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

Marginal note:Exception to principal residence rules

• 54.1 (1) A taxation year in which a taxpayer does not ordinarily inhabit the taxpayer’s property as a consequence of the relocation of the place of employment of the taxpayer or the taxpayer’s spouse or common-law partner while the taxpayer or the taxpayer’s spouse or common-law partner, as the case may be, is employed by an employer who is not a person to whom the taxpayer or the taxpayer’s spouse or common-law partner is related is deemed not to be a previous taxation year referred to in paragraph (d) of the definition principal residence in section 54 if

  • (a) the property subsequently becomes ordinarily inhabited by the taxpayer during the term of the taxpayer’s or the taxpayer’s spouse’s or common-law partner’s employment by that employer or before the end of the taxation year immediately following the taxation year in which the taxpayer’s or the spouse’s or common-law partner’s employment by that employer terminates; or

  • (b) the taxpayer dies during the term of the taxpayer’s or the spouse’s or common-law partner’s employment by that employer.

• Marginal note:Definition of property

  (2) In this section, property, in relation to a taxpayer, means a housing unit

  • (a) owned by the taxpayer,

  • (b) in respect of which the taxpayer has a leasehold interest, or

  • (c) in respect of which the taxpayer owned a share of the capital stock of a co-operative housing corporation if the share was acquired for the sole purpose of acquiring the right to inhabit a housing unit owned by the corporation

  whether jointly with another person or otherwise in the year and that at all times was at least 40 kilometres farther from the taxpayer’s or the taxpayer’s spouse’s or common-law partner’s new place of employment than was the taxpayer’s subsequent place or places of residence.

Marginal note:Certain shares deemed to be capital property

54.2 Where any person has disposed of property that consisted of all or substantially all of the assets used in an active business carried on by that person to a corporation for consideration that included shares of the corporation, the shares shall be deemed to be capital property of the person.

Marginal note:Definitions

• 55 (1) In this section,

  distribution

  distribution means a direct or indirect transfer of property of a corporation (referred to in this section as the “distributing corporation”) to one or more corporations (each of which is referred to in this section as a “transferee corporation”) where, in respect of each type of property owned by the distributing corporation immediately before the transfer, each transferee corporation receives property of that type the fair market value of which is equal to or approximates the amount determined by the formula

  A × B/C

  where

  A

  is the fair market value, immediately before the transfer, of all property of that type owned at that time by the distributing corporation,

  B

  is the fair market value, immediately before the transfer, of all the shares of the capital stock of the distributing corporation owned at that time by the transferee corporation, and

  C

  is the fair market value, immediately before the transfer, of all the issued shares of the capital stock of the distributing corporation; (attribution)

  permitted acquisition

  permitted acquisition, in relation to a distribution by a distributing corporation, means an acquisition of property by a person or partnership on, or as part of,

  • (a) a distribution, or

  • (b) a permitted exchange or permitted redemption in relation to a distribution by another distributing corporation; (acquisition autorisée)

  permitted exchange

  permitted exchange, in relation to a distribution by a distributing corporation, means

  • (a) an exchange of shares for shares of the capital stock of the distributing corporation to which subsection 51(1) or 86(1) applies or would, if the shares were capital property to the holder thereof, apply, other than an exchange that resulted in an acquisition of control of the distributing corporation by any person or group of persons, and

  • (b) an exchange of shares of the capital stock of the distributing corporation by one or more shareholders of the distributing corporation (each of whom is referred to in this paragraph as a “participant”) for shares of the capital stock of another corporation (referred to in this paragraph as the “acquiror”) in contemplation of the distribution where

    • (i) no share of the capital stock of the acquiror outstanding immediately after the exchange (other than directors’ qualifying shares) is owned at that time by any person or partnership other than a participant,

    and either

    • (ii) the acquiror owns, immediately before the distribution, all the shares each of which is a share of the capital stock of the distributing corporation that was owned immediately before the exchange by a participant, or

    • (iii) the fair market value, immediately before the distribution, of each participant’s shares of the capital stock of the acquiror is equal to or approximates the amount determined by the formula

      (A × B/C) + D

      where

      A

      is the fair market value, immediately before the distribution, of all the shares of the capital stock of the acquiror then outstanding (other than shares issued to participants in consideration for shares of a specified class all the shares of which were acquired by the acquiror on the exchange),

      B

      is the fair market value, immediately before the exchange, of all the shares of the capital stock of the distributing corporation (other than shares of a specified class none or all of the shares of which were acquired by the acquiror on the exchange) owned at that time by the participant,

      C

      is the fair market value, immediately before the exchange, of all the shares (other than shares of a specified class none or all of the shares of which were acquired by the acquiror on the exchange and shares to be redeemed, acquired or cancelled by the distributing corporation pursuant to the exercise of a statutory right of dissent by the holder of the share) of the capital stock of the distributing corporation outstanding immediately before the exchange, and

