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Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Full Document:  

Act current to 2022-09-22 and last amended on 2022-09-01. Previous Versions

PART IIncome Tax (continued)

DIVISION FSpecial Rules Applicable in Certain Circumstances (continued)

Expenditure — Limit for Contingent Amount

Marginal note:Definitions

  •  (1) The following definitions apply in this section.

    contingent amount

    contingent amount, of a taxpayer at any time (other than a time at which the taxpayer is a bankrupt), includes an amount to the extent that the taxpayer, or another taxpayer that does not deal at arm’s length with the taxpayer, has a right to reduce the amount at that time. (montant éventuel)

    expenditure

    expenditure, of a taxpayer, means an expense, expenditure or outlay made or incurred by the taxpayer, or a cost or capital cost of property acquired by the taxpayer. (dépense)

    right to reduce

    right to reduce means a right to reduce or eliminate an amount in respect of an expenditure at any time, including, for greater certainty, a right to reduce that is contingent upon the occurrence of an event, or in any other way contingent, if it is reasonable to conclude, having regard to all the circumstances, that the right will become exercisable. (droit de réduire)

    taxpayer

    taxpayer includes a partnership. (contribuable)

  • Marginal note:Limitation of amount of expenditure

    (2) For the purposes of this Act, if in a taxation year of a taxpayer an expenditure of the taxpayer occurs, the amount of the expenditure at any time is the lesser of

    • (a) the amount of the expenditure at the time calculated under this Act without reference to this section, and

    • (b) the least amount of the expenditure calculated by reducing the amount of the expenditure determined under paragraph (a) by the amount that is the amount, if any, by which

      • (i) the total of all amounts each of which is a contingent amount of the taxpayer in the year in respect of the expenditure

      exceeds

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

        • (A) an amount paid by the taxpayer to obtain a right to reduce an amount in respect of the expenditure, or

        • (B) a limited-recourse amount for the purposes of paragraph 143.2(6)(b) that reduces the expenditure under subsection 143.2(6) to the extent that the amount is also a contingent amount described in subparagraph (i) in respect of the expenditure.

  • Marginal note:Payment of contingent amount

    (3) For the purposes of this Act, if in a particular taxation year, a taxpayer pays all or a portion of a contingent amount referred to in paragraph (2)(b) that reduces the amount of the taxpayer’s expenditure referred to in paragraph (2)(a), the portion of the contingent amount paid by the taxpayer in the particular year for the purpose of earning income, and to that extent only, is deemed

    • (a) to have been incurred by the taxpayer in the particular year;

    • (b) to have been incurred for the same purpose and to have the same character as the expenditure so reduced; and

    • (c) to have become payable by the taxpayer in respect of the particular year.

  • Marginal note:Subsequent years

    (4) Subject to subsection (6), if at any time in a taxation year that is after a taxation year in which an expenditure of the taxpayer occurred, the taxpayer, or another taxpayer not dealing at arm’s length with the taxpayer, has a right to reduce an amount in respect of the expenditure (in this subsection and subsection (5) referred to as the “prior expenditure”) that would, if the taxpayer or the other taxpayer had had the right to reduce in a particular taxation year that ended before the time, have resulted in subsection (2) applying in the particular taxation year to reduce or eliminate the amount of the prior expenditure, the taxpayer’s subsequent contingent amount in respect of the prior expenditure, as determined under subsection (5), is deemed, to the extent subsection (2) and this subsection have not previously applied in respect of the expenditure,

    • (a) to be an amount received by the taxpayer at the time in the course of earning income from a business or property from a person described in subparagraph 12(1)(x)(i); and

    • (b) to be an amount referred to in subparagraph 12(1)(x)(iv).

  • Marginal note:Subsequent contingent amount

    (5) For the purposes of subsection (4), a taxpayer’s subsequent contingent amount in respect of a prior expenditure of the taxpayer is the amount, if any, by which

    • (a) the maximum amount by which the amount (in this subsection referred to as the “particular amount”) in respect of the prior expenditure may be reduced pursuant to a right to reduce the particular amount

    exceeds

    • (b) the amount, if any, paid to obtain the right to reduce the particular amount.

