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Bill C-22

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1st Session, 37th Parliament,
49-50 Elizabeth II, 2001

House of Commons of Canada

BILL C-22

An Act to amend the Income Tax Act, the Income Tax Application Rules, certain Acts related to the Income Tax Act, the Canada Pension Plan, the Customs Act, the Excise Tax Act, the Modernization of Benefits and Obligations Act and another Act related to the Excise Tax Act

      Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

SHORT TITLE

Short title

1. This Act may be cited as the Income Tax Amendments Act, 2000.

PART 1

R.S., c. 1 (5th Supp.)

INCOME TAX ACT

2. (1) The portion of subsection 7(1) of the Income Tax Act before paragraph (a) is replaced by the following:

Agreement to issue securities to employees

7. (1) Subject to subsections (1.1) and (8), where a particular qualifying person has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which it does not deal at arm's length) to an employee of the particular qualifying person (or of a qualifying person with which the particular qualifying person does not deal at arm's length),

(2) Subsection 7(1.3) of the Act is replaced by the following:

Order of disposition of securities

(1.3) For the purposes of this subsection, subsections (1.1) and (8), subdivision c, paragraph 110(1)(d.01), subparagraph 110(1)(d.1)(ii) and subsections 110(2.1) and 147(10.4), and subject to subsection (1.31) and paragraph (14)(c), a taxpayer is deemed to dispose of securities that are identical properties in the order in which the taxpayer acquired them and, for this purpose,

    (a) where a taxpayer acquires a particular security (other than under circumstances to which subsection (1.1) or (8) or 147(10.1) applies) at a time when the taxpayer also acquires or holds one or more other securities that are identical to the particular security and are, or were, acquired under circumstances to which any of subsections (1.1), (8) or 147(10.1) applied, the taxpayer is deemed to have acquired the particular security at the time immediately preceding the earliest of the times at which the taxpayer acquired those other securities; and

    (b) where a taxpayer acquires, at the same time, two or more identical securities under circumstances to which either subsection (1.1) or (8) applied, the taxpayer is deemed to have acquired the securities in the order in which the agreements under which the taxpayer acquired the rights to acquire the securities were made.

Disposition of newly-acquire d security

(1.31) Where a taxpayer acquires, at a particular time, a particular security under an agreement referred to in subsection (1) and, on a day that is no later than 30 days after the day that includes the particular time, the taxpayer disposes of a security that is identical to the particular security, the particular security is deemed to be the security that is so disposed of if

    (a) no other securities that are identical to the particular security are acquired, or disposed of, by the taxpayer after the particular time and before the disposition;

    (b) the taxpayer identifies the particular security as the security so disposed of in the taxpayer's return of income under this Part for the year in which the disposition occurs; and

    (c) the taxpayer has not so identified the particular security, in accordance with this subsection, in connection with the disposition of any other security.

(3) Paragraph 7(1.4)(a) of the Act is replaced by the following:

    (a) a taxpayer disposes of rights under an agreement referred to in subsection (1) to acquire securities of a particular qualifying person that made the agreement or of a qualifying person with which it does not deal at arm's length (which rights and securities are referred to in this subsection as the ``exchanged option'' and the ``old securities'', respectively),

(4) Paragraph 7(1.4)(d) of the Act is replaced by the following:

    (d) the taxpayer is deemed (other than for the purposes of subparagraph (9)(d)(ii)) not to have disposed of the exchanged option and not to have acquired the new option,

(5) Subsection 7(1.5) of the Act is replaced by the following:

Rules where securities exchanged

(1.5) For the purposes of this section and paragraphs 110(1)(d) to (d.1), where

    (a) a taxpayer disposes of or exchanges securities of a particular qualifying person that were acquired by the taxpayer under circumstances to which either subsection (1.1) or (8) applied (in this subsection referred to as the ``exchanged securities''),

    (b) the taxpayer receives no consideration for the disposition or exchange of the exchanged securities other than securities (in this subsection referred to as the ``new securities'') of

      (i) the particular qualifying person,

      (ii) a qualifying person with which the particular qualifying person does not deal at arm's length immediately after the disposition or exchange,

      (iii) a corporation formed on the amalgamation or merger of the particular qualifying person and one or more other corporations,

      (iv) a mutual fund trust to which the particular qualifying person has transferred property in circumstances to which subsection 132.2(1) applied, or

      (v) a qualifying person with which the corporation referred to in subparagraph (iii) does not deal at arm's length immediately after the disposition or exchange, and

    (c) the total value of the new securities immediately after the disposition or exchange does not exceed the total value of the old securities immediately before the disposition or exchange,

the following rules apply:

    (d) the taxpayer is deemed not to have disposed of or exchanged the exchanged securities and not to have acquired the new securities,

    (e) the new securities are deemed to be the same securities as, and a continuation of, the exchanged securities, except for the purpose of determining if the new securities are identical to any other securities,

    (f) the qualifying person that issued the new securities is deemed to be the same person as, and a continuation of, the qualifying person that issued the exchanged securities, and

    (g) where the exchanged securities were issued under an agreement, the new securities are deemed to have been issued under that agreement.

Emigrant

(1.6) For the purposes of this section and paragraph 110(1)(d.1), a taxpayer is deemed not to have disposed of a share acquired under circumstances to which subsection (1.1) applied solely because of subsection 128.1(4).

Rights ceasing to be exercisable

(1.7) For the purposes of paragraphs (1)(b) and 110(1)(d), where a taxpayer receives at a particular time one or more particular amounts in respect of rights of the taxpayer to acquire securities under an agreement referred to in subsection (1) ceasing to be exercisable in accordance with the terms of the agreement, and the cessation would not, if this Act were read without reference to this subsection, constitute a transfer or disposition of those rights by the taxpayer,

    (a) the taxpayer is deemed to have disposed of those rights at the particular time to a person with whom the taxpayer was dealing at arm's length and to have received the particular amounts as consideration for the disposition; and

    (b) for the purpose of determining the amount, if any, of the benefit that the taxpayer is deemed by paragraph (1)(b) to have received as a consequence of the disposition referred to in paragraph (a), the taxpayer is deemed to have paid an amount to acquire those rights equal to the amount, if any, by which

      (i) the amount paid by the taxpayer to acquire those rights (determined without reference to this subsection)

    exceeds

      (ii) the total of all amounts each of which is an amount received by the taxpayer before the particular time in respect of the cessation.

(6) The portion of subsection 7(2) of the Act before paragraph (a) is replaced by the following:

Securities held by trustee

(2) If a security is held by a trustee in trust or otherwise, whether absolutely, conditionally or contingently, for an employee, the employee is deemed, for the purposes of this section and paragraphs 110(1)(d) to (d.1),

(7) The portion of paragraph 7(6)(a) of the Act before subparagraph (i) is replaced by the following:

    (a) for the purposes of this section (other than subsection (2)) and paragraphs 110(1)(d) to (d.1),

(8) The portion of subsection 7(7) of the Act before the definition ``qualifying person'' is replaced by the following:

Definitions

(7) The definitions in this subsection apply in this section and in subsection 47(3), paragraphs 53(1)(j), 110(1)(d) and (d.01) and subsections 110(1.5), (1.6) and (2.1).

(9) Section 7 of the Act is amended by adding the following after subsection (7):

Deferral in respect of non-CCPC employee options

(8) Where a particular qualifying person (other than a Canadian-controlled private corporation) has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which it does not deal at arm's length) to a taxpayer who is an employee of the particular qualifying person (or of a qualifying person with which the particular qualifying person does not deal at arm's length), in applying paragraph (1)(a) in respect of the taxpayer's acquisition of a security under the agreement, the reference in that paragraph to ``the taxation year in which the employee acquired the securities'' shall be read as a reference to ``the taxation year in which the employee disposed of or exchanged the securities'' if

    (a) the acquisition is a qualifying acquisition; and

    (b) the taxpayer elects, in accordance with subsection (10), to have this subsection apply in respect of the acquisition.

Meaning of ``qualifying acquisition''

(9) For the purpose of subsection (8), a taxpayer's acquisition of a security under an agreement made by a particular qualifying person is a qualifying acquisition if

    (a) the acquisition occurs after February 27, 2000;

    (b) the taxpayer would, if this Act were read without reference to subsection (8), be entitled to deduct an amount under paragraph 110(1)(d) in respect of the acquisition in computing income for the taxation year in which the security is acquired;

    (c) where the particular qualifying person is a corporation, the taxpayer was not, at the time immediately after the agreement was made, a person who would, if the references in the portion of the definition ``specified shareholder'' in subsection 248(1) before paragraph (a) to ``in a taxation year'' and ``at any time in the year'' were read as references to ``at any time'' and ``at that time'', respectively, be a specified shareholder of any of

      (i) the particular qualifying person,

      (ii) any qualifying person that, at that time, was an employer of the taxpayer and was not dealing at arm's length with the particular qualifying person, and

      (iii) the qualifying person of which the taxpayer had, under the agreement, a right to acquire a security; and

    (d) where the security is a share,

      (i) it is of a class of shares that, at the time the acquisition occurs, is listed on a prescribed stock exchange, and

      (ii) where rights under the agreement were acquired by the taxpayer as a result of one or more dispositions to which subsection (1.4) applied, none of the rights that were the subject of any of the dispositions included a right to acquire a share of a class of shares that, at the time the rights were disposed of, was not listed on any prescribed stock exchange.

Election for the purpose of subsection (8)

(10) For the purpose of subsection (8), a taxpayer's election to have that subsection apply in respect of the taxpayer's acquisition of a particular security under an agreement referred to in subsection (1) is in accordance with this subsection if

    (a) the election is filed, in the prescribed form and manner at a particular time that is before January 16 of the year following the year in which the acquisition occurs, with a person who would be required to file an information return in respect of the acquisition if subsection (8) were read without reference to paragraph (8)(b);

    (b) the taxpayer is resident in Canada at the time the acquisition occurs; and

    (c) the specified value of the particular security does not exceed the amount by which

      (i) $100,000

    exceeds

      (ii) the total of all amounts each of which is the specified value of another security acquired by the taxpayer at or before the particular time under an agreement referred to in subsection (1), where

        (A) the taxpayer's right to acquire that other security first became exercisable in the year that the taxpayer's right to acquire the particular security first became exercisable, and

        (B) at or before the particular time, the taxpayer has elected in accordance with this subsection to have subsection (8) apply in respect of the acquisition of that other security.

Meaning of ``specified value''

(11) For the purpose of paragraph (10)(c), the specified value of a particular security acquired by a taxpayer under an agreement referred to in subsection (1) is the amount determined by the formula

A/B

where

A is the fair market value, determined at the time the agreement was made, of a security that was the subject of the agreement at the time the agreement was made; and

B is

      (a) except where paragraph (b) applies, 1, and

      (b) where the number or type of securities that are the subject of the agreement has been modified in any way after the time the agreement was made, the number of securities (including any fraction of a security) that it is reasonable to consider the taxpayer would, at the time the particular security was acquired, have a right to acquire under the agreement in lieu of one of the securities that was the subject of the agreement at the time the agreement was made.

Identical options - order of exercise

(12) Unless the context otherwise requires, a taxpayer is deemed to exercise identical rights to acquire securities under agreements referred to in subsection (1)

    (a) where the taxpayer has designated an order, in the order so designated; and

    (b) in any other case, in the order in which those rights first became exercisable and, in the case of identical rights that first became exercisable at the same time, in the order in which the agreements under which those rights were acquired were made.

Revoked election

(13) For the purposes of this section (other than this subsection), an election filed by a taxpayer to have subsection (8) apply to the taxpayer's acquisition of a security is deemed never to have been filed if, before January 16 of the year following the year in which the acquisition occurs, the taxpayer files with the person with whom the election was filed a written revocation of the election.

Deferral deemed valid

(14) For the purposes of this section and paragraph 110(1)(d), where a taxpayer files an election to have subsection (8) apply in respect of the taxpayer's acquisition of a particular security and subsection (8) would not apply to the acquisition if this section were read without reference to this subsection, the following rules apply if the Minister so notifies the taxpayer in writing:

    (a) the acquisition is deemed, for the purpose of subsection (8), to be a qualifying acquisition;

    (b) the taxpayer is deemed to have elected, in accordance with subsection (10), at the time of the acquisition, to have subsection (8) apply in respect of the acquisition; and

    (c) if, at the time the Minister sends the notice, the taxpayer has not disposed of the security, the taxpayer is deemed (other than for the purpose of subsection (1.5)) to have disposed of the security at that time and to have acquired the security immediately after that time other than under an agreement referred to in subsection (1).