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

Full Document:  

Act current to 2022-07-25 and last amended on 2022-07-01. Previous Versions

PART IIncome Tax (continued)

DIVISION BComputation of Income (continued)

SUBDIVISION FRules Relating to Computation of Income (continued)

Marginal note:Expropriation assets acquired as compensation for, or as consideration for sale of, foreign property taken by or sold to foreign issuer

  •  (1) Where in a taxation year ending coincidentally with or after December 31, 1971 a taxpayer resident in Canada has acquired any bonds, debentures, mortgages, hypothecary claims, notes or similar obligations (in this section referred to as “expropriation assets”) issued by the government of a country other than Canada or issued by a person resident in a country other than Canada and guaranteed by the government of that country,

    • (a) as compensation for

      • (i) shares owned by the taxpayer of the capital stock of a foreign affiliate of the taxpayer that carried on business in that country, or

      • (ii) all or substantially all of the property used by the taxpayer in carrying on business in that country,

      (which shares or property, as the case may be, are referred to in this section as “foreign property”), taken, after June 18, 1971, from the taxpayer by the issuer under the authority of a law of that country, or

    • (b) as consideration for the sale of foreign property sold, after June 18, 1971, by the taxpayer to the issuer, if

      • (i) the sale was, by a law of that country, expressly required to be made, or

      • (ii) the sale was made after notice or other manifestation of an intention to take the foreign property,

    if the taxpayer has so elected, in prescribed form and within prescribed time, in respect of all of the expropriation assets so acquired by the taxpayer, the following rule applies, namely, an amount in respect of each such expropriation asset, equal to

    • (c) the principal amount of the asset, or

    • (d) where the taxpayer has designated in the taxpayer’s election an amount in respect of the asset that is less than the principal amount thereof, the amount so designated,

    shall be deemed to be

    • (e) the cost to the taxpayer of the asset, and

    • (f) for the purpose of computing the taxpayer’s proceeds of disposition of the foreign property so taken or sold, the amount received by the taxpayer by virtue of the taxpayer’s acquisition of the asset,

    except that in no case may the taxpayer designate an amount in respect of any expropriation asset so that the taxpayer’s proceeds of disposition of the foreign property so taken or sold (computed having regard to the provisions of paragraph 80.1(1)(f)) are less than the cost amount to the taxpayer of the foreign property immediately before it was so taken or sold.

  • Marginal note:Election re interest received or to be received on expropriation assets acquired by taxpayer

    (2) Where a taxpayer has elected in prescribed form and within prescribed time in respect of all amounts (each of which is referred to in this section as an “interest amount”) received or to be received by the taxpayer as or on account of interest on all expropriation assets acquired by the taxpayer as compensation for, or as consideration for the sale of, foreign property taken by or sold to any particular issuer as described in subsection 80.1(1), the following rules apply in respect of each such asset so acquired by the taxpayer:

    • (a) in computing the taxpayer’s income for a taxation year from the asset, there may be deducted, in respect of each interest amount received by the taxpayer in the year on the asset, the lesser of the interest amount and the total of

      • (i) the amount required by paragraph 80.1(2)(b) to be added, by virtue of the receipt by the taxpayer of the interest amount, in computing the adjusted cost base to the taxpayer of the asset, and

      • (ii) the greater of

        • (A) the adjusted cost base to the taxpayer of the asset immediately before the interest amount was so received by the taxpayer, and

        • (B) the adjusted principal amount to the taxpayer of the asset immediately before the interest amount was so received by the taxpayer,

      and there shall be included, in respect of each amount (in this paragraph referred to as a “capital amount”) received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,

      • (iii) any proceeds of disposition of the asset, or

      • (iv) the principal amount of the asset,

      the amount, if any, by which the capital amount exceeds the greater of the adjusted cost base to the taxpayer of the asset immediately before the capital amount was received by the taxpayer and its adjusted principal amount to the taxpayer at that time;

    • (b) in computing, at any particular time, the adjusted cost base to the taxpayer of the asset, there shall be added, in respect of each interest amount received by the taxpayer on the asset before the particular time, an amount equal to the lesser of

      • (i) any income or profits tax paid by the taxpayer to the government of a country other than Canada in respect of the interest amount, and

