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2nd Session, 35th Parliament,
45-46 Elizabeth II, 1996-97
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The House of Commons of Canada
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BILL C-92
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An Act to amend the Income Tax Act, the
Income Tax Application Rules and
another Act related to the Income Tax
Act
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Her Majesty, by and with the advice and
consent of the Senate and House of Commons
of Canada, enacts as follows:
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Short title
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1. This Act may be cited as the Income Tax
Budget Amendments Act, 1996.
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R.S., c. 1 (5th
Supp.); 1994,
cc. 7, 8, 13,
21, 28, 29, 38,
41; 1995, cc.
1, 3, 11, 18,
21, 38, 46;
1996, cc. 11,
21, 23
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2. (1) Subsection 12(1) of the Income Tax
Act is amended by adding the following
after paragraph (e):
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Negative
reserves
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(e.1) where the taxpayer is an insurer, the
amount prescribed in respect of the insurer
for the year;
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(2) The portion of paragraph 12(1)(o) of
the Act after subparagraph (iii) is replaced
by the following:
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as a royalty, tax (other than a tax or portion
of a tax that can reasonably be considered to
be a municipal or school tax), lease rental or
bonus or as an amount, however described,
that can reasonably be regarded as being in
lieu of any such amount, or in respect of the
late receipt or non-receipt of any such
amount, and that can reasonably be
regarded as being in relation to
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(iv) the acquisition, development or
ownership of a Canadian resource
property of the taxpayer in respect of
which the obligation imposed by statute
or the contractual obligation, as the case
may be, applied, or
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(v) the production in Canada
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(A) of petroleum, natural gas or related
hydrocarbons from a natural
accumulation of petroleum or natural
gas (other than a mineral resource)
located in Canada or from an oil or gas
well located in Canada,
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(B) of sulphur from a natural
accumulation of petroleum or natural
gas located in Canada, from an oil or
gas well located in Canada or from a
mineral resource located in Canada,
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(C) to any stage that is not beyond the
prime metal stage or its equivalent, of
metal, minerals (other than iron or
petroleum or related hydrocarbons) or
coal from a mineral resource located in
Canada,
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(D) to any stage that is not beyond the
pellet stage or its equivalent, of iron
from a mineral resource located in
Canada, or
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(E) to any stage that is not beyond the
crude oil stage or its equivalent, of
petroleum or related hydrocarbons
from tar sands from a mineral resource
located in Canada,
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in respect of which the taxpayer had an
interest to which the obligation imposed
by statute or the contractual obligation,
as the case may be, applied;
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(3) Subsection 12(1) of the Act is amended
by striking out the word ``and'' at the end of
paragraph (z.3), by adding the word ``and''
at the end of paragraph (z.4) and by adding
the following after paragraph (z.4):
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Resource loss
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(z.5) 25% of the taxpayer's prescribed
resource loss for the year.
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(4) Subsection (1) applies to the 1996 and
subsequent taxation years.
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(5) Subsections (2) and (3) apply to
taxation years that begin after 1996.
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3. (1) Subsection 13(5) of the Act is
replaced by the following:
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Reclassifi-
cation of
property
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(5) Where one or more depreciable
properties of a taxpayer that were included in
a prescribed class (in this subsection referred
to as the ``old class'') become included at any
time (in this subsection referred to as the
``transfer time'') in another prescribed class
(in this subsection referred to as the ``new
class''), for the purpose of determining at any
subsequent time the undepreciated capital
cost to the taxpayer of depreciable property of
the old class and the new class
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(a) the value of A in the definition
``undepreciated capital cost'' in subsection
(21) shall be determined as if each of those
depreciable properties were
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(i) properties of the new class acquired
before the subsequent time, and
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(ii) never included in the old class; and
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(b) there shall be deducted in computing the
total depreciation allowed to the taxpayer
for property of the old class before the
subsequent time, and added in computing
the total depreciation allowed to the
taxpayer for property of the new class
before the subsequent time, the greater of
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(i) the amount determined by the formula
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A - B
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A is the total of all amounts each of
which is the capital cost to the
taxpayer of each of those
depreciable properties, and
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B is the undepreciated capital cost to
the taxpayer of depreciable property
of the old class at the transfer time,
and
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(ii) the total of all amounts each of which
is an amount that would have been
deducted under paragraph 20(1)(a) in
respect of a depreciable property that is
one of those properties in computing the
taxpayer's income for a taxation year that
ended before the transfer time and at the
end of which the property was included in
the old class if
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(A) the property had been the only
property included in a separate
prescribed class, and
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(B) the rate allowed by the regulations
made for the purpose of paragraph
20(1)(a) in respect of that separate
class had been the effective rate that
was used by the taxpayer to calculate
a deduction under that paragraph in
respect of the old class for the year.
