be income from a business other than an active business;
(11) The portion of paragraph 95(2)(a.3) of the Act after subparagraph (ii) and before subparagraph (iii) is replaced by the following:
unless more than 90% of the gross revenue of the affiliate derived directly or indirectly from indebtedness and lease obligations (other than excluded revenue or revenue that is not included in computing the income from a business other than an active business of the affiliate under this paragraph because of subsection (2.31)) was derived directly or indirectly from indebtedness and lease obligations of non-resident persons with whom the affiliate deals at arm’s length and, where this paragraph applies to include income of the affiliate for the year in the income of the affiliate from a business other than an active business,
(12) The portion of clause 95(2)(b)(ii)(B) of the Act before subclause (I) is replaced by the following:
(B) a relevant person who does not deal at arm’s length with
(13) Subparagraph 95(2)(l)(iv) of the Act is amended by striking out “or” at the end of clause (B), by adding “or” at the end of clause (C) and by adding the following after clause (C):
(D) a partnership each member of which is a corporation described in any of clauses (A) to (C);
(14) The portion of paragraph 95(2)(n) of the Act before subparagraph (i) is replaced by the following:
(n) in applying paragraphs (a) and (g), paragraph (b) of the description of A in the formula in the definition “foreign accrual property income” in subsection (1), subsections (2.2), (2.21) and 93.1(5) and paragraph (d) of the definition “exempt earnings”, and paragraph (c) of the definition “exempt loss”, in subsection 5907(1) of the Income Tax Regulations, a non-resident corporation is deemed to be, at any time, a foreign affiliate of a particular corporation resident in Canada, and a foreign affiliate of the particular corporation in respect of which the particular corporation has a qualifying interest, if at that time
(15) Subparagraph 95(2)(u)(i) of the Act, as it read immediately before it was repealed by subsection 70(21) of the Technical Tax Amendments Act, 2012, is replaced by the following:
(i) the entity is deemed to be a member of the other partnership for the purposes of
(A) subparagraph (ii),
(B) applying the reference, in paragraph (a), to “a member” of a partnership,
(C) paragraphs (a.1) to (b), (g.03), (j.1) to (k.1) and (o),
(D) paragraphs (b) and (c) of the definition “investment business” in subsection (1),
(E) the definition “taxable Canadian business” in subsection (1), and
(F) subsection 93.1(2), and
(16) Paragraph 95(2)(u) of the Act, as amended by subsection (15), is repealed.
(17) Section 95 of the Act is amended by adding the following after subsection (2.1):
Rule for definition “investment business”
(2.11) A taxpayer or a foreign affiliate of the taxpayer, as the case may be, is deemed not to have established that the conditions in subparagraph (a)(i) of the definition “investment business” in subsection (1) have been satisfied throughout a period in a particular taxation year of the affiliate unless
(a) throughout the period the taxpayer is
(i) a particular corporation resident in Canada
(A) that is a bank listed in Schedule I to the Bank Act, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities that is a registered securities dealer, the business activities of which are subject to the supervision of a regulating authority such as the Superintendent of Financial Institutions, a similar regulating authority of a province or an authority of, or approved by, a province to regulate traders or dealers in securities or commodities, and
(B) that is not a corporation the fair market value of any share of the capital stock of which is determined primarily by reference to one or more of the fair market value of, any revenue, income or cash flow from, any profits or gains from the disposition of, or any other similar criteria in respect of, property the fair market value of which is less than 90% of the fair market value of all of the property of the corporation,
(ii) a corporation resident in Canada
(A) of which
(I) the particular corporation described in subparagraph (i) is a subsidiary controlled corporation, or
(II) a corporation described in this subparagraph is a subsidiary wholly-owned corporation, and
(B) that is not a corporation the fair market value of any share of the capital stock of which is determined primarily by reference to one or more of the fair market value of, any revenue, income or cash flow from, any profits or gains from the disposition of, or any other similar criteria in respect of, property the fair market value of which is less than 90% of the fair market value of all of the property of the corporation,
(iii) a corporation resident in Canada each of the shares of the capital stock of which is owned by a corporation that is described in this subparagraph or in subparagraph (i) or (ii), or
(iv) a partnership
(A) each member of which is a corporation described in any of subparagraphs (i) to (iii), or another partnership described in this subparagraph, or
(B) in respect of which the following conditions are satisfied:
(I) the partnership is a registered securities dealer, the business activities of which are subject to the supervision of a regulating authority described in clause (a)(i)(A), and
(II) the share of the total income or loss of the partnership of a majority-interest partner of the partnership that is either a corporation resident in Canada or a Canadian partnership — together with the share of each corporation resident in Canada that is affiliated with the majority-interest partner — is equal to all or substantially all of the total income or loss of the partnership; and
(b) either
(i) throughout the period the particular corporation described in subparagraph (a)(i) has, or is deemed for certain purposes to have, $2 billion or more of equity
(A) if the particular corporation is a bank, under the Bank Act,
(B) if the particular corporation is a trust company, under the Trust and Loan Companies Act, or
(C) if the particular corporation is an insurance corporation, under the Insurance Companies Act, or
(ii) more than 50% of the total of all amounts each of which is an amount of taxable capital employed in Canada (within the meaning assigned by Part I.3) of the taxpayer — or of a corporation resident in Canada that is affiliated with the taxpayer — for the taxation year of the taxpayer or of the affiliated corporation, as the case may be, that ends in the particular year is attributable to a business carried on in Canada, the activities of which are subject to the supervision of a regulating authority such as the Superintendent of Financial Institutions, a similar regulating authority of a province or an authority of, or approved by, a province to regulate traders or dealers in securities or commodities.
(18) Section 95 of the Act is amended by adding the following after subsection (2.3):
Marginal note:Application of paragraphs (2)(a.1) and (a.3)
(2.31) Paragraphs (2)(a.1) and (a.3) do not apply to a controlled foreign affiliate (for the purposes of section 17) of an eligible Canadian bank (as defined in subsection (2.43)) in respect of activities carried out to earn income from a property, other than a specified property of the affiliate, if
(a) the affiliate sells the property, or performs services as an agent in relation to a purchase or sale of the property, and it is reasonable to conclude that the cost to any person of the property is relevant in computing the income from
(i) a business carried on by the bank or a person resident in Canada with whom the bank does not deal at arm’s length, or
(ii) a business carried on in Canada by a non-resident person with whom the bank does not deal at arm’s length;
(b) the property has a readily available fair market value and
(i) is listed on a recognized stock exchange,
(ii) would be a mark-to-market property (as defined in subsection 142.2(1)) of the bank if it were owned by the bank, or
(iii) is a debt obligation owing by the bank that would be a mark-to-market property (as defined in subsection 142.2(1)) of the affiliate if
(A) the affiliate were the taxpayer referred to in that definition, and
(B) the definition “specified debt obligation” in subsection 142.2(1) were read without reference to its paragraph (d);
(c) the purchase and sale of the property by the affiliate, or services performed by the affiliate as agent in respect of the purchase or sale, are made
(i) on terms and conditions that are substantially the same as the terms and conditions of similar purchases or sales of, or services performed in respect of the purchase or sale of, such property by persons dealing at arm’s length,
(ii) in the course of a business
(A) that regularly includes trading or dealing in securities principally with persons with whom the affiliate deals at arm’s length, and
(B) that is principally carried on through a permanent establishment in a country other than Canada, and
(iii) for the purpose of enabling the purchase or sale of the property by a particular person who deals at arm’s length with the affiliate and the bank; and
(d) the affiliate is a foreign bank or a trader or dealer in securities and the activities of the business are regulated
(i) under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment in that country,
(ii) under the laws of the country (other than Canada) in which the business is principally carried on, or
(iii) if the affiliate is related to a corporation, under the laws of the country under whose laws that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all those countries are members of the European Union.
Definition of “specified property”
(2.32) For the purposes of subsection (2.31), “specified property”, of a foreign affiliate, means a property that is owned by the affiliate for more than 10 days and that is
(a) a share of the capital stock of a corporation resident in Canada;
(b) a property traded on a stock exchange located in Canada and not traded on a stock exchange located in the jurisdiction in which the affiliate is resident; or
(c) a debt obligation
(i) of a corporation resident in Canada,
(ii) of a trust or partnership, units of which are traded on a stock exchange located in Canada, or
(iii) of, or guaranteed by, the Government of Canada, the government of a province, an agent of a province, a municipality in Canada or a municipal or public body performing a function of government in Canada.