      • (ii) that proportion of the tax referred to in subparagraph 80.1(2)(b)(i) that the adjusted cost base to the taxpayer of the asset immediately before the interest amount was received by the taxpayer is of the amount, if any, by which the interest amount exceeds the tax referred to in that subparagraph,

      and there shall be deducted

      • (iii) each interest amount received by the taxpayer on the asset before the particular time, and

      • (iv) each amount received by the taxpayer before the particular time on account of the principal amount of the asset;

    • (c) the receipt by the taxpayer of an amount described in subparagraph 80.1(2)(b)(iv) in respect of the asset shall be deemed not to be a partial disposition thereof; and

    • (d) for the purposes of section 126, notwithstanding the definition non-business-income tax in subsection 126(7), the non-business-income tax paid by a taxpayer does not include any tax, or any portion thereof, the amount of which is required by paragraph 80.1(2)(b) to be added in computing the adjusted cost base to the taxpayer of the asset.

  • Marginal note:Where interest amount and capital amount received at same time

    (3) For the purposes of subsection 80.1(2), where an interest amount on an expropriation asset and a capital amount with respect to that asset are received by a taxpayer at the same time, the interest amount shall be deemed to have been received by the taxpayer immediately before the capital amount.

  • Marginal note:Assets acquired from foreign affiliate of taxpayer as dividend in kind or as benefit to shareholder

    (4) Where a foreign affiliate of a taxpayer resident in Canada would, on the assumption that the foreign affiliate were resident in Canada and its only foreign affiliates were corporations that were foreign affiliates of the taxpayer, be entitled to make an election under subsection 80.1(1) in respect of assets acquired by it that would, on that assumption, be expropriation assets of the foreign affiliate, and all or any of those assets are subsequently acquired by the taxpayer from the foreign affiliate as a dividend payable in kind, or as a benefit received from the foreign affiliate that would otherwise be required by subsection 15(1) to be included in computing the income of the taxpayer, if the taxpayer has so elected, in prescribed form and within prescribed time, in respect of all assets so acquired by the taxpayer from the foreign affiliate, the following rules apply in respect of each asset so acquired by the taxpayer:

    • (a) an amount equal to

      • (i) the principal amount of the asset, or

      • (ii) where the taxpayer has designated in the taxpayer’s election an amount in respect of the asset that is less than the principal amount thereof, the amount so designated,

      shall be deemed to be,

      • (iii) notwithstanding subsection 52(2), the cost to the taxpayer of the asset, and

      • (iv) the amount of the dividend or benefit, as the case may be, received by the taxpayer by virtue of the acquisition by the taxpayer of the asset;

    • (b) where the asset was so acquired as such a benefit and the taxpayer has designated in the election a class of shares as described in this paragraph in respect of the asset, the amount of the benefit shall be deemed

      • (i) to have been received by the taxpayer as a dividend from the foreign affiliate in respect of such class of shares of the capital stock thereof as the taxpayer has designated in the election, and

      • (ii) not to be an amount required by subsection 15(1) to be included in computing the taxpayer’s income;

    • (c) in computing the taxable income of the taxpayer for the taxation year in which the taxpayer acquired the asset, there may be deducted from the taxpayer’s income for the year the amount, if any, by which the amount received by the taxpayer as a dividend by virtue of the acquisition by the taxpayer of the asset exceeds the total of amounts deductible in respect of the dividend under sections 91 and 113 in computing the taxpayer’s income or taxable income, as the case may be, for the year;

    • (d) there shall be deducted in computing the adjusted cost base to the taxpayer of each share of the capital stock of the foreign affiliate that is a share of a class in respect of which an amount was received by the taxpayer as a dividend by virtue of the acquisition by the taxpayer of the asset, the quotient obtained by dividing the amount, if any, deducted by the taxpayer under paragraph (c) in respect of the dividend by the number of shares of that class owned by the taxpayer immediately before that amount was received by the taxpayer as a dividend;

    • (e) any capital loss of the taxpayer from the disposition, after the time when the asset was so acquired by the taxpayer, of a share of the capital stock of the foreign affiliate shall be deemed to be nil; and

    • (f) where the taxpayer has so elected in prescribed form and within prescribed time, subsection (2) applies as if the asset were an expropriation asset acquired by the taxpayer as compensation for foreign property taken by a particular issuer as described in subsection (1).

