Fall Economic Statement Implementation Act, 2023 (S.C. 2024, c. 15)
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Assented to 2024-06-20
PART 1Amendments to the Income Tax Act and to Other Legislation (continued)
R.S., c. 1 (5th Supp.)Income Tax Act (continued)
59 (1) The portion of subsection 214(17) of the Act before paragraph (a) is replaced by the following:
Marginal note:Deemed interest payments
(17) For the purposes of subsections (16) and (18),
(2) Section 214 of the Act is amended by adding the following after subsection (17):
Marginal note:Hybrid mismatch arrangements — deemed dividend
(18) For the purposes of this Part, an amount paid or credited as interest by a corporation resident in Canada 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 as interest, to the extent that an amount in respect of the interest is not deductible in computing the income of the corporation for the year because of subsection 18.4(4).
(3) Subsections (1) and (2) apply in respect of payments arising on or after July 1, 2022.
60 (1) Subsection 216(1) of the Act is amended by striking out “and” at the end of paragraph (c), by adding “and” at the end of paragraph (d) and by adding the following after paragraph (d):
(e) the definitions eligible group entity, excluded entity and fixed interest commercial trust in subsection 18.2(1) and section 18.21 do not apply in computing the non-resident person’s income.
(2) Subsection (1) applies in respect of taxation years of a taxpayer that begin on or after October 1, 2023.
61 (1) Subsection 220(2.2) of the Act is replaced by the following:
Marginal note:Exception
(2.2) Subsection (2.1) does not apply in respect of a prescribed form, receipt or document, or prescribed information, that is filed with the Minister on or after the day specified, in respect of the form, receipt, document or information, in subsection 37(11), paragraph (m) of the definition investment tax credit in subsection 127(9) or subsection 127.44(17).
(2) Subsection 220(2.2) of the Act, as enacted by subsection (1), is replaced by the following:
Marginal note:Exception
(2.2) Subsection (2.1) does not apply in respect of a prescribed form, receipt or document, or prescribed information, that is filed with the Minister on or after the day specified, in respect of the form, receipt, document or information, in subsection 37(11), paragraph (m) of the definition investment tax credit in subsection 127(9), subsection 127.44(17) or 127.45(3).
(3) Subsection (1) is deemed to have come into force on January 1, 2022.
(4) Subsection (2) is deemed to have come into force on March 28, 2023.
62 Subsection 225.1(1.1) of the Act is amended by striking out “and” at the end of paragraph (b) and by adding the following after that paragraph:
(b.1) in the case of an amount payable under any of subsections 211.92(2) to (5), in respect of the day on which the notice of assessment is sent,
(i) for one-fifth of the amount, one year after that day,
(ii) for two-fifths of the amount, two years after that day,
(iii) for three-fifths of the amount, three years after that day,
(iv) for four-fifths of the amount, four years after that day, and
(v) for the entire amount, five years after that day; and
63 (1) Section 227 of the Act is amended by adding the following after subsection (6.2):
Marginal note:Hybrid mismatch adjustment
(6.3) If, in respect of a payment (as defined in subsection 18.4(1)) arising under or in connection with a hybrid mismatch arrangement (as defined in that subsection), an amount was paid to the Receiver General under Part XIII on behalf of a person because an amount was deemed to have been paid by a corporation to the person as a dividend under subsection 214(18) and a deduction is allowed in respect of the payment or a portion of it, as the case may be, under paragraph 20(1)(yy),
(a) subject to paragraph (b), the Minister shall, on written application made no later than two years after the day on which the assessment is made in respect of the application of paragraph 20(1)(yy), pay to the person the amount determined by the formula
A − B
where
- A
- is the lesser of
(i) the total of all amounts, if any, paid to the Receiver General on or prior to the day the written application was made on behalf of the person and in respect of the liability of the person to pay an amount under Part XIII in respect of the payment or the portion of it, as the case may be, and
(ii) the amount that would be payable to the Receiver General under Part XIII if an amount equal to the amount deductible under paragraph 20(1)(yy) were paid by the corporation to the person as a dividend described in paragraph 212(2)(a) at the end of the taxation year in which the amount is deductible under paragraph 20(1)(yy), and
- B
- is the amount that would be payable to the Receiver General under Part XIII (if this Act were read without reference to subsection 214(18)) if an amount equal to the amount deductible under paragraph 20(1)(yy) had been paid or credited as interest by the corporation to the person at the end of the taxation year in which the amount is deductible under paragraph 20(1)(yy); and
(b) if the person is or is about to become liable to make a payment to His Majesty in right of Canada, the Minister may apply the amount otherwise payable under paragraph (a) to that liability and notify the person of that action.