(19) The portion of subsection 95(2.4) of the French version of the Act before subparagraph (a)(i) is replaced by the following:
Marginal note:Application de l’alinéa (2)a.3)
(2.4) L’alinéa (2)a.3) ne s’applique pas à une société étrangère affiliée d’un contribuable pour ce qui est du revenu qu’elle tire directement ou indirectement de dettes, dans la mesure où, à la fois :
a) elle a tiré ce revenu dans le cours des activités d’une entreprise menée principalement avec des personnes avec lesquelles elle n’a aucun lien de dépendance et qu’elle exploite à titre de banque étrangère, de société de fiducie, de caisse de crédit, de compagnie d’assurance ou de négociateur ou courtier en valeurs mobilières ou en marchandises, dont les activités sont régies par les lois des pays ci-après, selon le cas :
(20) Paragraph 95(2.4)(b) of the Act is replaced by the following:
(b) all the following conditions are satisfied:
(i) the income is derived by the affiliate from trading or dealing in the indebtedness (which, for this purpose, consists of income from the actual trading or dealing in the indebtedness and interest earned by the affiliate during a short term holding period on indebtedness acquired by it for the purpose of the trading or dealing) directly or indirectly with persons (in this subsection referred to as “regular customers”) that
(A) deal at arm’s length with the affiliate, and
(B) are resident, or carry on business through a permanent establishment, in a country other than Canada,
(ii) the affiliate has a substantial market presence in the country, and
(iii) one or more persons that deal at arm’s length with the affiliate and are resident, or carry on business through a permanent establishment, in the country
(A) carry on a business
(I) that competes in the country with the business of the affiliate, and
(II) the activities of which are regulated under the laws of the country or, where the country is a member of the European Union, any country that is a member of the European Union, in the same manner as are the activities of the business of the affiliate, and
(B) have a substantial market presence in the country,
(21) Section 95 of the Act is amended by adding the following after subsection (2.42):
Marginal note:Definitions — subsections (2.43) to (2.45)
(2.43) The following definitions apply in this subsection and subsections (2.44) and (2.45).
“Canadian indebtedness”
« dettes canadiennes »
“Canadian indebtedness” means indebtedness (other than upstream deposits) owed by persons resident in Canada or in respect of businesses carried on in Canada.
“eligible bank affiliate”
« filiale bancaire admissible »
“eligible bank affiliate”, of an eligible Canadian bank at any time, means a foreign bank that, at that time, is a controlled foreign affiliate (for the purposes of section 17) of the eligible Canadian bank and is described in subparagraph (a)(i) of the definition “investment business” in subsection (1).
“eligible Canadian bank”
« banque canadienne admissible »
“eligible Canadian bank” means a bank listed in Schedule I to the Bank Act.
“eligible Canadian indebtedness”
« dettes canadiennes admissibles »
“eligible Canadian indebtedness”, owing to an eligible bank affiliate of an eligible Canadian bank, means bonds, debentures, notes or similar obligations of the Government of Canada, the government of a province, an agent of a province, a municipality in Canada or a municipal or public body performing a function of government in Canada, that are owing to the affiliate, other than property in respect of which paragraph (2)(a.3) does not apply because of subsection (2.31).
“eligible currency hedge”
« couverture de change admissible »
“eligible currency hedge”, of an eligible bank affiliate of an eligible Canadian bank, means an agreement that provides for the purchase, sale or exchange of currency and that
(a) can reasonably be considered to have been made by the affiliate to reduce its risk of fluctuations in the value of currency with respect to eligible Canadian indebtedness and upstream deposits owing to the affiliate; and
(b) cannot reasonably be considered to have been made by the affiliate to reduce its risk with respect to property other than eligible Canadian indebtedness and upstream deposits owing to the affiliate.
“excess liquidity”
« liquidités excédentaires »
“excess liquidity”, of an eligible bank affiliate of an eligible Canadian bank for a taxation year of the affiliate, means the amount, if any, by which
(a) the average of all amounts each of which is, in respect of a month that ends in the 12-month period that begins 60 days prior to the beginning of the year — or, if the affiliate was formed after the beginning of the period, in respect of a month that ends in the year — the amount of the affiliate’s relationship deposits for the month, expressed in the affiliate’s calculating currency for the year unless the context requires otherwise,
exceeds
(b) the average of all amounts each of which is, in respect of a month that ends in the period — or, if the affiliate was formed after the beginning of the period, in respect of a month that ends in the year — the amount of the affiliate’s organic assets for the month, expressed in the affiliate’s calculating currency for the year unless the context requires otherwise.
“organic assets”
« actif organique »
“organic assets”, of an eligible bank affiliate of an eligible Canadian bank for a month, means the total of all amounts in respect of the affiliate each of which is
(a) included in the amounts reported as loans in the assets section of the consolidated monthly balance sheet accepted by the Superintendent of Financial Institutions that is filed for the month by the bank, or another corporation resident in Canada that is related to the bank at the end of the month, or
(b) an amount owing to the affiliate by a person that is related to the affiliate (other than an amount described in paragraph (a))
but does not include the amount of an eligible Canadian indebtedness or upstream deposit owing to the affiliate.
“qualifying indebtedness”
« dettes déterminées »
“qualifying indebtedness”, owing to an eligible bank affiliate of an eligible Canadian bank, means an upstream deposit owing to, or an eligible Canadian indebtedness of, the affiliate, to the extent that it can reasonably be considered that
(a) the upstream deposit or the acquisition of eligible Canadian indebtedness, as the case may be, is funded by
(i) property transferred or lent by a person other than the bank or a person resident in Canada that was not, at the time of the transfer or loan, dealing at arm’s length with the bank,
(ii) a repayment of all or part of an upstream deposit owing to the affiliate, or
(iii) the purchase of eligible Canadian indebtedness by the bank or a person resident in Canada that was not, at the time of the transfer or loan, dealing at arm’s length with the bank; and
(b) the proceeds of the upstream deposit or the proceeds received by the vendor of the eligible Canadian indebtedness, as the case may be, are used for a purpose other than to fund a transfer or loan of property by the bank — or another person resident in Canada that was not, at the time of the transfer or loan, dealing at arm’s length with the bank — to the affiliate or another foreign affiliate of the bank or of the other person.
“relationship deposits”
« dépôts apparentés »
“relationship deposits”, of an eligible bank affiliate of an eligible Canadian bank for a month, means the total of all amounts included in the amounts reported as demand and notice deposits, and fixed-term deposits in the liabilities section of the consolidated monthly balance sheet accepted by the Superintendent of Financial Institutions that is filed for the month by the bank, or another corporation resident in Canada that is related to the bank at the end of the month, that are deposits (other than of a temporary nature) of the affiliate made by a person who at the end of the month
(a) deals at arm’s length with the affiliate; and
(b) is not resident in Canada.
“total specified indebtedness”
« dettes désignées totales »
“total specified indebtedness”, owing to an eligible bank affiliate of an eligible Canadian bank for a taxation year of the affiliate, means the average of all amounts each of which is, in respect of a month that ends in the year, the greatest total amount at any time in the month that is the total of all amounts each of which is
(a) the amount of an upstream deposit owing to the affiliate;
(b) the amount of an eligible Canadian indebtedness owing to the affiliate; or
(c) the positive or negative fair market value of an eligible currency hedge of the affiliate.
“upstream deposit”
« dépôt en amont »
“upstream deposit”, owing to an eligible bank affiliate of an eligible Canadian bank, means indebtedness owing by the bank to the affiliate.
Marginal note:FAPI adjustment — eligible bank affiliate
(2.44) If a non-resident corporation (in this subsection referred to as the “affiliate”) is, throughout a taxation year of the affiliate, an eligible bank affiliate of an eligible Canadian bank, and the bank elects in writing under this subsection, in respect of the affiliate for the year, and files the election with the Minister on or before the filing-due date of the bank for the particular taxation year of the bank in which the year ends,
(a) there is to be deducted in computing the amount determined for A in the definition “foreign accrual property income” in subsection (1) in respect of the affiliate for the year, the lesser of
(i) the amount determined, without reference to this paragraph, for A in that definition in respect of the affiliate for the year, and
(ii) the amount determined by the following formula, where each amount referred to in the formula is to be determined using Canadian currency:
A – B – C – D
where
- A
- is the total of all amounts each of which is the affiliate’s income for the year that is from a qualifying indebtedness owing to, or an eligible currency hedge of, the affiliate and that would, in the absence of this subsection, be included in computing the income of the affiliate from a business other than an active business of the affiliate,
- B
- is the total of all amounts each of which is the affiliate’s loss for the year that is from a qualifying indebtedness owing to, or an eligible currency hedge of, the affiliate and that would, in the absence of this subsection, be deducted in computing the income of the affiliate from a business other than an active business of the affiliate,
- C
- is the total of all amounts each of which is the amount, if any, by which an amount included in computing the amount determined for A or B in respect of an upstream deposit exceeds the amount that would be the affiliate’s income, or is less than the amount that would be the affiliate’s loss, as the case may be, for the year from the upstream deposit if the interest received or receivable by the affiliate in respect of the upstream deposit were computed at an interest rate equal to the lesser of
(A) the rate of interest in respect of the upstream deposit, and
(B) the benchmark rate of interest, acceptable to the Minister, that is
(I) if the upstream deposit is denominated in a qualifying currency (as defined in subsection 261(1)), the average, for the year, of a daily interbank offered rate for loans denominated in that currency with a term to maturity of three months, or
(II) in any other case, the average, for the year, of a daily rate for Canadian dollar denominated bankers’ acceptances with a term to maturity of three months, and
- D
- is the amount determined by the formula
E × F/G
where
- E
- is the amount, if any, by which the amount determined for A exceeds the total of the amounts determined for B and C,
- F
- is the amount, if any, by which the total specified indebtedness owing to the affiliate for the year exceeds the affiliate’s excess liquidity for the year, and
- G
- is the total specified indebtedness owing to the affiliate for the year; and
(b) there is to be included, in computing the income of the affiliate from an active business for the year, an amount equal to the proportion of the amount computed under the formula in subparagraph (a)(ii), computed as if each amount referred to in that formula were determined using the affiliate’s calculating currency, that the amount that is required to be deducted under paragraph (a) for the year is of the amount described in subparagraph (a)(ii).
Marginal note:Investment business and excluded property
(2.45) If an election is made under subsection (2.44) in respect of an eligible bank affiliate of an eligible Canadian bank for a taxation year of the affiliate,
(a) for the purposes of the definition “investment business” in subsection (1), the bank, and any other person resident in Canada that does not deal at arm’s length with the bank, are deemed to deal at arm’s length with the affiliate in respect of the making of upstream deposits, and acquisitions of Canadian indebtedness from the bank or the other person, by the affiliate in the course of a business carried on by the affiliate in the year if the affiliate’s excess liquidity for the year is at least 90% of the total specified indebtedness owing to the affiliate for the year; and
(b) for the purposes of paragraph (b) of the definition “excluded property” in subsection (1),
(i) the fair market value of each upstream deposit and Canadian indebtedness owing to, and eligible currency hedge of, the affiliate is deemed to be nil,
(ii) at any particular time, the lesser of the following amounts is deemed to be the fair market value of a property of the affiliate that is excluded property at that particular time:
(A) the total of all amounts each of which is the fair market value of an upstream deposit or Canadian indebtedness owing to, or an eligible currency hedge of, the affiliate, and
(B) the amount, if any, by which
(I) the affiliate’s relationship deposits for the calendar month that is two months prior to the particular time (or if the affiliate was formed less than two months prior to the particular time, for the calendar month that includes the particular time)
exceeds
(II) the amount of the affiliate’s organic assets for the calendar month that is two months prior to the particular time (or if the affiliate was formed less than two months prior to the particular time, for the calendar month that includes the particular time), and
(iii) the amount, if any, by which the amount in clause (ii)(A) exceeds the amount in subparagraph (ii) is deemed to be the fair market value of a property of the eligible bank affiliate that is not excluded property at that time.