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(2) Section 13 of the Act is amended by
adding the following after subsection (7.4):
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Deemed
capital cost
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(7.5) For the purposes of this Act,
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(a) where a taxpayer, to acquire a property
prescribed in respect of the taxpayer, is
required under the terms of a contract made
after March 6, 1996 to make a payment to
Her Majesty in right of Canada or a
province or to a Canadian municipality in
respect of costs incurred or to be incurred by
the recipient of the payment
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(i) the taxpayer is deemed to have
acquired the property at a capital cost
equal to the portion of that payment made
by the taxpayer that can reasonably be
regarded as being in respect of those
costs, and
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(ii) the time of acquisition of the property
by the taxpayer is deemed to be the later
of the time the payment is made and the
time at which those costs are incurred;
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(i) at any time after March 6, 1996 a
taxpayer incurs a cost on account of
capital for the building of, for the right to
use or in respect of, a prescribed property,
and
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(ii) the amount of the cost would, if this
paragraph did not apply, not be included
in the capital cost to the taxpayer of
depreciable property of a prescribed
class,
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the taxpayer is deemed to have acquired the
property at that time at a capital cost equal
to the amount of the cost;
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(c) where a taxpayer acquires an intangible
property as a consequence of making a
payment to which paragraph (a) applies or
incurring a cost to which paragraph (b)
applies,
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(i) the property referred to in paragraph
(a) or (b) is deemed to include the
intangible property, and
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(ii) the portion of the capital cost referred
to in paragraph (a) or (b) that applies to
the intangible property is deemed to be
the amount determined by the formula
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A x B/C
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A is the lesser of the amount of the
payment made or cost incurred and
the amount determined for C,
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B is the fair market value of the
intangible property at the time the
payment was made or the cost was
incurred, and
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C is the fair market value at the time
the payment was made or the cost
was incurred of all intangible
properties acquired as a
consequence of making the
payment or incurring the cost; and
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(d) any property deemed by paragraph (a)
or (b) to have been acquired at any time by
a taxpayer as a consequence of making a
payment or incurring a cost
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(i) is deemed to have been acquired for
the purpose for which the payment was
made or the cost was incurred, and
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(ii) is deemed to be owned by the
taxpayer at any subsequent time that the
taxpayer benefits from the property.
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(3) Subsection (1) applies to properties of
a prescribed class that, after 1996, become
included in property of another prescribed
class.
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(4) Subsection (2) applies to taxation
years that end after March 6, 1996.
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4. (1) The portion of paragraph 18(1)(m)
of the Act after subparagraph (iii) is
replaced by the following:
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as a royalty, tax (other than a tax or portion
of a tax that can reasonably be considered to
be a municipal or school tax), lease rental or
bonus or as an amount, however described,
that can reasonably be regarded as being in
lieu of any such amount, or in respect of the
late payment or non-payment of any such
amount, and that can reasonably be
regarded as being in relation to
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(iv) the acquisition, development or
ownership of a Canadian resource
property, or
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(v) the production in Canada
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(A) of petroleum, natural gas or related
hydrocarbons from a natural
accumulation of petroleum or natural
gas (other than a mineral resource)
located in Canada or from an oil or gas
well located in Canada,
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(B) of sulphur from a natural
accumulation of petroleum or natural
gas located in Canada, from an oil or
gas well located in Canada or from a
mineral resource located in Canada,
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(C) to any stage that is not beyond the
prime metal stage or its equivalent, of
metal, minerals (other than iron or
petroleum or related hydrocarbons) or
coal from a mineral resource located in
Canada,
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(D) to any stage that is not beyond the
pellet stage or its equivalent, of iron
from a mineral resource located in
Canada, or
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(E) to any stage that is not beyond the
crude oil stage or its equivalent, of
petroleum or related hydrocarbons
from tar sands from a mineral resource
located in Canada,
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(2) Subsection 18(1) of the Act is amended
by striking out the word ``and'' at the end of
paragraph (s) and by replacing paragraph
(t) with the following:
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Payments
under Act
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(t) any amount paid or payable under this
Act (other than tax paid or payable under
Part XII.2 or Part XII.6); and
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RSP/RIF fees
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(u) any amount paid or payable by the
taxpayer for services in respect of a
retirement savings plan or retirement
income fund under which the taxpayer is the
annuitant.
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(3) Paragraph (b) of the definition
``outstanding debts to specified
non-residents'' in subsection 18(5) of the
Act is replaced by the following:
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(b) an amount outstanding at the particular
time as or on account of a debt or other
obligation to pay an amount to a
non-resident insurance corporation to the
extent that the amount 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;
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(4) Subsection (1) applies to taxation
years that begin after 1996.
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(5) Paragraph 18(1)(t) of the Act, as
enacted by subsection (2), applies to the
1997 and subsequent taxation years.
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(6) Paragraph 18(1)(u) of the Act, as
enacted by subsection (2), applies to
amounts paid or payable after March 5,
1996.
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(7) Subsection (3) applies to the 1997 and
subsequent taxation years.
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5. (1) Paragraph 20(1)(mm) of the Act is
replaced by the following:
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Cost of
substances
injected in
reservoir
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(mm) the portion claimed by the taxpayer of
an amount that is an outlay or expense made
or incurred by the taxpayer before the end
of the year that is a cost to the taxpayer of
any substance injected before that time into
a natural reservoir to assist in the recovery
of petroleum, natural gas or related
hydrocarbons to the extent that that portion
was not
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(i) otherwise deducted in computing the
taxpayer's income for the year, or
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(ii) deducted in computing the taxpayer's
income for any preceding taxation year,
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except that where the year is less than 51
weeks, the amount that may be claimed
under this paragraph by the taxpayer for the
year shall not exceed the greater of
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(iii) that proportion of the maximum
amount that may otherwise be claimed
under this paragraph by the taxpayer for
the year that the number of days in the
year is of 365, and
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(iv) the amount of such outlay or expense
that was made or incurred by the taxpayer
in the year and not otherwise deducted in
computing the taxpayer's income for the
year;
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Part XII.6 tax
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(nn) the tax, if any, under Part XII.6 paid in
the year or payable in respect of the year by
the taxpayer (depending on the method
regularly followed by the taxpayer in
computing the taxpayer's income);
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(2) Paragraph 20(7)(c) of the Act is
replaced by the following:
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(c) as a reserve in respect of insurance,
except that in computing an insurer's
income for a taxation year from an
insurance business, other than a life
insurance business, carried on by it, there
may be deducted as a policy reserve any
amount that the insurer claims not
exceeding the amount prescribed in respect
of the insurer for the year.
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(3) Section 20 of the Act is amended by
adding the following after subsection (21):
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Deduction for
negative
reserves
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(22) In computing an insurer's income for
a taxation year, there may be deducted the
amount included under paragraph 12(1)(e.1)
in computing the insurer's income for the
preceding taxation year.
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(4) Paragraph 20(1)(mm) of the Act, as
enacted by subsection (1), and subsections
(2) and (3) apply to the 1996 and subsequent
taxation years.
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(5) Paragraph 20(1)(nn) of the Act, as
enacted by subsection (1), applies to the
1997 and subsequent taxation years.
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6. (1) Section 37 of the Act is amended by
adding the following after subsection (9):
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