(2) Subsection 227(7.1) of the Act is replaced by the following:
Marginal note:Application for determination
(7.1) Where, on application under subsection (6.1) or (6.3) by or on behalf of a person to the Minister in respect of an amount paid under Part XIII to the Receiver General, the Minister is not satisfied that the person is entitled to the amount claimed, the Minister shall, at the person’s request, determine, with all due dispatch, the amount, if any, payable under subsection (6.1) or (6.3), as the case may be, to the person and shall send a notice of determination to the person, and sections 150 to 163, subsections 164(1) and 164(1.4) to 164(7), sections 164.1 to 167 and Division J of Part I apply with such modifications as the circumstances require.
(3) Subsections (1) and (2) apply in respect of payments arising on or after July 1, 2022.
64 (1) Section 237.3 of the Act is amended by adding the following after subsection (12):
Marginal note:Optional disclosure — GAAR
(12.1) If subsection (2) does not apply to a taxpayer in respect of a transaction or series of transactions of which the transaction is a part, the taxpayer may file an information return in prescribed form and containing prescribed information in respect of the transaction or series on or before the taxpayer’s filing-due date for the taxation year in which the transaction occurs.
Marginal note:Late filing — GAAR
(12.2) Despite subsection (12.1), a taxpayer may file the information return referred to in subsection (12.1) up to one year after the deadline referred to in that subsection, in which case
(a) for the purpose of applying subparagraphs 152(4)(b)(viii) and (4.01)(b)(xi) to the transaction referred to in subsection (12.1), the reference to “3 years” in paragraph 152(4)(b) is to be read as “1 year”; and
(b) for the purpose of applying subsection 245(5.1) to the transaction, the information return is deemed to have been filed within the time required by this section.
(2) Subsection (1) applies to transactions that occur on or after January 1, 2024.
65 (1) Subparagraph 241(4)(d)(vi.1) of the Act is replaced by the following:
(vi.1) to an official of the Department of Natural Resources solely for the purposes of determining whether
(A) property is prescribed energy conservation property (as defined in Part LXXXII of the Income Tax Regulations) or whether an outlay or expense is a Canadian renewable and conservation expense (as defined in section 66.1),
(B) a process is a CCUS process (as defined in section 127.44), whether property is dual-use equipment (as defined in section 127.44), whether a project is a qualified CCUS project (as defined in section 127.44) or whether a property is described in Class 57 or 58 of Schedule II to the Income Tax Regulations,
(C) a property is a clean technology property (as defined in section 127.45), and
(D) a cost is a ZETM cost of capital or a ZETM cost of labour (as defined in section 125.2) and activities are qualified zero-emission technology manufacturing activities (as defined in Part LII of the Income Tax Regulations),
(2) Clause 241(4)(d)(xx.1)(A) of the Act is replaced by the following:
(A) the Department of Employment and Social Development, the Department of Health or the Department of Public Works and Government Services, solely for the purpose of the administration or enforcement of the Canadian Dental Care Plan established under the authority of the Department of Health Act in respect of dental service for individuals, or
66 (1) Section 245 of the Act is amended by adding the following before subsection (1):
Marginal note:Preamble
245 (0.1) This section of the Act contains the general anti-avoidance rule, which
(a) applies to deny the tax benefit of avoidance transactions that result directly or indirectly either in a misuse of provisions of the Act (or any of the enactments listed in subparagraphs (4)(a)(ii) to (v)) or an abuse having regard to those provisions read as a whole, while not preventing taxpayers from obtaining tax benefits contemplated by Parliament; and
(b) strikes a balance between
(i) the Government of Canada’s responsibility to protect the tax base and the fairness of the tax system, and
(ii) taxpayers’ need for certainty in planning their affairs.