  • Marginal note:Anti-avoidance

    (6) If a taxpayer, or another taxpayer that does not deal at arm’s length with the taxpayer, has a right to reduce an amount in respect of an expenditure of the taxpayer in a taxation year that is after the taxation year in which the expenditure otherwise occurred, determined without reference to subsection (3), the taxpayer is deemed to have the right to reduce in the taxation year in which that expenditure otherwise occurred if it is reasonable to conclude having regard to all the circumstances that one of the purposes for having the right to reduce after the end of the year in which the expenditure otherwise occurred was to avoid the application of subsection (2) to the amount of the expenditure.

  • Marginal note:Assessments

    (7) Notwithstanding subsections 152(4) to (5), such assessments, determinations and redeterminations may be made as are necessary to give effect to this section.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2013, c. 34, s. 295

DIVISION GDeferred and Other Special Income Arrangements

Employees Profit Sharing Plans

Marginal note:Definitions

  •  (1) The definitions in this subsection apply in this section.

    employees profit sharing plan

    employees profit sharing plan at a particular time means an arrangement

    • (a) under which payments computed by reference to

      • (i) an employer’s profits from the employer’s business,

      • (ii) the profits from the business of a corporation with which the employer does not deal at arm’s length, or

      • (iii) any combination of the amounts described in subparagraphs 144(1) employees profit sharing plan (a)(i) and 144(1) employees profit sharing plan (a)(ii)

      are required to be made by the employer to a trustee under the arrangement for the benefit of employees of the employer or of a corporation with which the employer does not deal at arm’s length; and

    • (b) in respect of which the trustee has, since the later of the beginning of the arrangement and the end of 1949, allocated, either contingently or absolutely, to those employees

      • (i) in each year that ended at or before the particular time, all amounts received in the year by the trustee from the employer or from a corporation with which the employer does not deal at arm’s length,

      • (ii) in each year that ended at or before the particular time, all profits for the year from the property of the trust (determined without regard to any capital gain made by the trust or capital loss sustained by it at any time after 1955),

      • (iii) in each year that ended after 1971 and at or before the particular time, all capital gains and capital losses of the trust for the year,

      • (iv) in each year that ended after 1971, before 1993 and at or before the particular time, 100/15 of the total of all amounts each of which is deemed by subsection 144(9) to be paid on account of tax under this Part in respect of an employee because the employee ceased to be a beneficiary under the plan in the year, and

      • (v) in each year that ended after 1991 and at or before the particular time, the total of all amounts each of which is an amount that may be deducted under subsection 144(9) in computing the employee’s income because the employee ceased to be a beneficiary under the plan in the year. (régime de participation des employés aux bénéfices)

    unused portion of a beneficiary’s exempt capital gains balance

    unused portion of a beneficiary’s exempt capital gains balance in respect of a trust governed by an employees profit sharing plan, at any particular time in a taxation year of the beneficiary, means

    • (a) where the year ends before 2005, the amount, if any, by which the beneficiary’s exempt capital gains balance (in this paragraph having the same meaning as in subsection 39.1(1)) in respect of the trust for the year exceeds the total of all amounts each of which is an amount by which a capital gain is reduced under section 39.1 in the year because of the beneficiary’s exempt capital gains balance in respect of the trust; or

    • (b) where the year ends after 2004, the amount, if any, by which

      • (i) the amount, if any, that would, if the definition exempt capital gains balance in subsection 39.1(1) were read without reference to “that ends before 2005”, be the beneficiary’s exempt capital gains balance in respect of the trust for the year

      exceeds

      • (ii) where there has been a disposition of an interest or a part of an interest of the beneficiary in the trust after the beneficiary’s 2004 taxation year (other than a disposition that is a part of a transaction described in paragraph 144(7.1)(c) in which property is received in satisfaction of all or a portion of the beneficiary’s interests in the trust), the total of all amounts each of which is an amount by which the adjusted cost base of an interest or a part of an interest disposed of by the beneficiary (other than an interest or a part of an interest that is all or a portion of the beneficiary’s interests referred to in paragraph 144(7.1)(c)) was increased because of paragraph 53(1)(p), and

      • (iii) in any other case, nil. (fraction inutilisée du solde des gains en capital exonérés)

  • Marginal note:No tax while trust governed by plan

    (2) No tax is payable under this Part by a trust on the taxable income of the trust for a taxation year throughout which the trust is governed by an employees profit sharing plan.