      D

      is the fair market value, immediately before the distribution, of all the shares issued to the participant by the acquiror in consideration for shares of a specified class all of the shares of which were acquired by the acquiror on the exchange; (échange autorisé)

  permitted redemption

  permitted redemption, in relation to a distribution by a distributing corporation, means

  • (a) a redemption or purchase for cancellation by the distributing corporation, as part of the reorganization in which the distribution was made, of all the shares of its capital stock that were owned, immediately before the distribution, by a transferee corporation in relation to the distributing corporation,

  • (b) a redemption or purchase for cancellation by a transferee corporation in relation to the distributing corporation, or by a corporation that, immediately after the redemption or purchase, was a subsidiary wholly-owned corporation of the transferee corporation, as part of the reorganization in which the distribution was made, of all of the shares of the capital stock of the transferee corporation or the subsidiary wholly-owned corporation that were acquired by the distributing corporation in consideration for the transfer of property received by the transferee corporation on the distribution, and

  • (c) a redemption or purchase for cancellation by the distributing corporation, in contemplation of the distribution, of all the shares of its capital stock each of which is

    • (i) a share of a specified class the cost of which, at the time of its issuance, to its original owner was equal to the fair market value at that time of the consideration for which it was issued, or

    • (ii) a share that was issued, in contemplation of the distribution, by the distributing corporation in exchange for a share described in subparagraph 55(1) permitted redemption (c)(i); (rachat autorisé)

  qualified person

  qualified person, in relation to a distribution, means a person or partnership with whom the distributing corporation deals at arm’s length at all times during the course of the series of transactions or events that includes the distribution if

  • (a) at any time before the distribution,

    • (i) all of the shares of each class of the capital stock of the distributing corporation that includes shares that cause that person or partnership to be a specified shareholder of the distributing corporation (in this definition all of those shares in all of those classes are referred to as the “exchanged shares”) are, in the circumstances described in paragraph (a) of the definition permitted exchange, exchanged for consideration that consists solely of shares of a specified class of the capital stock of the distributing corporation (in this definition referred to as the “new shares”), or

    • (ii) the terms or conditions of all of the exchanged shares are amended (which shares are in this definition referred to after the amendment as the “amended shares”) and the amended shares are shares of a specified class of the capital stock of the distributing corporation,

  • (b) immediately before the exchange or amendment, the exchanged shares are listed on a designated stock exchange,

  • (c) immediately after the exchange or amendment, the new shares or the amended shares, as the case may be, are listed on a designated stock exchange,

  • (d) the exchanged shares would be shares of a specified class if they were not convertible into, or exchangeable for, other shares,

  • (e) the new shares or the amended shares, as the case may be, and the exchanged shares are non-voting in respect of the election of the board of directors of the distributing corporation except in the event of a failure or default under the terms or conditions of the shares, and

  • (f) no holder of the new shares or the amended shares, as the case may be, is entitled to receive on the redemption, cancellation or acquisition of the new shares or the amended shares, as the case may be, by the distributing corporation or by any person with whom the distributing corporation does not deal at arm’s length an amount (other than a premium for early redemption) that is greater than the total of the fair market value of the consideration for which the exchanged shares were issued and the amount of any unpaid dividends on the new shares or on the amended shares, as the case may be; (personne admissible)

  safe-income determination time

  safe-income determination time for a transaction or event or a series of transactions or events means the time that is the earlier of

  • (a) the time that is immediately after the earliest disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to 55(3)(a)(v) that resulted from the transaction, event or series, and

  • (b) the time that is immediately before the earliest time that a dividend is paid as part of the transaction, event or series; (moment de détermination du revenu protégé)

  specified class

  specified class means a class of shares of the capital stock of a distributing corporation where

  • (a) the paid-up capital in respect of the class immediately before the beginning of the series of transactions or events that includes a distribution by the distributing corporation was not less than the fair market value of the consideration for which the shares of that class then outstanding were issued,

  • (b) under neither the terms and conditions of the shares nor any agreement in respect of the shares are the shares convertible into or exchangeable for shares other than shares of a specified class or shares of the capital stock of a transferee corporation in relation to the distributing corporation,

  • (c) no holder of the shares is entitled to receive on the redemption, cancellation or acquisition of the shares by the corporation or by any person with whom the corporation does not deal at arm’s length an amount (other than a premium for early redemption) that is greater than the total of the fair market value of the consideration for which the shares were issued and the amount of any unpaid dividends on the shares, and

  • (d) the shares are non-voting in respect of the election of the board of directors except in the event of a failure or default under the terms or conditions of the shares; (catégorie exclue)

  specified corporation

  specified corporation in relation to a distribution means a distributing corporation

  • (a) that is a public corporation or a specified wholly-owned corporation of a public corporation,

  • (b) shares of the capital stock of which are exchanged for shares of the capital stock of another corporation (referred to in this definition and subsection (3.02) as an “acquiror”) in an exchange to which the definition permitted exchange in this subsection would apply if that definition were read without reference to paragraph (a) and subparagraph (b)(ii) of that definition,

  • (c) that does not make a distribution, to a corporation that is not an acquiror, after 1998 and before the day that is three years after the day on which the shares of the capital stock of the distributing corporation are exchanged in a transaction described in paragraph (b), and

  • (d) no acquiror in relation to which makes a distribution after 1998 and before the day that is three years after the day on which the shares of the capital stock of the distributing corporation are exchanged in a transaction described in paragraph (b),

  and for the purposes of paragraphs (c) and (d)

  • (e) a corporation that is formed by an amalgamation of two or more other corporations is deemed to be the same corporation as, and a continuation of, each of the other corporations, and

  • (f) where there has been a winding-up of a corporation to which subsection 88(1) applies, the parent is deemed to be the same corporation as, and a continuation of, the subsidiary; (société déterminée)

  specified wholly-owned corporation

  specified wholly-owned corporation of a public corporation means a corporation all of the outstanding shares of the capital stock of which (other than directors’ qualifying shares and shares of a specified class) are held by

  • (a) the public corporation,

  • (b) a specified wholly-owned corporation of the public corporation, or

  • (c) any combination of corporations described in paragraph (a) or (b). (filiale à cent pour cent déterminée)

• Marginal note:Deemed proceeds or gain

  (2) If this subsection applies to a taxable dividend received by a dividend recipient, notwithstanding any other provision of this Act, the amount of the dividend (other than the portion of it, if any, subject to tax under Part IV that is not refunded as a consequence of the payment of a dividend by a corporation where the payment is part of the series referred to in subsection (2.1)) is deemed

  • (a) not to be a dividend received by the dividend recipient;

  • (b) if the dividend is received on a redemption, acquisition or cancellation of a share, by the corporation that issued the share, to which subsection 84(2) or (3) applies, to be proceeds of disposition of the share that is redeemed, acquired or cancelled except to the extent that the dividend is otherwise included in computing those proceeds; and

  • (c) if paragraph (b) does not apply to the dividend, to be a gain of the dividend recipient, for the year in which the dividend was received, from the disposition of a capital property.

• Marginal note:Application of subsection (2)

  (2.1) Subsection (2) applies to a taxable dividend received by a corporation resident in Canada (in subsections (2) to (2.2) and (2.4) referred to as the dividend recipient) as part of a transaction or event or a series of transactions or events if

  • (a) the dividend recipient is entitled to a deduction in respect of the dividend under subsection 112(1) or (2) or 138(6);

  • (b) it is the case that

    • (i) one of the purposes of the payment or receipt of the dividend (or, in the case of a dividend under subsection 84(3), one of the results of which) is to effect a significant reduction in the portion of the capital gain that, but for the dividend, would have been realized on a disposition at fair market value of any share of capital stock immediately before the dividend, or

    • (ii) the dividend (other than a dividend that is received on a redemption, acquisition or cancellation of a share, by the corporation that issued the share, to which subsection 84(2) or (3) applies) is received on a share that is held as capital property by the dividend recipient and one of the purposes of the payment or receipt of the dividend is to effect

      • (A) a significant reduction in the fair market value of any share, or

      • (B) a significant increase in the cost of property, such that the amount that is the total of the cost amounts of all properties of the dividend recipient immediately after the dividend is significantly greater than the amount that is the total of the cost amounts of all properties of the dividend recipient immediately before the dividend; and

  • (c) the amount of the dividend exceeds the amount of the income earned or realized by any corporation — after 1971 and before the safe-income determination time for the transaction, event or series — that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at fair market value, immediately before the dividend, of the share on which the dividend is received.

• Marginal note:Special rule — amount of the stock dividend

  (2.2) For the purpose of applying subsections (2), (2.1), (2.3) and (2.4), the amount of a stock dividend and the dividend recipient’s entitlement to a deduction under subsection 112(1) or (2) or 138(6) in respect of the amount of that dividend are to be determined as if paragraph (b) of the definition amount in subsection 248(1) read as follows:

  • (b) in the case of a stock dividend paid by a corporation, the greater of

    • (i) the amount by which the paid-up capital of the corporation that paid the dividend is increased by reason of the payment of the dividend, and

    • (ii) the fair market value of the share or shares issued as a stock dividend at the time of payment,

• Marginal note:Stock dividends and safe income

  (2.3) If this subsection applies in respect of a stock dividend

  • (a) the amount of the stock dividend is deemed for the purpose of subsection (2) to be a separate taxable dividend to the extent of the portion of the amount that does not exceed the amount of the income earned or realized by any corporation — after 1971 and before the safe-income determination time for the transaction, event or series — that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at fair market value, immediately before the dividend, of the share on which the dividend is received; and

  • (b) the amount of the separate taxable dividend referred to in paragraph (a) is deemed to reduce the amount of the income earned or realized by any corporation — after 1971 and before the safe-income determination time for the transaction, event or series — that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at fair market value, immediately before the dividend, of the share on which the dividend is received.

• Marginal note:Application of subsection (2.3)

  (2.4) Subsection (2.3) applies in respect of a stock dividend if

  • (a) a dividend recipient holds a share upon which it receives the stock dividend;

  • (b) the fair market value of the share or shares issued as a stock dividend exceeds the amount by which the paid-up capital of the corporation that paid the stock dividend is increased because of the dividend; and

  • (c) subsection (2) would apply to the dividend if subsection (2.1) were read without reference to its paragraph (c).

• Marginal note:Determination of reduction in fair market value

  (2.5) For the purpose of applying clause (2.1)(b)(ii)(A), whether a dividend causes a significant reduction in the fair market value of any share is to be determined as if the fair market value of the share, immediately before the dividend, was increased by an amount equal to the amount, if any, by which the fair market value of the dividend received on the share exceeds the fair market value of the share.

• Marginal note:Application

  (3) Subsection 55(2) does not apply to any dividend received by a corporation (in this subsection and subsection 55(3.01) referred to as the “dividend recipient”)

  • (a) in the case of a dividend that is received on a redemption, acquisition or cancellation of a share, by the corporation that issued the share, to which subsection 84(2) or (3) applies, if, as part of a transaction or event or a series of transactions or events as a part of which the dividend is received, there was not at any particular time

    • (i) a disposition of property, other than

      • (A) money disposed of on the payment of a dividend or on a reduction of the paid-up capital of a share, and

      • (B) property disposed of for proceeds that are not less than its fair market value,

      to a person or partnership that was an unrelated person immediately before the particular time,

    • (ii) a significant increase (other than as a consequence of a disposition of shares of the capital stock of a corporation for proceeds of disposition that are not less than their fair market value) in the total direct interest in any corporation of one or more persons or partnerships that were unrelated persons immediately before the particular time,

    • (iii) a disposition, to a person or partnership who was an unrelated person immediately before the particular time, of

      • (A) shares of the capital stock of the corporation that paid the dividend (referred to in this paragraph and subsection 55(3.01) as the “dividend payer”), or

      • (B) property (other than shares of the capital stock of the dividend recipient) more than 10% of the fair market value of which was, at any time during the series, derived from any combination of shares of the capital stock and debt of the dividend payer,

    • (iv) after the time the dividend was received, a disposition, to a person or partnership that was an unrelated person immediately before the particular time, of

      • (A) shares of the capital stock of the dividend recipient, or

      • (B) property more than 10% of the fair market value of which was, at any time during the series, derived from any combination of shares of the capital stock and debt of the dividend recipient, and

    • (v) a significant increase in the total of all direct interests in the dividend payer of one or more persons or partnerships who were unrelated persons immediately before the particular time; or

  • (b) if the dividend was received

    • (i) in the course of a reorganization in which

      • (A) a distributing corporation made a distribution to one or more transferee corporations, and

      • (B) the distributing corporation was wound up or all of the shares of its capital stock owned by each transferee corporation immediately before the distribution were redeemed or cancelled otherwise than on an exchange to which subsection 51(1), 85(1) or 86(1) applies, and

    • (ii) on a permitted redemption in relation to the distribution or on the winding-up of the distributing corporation.

• Marginal note:Interpretation for par. (3)(a)

  (3.01) For the purposes of paragraph 55(3)(a),

  • (a) an unrelated person means a person (other than the dividend recipient) to whom the dividend recipient is not related or a partnership any member of which (other than the dividend recipient) is not related to the dividend recipient;

  • (b) a corporation that is formed by an amalgamation of 2 or more other corporations is deemed to be the same corporation as, and a continuation of, each of the other corporations;

  • (c) where there has been a winding-up of a corporation to which subsection 88(1) applies, the parent is deemed to be the same corporation as, and a continuation of, the subsidiary;

  • (d) proceeds of disposition are to be determined without reference to

    • (i) subparagraph (j)(i) of the definition proceeds of disposition in section 54, and

    • (ii) section 93;

  • (e) notwithstanding any other provision of this Act, where a non-resident person disposes of a property in a taxation year and the gain or loss from the disposition is not included in computing the person’s taxable income earned in Canada for the year, the person is deemed to have disposed of the property for proceeds of disposition that are less than its fair market value unless, under the income tax laws of the country in which the person is resident, the gain or loss is computed as if the property were disposed of for proceeds of disposition that are not less than its fair market value and the gain or loss so computed is recognized for the purposes of those laws;

  • (f) a significant increase in the total direct interest in a corporation that would, but for this paragraph, be described in subparagraph (3)(a)(ii) is deemed not to be described in that subparagraph if the increase was the result of the issuance of shares of the capital stock of the corporation solely for money and the shares were redeemed, acquired or cancelled by the corporation before the dividend was received;

  • (g) a disposition of property that would, but for this paragraph, be described in subparagraph (3)(a)(i), or a significant increase in the total direct interest in a corporation that would, but for this paragraph, be described in subparagraph (3)(a)(ii), is deemed not to be described in those subparagraphs if

    • (i) the dividend payer was related to the dividend recipient immediately before the dividend was received,

    • (ii) the dividend payer did not, as part of the series of transactions or events that includes the receipt of the dividend, cease to be related to the dividend recipient,

    • (iii) the disposition or increase occurred before the dividend was received,

    • (iv) the disposition or increase was the result of the disposition of shares to, or the acquisition of shares of, a particular corporation, and

    • (v) at the time the dividend was received, all the shares of the capital stock of the dividend recipient and the dividend payer were owned by the particular corporation, a corporation that controlled the particular corporation, a corporation controlled by the particular corporation or any combination of those corporations; and

  • (h) a winding-up of a subsidiary wholly-owned corporation to which subsection 88(1) applies, or an amalgamation to which subsection 87(11) applies of a corporation with one or more subsidiary wholly-owned corporations, is deemed not to result in a significant increase in the total direct interest, or in the total of all direct interests, in the subsidiary or subsidiaries, as the case may be.

• Marginal note:Distribution by a specified corporation

  (3.02) For the purposes of the definition distribution in subsection (1), where the transfer referred to in that definition is by a specified corporation to an acquiror described in the definition specified corporation in subsection (1), the references in the definition distribution to

  • (a) “each type of property” shall be read as “property”; and

  • (b) “property of that type” shall be read as “property”.

• Marginal note:Where paragraph (3)(b) not applicable

  (3.1) Notwithstanding subsection 55(3), a dividend to which subsection 55(2) would, but for paragraph 55(3)(b), apply is not excluded from the application of subsection 55(2) where

  • (a) in contemplation of and before a distribution (other than a distribution by a specified corporation) made in the course of the reorganization in which the dividend was received, property became property of the distributing corporation, a corporation controlled by it or a predecessor corporation of any such corporation otherwise than as a result of

    • (i) an amalgamation of corporations each of which was related to the distributing corporation,

    • (ii) an amalgamation of a predecessor corporation of the distributing corporation and one or more corporations controlled by that predecessor corporation,

    • (iii) a reorganization in which a dividend was received to which subsection 55(2) would, but for paragraph 55(3)(b), apply, or

    • (iv) a disposition of property by

      • (A) the distributing corporation, a corporation controlled by it or a predecessor corporation of any such corporation to a corporation controlled by the distributing corporation or a predecessor corporation of the distributing corporation,

      • (B) a corporation controlled by the distributing corporation or by a predecessor corporation of the distributing corporation to the distributing corporation or predecessor corporation, as the case may be, or

      • (C) the distributing corporation, a corporation controlled by it or a predecessor corporation of any such corporation for consideration that consists only of money or indebtedness that is not convertible into other property, or of any combination thereof,

  • (b) the dividend was received as part of a series of transactions or events in which

    • (i) a person or partnership (referred to in this subparagraph as the “vendor”) disposed of property and

      • (A) the property is

        • (I) a share of the capital stock of a distributing corporation that made a distribution as part of the series or of a transferee corporation in relation to the distributing corporation, or

        • (II) property 10% or more of the fair market value of which was, at any time during the course of the series, derived from one or more shares described in subclause 55(3.1)(b)(i)(A)(I),

      • (B) the vendor (other than a qualified person in relation to the distribution) was, at any time during the course of the series, a specified shareholder of the distributing corporation or of the transferee corporation, and

      • (C) the property or any other property (other than property received by the transferee corporation on the (distribution) acquired by any person or partnership in substitution therefor was acquired (otherwise than on a permitted acquisition, permitted exchange or permitted redemption in relation to the (distribution) by a person (other than the vendor) who was not related to the vendor or, as part of the series, ceased to be related to the vendor or by a partnership,

    • (ii) control of a distributing corporation that made a distribution as part of the series or of a transferee corporation in relation to the distributing corporation was acquired (otherwise than as a result of a permitted acquisition, permitted exchange or permitted redemption in relation to the (distribution) by any person or group of persons, or

    • (iii) in contemplation of a distribution by a distributing corporation, a share of the capital stock of the distributing corporation was acquired (otherwise than on a permitted acquisition or permitted exchange in relation to the distribution or on an amalgamation of 2 or more predecessor corporations of the distributing corporation) by

      • (A) a transferee corporation in relation to the distributing corporation or by a person or partnership with whom the transferee corporation did not deal at arm’s length from a person to whom the acquiror was not related or from a partnership,

      • (B) a person or any member of a group of persons who acquired control of the distributing corporation as part of the series,

      • (C) a particular partnership any interest in which is held, directly or indirectly through one or more partnerships, by a person referred to in clause 55(3.1)(b)(iii)(B), or

      • (D) a person or partnership with whom a person referred to in clause 55(3.1)(b)(iii)(B) or a particular partnership referred to in clause 55(3.1)(b)(iii)(C) did not deal at arm’s length,

  • (c) the dividend was received by a transferee corporation from a distributing corporation that, immediately after the reorganization in the course of which a distribution was made and the dividend was received, was not related to the transferee corporation and the total of all amounts each of which is the fair market value, at the time of acquisition, of a property that

    • (i) was acquired, as part of the series of transactions or events that includes the receipt of the dividend, by a person (other than the transferee corporation) who was not related to the transferee corporation or, as part of the series, ceased to be related to the transferee corporation or by a partnership, otherwise than

      • (A) as a result of a disposition

        • (I) in the ordinary course of business, or

        • (II) before the distribution for consideration that consists solely of money or indebtedness that is not convertible into other property, or of any combination of the two,

      • (B) on a permitted acquisition in relation to a distribution, or

      • (C) as a result of an amalgamation of 2 or more corporations that were related to each other immediately before the amalgamation, and

    • (ii) is a property (other than money, indebtedness that is not convertible into other property, a share of the capital stock of the transferee corporation and property more than 10% of the fair market value of which is attributable to one or more such shares)

      • (A) that was received by the transferee corporation on the distribution,

      • (B) more than 10% of the fair market value of which was, at any time after the distribution and before the end of the series, attributable to property (other than money and indebtedness that is not convertible into other property) described in clause 55(3.1)(c)(ii)(A) or 55(3.1)(c)(ii)(C), or

      • (C) to which, at any time during the course of the series, the fair market value of property described in clause 55(3.1)(c)(ii)(A) was wholly or partly attributable

    is greater than 10% of the fair market value, at the time of the distribution, of all the property (other than money and indebtedness that is not convertible into other property) received by the transferee corporation on the distribution, or

  • (d) the dividend was received by a distributing corporation that, immediately after the reorganization in the course of which a distribution was made and the dividend was received, was not related to the transferee corporation that paid the dividend and the total of all amounts each of which is the fair market value, at the time of acquisition, of a property that

    • (i) was acquired, as part of the series of transactions or events that includes the receipt of the dividend, by a person (other than the distributing corporation) who was not related to the distributing corporation or, as part of the series, ceased to be related to the distributing corporation or by a partnership, otherwise than

      • (A) as a result of a disposition

        • (I) in the ordinary course of business, or

        • (II) before the distribution for consideration that consists solely of money or indebtedness that is not convertible into other property, or of any combination of the two,

      • (B) on a permitted acquisition in relation to a distribution, or

      • (C) as a result of an amalgamation of 2 or more corporations that were related to each other immediately before the amalgamation, and

    • (ii) is a property (other than money, indebtedness that is not convertible into other property, a share of the capital stock of the distributing corporation and property more than 10% of the fair market value of which is attributable to one or more such shares)

      • (A) that was owned by the distributing corporation immediately before the distribution and not disposed of by it on the distribution,

      • (B) more than 10% of the fair market value of which was, at any time after the distribution and before the end of the series, attributable to property (other than money and indebtedness that is not convertible into other property) described in clause 55(3.1)(d)(ii)(A) or 55(3.1)(d)(ii)(C), or

      • (C) to which, at any time during the course of the series, the fair market value of property described in clause 55(3.1)(d)(ii)(A) was wholly or partly attributable

    is greater than 10% of the fair market value at the time of the distribution, of all the property (other than money and indebtedness that is not convertible into other property) owned immediately before that time by the distributing corporation and not disposed of by it on the distribution.

• Marginal note:Interpretation of paragraph (3.1)(b)

  (3.2) For the purpose of paragraph 55(3.1)(b),

  • (a) in determining whether the vendor referred to in subparagraph 55(3.1)(b)(i) is at any time a specified shareholder of a transferee corporation or of a distributing corporation, the references in the definition specified shareholder in subsection 248(1) to “taxpayer” shall be read as “person or partnership”;

  • (b) a corporation that is formed by the amalgamation of 2 or more corporations (each of which is referred to in this paragraph as a “predecessor corporation”) shall be deemed to be the same corporation as, and a continuation of, each of the predecessor corporations;

  • (c) subject to paragraph 55(3.2)(d), each particular person who acquired a share of the capital stock of a distributing corporation in contemplation of a distribution by the distributing corporation shall be deemed, in respect of that acquisition, not to be related to the person from whom the particular person acquired the share unless

    • (i) the particular person acquired all the shares of the capital stock of the distributing corporation that were owned, at any time during the course of the series of transactions or events that included the distribution and before the acquisition, by the other person, or

    • (ii) immediately after the reorganization in the course of which the distribution was made, the particular person was related to the distributing corporation;

  • (d) where a share is acquired by an individual from a personal trust in satisfaction of all or a part of the individual’s capital interest in the trust, the individual shall be deemed, in respect of that acquisition, to be related to the trust;

  • (e) subject to paragraph 55(3.2)(f), where at any time a share of the capital stock of a corporation is redeemed or cancelled (otherwise than on an amalgamation where the only consideration received or receivable for the share by the shareholder on the amalgamation is a share of the capital stock of the corporation formed by the amalgamation), the corporation shall be deemed to have acquired the share at that time;

  • (f) where a share of the capital stock of a corporation is redeemed, acquired or cancelled by the corporation pursuant to the exercise of a statutory right of dissent by the holder of the share, the corporation shall be deemed not to have acquired the share;

  • (g) control of a corporation shall be deemed not to have been acquired by a person or group of persons where it is so acquired solely because of

    • (i) the incorporation of the corporation, or

    • (ii) the acquisition by an individual of one or more shares for the sole purpose of qualifying as a director of the corporation; and

  • (h) in relation to a distribution each corporation (other than a qualified person in relation to the distribution) that is a shareholder and a specified shareholder of the distributing corporation at any time during the course of a series of transactions or events, a part of which includes the distribution made by the distributing corporation, is deemed to be a transferee corporation in relation to the distributing corporation.

• Interpretation of specified shareholder changed

  (3.3) In determining whether a person is a specified shareholder of a corporation for the purposes of subparagraph 55(3.1)(b)(i) and paragraph 55(3.2)(h), the reference in the definition specified shareholder in subsection 248(1) to “or of any other corporation that is related to the corporation” shall be read as “or of any other corporation that is related to the corporation and that has a significant direct or indirect interest in any issued shares of the capital stock of the corporation”.

• Marginal note:Specified shareholder exclusion

  (3.4) In determining whether a person is a specified shareholder of a corporation for the purposes of the definition qualified person in subsection (1), subparagraph (3.1)(b)(i) and paragraph (3.2)(h) as it applies for the purpose of subparagraph (3.1)(b)(iii), the reference to “not less than 10% of the issued shares of any class of the capital stock of the corporation” in the definition specified shareholder in subsection 248(1) is to be read as “not less than 10% of the issued shares of any class of the capital stock of the corporation, other than shares of a specified class (within the meaning of subsection 55(1))”.

• Marginal note:Amalgamation of related corporations

  (3.5) For the purposes of paragraphs (3.1)(c) and (d), a corporation formed by an amalgamation of two or more corporations (each of which is referred to in this subsection as a “predecessor corporation”) that were related to each other immediately before the amalgamation, is deemed to be the same corporation as, and a continuation of, each of the predecessor corporations.

• Marginal note:Avoidance of subsection (2)

  (4) For the purposes of this section, where it can reasonably be considered that one of the main purposes of one or more transactions or events was to cause 2 or more persons to be related to each other or to cause a corporation to control another corporation, so that subsection 55(2) would, but for this subsection, not apply to a dividend, those persons shall be deemed not to be related to each other or the corporation shall be deemed not to control the other corporation, as the case may be.

• Marginal note:Applicable rules

  (5) For the purposes of this section,

  • (a) where a dividend referred to in subsection 55(2) was received by a corporation as part of a transaction or event or a series of transactions or events, the portion of a capital gain attributable to any income expected to be earned or realized by a corporation after the safe-income determination time for the transaction, event or series is deemed to be a portion of a capital gain attributable to anything other than income;

  • (b) the income earned or realized by a corporation for a period throughout which it was resident in Canada and not a private corporation shall be deemed to be the total of

    • (i) its income for the period otherwise determined on the assumption that no amounts were deductible by the corporation by reason of section 37.1 of this Act or paragraph 20(1)(gg) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952,

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

      • (A) the amount, if any, by which the total of the capital gains of the corporation for the period exceeds the total of the taxable capital gains of the corporation for the period

      exceeds

      • (B) the amount, if any, by which the total of the capital losses of the corporation for the period exceeds the total of the allowable capital losses of the corporation for the period,

    • (iii) the total of all amounts each of which is an amount required to have been included under this subparagraph as it read in its application to a taxation year that ended before February 28, 2000,

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

      • (A) 1/2 of the total of all amounts each of which is an amount required by paragraph 14(1)(b) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ended after February 27, 2000 and before October 18, 2000,

      exceeds

      • (B) where the corporation has deducted an amount under subsection 20(4.2) in respect of a debt established by it to have become a bad debt in a taxation year that is included in the period and that ended after February 27, 2000 and before October 18, 2000, or has an allowable capital loss for such a year because of the application of subsection 20(4.3), the amount determined by the formula

        V + W

        where

        V

        is 1/2 of the value determined for A under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

        W

        is 1/3 of the value determined for B under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

      • (C) in any other case, nil, and

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

      • (A) the total of all amounts each of which is an amount required by paragraph 14(1)(b) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ends after October 17, 2000,

      exceeds

      • (B) where the corporation has deducted an amount under subsection 20(4.2) in respect of a debt established by it to have become a bad debt in a taxation year that is included in the period and that ends after October 17, 2000, or has an allowable capital loss for such a year because of the application of subsection 20(4.3), the amount determined by the formula

        X + Y

        where

        X

        is the value determined for A under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

        Y

        is 1/3 of the value determined for B under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

      • (C) in any other case, nil;

  • (c) the income earned or realized by a corporation for a period throughout which it was a private corporation is deemed to be its income for the period otherwise determined on the assumption that no amounts were deductible by the corporation under section 37.1 of this Act, as that section applies for taxation years that ended before 1995, or paragraph 20(1)(gg) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952;

  • (d) the income earned or realized by a corporation (referred to in this paragraph as the “affiliate”) for a period ending at a time when the affiliate was a foreign affiliate of another corporation is deemed to be the lesser of

    • (i) the amount that would, if the Income Tax Regulations were read without reference to their subsection 5905(5.6), be the tax-free surplus balance (within the meaning of their subsection 5905(5.5)) of the affiliate in respect of the other corporation at that time, and

    • (ii) the fair market value at that time of all the issued and outstanding shares of the capital stock of the affiliate;

  • (e) in determining whether 2 or more persons are related to each other, in determining whether a person is at any time a specified shareholder of a corporation and in determining whether control of a corporation has been acquired by a person or group of persons,

    • (i) a person shall be deemed to be dealing with another person at arm’s length and not to be related to the other person if the person is the brother or sister of the other person, except in the case where the dividend was received or paid, as part of a transaction or event or a series of transactions or events, by a corporation of which a share of the capital stock is a qualified small business corporation share or a share of the capital stock of a family farm or fishing corporation within the meaning of subsection 110.6(1),

    • (ii) where at any time a person is related to each beneficiary (other than a registered charity) under a trust who is or may (otherwise than by reason of the death of another beneficiary under the trust) be entitled to share in the income or capital of the trust, the person and the trust shall be deemed to be related at that time to each other and, for this purpose, a person shall be deemed to be related to himself, herself or itself,

    • (iii) a trust and a person shall be deemed not to be related to each other unless they are deemed by paragraph 55(3.2)(d) or subparagraph 55(5)(e)(ii) to be related to each other or the person is a corporation that is controlled by the trust, and

    • (iv) this Act shall be read without reference to subsection 251(3) and paragraph 251(5)(b); and

  • (f) unless subsection (2.3) applies, if a corporation has received a dividend any portion of which is a taxable dividend (such a portion referred to as the taxable part in this paragraph), as part of a transaction or event or series of transactions or events

    • (i) a portion of the dividend is deemed to be a separate taxable dividend equal to the lesser of

      • (A) the taxable part, and

      • (B) the amount of the income earned or realized by any corporation — after 1971 and before the safe-income determination time for the transaction, event or series — that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at fair market value, immediately before the dividend, of the share on which the dividend is received, and

    • (ii) the amount, if any, by which the taxable part exceeds the portion referred to in subparagraph (i) is deemed to be a separate taxable dividend.

• Marginal note:Unlisted shares deemed listed

  (6) A share (in this subsection referred to as the “reorganization share”) is deemed, for the purposes of subsection 116(6) and the definition taxable Canadian property in subsection 248(1), to be listed on a designated stock exchange if

  • (a) a dividend, to which subsection (2) does not apply because of paragraph (3)(b), is received in the course of a reorganization;

  • (b) in contemplation of the reorganization

    • (i) the reorganization share is issued to a taxpayer by a public corporation in exchange for another share of that corporation (in this subsection referred to as the “old share”) owned by the taxpayer, and

    • (ii) the reorganization share is exchanged by the taxpayer for a share of another public corporation (in this subsection referred to as the “new share”) in an exchange that would be a permitted exchange if the definition permitted exchange were read without reference to paragraph (a) and subparagraph (b)(ii) of that definition;

  • (c) immediately before the exchange, the old share

    • (i) is listed on a designated stock exchange, and

    • (ii) is not taxable Canadian property of the taxpayer; and

  • (d) the new share is listed on a designated stock exchange.