(2) Subsection 245(3) of the Act is replaced by the following:
Marginal note:Avoidance transaction
(3) Unless it may reasonably be considered that obtaining the tax benefit is not one of the main purposes for undertaking or arranging a transaction, the transaction is an avoidance transaction if the transaction
(a) but for this section, would result, directly or indirectly, in a tax benefit; or
(b) is part of a series of transactions, which series, but for this section, would result, directly or indirectly, in a tax benefit.
(3) Section 245 of the Act is amended by adding the following after subsection (4):
Marginal note:Economic substance — effect
(4.1) If an avoidance transaction — or a series of transactions that includes the avoidance transaction — is significantly lacking in economic substance, this is an important consideration that tends to indicate that the transaction results in a misuse under paragraph (4)(a) or an abuse under paragraph (4)(b).
Marginal note:Economic substance — meaning
(4.2) Factors that establish that a transaction or series of transactions is significantly lacking in economic substance may include, but are not limited to, any of the following:
(a) all or substantially all of the opportunity for gain or profit and risk of loss of the taxpayer — taken together with those of all non-arm’s length taxpayers (other than those non-arm’s length taxpayers who can reasonably be considered, having regard to the circumstances viewed as a whole, to have economic interests that are largely adverse from those of the taxpayer) — remains unchanged, including because of
(i) a circular flow of funds,
(ii) offsetting financial positions,
(iii) the timing between steps in a series, or
(iv) the use of an accommodation party;
(b) it is reasonable to conclude that, at the time the transaction or series was entered into, the expected value of the tax benefit exceeded the expected non-tax economic return (which excludes both the tax benefit and any tax advantages connected to another jurisdiction); and
(c) it is reasonable to conclude that the entire, or almost entire, purpose for undertaking or arranging the transaction or series was to obtain the tax benefit.
(4) Section 245 of the Act is amended by adding the following after subsection (5):
Marginal note:Penalty
(5.1) If subsection (2) applies to determine the tax consequences to a person for a taxation year in respect of a transaction that was not disclosed by the person to the Minister in accordance with section 237.3 or 237.4, the person is liable to a penalty for the taxation year equal to the amount determined by the formula
(A + B) × 25% − C
where
- A
- is the amount by which the tax payable by the person under this Act for the year exceeds the amount that would have been payable by the person under this Act for the year if subsection (2) had not applied in respect of the transaction;
- B
- is the amount by which the total of all amounts, each of which is an amount that would have been deemed to be paid on account of the person’s tax payable under Part I for the year if subsection (2) had not applied in respect of the transaction, exceeds the total of all amounts that are deemed to be paid on account of the person’s tax payable under Part I for the year; and
- C
- is the amount of any penalty payable by the person under subsection 163(2), to the extent that the amount is in respect of the transaction or a series that includes the transaction and did not reduce the penalty payable by the person under this subsection in a preceding taxation year.
Marginal note:Penalty — exception
(5.2) Subsection (5.1) does not apply to a person in respect of a transaction if the person demonstrates that, at the time that the transaction was entered into, it was reasonable for the person to have concluded that subsection (2) would not apply to the transaction in reliance on the transaction or a series that includes the transaction being identical or almost identical to a transaction or series that was the subject of
(a) published administrative guidance or statements made by the Minister or another relevant governmental authority; or
(b) one or more court decisions.
Marginal note:Provisions applicable
(5.3) Sections 152, 158, 159, 160.1, 164 to 167 and Division J of Part I apply to subsection (5.1) with such modifications as the circumstances require.
(5) Subsections (2) and (3) apply to transactions that occur on or after January 1, 2024.