  • Marginal note:Allocation contingent or absolute taxable

    (3) There shall be included in computing the income for a taxation year of an employee who is a beneficiary under an employees profit sharing plan each amount that is allocated to the employee contingently or absolutely by the trustee under the plan at any time in the year otherwise than in respect of

    • (a) a payment made by the employee to the trustee;

    • (b) a capital gain made by the trust before 1972;

    • (c) a capital gain of the trust for a taxation year ending after 1971;

    • (d) a gain made by the trust after 1971 from the disposition of a capital property except to the extent that the gain is a capital gain described in paragraph 144(3)(c); or

    • (e) a dividend received by the trust from a taxable Canadian corporation.

    • (f) [Repealed, 1994, c. 21, s. 68(2)]

  • Marginal note:Allocated capital gains and losses

    (4) Each capital gain and capital loss of a trust governed by an employees profit sharing plan from the disposition of any property shall, to the extent that it is allocated by the trust to an employee who is a beneficiary under the plan, be deemed to be a capital gain or capital loss, as the case may be, of the employee from the disposition of that property for the taxation year of the employee in which the allocation was made and, for the purposes of section 110.6, the property shall be deemed to have been disposed of by the employee on the day on which it was disposed of by the trust.

  • Marginal note:Idem

    (4.1) Notwithstanding subsection 26(6) of the Income Tax Application Rules, where at any time before 1976 the trustee of a trust governed by an employees profit sharing plan so elects in prescribed manner, the trust shall be deemed

    • (a) to have, on December 31, 1971, disposed of each property owned by the trust on that day for proceeds of disposition equal to the fair market value of the property on that day, and

    • (b) to have, on January 1, 1972, reacquired each property described in paragraph 144(4.1)(a) for the amount referred to in that paragraph,

    if the trustee under the plan has, before 1976, allocated the total of all capital gains and capital losses resulting from the deemed dispositions among the employees or other beneficiaries under the plan to the extent that the trustee under the plan has not previously so allocated them.

  • Marginal note:Idem

    (4.2) Where a trust governed by an employees profit sharing plan

    • (a) was governed by an employees profit sharing plan on December 31, 1971, and the trustee of the trust has made an election under subsection 144(4.1), or

    • (b) was not governed by an employees profit sharing plan on December 31, 1971,

    the trustee of the trust may, in any taxation year after 1973, elect in prescribed manner and prescribed form to treat any capital property of the trust as having been disposed of, in which event the property shall be deemed to have been disposed of on any day designated by the trustee for proceeds of disposition equal to

    • (c) the fair market value of the property on that day,

    • (d) the adjusted cost base to the trust of the property on that day, or

    • (e) an amount that is neither greater than the greater of the amounts determined under paragraphs 144(4.2)(c) and 144(4.2)(d) nor less than the lesser of the amounts determined under those paragraphs

    whichever is designated by the trustee and to have been reacquired by the trust immediately thereafter at a cost equal to those proceeds.

  • Marginal note:Employer’s contribution to trust deductible

    (5) An amount paid by an employer to a trustee under an employees profit sharing plan during a taxation year or within 120 days thereafter may be deducted in computing the employer’s income for the taxation year to the extent that it was not deductible in computing income for a previous taxation year.

  • Marginal note:Beneficiary’s receipts deductible

    (6) An amount received in a taxation year by a beneficiary from a trustee under an employees profit sharing plan shall not be included in computing the beneficiary’s income for the year.