(22) Paragraph (b) of the definition “excluded income” and “excluded revenue” in subsection 95(2.5) of the Act is replaced by the following:
(b) derived directly or indirectly from a lease obligation of a person (other than the taxpayer or a person that does not deal at arm’s length with the taxpayer) resident in Canada relating to property used by the person in the course of carrying on a business through a permanent establishment outside Canada,
(23) The definition “excluded income” and “excluded revenue” in subsection 95(2.5) of the Act is amended by striking out “or” at the end of paragraph (b), by adding “or” at the end of paragraph (c) and by adding the following after paragraph (c):
(d) included in computing the affiliate’s income or loss from an active business for the year because of subparagraph (2)(a)(ii);
(24) The definition “specified deposit” in subsection 95(2.5) of the Act is replaced by the following:
“specified deposit”
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“specified deposit”, of a foreign affiliate of a taxpayer, means a deposit of the affiliate made with a permanent establishment in a country other than Canada of a prescribed financial institution resident in Canada if the income from the deposit is income of the affiliate for the year that would, in the absence of paragraph (2)(a.3), be income from an active business carried on by the affiliate in a country other than Canada, other than a business the principal purpose of which is to derive income from property (including any interest, dividends, rents, royalties or similar returns, or any substitutes for any of those) or profits from the disposition of investment property.
(25) Section 95 of the Act is amended by adding the following after subsection (3):
Marginal note:Application of paragraph (2)(b) — eligible Canadian bank
(3.01) Paragraph (2)(b) does not apply to a controlled foreign affiliate (for the purposes of section 17) of an eligible Canadian bank (as defined in subsection (2.43)) in respect of services performed in connection with the purchase or sale of a property described in paragraph (2.31)(b) if
(a) the services have been performed by the affiliate
(i) under terms and conditions that are substantially the same as the terms and conditions that would have been made between persons who deal at arm’s length with each other,
(ii) in the course of a business
(A) that regularly includes trading or dealing in securities principally with persons with whom the affiliate deals at arm’s length, and
(B) that is principally carried on through a permanent establishment in a country other than Canada, and
(iii) for the purpose of enabling the acquisition or disposition of the property by a person who, at the time of the acquisition or disposition, deals at arm’s length with the affiliate and the eligible Canadian bank; and
(b) the affiliate is a foreign bank or a trader or dealer in securities and the activities of the business are regulated
(i) under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment in that country,
(ii) under the laws of the country (other than Canada) in which the business is principally carried on, or
(iii) if the affiliate is related to a corporation, under the laws of the country under whose laws that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all those countries are members of the European Union.
(26) Section 95 of the Act is amended by adding the following after subsection (3.01):
Marginal note:Rules for clause (2)(b)(ii)(B)
(3.02) For the purposes of clause (2)(b)(ii)(B),
(a) a relevant person is
(i) a person resident in Canada, or
(ii) a non-resident person if the non-resident person performs the services referred to in subparagraph (2)(b)(ii) in the course of a business (other than a treaty-protected business) carried on in Canada; and
(b) any portion of a business carried on by a non-resident person that is carried on in Canada is deemed to be a business that is separate from any other portion of the business carried on by the person.
(27) Section 95 of the Act is amended by adding the following after subsection (3.1):
Marginal note:Contract manufacturing
(3.2) For the purposes of clause (2)(a.1)(ii)(A), property of a particular foreign affiliate of a taxpayer is deemed to have been manufactured by the particular affiliate in a particular country if the property is
(a) developed and designed by the particular affiliate in the particular country in the course of an active business carried on by the particular affiliate in the particular country; and
(b) manufactured, produced or processed outside the particular country by another foreign affiliate of the taxpayer, during a period throughout which the taxpayer has a qualifying interest in the other affiliate,
(i) under a contract between the particular affiliate and the other affiliate, and
(ii) in accordance with specifications provided by the particular affiliate.
(28) Subsection (1) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after 2010.
(29) Subsections (2) and (4) are deemed to have come into force on January 1, 2014.
(30) Subsection (3) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after 2006.
(31) Subsection (5) applies in respect of taxation years of a foreign affiliate of a taxpayer that begin after July 12, 2013. However, if the taxpayer elects in writing under this subsection in respect of all its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’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,
(a) subsection (5) applies in respect of taxation years of all foreign affiliates of the taxpayer that end after 2007; and
(b) subparagraph 95(2)(a)(i) of the Act, as enacted by subsection (5), is to be read as follows in respect of taxation years of foreign affiliates of the taxpayer that end after 2007 and begin before 2009:
(i) the income or loss
(A) is derived by the particular foreign affiliate from activities of the particular foreign affiliate, or of a particular partnership of which the particular foreign affiliate is a member, to the extent that the activities occur while the particular affiliate is a qualifying member of the particular partnership, that can reasonably be considered to be directly related to active business activities carried on in a country other than Canada by
(I) another corporation
1. that is a non-resident corporation to which the particular foreign affiliate and the taxpayer are related throughout the year, or
2. that is another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year,
(II) a life insurance corporation that is resident in Canada throughout the year and that is
1. the taxpayer,
2. a person who controls the taxpayer,
3. a person controlled by the taxpayer, or
4. a person controlled by a person who controls the taxpayer,
(III) the particular foreign affiliate or a partnership of which the particular foreign affiliate is a member, to the extent that the activities occur while the particular affiliate is a qualifying member of the partnership, or
(IV) a partnership of which another foreign affiliate of the taxpayer, in respect of which the taxpayer has a qualifying interest throughout the year, is a member, to the extent that the activities occur while the other affiliate is a qualifying member of the partnership, and
(B) if any of subclauses (A)(I), (II) and (IV) applies, would be included in computing the amount prescribed to be the earnings or loss, from an active business carried on in a country other than Canada, of
(I) that other foreign affiliate referred to in sub-subclause (A)(I)2 or subclause (A)(IV), if the income were earned by it, or
(II) the non-resident corporation referred to in sub-subclause (A)(I)1 or the life insurance corporation referred to in subclause (A)(II), if that non-resident corporation or that life insurance corporation were a foreign affiliate of the taxpayer and the income were earned by it,
(32) Subsection (6) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after July 12, 2013.
(33) Subsections (7) to (9), (11), (18) to (21), (24) and (25) apply in respect of taxation years of a foreign affiliate of a taxpayer that begin after October 2012.
(34) Subsections (12) and (26) apply in respect of taxation years of a foreign affiliate of a taxpayer that begin after July 12, 2013. However, if a taxpayer elects in writing under this subsection in respect of all its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’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 subsections (12) and (26) apply in respect of taxation years of all foreign affiliates of the taxpayer that begin after February 27, 2004.
(35) Subsection (10) applies to taxation years of a taxpayer that begin after February 10, 2014.
(36) Subsections (13) and (17) apply to taxation years of a taxpayer that begin after 2014.
(37) Subsection (14) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after July 12, 2013. However, if a taxpayer elects under subsection 21(15), subsection (14) applies in respect of taxation years of all foreign affiliates of the taxpayer that end after 2010.
(38) Subsection (15) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after 1999. However, if a taxpayer has not elected under paragraph 70(29)(b) of the Technical Tax Amendments Act, 2012, then subparagraph 95(2)(u)(i) of the Act, as enacted by subsection (15), is to be read as follows in respect of taxation years of the foreign affiliate that end after 1999 and begin before December 21, 2002:
(i) the entity is deemed to be a member of the other partnership for the purposes of
(A) subparagraph (ii),
(B) applying the reference, in paragraph (a), to “a member” of a partnership,
(C) paragraphs (a.1) to (b), (g.03) and (o),
(D) paragraphs (b) and (c) of the definition “investment business” in subsection (1), and
(E) subsection 93.1(2), and
(39) Subsection (16) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after August 19, 2011.
(40) Subsection (22) applies in respect of taxation years of a foreign affiliate of a taxpayer that begin after July 12, 2013. However, if a taxpayer elects in writing under this subsection in respect of all its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’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 subsection (22) applies in respect of taxation years of foreign affiliates of the taxpayer,
(a) if the taxpayer has elected under subsection 73(17) of the Income Tax Amendments Act, 2000, that begin after 1994; or
(b) in any other case, that begin after 1999.
(41) Subsection (23) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after February 27, 2004.
(42) Subsection (27) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after 2008.
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