(6) Subsection (4) applies to transactions that occur on or after the later of January 1, 2024 and the day on which this Act receives royal assent.
67 (1) Subparagraph (f)(vi) of the definition disposition in subsection 248(1) of the Act is replaced by the following:
(vi) if the transferor is an amateur athlete trust, a cemetery care trust, an employee trust, a trust deemed by subsection 143(1) to exist in respect of a congregation that is a constituent part of a religious organization, a related segregated fund trust (in this paragraph having the meaning assigned by section 138.1), a trust described in paragraph 149(1)(o.4) or a trust governed by an eligible funeral arrangement, an employees profit sharing plan, a FHSA, a registered disability savings plan, a registered education savings plan, a registered supplementary unemployment benefit plan or a TFSA, the transferee is the same type of trust, and
(2) The definition employee benefit plan in subsection 248(1) of the Act is amended by adding the following after paragraph (b):
(b.1) an employee ownership trust,
(3) The portion of the definition employee trust in subsection 248(1) of the Act before paragraph (a) is replaced by the following:
- employee trust
employee trust means an arrangement (other than an employee ownership trust, an employees profit sharing plan, a deferred profit sharing plan or a plan referred to in subsection 147(15) as a “revoked plan”) established after 1979
(4) Subparagraph (d)(ii) of the definition mineral resource in subsection 248(1) of the Act is replaced by the following:
(ii) the principal mineral extracted is ammonite gemstone, calcium chloride, diamond, gypsum, halite, kaolin, lithium or sylvite, or
(5) Subsection 248(1) of the Act is amended by adding the following in alphabetical order:
- substantive CCPC
substantive CCPC means a private corporation (other than a Canadian-controlled private corporation) that
(a) is controlled, directly or indirectly in any manner whatever, by one or more individuals resident in Canada, or
(b) would, if each share of the capital stock of a corporation that is owned by a Canadian resident individual were owned by a particular individual, be controlled by the particular individual; (SPCC en substance)
(6) Subsection 248(1) of the Act is amended by adding the following in alphabetical order:
- absorbed capacity
absorbed capacity has the same meaning as in subsection 18.2(1); (capacité absorbée)
- cumulative unused excess capacity
cumulative unused excess capacity has the same meaning as in subsection 18.2(1); (capacité excédentaire cumulative inutilisée)
- excess capacity
excess capacity has the same meaning as in subsection 18.2(1); (capacité excédentaire)
- interest and financing expenses
interest and financing expenses has the same meaning as in subsection 18.2(1), except for the purposes of the definition economic profit in subsection 126(7); (dépenses d’intérêts et de financement)
- interest and financing revenues
interest and financing revenues has the same meaning as in subsection 18.2(1); (revenus d’intérêts et de financement)
- restricted interest and financing expense
restricted interest and financing expense has the same meaning as in subsection 111(8); (dépense d’intérêts et de financement restreinte)
- transferred capacity
transferred capacity has the same meaning as in subsection 18.2(1); (capacité transférée)
(7) Subsection 248(1) of the Act is amended by adding the following in alphabetical order:
- distribution equipment
distribution equipment has the same meaning as in subsection 1104(13) of the Income Tax Regulations; (matériel de distribution)
- fossil fuel
fossil fuel has the same meaning as in subsection 1104(13) of the Income Tax Regulations; (combustible fossile)
- transmission equipment
transmission equipment has the same meaning as in subsection 1104(13) of the Income Tax Regulations; (matériel de transmission)
(8) Subsection 248(1) of the Act is amended by adding the following in alphabetical order:
- employee ownership trust
employee ownership trust means an irrevocable trust that, at all relevant times, satisfies the following conditions:
(a) the trust is resident in Canada (determined without reference to subsection 94(3)),
(b) the trust is exclusively for the benefit of all individuals each of whom
(i) is either
(A) an employee of one or more qualifying businesses controlled by the trust (other than an employee who has not completed an applicable probationary period, which may not exceed 12 months), or
(B) if the trust permits, an individual (or the estate of an individual) who is a former employee (other than a former employee who did not complete an applicable probationary period, of up to 12 months, during their employment) of one or more qualifying businesses controlled by the trust and who was an employee of the qualifying business while the trust controlled the qualifying business,