  • Marginal note:Beneficiary’s receipts that are not deductible

    (7) Notwithstanding subsection 144(6), such portion of an amount received in a taxation year by a beneficiary from the trustee under an employees profit sharing plan as cannot be established to be attributable to

    • (a) payments made by the employee to the trustee,

    • (b) amounts required to be included in computing the income of the employee for that or a previous taxation year,

    • (c) a capital gain made by the trust before 1972,

    • (d) a capital gain made by the trust for a taxation year ending after 1971, to the extent allocated by the trust to the beneficiary,

    • (e) a gain made by the trust after 1971 from the disposition of a capital property, except to the extent that the gain is a capital gain made by the trust for a taxation year ending after 1971,

    • (f) the portion, if any, of the increase in the value of property transferred to the beneficiary by the trustee that would have been considered to be a capital gain made by the trust in 1971 if the trustee had sold the property on December 31, 1971 for its fair market value at that time, or

    • (g) a dividend received by the trust from a taxable Canadian corporation other than a dividend described in subsection 83(1), to the extent allocated by the trust to the beneficiary,

    shall be included in computing the beneficiary’s income for the year in which the amount was received, except that in determining the amount of any payments or other things described in any paragraph of this subsection, the amount thereof otherwise determined shall be reduced by such portion of the total of all capital losses of the trust for taxation years ending after 1971 as has been allocated by the trust to the beneficiary and has not been applied to reduce the amount of any payments or other things described in any other paragraph of this subsection.

  • Marginal note:Where property other than money received by beneficiary

    (7.1) Where, at any particular time in a taxation year of a trust governed by an employees profit sharing plan, an amount was received by a beneficiary from the trustee under the plan and the amount so received was property other than money, the following rules apply in respect of each such property so received by the beneficiary at the particular time:

    • (a) the amount that was the cost amount to the trust of the property immediately before the particular time shall be deemed to be the trust’s proceeds of disposition of the property;

    • (b) that proportion of

      • (i) such portion of the amount received by the beneficiary as can be established to be attributable to the payments or other things described in paragraphs 144(7)(a) to 144(7)(g) (on the assumption that the amount of any payments or other things described in any such paragraph is the amount thereof determined as provided in subsection 144(7))

      that

      • (ii) the cost amount to the trust of the property immediately before the particular time

      is of

      • (iii) the cost amounts to the trust of all properties, other than money, so received by the beneficiary at the particular time,

      is subject to paragraph 144(7.1)(c), deemed to be

      • (iv) the cost to the beneficiary of the property, and

      • (v) for the purposes of subsection 144(7) but not for the purposes of this subsection, the amount so received by the beneficiary by virtue of the receipt by the beneficiary of the property; and

    • (c) where a particular property received is all or a portion of property received in satisfaction of all or a portion of the beneficiary’s interests in the trust and the beneficiary files with the Minister on or before the beneficiary’s filing-due date for the taxation year that includes the particular time an election in respect of the particular property in prescribed form, there shall be included in the cost to the beneficiary of the particular property determined under paragraph 144(7.1)(b) the least of

      • (i) the amount, if any, by which the unused portion of the beneficiary’s exempt capital gains balance in respect of the trust at the particular time exceeds the total of all amounts each of which is an amount included because of this paragraph in the cost to the beneficiary of another property received by the beneficiary at or before the particular time in the year,

      • (ii) the amount, if any, by which the fair market value of the particular property at the particular time exceeds the amount deemed by subparagraph 144(7.1)(b)(iv) to be the cost to the beneficiary of the particular property, and

      • (iii) the amount designated in the election in respect of the particular property.

  • Marginal note:Allocation of credit for dividends

    (8) Where there has been included in computing the income of a trust for a taxation year during which the trust was governed by an employees profit sharing plan taxable dividends from taxable Canadian corporations and there has been allocated by the trustee under the plan for the purposes of this subsection an amount for the year to one or more of the employees who are beneficiaries under the plan, which amount or the total of which amounts does not exceed the amount of the taxable dividends so included, each of the employees who are beneficiaries under the plan shall be deemed to have received a taxable dividend from a taxable Canadian corporation equal to the lesser of

    • (a) the amount, if any, that would be included in computing the employee’s income for the year by virtue of this section, if this section were read without reference to paragraph 144(3)(e), and

    • (b) the amount, if any, so allocated for the purposes of this subsection to the employee.

