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Income Tax Act

Version of section 18 from 2009-01-01 to 2010-12-14:


Marginal note:General limitations

  •  (1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of

    • Marginal note:General limitation

      (a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;

    • Marginal note:Capital outlay or loss

      (b) an outlay, loss or replacement of capital, a payment on account of capital or an allowance in respect of depreciation, obsolescence or depletion except as expressly permitted by this Part;

    • Marginal note:Limitation re exempt income

      (c) an outlay or expense to the extent that it may reasonably be regarded as having been made or incurred for the purpose of gaining or producing exempt income or in connection with property the income from which would be exempt;

    • Marginal note:Annual value of property

      (d) the annual value of property except rent for property leased by the taxpayer for use in the taxpayer’s business;

    • Marginal note:Reserves, etc.

      (e) an amount as, or on account of, a reserve, a contingent liability or amount or a sinking fund except as expressly permitted by this Part;

    • Marginal note:Unpaid claims under insurance policies

      (e.1) an amount in respect of claims that were received by an insurer before the end of the year under insurance policies and that are unpaid at the end of the year, except as expressly permitted by this Part;

    • Marginal note:Payments on discounted bonds

      (f) an amount paid or payable as or on account of the principal amount of any obligation described in paragraph 20(1)(f) except as expressly permitted by that paragraph;

    • Marginal note:Payments on income bonds

      (g) an amount paid by a corporation as interest or otherwise to holders of its income bonds or income debentures unless the bonds or debentures have been issued or the income provisions thereof have been adopted since 1930

      • (i) to afford relief to the debtor from financial difficulties, and

      • (ii) in place of or as an amendment to bonds or debentures that at the end of 1930 provided unconditionally for a fixed rate of interest;

    • Marginal note:Personal and living expenses

      (h) personal or living expenses of the taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer’s business;

    • Marginal note:Limitation re employer’s contribution under supplementary unemployment benefit plan

      (i) an amount paid by an employer to a trustee under a supplementary unemployment benefit plan except as permitted by section 145;

    • Marginal note:Limitation re employer’s contribution under deferred profit sharing plan

      (j) an amount paid by an employer to a trustee under a deferred profit sharing plan except as expressly permitted by section 147;

    • Marginal note:Limitation re employer’s contribution under profit sharing plan

      (k) an amount paid by an employer to a trustee under a profit sharing plan that is not

      • (i) an employees profit sharing plan,

      • (ii) a deferred profit sharing plan, or

      • (iii) a registered pension plan;

    • Marginal note:Use of recreational facilities and club dues

      (l) an outlay or expense made or incurred by the taxpayer after 1971,

      • (i) for the use or maintenance of property that is a yacht, a camp, a lodge or a golf course or facility, unless the taxpayer made or incurred the outlay or expense in the ordinary course of the taxpayer’s business of providing the property for hire or reward, or

      • (ii) as membership fees or dues (whether initiation fees or otherwise) in any club the main purpose of which is to provide dining, recreational or sporting facilities for its members;

    • (l.1) [Repealed, 2003, c. 28, s. 2(1)]

    • (m) [Repealed, 2003, c. 28, s. 2(3)]

    • Marginal note:Political contributions

      (n) a political contribution;

    • Marginal note:Employee benefit plan contributions

      (o) an amount paid or payable as a contribution to an employee benefit plan;

    • Marginal note:Salary deferral arrangement

      (o.1) except as expressly permitted by paragraphs 20(1)(oo) and 20(1)(pp), an outlay or expense made or incurred under a salary deferral arrangement in respect of another person, other than such an arrangement established primarily for the benefit of one or more non-resident employees in respect of services to be rendered outside Canada;

    • Marginal note:Retirement compensation arrangement

      (o.2) except as expressly permitted by paragraph 20(1)(r), contributions made under a retirement compensation arrangement;

    • Marginal note:Limitation re personal services business expenses

      (p) an outlay or expense to the extent that it was made or incurred by a corporation in a taxation year for the purpose of gaining or producing income from a personal services business, other than

      • (i) the salary, wages or other remuneration paid in the year to an incorporated employee of the corporation,

      • (ii) the cost to the corporation of any benefit or allowance provided to an incorporated employee in the year,

      • (iii) any amount expended by the corporation in connection with the selling of property or the negotiating of contracts by the corporation if the amount would have been deductible in computing the income of an incorporated employee for a taxation year from an office or employment if the amount had been expended by the incorporated employee under a contract of employment that required the employee to pay the amount, and

      • (iv) any amount paid by the corporation in the year as or on account of legal expenses incurred by it in collecting amounts owing to it on account of services rendered

      that would, if the income of the corporation were from a business other than a personal services business, be deductible in computing its income;

    • Marginal note:Limitation re cancellation of lease

      (q) an amount paid or payable by the taxpayer for the cancellation of a lease of property of the taxpayer leased by the taxpayer to another person, except to the extent permitted by paragraph 20(1)(z) or 20(1)(z.1);

    • Marginal note:Certain automobile expenses

      (r) an amount paid or payable by the taxpayer as an allowance for the use by an individual of an automobile to the extent that the amount exceeds an amount determined in accordance with prescribed rules, except where the amount so paid or payable is required to be included in computing the individual’s income;

    • Marginal note:Loans or lending assets

      (s) any loss, depreciation or reduction in a taxation year in the value or amortized cost of a loan or lending asset of a taxpayer made or acquired by the taxpayer in the ordinary course of the taxpayer’s business of insurance or the lending of money and not disposed of by the taxpayer in the year, except as expressly permitted by this Part;

    • Marginal note:Payments under different acts

      (t) any amount paid or payable

    • Marginal note:Fees — individual saving plans

      (u) any amount paid or payable by the taxpayer for services in respect of a retirement savings plan, retirement income fund or TFSA under or of which the taxpayer is the annuitant or holder; and

    • Marginal note:Interest — authorized foreign bank

      (v) where the taxpayer is an authorized foreign bank, an amount in respect of interest that would otherwise be deductible in computing the taxpayer’s income from a business carried on in Canada, except as provided in section 20.2.

  • Marginal note:Limit on certain interest and property tax

    (2) Notwithstanding paragraph 20(1)(c), in computing the taxpayer’s income for a particular taxation year from a business or property, no amount shall be deductible in respect of any expense incurred by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,

    • (a) interest on debt relating to the acquisition of land, or

    • (b) property taxes (not including income or profits taxes or taxes computed by reference to the transfer of property) paid or payable by the taxpayer in respect of land to a province or to a Canadian municipality,

    unless, having regard to all the circumstances (including the cost to the taxpayer of the land in relation to the taxpayer’s gross revenue, if any, from the land for the particular year or any preceding taxation year), the land can reasonably be considered to have been, in the year,

    • (c) used in the course of a business carried on in the particular year by the taxpayer, other than a business in the ordinary course of which land is held primarily for the purpose of resale or development, or

    • (d) held primarily for the purpose of gaining or producing income of the taxpayer from the land for the particular year,

    except to the extent of the total of

    • (e) the amount, if any, by which the taxpayer’s gross revenue, if any, from the land for the particular year exceeds the total of all amounts deducted in computing the taxpayer’s income from the land for the year, and

    • (f) in the case of a corporation whose principal business is the leasing, rental or sale, or the development for lease, rental or sale, or any combination thereof, of real property owned by it, to or for a person with whom the corporation is dealing at arm’s length, the corporation’s base level deduction for the particular year.

  • Marginal note:Where taxpayer member of partnership

    (2.1) Where a taxpayer who is a member of a partnership was obligated to pay any amount as, on account or in lieu of payment of, or in satisfaction of, interest (in this subsection referred to as an “interest amount”) on money that was borrowed by the taxpayer before April 1, 1977 and that was used to acquire land owned by the partnership before that day or on an obligation entered into by the taxpayer before April 1, 1977 to pay for land owned by the partnership before that day, and, in a taxation year of the taxpayer, either,

    • (a) the partnership has disposed of all or any portion of the land, or

    • (b) the taxpayer has disposed of all or any portion of the taxpayer’s interest in the partnership

    to a person other than a person with whom the taxpayer does not deal at arm’s length, in computing the taxpayer’s income for the year or any subsequent year, there may be deducted such portion of the taxpayer’s interest amount

    • (c) that was, by virtue of subsection 18(2), not deductible in computing the income of the taxpayer for any previous taxation year,

    • (d) that was not deductible in computing the income of any other taxpayer for any taxation year,

    • (e) that was not included in computing the adjusted cost base to the taxpayer of any property, and

    • (f) that was not deductible under this subsection in computing the income of the taxpayer for any previous taxation year

    as is reasonable having regard to the portion of the land or interest in the partnership, as the case may be, so disposed of.

  • Marginal note:Base level deduction

    (2.2) For the purposes of this section, a corporation’s base level deduction for a taxation year is the amount that would be the amount of interest, computed at the prescribed rate, for the year in respect of a loan of $1,000,000 outstanding throughout the year, unless the corporation is associated in the year with one or more other corporations in which case, except as otherwise provided in this section, its base level deduction for the year is nil.

  • Marginal note:Associated corporations

    (2.3) Notwithstanding subsection 18(2.2), if all of the corporations that are associated with each other in a taxation year have filed with the Minister in prescribed form an agreement whereby, for the purposes of this section, they allocate an amount to one or more of them for the taxation year and the amount so allocated or the total of the amounts so allocated, as the case may be, does not exceed $1,000,000, the base level deduction for the year for each of the corporations is the base level deduction that would be computed under subsection 18(2.2) in respect of the corporation if the reference in that subsection to $1,000,000 were read as a reference to the amount so allocated to it.

  • Marginal note:Failure to file agreement

    (2.4) If any of the corporations that are associated with each other in a taxation year has failed to file with the Minister an agreement as contemplated by subsection 18(2.3) within 30 days after notice in writing by the Minister has been forwarded to any of them that such an agreement is required for the purpose of any assessment of tax under this Part, the Minister shall, for the purpose of this section, allocate an amount to one or more of them for the taxation year, which amount or the total of which amounts, as the case may be, shall equal $1,000,000 and in any such case, the amount so allocated to any corporation shall be deemed to be an amount allocated to the corporation pursuant to subsection 18(2.3).

  • Marginal note:Special rules for base level deduction

    (2.5) Notwithstanding any other provision of this section,

    • (a) where a corporation, in this paragraph referred to as the “first corporation”, has more than one taxation year ending in the same calendar year and is associated in two or more of those taxation years with another corporation that has a taxation year ending in that calendar year, the base level deduction of the first corporation for each taxation year in which it is associated with the other corporation ending in that calendar year is, subject to the application of paragraph 18(2.5)(b), an amount equal to its base level deduction for the first such taxation year determined without reference to paragraph 18(2.5)(b); and

    • (b) where a corporation has a taxation year that is less than 51 weeks, its base level deduction for the year is that proportion of its base level deduction for the year determined without reference to this paragraph that the number of days in the year is of 365.

  • Marginal note:Definitions

    (3) In subsection 18(2),

    interest on debt relating to the acquisition of land

    intérêts sur une dette concernant l’acquisition d’un fonds de terre

    interest on debt relating to the acquisition of land includes

    • (a) interest paid or payable in a year in respect of borrowed money that cannot be identified with particular land but that may nonetheless reasonably be considered (having regard to all the circumstances) as interest on borrowed money used in respect of or for the acquisition of land, and

    • (b) interest paid or payable in the year by a taxpayer in respect of borrowed money that may reasonably be considered (having regard to all the circumstances) to have been used to assist, directly or indirectly,

      • (i) another person with whom the taxpayer does not deal at arm’s length,

      • (ii) a corporation of which the taxpayer is a specified shareholder, or

      • (iii) a partnership of which the taxpayer’s share of any income or loss is 10% or more,

      to acquire land to be used or held by that person, corporation or partnership otherwise than as described in paragraph 18(2)(c) or 18(2)(d), except where the assistance is in the form of a loan to that person, corporation or partnership and a reasonable rate of interest on the loan is charged by the taxpayer; (intérêts sur une dette concernant l’acquisition d’un fonds de terre)

    land

    fonds de terre

    land does not, except to the extent that it is used for the provision of parking facilities for a fee or charge, include

    • (a) any property that is a building or other structure affixed to land,

    • (b) the land subjacent to any property described in paragraph (a), or

    • (c) such land immediately contiguous to the land described in paragraph (b) that is a parking area, driveway, yard, garden or similar land as is necessary for the use of any property described in paragraph (a). (fonds de terre)

  • Marginal note:Costs relating to construction of building or ownership of land

    (3.1) Notwithstanding any other provision of this Act, in computing a taxpayer’s income for a taxation year,

    • (a) no deduction shall be made in respect of any outlay or expense made or incurred by the taxpayer (other than an amount deductible under paragraph 20(1)(a), 20(1)(aa) or 20(1)(qq) or subsection 20(29)) that can reasonably be regarded as a cost attributable to the period of the construction, renovation or alteration of a building by or on behalf of the taxpayer, a person with whom the taxpayer does not deal at arm’s length, a corporation of which the taxpayer is a specified shareholder or a partnership of which the taxpayer’s share of any income or loss is 10% or more and relating to the construction, renovation or alteration, or a cost attributable to that period and relating to the ownership during that period of land

      • (i) that is subjacent to the building, or

      • (ii) that

        • (A) is immediately contiguous to the land subjacent to the building,

        • (B) is used, or is intended to be used, for a parking area, driveway, yard, garden or any other similar use, and

        • (C) is necessary for the use or intended use of the building; and

    • (b) the amount of such an outlay or expense shall, to the extent that it would otherwise be deductible in computing the taxpayer’s income for the year, be included in computing the cost or capital cost, as the case may be, of the building to the taxpayer, to the person with whom the taxpayer does not deal at arm’s length, to the corporation of which the taxpayer is a specified shareholder or to the partnership of which the taxpayer’s share of any income or loss is 10% or more, as the case may be.

  • Marginal note:Included costs

    (3.2) For the purposes of subsection 18(3.1), costs relating to the construction, renovation or alteration of a building or to the ownership of land include

    • (a) interest paid or payable by a taxpayer in respect of borrowed money that cannot be identified with a particular building or particular land, but that can reasonably be considered (having regard to all the circumstances) as interest on borrowed money used by the taxpayer in respect of the construction, renovation or alteration of a building or the ownership of land; and

    • (b) interest paid or payable by a taxpayer in respect of borrowed money that may reasonably be considered (having regard to all the circumstances) to have been used to assist, directly or indirectly,

      • (i) another person with whom the taxpayer does not deal at arm’s length,

      • (ii) a corporation of which the taxpayer is a specified shareholder, or

      • (iii) a partnership of which the taxpayer’s share of any income or loss is 10% or more,

      to construct, renovate or alter a building or to purchase land, except where the assistance is in the form of a loan to that other person, corporation or partnership and a reasonable rate of interest on the loan is charged by the taxpayer.

  • Marginal note:Completion

    (3.3) For the purposes of subsection 18(3.1), the construction, renovation or alteration of a building is completed at the earlier of the day on which the construction, renovation or alteration is actually completed and the day on which all or substantially all of the building is used for the purpose for which it was constructed, renovated or altered.

  • Marginal note:Where s. (3.1) does not apply

    (3.4) Subsection 18(3.1) does not apply to prohibit a deduction in a taxation year of the specified percentage of any outlay or expense described in that subsection made or incurred before 1992 by

    • (a) corporation whose principal business is throughout the year the leasing, rental or sale, or the development for lease, rental or sale, or any combination thereof, of real property owned by it to or for a person with whom the corporation is dealing at arm’s length, or

    • (b) a partnership

      • (i) each member of which is a corporation described in paragraph 18(3.4)(a), and

      • (ii) the principal business of which is throughout the year the leasing, rental or sale, or the development for lease, rental or sale, or any combination thereof, of real property held by it, to or for a person with whom each member of the partnership is dealing at arm’s length,

    and for the purposes of this subsection, specified percentage means, in respect of an outlay or expense made or incurred in 1988, 80%, in 1989, 60%, in 1990, 40%, and in 1991, 20%.

  • Marginal note:Idem

    (3.5) Subsection 18(3.1) does not apply in respect of an outlay or expense in respect of a building or the land described in subparagraph 18(3.1)(a)(i) or 18(3.1)(a)(ii) in respect of the building,

    • (a) where the construction, renovation or alteration of the building was in progress on November 12, 1981,

    • (b) where the installation of the footings or other base support of the building commenced after November 12, 1981 and before 1982,

    • (c) if, in the case of a new building being constructed in Canada or an existing building being renovated or altered in Canada, arrangements, evidenced in writing, for the construction, renovation or alteration were substantially advanced before November 13, 1981 and the installation of footings or other base support for the new building or the renovation or alteration of the existing building, as the case may be, commenced before June 1, 1982, or

    • (d) if, in the case of a new building being constructed in Canada, the taxpayer was obligated to construct the building under the terms of an agreement in writing entered into before November 13, 1981 and arrangements, evidenced in writing, respecting the construction of the building were substantially advanced before June 1, 1982 and the installation of footings or other base support for the building commenced before 1983,

    and the construction, renovation or alteration, as the case may be, of the building proceeds after 1982 without undue delay (having regard to acts of God, labour disputes, fire, accidents or unusual delay by common carriers or suppliers of materials or equipment).

  • Marginal note:Undue delay

    (3.6) For the purposes of subsection 18(3.5), where more than one building is being constructed under any of the circumstances described in that subsection on one site or on immediately contiguous sites, no undue delay shall be regarded as occurring in the construction of any such building if construction of at least one such building proceeds after 1982 without undue delay and continuous construction of all other such buildings proceeds after 1983 without undue delay.

  • Marginal note:Commencement of footings

    (3.7) For the purposes of this section, the installation of footings or other base support for a building shall be deemed to commence on the first placement of concrete, pilings or other material that is to provide permanent support for the building.

  • Marginal note:Limitation re deduction of interest by certain corporations

    (4) Notwithstanding any other provision of this Act, in computing the income for a taxation year of a corporation resident in Canada from a business or property, no deduction shall be made in respect of that proportion of any amount otherwise deductible in computing its income for the year in respect of interest paid or payable by it on outstanding debts to specified non-residents that

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

      • (i) the average of all amounts each of which is, in respect of a calendar month that ends in the year, the greatest total amount at any time in the month of the corporation’s outstanding debts to specified non-residents,

      exceeds

      • (ii) two times the total of

        • (A) the retained earnings of the corporation at the beginning of the year, except to the extent that those earnings include retained earnings of any other corporation,

        • (B) the average of all amounts each of which is the corporation’s contributed surplus at the beginning of a calendar month that ends in the year, to the extent that it was contributed by a specified non-resident shareholder of the corporation, and

        • (C) the average of all amounts each of which is the corporation’s paid-up capital at the beginning of a calendar month that ends in the year, excluding the paid-up capital in respect of shares of any class of the capital stock of the corporation owned by a person other than a specified non-resident shareholder of the corporation,

    is of

    • (b) the amount determined under subparagraph 18(4)(a)(i) in respect of the corporation for the year.

  • Marginal note:Definitions

    (5) Notwithstanding any other provision of this Act (other than subsection 18(5.1)), in this subsection and subsections 18(4) to 18(6),

    outstanding debts to specified non-residents

    dettes impayées envers des non-résidents déterminés

    outstanding debts to specified non-residents of a corporation at any particular time in a taxation year means

    • (a) the total of all amounts each of which is an amount outstanding at that time as or on account of a debt or other obligation to pay an amount

      • (i) that was payable by the corporation to a person who was, at any time in the year,

        • (A) a specified non-resident shareholder of the corporation, or

        • (B) a non-resident person, or a non-resident-owned investment corporation, who was not dealing at arm’s length with a specified shareholder of the corporation, and

      • (ii) on which any amount in respect of interest paid or payable by the corporation is or would be, but for subsection 18(4), deductible in computing the corporation’s income for the year,

    but does not include

    • (b) an amount outstanding at the particular time as or on account of a debt or other obligation to pay an amount to

      • (i) a non-resident insurance corporation to the extent that the obligation was, for the non-resident insurance corporation’s taxation year that included the particular time, designated insurance property in respect of an insurance business carried on in Canada through a permanent establishment as defined by regulation, or

      • (ii) an authorized foreign bank, if the bank uses or holds the obligation at the particular time in its Canadian banking business; (dettes impayées envers des non-résidents déterminés)

    specified non-resident shareholder

    actionnaire non-résident déterminé

    specified non-resident shareholder of a corporation at any time means a specified shareholder of the corporation who was at that time a non-resident person or a non-resident-owned investment corporation; (actionnaire non-résident déterminé)

    specified shareholder

    actionnaire déterminé

    specified shareholder of a corporation at any time means a person who at that time, either alone or together with persons with whom that person is not dealing at arm’s length, owns

    • (a) shares of the capital stock of the corporation that give the holders thereof 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or

    • (b) shares of the capital stock of the corporation having a fair market value of 25% or more of the fair market value of all of the issued and outstanding shares of the capital stock of the corporation,

    and for the purpose of determining whether a particular person is a specified shareholder of a corporation at any time, where the particular person or a person with whom the particular person is not dealing at arm’s length has at that time a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently

    • (c) to, or to acquire, shares in a corporation or to control the voting rights of shares in a corporation, or

    • (d) to cause a corporation to redeem, acquire or cancel any of its shares (other than shares held by the particular person or a person with whom the particular person is not dealing at arm’s length),

    the particular person or the person with whom the particular person is not dealing at arm’s length, as the case may be, shall be deemed at that time to own the shares referred to in paragraph (c) and the corporation referred to in paragraph (d) shall be deemed at that time to have redeemed, acquired or cancelled the shares referred to in paragraph (d), unless the right is not exercisable at that time because the exercise thereof is contingent on the death, bankruptcy or permanent disability of an individual. (actionnaire déterminé)

  • Marginal note:Person deemed not to be specified shareholder

    (5.1) For the purposes of subsections 18(4) to 18(6), where

    • (a) a particular person would, but for this subsection, be a specified shareholder of a corporation at any time,

    • (b) there was in effect at that time an agreement or arrangement under which, on the satisfaction of a condition or the occurrence of an event that it is reasonable to expect will be satisfied or will occur, the particular person will cease to be a specified shareholder, and

    • (c) the purpose for which the particular person became a specified shareholder was the safeguarding of rights or interests of the particular person or a person with whom the particular person is not dealing at arm’s length in respect of any indebtedness owing at any time to the particular person or a person with whom the particular person is not dealing at arm’s length,

    the particular person shall be deemed not to be a specified shareholder of the corporation at that time.

  • Marginal note:Loans made on condition

    (6) Where any loan (in this subsection referred to as the “first loan”) has been made

    • (a) by a specified non-resident shareholder of a corporation, or

    • (b) by a non-resident person, or a non-resident-owned investment corporation, who was not dealing at arm’s length with a specified shareholder of a corporation,

    to another person on condition that a loan (in this subsection referred to as the “second loan”) be made by any person to a particular corporation resident in Canada, for the purposes of subsections 18(4) and 18(5), the lesser of

    • (c) the amount of the first loan, and

    • (d) the amount of the second loan

    shall be deemed to be a debt incurred by the particular corporation to the person who made the first loan.

  • (8) [Repealed, 2001, c. 17, s. 9(5)]

  • Marginal note:Limitation respecting prepaid expenses

    (9) Notwithstanding any other provision of this Act,

    • (a) in computing a taxpayer’s income for a taxation year from a business or property (other than income from a business computed in accordance with the method authorized by subsection 28(1)), no deduction shall be made in respect of an outlay or expense to the extent that it can reasonably be regarded as having been made or incurred

      • (i) as consideration for services to be rendered after the end of the year,

      • (ii) as, on account of, in lieu of payment of or in satisfaction of, interest, taxes (other than taxes imposed on an insurer in respect of insurance premiums of a non-cancellable or guaranteed renewable accident and sickness insurance policy, or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less), rent or royalties in respect of a period that is after the end of the year, or

      • (iii) as consideration for insurance in respect of a period after the end of the year, other than

        • (A) where the taxpayer is an insurer, consideration for reinsurance, and

        • (B) consideration for insurance on the life of an individual under a group term life insurance policy where all or part of the consideration is for insurance that is (or would be if the individual survived) in respect of a period that ends more than 13 months after the consideration is paid;

    • (b) such portion of each outlay or expense (other than an outlay or expense of a corporation, partnership or trust as, on account of, in lieu of payment of or in satisfaction of, interest) made or incurred as would, but for paragraph 18(9)(a), be deductible in computing a taxpayer’s income for a taxation year shall be deductible in computing the taxpayer’s income for the subsequent year to which it can reasonably be considered to relate;

    • (c) for the purposes of section 37.1, such portion of each qualified expenditure (within the meaning assigned by subsection 37.1(5)) as was made by a taxpayer in a taxation year and as would, but for paragraph 18(9)(a), have been deductible in computing the taxpayer’s income for the year shall be deemed

      • (i) not to be a qualified expenditure made by the taxpayer in the year, and

      • (ii) to be a qualified expenditure made by the taxpayer in the subsequent year to which the expenditure can reasonably be considered to relate;

    • (d) for the purpose of paragraph 18(9)(a), an outlay or expense of a taxpayer is deemed not to include any payment referred to in subparagraph 37(1)(a)(ii) or 37(1)(a)(iii) that

      • (i) is made by the taxpayer to a person or partnership with which the taxpayer deals at arm’s length, and

      • (ii) is not an expenditure described in subparagraph 37(1)(a)(i);

    • (e) for the purposes of section 37 and the definition qualified expenditure in subsection 127(9), the portion of an expenditure that is made or incurred by a taxpayer in a taxation year and that would, but for paragraph 18(9)(a), have been deductible under section 37 in computing the taxpayer’s income for the year, is deemed

      • (i) not to be made or incurred by the taxpayer in the year, and

      • (ii) to be made or incurred by the taxpayer in the subsequent taxation year to which the expenditure can reasonably be considered to relate; and

    • (f) for the purpose of the definition eligible child care space expenditure in subsection 127(9), the portion of an expenditure (other than for the acquisition of depreciable property) that is made or incurred by a taxpayer in a taxation year and that would, but for paragraph (a), have been deductible under this Act in computing the taxpayer’s income for the year, is deemed

      • (i) not to be made or incurred by the taxpayer in the year, and

      • (ii) to be made or incurred by the taxpayer in the subsequent taxation year to which the expenditure can reasonably be considered to relate.

  • Marginal note:Group term life insurance

    (9.01) Where

    • (a) a taxpayer pays a premium after February 1994 and before 1997 under a group term life insurance policy for insurance on the life of an individual,

    • (b) the insurance is for the remainder of the individual’s lifetime, and

    • (c) no further premiums will be payable for the insurance,

    no amount may be deducted in computing the taxpayer’s income for a taxation year from a business or property in respect of the premium except that there may be so deducted,

    • (d) where the year is the taxation year in which the premium was paid or a subsequent taxation year and the individual is alive at the end of the year, the lesser of

      • (i) the amount determined by the formula

        A - B

        and

      • (ii) 1/3 of the amount determined by the formula

        (A × C)/365

        where

        A
        is the amount that would, if this Act were read without reference to this subsection, be deductible in respect of the premium in computing the taxpayer’s income,
        B
        is the total amount deductible in respect of the premium in computing the taxpayer’s income for preceding taxation years, and
        C
        is the number of days in the year, and
    • (e) where the individual died in the year, the amount determined under subparagraph 18(9.01)(d)(i).

  • Marginal note:Application of subsection (9) to insurers

    (9.02) For the purpose of subsection (9), an outlay or expense made or incurred by an insurer on account of the acquisition of an insurance policy (other than a non-cancellable or guaranteed renewable accident and sickness insurance policy or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less) is deemed to be an expense incurred as consideration for services rendered consistently throughout the period of coverage of the policy.

  • Marginal note:Penalties, bonuses and rate-reduction payments

    (9.1) Subject to subsection 142.4(10), where at any time a payment, other than a payment that

    • (a) can reasonably be considered to have been made in respect of the extension of the term of a debt obligation or in respect of the substitution or conversion of a debt obligation to another debt obligation or share, or

    • (b) is contingent or dependent on the use of or production from property or is computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a corporation,

    is made to a person or partnership by a taxpayer in the course of carrying on a business or earning income from property in respect of borrowed money or on an amount payable for property acquired by the taxpayer (in this subsection referred to as a “debt obligation”)

    • (c) as consideration for a reduction in the rate of interest payable by the taxpayer on the debt obligation, or

    • (d) as a penalty or bonus payable by the taxpayer because of the repayment by the taxpayer of all or part of the principal amount of the debt obligation before its maturity,

    the payment shall, to the extent that it can reasonably be considered to relate to, and does not exceed the value at that time of, an amount that, but for the reduction described in paragraph 18(9.1)(c) or the repayment described in paragraph 18(9.1)(d), would have been paid or payable by the taxpayer as interest on the debt obligation for a taxation year of the taxpayer ending after that time, be deemed,

    • (e) for the purposes of this Act, to have been paid by the taxpayer and received by the person or partnership at that time as interest on the debt obligation, and

    • (f) for the purpose of computing the taxpayer’s income in respect of the business or property for the year, to have been paid or payable by the taxpayer in that year as interest pursuant to a legal obligation to pay interest,

      • (i) in the case of a reduction described in paragraph 18(9.1)(c), on the debt obligation, and

      • (ii) in the case of a repayment described in paragraph 18(9.1)(d),

        • (A) where the repayment was in respect of all or part of the principal amount of the debt obligation that was borrowed money, except to the extent that the borrowed money was used by the taxpayer to acquire property, on borrowed money used in the year for the purpose for which the borrowed money that was repaid was used, and

        • (B) where the repayment was in respect of all or part of the principal amount of the debt obligation that was either borrowed money used to acquire property or an amount payable for property acquired by the taxpayer, on the debt obligation to the extent that the property or property substituted therefor is used by the taxpayer in the year for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business.

  • Marginal note:Interest on debt obligations

    (9.2) For the purposes of this Part, the amount of interest payable on borrowed money or on an amount payable for property (in this subsection and subsections 18(9.3) to 18(9.8) referred to as the “debt obligation”) by a corporation, partnership or trust (in this subsection and subsections 18(9.3) to 18(9.7) referred to as the “borrower”) in respect of a taxation year shall, notwithstanding subparagraph 18(9.1)(f)(i), be deemed to be an amount equal to the lesser of

    • (a) the amount of interest, not in excess of a reasonable amount, that would be payable on the debt obligation by the borrower in respect of the year if no amount had been paid before the end of the year in satisfaction of the obligation to pay interest on the debt obligation in respect of the year and if the amount outstanding at each particular time in the year that is after 1991 on account of the principal amount of the debt obligation were the amount, if any, by which

      • (i) the amount outstanding at the particular time on account of the principal amount of the debt obligation

      exceeds the total of

      • (ii) all amounts each of which is an amount paid before the particular time in satisfaction, in whole or in part, of the obligation to pay interest on the debt obligation in respect of a period or part thereof that is after 1991, after the beginning of the year, and after the time the amount was so paid (other than a period or part thereof that is in the year where no such amount was paid before the particular time in respect of a period, or part of a period, that is after the end of the year), and

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

        • (A) the total of all amounts of interest payable on the debt obligation (determined without reference to this subsection) by the borrower in respect of taxation years ending after 1991 and before the year (to the extent that the interest does not exceed a reasonable amount)

        exceeds

        • (B) the total of all amounts of interest deemed by this subsection to have been payable on the debt obligation by the borrower in respect of taxation years ending before the year, and

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

      • (i) the total of all amounts of interest payable on the debt obligation (determined without reference to this subsection) by the borrower in respect of the year or taxation years ending after 1991 and before the year (to the extent that the interest does not exceed a reasonable amount)

      exceeds

      • (ii) the total of all amounts of interest deemed by this subsection to have been payable on the debt obligation by the borrower in respect of taxation years ending before the year.

  • Marginal note:Interest on debt obligations

    (9.3) Where at any time in a taxation year of a borrower a debt obligation of the borrower is settled or extinguished or the holder of the obligation acquires or reacquires property of the borrower in circumstances in which section 79 applies in respect of the debt obligation and the total of

    • (a) all amounts each of which is an amount paid at or before that time in satisfaction, in whole or in part, of the obligation to pay interest on the debt obligation in respect of a period or part of a period that is after that time, and

    • (b) all amounts of interest payable on the debt obligation (determined without reference to subsection 18(9.2)) by the borrower in respect of taxation years ending after 1991 and before that time, or in respect of periods, or parts of periods, that are in such years and before that time (to the extent that the interest does not exceed a reasonable amount),

    exceeds the total of

    • (c) all amounts of interest deemed by subsection 18(9.2) to have been payable on the debt obligation by the borrower in respect of taxation years ending before that time, and

    • (d) the amount of interest that would be deemed by subsection 18(9.2) to have been payable on the debt obligation by the borrower in respect of the year if the year had ended immediately before that time,

    (which excess is in this subsection referred to as the “excess amount”), the following rules apply:

    • (e) for the purpose of applying section 79 in respect of the borrower, the principal amount at that time of the debt obligation shall be deemed to be equal to the amount, if any, by which

      • (i) the principal amount at that time of the debt obligation

      exceeds

      • (ii) the excess amount, and

    • (f) the excess amount shall be deducted at that time in computing the forgiven amount in respect of the obligation (within the meaning assigned by subsection 80(1)).

  • Marginal note:Idem

    (9.4) Where an amount is paid at any time by a person or partnership in respect of a debt obligation of a borrower

    • (a) as, on account of, in lieu of payment of or in satisfaction of, interest on the debt obligation in respect of a period or part thereof that is after 1991 and after that time, or

    • (b) as consideration for a reduction in the rate of interest payable on the debt obligation (excluding, for greater certainty, a payment described in paragraph 18(9.1)(a) or 18(9.1)(b)) in respect of a period or part thereof that is after 1991 and after that time,

    that amount shall be deemed, for the purposes of subsection 18(9.5) and, subject to that subsection, for the purposes of clause 18(9.2)(a)(iii)(A), subparagraph 18(9.2)(b)(i), paragraph 18(9.3)(b) and subsection 18(9.6), to be an amount of interest payable on the debt obligation by the borrower in respect of that period or part thereof and shall be deemed, for the purposes of subparagraph 18(9.2)(a)(ii) and paragraph 18(9.3)(a), to be an amount paid at that time in satisfaction of the obligation to pay interest on the debt obligation in respect of that period or part thereof.

  • Marginal note:Idem

    (9.5) Where the amount of interest payable on a debt obligation (determined without reference to subsection 18(9.2)) by a borrower in respect of a particular period or part thereof that is after 1991 can reasonably be regarded as an amount payable as consideration for

    • (a) a reduction in the amount of interest that would otherwise be payable on the debt obligation in respect of a subsequent period, or

    • (b) a reduction in the amount that was or may be paid before the beginning of a subsequent period in satisfaction of the obligation to pay interest on the debt obligation in respect of that subsequent period

    (determined without reference to the existence of, or the amount of any interest paid or payable on, any other debt obligation), that amount shall, for the purposes of clause 18(9.2)(a)(iii)(A), subparagraph 18(9.2)(b)(i), paragraph 18(9.3)(b) and subsection 18(9.6), be deemed to be an amount of interest payable on the debt obligation by the borrower in respect of the subsequent period and not to be an amount of interest payable on the debt obligation by the borrower in respect of the particular period and shall, when paid, be deemed for the purposes of subparagraph 18(9.2)(a)(ii) and paragraph 18(9.3)(a) to be an amount paid in satisfaction of the obligation to pay interest on the debt obligation in respect of the subsequent period.

  • Marginal note:Idem

    (9.6) Where the liability in respect of a debt obligation of a person or partnership is assumed by a borrower at any time,

    • (a) the amount of interest payable on the debt obligation (determined without reference to subsection 18(9.2)) by any person or partnership in respect of a period shall, to the extent that that period is included in a taxation year of the borrower ending after 1991, be deemed, for the purposes of clause 18(9.2)(a)(iii)(A), subparagraph 18(9.2)(b)(i) and paragraph 18(9.3)(b), to be an amount of interest payable on the debt obligation by the borrower in respect of that year, and

    • (b) the application of subsections 18(9.2) and 18(9.3) to the borrower in respect of the debt obligation after that time shall be determined on the assumption that subsection 18(9.2) applied to the borrower in respect of the debt obligation before that time,

    and, for the purposes of this subsection, where the borrower came into existence at a particular time that is after the beginning of the particular period beginning at the beginning of the first period in respect of which interest was payable on the debt obligation by any person or partnership and ending at the particular time, the borrower shall be deemed

    • (c) to have been in existence throughout the particular period, and

    • (d) to have had, throughout the particular period, taxation years ending on the day of the year on which its first taxation year ended.

  • Marginal note:Idem

    (9.7) Where the amount paid by a borrower at any particular time, in satisfaction of the obligation to pay a particular amount of interest on a debt obligation in respect of a subsequent period or part thereof, exceeds the particular amount of that interest, discounted

    • (a) for the particular period beginning at the particular time and ending at the end of the subsequent period or part thereof, and

    • (b) at the rate or rates of interest applying under the debt obligation during the particular period (or, where the rate of interest of any part of the particular period is not fixed at the particular time, at the prescribed rate of interest in effect at the particular time),

    that excess shall

    • (c) for the purposes of applying subsections 18(9.2) to 18(9.6) and 18(9.8), be deemed to be neither an amount of interest payable on the debt obligation nor an amount paid in satisfaction of the obligation to pay interest on the debt obligation, and

    • (d) be deemed to be a payment described in paragraph 18(9.1)(d) in respect of the debt obligation.

  • Marginal note:Idem

    (9.8) Nothing in any of subsections 18(9.2) to 18(9.7) shall be construed as providing that

    • (a) the total of all amounts each of which is the amount of interest payable on a debt obligation by an individual (other than a trust), or deemed by subsection 18(9.2) to be payable on the debt obligation by a corporation, partnership or trust, in respect of a taxation year ending after 1991 and before any particular time,

    may exceed

    • (b) the total of all amounts each of which is the amount of interest payable on the debt obligation (determined without reference to subsection 18(9.2)) by a person or partnership in respect of a taxation year ending after 1991 and before that particular time.

  • Marginal note:Employee benefit plan

    (10) Paragraph 18(1)(o) does not apply in respect of a contribution to an employee benefit plan

    • (a) to the extent that the contribution

      • (i) is made in respect of services performed by an employee who is not resident in Canada and is regularly employed in a country other than Canada, and

      • (ii) cannot reasonably be regarded as having been made in respect of services performed or to be performed during a period when the employee is resident in Canada;

    • (b) the custodian of which is non-resident, to the extent that the contribution

      • (i) is in respect of an employee who is non-resident at the time the contribution is made, and

      • (ii) cannot reasonably be regarded as having been made in respect of services performed or to be performed during a period when the employee is resident in Canada; or

    • (c) the custodian of which is non-resident, to the extent that the contribution can reasonably be regarded as having been made in respect of services performed by an employee in a particular calendar month where

      • (i) the employee was resident in Canada throughout no more than 60 of the 72 calendar months ending with the particular month, and

      • (ii) the employee became a member of the plan before the end of the month following the month in which the employee became resident in Canada,

      and for the purpose of this paragraph, where benefits provided to an employee under a particular employee benefit plan are replaced by benefits provided under another employee benefit plan, the other plan shall be deemed, in respect of the employee, to be the same plan as the particular plan.

  • Marginal note:Limitation

    (11) Notwithstanding any other provision of this Act, in computing the income of a taxpayer for a taxation year, no amount is deductible under paragraph 20(1)(c), 20(1)(d), 20(1)(e), 20(1)(e.1) or 20(1)(f) in respect of borrowed money (or other property acquired by the taxpayer) in respect of any period after which the money (or other property) is used by the taxpayer for the purpose of

    • (a) making a payment after November 12, 1981 as consideration for an income-averaging annuity contract, unless the contract was acquired pursuant to an agreement in writing entered into before November 13, 1981;

    • (b) paying a premium (within the meaning assigned by subsection 146(1) read without reference to the portion of the definition premium in that subsection following paragraph (b) of that definition) under a registered retirement savings plan after November 12, 1981;

    • (c) making a contribution to a registered pension plan or a deferred profit sharing plan after November 12, 1981, other than

      • (i) a contribution described in subparagraph 8(1)(m)(ii) or 8(1)(m)(iii) (as they read in their application to the 1990 taxation year) that was required to be made pursuant to an obligation entered into before November 13, 1981, or

      • (ii) a contribution deductible under paragraph 20(1)(q) or 20(1)(y) in computing the taxpayer’s income;

    • (d) making a payment as consideration for an annuity the payment for which was deductible in computing the taxpayer’s income by virtue of paragraph 60(l;

    • (e) making a contribution to a retirement compensation arrangement where the contribution was deductible under paragraph 8(1)(m.2) in computing the taxpayer’s income;

    • (f) making a contribution to a net income stabilization account;

    • (g) making a contribution to any account under a provincial pension plan prescribed for the purpose of paragraph 60(v);

    • (h) making a contribution into a registered education savings plan;

    • (i) making a contribution to a registered disability savings plan; or

    • (j) making a contribution under a TFSA,

    and, for the purposes of this subsection, to the extent that an indebtedness is incurred by a taxpayer in respect of a property and at any time that property or a property substituted therefor is used for any of the purposes referred to in this subsection, the indebtedness shall be deemed to be incurred at that time for that purpose.

  • Marginal note:Work space in home

    (12) Notwithstanding any other provision of this Act, in computing an individual’s income from a business for a taxation year,

    • (a) no amount shall be deducted in respect of an otherwise deductible amount for any part (in this subsection referred to as the “work space”) of a self-contained domestic establishment in which the individual resides, except to the extent that the work space is either

      • (i) the individual’s principal place of business, or

      • (ii) used exclusively for the purpose of earning income from business and used on a regular and continuous basis for meeting clients, customers or patients of the individual in respect of the business;

    • (b) where the conditions set out in subparagraph 18(12)(a)(i) or 18(12)(a)(ii) are met, the amount for the work space that is deductible in computing the individual’s income for the year from the business shall not exceed the individual’s income for the year from the business, computed without reference to the amount and sections 34.1 and 34.2; and

    • (c) any amount not deductible by reason only of paragraph 18(12)(b) in computing the individual’s income from the business for the immediately preceding taxation year shall be deemed to be an amount otherwise deductible that, subject to paragraphs 18(12)(a) and 18(12)(b), may be deducted for the year for the work space in respect of the business.

  • Marginal note:When s. (15) applies to money lenders

    (13) Subsection 18(15) applies, subject to subsection 142.6(7), when

    • (a) a taxpayer (in this subsection and subsection 18(15) referred to as the “transferor”) disposes of a particular property;

    • (b) the disposition is not described in any of paragraphs (c) to (g) of the definition superficial loss in section 54;

    • (c) the transferor is not an insurer;

    • (d) the ordinary business of the transferor includes the lending of money and the particular property was used or held in the ordinary course of that business;

    • (e) the particular property is a share, or a loan, bond, debenture, mortgage, hypothecary claim, note, agreement for sale or any other indebtedness;

    • (f) the particular property was, immediately before the disposition, not a capital property of the transferor;

    • (g) during the period that begins 30 days before and ends 30 days after the disposition, the transferor or a person affiliated with the transferor acquires a property (in this subsection and subsection 18(15) referred to as the “substituted property”) that is, or is identical to, the particular property; and

    • (h) at the end of the period, the transferor or a person affiliated with the transferor owns the substituted property.

  • Marginal note:When s. (15) applies to adventurers in trade

    (14) Subsection 18(15) applies where

    • (a) a person (in this subsection and subsection 18(15) referred to as the “transferor”) disposes of a particular property;

    • (b) the particular property is described in an inventory of a business that is an adventure or concern in the nature of trade;

    • (c) the disposition is not a disposition that is deemed to have occurred by section 70, subsection 104(4), section 128.1, paragraph 132.2(1)(f) or subsection 1 38(11.3) or 149(10);

    • (d) during the period that begins 30 days before and ends 30 days after the disposition, the transferor or a person affiliated with the transferor acquires property (in this subsection and subsection 18(15) referred to as the “substituted property”) that is, or is identical to, the particular property; and

    • (e) at the end of the period, the transferor or a person affiliated with the transferor owns the substituted property.

  • Marginal note:Loss on certain properties

    (15) If this subsection applies because of subsection 18(13) or 18(14) to a disposition of a particular property,

    • (a) the transferor’s loss, if any, from the disposition is deemed to be nil, and

    • (b) the amount of the transferor’s loss, if any, from the disposition (determined without reference to this subsection) is deemed to be a loss of the transferor from a disposition of the particular property at the first time, after the disposition,

      • (i) at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns

        • (A) the substituted property, or

        • (B) a property that is identical to the substituted property and that was acquired after the day that is 31 days before the period begins,

      • (ii) at which the substituted property would, if it were owned by the transferor, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the transferor,

      • (iii) that is immediately before control of the transferor is acquired by a person or group of persons, where the transferor is a corporation, or

      • (iv) at which the winding-up of the transferor begins (other than a winding-up to which subsection 88(1) applies), where the transferor is a corporation,

      and for the purpose of paragraph 18(15)(b), where a partnership otherwise ceases to exist at any time after the disposition, the partnership is deemed not to have ceased to exist, and each person who was a member of the partnership immediately before the partnership would, but for this subsection, have ceased to exist is deemed to remain a member of the partnership, until the time that is immediately after the first time described in subparagraphs 18(15)(b)(i) to (iv).

  • Marginal note:Deemed identical property

    (16) For the purposes of subsections (13), (14) and (15), a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 18
  • 1994, c. 7, Sch. II, s. 13, Sch. VIII, s. 8, c. 21, s. 11
  • 1995, c. 3, s. 6, c. 21, ss. 5 and 48
  • 1996, c. 21. s. 5
  • 1997, c. 25, s. 4
  • 1998, c. 19, ss. 3 and 79
  • 2001, c. 17, ss. 9, 201
  • 2003, c. 28, s. 2
  • 2006, c. 4, s. 161
  • 2007, c. 35, ss. 11, 102
  • 2008, c. 28, s. 2
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