(ii) does not own, directly or indirectly (other than through an interest in the trust), shares of a class of the capital stock of a qualifying business controlled by the trust, the value of which is equal to or greater than 10% of the fair market value of the class,
(iii) does not own, directly or indirectly, together with any person or partnership that is related to or affiliated with the individual, shares of a class of the capital stock of a qualifying business controlled by the trust, the value of which is equal to or greater than 50% of the fair market value of the class, and
(iv) immediately before the time of a qualifying business transfer to the trust, did not own, directly or indirectly, together with any person or partnership that is related to or affiliated with the individual, shares of the capital stock or indebtedness of the qualifying business, the value of which is equal to or greater than 50% of the fair market value of the shares of the capital stock and indebtedness of the qualifying business,
(c) the capital and income interests of each beneficiary described in clause (b)(i)(A) or (B) are determined in the same manner as the other beneficiaries described in those clauses, as applicable, based solely on any combination of the following criteria:
(i) the total hours of employment service provided by the beneficiary to the qualifying business in respect of a particular time period,
(ii) the total salary, wages and other remuneration paid or payable to the beneficiary by the qualifying business in respect of a particular time period, not exceeding, for any calendar year in the particular time period, twice the first dollar amount referred to in paragraph 117(2)(e), as adjusted by section 117.1, for the year (prorated based upon the number of days of the calendar year in the particular time period), and
(iii) the total period of employment service the beneficiary has provided to the qualifying business since a particular time,
(d) the trustees are prohibited from exercising their discretion to act in the interest of one beneficiary (or group of beneficiaries) to the prejudice of another beneficiary (or group of beneficiaries),
(e) each trustee of the trust is either a corporation resident in Canada that is licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as a trustee or an individual (other than a trust),
(f) each trustee has an equal vote in the conduct of the affairs of the trust,
(g) at least one-third of the trustees must be beneficiaries described in clause (b)(i)(A),
(h) if any trustee is appointed (other than by an election within the last five years by the beneficiaries described in clause (b)(i)(A)), at least 60% of all trustees must be persons that deal at arm’s length with each person who has, directly or indirectly in any manner whatever, as part of a transaction or event or series of transactions or events, sold shares of a qualifying business to the trust (or to any person or partnership affiliated with the trust) prior to or in connection with the trust acquiring control of the qualifying business,
(i) more than 50% of the beneficiaries of the trust described in clause (b)(i)(A) must approve each of the following transactions or events prior to their occurrence:
(i) any transaction or event or series of transactions or events that causes at least 25% of the beneficiaries to lose their status as beneficiaries under clause (b)(i)(A) (unless the change in status is in respect of a termination of employment for cause), and
(ii) a winding-up, amalgamation or merger of a qualifying business (other than in the course of a transaction or event or a series of transactions or events that involves only persons or partnerships that are affiliated with the qualifying business), and
(j) all or substantially all the fair market value of the property of the trust is attributable to shares of the capital stock of one or more qualifying businesses that the trust controls; (fiducie collective des employés)
- qualifying business
qualifying business, at a particular time, means a corporation controlled by a trust
(a) that is a Canadian-controlled private corporation,
(b) not more than 40% of the directors of which consist of individuals that, immediately before the time that the trust acquired control of the corporation, owned, directly or indirectly, together with any person or partnership that is related to or affiliated with the director, 50% or more of the fair market value of the shares of the capital stock or indebtedness of the corporation, and
(c) that deals at arm’s length and is not affiliated with any person or partnership that owned, directly or indirectly, 50% or more of the fair market value of the shares of the capital stock or indebtedness of the corporation immediately before the time the trust acquired control of the corporation; (entreprise admissible)