  • Marginal note:Foreign tax deduction

    (8.1) For the purpose of subsection 126(1), the following rules apply:

    • (a) such portion of the income for a taxation year of a trust governed by an employees profit sharing plan from sources (other than businesses carried on by it) in a foreign country as

      • (i) may reasonably be considered (having regard to all the circumstances including the terms and conditions of the plan) to be part of

        • (A) the income that, by virtue of subsection 144(3), was included in computing the income for a taxation year of a particular employee who was a beneficiary under the plan, or

        • (B) the amount, if any, by which

          • (I) the total of amounts each of which is a capital gain of the trust that, by virtue of subsection 144(4), was deemed to be a capital gain of the particular employee for a taxation year

          exceeds

          • (II) the total of amounts each of which is a capital loss of the trust that, by virtue of subsection 144(4), was deemed to be a capital loss of the particular employee for the taxation year, and

      • (ii) was not designated by the trust in respect of any other employee who was a beneficiary under the plan,

      shall if so designated by the trust in respect of the particular employee in its return of income for the year under this Part, be deemed to be income of the particular employee for the taxation year from sources in that country; and

    • (b) an employee who is a beneficiary under an employees profit sharing plan shall be deemed to have paid as non-business-income tax for a taxation year, on the income that the employee is deemed by paragraph 144(8.1)(a) to have for the year from sources in a foreign country, to the government of that country an amount equal to that proportion of the non-business-income tax paid by the trust governed by the plan for the year to the government of that country, or to the government of a state, province or other political subdivision of that country (except such portion of that tax as was deductible under subsection 20(11) in computing its income for the year) that

      • (i) the income that the employee is deemed by paragraph 144(8.1)(a) to have for the year from sources in that country

      is of

      • (ii) the income of the trust for the year from sources (other than businesses carried on by it) in that country.

  • (8.2) [Repealed, 1994, c. 21, s. 68(3)]

  • Marginal note:Deduction for forfeited amounts

    (9) Where a person ceases at any time in a taxation year to be a beneficiary under an employees profit sharing plan and does not become a beneficiary under the plan after that time and in the year, there may be deducted in computing the person’s income for the year the amount determined by the formula

    A - B - C/4 - D

    where

    A
    is the total of all amounts each of which is an amount included in computing the person’s income for the year or a preceding taxation year (other than an amount received before that time under the plan or an amount under the plan that the person is entitled at that time to receive) because of an allocation (other than an allocation to which subsection 144(4) applies) to the person made contingently under the plan before that time;
    B
    is the portion, if any, of the value of A that is included in the value of A because of paragraph 82(1)(b);
    C
    is the total of all taxable dividends deemed to be received by the person because of allocations under subsection 144(8) in respect of the plan; and
    D
    is the total of all amounts deductible under this subsection in computing the person’s income for a preceding taxation year because the person ceased to be a beneficiary under the plan in a preceding taxation year.
  • Marginal note:Payments out of profits

    (10) Where the terms of an arrangement under which an employer makes payments to a trustee specifically provide that the payments shall be made “out of profits”, the arrangement shall, if the employer so elects in prescribed manner, be deemed, for the purpose of subsection 144(1), to be an arrangement under which payments computed by reference to the employer’s profits are required.

  • Marginal note:Taxation year of trust

    (11) Where an employees profit sharing plan is accepted for registration by the Minister as a deferred profit sharing plan, the taxation year of the trust governed by the employees profit sharing plan shall be deemed to have ended immediately before the plan is deemed to have become registered as a deferred profit sharing plan pursuant to subsection 147(5).

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 144
  • 1994, c. 21, s. 68
  • 1995, c. 3, s. 42
  • 1998, c. 19, s. 169
 
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