  • Marginal note:Assets acquired from foreign affiliate of taxpayer as consideration for settlement, etc., of debt

    (5) Where a foreign affiliate of a taxpayer resident in Canada would, on the assumption that the foreign affiliate were resident in Canada and its only foreign affiliates were corporations that were foreign affiliates of the taxpayer, be entitled to make an election under subsection 80.1(1) in respect of assets acquired by it that would, on that assumption, be expropriation assets of the foreign affiliate, and all or any of those assets are subsequently acquired by the taxpayer from the foreign affiliate as consideration for the settlement or extinguishment of a capital property of the taxpayer that was a debt payable by the foreign affiliate to the taxpayer or any other obligation of the foreign affiliate to pay an amount to the taxpayer (which debt or other obligation is referred to in this subsection as the “obligation”), if the taxpayer has so elected, in prescribed form and within prescribed time, in respect of all of the assets so acquired by the taxpayer from the foreign affiliate, the following rules apply in respect of each such asset so acquired by the taxpayer:

    • (a) paragraph 80.1(4)(a) applies in respect of the asset as if subparagraph 80.1(4)(a)(iv) were read as follows:

      • “(iv) the taxpayer’s proceeds of the disposition of the obligation settled or extinguished by virtue of the acquisition by the taxpayer of the asset;”;

    • (b) where the taxpayer has designated in the taxpayer’s election a class of shares as described in this paragraph in respect of the asset,

      • (i) the amount, if any, by which the cost to the taxpayer of the asset (computed having regard to paragraph (a) and paragraph (4)(a)) exceeds the amount of the obligation settled or extinguished by virtue of the acquisition by the taxpayer of the asset shall be deemed to have been received by the taxpayer as a dividend from the foreign affiliate in respect of such class of shares of the capital stock thereof as the taxpayer has designated in the election, and

      • (ii) the taxpayer’s gain, if any, from the disposition of the obligation shall be deemed to be nil;

    • (c) the taxpayer’s loss, if any, from the disposition of the obligation shall be deemed to be nil; and

    • (d) paragraphs (4)(c) to (f) apply in respect of the asset.

  • Marginal note:Assets acquired from foreign affiliate of taxpayer on winding-up, etc.

    (6) Where a foreign affiliate of a taxpayer resident in Canada would, on the assumption that the foreign affiliate were resident in Canada and its only foreign affiliates were corporations that were foreign affiliates of the taxpayer, be entitled to make an election under subsection 80.1(1) in respect of assets acquired by it that would, on that assumption, be expropriation assets of the foreign affiliate, and all or any of those assets are subsequently acquired by the taxpayer from the foreign affiliate,

    • (a) on the winding-up, discontinuance or reorganization of the business of the foreign affiliate, or

    • (b) as consideration for the redemption, cancellation or acquisition by the foreign affiliate of shares of its capital stock,

    if the taxpayer has so elected, in prescribed form and within prescribed time,

    • (c) in respect of all of the assets so acquired by the taxpayer from the foreign affiliate, subsection (1) applies in respect of each such asset, or

    • (d) in respect of all amounts received or to be received by the taxpayer as or on account of interest on all of the assets so acquired by the taxpayer from the foreign affiliate, subsection (2) applies in respect of each such asset,

    as if the assets were expropriation assets acquired by the taxpayer as consideration for the sale of foreign property that consisted of shares of the capital stock of the foreign affiliate owned by the taxpayer immediately before the assets were so acquired and that was sold to a particular issuer as described in subsection (1).

  • Definition of adjusted principal amount

    (7) In this section, adjusted principal amount to a taxpayer of an expropriation asset at any particular time means the amount, if any, by which

    • (a) the total of the principal amount of the asset and, in respect of each interest amount received by the taxpayer on the asset before the particular time, the lesser of the tax referred to in subparagraph (2)(b)(i) in respect of that interest amount and the proportion determined under subparagraph (2)(b)(ii) in respect thereof,

    exceeds

    • (b) the total of each amount received by the taxpayer before the particular time as an interest amount on the asset and each amount received by the taxpayer before the particular time as, on account or in lieu of payment of, or in satisfaction of, the principal amount of the asset.

  • Marginal note:Currency in which adjusted principal amount to be computed or expressed

    (8) For the purposes of this section, the adjusted principal amount, at any particular time, of an expropriation asset or of any asset assumed for the purposes of this section to be an expropriation asset shall be computed in the currency in which the principal amount of the asset is, under the terms thereof, payable, except that for greater certainty, for the purposes of paragraph (2)(a), the adjusted principal amount at any particular time of such an asset is its adjusted principal amount at that time computed as provided in this subsection but expressed in Canadian currency.

  • Marginal note:Election in respect of two or more expropriation assets acquired by taxpayer

    (9) For the purposes of Subdivision C and subsection (2), and in applying subsections (7) and (8) for those purposes, where two or more expropriation assets that were

    • (a) issued by the government of a country other than Canada, or

    • (b) issued by a person resident in a country other than Canada and guaranteed by the government of that country

    at the same time, or as compensation for, or consideration for the sale of, the same foreign property, have been acquired by a taxpayer and the taxpayer has so elected, in prescribed form and within prescribed time, in respect of all of the expropriation assets that were so issued or guaranteed by the government of that country and acquired by the taxpayer before the making of the election, all of those expropriation assets shall be considered to be a single expropriation asset that was issued or guaranteed by the government of that country and acquired by the taxpayer.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 80.1
  • 2001, c. 17, s. 210

Marginal note:Application

  •  (1) Subsections (2) to (13) apply if

    • (a) in a taxation year, a taxpayer, under the terms of a contract, pays to a person (referred to in this section as the “recipient”) an amount (referred to in this section as the “specified amount”) that may reasonably be considered to be received by the recipient as a reimbursement of, or a contribution or an allowance in respect of, an amount (referred to in this section as the “original amount”)

      • (i) that was described by paragraph 18(1)(m) and was paid or payable by the recipient, or

      • (ii) that was, in respect of the recipient, an amount described by paragraph 12(1)(o);

    • (b) the original amount is paid or became payable or receivable in a taxation year or fiscal period of the recipient that begins before 2007; and

    • (c) the taxpayer is resident in Canada or carries on business in Canada when the specified amount is paid.

  • Marginal note:Rules relating to time of payment

    (2) If the specified amount is paid in a taxation year of the taxpayer that begins before 2008, the eligible portion of the specified amount, referred to in subsection (11), is deemed to be a payment described by paragraph 18(1)(m). If, however, the specified amount is paid in a taxation year of the taxpayer that begins after 2007, the specified amount is deemed, for the purpose of applying this section to the taxpayer, to be nil.

  • Marginal note:Applying paragraph 18(1)(m)

    (3) For the purpose of applying paragraph 18(1)(m) for the taxpayer’s taxation year in which the specified amount was paid, the amount to which that paragraph applies is to be determined for that taxation year

    • (a) if the taxpayer was in existence at the time the original amount became receivable by a person referred to in subparagraph 12(1)(o)(i) or became payable to a person referred to in subparagraph 18(1)(m)(i), as if the specified amount were paid by the taxpayer at that time; and

    • (b) in any other case, as if

      • (i) the taxpayer were in existence and had a calendar taxation year at the time the original amount became receivable by a person referred to in subparagraph 12(1)(o)(i) or became payable to a person referred to in subparagraph 18(1)(m)(i), and

      • (ii) the specified amount were paid by the taxpayer at that time.

  • Marginal note:Exception for certain partnership reimbursements

    (4) Subsection (3) does not apply to a specified amount paid by a taxpayer if

    • (a) the recipient is a partnership;

    • (b) the original amount became receivable by a person referred to in subparagraph 12(1)(o)(i) or became payable to a person referred to in subparagraph 18(1)(m)(i), in a particular fiscal period of the partnership;

    • (c) the taxpayer is a member of the partnership at the end of the particular fiscal period; and

    • (d) the taxpayer paid the specified amount before the end of the taxation year of the taxpayer in which that particular fiscal period ends.

  • Marginal note:Specified amount deemed to be paid at end of taxation year

    (5) A specified amount paid by the taxpayer to a partnership is deemed to have been paid on the last day of a particular taxation year of the taxpayer, and not at the time it was paid, if

    • (a) the taxpayer paid an amount to the partnership in the particular taxation year (referred to in this subsection as the “initial payment”);

    • (b) the initial payment was paid before September 17, 2004;

    • (c) the initial payment is an amount to which subsection (3) did not apply because of subsection (4);

    • (d) the taxpayer’s share of the original amount in respect of the initial payment is greater than the initial payment;

    • (e) the specified amount is equal to or less than the difference between the taxpayer’s share of the original amount in respect of the initial payment and the initial payment;

    • (f) the taxpayer elects in the taxpayer’s return of income for the taxpayer’s taxation year that includes the time at which the specified amount would, if this Act were read without reference to this subsection, have been paid, to have this subsection apply to the specified amount; and

    • (g) the specified amount is paid before 2006.

  • Marginal note:Inclusion in recipient’s income

    (6) The recipient shall include in computing the recipient’s income for the taxation year or fiscal period in which the original amount was paid or became payable or receivable, the amount, if any, by which the eligible portion of the specified amount exceeds the portion of the original amount that was included in computing the income of the recipient for the taxation year or fiscal period because of paragraph 12(1)(o) or that was not deductible in computing the income of the recipient for the taxation year or fiscal period because of paragraph 18(1)(m).

  • Marginal note:Interpretation — portion of the original amount

    (7) For the purpose of subsection (6), the portion of the original amount that was included in computing the income of the recipient or that was not deductible in computing the income of the recipient is the amount that would be included in computing the income of the recipient under paragraph 12(1)(o) or that would not be deductible in computing the income of the recipient under paragraph 18(1)(m), if the original amount were equal to the eligible portion of the specified amount.

  • Marginal note:Inclusion in recipient’s income

    (8) The recipient shall include, in computing the recipient’s income for its taxation year or fiscal period in which the original amount was paid or became payable or receivable, the amount, if any, by which the specified amount exceeds the eligible portion of the specified amount.

  • Marginal note:Deduction by taxpayer

    (9) Subject to paragraphs 18(1)(a) and (b), the taxpayer may deduct in computing the taxpayer’s income for the taxpayer’s taxation year in which the specified amount was paid, the amount, if any, by which the specified amount exceeds the eligible portion of the specified amount.

  • Marginal note:Specified amount deemed not to be payable or receivable

    (10) Except for the purposes of this section and subparagraph 53(1)(e)(iv.1),

    • (a) the taxpayer is deemed not to have paid, and not to have been obligated to pay, the specified amount; and

    • (b) the recipient is deemed not to have received, and not to have been entitled to receive, the specified amount.

  • Marginal note:Eligible portion of a specified amount

    (11) The eligible portion of a specified amount is

    • (a) an amount equal to the specified amount if

      • (i) the specified amount was paid before September 17, 2004,

      • (ii) the original amount is a tax imposed under a provincial law on the production of

        • (A) petroleum, natural gas or related hydrocarbons from a natural accumulation of petroleum or natural gas (other than a mineral resource) located in Canada, or from an oil or gas well located in Canada if the petroleum, natural gas or related hydrocarbons are not, before extraction, owned by the Crown in right of Canada or a province, or

        • (B) metals, minerals or coal from a mineral resource located in Canada if the metals, minerals or coal are not, before extraction, owned by the Crown in right of Canada or a province,

      • (iii) the specified amount does not exceed the taxpayer’s share of the original amount, or

      • (iv) the original amount is a prescribed amount; and

    • (b) the taxpayer’s share of the original amount, in any other case.

  • Marginal note:Taxpayer’s share of original amount

    (12) A taxpayer’s share of an original amount in respect of a specified amount paid by the taxpayer to a recipient in respect of a property is the amount that may reasonably be considered to be the taxpayer’s share of the total of all amounts described in paragraph 12(1)(o) or 18(1)(m) in respect of the property, which share may not exceed the total of

    • (a) that proportion of the total of all amounts described in paragraph 12(1)(o) or 18(1)(m) in respect of the property that the taxpayer’s share of production from the property payable to the taxpayer as a royalty, which royalty is computed without reference to the costs of exploration or production, is of the total production from the property, and

    • (b) that proportion of the total of all amounts described in paragraph 12(1)(o) or 18(1)(m) in respect of the property (other than those amounts which the recipient has received or is entitled to receive as a reimbursement, contribution or allowance in respect of a royalty described in paragraph (a)) that the taxpayer’s share of the income from the property is of the total income from the property.

  • Marginal note:Reduction in original amount for Part XII of the regulations

    (13) For the purpose of applying Part XII of the Income Tax Regulations, an original amount in respect of which a specified amount is received is deemed, for the taxation year in which the original amount was paid or became payable or receivable, not to include an amount equal to the eligible portion of the specified amount.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 80.2
  • 2003, c. 28, s. 9
  • 2013, c. 34, s. 215
 
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