- qualifying business transfer
qualifying business transfer means a disposition by a taxpayer of shares of the capital stock of a corporation (in this definition referred to as the “subject corporation”) to a trust, or to a Canadian-controlled private corporation (in this definition referred to as the “purchaser corporation”) that is controlled and wholly-owned by a trust, if
(a) immediately before the disposition, all or substantially all the fair market value of the assets of the subject corporation is attributable to assets (other than an interest in a partnership) that are used principally in an active business (referred to in this definition as the “business”) carried on by the subject corporation or a corporation that is controlled and wholly-owned by the subject corporation,
(b) at the time of the disposition,
(i) the taxpayer deals at arm’s length with the trust and any purchaser corporation,
(ii) the trust acquires control of the subject corporation, and
(iii) the trust is an employee ownership trust, the beneficiaries of which are employed in the business, and
(c) at all times after the disposition,
(i) the taxpayer deals at arm’s length with the subject corporation, the trust and any purchaser corporation, and
(ii) the taxpayer does not retain any right or influence that, if exercised, would allow the taxpayer (whether alone or together with any person or partnership that is related to or affiliated with the taxpayer) to control, directly or indirectly in any manner whatever, the subject corporation, the trust, or any purchaser corporation; (transfert admissible d’entreprise)
(9) Paragraph 248(3.2)(d) of the Act is replaced by the following:
(d) presented as an arrangement in respect of which the corporation is to take action for the arrangement to become a FHSA, a registered disability savings plan, a registered education savings plan, a registered retirement income fund, a registered retirement savings plan or a TFSA.
(10) Section 248 of the Act is amended by adding the following after subsection (42):
Marginal note:Substantive CCPC — anti-avoidance
(43) For the purposes of this Act, if it is reasonable to consider that one of the purposes of any transaction (as defined in subsection 245(1)), or series of transactions, is to cause a corporation that is resident in Canada (other than a Canadian-controlled private corporation or a corporation that is, in absence of this subsection, a substantive CCPC) to avoid tax otherwise payable under section 123.3 on the corporation’s aggregate investment income, the corporation is deemed to be a substantive CCPC from the time that the transaction or series of transactions commenced until the earliest time at which the corporation
(a) becomes a Canadian-controlled private corporation;
(b) is subject to a loss restriction event; or
(c) ceases to be resident in Canada.
(11) Subsections (1) and (9) are deemed to have come into force on April 1, 2023.
(12) Subsections (2), (3) and (8) come into force or are deemed to have come into force on January 1, 2024.
(13) Subsection (4) is deemed to have come into force on March 28, 2023 and, for greater certainty, subsection (4) does not apply in respect of expenses incurred before March 28, 2023.
(14) Subsections (5) and (10) apply to
(a) taxation years of a corporation that begin on or after April 7, 2022, if
(i) the corporation’s first taxation year that ends on or after April 7, 2022 ends due to a loss restriction event caused by a sale of all or substantially all of the shares of a corporation to a purchaser before 2023,
(ii) the purchaser deals at arm’s length (determined without reference to a right referred to in paragraph 251(5)(b) of the Act) with the corporation immediately prior to the loss restriction event, and
(iii) the sale occurs pursuant to a written purchase and sale agreement entered into before April 7, 2022; and
(b) taxation years that end on or after April 7, 2022, in any other case.
(15) Subsection (6) applies in respect of taxation years of a taxpayer that begin on or after October 1, 2023. However, subsection (6) also applies in respect of a taxation year that begins before, and ends after October 1, 2023 if
(a) any of the taxpayer’s three immediately preceding taxation years was, because of a transaction or event or a series of transactions or events, shorter than it would have been in the absence of that transaction, event or series; and
(b) it can reasonably be considered that one of the purposes of the transaction, event or series was to defer the application of paragraph 12(1)(l.2) of the Act, as enacted by subsection 2(1), or the application of section 18.2 or 18.21 of the Act, as enacted by subsection 7(1), to the taxpayer.
(16) Subsection (7) is deemed to have come into force on March 28, 2023.
- Date modified: