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Bill C-59

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First Session, Forty-fourth Parliament,

70-71 Elizabeth II – 1-2 Charles III, 2021-2022-2023

HOUSE OF COMMONS OF CANADA

BILL C-59
An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023

FIRST READING, November 30, 2023

DEPUTY PRIME MINISTER AND MINISTER OF FINANCE

91178


RECOMMENDATION

Her Excellency the Governor General recommends to the House of Commons the appropriation of public revenue under the circumstances, in the manner and for the purposes set out in a measure entitled “An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023”.

SUMMARY

Part 1 implements certain measures in respect of the Income Tax Act and the Income Tax Regulations by

(a)limiting the deductibility of net interest and financing expenses by certain corporations and trusts, consistent with certain Organisation for Economic Co-operation and Development and the Group of Twenty Base Erosion and Profit Shifting project recommendations;

(b)implementing hybrid mismatch rules consistent with the Organisation for Economic Co-operation and Development and the Group of Twenty Base Erosion and Profit Shifting project recommendations regarding cross-border tax avoidance structures that exploit differences in the income tax laws of two or more countries to produce “deduction/non-inclusion mismatches”;

(c)allowing expenditures incurred in the exploration and development of all lithium to qualify as Canadian exploration expenses and Canadian development expenses;

(d)ensuring that only genuine intergenerational business transfers are excluded from the anti-surplus stripping rule in section 84.‍1 of the Income Tax Act;

(e)denying the dividend received deduction for dividends received by Canadian financial institutions on certain shares that are held as mark-to-market property;

(f)increasing the rate of the rural supplement for Climate Action Incentive payments (CAIP) from 10% to 20% for the 2023 and subsequent taxation years as well as referencing the 2016 census data for the purposes of the CAIP rural supplement eligibility for the 2023 and 2024 taxation years;

(g)providing a refundable investment tax credit to qualifying businesses for eligible carbon capture, utilization and storage equipment;

(h)providing a refundable investment tax credit to qualifying businesses for eligible clean technology equipment;

(i)introducing, under certain circumstances, labour requirements in relation to the new refundable investment tax credits for eligible carbon capture, utilization and storage equipment as well as eligible clean technology equipment;

(j)removing the requirement that credit unions derive no more than 10% of their revenue from sources other than certain specified sources;

(k)permitting a qualifying family member to acquire rights as successor of a holder of a Registered Disability Savings Plan following the death of that plan’s last remaining holder who was also a qualifying family member;

(l)implementing consequential changes of a technical nature to facilitate the operation of the existing rules for First Home Savings Accounts;

(m)introducing a tax of 2% on the net value of equity repurchases by certain Canadian corporations, trusts and partnerships whose equity is listed on a designated stock exchange;

(n)exempting certain fees from the refundable tax applicable to contributions under retirement compensation arrangements;

(o)introducing a technical amendment to the provision that authorizes the sharing of taxpayer information for the purposes of the Canadian Dental Care Plan;

(p)implementing a number of amendments to the general anti-avoidance rule (GAAR) as well as introducing a new penalty applicable to transactions subject to the GAAR and extending the normal reassessment period for the GAAR by three years in certain circumstances;

(q)facilitating the creation of employee ownership trusts;

(r)introducing specific anti-avoidance rules in relation to corporations referred to as substantive CCPCs; and

(s)extending the phase-out by three years, and expanding the eligible activities, in relation to the reduced tax rates for certain zero-emission technology manufacturers.

It also makes related and consequential amendments to the Excise Tax Act and the Excise Act, 2001.

Part 2 enacts the Digital Services Tax Act and its regulations. That Act provides for the implementation of an annual tax of 3% on certain types of digital services revenue earned by businesses that meet certain revenue thresholds. It sets out rules for the purposes of establishing liability for the tax and also sets out applicable reporting and filing requirements. To promote compliance with its provisions, that Act includes modern administration and enforcement provisions generally aligned with those found in other taxation statutes. Finally, this Part also makes related and consequential amendments to other texts to ensure proper implementation of the tax and cohesive and efficient administration by the Canada Revenue Agency.

Part 3 implements certain Goods and Services Tax/Harmonized Sales Tax (GST/HST) measures by

(a)ensuring that an interest in a corporation that does not have its capital divided into shares is treated as a financial instrument for GST/HST purposes;

(b)ensuring that interest and dividend income from a closely related partnership is not included in the determination of whether a person is a de minimis financial institution for GST/HST purposes;

(c)ensuring that an election related to supplies made within a closely related group of persons that includes a financial institution may not be revoked on a retroactive basis without the permission of the Minister of National Revenue;

(d)making technical amendments to an election that allows electing members of a closely related group to treat certain supplies made between them as having been made for nil consideration;

(e)ensuring that certain supplies between the members of a closely related group are not inadvertently taxed under the imported taxable supply rules that apply to financial institutions;

(f)raising the income threshold for the requirement to file an information return by certain financial institutions;

(g)allowing up to seven years to assess the net tax adjustments owing by certain financial institutions in respect of the imported taxable supply rules;

(h)expanding the GST/HST exemption for services rendered to individuals by certain health care practitioners to include professional services rendered by psychotherapists and counselling therapists;

(i)providing relief in relation to the GST/HST treatment of payment card clearing services;

(j)allowing the joint venture election to be made in respect of the operation of a pipeline, rail terminal or truck terminal that is used for the transportation of oil, natural gas or related products;

(k)raising the input tax credit (ITC) documentation thresholds from $30 to $100 and from $150 to $500 and allowing billing agents to be treated as intermediaries for the purposes of the ITC information rules; and

(l)extending the 100% GST rebate in respect of new purpose-built rental housing to certain cooperative housing corporations.

It also implements an excise tax measure by creating a joint election mechanism to specify who is eligible to claim a rebate of excise tax for goods purchased by provinces for their own use.

Part 4 implements certain excise measures by

(a)allowing vaping product licensees to import packaged vaping products for stamping by the licensee and entry into the Canadian duty-paid market as of January 1, 2024;

(b)permitting all cannabis licensees to elect to remit excise duties on a quarterly rather than a monthly basis, starting from the quarter that began on April 1, 2023;

(c)amending the marking requirements for vaping products to ensure that the volume of the vaping substance is marked on the package;

(d)requiring that a person importing vaping products must be at least 18 years old; and

(e)introducing administrative penalties for certain infractions related to the vaping taxation framework.

Part 5 enacts and amends several Acts in order to implement various measures.

Subdivision A of Division 1 of Part 5 amends Subdivision A of Division 16 of Part 6 of the Budget Implementation Act, 2018, No. 1 to clarify the scope of certain non-financial activities in which federal ‚financial institutions may engage and to remove certain discrepancies between the English and French versions of that Act.

Subdivision B of Division 1 of Part 5 amends the Trust and Loan Companies Act, the Bank Act and the Insurance Companies Act to, among other things, permit federal financial institutions governed by those Acts to hold certain meetings by virtual means without having to obtain a court order and to permit voting during those meetings by virtual means.

Division 2 of Part 5 amends the Canada Labour Code to, among other things, provide a leave of absence of three days in the event of a pregnancy loss and modify certain provisions related to bereavement leave.

Division 3 of Part 5 enacts the Canada Water Agency Act. That Act establishes the Canada Water Agency, whose role is to assist the Minister of the Environment in exercising or performing that Minister’s powers, duties and functions in relation to fresh water. The Division also makes consequential amendments to other Acts.

Division 4 of Part 5 amends the Tobacco and Vaping Products Act to, among other things,

(a)authorize the making of regulations respecting fees or charges to be paid by tobacco and vaping product manufacturers for the purpose of recovering the costs incurred by His Majesty in right of Canada in relation to the carrying out of the purpose of that Act;

(b)provide for related administration and enforcement measures; and

(c)require information relating to the fees or charges to be made available to the public.

Division 5 of Part 5 amends the Canadian Payments Act to, among other things, provide that additional persons are entitled to be members of the Canadian Payments Association and clarify the composition of that Association’s Stakeholder Advisory Council.

Division 6 of Part 5 amends the Competition Act to, among other things,

(a)modernize the merger review regime, including by modifying certain notification rules, clarifying that Act’s application to labour markets, allowing the Competition Tribunal to consider the effect of changes in market share and the likelihood of coordination between competitors following a merger, extending the limitation period for mergers that were not the subject of a notification to the Commissioner of Competition and placing a temporary restraint on the completion of certain mergers until the Tribunal has disposed of any application for an interim order;

(b)improve the effectiveness of the provisions that address anti-competitive conduct, including by allowing the Commissioner to review the effects of past agreements and arrangements, ensuring that an order related to a refusal to deal may address a refusal to supply a means of diagnosis or repair and ensuring that representations of a product’s benefits for protecting the environment must be supported by adequate and proper tests;

(c)strengthen the enforcement framework, including by creating new remedial orders, such as administrative monetary penalties, with respect to those collaborations that harm competition, by creating a civilly enforceable procedure to address non-compliance with certain provisions of that Act and by broadening the classes of persons who may bring private cases before the Tribunal and providing for the availability of monetary payments as a remedy in those cases; and

(d)provide for new procedures, such as the certification of agreements or arrangements related to protecting the environment and a remedial process for reprisal actions.

The Division also amends the Competition Tribunal Act to prevent the Competition Tribunal from awarding costs against His Majesty in right of Canada, except in specified circumstances.

Finally, the Division makes a consequential amendment to one other Act.

Division 7 of Part 5 amends the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act to exclude from their application prescribed public post-secondary educational institutions.

Subdivision A of Division 8 of Part 5 amends the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to, among other things,

(a)provide that, if a person or entity referred to in section 5 of that Act has reasonable grounds to suspect possible sanctions evasion, the relevant information is reported to the Financial Transactions and Reports Analysis Centre of Canada;

(b)add reporting requirements for persons and entities providing certain services in respect of private automatic banking machines;

(c)require declarations respecting money laundering, the financing of terrorist activities and sanctions evasion to be made in relation to the importation and exportation of goods; and

(d)authorize the Financial Transactions and Reports Analysis Centre of Canada to disclose designated information to the Department of the Environment and the Department of Fisheries and Oceans, subject to certain conditions.

It also amends the Budget Implementation Act, 2023, No. 1 in relation to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and makes consequential amendments to other Acts and a regulation.

Subdivision B of Division 8 of Part 5 amends the Criminal Code to, among other things,

(a)in certain circumstances, provide that a court may infer the knowledge or belief or recklessness required in relation to the offence of laundering proceeds of crime and specify that it is not necessary for the prosecutor to prove that the accused knew, believed they knew or was reckless as to the specific nature of the designated offence;

(b)remove, in the context of the special warrants and restraint order in relation to proceeds of crime, the requirement for the Attorney General to give an undertaking, as well as permit a judge to attach conditions to a special warrant for search and seizure of property that is proceeds of crime; and

(c)modify certain provisions relating to the production order for financial data to include elements specific to accounts associated with digital assets.

It also makes consequential amendments to the Seized Property Management Act and the Forfeited Property Sharing Regulations.

Division 9 of Part 5 retroactively amends section 42 of the Federal-Provincial Fiscal Arrangements Act to specify the payments about which information must be published on a Government of Canada website, as well as the information that must be published.

Division 10 of Part 5 amends the Public Sector Pension Investment Board Act to increase the number of directors in the Public Sector Pension Investment Board, as well as to provide for consultation with the portion of the National Joint Council of the Public Service of Canada that represents employees when certain candidates are included on the list for proposed appointment as directors.

Division 11 of Part 5 enacts the Department of Housing, Infrastructure and Communities Act, which establishes the Department of Housing, Infrastructure and Communities, confers on the Minister of Infrastructure and Communities various responsibilities relating to public infrastructure and confers on the Minister of Housing various responsibilities relating to housing and the reduction and prevention of homelessness. The Division also makes consequential amendments to other Acts and repeals the Canada Strategic Infrastructure Fund Act.

Division 12 of Part 5 amends the Employment Insurance Act to, among other things, create a benefit of 15 weeks for claimants who are carrying out responsibilities related to

(a)the placement with the claimant of one or more children for the purpose of adoption; or

(b)the arrival of one or more new-born children of the claimant into the claimant’s care, in the case where the person who will be giving or gave birth to the child or children is not, or is not intended to be, a parent of the child or children.

The Division also amends the Canada Labour Code to create a leave of absence of up to 16 weeks for an employee to carry out such responsibilities.

Available on the House of Commons website at the following address:
www.ourcommons.ca


TABLE OF PROVISIONS

An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023
Short Title
1

Fall Economic Statement Implementation Act, 2023

PART 1
Amendments to the Income Tax Act and to Other Legislation
2
PART 2
Digital Services Tax Act
96

Enactment of Act

An Act respecting a digital services tax
Short Title
1

Digital Services Tax Act

PART 1
Interpretation and Application
2

Definitions

3

Negative or undefined results

4

Determination of revenue

5

Short fiscal year — global revenue threshold

6

Continuity of consolidated group

7

Mergers

8

Arm’s length

9

His Majesty

PART 2
Liability for Tax
10

Tax payable

PART 3
Canadian Digital Services Revenue
11

Definitions

12

Basic rule

DIVISION A 
Canadian Online Marketplace Services Revenue
13

Definition of online marketplace services revenue

14

Canadian online marketplace services revenue

DIVISION B 
Canadian Online Advertising Services Revenue
15

Definition of online advertising services revenue

16

Canadian online advertising services revenue

DIVISION C 
Canadian Social Media Services Revenue
17

Definition of social media services revenue

18

Canadian social media services revenue

DIVISION D 
Canadian User Data Revenue
19

Definition of user data revenue

20

Canadian user data revenue

DIVISION E 
Rules Relating to Determination of Canadian Digital Services Revenue
21

Revenue of new constituent entities

22

Attribution of activity

PART 4
Taxable Canadian Digital Services Revenue
23

Definitions

24

Determination

PART 5
Miscellaneous
DIVISION A 
Trustees and Receivers
25

Definitions

26

Trustee as agent or mandatary

27

Tax payable for bankruptcy

28

Filing and payment

29

Tax payable for receivership

30

Filing and payment

31

Non-calendar year periods

32

Certificates for receivers

DIVISION B 
Partnerships
33

Partnerships

DIVISION C 
Anti-avoidance
34

Definitions

35

Series of transactions

PART 6
General Provisions, Administration and Enforcement
36

Definitions

DIVISION A 
Duties of Minister
37

Minister’s duty

38

Staff

39

Administration of oaths

40

Waiving the filing of documents

DIVISION B 
Registration
41

Requirement to register

42

Application to register

43

De-registration

44

Notice of intent

DIVISION C 
Returns
45

Requirement to file return

46

Election — designated entity

47

Extension of time

48

Demand for return

DIVISION D 
Payments
49

Payments

50

Manner and form of payments

51

Assessment of another constituent entity

52

Definition of transaction

53

Payment in Canadian dollars

54

Definition of electronic payment

55

Small amounts owing by a person

DIVISION E 
Interest
56

Compound interest

57

Waiving or cancelling interest

DIVISION F 
Administrative Charge under Financial Administration Act
58

Dishonoured instruments

DIVISION G 
Refunds
59

Statutory recovery rights

60

Refund — payment in error

61

Restriction — application to other debts

62

Restriction — unfulfilled filing requirements

63

Restriction — trustees

64

Overpayment of refund or interest

DIVISION H 
Records and Information
65

Keeping records

66

Requirement to provide information or records

DIVISION I 
Assessments
67

Assessment

68

Notice of assessment

69

Payment by Minister on assessment

70

Limitation period for assessments

71

Assessment deemed valid and binding

DIVISION J 
Objections to Assessment
72

Objections to assessment

73

Extension of time by Minister

DIVISION K 
Appeal
74

Extension of time by Tax Court of Canada

75

Appeal to Tax Court of Canada

76

Extension of time to appeal

77

Limitation on appeals

78

Institution of appeals

79

Disposition of appeal

80

References to Tax Court of Canada

81

Reference of common questions to Tax Court

82

Payment by the Minister on appeal

DIVISION L 
Penalties
83

Failure to register when required

84

Failure to file return when required

85

Failure to provide information

86

Unreasonable appeal

87

Definitions

88

General penalty

89

Payment of penalties

90

Waiving or cancelling penalties

DIVISION M 
Offences and Punishment
91

Failure to file or comply

92

Offences for false or deceptive statement

93

Failure to pay tax

94

Offence — confidential information

95

General offence

96

Defence of due diligence

97

Compliance orders

98

Officers of corporations, etc.

99

Power to decrease punishment

100

Information or complaint

DIVISION N 
Inspections
101

Authorized person

102

Compliance order

103

Search warrants

104

Definition of foreign-based information or record

105

Inquiry

106

Copies

107

Compliance

DIVISION O 
Confidentiality of Information
108

Definitions

DIVISION P 
Collection
109

Definitions

110

Collection restrictions

111

Security

112

Certificates

113

Garnishment

114

Recovery by deduction or set-off

115

Acquisition of debtor’s property

116

Money seized from debtor

117

Seizure if failure to pay

118

Person leaving Canada

119

Authorization to proceed without delay

DIVISION Q 
Evidence and Procedure
120

Service

121

Timing of receipt

122

Proof of sending or service by mail

PART 7
Regulations
123

Regulations

124

Positive or negative amount — regulations

125

Incorporation by reference — limitation removed

126

Certificates and registrations not statutory instruments

Making of Regulations
97

Making

Digital Services Tax Regulations
Interpretation
1

Definitions

Prescribed Rates of Interest
2

Interest to be paid to the Receiver General

Prescribed Thresholds
3

Global revenue threshold

4

In-scope revenue threshold

5

Registration threshold

Prescribed Rate of Tax
6

Rate

Prescribed Deduction
7

Deduction amount

PART 3
Amendments to the Excise Tax Act and to Related Legislation
129
PART 4
Amendments to the Excise Act, 2001 and to Related Legislation
145
PART 5
Various Measures
DIVISION 1
Federal Financial Institutions
168
DIVISION 2
Leave Related to Pregnancy Loss and Bereavement Leave
197
DIVISION 3
Canada Water Agency Act
209

Enactment of Act

An Act respecting the Canada Water Agency
Short Title
1

Canada Water Agency Act

Definitions
2

Definitions

Canada Water Agency
3

Establishment

4

Head office

5

Minister to preside

6

Delegation to Agency

President
7

Appointment

8

Chief executive officer

9

Remuneration

General Provisions
10

Officers and employees

11

Other government services and facilities

12

Provision of services and facilities

13

Committees

Transitional Provisions
14

Definitions

15

Position

16

Appropriations

17

Transfer of powers, duties and functions

18

Clarification

DIVISION 4
Tobacco and Vaping Products Act
217
DIVISION 5
Canadian Payments Act
219
DIVISION 6
Measures Related to Competition
231
DIVISION 7
Public Post-Secondary Educational Institutions
273
DIVISION 8
Money Laundering, Terrorist Financing, Sanctions Evasion and Other Measures
278
DIVISION 9
Federal-Provincial Fiscal Arrangements Act
318
DIVISION 10
Public Sector Pension Investment Board Act
320
DIVISION 11
Department of Housing, Infrastructure and Communities Act
323

Enactment of Act

An Act to establish the Department of Housing, Infrastructure and Communities
Short Title
1

Department of Housing, Infrastructure and Communities Act

Definition
2

Definition of Department

Department of Housing, Infrastructure and Communities
3

Department established

4

Deputy Minister

Minister of Infrastructure and Communities
5

Minister of Infrastructure and Communities

6

Powers, duties and functions

Minister of Housing
7

Appointment

8

Powers, duties and functions

9

Use of departmental services and facilities

Provisions Applicable to Both Ministers
10

No Minister appointed

11

General duties and powers

12

Committees

DIVISION 12
Measures Related to Placement or Arrival of Children
342


1st Session, 44th Parliament,

70-71 Elizabeth II – 1-2 Charles III, 2021-2022-2023

HOUSE OF COMMONS OF CANADA

BILL C-59

An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023

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

Short Title

Short title

1This Act may be cited as the Fall Economic Statement Implementation Act, 2023.

PART 1
Amendments to the Income Tax Act and to Other Legislation

R.‍S.‍, c. 1 (5th Supp.‍)

Income Tax Act

2(1)Subsection 12(1) of the Income Tax Act is amended by adding the following after paragraph (l.‍1):

  • Partnership — interest and financing expenses add back
    Start of inserted block

    (l.‍2)the amount determined by the formula

    A × B
    where

    A
    is the total of all amounts each of which is an amount determined under paragraph (h) of the description of A in the definition interest and financing expenses in subsection 18.‍2(1) in respect of the taxpayer for the taxation year, and

    B
    is

    (i)if the taxpayer is an excluded entity for the year (as defined in subsection 18.‍2(1)), nil, and

    (ii)in any other case, the proportion determined under the first formula in subsection 18.‍2(2) in respect of the taxpayer for the year;

    End of inserted block

(2)Paragraph 12(1)‍(n.‍3) of the Act is replaced by the following:

  • Retirement compensation arrangement

    (n.‍3)the total of all amounts received by the taxpayer in the year in the course of a business out of or under a retirement compensation arrangement ( Insertion start including amounts received in respect of the arrangement under subsection 207.‍71(3) Insertion end ) to which the taxpayer, another person who carried on a business that was acquired by the taxpayer, or any person with whom the taxpayer or that other person does not deal at arm’s length, has contributed an amount that was deductible under paragraph 20(1)‍(r) in computing the contributor’s income for a taxation year;

(3)Paragraph 12(1)‍(t) of the Act is replaced by the following:

  • Investment tax credit

    (t)the amount deducted under subsection 127(5) or (6) Insertion start or 127.‍44(3) Insertion end in respect of a property acquired or an expenditure made in a preceding taxation year in computing the taxpayer’s tax payable for a preceding taxation year to the extent that it was not included in computing the taxpayer’s income for a preceding taxation year under this paragraph or is not included in an amount determined under paragraph 13(7.‍1)‍(e) or 37(1)‍(e), subparagraph 53(2)‍(c)‍(vi), Insertion start (c)‍(vi.‍1) Insertion end or (h)‍(ii) or for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.‍1(6);

(4)Paragraph 12(1)‍(t) of the Act, as enacted by subsection (3), is replaced by the following:

  • Investment tax credit

    (t)the amount deducted under subsection 127(5) or (6), 127.‍44(3) or Insertion start 127.‍45(6) Insertion end in respect of a property acquired or an expenditure made in a preceding taxation year in computing the taxpayer’s tax payable for a preceding taxation year to the extent that it was not included in computing the taxpayer’s income for a preceding taxation year under this paragraph or is not included in an amount determined under paragraph 13(7.‍1)‍(e) or 37(1)‍(e), subparagraph 53(2)‍(c)‍(vi) Insertion start to (c)‍(vi.‍2) Insertion end or (h)‍(ii) or for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.‍1(6);

(5)Subsection 12(2.‍02) of the Act is replaced by the following:

Source of income
(2.‍02)For the purposes of this Act, if a Insertion start particular Insertion end amount is included in computing the income of a taxpayer for a taxation year because of paragraph (1)‍(l.‍1) Insertion start or (l.‍2) Insertion end and the Insertion start particular Insertion end amount is in respect of Insertion start another amount Insertion end that is deductible by a partnership in computing its income from a particular source or from sources in a particular place, the Insertion start particular Insertion end amount is deemed to be from the particular source or from sources in the particular place, as the case may be.

(6)The definition investment contract in subsection 12(11) of the Act is amended by adding the following after paragraph (d.‍1):

  • Start of inserted block

    (d.‍2)a FHSA,

    End of inserted block

(7)Subsections (1) and (5) apply in respect of taxation years of a taxpayer that begin on or after October 1, 2023. However, subsections (1) and (5) also apply in respect of a taxation year of a taxpayer that begins before, and ends after, October 1, 2023 if

  • (a)any of the taxpayer’s three immediately preceding taxation years was, because of a transaction or event or a series of transactions or events, shorter than it would have been in the absence of that transaction, event or series; and

  • (b)it can reasonably be considered that one of the purposes of the transaction, event or series was to defer the application of paragraph 12(1)‍(l.‍2) of the Act, as enacted by subsection (1), or the application of section 18.‍2 or 18.‍21 of the Act, as enacted by subsection 7(1), to the taxpayer.

(8)Subsection (2) applies to the 2024 and subsequent taxation years.

(9)Subsection (3) is deemed to have come into force on January 1, 2022.

(10)Subsection (4) is deemed to have come into force on March 28, 2023.

(11)Subsection (6) is deemed to have come into force on April 1, 2023.

3(1)The Act is amended by adding the following after section 12.‍6:

Hybrid mismatch arrangements — definitions
Start of inserted block
12.‍7(1)The definitions in subsection 18.‍4(1) apply in this section.
End of inserted block
Secondary rule — conditions for application
Start of inserted block
(2)Subsection (3) applies in respect of a payment of which a taxpayer is a recipient if
  • (a)the payment arises under a hybrid mismatch arrangement; and

  • (b)there is a foreign deduction component of the hybrid mismatch arrangement.

    End of inserted block
Secondary rule — consequences
Start of inserted block
(3)Subject to subsection 18.‍4(5), if this subsection applies in respect of a payment of which a taxpayer is a recipient, an amount equal to the hybrid mismatch amount in respect of the payment shall be
  • (a)included in computing the taxpayer’s income from the same source as the payment; and

  • (b)included in computing the taxpayer’s income for the last taxation year of the taxpayer that begins at or before the end of the first foreign taxation year of any entity in which an amount in respect of the payment, in the absence of any foreign expense restriction rule, would be — or would reasonably be expected to be — deductible in computing relevant foreign income or profits of the entity.

    End of inserted block

(2)Subsection (1) applies in respect of payments arising on or after July 1, 2022, except that subsection 12.‍7(3) of the Act, as enacted by subsection (1), does not apply to the portion of a payment that

  • (a)arises because of subsection 18.‍4(9) of the Act, as enacted by subsection 8(1); and

  • (b)relates to the portion of a notional interest expense that is computed in respect of a period of time that precedes January 1, 2023.

4(1)The portion of subsection 13(7.‍1) of the Act before paragraph (a) is replaced by the following:

Deemed capital cost of certain property
(7.‍1)For the purposes of this Act, where section 80 applied to reduce the capital cost to a taxpayer of a depreciable property or a taxpayer deducted an amount under subsection 127(5) or (6) Insertion start or 127.‍44(3) Insertion end in respect of a depreciable property or received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance other than

(2)The portion of subsection 13(7.‍1) of the Act before paragraph (a), as enacted by subsection (1), is replaced by the following:

Deemed capital cost of certain property
(7.‍1)For the purposes of this Act, where section 80 applied to reduce the capital cost to a taxpayer of a depreciable property or a taxpayer deducted an amount under subsection 127(5) or (6), 127.‍44(3) or Insertion start 127.‍45(6) Insertion end in respect of a depreciable property or received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance other than

(3)Paragraph 13(7.‍1)‍(e) of the Act is replaced by the following:

  • (e)where the property was acquired in a taxation year ending before the particular time, all amounts deducted under subsection 127(5) or (6) Insertion start or 127.‍44(3) Insertion end by the taxpayer for a taxation year ending before the particular time,

(4)Paragraph 13(7.‍1)‍(e) of the Act, as enacted by subsection (3), is replaced by the following:

  • (e)where the property was acquired in a taxation year ending before the particular time, all amounts deducted under subsection 127(5) or (6), 127.‍44(3) or Insertion start 127.‍45(6) Insertion end by the taxpayer for a taxation year ending before the particular time,

(5)Section 13 of the Act is amended by adding the following after subsection (7.‍5):

Capital expenditures — Classes 59 and 60
Start of inserted block
(7.‍6)If a taxpayer has incurred an expenditure on account of capital, and the amount of the expenditure would have been included in the taxpayer’s undepreciated capital cost of property included in Class 59 or 60 of Schedule II to the Income Tax Regulations if the taxpayer had acquired a property as a result of the expenditure, then the taxpayer is deemed to have acquired a property, included in Class 59 or 60, as the case may be, at a cost equal to the amount of the expenditure, at the time that the expenditure is incurred.
End of inserted block

(6)The description of I in the definition undepreciated capital cost in subsection 13(21) of the Act is replaced by the following:

I
is the total of all amounts deducted under subsection 127(5) or (6) Insertion start or 127.‍44(3) Insertion end , in respect of a depreciable property of the class of the taxpayer, in computing the taxpayer’s tax payable for a taxation year ending before that time and subsequent to the disposition of that property by the taxpayer,

(7)The description of I in the definition undepreciated capital cost in subsection 13(21) of the Act, as enacted by subsection (6), is replaced by the following:

I
is the total of all amounts deducted under subsection 127(5) or (6), 127.‍44(3) or Insertion start 127.‍45(6) Insertion end , in respect of a depreciable property of the class of the taxpayer, in computing the taxpayer’s tax payable for a taxation year ending before that time and subsequent to the disposition of that property by the taxpayer,

(8)The portion of paragraph 13(24)‍(a) of the Act before subparagraph (i) is replaced by the following:

  • (a)subject to paragraph (b), for the purposes of the description of A in the definition undepreciated capital cost in subsection (21) and of sections 127, 127.‍1 and Insertion start 127.‍44 Insertion end , the property is deemed

(9)The portion of paragraph 13(24)‍(a) of the Act before subparagraph (i), as enacted by subsection (8), is replaced by the following:

  • (a)subject to paragraph (b), for the purposes of the description of A in the definition undepreciated capital cost in subsection (21) and of sections 127, 127.‍1, 127.‍44 and Insertion start 127.‍45 Insertion end , the property is deemed

(10)Subsections (1), (3), (5), (6) and (8) are deemed to have come into force on January 1, 2022.

(11)Subsections (2), (4), (7) and (9) are deemed to have come into force on March 28, 2023.

5(1)Section 15 of the Act is amended by adding the following after subsection (2.‍5):

When s. 15(2) not to apply — employee ownership trusts
Start of inserted block
(2.‍51)Subsection (2) does not apply to a loan made or a debt that arose in respect of a qualifying business transfer if
  • (a)immediately following the qualifying business transfer,

    • (i)the lender or creditor is a qualifying business, and

    • (ii)the borrower is the employee ownership trust that controls the qualifying business described in subparagraph (i);

  • (b)the sole purpose of the loan or the debt is to facilitate the qualifying business transfer; and

  • (c)at the time the loan was made or the debt incurred, bona fide arrangements were made for repayment of the loan or debt within 15 years of the qualifying business transfer.

    End of inserted block

(2)Subsection (1) applies in respect of transactions that occur on or after January 1, 2024.

6(1)The portion of subsection 18(4) of the Act before paragraph (a) is replaced by the following:

Limitation on deduction of interest
(4)Notwithstanding any other provision of this Act (other than subsection (8)), in computing the income for a taxation year of a corporation or a trust from a business (other than the Canadian banking business of an authorized foreign bank) or property, no deduction shall be made in respect of that proportion of any amount Insertion start that would, in the absence of this subsection and section 18.‍2, be Insertion end deductible in computing Insertion start that Insertion end income in respect of interest paid or payable by it on outstanding debts to specified non-residents that

(2)Subsection (1) applies in respect of taxation years of a taxpayer that begin on or after October 1, 2023. However, subsection (1) also applies in respect of a taxation year that begins before, and ends after, October 1, 2023 if

  • (a)any of the taxpayer’s three immediately preceding taxation years was, because of a transaction or event or a series of transactions or events, shorter than it would have been in the absence of that transaction, event or series; and

  • (b)it can reasonably be considered that one of the purposes of the transaction, event or series was to defer the application of paragraph 12(1)‍(l.‍2) of the Act, as enacted by subsection 2(1), or the application of section 18.‍2 or 18.‍21 of the Act, as enacted by subsection 7(1), to the taxpayer.

7(1)The Act is amended by adding the following after section 18.‍1:

Definitions
Start of inserted block
18.‍2(1)The following definitions apply in this section and section 18.‍21.

absorbed capacity of a taxpayer for a taxation year means the lesser of

  • (a)the taxpayer’s cumulative unused excess capacity for the year, determined as if the taxpayer’s absorbed capacity for the year were nil, and

  • (b)the amount determined by the formula

    A − (B + C)
    where

    A
    is the taxpayer’s interest and financing expenses for the year,

    B
    is

    (i)if subsection 18.‍21(2) applies in respect of the taxpayer for the year, the amount determined in respect of the taxpayer for the year under that subsection, and

    (ii)in any other case, the amount determined by the formula

    D × E
    where

    D
    is the taxpayer’s ratio of permissible expenses for the year, and

    E
    is the taxpayer’s adjusted taxable income for the year, and

    C
    is the taxpayer’s interest and financing revenues for the year.‍ (capacité absorbée)

adjusted taxable income of a taxpayer for a taxation year means the amount determined by the formula

A + B − C
where

A
is the positive or negative amount determined by the formula

D − E
where

D
is

(a)if the taxpayer is non-resident, the taxpayer’s taxable income earned in Canada for the year (determined without regard to subsection (2) and paragraphs 12(1)‍(l.‍2) and 111(1)‍(a.‍1)), and

(b)in any other case, the taxpayer’s taxable income for the year (determined without regard to subsection (2), paragraphs 12(1)‍(l.‍2) and 111(1)‍(a.‍1) and clause 95(2)‍(f.‍11)‍(ii)‍(D)), and

E
is the total of

(a)the taxpayer’s non-capital loss for the year (determined without regard to subsection (2), paragraphs 12(1)‍(l.‍2) and 111(1)‍(a.‍1) and clause 95(2)‍(f.‍11)‍(ii)‍(D)), and

(b)the total of all amounts each of which is, in respect of a corporation that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the year — or a controlled foreign affiliate of a partnership, of which the taxpayer or a controlled foreign affiliate of the taxpayer is a member, at the end of an affiliate taxation year ending in a fiscal period of the partnership — an amount determined by the formula

T × U ÷ V
where

T
is the lesser of

(i)the affiliate’s foreign accrual property loss (determined without regard to clause 95(2)‍(f.‍11)‍(ii)‍(D)) for the affiliate taxation year, and

(ii)the amount by which the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year exceeds the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year,

U
is the amount that is included in the taxpayer’s interest and financing expenses for the year in respect of the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

V
is the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year;

B
is the total of all amounts (subject to paragraph (k), other than an amount that can reasonably be considered to be in respect of exempt interest and financing expenses) each of which is

(a)the taxpayer’s interest and financing expenses for the year,

(b)an amount deducted by the taxpayer in computing its income for the year under paragraph 20(1)‍(a) or 59.‍1(a) or subsection 66(4), 66.‍1(2) or (3), 66.‍2(2), 66.‍21(4), 66.‍4(2) or 66.‍7(1), (2), (2.‍3), (3), (4) or (5), other than any portion of that amount that is described in subparagraph (c)‍(ii) of the description of A in the definition interest and financing expenses,

(c)an amount deducted by the taxpayer in computing its income for the year under subsection 20(16), other than any portion of that amount that is described in paragraph (d) of the description of A in the definition interest and financing expenses,

(d)in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula

F × G − H
where

F
is the total of all amounts, each of which is an amount deducted by the partnership under paragraph 20(1)‍(a) or subsection 20(16) in computing its income or loss from the source, or the source in a particular place, for the fiscal period, other than any portion of that amount that is described in subparagraph (c)‍(ii) of the description of A in the definition interest and financing expenses,

G
is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”, and

H
is the portion of an amount referred to in the description of F that can reasonably be considered to not be deductible in computing the taxpayer’s income for the year, or to not be included in computing the taxpayer’s non-capital loss for the year, because of subsection 96(2.‍1),

(e)the portion of an amount deducted under paragraph 111(1)‍(e) for the year, in respect of a partnership of which the taxpayer is a member, that can reasonably be considered to be attributable to an amount referred to in the description of H in paragraph (d) in respect of a fiscal period of the partnership ending in a preceding taxation year of the taxpayer,

(f)an amount deducted by the taxpayer under paragraph 110(1)‍(k) in computing its taxable income for the year,

(g)an amount deducted by the taxpayer under subsection 104(6) in computing its income for the year, except to the extent of any portion of the amount that has been designated under subsection 104(19) for the year,

(h)an amount determined by the formula

I × J ÷ K
where

I
is the amount deducted by the taxpayer under paragraph 111(1)‍(a) in computing its taxable income for the year, in respect of the taxpayer’s non-capital loss (other than a specified pre-regime loss of the taxpayer in respect of the year) for another taxation year (referred to in this paragraph as the “taxpayer loss year”),

J
is the lesser of

(i)the non-capital loss for the taxpayer loss year, and

(ii)the amount determined by the formula

W − X − Y
where

W
is the total of all amounts, each of which is an amount that is

(A)the interest and financing expenses of the taxpayer for the taxpayer loss year, determined without regard to any amount or portion of an amount that is not deductible because of subsection (2) or clause 95(2)‍(f.‍11)‍(ii)‍(D),

(B)described in any of paragraphs (b) to (g) or (j) to (m) of the description of B for the taxpayer loss year, or

(C)deducted by the taxpayer under paragraph 111(1)‍(a.‍1) in computing its taxable income for the taxpayer loss year,

X
is the total of all amounts, each of which is an amount

(A)described in any of paragraphs (a) to (f), (h) or (j) of the description of C for the taxpayer loss year, or

(B)included in the income of the taxpayer for the taxpayer loss year by reason of paragraph 12(1)‍(l.‍2), and

Y
is the total of all amounts, each of which is an amount determined by the formula

Z × Z.‍1 ÷ Z.‍2
where

Z
is the lesser of

(A)the foreign accrual property loss, for an affiliate taxation year, of a corporation (referred to throughout the description of Y as the “affiliate”) that, at the end of the affiliate taxation year, is a controlled foreign affiliate of the taxpayer, or is a controlled foreign affiliate of a partnership of which the taxpayer or a controlled foreign affiliate of the taxpayer is a member at any time, and

(B)the amount by which the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year (determined without regard to any amount or portion of an amount that is not deductible because of clause 95(2)‍(f.‍11)‍(ii)‍(D)) exceeds the total of all amounts, each of which is

(I)the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year, or

(II)an amount included under subclause 95(2)‍(f.‍11)‍(ii)‍(D)‍(II) in respect of the affiliate for the affiliate taxation year,

Z.‍1
is the amount that is included in the taxpayer’s interest and financing expenses for the taxpayer loss year in respect of the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

Z.‍2
is the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

K
is the non-capital loss for the taxpayer loss year,

(i)25% of the amount deducted, in respect of a specified pre-regime loss of the taxpayer in respect of the year, by the taxpayer under paragraph 111(1)‍(a) in computing its taxable income for the year,

(j)in respect of a corporation (referred to in this paragraph as the “affiliate”) that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the year — or that is a controlled foreign affiliate of a partnership, of which the taxpayer or a controlled foreign affiliate of the taxpayer is a member at any time, at the end of an affiliate taxation year ending in a fiscal period of the partnership — the additional amount that would be included in the taxpayer’s income, either under subsection 91(1) or because an amount would be included in the income of a partnership under that subsection, in respect of the affiliate’s foreign accrual property income for the affiliate taxation year, if the affiliate’s foreign accrual property income for the affiliate taxation year were increased by the amount determined by the formula

L × M ÷ N
where

L
is the amount that, in computing the foreign accrual property income of the affiliate for the affiliate taxation year, is the prescribed amount for the description of F in the definition foreign accrual property income in subsection 95(1), in respect of a foreign accrual property loss of the affiliate for another affiliate taxation year (referred to in this paragraph as the “affiliate loss year”),

M
is the lesser of

(i)the affiliate’s foreign accrual property loss for the affiliate loss year, and

(ii)the amount by which the affiliate’s relevant affiliate interest and financing expenses for the affiliate loss year (determined without regard to any amount or portion of an amount that is not deductible because of clause 95(2)‍(f.‍11)‍(ii)‍(D)) exceeds the total of all amounts, each of which is

(A)the affiliate’s relevant affiliate interest and financing revenues for the affiliate loss year, or

(B)an amount included under subclause 95(2)‍(f.‍11)‍(ii)‍(D)‍(II) in respect of the affiliate for the affiliate loss year, and

N
is the affiliate’s foreign accrual property loss for the affiliate loss year,

(k)the amount that would be the taxpayer’s loss for the year, or that would be the taxpayer’s share of the loss of a partnership of which the taxpayer is a member, if the taxpayer or partnership had no income or loss other than a loss that can reasonably be considered to be incurred by the taxpayer or the partnership in respect of activities funded by a borrowing (within the meaning of the definition exempt interest and financing expenses) that results in exempt interest and financing expenses of the taxpayer or the partnership,

(l)an amount deducted under subsection 127(5) or (6), 127.‍44(3) or 127.‍45(6) in respect of a property acquired in a preceding taxation year in computing the taxpayer’s tax payable for a preceding taxation year to the extent that it

(i)is included in an amount determined under paragraph 13(7.‍1)‍(e) or subparagraph 53(2)‍(c)‍(vi) to (vi.‍2) or (h)‍(ii) or for I in the definition undepreciated capital cost in subsection 13(21), and

(ii)was not included

(A)in computing the taxpayer’s income for the year or a preceding taxation year, and

(B)under this paragraph in calculating the taxpayer’s adjusted taxable income for a preceding taxation year, or

(m)an amount described in clause 12(1)‍(x)‍(i)‍(C) or subparagraph 12(1)‍(x)‍(ii) that is received by the taxpayer in the year to the extent that it

(i)reduces the cost or capital cost of a property,

(ii)is not included in computing the income of the taxpayer for the year under paragraph 12(1)‍(x), and

(iii)would be included in computing the income of the taxpayer for the year under paragraph 12(1)‍(x) if that paragraph were read without reference to its subparagraphs (vi) and (vii); and

C
is the total of all amounts each of which is

(a)the taxpayer’s interest and financing revenues for the year,

(b)an amount included under subsection 13(1) in computing the taxpayer’s income for the year,

(c)in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula

O × P
where

O
is an amount that is included by the partnership under subsection 13(1) in computing its income or loss from the source, or the source in a particular place, for the fiscal period, and

P
is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”,

(d)an amount included under subsection 59(1) or (3.‍2) or paragraph 59.‍1(b) in computing the taxpayer’s income for the year,

(e)in the case of a corporation

(i)100/28 of the total of the amounts that would be deductible by it under subsection 126(1) from its tax for the year otherwise payable under this Part if those amounts were determined without reference to sections 123.‍3 and 123.‍4, or

(ii)the amount determined by multiplying the total of the amounts that would be deductible by it under subsection 126(2) from its tax for the year otherwise payable under this Part, if those amounts were determined without reference to section 123.‍4, by the relevant factor for the year,

(f)in the case of a trust, the amount determined by the formula

Q × (1 ÷ (R × S))
where

Q
is the total of the amounts deductible by it under subsection 126(1) or (2) from its tax for the year otherwise payable under this Part for the year,

R
is the percentage (expressed as a decimal fraction) referred to in paragraph 122(1)‍(a) in respect of the year, and

S
is 1 plus the percentage (expressed as a decimal fraction) referred to in subsection 120(1) in respect of the year,

(g)an amount included under section 110.‍5 in computing the taxpayer’s taxable income for the year,

(h)an amount included under subsection 104(13) in computing the taxpayer’s income for the year, except to the extent of any portion of the amount that

(i)has been designated under subsection 104(19) for the year, or

(ii)gives rise to a deduction under paragraph 94.‍2(3)‍(a) in computing the foreign accrual property income for an affiliate taxation year of an entity that is a controlled foreign affiliate of the taxpayer at the end of the affiliate taxation year,

(i)an amount of the taxpayer’s taxable income for the year that is not, because of an Act of Parliament, subject to tax under this Part, or

(j)the amount that would be the taxpayer’s income for the year, or that would be the taxpayer’s share of the income of a partnership of which the taxpayer is a member, if the taxpayer or partnership had no income or loss other than income that can reasonably be considered to be earned by the taxpayer or the partnership in respect of activities funded by a borrowing (within the meaning of the definition exempt interest and financing expenses) that results in exempt interest and financing expenses of the taxpayer or the partnership.‍ (revenu imposable rajusté)

affiliate taxation year of a controlled foreign affiliate means the period for which the accounts of the affiliate have been ordinarily made up, but no such period may exceed 53 weeks.‍ (année d’imposition de la société affiliée)

cumulative unused excess capacity of a taxpayer for a particular taxation year means the total of all amounts each of which is

  • (a)the excess capacity of the taxpayer for the particular year, or

  • (b)the excess capacity of the taxpayer for any of the three immediately preceding taxation years, if the taxpayer’s excess capacity for each of those years is determined according to the following rules:

    • (i)if the taxpayer has an amount of transferred capacity for any taxation year (referred to in this definition as the “transfer year”) preceding the particular year,

      • (A)there are to be reductions to the taxpayer’s excess capacity for the transfer year and the three taxation years immediately preceding the transfer year (each referred to in this subparagraph as a “relevant year”) in a total amount equal to the total of all amounts each of which is an amount of transferred capacity of the taxpayer for the transfer year (referred to in this definition as the “total transferred capacity amount”), and

      • (B)the amount by which the taxpayer’s excess capacity for a particular relevant year is to be reduced is equal to the lesser of

        • (I)the taxpayer’s excess capacity for the particular relevant year, determined taking into consideration any reductions to that excess capacity under

          • 1this subparagraph, in respect of amounts of transferred capacity for years preceding the transfer year, and

          • 2subparagraph (ii), in respect of amounts of absorbed capacity for the transfer year and any years preceding the transfer year, and

        • (II)the amount, if any, by which the total transferred capacity amount for the transfer year exceeds the reductions, under this subparagraph in respect of that total transferred capacity amount, to the taxpayer’s excess capacity for any relevant years preceding the particular relevant year, and

    • (ii)if the taxpayer has an amount of absorbed capacity for a taxation year (referred to in this definition as the “absorbed capacity year”),

      • (A)there are to be reductions to the taxpayer’s excess capacity for the three taxation years immediately preceding the absorbed capacity year (each referred to in this subparagraph as a “relevant year”) in a total amount equal to the amount of absorbed capacity for the absorbed capacity year, and

      • (B)the amount by which the taxpayer’s excess capacity for a particular relevant year is to be reduced is equal to the lesser of

        • (I)the taxpayer’s excess capacity for the particular relevant year, determined taking into account any reductions to that excess capacity under

          • 1subparagraph (i), in respect of amounts of transferred capacity for years preceding the absorbed capacity year, and

          • 2this subparagraph, in respect of amounts of absorbed capacity for years preceding the absorbed capacity year, and

        • (II)the amount, if any, by which the amount of absorbed capacity for the absorbed capacity year exceeds the reductions under this subparagraph in respect of that amount of absorbed capacity to the taxpayer’s excess capacity for the relevant years preceding the particular relevant year.‍ (capacité excédentaire cumulative inutilisée)

eligible group entity, in respect of a taxpayer resident in Canada, at any time, means a corporation, or a trust, resident in Canada

  • (a)that is, at that time, related (other than because of a right referred to in paragraph 251(5)‍(b)) to the taxpayer;

  • (b)that would, at that time, be affiliated with the taxpayer if section 251.‍1 were read without reference to the definition controlled in subsection 251.‍1(3);

  • (c)that is a trust in respect of which the taxpayer’s interest in the trust is not a fixed interest (as defined in subsection 94(1)); or

  • (d)that is a beneficiary of the taxpayer, if the taxpayer is a trust, whose interest in the taxpayer is not a fixed interest (as defined in subsection 94(1)) (other than a beneficiary that is a registered charity, or a non-profit organization, with whom the taxpayer deals at arm’s length).‍ (entité admissible du groupe)

excess capacity of a taxpayer for a taxation year means

  • (a)if subsection 18.‍21(2) applies in respect of the taxpayer for the year, nil; and

  • (b)in any other case, the amount determined by the formula

    A − B − C
    where

    A
    is the amount determined by the formula

    D × E + F
    where

    D
    is the ratio of permissible expenses of the taxpayer for the year,

    E
    is the adjusted taxable income of the taxpayer for the year, and

    F
    is the amount determined by the formula

    G − H × I
    where

    G
    is the interest and financing revenues of the taxpayer for the year,

    H
    is the ratio of permissible expenses of the taxpayer for the year, and

    I
    is the lesser of

    (i)the amount by which the interest and financing revenues of the taxpayer for the year exceed the interest and financing expenses of the taxpayer for the year, and

    (ii)either

    (A)if the adjusted taxable income of the taxpayer for the year would, in the absence of section 257, be a negative amount, the absolute value of the negative amount, or

    (B)in any other case, nil,

    B
    is the interest and financing expenses of the taxpayer for the year, and

    C
    is the amount deductible by the taxpayer under paragraph 111(1)‍(a.‍1) in the year.‍ (capacité excédentaire)

excluded entity for a particular taxation year means

  • (a)a corporation that is throughout the particular year a Canadian-controlled private corporation in respect of which the amount determined for C in paragraph 125(5.‍1)‍(a) for the year is less than $50,000,000;

  • (b)a particular taxpayer resident in Canada, if $1,000,000 is not less than the amount determined by the formula

    A − B
    where

    A
    is the total of all amounts, each of which is the interest and financing expenses or the exempt interest and financing expenses of

    (i)the particular taxpayer for the particular taxation year, or

    (ii)another taxpayer resident in Canada for a taxation year (referred to in this subparagraph as the “relevant taxation year”) ending in the particular taxation year, if the other taxpayer is an eligible group entity in respect of the particular taxpayer at the end of the relevant taxation year, and

    B
    is the amount that would be determined for A if

    (i)the reference in the description of A to “the interest and financing expenses or the exempt interest and financing expenses” were read as a reference to “the interest and financing revenues”, and

    (ii)the interest and financing revenues of a financial institution group entity were excluded; or

  • (c)a taxpayer resident in Canada if

    • (i)all or substantially all of the businesses, if any, and all or substantially all of the undertakings and activities of

      • (A)the taxpayer are, throughout the particular year, carried on in Canada, and

      • (B)each eligible group entity in respect of the taxpayer are, throughout the eligible group entity’s taxation year that ends in the particular year, carried on in Canada,

    • (ii)throughout the year, it is the case that

      A ≥ B
      where

      A
      is $5,000,000, and

      B
      is the greater of

      (A)the total of all amounts, each of which is the amount at which the shares of the capital stock of a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member, would be valued for the purpose of the balance sheet of the taxpayer or the eligible group entity if that balance sheet were prepared in accordance with generally accepted accounting principles used in Canada, other than any amount or portion of an amount that is already included under this clause because the value of the shares of the capital stock of a particular foreign affiliate reflects the value of shares of the capital stock of another foreign affiliate that is owned, directly or indirectly, by the particular foreign affiliate, or

      (B)the total of all amounts, each of which is the amount that can reasonably be considered to be the proportionate share, of the taxpayer or an eligible group entity in respect of the taxpayer, of the fair market value of all property of a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member, other than a property that is shares of the capital stock of another corporation that is a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member,

    • (iii)no person or partnership is, at any time in the particular year,

      • (A)a specified shareholder or a specified beneficiary (as those terms are defined in subsection 18(5)) of the taxpayer, or of any eligible group entity in respect of the taxpayer, that is not resident in Canada, or

      • (B)a partnership more than 50% of the fair market value of all interests in which can reasonably be considered to be held, directly or indirectly through one or more trusts or partnerships, by non-resident persons, if the property of the partnership includes,

        • (I)if the taxpayer or the eligible group entity in respect of the taxpayer is a corporation, shares, or a right to acquire shares, of the capital stock of the taxpayer or an eligible group entity in respect of the taxpayer that, either alone or together with shares, or rights to acquire shares, held by persons or partnerships with whom the partnership does not deal at arm’s length,

          • 1provide 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or

          • 2have 25% or more of the fair market value of all capital stock in the corporation, or

        • (II)if the taxpayer or the eligible group entity in respect of the taxpayer is a trust, an interest, or a right to acquire an interest, as a beneficiary in the taxpayer or an eligible group entity in respect of the taxpayer that, either alone or together with interests, or rights to acquire interests, held by persons or partnerships with whom the partnership does not deal at arm’s length, has 25% or more of the fair market value of all interests as a beneficiary in the trust, and

    • (iv)all or substantially all of the interest and financing expenses of the taxpayer and of each eligible group entity in respect of the taxpayer for the particular year are paid or payable to persons or partnerships that are not, at any time in the particular year, tax-indifferent persons or partnerships that do not deal at arm’s length with the taxpayer or any eligible group entity in respect of the taxpayer.‍ (entité exclue)

excluded interest, for a taxation year or fiscal period, means an amount of interest or a lease financing amount, if

  • (a)the amount is paid in, or payable in or in respect of, the year or period by a corporation or partnership (in this definition referred to as the “payer”) to another corporation or partnership (in this definition referred to as the “payee”) in respect of a debt or a lease in respect of a particular property;

  • (b)throughout the period during which the amount accrued (in this definition referred to as the “relevant period”)

    • (i)if the amount is interest, the debt is owed by the payer to the payee, or

    • (ii)if the amount is a lease financing amount, the lease is between the payer and payee;

  • (c)where the payer is not a financial institution group entity, the payee is not a financial institution group entity;

  • (d)throughout the relevant period and at the time of payment

    • (i)each of the payer and payee is

      • (A)a taxable Canadian corporation, or

      • (B)a partnership, no member of which is a natural person, a trust or a corporation that is not a taxable Canadian corporation, and

    • (ii)one of the following conditions is met:

      • (A)if the payee is a partnership, all the members of the payee (other than another partnership) are eligible group entities in respect of

        • (I)if the payer is a partnership, each member of the payer (other than another partnership), and

        • (II)in any other case, the payer, or

      • (B)if the payee is not a partnership, the payee is an eligible group entity in respect of

        • (I)if the payer is a partnership, each member of the payer (other than another partnership), and

        • (II)in any other case, the payer; and

  • (e)the payer — or, if the payer is a partnership, each member of the payer — and the payee — or, if the payee is a partnership, each member of the payee — file with the Minister, in respect of the year or period of both the payer and the payee, a joint election in writing in prescribed manner under this paragraph that

    • (i)specifies

      • (A)the amount of the interest or lease financing amount,

      • (B)if the amount is interest, the amounts outstanding, at the beginning and end of the relevant period, as or on account of the debt in respect of which this paragraph applies, and

      • (C)if the amount is a lease financing amount, the fair market value of the particular property at the time the lease began, and

    • (ii)is filed on or before the earliest of the filing-due date of

      • (A)the payer for its year,

      • (B)the payee for its year, and

      • (C)if the payer or the payee is a partnership, any member of the payer or payee for the member’s taxation year that includes the end of the fiscal period of the payer or the payee, as the case may be.‍ (intérêts exclus)

excluded lease for a taxation year of a taxpayer means a lease

  • (a)to which the rules in subsection 16.‍1(1) apply;

  • (b)that would not be considered to be a lease for a term of more than one year for purposes of paragraph (b) of the definition specified leasing property in subsection 1100(1.‍11) of the Income Tax Regulations; or

  • (c)that is in respect of property

    • (i)that would not be considered, at the time the lease was entered into, to have a fair market value in excess of $25,000 for purposes of paragraph (c) of that definition, or

    • (ii)that would be considered, at all times in the taxation year, exempt property for purposes of subsection 1100(1.‍13) of the Income Tax Regulations.‍ (bail exclu)

exempt interest and financing expenses of a taxpayer for a taxation year means the total of all amounts, each of which would, if the description of A in the definition interest and financing expenses were read without reference to “exempt interest and financing expenses”, be included in interest and financing expenses of the taxpayer for that year, and that is incurred in respect of a borrowing or other financing (referred to in this definition as the “borrowing”), if 

  • (a)the taxpayer or a partnership of which the taxpayer is a member entered into an agreement with a public sector authority to design, build and finance — or to design, build, finance, maintain and operate — property that the public sector authority, or another public sector authority, owns or has a leasehold interest in or right to acquire;

  • (b)the borrowing was entered into in respect of the agreement;

  • (c)it can reasonably be considered that all or substantially all of the amount is directly or indirectly borne by a public sector authority referred to in paragraph (a); and

  • (d)the amount was paid or payable to

    • (i)a person that deals at arm’s length with the taxpayer or the partnership of which the taxpayer is a member, or

    • (ii)a particular person that does not deal at arm’s length with the taxpayer or the partnership of which the taxpayer is a member if it may reasonably be considered that all or substantially all of the amount paid or payable to the particular person was paid or payable by the particular person to one or more persons that deal at arm’s length with the taxpayer or the partnership of which the taxpayer is a member.‍ (dépenses d’intérêts et de financement exonérées)

financial holding corporation, for a taxation year, means a corporation (other than a corporation described in any of paragraphs (a) to (f) of the definition financial institution group entity) if, throughout the year,

  • (a)the fair market value of the capital stock of the corporation is primarily attributable to any combination of shares or indebtedness of one or more entities described in any of paragraphs (a) to (f) of the definition financial institution group entity that are controlled by the corporation; or

  • (b)the corporation is incorporated under the Insurance Companies Act and shares of the capital stock of the corporation are listed on a designated stock exchange.‍ (société de portefeuille financière)

financial institution group entity means a taxpayer that at any time in a taxation year is

  • (a)a bank;

  • (b)a credit union;

  • (c)an insurance corporation;

  • (d)an entity authorized under the laws of Canada or a province to carry on the business of offering its services as a trustee to the public;

  • (e)an entity whose principal business consists of one or more of

    • (i)the lending of money to persons with whom the entity deals at arm’s length,

    • (ii)the purchasing of debt obligations issued by persons with whom the entity deals at arm’s length, or

    • (iii)activities which principally give rise to amounts described in paragraphs (a) to (d) of the description of A in the definition interest and financing revenues and are principally conducted with persons with whom the entity deals at arm’s length;

  • (f)a particular entity that is an eligible group entity in respect of an entity described in any of paragraphs (a) to (e), if the particular entity, or a partnership of which the particular entity is a member and from which the particular entity primarily derives its income,

    • (i)is authorized under provincial securities laws to engage in, and primarily engages in, the business of

      • (A)dealing in securities, or

      • (B)providing portfolio management, investment advice, fund administration or fund management; or

    • (ii)primarily engages in the business of providing portfolio management, investment advice, fund administration or fund management, including any services connected to those activities, in respect of real estate; or

  • (g)a particular entity (other than a financial holding corporation) that is an eligible group entity in respect of any entity described in any of paragraphs (a) to (f) if all or substantially all of the activities of the particular entity are ancillary to the activities or business carried on by one or more entities described in paragraphs (a) to (f) that are eligible group entities in respect of the particular entity.‍ (entité du groupe d’institutions financières)

fixed interest commercial trust at any time means a trust resident in Canada, if at that time

  • (a)the only beneficiaries that may for any reason receive, at or after that time and directly from the trust, any of the income or capital of the trust are beneficiaries that hold fixed interests (as defined in subsection 94(1)) in the trust; and

  • (b)any of the conditions set out in clauses (h)‍(ii)‍(A) to (C) in the definition exempt foreign trust in subsection 94(1) is met.‍ (fiducie commerciale à participation fixe)

foreign accrual property loss of a foreign affiliate for an affiliate taxation year has the meaning assigned by subsection 5903(3) of the Income Tax Regulations.‍ (perte étrangère accumulée, relative à des biens)

interest and financing expenses of a taxpayer for a particular taxation year means the amount determined by the formula

A − B
where

A
is the total of all amounts (other than an amount that is included in exempt interest and financing expenses), each of which is

(a)an amount that

(i)is paid in, or payable in or in respect of, a year as, on account of, in lieu of payment of or in satisfaction of, interest (other than excluded interest for the particular year or an amount that is deemed to be interest under subsection 137(4.‍1)),

(ii)would, in the absence of this section, be deductible (other than under a provision referred to in subparagraph (c)‍(i)) by the taxpayer in computing its income for the particular year, and

(iii)is not described in any other paragraph in this definition,

(b)an amount that, in the absence of this section and on the assumption that it is not deductible under another provision of this Act (other than any of the provisions referred to in subparagraph (c)‍(i)), would be deductible in computing the taxpayer’s income for the particular year under any of subparagraphs 20(1)‍(e)‍(ii) to (ii.‍2) and paragraphs 20(1)‍(e.‍1) to (f),

(c)the portion of an amount, if

(i)the amount, in the absence of this section, would be deductible in computing the taxpayer’s income for the particular year and is claimed by the taxpayer under paragraph 20(1)‍(a) or subsection 66(4), 66.‍1(2) or (3), 66.‍2(2), 66.‍21(4), 66.‍4(2) or 66.‍7(1), (2), (2.‍3), (3), (4) or (5), and

(ii)the portion can reasonably be considered to be attributable to an amount paid or payable on or after February 4, 2022 that either

(A)is described in subparagraph (a)‍(i), or

(B)would otherwise have been deductible in a taxation year under a provision referred to in paragraph (b), but for the application of another provision of this Act,

(d)the portion of an amount that would, in the absence of this section, be deductible in computing the taxpayer’s income for the particular year under subsection 20(16), to the extent that the portion can reasonably be considered to be described in subparagraph (c)‍(ii),

(e)an amount that is paid or payable by the taxpayer in a year or that is a loss or a capital loss of the taxpayer for a year, as the case may be, under or as a result of an agreement or arrangement, if

(i)the amount would, in the absence of this section

(A)be deductible (other than under subparagraph 20(1)‍(e)‍(i)) in computing the taxpayer’s income for the particular year, or

(B)in the case of a capital loss, reduce the amount determined under paragraph 3(b) in respect of the taxpayer or be deductible in computing the taxpayer’s taxable income for the particular year (except to the extent it has already been included under this paragraph for a previous year),

(ii)the agreement or arrangement is entered into as or in relation to a borrowing or other financing that the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer enters into, whether currently or in the future, and absolutely or contingently, and

(iii)the amount can reasonably be considered to increase (or be part of) the cost of funding with respect to the borrowing or other financing (including as a result of any hedge of the cost of funding or of the borrowing or other financing) of the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer;

(f)a particular amount that

(i)is in respect of an agreement or arrangement that gives rise to, or can reasonably be expected to give rise to, an amount that

(A)is included in computing a taxpayer’s interest and financing expenses for a taxation year under paragraph (e), or

(B)reduces the taxpayer’s interest and financing expenses for a taxation year under the description of B,

(ii)would, in the absence of this section, be deductible by the taxpayer in computing its income for the particular year,

(iii)is not deductible under any of the provisions listed in paragraph (b), and

(iv)is an expense or fee payable under the agreement or arrangement or an expense that is incurred in contemplation of, in the course of entering into or in relation to, the agreement or arrangement,

(g)a lease financing amount (other than in respect of an excluded lease for the particular year) that

(i)would, in the absence of this section, be deductible by the taxpayer in computing its income for the particular year, and

(ii)is not excluded interest for the particular year,

(h)in respect of the income or loss of a partnership, for a fiscal period that ends in the particular year, from any source or from sources in a particular place, an amount determined by the formula

C × D − E − F
where

C
is the total of all amounts, each of which is an amount that

(i)is deductible by the partnership in computing its income or loss from the source, or the source in a particular place, for a fiscal period, and that would be described in any of paragraphs (a) to (g) if the references to the taxpayer were read as references to the partnership, or

(ii)would be included under paragraph (j) in determining the interest and financing expenses of the partnership for the purposes of determining its income or loss from the source, or the source in a particular place, for the fiscal period, if the partnership were a taxpayer for the purposes of this section,

D
is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”,

E
is the amount, if any, included in computing the taxpayer’s income under paragraph 12(1)‍(l.‍1) in respect of the amount referred to in the description of C, and

F
is the portion of an amount determined for C that can reasonably be considered to not be deductible in computing the taxpayer’s income for the particular year, and to not be included in computing the taxpayer’s non-capital loss for the particular year, because of subsection 96(2.‍1),

(i)the portion of an amount that, in the absence of this section, would be deductible in computing the taxpayer’s taxable income for the particular year and is claimed by the taxpayer under paragraph 111(1)‍(e) in respect of a partnership of which the taxpayer is a member that can reasonably be considered to be attributable to an amount referred to in the description of F in paragraph (h) in respect of a fiscal period of the partnership ending in another taxation year of the taxpayer, or

(j)in respect of a corporation that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the particular year, an amount determined by the formula

G × H
where

G
is the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

H
is the taxpayer’s specified participating percentage in respect of the affiliate for the affiliate taxation year; and

B
is the total of all amounts, each of which is

(a)an amount received or receivable (other than as a dividend or in respect of exempt interest and financing expenses) by the taxpayer in a year, or a gain of the taxpayer for a year, as the case may be, under or as a result of an agreement or arrangement to the extent that

(i)the amount is included in computing the taxpayer’s income for the particular year,

(ii)the agreement or arrangement is entered into

(A)as a borrowing or other financing of the taxpayer or of a person or partnership that does not deal at arm’s length with the taxpayer, or

(B)in relation to a borrowing or other financing of the taxpayer or of a person or partnership that does not deal at arm’s length with the taxpayer to hedge the cost of funding or the borrowing or other financing,

(iii)the amount can reasonably be considered to reduce the cost of funding with respect to the borrowing or other financing of the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer, and

(iv)the amount cannot reasonably be considered to be excluded, reduced, offset or otherwise effectively sheltered from tax under this Part because

(A)an amount is deductible under any of subsections 20(11) to (12.‍1) and 126(1) and (2), and

(B)an amount is deductible in respect of income or profits tax paid to a country other than Canada that

(I)can reasonably be considered to have been paid in respect of the amount, and

(II)is not a tax substantially similar to tax under subsection 212(1), or

(b)in respect of the income or loss of a partnership, for a fiscal period that ends in the particular year, from any source or from sources in a particular place, an amount determined by the formula

I × J
where

I
is an amount that would be described in paragraph (a) if

(i)the references to the taxpayer in that paragraph were read as references to the partnership, and

(ii)the reference in subparagraph (a)‍(i) to “the taxpayer’s income for the particular year” were read as “the partnership’s income or loss from the source, or the source in a particular place, for a fiscal period”, and

J
is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”.‍ (dépenses d’intérêts et de financement)

interest and financing revenues of a taxpayer for a taxation year means the amount determined by the formula

A − B
where

A
is the total of all amounts (other than any amount included under the description of B in the definition interest and financing expenses), each of which is

(a)an amount received or receivable as, on account of, in lieu of payment or in satisfaction of, interest (other than excluded interest for the year, an amount that is deemed to be interest under subsection 137(4.‍1) or any amount described in any other paragraph in this definition) that is included in computing the taxpayer’s income for the year,

(b)an amount that is included in computing the taxpayer’s income for the year because of subsection 12(9) or section 17.‍1 (other than any amount described in any other paragraph in this definition),

(c)a fee or similar amount in respect of a guarantee, or similar credit support, provided by the taxpayer for the payment of any amount on a debt obligation owing by another person or partnership that is included in computing the taxpayer’s income for the year (other than any amount described in any other paragraph in this definition),

(d)an amount received or receivable (other than as a dividend) by the taxpayer, or a gain of the taxpayer, as the case may be, under or as a result of an agreement or arrangement, if

(i)the amount is included in computing the taxpayer’s income for the year,

(ii)the agreement or arrangement is entered into as or in relation to a loan or other financing owing to or provided by the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer, and

(iii)the amount can reasonably be considered to increase (or be part of) the return of the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer with respect to the loan or other financing (including as a result of any hedge of the return or of the loan or other financing),

(e)a lease financing amount (other than in respect of a lease that would be an excluded lease for the year, if the definition excluded lease were read without regard to its paragraph (a)) that

(i)is included in computing the taxpayer’s income for the year, and

(ii)is not excluded interest for the year,

(f)in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula

C × D
where

C
is the total of all amounts, each of which is an amount that

(i)is included by the partnership in computing its income or loss from the source, or the source in a particular place, for a fiscal period and that would be described in paragraphs (a) to (e) if the references to the taxpayer were read as references to the partnership, or

(ii)would be included under paragraph (g) in determining the interest and financing revenues of the partnership for the purposes of determining its income or loss from the source, or the source in a particular place, for the fiscal period, if the partnership were a taxpayer for the purposes of this section, and

D
is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”, or

(g)in respect of a corporation that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the year, an amount determined by the formula

E × F − G
where

E
is the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year,

F
is the taxpayer’s specified participating percentage in respect of the affiliate for the affiliate taxation year, and

G
is an amount (other than any portion of the amount that is in respect of income tax paid under subsection 212(1)) that is deducted under subsection 91(4) in computing the taxpayer’s income for any taxation year in respect of foreign accrual tax (as defined in subsection 95(1)) applicable to an amount that is included in the taxpayer’s income under subsection 91(1) in respect of the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year, and

B
is the total of all amounts, each of which is

(a)an amount paid or payable by the taxpayer, or a loss or a capital loss of the taxpayer, as the case may be, under or as a result of an agreement or arrangement, to the extent that

(i)the amount

(A)is deductible in computing the taxpayer’s income for the year, or

(B)in the case of a capital loss, reduces the amount determined under paragraph 3(b) in respect of the taxpayer or is deductible in computing the taxpayer’s taxable income for the year (except to the extent it has already been taken into account in determining an amount under this paragraph for a previous year),

(ii)the agreement or arrangement is entered into

(A)as a loan or other financing owing to or provided by the taxpayer, or a person or partnership that does not deal at arm’s length with the taxpayer, or

(B)in relation to a loan or other financing owing to or provided by the taxpayer, or a person or partnership that does not deal at arm’s length with the taxpayer, to hedge the cost of funding or the borrowing or other financing, and

(iii)the amount can reasonably be considered to reduce the return of the taxpayer, or a person or partnership that does not deal at arm’s length with the taxpayer, in respect of the loan or other financing;

(b)in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula

H × I
where

H
is an amount that would be described in paragraph (a) if

(i)the references to the taxpayer in that paragraph were read as references to the partnership, and

(ii)the reference in subparagraph (a)‍(i) to “the taxpayer’s income for the year” were read as “the partnership’s income or loss from the source, or the source in a particular place, for a fiscal period”, and

I
is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”,

(c)the portion of any amount included under the description of A (referred to in this paragraph as the “subject amount”) that can reasonably be considered to be excluded, reduced, offset or otherwise effectively sheltered from tax under this Part because an amount is deductible

(i)under any of subsections 20(11) to (12.‍1) and 126(1) and (2), and

(ii)in respect of income or profits tax paid to a country other than Canada that

(A)can reasonably be considered to have been paid in respect of the subject amount, and

(B)is not a tax substantially similar to tax under subsection 212(1),

(d)the portion of any amount included under A that is not, because of an Act of Parliament, subject to tax under this Part.‍ (revenus d’intérêts et de financement)

lease financing amount means an amount that is the portion of a particular payment in respect of a particular lease entered into by a taxpayer that would be considered to be on account of interest if

  • (a)the lessee had received a loan at the time the particular lease began and in a principal amount equal to the fair market value at that time of the property that is the subject of the particular lease;

  • (b)interest had been charged on the principal amount of the loan outstanding from time to time at the rate — determined in accordance with section 4302 of the Income Tax Regulations — in effect at the time described in paragraph (a), compounded semi-annually not in advance; and

  • (c)the particular payment was a blended payment of principal and interest, calculated in accordance with paragraph (b), on the loan applied firstly on account of interest on principal, secondly on account of interest on unpaid interest and thirdly on account of principal.‍ (montant du crédit-bail)

public sector authority means His Majesty in right of Canada, His Majesty in right of a province, an entity referred to in any of paragraphs 149(1)‍(c) to (d.‍6), a hospital authority (as defined in subsection 123(1) of the Excise Tax Act) or a registered charity that is a public college, school authority or university (each as defined in subsection 123(1) of the Excise Tax Act).‍ (administration du secteur public)

ratio of permissible expenses of a taxpayer for a taxation year means the percentage that is

  • (a)if the taxpayer’s taxation year begins on or after October 1, 2023, and before January 1, 2024, 40%, other than for the purpose of determining the taxpayer’s cumulative unused excess capacity for any taxation year that begins on or after January 1, 2024; and

  • (b)if the taxpayer’s taxation year begins on or after January 1, 2024, and for the purposes referred to in paragraph (a) for which 40% is not the applicable percentage, 30%.‍ (ratio des dépenses admissibles)

received capacity means an amount of received capacity of a transferee for a taxation year as determined under subsection (4).‍ (capacité reçue)

relevant affiliate interest and financing expenses of a controlled foreign affiliate of a taxpayer (determined as though the definition taxpayer in this subsection did not include the words “or a partnership”) for an affiliate taxation year means, subject to subsection (19), the total of all amounts (other than an amount that is deductible in computing any income or loss of the affiliate that is included in computing the affiliate’s income or loss from an active business because of paragraph 95(2)‍(a) or an amount that is described in clause 95(2)‍(a)‍(ii)‍(D) and treated as nil for the purposes of determining an amount for A or D in the definition foreign accrual property income in subsection 95(1)), each of which would be the affiliate’s interest and financing expenses (determined without regard to paragraph (j) of the description of A in the definition interest and financing expenses) for the affiliate taxation year for the purposes of determining, in respect of the taxpayer for the affiliate taxation year, each amount referred to in subparagraph 95(2)‍(f)‍(i) or (ii), if

  • (a)the references in the definition interest and financing expenses to “in the absence of this section” were read as references to “in the absence of clause 95(2)‍(f.‍11)‍(ii)‍(D)”; and

  • (b)clause 95(2)‍(f.‍11)‍(ii)‍(A) were read without regard to the reference to subsection 18.‍2(2).‍ (dépenses d’intérêts et de financement de la société affiliée pertinentes)

relevant affiliate interest and financing revenues of a controlled foreign affiliate of a taxpayer (determined as though the definition taxpayer in this subsection did not include the words “or a partnership”) for an affiliate taxation year means, subject to subsection (19), the total of all amounts (other than an amount included in computing the affiliate’s income or loss from an active business under paragraph 95(2)‍(a) or (2.‍44)‍(b)), each of which would be the affiliate’s interest and financing revenues (determined without regard to paragraph (g) of the description of A in the definition interest and financing revenues) for the affiliate taxation year for the purposes of determining, in respect of the taxpayer for the affiliate taxation year, each amount referred to in subparagraph 95(2)‍(f)‍(i) or (ii), if clause 95(2)‍(f.‍11)‍(ii)‍(A) were read without regard to the reference to subsection 18.‍2(2).‍ (revenus d’intérêts et de financement de la société affiliée pertinents)

relevant inter-affiliate interest, of a controlled foreign affiliate of a taxpayer for an affiliate taxation year, means an amount of interest to the extent that the amount

  • (a)is paid or payable by the affiliate to, or received or receivable by the affiliate from, a controlled foreign affiliate (in this definition referred to as the “other affiliate”) of

    • (i)the taxpayer, or

    • (ii)a taxpayer that is an eligible group entity in respect of the taxpayer; and

  • (b)would, in the absence of subsection (19), be included in

    • (i)if the amount is paid or payable by the affiliate, the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year and the other affiliate’s relevant affiliate interest and financing revenues for an affiliate taxation year, or

    • (ii)if the amount is received or receivable by the affiliate, the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year and the other affiliate’s relevant affiliate interest and financing expenses for an affiliate taxation year.‍ (intérêts pertinents entre sociétés affiliées)

special purpose loss corporation, for a taxation year, means a particular corporation that 

  • (a)is an eligible group entity in respect of a financial holding corporation to which the particular corporation has interest paid or payable in the year;

  • (b)is formed or exists solely for the purpose of generating a loss of the particular corporation; and

  • (c)would, in the absence of this section, have a loss for the year that is, or will be, utilized by a financial institution group entity that is an eligible group entity in respect of the particular corporation.‍ (société à usage déterminé ayant subi des pertes)

specified participating percentage of a taxpayer, in respect of a controlled foreign affiliate of the taxpayer for an affiliate taxation year, means the percentage that would be the taxpayer’s aggregate participating percentage (as defined in subsection 91(1.‍3)), determined without regard to clause 95(2)‍(f.‍11)‍(ii)‍(D), in respect of the affiliate for the affiliate taxation year, if the definition participating percentage in subsection 95(1) were read without reference to

  • (a)its paragraph (a); and

  • (b)the portion of its paragraph (b) before its subparagraph (b)‍(i).‍ (pourcentage de participation déterminé)

specified pre-regime loss of a taxpayer, in respect of a taxation year, means the taxpayer’s non-capital loss for a preceding taxation year, if

  • (a)the preceding year ends before February 4, 2022;

  • (b)the taxpayer files with the Minister, in respect of the loss, an election in writing in prescribed manner under this definition;

  • (c)the election specifies

    • (i)the loss,

    • (ii)each amount deducted, in respect of the loss, by the taxpayer under paragraph 111(1)‍(a) in computing its taxable income

      • (A)for the year, and

      • (B)each taxation year that precedes the year, and

    • (iii)the taxpayer’s adjusted taxable income for the year; and

  • (d)the election is filed on or before the filing-due date of the taxpayer for the year.‍ (perte antérieure au régime déterminée)

tax-indifferent means a person or partnership that is

  • (a)a person exempt from tax under section 149;

  • (b)a non-resident person;

  • (c)a partnership more than 50% of the fair market value of all interests in which can reasonably be considered to be held, directly or indirectly through one or more trusts or partnerships, by any combination of persons described in paragraph (a) or (b); or

  • (d)a trust resident in Canada if more than 50% of the fair market value of all interests as beneficiaries under the trust can reasonably be considered to be held, directly or indirectly through one or more trusts or partnerships, by any combination of persons described in paragraph (a) or (b).‍ (indifférent relativement à l’impôt)

taxpayer has the meaning assigned by subsection 248(1), but does not include a natural person or a partnership.‍ (contribuable)

transaction includes an arrangement or event.‍ (opération)

transferred capacity means an amount of transferred capacity of a transferor for a taxation year as determined under subsection (4).‍ (capacité transférée)

End of inserted block
Excessive interest and financing expenses limitation
Start of inserted block
(2)Notwithstanding any other provision of this Act, in computing the income for a taxation year of a taxpayer (other than an excluded entity for the year) from a business or property or the taxable income of the taxpayer for the year, no deduction shall be made — and in determining the amount under paragraph 3(b) in respect of the taxpayer for the year, no reduction shall be made — in respect of any amount that is described in any of paragraphs (a) to (g) and (i) of the description of A in the definition interest and financing expenses in subsection (1) that would, in the absence of this section, be deductible in computing that income or taxable income — or would reduce that amount determined under paragraph 3(b) — to the extent of the proportion of that amount that is determined by the formula
(A − (B + C + D + E)) ÷ F
where

A
is the taxpayer’s interest and financing expenses for the year;

B
is

(a)if subsection 18.‍21(2) applies in respect of the taxpayer for the year, the amount determined in respect of the taxpayer for the year under that subsection, and

(b)in any other case, the amount determined by the formula

G × H
where

G
is the taxpayer’s ratio of permissible expenses for the year, and

H
is the taxpayer’s adjusted taxable income for the year;

C
is the taxpayer’s interest and financing revenues for the year;

D
is the amount by which the total of all amounts each of which is an amount of received capacity of the taxpayer for the year, as determined under subsection (4), exceeds the total amount deductible under paragraph 111(1)‍(a.‍1) for the year;

E
is the amount of the taxpayer’s absorbed capacity for the year; and

F
is

(a)if no amount is included in the taxpayer’s interest and financing expenses for the year under paragraph (j) of the description of A of that definition, or under paragraph (h) of the description of A of that definition in respect of a controlled foreign affiliate of a partnership of which the taxpayer is a member, the amount determined for A in that definition for the taxpayer for the year, or

(b)in any other case, the amount that would be determined for A in the definition interest and financing expenses in subsection (1) for the taxpayer for the year if the reference to “the affiliate’s interest and financing expenses” in the definition relevant affiliate interest and financing expenses were read as a reference to “an amount determined for A in the definition interest and financing expenses for the affiliate”.

End of inserted block
Amount deemed deducted
Start of inserted block
(3)All or any portion, of a particular amount described in paragraph (c) or (d) of the description of A in the definition interest and financing expenses in subsection (1), that would, in the absence of subsection (2), have been deducted in computing the income of a taxpayer for a taxation year but that is not deductible because of subsection (2), is deemed to have been deductible and to have been deducted in the year for purposes of determining, in respect of any taxpayer at any time, such of the following amounts to which the particular amount relates:
  • (a)the total depreciation (as defined in subsection 13(21)) allowed for property of a prescribed class;

  • (b)the amount the taxpayer may deduct under subsection 66(4);

  • (c)the cumulative Canadian exploration expense (as defined in subsection 66.‍1(6));

  • (d)the cumulative Canadian development expense (as defined in subsection 66.‍2(5));

  • (e)the cumulative foreign resource expense (as defined in subsection 66.‍21(1)) in respect of a country;

  • (f)the cumulative Canadian oil and gas property expense (as defined in subsection 66.‍4(5)); and

  • (g)the amount the taxpayer may deduct under subsections 66.‍7(1), (2) or (2.‍3) to (5).

    End of inserted block
Transfer of cumulative unused excess capacity
Start of inserted block
(4)For the purposes of this section, a taxpayer and another taxpayer (referred to in this section as the “transferor” and the “transferee”, respectively) may jointly elect in prescribed form to designate an amount equal to all or a portion of the transferor’s cumulative unused excess capacity, and that amount is an amount of transferred capacity of the transferor for a taxation year and an amount of received capacity of the transferee for a taxation year, if
  • (a)the taxation year of the transferor ends in the taxation year of the transferee;

  • (b)each of the transferor and the transferee is

    • (i)a taxable Canadian corporation or a fixed interest commercial trust throughout its taxation year, and

    • (ii)an eligible group entity in respect of the other at the end of its taxation year;

  • (c)where the transferor is a financial institution group entity or a financial holding corporation for its taxation year, the transferee is, for its taxation year,

    • (i)a financial institution group entity,

    • (ii)a financial holding corporation, or

    • (iii)a special purpose loss corporation;

  • (d)the election or amended election

    • (i)specifies the amount of the transferred capacity, and

    • (ii)is filed with the Minister by the transferor

      • (A)on or before the later of the filing-due date of

        • (I)the transferor for its taxation year, and

        • (II)the transferee for its taxation year, or

      • (B)on or before the day that is 90 days after the day of sending of

        • (I)a notice of assessment of tax payable under this Part by the transferor or the transferee for their respective taxation years, or

        • (II)a notification that no tax is payable under this Part by the transferor or the transferee for their respective taxation years;

  • (e)the total of all amounts each of which would, if this subsection were read without reference to this paragraph, be an amount of transferred capacity of the transferor for its taxation year in respect of any transferee, does not exceed the transferor’s cumulative unused excess capacity for the year;

  • (f)if the transferee is a financial holding corporation and the transferor is a financial institution group entity, it is the case that

    A ≥ B
    where

    A
    is the total of all amounts, each of which is an amount that is included in computing the income of the financial holding corporation for its taxation year in respect of excluded interest, the payer of which is, for the taxation year of the payer in which the interest is payable,

    (i)a financial institution group entity, or

    (ii)a special purpose loss corporation, if the amount gives rise to a loss of the special purpose loss corporation that is, or will be, utilized solely by a financial institution group entity, and

    B
    is the total of all amounts, each of which would, in the absence of this paragraph, be an amount that is both

    (i)received capacity of the financial holding corporation for its taxation year, and

    (ii)transferred capacity of a financial institution group entity for one of its taxation years;

  • (g)if the transferee is a special purpose loss corporation and the transferor is a financial institution group entity, it is the case that

    C ≥ D
    where

    C
    is the total of all amounts, each of which is an amount that

    (i)would, in the absence of this section, be deductible in computing the income of the special purpose loss corporation for its taxation year,

    (ii)is paid or payable to a financial holding corporation,

    (iii)meets the conditions set out in paragraphs (a) to (d) of the definition excluded interest, and

    (iv)would, in the absence of this section, give rise to a loss that is, or will be, utilized solely by a financial institution group entity, and

    D
    is the total of all amounts, each of which would, in the absence of this paragraph, be an amount that is both

    (i)received capacity of the special purpose loss corporation for its taxation year, and

    (ii)transferred capacity of a financial institution group entity for one of its taxation years;

  • (h)an amended election has not been filed in accordance with this section;

  • (i)where the election is an amended election,

    • (i)the following conditions are met:

      • (A)in the absence of any assessment, the condition set out in paragraph (e) would be met in respect of a prior election under this subsection made by the transferor and transferee for their respective taxation years, and

      • (B)subsection (9) does not apply to a tax benefit in respect of a prior election for the taxation year of the transferor or transferee, or

    • (ii)the Minister grants permission to amend the prior election under subsection (5); and

  • (j)the transferee files an information return in accordance with subsection (6) for the calendar year in which the transferee’s taxation year ends.

    End of inserted block
Late or amended election
Start of inserted block
(5)The Minister may extend the time for making an election, or grant permission to amend an election, under subsection (4) if
  • (a)the transferor and the transferee demonstrate to the satisfaction of the Minister that

    • (i)the transferor, the transferee and each other eligible group entity in respect of the transferor and transferee made reasonable efforts to determine all amounts that may reasonably be considered relevant in making the election, and

    • (ii)the election or amended election, as the case may be, is filed as soon as circumstances permit; and

  • (b)in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the election to be made or amended.

    End of inserted block
Summary — cumulative unused excess capacity transfers
Start of inserted block
(6)If one or more elections are filed under subsection (4), in which amounts are designated as received capacity of a particular transferee for a taxation year ending in a calendar year, the particular transferee shall file with the Minister for the calendar year an information return in prescribed form within six months after the end of the calendar year in respect of
  • (a)each such election; and

  • (b)each election filed under subsection (4) for a taxation year ending in the calendar year, by any other transferee that is an eligible group entity in respect of the particular transferee at the end of the other transferee’s taxation year.

    End of inserted block
Summary — filing by designated filer
Start of inserted block
(7)For the purposes of this section, if any taxpayer is required to file an information return for a calendar year under subsection (6), the taxpayer is deemed to have filed the information return if
  • (a)an information return under subsection (6) is filed for the calendar year by any other taxpayer (in this subsection referred to as the “designated filer” in respect of the taxpayer for the year) that is an eligible group entity in respect of the taxpayer at the end of the taxpayer’s taxation year ending in the calendar year; and

  • (b)the taxpayer jointly elects, with each other transferee described in paragraph (6)‍(b), to designate under this paragraph the designated filer to be a designated filer in respect of the taxpayer and each other transferee for the calendar year.

    End of inserted block
Assessment
Start of inserted block
(8)If an election or an amended election has been made under subsection (4), the Minister shall, notwithstanding subsections 152(4) and (5), assess or reassess the tax, interest or penalties payable under this Act by any taxpayer for any relevant taxation year as is necessary to give effect to the election or amended election.
End of inserted block
Anti-avoidance — group status
Start of inserted block
(9)If, at any time, a particular taxpayer is, becomes or ceases to be an eligible group entity, in respect of another taxpayer, a financial institution group entity or a financial holding corporation and it may reasonably be considered, having regard to all the circumstances, that one of the main purposes of the particular taxpayer being, becoming or ceasing to be an eligible group entity, in respect of the other taxpayer, a financial institution group entity or a financial holding corporation is to enable any taxpayer to obtain a tax benefit (within the meaning of subsection 245(1)), the particular taxpayer is deemed not to be, to have become, or to remain, as the case may be, an eligible group entity, in respect of the other taxpayer, a financial institution group entity or a financial holding corporation, as the case may be, at that time.
End of inserted block
Benefits conferred
Start of inserted block
(10)For the purposes of this Part, if a transferor and a transferee file an election (including an amended election) under subsection (4), no benefit is considered to have been conferred on the transferee as a consequence of the election.
End of inserted block
Consideration for election
Start of inserted block
(11)For the purposes of this Part, if property is acquired at any time by a transferor as consideration for filing an election or amended election with a transferee under subsection (4)
  • (a)where the property was owned by the transferee immediately before that time,

    • (i)the transferee is deemed to have disposed of the property at that time for proceeds equal to the fair market value of the property at that time, and

    • (ii)no amount may be deducted in computing the transferee’s income as a consequence of the transfer of the property, except any amount arising as a consequence of subparagraph (i);

  • (b)the cost at which the property was acquired by the transferor at that time is deemed to be equal to the fair market value of the property at that time; and

  • (c)the transferor is not required to add an amount in computing income solely because of the acquisition at that time of the property.

    End of inserted block
Partnerships
Start of inserted block
(12)For the purposes of this section,
  • (a)a person or partnership that is (or is deemed by this paragraph to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership; and

  • (b)a person’s share of the income or loss of a partnership includes the person’s direct or indirect, through one or more other partnerships, share of that income or loss.

    End of inserted block
Anti-avoidance — interest and financing revenues and expenses
Start of inserted block
(13)A particular amount that would, in the absence of this subsection, be included under the description of A in the definition interest and financing revenues, or the description of B in the definition interest and financing expenses, in computing the income or loss of a taxpayer for a taxation year, must not be so included, if
  • (a)an amount in respect of the particular amount is deductible in computing the foreign accrual property income of a corporation that is a foreign affiliate, but not a controlled foreign affiliate, of the taxpayer or of a person or partnership that does not deal at arm’s length with the taxpayer;

  • (b)the particular amount is received or receivable, directly or indirectly and in whole or in part, by the taxpayer, or a partnership of which it is a member, from

    • (i)a person that does not deal at arm’s length with the taxpayer and that is

      • (A)an excluded entity,

      • (B)a natural person, or

      • (C)if the taxpayer is not a financial institution group entity or a financial holding corporation, a financial institution group entity or a financial holding corporation, or

    • (ii)a partnership of which a person described in subparagraph (i) is a member; or

  • (c)one of the main purposes of a transaction or series of transactions is to include the particular amount under the description of A in the definition interest and financing revenues, or the description of B in the definition interest and financing expenses, in computing the income or loss of the taxpayer for a taxation year and

    • (i)the transaction or series results in an amount that

      • (A)is not included in the description of B in the definition interest and financing revenues, or the description of A in the definition interest and financing expenses, in computing the income or loss of the taxpayer, or of a person not dealing at arm’s length with the taxpayer, for a taxation year, and

      • (B)is deductible in computing the income of loss for a taxation year of the taxpayer or a person or partnership not dealing at arm’s length with the taxpayer, or

    • (ii)it can reasonably be considered that, in the absence of the transaction or series, the particular amount or an amount for which the particular amount was substituted

      • (A)would have been included in computing the income or loss for a taxation year (other than as a dividend) of the taxpayer, or a person or partnership not dealing at arm’s length with the taxpayer, and

      • (B)would not have been included under the description of A in the definition interest and financing revenues, or the description of B in the definition interest and financing expenses, in computing the income or loss of the taxpayer or a person not dealing at arm’s length with the taxpayer.

        End of inserted block
Anti-avoidance — excluded entity
Start of inserted block
(14)For the purposes of subparagraph (c)‍(iv) of the definition excluded entity, a person or partnership is deemed to be tax-indifferent and not to deal at arm’s length with the taxpayer or any eligible group entity in respect of the taxpayer throughout a taxation year of the taxpayer if
  • (a)any portion of the interest and financing expenses of the taxpayer for the year is paid or payable by the taxpayer or any eligible group entity in respect of the taxpayer to the person or partnership as part of a transaction or series of transactions; and

  • (b)it can reasonably be considered that one of the main purposes of the transaction or series is to avoid that portion of the interest and financing expenses being paid or payable to a person or partnership that is tax-indifferent and does not deal at arm’s length with the taxpayer or any eligible group entity in respect of the taxpayer.

    End of inserted block
Deemed eligible group entities
Start of inserted block
(15)If two taxpayers are eligible group entities in respect of a third taxpayer, they are deemed to be eligible group entities in respect of each other.
End of inserted block
Eligible group entities — related
Start of inserted block
(16)For the purposes of paragraph (a) of the definition eligible group entity in subsection (1)
  • (a)despite subsection 104(1), a reference to a person that is a trust does not include a reference to the trustee or other persons that own or control the trust property; and

  • (b)a corporation or a trust is deemed not to be related to a taxpayer where the corporation or trust would, but for this paragraph, be related to the taxpayer solely because the taxpayer is controlled by His Majesty in right of Canada, His Majesty in right of a province or an entity referred to in any of paragraphs 149(1)‍(c) to (d.‍6).

    End of inserted block
Eligible group entities — affiliated
Start of inserted block
(17)For the purposes of paragraph (b) of the definition eligible group entity in subsection (1), a corporation or a trust is deemed not to be affiliated with a taxpayer where that corporation or trust would, but for this subsection, be affiliated with the taxpayer solely because
  • (a)the taxpayer is controlled by His Majesty in right of Canada, His Majesty in right of a province or an entity referred to in any of paragraphs 149(1)‍(c) to (d.‍6); or

  • (b)if the corporation or trust is a registered charity or a non-profit organization with whom the taxpayer deals at arm’s length, the corporation or trust is a majority-interest beneficiary (within the meaning of subsection 251.‍1(3)) of the taxpayer.

    End of inserted block
Filing requirement
Start of inserted block
(18)Each taxpayer shall file with its return of income for the taxation year a prescribed form containing prescribed information for the purpose of determining the deductibility of its interest and financing expenses and determining its exempt interest and financing expenses.
End of inserted block
Relevant inter-affiliate interest
Start of inserted block
(19)If an amount is paid or payable by a controlled foreign affiliate (referred to in this subsection as the “payer affiliate”) of a taxpayer and received or receivable by a controlled foreign affiliate (referred to in this subsection as the “recipient affiliate”) of the taxpayer, or a taxpayer that is an eligible group entity in respect of the taxpayer, and the amount is relevant inter-affiliate interest of the payer affiliate for an affiliate taxation year (referred to in this subsection as the “payer affiliate year”) and of the recipient affiliate for an affiliate taxation year (referred to in this subsection as the “recipient affiliate year”),
  • (a)the amount included, in respect of the relevant inter-affiliate interest, in the payer affiliate’s relevant affiliate interest and financing expenses for the payer affiliate year is the lesser of

    • (i)the relevant inter-affiliate interest, and

    • (ii)the amount determined by the formula

      A + B
      where

      A
      is the amount determined by the formula

      (C − D) × E ÷ C
      where

      C
      is the total of all amounts, each of which would — if the relevant inter-affiliate interest were not paid or payable — be, in respect of the payer affiliate for the payer affiliate year, the specified participating percentage of

      (A)the taxpayer, or

      (B)another taxpayer that is an eligible group entity in respect of the taxpayer, and

      D
      is the total of all amounts, each of which is, in respect of the recipient affiliate for the recipient affiliate year, the specified participating percentage of

      (A)the taxpayer, or

      (B)another taxpayer that is an eligible group entity in respect of the taxpayer, and

      E
      is the relevant inter-affiliate interest, and

      B
      is the lesser of

      (A)the relevant inter-affiliate interest, and

      (B)the amount determined by the formula

      (F − G) × H ÷ I
      where

      F
      is the payer affiliate’s relevant affiliate interest and financing revenues for the payer affiliate year,

      G
      is the amount that would be the payer affiliate’s relevant affiliate interest and financing expenses for the payer affiliate year if the payer affiliate had no relevant inter-affiliate interest for the payer affiliate year,

      H
      is the amount determined for E, and

      I
      is the total of all amounts, each of which is an amount of relevant inter-affiliate interest of the payer affiliate for the payer affiliate year that would, in the absence of this paragraph, be included in the payer affiliate’s relevant affiliate interest and financing expenses; and

  • (b)the amount included, in respect of the relevant inter-affiliate interest, in the recipient affiliate’s relevant affiliate interest and financing revenues for the recipient affiliate year is the lesser of

    • (i)the amount referred to in E, and

    • (ii)the amount determined by the formula

      J × K ÷ L
      where

      J
      is the amount determined for B,

      K
      is the amount determined for C, and

      L
      is the amount determined for D.

      End of inserted block
Group ratio — definitions
Start of inserted block
18.‍21(1)The following definitions apply in this section.

acceptable accounting standards means International Financial Reporting Standards and the generally accepted accounting principles of

  • (a)Canada;

  • (b)Australia;

  • (c)Brazil;

  • (d)member states of the European Union;

  • (e)member states of the European Economic Area;

  • (f)Hong Kong (China);

  • (g)Japan;

  • (h)Mexico;

  • (i)New Zealand;

  • (j)the People’s Republic of China;

  • (k)the Republic of India;

  • (l)the Republic of Korea;

  • (m)Singapore;

  • (n)Switzerland;

  • (o)the United Kingdom; and

  • (p)the United States.‍ (principes comptables acceptables)

consolidated financial statements means financial statements prepared in accordance with a relevant acceptable accounting standard in which the assets, liabilities, income, expenses and cash flows of two or more entities are presented as those of a single economic entity and, for greater certainty, the financial statements include the notes to the financial statements.‍ (états financiers consolidés)

consolidated group means two or more entities, other than an equity-accounted entity but including an ultimate parent, (each such entity referred to in this section as a “member of the consolidated group”) in respect of which consolidated financial statements are required to be prepared for financial reporting purposes or would be so required if the entities were subject to International Financial Reporting Standards.‍ (groupe consolidé)

equity-accounted entity means an entity the net income or loss of which is included in the consolidated financial statements of a consolidated group under the equity method of accounting.‍ (entité comptabilisée à la valeur de consolidation)

equity interest means

  • (a)a share of the capital stock of a corporation;

  • (b)an interest as a beneficiary under a trust;

  • (c)an interest as a member of a partnership; or

  • (d)any similar interest in respect of any entity.‍ (participation au capital)

fair value amount means any amount reflected in the net income or net loss reported in the consolidated financial statements of a consolidated group for a relevant period where

  • (a)the carrying value of any asset or liability of the consolidated group is measured using the fair value method of accounting; and

  • (b)the amount reflects a change in the carrying value of the asset or liability during the relevant period and is included in either the description of C or H in the definition group adjusted net book income.‍ (montant de la juste valeur)

group adjusted net book income, of a consolidated group for a relevant period, means the amount determined by the formula

A − B
where

A
is the amount determined by the formula

C + D + E + F + G
where

C
is the amount, if any, of net income reported in the consolidated financial statements of the group for the period,

D
is the amount, if any, of income tax expense reported in those statements,

E
is the amount that would be the specified interest expense of the group for the period if the definition specified interest expense were read without reference to paragraph (b) of the description of A,

F
is the total of all amounts used in determining the amounts reported in those statements each of which is the amount of

(a)a depreciation or amortization expense in respect of an asset,

(b)a charge in respect of the impairment or write-off of an asset referred to in paragraph (a),

(c)a loss on the disposal of an asset referred to in paragraph (a),

(d)if an election is made under subsection (4) and the net fair value amount for the period is negative, the absolute value of the net fair value amount, and

(e)an expense, charge, deduction or loss that is similar to any of those referred to in paragraphs (a) to (d), and

G
is the total of all amounts referred to in the description of D or F that are included in the determination of the net income or loss of an equity-accounted entity, to the extent of the consolidated group’s share of that net income or loss; and

B
is the amount determined by the formula

H + I + J + K + L + M + N
where

H
is the amount, if any, of net loss reported in those statements,

I
is the amount, if any, of income tax recoverable reported in those statements,

J
is the specified interest income of the group for the period,

K
if an election is made under subsection (4) and the net fair value amount for the period is positive, the net fair value amount,

L
is the total of all amounts used in determining the amounts reported in those statements each of which is the amount of a gain on the disposal of an asset referred to in paragraph (a) of the description of F, to the extent that the sale proceeds do not exceed the original cost of the asset,

M
is the total of all amounts referred to in the descriptions of I, K and L that is included in the determination of the net income or loss of an equity-accounted entity, to the extent of the consolidated group’s share of that net income or loss, and

N
is the total of all amounts, each of which is the portion of net income reported in those statements that can reasonably be considered to be earned by a borrower (within the meaning of the definition exempt interest and financing expenses in subsection 18.‍2(1)) in respect of a borrowing (within the meaning of the definition exempt interest and financing expenses in subsection 18.‍2(1)) that results in exempt interest and financing expenses of the borrower.‍ (bénéfice net comptable rajusté du groupe)

group net interest expense, of a consolidated group for a relevant period, means the amount determined by the formula

A − B
where

A
is the amount determined by the formula

C − D
where

C
is the specified interest expense of the group for the period, and

D
is the specified interest income of the group for the period; and

B
is the total of all amounts each of which is an amount determined, in respect of a specified non-member of the group, by the formula

E − F
where

E
is the portion of the amount of the specified interest expense of the group for the period that is paid or payable to the specified non-member, and

F
is the portion of the amount of the specified interest income of the group for the period that is received or receivable from the specified non-member.‍ (dépenses nettes d’intérêts du groupe)

group ratio, of a consolidated group for a relevant period, means

  • (a)except where paragraph (b) applies, the percentage determined by the formula

    1.‍1 × A ÷ B
    where

    A
    is the group net interest expense of the consolidated group for the relevant period, and

    B
    is the group adjusted net book income of the consolidated group for the relevant period; and

  • (b)if the group adjusted net book income of the consolidated group for the relevant period is nil, nil.‍ (ratio de groupe)

net fair value amount means the positive or negative amount that is the total of all amounts, each of which is a positive or negative fair value amount in the consolidated financial statements of the consolidated group for a relevant period.‍ (montant de la juste valeur net)

relevant period means a period in respect of which the consolidated financial statements of a consolidated group are presented.‍ (période pertinente)

specified interest expense, of a consolidated group for a relevant period, means the amount determined by the formula

A − B
where

A
is the total of all amounts (other than amounts that are included in exempt interest and financing expenses), each of which is

(a)an amount of interest expense used in determining the amounts reported in the consolidated financial statements of the consolidated group for the relevant period,

(b)an amount of capitalized interest used in determining the amounts reported in those statements,

(c)the amount of a guarantee fee, standby charge, arrangement fee or similar fee paid or payable that is used in determining the amounts reported in those statements and that is not included in paragraph (a) or (b), or

(d)an amount referred to in any of paragraphs (a) to (c) that is included in the determination of the net income or loss of an equity-accounted entity, to the extent of the consolidated group’s share of that net income or loss; and

B
is the total of all amounts each of which is the amount of a dividend included in the determination of an amount referred to in any of paragraphs (a) to (d) of the description of A.‍ (dépenses d’intérêts déterminées)

specified interest income, of a consolidated group for a relevant period, means the amount determined by the formula

A − B
where

A
is the total of all amounts, each of which is

(a)an amount of interest income used in determining the amounts reported in the consolidated financial statements of the consolidated group for the relevant period,

(b)the amount of a guarantee fee, standby charge, arrangement fee or similar fee received or receivable that is used in determining the amounts reported in those statements and that is not included in paragraph (a), or

(c)an amount referred to in paragraph (a) or (b) that is included in the determination of the net income or loss of an equity-accounted entity, to the extent of the consolidated group’s share of that income or loss; and

B
is the total of all amounts each of which is the amount of a dividend included in the determination of an amount referred to in any of paragraphs (a) to (c) of the description of A.‍ (revenus d’intérêts déterminés)

specified non-member, of a consolidated group for a relevant period, means a particular person or partnership that is not a member of the consolidated group and that, at any time in the period,

  • (a)does not deal at arm’s length with a member of the group;

  • (b)alone or together with persons or partnerships with whom the particular person or partnership does not deal at arm’s length owns, or has the right to acquire, one or more equity interests in a member of the group that

    • (i)provide 25% or more of the votes that could be cast at an annual meeting of the shareholders of the member, if the member is a corporation, or

    • (ii)have 25% or more of the fair market value of all equity interests in the member; or

  • (c)is a person or partnership in respect of which a member of the group — alone or together with persons or partnerships with whom the member does not deal at arm’s length — owns, or has the right to acquire, one or more equity interests in the particular person or partnership that

    • (i)provide 25% or more of the votes that could be cast at an annual meeting of the shareholders of the particular person, if the particular person is a corporation, or

    • (ii)have 25% or more of the fair market value of all equity interests in the particular person or partnership.‍ (non-membre déterminé)

ultimate parent means a particular entity if

  • (a)the particular entity is not His Majesty in right of Canada, His Majesty in right of a province or an entity referred to in any of paragraphs 149(1)‍(c) to (d.‍6);

  • (b)it holds directly or indirectly an interest in one or more other entities in respect of which it is required to prepare consolidated financial statements for financial reporting purposes, or would be so required if it was subject to International Financial Reporting Standards; and 

  • (c)no entity (other than an entity described in paragraph (a)) holds, directly or indirectly, in the particular entity an interest that is described in paragraph (b).‍ (mère ultime)

    End of inserted block
Allocated group ratio amount
Start of inserted block
(2)A taxpayer and each corporation or trust that is, throughout the relevant period, an eligible group entity in respect of that taxpayer and a member of the same consolidated group as the taxpayer (the taxpayer and each of the corporations or trusts being referred to in this subsection and subsection (4) as a “Canadian group member”) may, if the taxpayer is a taxpayer described in subsection (7), elect, and otherwise jointly elect in respect of their taxation years ending in the relevant period (each referred to in this subsection and subsection (4) as a “relevant taxation year”) to allocate amounts in respect of each relevant taxation year and the amount allocated to a member for a relevant taxation year is the amount determined in respect of that member for that relevant taxation year for the purposes of this section and subsection 18.‍2(2), if
  • (a)the consolidated financial statements of the consolidated group for the relevant period are audited financial statements;

  • (b)the election or amended election

    • (i)specifies the amount allocated to each Canadian group member for each relevant taxation year, and

    • (ii)is filed with the Minister by the taxpayer or a Canadian group member of the taxpayer on or before

      • (A)the latest filing-due date of a Canadian group member for a relevant taxation year, or

      • (B)the day that is 90 days after the sending of

        • (I)a notice of assessment of tax payable under this Part by a Canadian group member for a relevant taxation year, or

        • (II)a notification that no tax is payable under this Part by a Canadian group member for a relevant taxation year;

  • (c)the total of all amounts, each of which is an amount allocated to a Canadian group member for a relevant taxation year, does not exceed the least of

    • (i)the total of all amounts in respect of a member each of which is determined by the formula

      A × B
      where

      A
      is the group ratio of the consolidated group for the relevant period, and

      B
      is the adjusted taxable income of the member for each relevant taxation year,

    • (ii)the group net interest expense of the consolidated group in respect of the relevant period, and

    • (iii)the total of all amounts, each of which would, in the absence of section 257, be the adjusted taxable income of a member for each relevant taxation year;

  • (d)an amended election has not been filed in accordance with this section; and

  • (e)where the election is an amended election,

    • (i)the following conditions are met:

      • (A)in the absence of any assessment, the condition set out in paragraph (c) would be met in respect of a prior election under this subsection made by the Canadian group members for a relevant taxation year under this subsection, and

      • (B)subsection 18.‍2(9) does not apply to a tax benefit in respect of a prior election for the relevant period, or

    • (ii)the Minister grants permission to amend the prior election under subsection (3).

      End of inserted block
Late or amended election
Start of inserted block
(3)The Minister may extend the time for making an election or grant permission to amend or revoke an election under subsection (2) if
  • (a)the Canadian group members demonstrate to the satisfaction of the Minister that

    • (i)they made reasonable efforts to determine all amounts that may reasonably be considered relevant in making the election, and

    • (ii)the election or amended election, as the case may be, is filed as soon as circumstances permit; and

  • (b)in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the election to be made, amended or revoked.

    End of inserted block
Fair value adjustments — election
Start of inserted block
(4)For the purposes of calculating group adjusted net book income, the following rules apply:
  • (a)no amounts may be included in paragraph (d) of the description of F or in the description of K in the definition group adjusted net book income for any relevant period unless the Canadian group members jointly elect, for the first relevant taxation year in respect of which the Canadian group members jointly elect under subsection (2), to include net fair value amounts in calculating group adjusted net book income for the relevant period in which the first relevant taxation year ends;

  • (b)if an election to include net fair value amounts in the calculation is not made in the first relevant taxation year, each Canadian group member is deemed not to have so elected in that taxation year and any subsequent taxation year; and

  • (c)if an election to include net fair value amounts in the calculation is made in the first relevant taxation year, each Canadian group member is deemed to have so elected in that taxation year and any subsequent taxation year.

    End of inserted block
Assessment
Start of inserted block
(5)If an election or amended election has been made under subsection (2), the Minister shall, notwithstanding subsections 152(4) and (5), assess or reassess the tax, interest or penalties payable under this Act by any taxpayer for any relevant taxation year as is necessary to give effect to the election or amended election.
End of inserted block
Use of accounting terms
Start of inserted block
(6)For the purposes of the definitions consolidated financial statements, consolidated group, equity-accounted entity, fair value amount, group adjusted net book income, specified interest expense, specified interest income and ultimate parent in subsection (1), a term that is not defined under this Act has the meaning assigned to the term for financial reporting purposes under the relevant acceptable accounting standards.
End of inserted block
Single member group
Start of inserted block
(7)For the purposes of this section, if a taxpayer resident in Canada is not a member of a consolidated group for a relevant period,
  • (a)the taxpayer is deemed to be an eligible group entity in respect of itself;

  • (b)the taxpayer is deemed to be

    • (i)a member of a consolidated group that comprises only itself, and

    • (ii)the ultimate parent of the group; and

  • (c)the taxpayer’s financial statements are deemed to be consolidated financial statements.

    End of inserted block
Anti-avoidance — specified non-member
Start of inserted block
(8)A particular person or partnership that is not a member of a consolidated group for a relevant period is deemed to be a specified non-member in respect of the group for the period if a portion of the amount of the specified interest expense of the group is paid or payable by a member of the group to the particular person or partnership as part of a transaction or series of transactions where it can reasonably be considered that one of the main purposes of the transaction or series is to avoid the inclusion of that portion in the determination of the amount for E in the definition group net interest expense in subsection (1).
End of inserted block

(2)Subsection (1) applies in respect of taxation years of a taxpayer that begin on or after October 1, 2023, except that

  • (a)sections 18.‍2 and 18.‍21 of the Act, as enacted by subsection (1), also apply in respect of a taxation year of a taxpayer that begins before, and ends after, October 1, 2023 if

    • (i)any of the taxpayer’s three immediately preceding taxation years was, because of a transaction or event or a series of transactions or events, shorter than it would have been in the absence of that transaction, event or series, and

    • (ii)it can reasonably be considered that one of the purposes of the transaction, event or series was to defer the application of section 18.‍2 or 18.‍21 of the Act, as enacted by subsection (1), or the application of paragraph 12(1)‍(l.‍2) of the Act, as enacted by subsection 2(1), to the taxpayer or to increase an amount of excess capacity of any taxpayer determined under paragraphs (c) and (d);

  • (b)paragraph (a) of the definition ratio of permissible expenses in subsection 18.‍2(1) of the Act, as enacted by subsection (1), is to be read, in respect of a taxpayer, as if its reference to “40%” were a reference to “30%” if

    • (i)any taxation year of the taxpayer that begins after 2022 but before 2024 is, because of a transaction or event or a series of transactions or events, shorter than it would have been in the absence of that transaction, event or series, and

    • (ii)it can reasonably be considered that one of the purposes of the transaction, event or series was to defer the application of paragraph (b) of that definition to the taxpayer;

  • (c)for the purpose of determining the cumulative unused excess capacity of a taxpayer that is a corporation or a fixed interest commercial trust for a particular taxation year, the taxpayer’s excess capacity for each of the three taxation years (in this paragraph and paragraph (d), each referred to as a “pre-regime year”) immediately preceding the first taxation year of the taxpayer in respect of which subsection (1) applies (in this paragraph and paragraph (d) referred to as the “first regime year” of the taxpayer) is deemed to be nil unless

    • (i)the taxpayer and each corporation or fixed interest commercial trust that is an eligible group entity in respect of the taxpayer at the end of the first regime year (in this subsection referred to as an “eligible pre-regime group entity”) jointly elect in prescribed form to have paragraph (d) apply in respect of the taxpayer,

    • (ii)the election or amended election is filed with the Minister by the taxpayer or by an eligible pre-regime group entity of the taxpayer on or before the earliest filing-due date for the first regime year of the taxpayer or of any eligible pre-regime group entity of the taxpayer, and

    • (iii)in the election the taxpayer and the eligible pre-regime group entities

      • (A)allocate to the taxpayer or eligible pre-regime group entities in respect of the taxpayer, for the purpose of determining the taxpayer’s cumulative unused excess capacity for the particular taxation year and any other taxation year in which the taxpayer’s ratio of permissible expenses is the same as in the particular year, one or more portions of the group net excess capacity (as defined in subparagraph (d)‍(vi)) for the pre-regime years that is determined for that purpose, and

      • (B)set out, for the taxpayer and each eligible pre-regime group entity, the excess interest (as defined in subparagraph (d)‍(ii)) for each pre-regime year, the excess capacity otherwise determined (as defined in subparagraph (d)‍(iii)) for each pre-regime year and the net excess capacity (as defined in subparagraph (d)‍(v)) for the pre-regime years; and

  • (d)if the conditions set out in subparagraphs (c)‍(i) to (iii) are satisfied, for the purpose of determining the taxpayer’s cumulative unused excess capacity for a particular taxation year and any other taxation year in which the taxpayer’s ratio of permissible expenses is the same as in the particular year, the taxpayer’s excess capacity for a pre-regime year (other than for the purposes of this paragraph) is determined in accordance with the following rules:

    • (i)for the purposes of this paragraph, the determination of whether a corporation or a fixed interest commercial trust is an eligible pre-regime group entity in respect of the taxpayer is to be made at the end of the taxpayer’s first regime year,

    • (ii)the excess interest, of the taxpayer or an eligible pre-regime group entity in respect of the taxpayer, for a pre-regime year, means the amount that would be determined for the pre-regime year under paragraph (b) of the definition absorbed capacity in subsection 18.‍2(1) of the Act, as enacted by subsection (1),

    • (iii)the excess capacity otherwise determined means the amount that would be the excess capacity of the taxpayer or an eligible pre-regime group entity in respect of the taxpayer for a pre-regime year, if that amount were determined under the definition excess capacity in subsection 18.‍2(1) of the Act, as enacted by subsection (1),

    • (iv)for the purposes of this paragraph, if the taxpayer or an eligible pre-regime group entity in respect of the taxpayer was subject to a loss restriction event at the beginning of any of its pre-regime years, its excess capacity otherwise determined and its excess interest for any pre-regime year that precedes that year are deemed to be nil,

    • (v)the net excess capacity of a taxpayer for its pre-regime years means the amount, if any, by which the total of all amounts each of which is the excess capacity otherwise determined of the taxpayer for a pre-regime year exceeds the total of all amounts each of which is the excess interest of the taxpayer for a pre-regime year,

    • (vi)the group net excess capacity for the pre-regime years means the amount, if any, by which the total of all amounts each of which is the excess capacity otherwise determined of the taxpayer or an eligible pre-regime group entity in respect of the taxpayer (other than a taxpayer or eligible pre-regime group entity that is, at any time in a pre-regime year, a financial institution group entity or a person exempt from tax under Part I of the Act) for a pre-regime year exceeds the total of all amounts each of which is the excess interest of the taxpayer or an eligible pre-regime group entity (other than a taxpayer or eligible pre-regime group entity that is, at any time in a pre-regime year, a financial institution group entity or a person exempt from tax under Part I of the Act) for a pre-regime year,

    • (vii)for the purposes of determining the excess capacity otherwise determined or the excess interest of the taxpayer or an eligible pre-regime group entity for a pre-regime year, the net excess capacity of the taxpayer or an eligible pre-regime group entity for its pre-regime years and the group net excess capacity for pre-regime years,

      • (A)the ratio of permissible expenses is the same as the taxpayer’s ratio of permissible expenses for the particular year, and

      • (B)if it is the case that, in respect of a pre-regime year, the conditions set out in subsection 18.‍21(2) of the Act, as enacted by subsection (1), would be met in respect of the taxpayer and each eligible pre-regime group entity that is a member of the same consolidated group in respect of the year — if the reference in subsection 18.‍21(2) to the “filing–due date of a Canadian group member for the year” were read as a reference to the “filing-due date of any Canadian group member for its first regime year” — then subsection 18.‍21(2) of the Act, as enacted by subsection (1), applies in respect of the taxpayer and each such eligible pre-regime group entity for the pre-regime year,

    • (viii)the taxpayer’s excess capacity for a pre-regime year is deemed to be

      • (A)if the taxpayer’s net excess capacity for its pre-regime years is not a positive amount, nil, and

      • (B)in any other case, the lesser of

        • (I)the taxpayer’s excess capacity otherwise determined for the pre-regime year, and

        • (II)the portion, if any, of the group net excess capacity allocated to the taxpayer for the year in the joint election under paragraph (c), and

    • (ix)notwithstanding subparagraph (viii), the taxpayer’s excess capacity for each pre-regime year is deemed to be nil if

      • (A)the total of all amounts each of which is a portion of the group net excess capacity that is allocated to the taxpayer or an eligible pre-regime group entity in respect of the taxpayer for a pre-regime year in the joint election under paragraph (c) is greater than the group net excess capacity, or

      • (B)the total of all amounts each of which is a portion of the group net excess capacity that is allocated to the taxpayer for a pre-regime year under the joint election is greater than the taxpayer’s net excess capacity for its pre-regime years;

  • (e)an amended election is deemed to be filed in accordance with subparagraph (c)‍(ii) if

    • (i)as a result of an assessment or reassessment, the amount of excess interest or excess capacity otherwise determined of the taxpayer, or any eligible pre-regime group entity (other than a financial institution group entity or a person exempt from tax under Part I of the Act) in respect of the taxpayer, is different from the amount reported by the taxpayer or eligible group entity in a prior election under this subsection,

    • (ii)in the absence of the assessment or reassessment, the taxpayer’s excess capacity for each pre-regime year would not be deemed to be nil under subparagraph (d)‍(ix) based on a prior election, and

    • (iii)the amended election is filed within 90 days of the reassessment;

  • (f)if an election or amended election has been made under paragraph (c), the Minister shall, despite subsections 152(4) and (5) of the Act, assess or reassess the tax, interest or penalties payable under the Act by any taxpayer for any relevant taxation year as is necessary to give effect to the election or amended election; and

  • (g)despite paragraphs (c) and (e), the Minister may accept an election or amended election if

    • (i)the taxpayer and the eligible pre-regime group entities in respect of the taxpayer demonstrate to the satisfaction of the Minister that

      • (A)they made reasonable efforts to determine all amounts that may reasonably be considered relevant in making the election or amended election, and

      • (B)the election or amended election, as the case may be, is filed as soon as circumstances permit, and

    • (ii)in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the election to be made or amended.

8(1)The Act is amended by adding the following after section 18.‍3:

Hybrid mismatch arrangements — definitions
Start of inserted block
18.‍4(1)The following definitions apply in this section and paragraph 20(1)‍(yy).

Canadian ordinary income, of a taxpayer for a taxation year in respect of a payment, means an amount that is

  • (a)if the taxpayer is not a partnership, included in respect of the payment in computing, in the case of a taxpayer resident in Canada, the income of the taxpayer for the purposes of this Part — or, in the case of a taxpayer that is a non-resident person, the taxable income earned in Canada of the taxpayer — for the year, except to the extent that

    • (i)the amount is included in the Canadian ordinary income of any taxpayer under paragraph (b) or (c),

    • (ii)the taxpayer is entitled to a deduction under section 112 or 113 in respect of the payment, or

    • (iii)the amount can otherwise reasonably be considered to be excluded, reduced, offset or otherwise effectively sheltered from tax under this Part by reason of any exemption, exclusion, deduction, credit (other than a credit for a tax substantially similar to tax under Part XIII) or other form of relief under this Act that

      • (A)applies specifically in respect of all or a portion of the amount and not in computing income generally, or

      • (B)arises in respect of the payment;

  • (b)if the taxpayer is a partnership, determined by the formula

    A × B ÷ C − D
    where

    A
    is an amount that is included in respect of the payment in computing the income or loss of the partnership from any source, or from sources in a particular place, for the year, except to the extent that the amount

    (i)is included in the Canadian ordinary income of any taxpayer under paragraph (c), or

    (ii)can reasonably be considered to be excluded, reduced, offset or otherwise sheltered by any reason described in subparagraph (a)‍(iii),

    B
    is the total of all amounts, each of which is, in respect of the partnership’s income or loss from that source or the sources in the particular place for the year,

    (i)the share of a member of the partnership that is a person resident in Canada, or

    (ii)the share of a member of the partnership that is a non-resident person to the extent it is included in computing the non-resident person’s taxable income earned in Canada,

    C
    is the income or loss of the partnership from the source, or the sources in the particular place, for the year, and

    D
    is the total of all amounts, each of which is an amount deductible, in respect of the payment, by a member of the partnership under section 112 or 113; or

  • (c)determined by the formula

    E × F
    where

    E
    is the amount determined by the formula

    G × H
    where

    G
    is an amount that is included in respect of the payment in computing the foreign accrual property income of a controlled foreign affiliate of the taxpayer for a taxation year (as defined in subsection 95(1)) of the affiliate ending in the year, except to the extent the amount can reasonably be considered to be excluded, reduced, offset or otherwise effectively sheltered for any reason described in subparagraph (a)‍(iii), and

    H
    is the aggregate participating percentage (as defined in subsection 91(1.‍3)) of the taxpayer in respect of the affiliate for the taxation year of the affiliate, and

    F
    is

    (i)if the taxpayer is a partnership, the amount determined by the formula

    I ÷ E
    where

    I
    is the total of all amounts each of which is a share of the amount determined for E of a member of the partnership that is a person resident in Canada, and

    (ii)in any other case, 1.‍ (revenu ordinaire canadien)

controlled foreign company tax regime means a set of provisions under the tax laws of a particular country other than Canada under which a direct or indirect shareholder of an entity that is located in a country other than the particular country is subject to current taxation in respect of its share of all or part of the income earned by the entity, irrespective of whether that income is distributed currently to the shareholder.‍ (régime fiscal des sociétés étrangères contrôlées)

deductible, in relation to an amount in respect of a payment, in computing relevant foreign income or profits, includes any relief that arises in respect of the payment and is equivalent in effect to a deduction, including 

  • (a)an exemption or exclusion in computing the relevant foreign income or profits; and

  • (b)a refund of, or credit that can be applied to reduce or offset, income or profits tax paid or payable to a government of a country other than Canada in respect of the relevant foreign income or profits.‍ (déductible)

entity has the same meaning as in subsection 95(1).‍ (entité)

equity interest means any of the following:  

  • (a)a share of the capital stock of a corporation;

  • (b)an interest as a beneficiary under a trust;

  • (c)an interest as a member of a partnership; or

  • (d)any similar interest in respect of any entity.‍ (participation au capital)

equity or financing return means a payment that can reasonably be considered to be in respect of, or determined by reference to,

  • (a)revenue, profit, cash flow, commodity price or any other similar criterion;

  • (b)dividends paid or payable to shareholders of any class of shares of the capital stock of a corporation, or income or capital paid or payable to any member of a partnership or beneficiary under a trust, or any other distribution in respect of any entity; or

  • (c)an amount that is, or is on account of, in lieu of payment of or in satisfaction of, interest, or that is otherwise compensation for the use of money.‍ (rendement financier ou de capitaux propres)

exempt dealer compensation payment means a payment that

  • (a)is a dealer compensation payment (as defined in subsection 260(1));

  • (b)is received by a registered securities dealer resident in Canada, as compensation for a taxable dividend paid on a share of the capital stock of a public corporation, from a non-resident corporation (referred to in this definition as the “affiliate”) that, at the time the payment is received,

    • (i)is a controlled foreign affiliate of

      • (A)the registered securities dealer, or

      • (B)another taxpayer that does not deal at arm’s length with the registered securities dealer,

    • (ii)has a substantial market presence in a particular country other than Canada,

    • (iii)makes the payment in the ordinary course of a business of trading in securities, if

      • (A)the business is carried on by the affiliate as a foreign bank (as defined in subsection 95(1)), a trust company, a credit union, an insurance corporation or a trader or dealer in securities,

      • (B)the activities of the business are regulated under the laws of

        • (I)the particular country,

        • (II)another country under the laws of which the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued and of each country in which the business is carried on through a permanent establishment, or

        • (III)if the affiliate is related to a corporation, another country under the laws of which the related corporation is governed and any of exists, was (unless the related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, and

    • (iv)conducts the business, directly or indirectly,

      • (A)principally with persons that

        • (I)deal at arm’s length with the affiliate, and

        • (II)are resident, or carry on business through a permanent establishment, in the particular country, and

      • (B)in competition with other entities that

        • (I)deal at arm’s length with the affiliate, and

        • (II)have a substantial market presence in the particular country; and

  • (c)does not arise under, or in connection with, a structured arrangement.‍ (paiement compensatoire (courtier) exonéré)

financial instrument means 

  • (a)a debt;

  • (b)an equity interest or any right that may reasonably be considered to replicate a right to participate in profits or gain of any entity; or

  • (c)any other arrangement that gives rise to an equity or financing return.‍ (instrument financier)

foreign expense restriction rule means a provision under the tax laws of a country other than Canada that can reasonably be considered to

  • (a)have an effect, or be intended to have an effect, that is substantially similar to that of subsection 18(4); or

  • (b)have been enacted or otherwise brought into effect by the country with the intention of implementing, in whole or in part,

    • (i)any of the recommendations set out in Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, Action 4 2016 Update, published by the Organisation for Economic Co-operation and Development, or

    • (ii)the Global Anti-Base Erosion Model Rules set out in Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two), published by the Organisation for Economic Co-operation and Development.‍ (règle étrangère de restriction des dépenses)

foreign hybrid mismatch rule means a provision, under the tax laws of a country other than Canada, that can reasonably be considered to

  • (a)have an effect that is substantially similar to that of a provision under this section, section 12.‍7 or subsection 113(5); or

  • (b)have been enacted or otherwise brought into effect by the country with the intention of implementing, in whole or in part, Neutralising the Effects of Hybrid Mismatch Arrangements, Action 2 2015 Final Report published by the Organisation for Economic Co-operation and Development, as amended from time to time.‍ (règle étrangère d’asymétrie hybride)

foreign ordinary income, of an entity for a foreign taxation year in respect of a payment, means an amount that is determined by the formula

A − B − C − D − E − F
where

A
is an amount (referred to in this definition as the “relevant amount”) that is included in respect of the payment in computing relevant foreign income or profits of the entity for the year (other than income or profits in respect of which the entity is subject to a tax substantially similar to tax under Part XIII, or a tax under a controlled foreign company tax regime or a specified minimum tax regime) because the entity is a recipient of the payment or has a direct or indirect equity interest in a recipient of the payment;

B
is

(a)if the relevant amount is included in computing relevant foreign income or profits in respect of which the entity is subject to an income or profits tax that is charged at a nil rate, the relevant amount, or

(b)in any other case, nil;

C
is any portion of the relevant amount that is included in computing relevant foreign income or profits of the entity for the year because of any foreign hybrid mismatch rule (other than any rule that is substantially similar in effect to subsection 113(5));

D
is any portion of the relevant amount that can reasonably be considered to be excluded, reduced, offset or otherwise effectively sheltered from income or profits tax by reason of any exemption, exclusion, deduction, credit (other than a credit for tax payable under Part XIII) or other form of relief that

(a)applies specifically in respect of all or a portion of the relevant amount and not in computing the entity’s relevant foreign income or profits in general, or

(b)arises in respect of the payment;

E
is the amount determined by the formula

(A − C − D) × G ÷ H
where

G
is the total of all amounts, each of which is an amount that

(i)meets the following conditions:

(A)is repaid or repayable in respect of income or profits tax paid or payable by the entity to the government of a country other than Canada in respect of the relevant foreign income or profits for the year, and

(B)is not repaid or repayable because a loss is used to reduce or offset the relevant foreign income or profits for the year, or

(ii)is paid or payable in respect of a credit that can reasonably be considered to reduce or offset, directly or indirectly, the income or profits tax referred to in clause (i)‍(A), and

H
is the total amount of the income or profits tax referred to in clause (i)‍(A) of the description of G; and

F
is the amount determined by the formula

(A − C − D − E) × (1 − I ÷ J)
where

I
is the rate at which the income or profits tax referred to in clause (i)‍(A) in the description of G is charged in respect of the relevant amount, and

J
is the highest rate at which an income or profits tax imposed by the government of the country is charged in respect of an amount of income in respect of a financial instrument.‍ (revenu ordinaire étranger)

foreign taxation year of an entity means the period for which the accounts of the entity have been ordinarily made up for the purpose of computing relevant foreign income or profits of the entity, but no such period may exceed 53 weeks.‍ (année d’imposition étrangère)

hybrid mismatch amount, in respect of a payment, means

  • (a)if the payment arises under a hybrid financial instrument arrangement, the amount of the hybrid financial instrument mismatch in respect of the payment;

  • (b)if the payment arises under a hybrid transfer arrangement, the amount of the hybrid transfer mismatch in respect of the payment; or

  • (c)if the payment arises under a substitute payment arrangement, the amount of the substitute payment mismatch in respect of the payment.‍ (montant de l’asymétrie hybride)

hybrid mismatch arrangement under which a payment arises means

  • (a)a hybrid financial instrument arrangement under which the payment arises;

  • (b)a hybrid transfer arrangement under which the payment arises; or 

  • (c)a substitute payment arrangement under which the payment arises.‍ (dispositif hybride)

payer of a payment includes any entity that has an obligation to pay, credit or confer, either immediately or in the future and either absolutely or contingently, the payment to an entity.‍ (payeur)

payment includes any amount or benefit that any entity has an obligation to pay, credit or confer, either immediately or in the future and either absolutely or contingently, to an entity.‍ (paiement)

recipient of a payment includes any entity that has an entitlement to be paid, credited or conferred, either immediately or in the future and either absolutely or contingently, the payment by an entity.‍ (bénéficiaire)

relevant foreign income or profits of an entity means income or profits in respect of which the entity is subject to an income or profits tax that is imposed by the government of a country other than Canada.‍ (revenus ou bénéfices étrangers pertinents)

specified entity, in respect of another entity at any time, means a particular entity if, taking into consideration the rules in subsection (17),  

  • (a)the particular entity at that time, either alone or together with entities with whom the particular entity does not deal at arm’s length, owns directly or indirectly equity interests in the other entity that

    • (i)provide 25% or more of the votes that could be cast at an annual meeting of the shareholders, if the other entity is a corporation, or

    • (ii)have 25% or more of the fair market value of all equity interests in the other entity;

  • (b)the condition in paragraph (a) would be satisfied if the references in that paragraph to “particular entity” were read as references to “other entity” and the references to “other entity” were read as references to “particular entity”; or

  • (c)a third entity at that time, either alone or together with entities with which the third entity does not deal at arm’s length, owns directly or indirectly equity interests in the particular entity and the other entity that, in respect of each of the particular entity and the other entity,

    • (i)provide 25% or more of the votes that could be cast at an annual meeting of the shareholders, if the particular entity or the other entity, as the case may be, is a corporation, or

    • (ii)have 25% or more of the fair market value of all equity interests in the particular entity or the other entity, as the case may be.‍ (entité déterminée)

specified minimum tax regime means

  • (a)any provisions in respect of global intangible low-taxed income (as defined in section 951A of the Internal Revenue Code of 1986 of the United States, as amended from time to time);

  • (b)any provisions under the tax laws of a country that can reasonably be considered to have been enacted or otherwise brought into effect by the country with the intention of implementing, in whole or in part, the Global Anti-Base Erosion Model Rules set out in Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two), published by the Organisation for Economic Co-operation and Development; or

  • (c)any provisions under the tax laws of a country that can reasonably be considered to have been enacted or otherwise brought into effect by the country with the intention of implementing, in whole or in part, a Qualified Domestic Minimum Top-up Tax (as defined in the model rules referred to in paragraph (b)).‍ (régime fiscal minimum déterminé)

structured arrangement means any transaction, or series of transactions, if 

  • (a)the transaction or series includes a payment that gives rise to a deduction/non-inclusion mismatch; and

  • (b)it can reasonably be considered, having regard to all the facts and circumstances, including the terms or conditions of the transaction or series, that

    • (i)portion of any economic benefit arising from the deduction/non-inclusion mismatch is reflected in the pricing of the transaction or series, or

    • (ii)the transaction or series was otherwise designed to, directly or indirectly, give rise to the deduction/non-inclusion mismatch.‍ (dispositif structuré)

transaction includes an arrangement or event.‍ (opération)

End of inserted block
Interpretation
Start of inserted block
(2)This section, section 12.‍7 and subsection 113(5), as well as related provisions of the Act and the Income Tax Regulations, relate to the implementation of Neutralising the Effects of Hybrid Mismatch Arrangements, Action 2 2015 Final Report published by the Organisation for Economic Co-operation and Development and, unless the context otherwise requires, are to be interpreted consistently with that report, as amended from time to time.
End of inserted block
Primary rule — conditions for application
Start of inserted block
(3)Subsection (4) applies in respect of a payment if
  • (a)in the absence of this section and subsection 18(4), an amount would be deductible, in respect of the payment, in computing a taxpayer’s income from a business or property for a taxation year; and

  • (b)that amount is the deduction component of a hybrid mismatch arrangement under which the payment arises.

    End of inserted block
Primary rule — consequences
Start of inserted block
(4)If this subsection applies in respect of a payment, notwithstanding any other provision of this Act, in computing a taxpayer’s income from a business or property for a taxation year, no deduction shall be made in respect of the payment to the extent of the hybrid mismatch amount in respect of the payment.
End of inserted block
Structured arrangements — exception
Start of inserted block
(5)If subsection (4) or 12.‍7(3) would, in the absence of this subsection, apply in respect of a payment in computing a taxpayer’s income from a business or property for a taxation year, that subsection does not apply in respect of the payment if
  • (a)there would be no hybrid mismatch arrangement in respect of the payment if the payment did not arise under, or in connection with, a structured arrangement;

  • (b)at the time that the taxpayer entered into, or acquired an interest in any part of a transaction that is, or is part of, the structured arrangement, it was not reasonable to expect that any of the following entities were aware of the deduction/non-inclusion mismatch arising from the payment:

    • (i)the taxpayer,

    • (ii)an entity with which the taxpayer does not deal at arm’s length, or

    • (iii)a specified entity in respect of the taxpayer; and

  • (c)none of the entities described in subparagraphs (b)‍(i) to (iii) shared in the value of any economic benefit resulting from the deduction/non-inclusion mismatch.

    End of inserted block
Deduction/non-inclusion mismatch — conditions
Start of inserted block
(6)For the purposes of this section and section 12.‍7, a payment gives rise to a deduction/non-inclusion mismatch if
  • (a)the following condition is met:

    A > B
    where

    A
    is the total of all amounts, each of which would, in the absence of this section and subsection 18(4), be deductible in respect of the payment, in computing the income of a taxpayer from a business or property under this Part for a taxation year (referred to in this paragraph as the “relevant year”), and

    B
    is the total of all amounts each of which, in respect of the payment,

    (i)can reasonably be expected to be — and actually is — foreign ordinary income of an entity for a foreign taxation year that begins on or before the day that is 12 months after the end of the relevant year, or

    (ii)is Canadian ordinary income of a taxpayer for a taxation year that begins on or before the day that is 12 months after the end of the relevant year; or

  • (b)the following condition is met:

    C > D
    where

    C
    is the total of all amounts, each of which, in the absence of any foreign expense restriction rule, would be — or would reasonably be expected to be — deductible, in respect of the payment, in computing relevant foreign income or profits of an entity for a foreign taxation year (referred to in this paragraph as the “relevant foreign year”), and

    D
    is the total of all amounts, each of which, in respect of the payment,

    (i)would, in the absence of section 12.‍7, be Canadian ordinary income of a taxpayer for a taxation year that begins on or before the day that is 12 months after the end of the relevant foreign year, or

    (ii)can reasonably be expected to be — and actually is — foreign ordinary income of another entity for a foreign taxation year that begins on or before the day that is 12 months after the end of the relevant foreign year.

    End of inserted block
Deduction/non-inclusion mismatch — application
Start of inserted block
(7)For the purposes of this section and section 12.‍7, if a payment gives rise to a deduction/non-inclusion mismatch,
  • (a)the amount, if any, determined for A in paragraph (6)‍(a) in respect of the payment is the deduction component of the deduction/non-inclusion mismatch;

  • (b)the amount, if any, determined for C in paragraph (6)‍(b) in respect of the payment is the foreign deduction component of the deduction/non-inclusion mismatch; and

  • (c)the amount of the deduction/non-inclusion mismatch arising from the payment is determined by the formula

    A − B
    where

    A
    is

    (i)if paragraph (6)‍(a) applies in respect of the payment, the deduction component of the deduction/non-inclusion mismatch, or

    (ii)if paragraph (6)‍(b) applies in respect of the payment, the foreign deduction component of the deduction/non-inclusion mismatch, and

    B
    is

    (i)if subparagraph (i) of the description of A applies,

    (A)where the amount determined for B in paragraph (6)‍(a) in respect of the payment is equal to 10% or less of the amount determined for A, nil, and

    (B)in any other case, the amount determined for B in paragraph (6)‍(a) in respect of the payment, or

    (ii)if subparagraph (ii) of the description of A applies,

    (A)where the amount determined for D in paragraph (6)‍(b) in respect of the payment is equal to 10% or less of the amount determined for A, nil, and

    (B)in any other case, the amount determined for D in paragraph (6)‍(b) in respect of the payment.

    End of inserted block
No double counting
Start of inserted block
(8)Any amount that has already been included, directly or indirectly, in computing foreign ordinary income or Canadian ordinary income of a particular entity in respect of a payment shall not be included, directly or indirectly, in computing foreign ordinary income or Canadian ordinary income of the particular entity or any other entity in respect of the payment.
End of inserted block
Notional interest expense — deemed payment
Start of inserted block
(9)For the purposes of this section (other than this subsection) and section 12.‍7, if, in the absence of any foreign expense restriction rule, an amount (referred to in this subsection as the “deductible amount”) would be, or can reasonably be expected to be, deductible in respect of a notional interest expense on a debt in computing the relevant foreign income or profits of an entity for a foreign taxation year
  • (a)the entity is deemed to make a payment in the year under the debt to the creditor in respect of the debt, in an amount equal to the deductible amount, and the creditor is deemed to be a recipient of the payment;

  • (b)the deductible amount is deemed to be in respect of the payment;

  • (c)any amount that is foreign ordinary income or Canadian ordinary income of the creditor in respect of notional interest income on the debt, that is calculated in respect of the same time period as the notional interest expense, is deemed to arise in respect of the payment; and

  • (d)any deduction/non-inclusion mismatch arising from the payment is deemed to satisfy the condition in paragraph (10)‍(d).

    End of inserted block
Hybrid financial instrument arrangement — conditions
Start of inserted block
(10)For the purposes of this section and section 12.‍7, a payment arises under a hybrid financial instrument arrangement if
  • (a)the payment (other than a payment described in paragraphs (14)‍(a) to (d)) arises under, or in connection with, a financial instrument;

  • (b)any of the following conditions is satisfied:

    • (i)a payer of the payment does not deal at arm’s length with, or is a specified entity in respect of, a recipient of the payment, or

    • (ii)the payment arises under, or in connection with, a structured arrangement;

  • (c)the payment gives rise to a deduction/non-inclusion mismatch; and

  • (d)it can reasonably be considered that the deduction/non-inclusion mismatch

    • (i)arises in whole or in part because of a difference in the treatment of the financial instrument — or of one or more transactions, either alone or together, where the transaction or transactions are part of a transaction or series of transactions that includes the payment or relates to the financial instrument — for tax purposes under the laws of more than one country that is attributable to the terms or conditions of the financial instrument or transaction or transactions, or

    • (ii)would arise in whole or in part because of a difference described in subparagraph (i), if any other reason for the deduction/non-inclusion mismatch were disregarded.

      End of inserted block
Hybrid financial instrument arrangement — amount
Start of inserted block
(11)For the purposes of this section and section 12.‍7, if a payment arises under a hybrid financial instrument arrangement,
  • (a)the amount of the hybrid financial instrument mismatch, in respect of the payment, is the portion of the amount of the deduction/non-inclusion mismatch arising from the payment that meets the condition in subparagraph (10)‍(d)‍(i) or (ii);

  • (b)the deduction component, if any, of the deduction/non-inclusion mismatch is the deduction component of the hybrid financial instrument arrangement in respect of the payment; and

  • (c)the foreign deduction component, if any, of the deduction/non-inclusion mismatch is the foreign deduction component of the hybrid financial instrument arrangement in respect of the payment.

    End of inserted block
Hybrid transfer arrangement — conditions
Start of inserted block
(12)For the purposes of this section and section 12.‍7, a payment (other than an exempt dealer compensation payment) arises under a hybrid transfer arrangement if
  • (a)the payment arises under, or in connection with,

    • (i)a transaction or series of transactions (referred to in this subsection as the “transfer arrangement”) that includes a loan or a disposition or other transfer by an entity to another entity (referred to in this subsection as the “transferor” and “transferee”, respectively) of all or a portion of a financial instrument (referred to in this subsection as the “transferred instrument”), or

    • (ii)the transferred instrument;

  • (b)any of the following conditions is satisfied:

    • (i)at any time during the transfer arrangement

      • (A)a payer of the payment does not deal at arm’s length with, or is a specified entity in respect of, a recipient of the payment, or

      • (B)the transferor does not deal at arm’s length with, or is a specified entity in respect of, the transferee, or

    • (ii)the payment arises under, or in connection with, a structured arrangement;

  • (c)the payment gives rise to a deduction/non-inclusion mismatch; and

  • (d)it can reasonably be considered that the deduction/non-inclusion mismatch arises (or would arise, if any reason for the mismatch other than the reasons described in subparagraphs (i) and (ii) were disregarded), in whole or in part, because

    • (i)if the payment arises as compensation for a particular payment under the transferred instrument,

      • (A)the tax laws of one country treat all or a portion of the payment as though it has the same character as, or represents, the particular payment, in determining the tax consequences to an entity that is a recipient of the payment but not of the particular payment, and

      • (B)the tax laws of another country treat all or a portion of the payment as a deductible expense of another entity, or

    • (ii)in any other case,

      • (A)the tax laws of one country treat one or more transactions included in the transfer arrangement, either alone or together, as or as equivalent to a borrowing or other indebtedness, or treat all or a portion of the payment as arising under, or in connection with, a borrowing or other indebtedness, and the tax laws of another country do not treat the transaction or transactions, or the payment, as the case may be, in that manner, or

      • (B)the tax laws of one country treat the payment, or any other payment arising under, or in connection with, the transfer arrangement or transferred instrument, as though the payment or other payment, as the case may be, was derived by one entity and the tax laws of another country treat the payment or other payment, as the case may be, as though it was derived by another entity, because of a difference in how the countries treat one or more transactions included in the transfer arrangement, either alone or together.

        End of inserted block
Hybrid transfer arrangement — amount
Start of inserted block
(13)For the purposes of this section and section 12.‍7, if a payment arises under a hybrid transfer arrangement,
  • (a)the amount of the hybrid transfer mismatch, in respect of the payment, is the portion of the amount of the deduction/non-inclusion mismatch arising from the payment that meets a condition in subparagraph (12)‍(d)‍(i) or (ii);

  • (b)the deduction component, if any, of the deduction/non-inclusion mismatch is the deduction component of the hybrid transfer arrangement in respect of the payment; and

  • (c)the foreign deduction component, if any, of the deduction/non-inclusion mismatch is the foreign deduction component of the hybrid transfer arrangement in respect of the payment.

    End of inserted block
Substitute payment arrangement — conditions
Start of inserted block
(14)For the purposes of this section and section 12.‍7, a payment arises under a substitute payment arrangement if
  • (a)the payment arises under, or in connection with, an arrangement under which all or a portion of a financial instrument is loaned or disposed of or otherwise transferred by an entity to another entity (referred to in this subsection as the “transferor” and “transferee”, respectively);

  • (b)the transferee, or an entity that does not deal at arm’s length with the transferee, is a payer of the payment;

  • (c)the transferor, or an entity that does not deal at arm’s length with the transferor, is a recipient of the payment;

  • (d)all or a portion of the payment can reasonably be considered to represent or otherwise reflect, or be determined by reference to

    • (i)another payment (referred to in this subsection and subsection (15) as the “underlying return”) that arises under, or in connection with, the financial instrument, or

    • (ii)revenue, profit, cash flow, commodity price or any other similar criterion;

  • (e)any of the following conditions is satisfied:

    • (i)at any time during that series of transactions that includes the arrangement,

      • (A)a payer of the payment does not deal at arm’s length with, or is a specified entity in respect of, a recipient of the payment, or

      • (B)the transferor does not deal at arm’s length with, or is a specified entity in respect of, the transferee, or

    • (ii)the payment arises under, or in connection with, a structured arrangement;

  • (f)the payment

    • (i)would give rise to a deduction/non-inclusion mismatch if any Canadian ordinary income of a taxpayer for a taxation year and any foreign ordinary income of an entity for a foreign taxation year, in respect of the payment, were limited to the portion of those amounts that can reasonably be considered to relate to the portion of the payment that is described in paragraph (d), or

    • (ii)if the condition in subparagraph (i) is not met, would meet the condition in that subparagraph if any amount that, in the absence of this section, subsection 18(4) or any foreign expense restriction rule, would be — or would reasonably be expected to be — deductible by the transferee in respect of the underlying return were instead considered to be deductible in respect of the payment, to the extent that the amount

      • (A)would be — or would reasonably be expected to be — deductible by the transferee in computing its income from a business or property for a taxation year or its relevant foreign income or profits for a foreign taxation year, as the case may be, and

      • (B)would be — or would reasonably be expected to be — so deductible because the underlying return accrued (or is considered to accrue) for a period before the transfer;

  • (g)one of the following conditions is satisfied:

    • (i)the transferee or an entity that does not deal at arm’s length with the transferee is a recipient of the underlying return — or, if subparagraph (d)‍(ii) applies, a distribution under the financial instrument — and the amount of the underlying return or the distribution, as the case may be, exceeds the total of all amounts, in respect of the underlying return or the distribution, as the case may be, each of which can reasonably be expected to be — and actually is — foreign ordinary income for a foreign taxation year or Canadian ordinary income for a taxation year, as the case may be, of the recipient,

    • (ii)the condition in subparagraph (i) would be satisfied if the transferee were the recipient of the underlying return, or, if subparagraph (d)‍(ii) applies, a distribution under the financial instrument, or

    • (iii)if the transferor were the recipient of the underlying return, or, if subparagraph (d)‍(ii) applies, a distribution under the financial instrument,

      • (A)an amount in respect of the underlying return or distribution, as the case may be, would reasonably be expected to be foreign ordinary income for a foreign taxation year or Canadian ordinary income for a taxation year, as the case may be, of the transferor,

      • (B)the underlying return or distribution, as the case may be, would arise under a hybrid mismatch arrangement, or

      • (C)a foreign hybrid mismatch rule would reasonably be expected to apply in respect of the underlying return or distribution, as the case may be; and

  • (h)one of the following entities is not resident in Canada:

    • (i)the transferor,

    • (ii)the transferee,

    • (iii)a recipient of the payment,

    • (iv)a payer of the payment,

    • (v)the issuer of the financial instrument,

    • (vi)a recipient of the underlying return, and

    • (vii)if an entity described in any of subparagraphs (i) to (vi) is a partnership, a member of that entity.

      End of inserted block
Substitute payment arrangement — amount
Start of inserted block
(15)For the purposes of this section and section 12.‍7, if a payment arises under a substitute payment arrangement,
  • (a)the amount of the substitute payment mismatch, in respect of the payment, is the lesser of

    • (i)the amount of the deduction/non-inclusion mismatch arising from the payment,

      • (A)if the condition in subparagraph (14)‍(f)‍(i) applies, determined based on the assumption in that subparagraph, or

      • (B)if the condition in subparagraph (14)‍(f)‍(ii) applies, determined based on the assumption in that subparagraph, and

    • (ii)the amount of the payment, or the portion of the payment, as the case may be, described in paragraph (14)‍(d);

  • (b)the deduction component, if any, of the deduction/non-inclusion mismatch is the deduction component of the substitute payment arrangement in respect of the payment;

  • (c)the foreign deduction component, if any, of the deduction/non-inclusion mismatch is the foreign deduction component of the substitute payment arrangement in respect of the payment; and

  • (d)if the condition in subparagraph (14)‍(f)‍(ii) is met in respect of the payment, any amount that, in the absence of this section, subsection 18(4) or any foreign expense restriction rule, would be — or would reasonably be expected to be — deductible by the transferee in respect of the underlying return that meets the conditions in clauses (14)‍(f)‍(ii)‍(A) and (B) is deemed to be deductible by the transferee in respect of the payment for the purposes of applying subsections (3) and (4) and section 12.‍7.

    End of inserted block
Substituted instruments
Start of inserted block
(16)For the purposes of this section and section 12.‍7, any financial instrument that is substituted for a particular financial instrument is deemed to be the particular financial instrument.
End of inserted block
Specified entity — deeming rules
Start of inserted block
(17)For the purposes of the definition specified entity in subsection (1), the following rules apply:
  • (a)in determining the equity interests owned, directly or indirectly, by any entity (in this paragraph referred to as the “first entity”) in any other entity at any time,

    • (i)the rights of the first entity, and any entities with which it does not deal at arm’s length, that are rights referred to in the portion of the definition specified shareholder in subsection 18(5) after paragraph (b) of that definition or in paragraph (a) or (b) of the definition specified beneficiary in that subsection, or that are similar rights in respect of partnerships or any other entity, are deemed to be immediate and absolute and to have been exercised at that time, and

    • (ii)paragraph (c) of the definition specified beneficiary in subsection 18(5) is deemed to apply at that time and the references in that definition to “particular person” are to be read as references to “first entity”; and

  • (b)notwithstanding paragraph (a), a particular entity is deemed not to be a specified entity in respect of another entity at any time if

    • (i)the particular entity would, but for this paragraph, be a specified entity in respect of the other entity at that time,

    • (ii)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 entity will cease to be a specified entity in respect of the other entity, and

    • (iii)the purpose for which the particular entity became a specified entity was the safeguarding of rights or interests of the particular entity or an entity with which the particular entity is not dealing at arm’s length in respect of any indebtedness owing at any time to the particular entity or an entity with which the particular entity is not dealing at arm’s length.

      End of inserted block
Tiered partnerships
Start of inserted block
(18)For the purposes of this section and section 12.‍7, a person or partnership that is a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership, and the person or partnership is deemed to have, directly, rights to the income or capital of the other partnership to the extent of the person or partnership’s direct and indirect rights to that income or capital.
End of inserted block
Multiple recipients
Start of inserted block
(19)For the purposes of this section and section 12.‍7, if there would, in the absence of this subsection, be multiple recipients of a particular payment, each portion of the particular payment that arises to each recipient is deemed to be a separate payment.
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Anti-avoidance
Start of inserted block
(20)The tax consequences (as defined in subsection 245(1)) to a person shall be determined in order to deny a tax benefit (as defined in subsection 245(1)) to the extent necessary to eliminate any deduction/non-inclusion mismatch, or other outcome that is substantially similar to a deduction/non-inclusion mismatch, arising from a payment if
  • (a)it can reasonably be considered that one of the main purposes of a transaction or series of transactions that includes the payment is to avoid or limit the application of subsection (4), 12.‍7(3) or 113(5) in respect of the payment; and

  • (b)any of the following conditions is met:

    • (i)the payment is a dividend and an amount would be — or would reasonably be expected to be — deductible in respect of the payment in computing relevant foreign income or profits of an entity for a foreign taxation year,

    • (ii)the mismatch or other outcome arises in whole or in part because of a difference in tax treatment of any transaction or series of transactions under the laws of more than one country that is attributable to the terms or conditions of the transaction or one or more transactions included in the series, or

    • (iii)the mismatch or other outcome would arise in whole or in part because of a difference described in subparagraph (ii), if any other reason for the mismatch or other outcome were disregarded.

      End of inserted block
Filing Requirement
Start of inserted block
(21)Each taxpayer shall file with its return of income for a taxation year a prescribed form containing prescribed information if, in computing the taxpayer’s income for the taxation year,
  • (a)an amount is not deductible in respect of a payment because of subsection (4); or

  • (b)subsection 12.‍7(3) includes an amount in respect of a payment.

    End of inserted block
(2)Paragraph (a) of the definition foreign expense restriction rule in subsection 18.‍4(1) of the Act, as enacted by subsection (1), is replaced by the following:
  • (a)have an effect, or be intended to have an effect, that is substantially similar to subsection 18(4) Insertion start or 18.‍2(2) Insertion end ; or

(3)Paragraph 18.‍4(3)‍(a) of the Act, as enacted by subsection (1), is replaced by the following:
  • (a)in the absence of this section and Insertion start subsections Insertion end 18(4) Insertion start and 18.‍2(2) Insertion end , an amount would be deductible, in respect of the payment, in computing a taxpayer’s income from a business or property for a taxation year; and

(4)The description of A in paragraph 18.‍4(6)‍(a) of the Act, as enacted by subsection (1), is replaced by the following:

A
is the total of all amounts, each of which would, in the absence of this section and Insertion start subsections Insertion end 18(4) Insertion start and 18.‍2(2) Insertion end , be deductible in respect of the payment, in computing the income of a taxpayer from a business or property under this Part for a taxation year (referred to in this paragraph as the “relevant year”), and

(5)The portion of subparagraph 18.‍4(14)‍(f)‍(ii) of the Act before clause (A), as enacted by subsection (1), is replaced by the following:
  • (ii)if the condition in subparagraph (i) is not met, would meet the condition in that subparagraph if any amount that, in the absence of this section, Insertion start subsections Insertion end 18(4) Insertion start and 18.‍2(2) Insertion end or any foreign expense restriction rule, would be — or would reasonably be expected to be — deductible by the transferee in respect of the underlying return were instead considered to be deductible in respect of the payment, to the extent that the amount

(6)Paragraph 18.‍4(15)‍(d) of the Act, as enacted by subsection (1), is replaced by the following:
  • (d)if the condition in subparagraph (14)‍(f)‍(ii) is met in respect of the payment, any amount that, in the absence of this section, Insertion start subsections Insertion end 18(4) Insertion start and 18.‍2(2) Insertion end or any foreign expense restriction rule, would be — or would reasonably be expected to be — deductible by the transferee in respect of the underlying return that meets the conditions in clauses 14(f)‍(ii)‍(A) and (B) is deemed to be deductible by the transferee in respect of the payment for the purposes of applying subsections (3) and (4) and section 12.‍7.

(7)Subsection (1) applies in respect of payments arising on or after July 1, 2022, except that subsection 18.‍4(21) of the Act, as enacted by subsection (1), does not apply in respect of a payment that arises before July 1, 2023.

(8)Subsections (2) to (6) apply in respect of taxation years of a taxpayer that begin on or after October 1, 2023. However, subsections (2) to (6) also apply in respect of a taxation year of a taxpayer that begins before, and ends after, October 1, 2023 if

  • (a)any of the taxpayer’s three immediately preceding taxation years was, because of a transaction or event or a series of transactions or events, shorter than it would have been in the absence of that transaction, event or series; and

  • (b)it can reasonably be considered that one of the purposes of the transaction, event or series was to defer the application of paragraph 12(1)‍(l.‍2) of the Act, as enacted by subsection 2(1), or the application of section 18.‍2 or 18.‍21 of the Act, as enacted by subsection 7(1), to the taxpayer.

9(1)Subsection 20(1) of the Act is amended by striking out “and” at the end of paragraph (ww), by adding “and” at the end of paragraph (xx) and by adding the following after paragraph (xx):

  • Adjustment for hybrid mismatch
    Start of inserted block

    (yy)if subsection 18.‍4(4) has applied to deny a taxpayer a deduction, for the year or a preceding taxation year, for all or a portion of an amount in respect of a payment arising under a hybrid mismatch arrangement, and the taxpayer demonstrates that an amount is foreign ordinary income of an entity in respect of the payment (other than any amount of foreign ordinary income already taken into account in determining the amount of the deduction that was previously denied or a deduction under this paragraph) for a foreign taxation year that ends on or before the day that is 12 months after the end of the year,

  • (i)the lesser of

    • (A)the amount by which the deduction that was denied exceeds the total of all amounts already deducted under this paragraph in respect of the payment for the year or any previous year, and

    • (B)the amount of the foreign ordinary income, and

  • (ii)the amount that is deductible under this paragraph is deemed to be deductible in respect of the payment.

    End of inserted block

(2)Subsection (1) applies in respect of payments arising on or after July 1, 2022.

10(1)The portion of subparagraph 40(1)‍(a)‍(iii) of the Act before clause (A) is replaced by the following:

  • (iii)subject to Insertion start subsections Insertion end (1.‍1) Insertion start to (1.‍3) Insertion end , such amount as the taxpayer may claim

(2)Section 40 of the Act is amended by adding the following after subsection (1.‍1):

Reserve — intergenerational business transfers
Start of inserted block
(1.‍2)In computing the amount that a taxpayer may claim under subparagraph (1)‍(a)‍(iii) on a disposition of shares of the capital stock of a corporation resident in Canada to another corporation, that subparagraph is to be read as if the references to “1/5” and “4” were references to “1/10” and “9” respectively, if the conditions set out in subsection 84.‍1(2.‍31) or (2.‍32) are satisfied in respect of the disposition.
End of inserted block
Reserve — dispositions to employee ownership trusts
Start of inserted block
(1.‍3)In computing the amount that a taxpayer may claim under subparagraph (1)‍(a)‍(iii) in computing the taxpayer’s gain from the disposition of a share of the capital stock of a qualifying business, that subparagraph is to be read as if the references in that subparagraph to “1/5” and “4” were references to “1/10” and “9” respectively, if the shares of the qualifying business were disposed of by the taxpayer to an employee ownership trust, or to a Canadian-controlled private corporation that is controlled and wholly-owned by an employee ownership trust, pursuant to a qualifying business transfer.
End of inserted block

(3)Subsections (1) and (2) apply in respect of transactions that occur on or after January 1, 2024.

11(1)Subparagraph 53(1)‍(e)‍(xiii) of the Act is replaced by the following:

  • (xiii)any amount required by subsection 127(30) Insertion start or section 211.‍92 Insertion end to be added to the taxpayer’s tax otherwise payable under this Part for a taxation year that ended before that time Insertion start in respect of the interest in the partnership Insertion end ;

(2)Subparagraph 53(1)‍(e)‍(xiii) of the Act, as amended by subsection (1), is replaced by the following:

  • (xiii)any amount required by subsection 127(30) or Insertion start 127.‍45(17) Insertion end or section 211.‍92 to be added to the taxpayer’s tax otherwise payable under this Part for a taxation year that ended before that time in respect of the interest in the partnership;

(3)Paragraph 53(2)‍(c) of the Act is amended by adding the following after subparagraph (vi):
  • Start of inserted block

    (vi.‍1)an amount equal to that portion of all amounts of a CCUS tax credit deducted under subsection 127.‍44(3) in computing the tax otherwise payable by the taxpayer under this Part for the taxpayer’s taxation years ending before that time that may reasonably be attributed to amounts added in computing the tax credit of the taxpayer because of subsection 127.‍44(11),

    End of inserted block
(4)Paragraph 53(2)‍(c) of the Act, as amended by subsection (3), is amended by adding the following after subparagraph (vi.‍1):
  • Start of inserted block

    (vi.‍2)an amount equal to that portion of all amounts of a clean technology investment tax credit deducted under subsection 127.‍45(6) in computing the tax otherwise payable by the taxpayer under this Part for the taxpayer’s taxation years ending before that time that may reasonably be attributed to amounts added in computing the tax credit of the taxpayer because of subsection 127.‍45(8),

    End of inserted block

(5)Subsections (1) and (3) are deemed to have come into force on January 1, 2022.

(6)Subsections (2) and (4) are deemed to have come into force on March 28, 2023.

12(1)Paragraphs (f.‍1) and (g) of the definition principal-business corporation in subsection 66(15) of the Act are replaced by the following:

  • (f.‍1)the production or marketing of calcium chloride, gypsum, kaolin, Insertion start lithium Insertion end , sodium chloride or potash,

  • (g)the manufacturing of products, where the manufacturing involves the processing of calcium chloride, gypsum, kaolin, Insertion start lithium Insertion end , sodium chloride or potash,

(2)Section 66 of the Act is amended by adding the following after subsection (20):

Lithium brine well
Start of inserted block
(21)For the purposes of paragraph (f) of the definition Canadian exploration expense in subsection 66.‍1(6) and paragraphs (c.‍2) and (d) of the definition Canadian development expense in subsection 66.‍2(5),
  • (a)a mine includes a well for the extraction of material from a lithium brine deposit;

  • (b)all wells of a taxpayer for the extraction of material from one or more lithium brine deposits, the material produced from which is sent to the same plant for processing, are deemed to be one mine of the taxpayer; and

  • (c)all wells of a taxpayer for the extraction of material from one or more lithium brine deposits that the Minister, in consultation with the Minister of Natural Resources, determines constitute one project, are deemed to be one mine of the taxpayer.

    End of inserted block

(3)Subsections (1) and (2) are deemed to have come into force on March 28, 2023.

13(1)Paragraphs (c.‍2) and (d) of the definition Canadian development expense in subsection 66.‍2(5) of the Act are replaced by the following:

  • (c.‍2)any expense, or portion of any expense, that is not a Canadian exploration expense, incurred by the taxpayer after March 20, 2013 for the purpose of bringing a new mine in a mineral resource in Canada, other than a bituminous sands deposit or an oil shale deposit, into production in reasonable commercial quantities and incurred before the new mine comes into production in such quantities, including an expense for clearing, removing overburden, stripping, sinking a mine shaft, constructing an adit or other underground entry or Insertion start drilling a well for the extraction of lithium from brines Insertion end ,

  • (d)any expense (other than an amount included in the capital cost of depreciable property) incurred by the taxpayer after 1987

    • (i)in sinking or excavating a mine shaft, main haulage way or similar underground work designed for continuing use, for a mine in a mineral resource in Canada built or excavated after the mine came into production,

    • (ii)in extending any such shaft, haulage way or work Insertion start referred to in subparagraph (i) Insertion end , or

    • Start of inserted block

      (iii)in drilling or completing a well for the extraction of lithium from brines in Canada after the mine came into production,

      End of inserted block

(2)Subsection (1) applies in respect of expenses incurred on or after March 28, 2023.

14(1)Subclause 66.‍8(1)‍(a)‍(ii)‍(B)‍(I) of the Act is replaced by the following:

  • (I)the Insertion start total of all amounts Insertion end required by Insertion start subsections Insertion end 127(8) and Insertion start 127.‍44(11) Insertion end in respect of the partnership to be added in computing the investment tax credit Insertion start or the CCUS tax credit (as defined in subsection 127.‍44(1) Insertion end ) of the taxpayer in respect of the fiscal period, and

(2)Subclause 66.‍8(1)‍(a)‍(ii)‍(B)‍(I) of the Act, as amended by subsection (1), is replaced by the following:

  • (I)the total of all amounts required by subsections 127(8), 127.‍44(11) and Insertion start 127.‍45(8) Insertion end in respect of the partnership to be added in computing the investment tax credit, the CCUS tax credit (as defined in subsection 127.‍44(1)) Insertion start or the clean technology investment tax credit (as defined in subsection 127.‍45(1) Insertion end ) of the taxpayer in respect of the fiscal period, and

(3)Subsection (1) is deemed to have come into force on January 1, 2022.

(4)Subsection (2) is deemed to have come into force on March 28, 2023.

15(1)The portion of the definition commercial debt obligation in subsection 80(1) of the Act after paragraph (b) is replaced by the following:

an amount in respect of the interest was or would have been deductible in computing the debtor’s income, taxable income or taxable income earned in Canada, as the case may be, if this Act were read without reference to paragraph 18(1)‍(g), subsections 18(2), (3.‍1) and (4) and Insertion start 18.‍2(2) Insertion end and section 21; (créance commerciale)

(2)Subsection (1) applies in respect of taxation years of a taxpayer that begin on or after October 1, 2023.

16(1)Subsection 80.‍4(3) of the Act is amended by striking out “or” at the end of paragraph (a), by adding “or” at the end of paragraph (b) and by adding the following after paragraph (b):

  • Start of inserted block

    (c)that satisfies the conditions set out in subsection 15(2.‍51) and is repaid within 15 years after the qualifying business transfer referred to in that subsection.

    End of inserted block

(2)Subsection (1) comes into force or is deemed to have come into force on January 1, 2024.

17(1)Paragraph 84.‍1(2)‍(e) of the Act is replaced by the following:

  • Start of inserted block

    (e)notwithstanding any other paragraph in this subsection, if this paragraph applies because of subsection (2.‍31) or (2.‍32) to a disposition of subject shares by a taxpayer to a purchaser corporation, the taxpayer and the purchaser corporation are deemed to deal with each other at arm’s length at the time of the disposition of the subject shares.

    End of inserted block

(2)Subsection 84.‍1(2.‍3) of the Act is replaced by the following:

Rules for subsections (2.‍31) and (2.‍32)
Start of inserted block
(2.‍3)For the purposes of this subsection and subsections (2.‍31) and (2.‍32),
  • (a)a child of a taxpayer has the same meaning as in subsection 70(10) and also includes

    • (i)a niece or nephew of the taxpayer,

    • (ii)a niece or nephew of the taxpayer’s spouse or common-law partner,

    • (iii)a spouse or common-law partner of a niece or nephew referred to in subparagraph (i) or (ii), and

    • (iv)a child of a niece or nephew referred to in subparagraph (i) or (ii);

  • (b)in applying subparagraphs (2.‍31)‍(c)‍(iii) and (2.‍32)‍(c)‍(iii), if the relevant group entity is a partnership,

    • (i)the partnership is deemed to be a corporation (in this paragraph referred to as the “deemed corporation”),

    • (ii)the deemed corporation is deemed to have a capital stock of a single class of shares, with a total of 100 issued and outstanding shares,

    • (iii)each member (in this paragraph referred to as a “deemed shareholder”) of the partnership is deemed to be a shareholder of the deemed corporation,

    • (iv)each deemed shareholder of the deemed corporation is deemed to hold a number of shares in the capital stock of the deemed corporation determined by the formula

      A × 100
      where

      A
      is equal to

      • (A)the deemed shareholder’s specified proportion for the last fiscal period of the deemed corporation, or

      • (B)if the deemed shareholder does not have a specified proportion described in clause (A), the proportion that is the fair market value of the deemed shareholder’s interest in the deemed corporation at that time relative to the fair market value of all interests in the deemed corporation at that time, and

    • (v)the deemed corporation’s fiscal period is deemed to be its taxation year;

  • (c)own, directly or indirectly, in respect of a property, means

    • (i)direct ownership of the property, and

    • (ii)an ownership interest or, for civil law, a right in the shares of a corporation, an interest in a partnership or an interest in a trust that has a direct or indirect interest or, for civil law, a right, in the property, except that for the purposes of paragraphs (2.‍31)‍(d) and (e) and (2.‍32)‍(d) and (e), this subparagraph does not apply as a look-through rule for an interest, or for civil law, a right in non-voting preferred shares or debt of

      • (A)the purchaser corporation (within the meaning of subsections (2.‍31) and (2.‍32)),

      • (B)the subject corporation (within the meaning of subsections (2.‍31) and (2.‍32)), or

      • (C)any relevant group entity (within the meaning of subsections (2.‍31) and (2.‍32));

  • (d)if a person or partnership’s share of the accumulating income or capital of a trust in respect of which the person or partnership has an interest as a beneficiary depends on the exercise by a person (in this paragraph referred to as a “trustee”) of, or the failure by any trustee to exercise, a discretionary power, that trustee is deemed to have fully exercised the power, or to have failed to exercise the power, as the case may be;

  • (e)if one or more children referred to in

    • (i)subparagraph (2.‍31)‍(f)‍(i) have disposed of, or caused the disposition of, all of the shares in the capital stock of the purchaser corporation, the subject corporation or all relevant group entities to an arm’s length person or group of persons, the conditions set out in paragraphs (2.‍31)‍(f) and (g) are deemed to be met as of the time of the disposition, provided that all equity interests in all relevant businesses owned, directly or indirectly, by each child referred to in subparagraph (2.‍31)‍(f)‍(i) are included in the disposition, or

    • (ii)subparagraph (2.‍32)‍(g)‍(i) have disposed of, or caused the disposition of, all of the shares in the capital stock of the purchaser corporation, the subject corporation or all relevant group entities to an arm’s length person or group of persons, the conditions set out in paragraphs (2.‍32)‍(g) and (h) are deemed to be met as of the time of the disposition, provided that all equity interests in all relevant businesses owned, directly or indirectly, by each child referred to in subparagraph (2.‍32)‍(g)‍(i) are included in the disposition; and

  • (f)if one or more children referred to in

    • (i)subparagraph (2.‍31)‍(f)‍(i) have disposed of, or caused the disposition of, any of the shares in the capital stock of the purchaser corporation, the subject corporation or a relevant group entity to another child or group of children of the taxpayer (in this paragraph referred to as the “new child” or the “new children”), the conditions set out in paragraphs (2.‍31)‍(f) and (g) are deemed

      • (A)to be met as of the time of the disposition, and

      • (B)to continue to apply to the new child (or the new children) and any other member of the group of children that controls the subject corporation and the purchaser corporation at the time of the disposition, or

    • (ii)subparagraph (2.‍32)‍(g)‍(i) have disposed of, or caused the disposition of, any of the shares in the capital stock of the purchaser corporation, the subject corporation, or a relevant group entity to another child or group of children of the taxpayer (in this paragraph referred to as the “new child” or the “new children”), the conditions set out in paragraphs (2.‍32)‍(g) and (h) are deemed

      • (A)to be met as of the time of the disposition, and

      • (B)to continue to apply to the new child (or the new children) and any other member of the group of children that controls the subject corporation and the purchaser corporation at the time of the disposition;

  • (g)if a child, or each of the children, referred to in

    • (i)subparagraph (2.‍31)‍(f)‍(ii) has died or has, after the disposition of the subject shares, suffered one or more severe and prolonged impairments in physical or mental functions, the conditions set out in paragraphs (2.‍31)‍(f) and (g) are deemed to be met as of the time of the death or mental or physical impairment, or

    • (ii)subparagraph (2.‍32)‍(g)‍(ii) has died or has, after the disposition of the subject shares, suffered one or more severe and prolonged impairments in physical or mental functions, the conditions set out in paragraphs (2.‍32)‍(g) and (h) are deemed to be met as of the time of the death or mental or physical impairment;

  • (h)if a business of a subject corporation or a relevant group entity has ceased to be carried on due to the disposition of all of the assets that were used to carry on the business in order to satisfy debts owed to creditors of the corporation or of the entity, the conditions set out in respect of the business in subparagraphs (2.‍31)‍(f)‍(ii) and (iii) and (2.‍31)‍(g)‍(i) or (2.‍32)‍(g)‍(ii) and (iii) and (2.‍32)‍(h)‍(i), as applicable, are deemed to be met as of the time of the disposition; and

  • (i)in applying paragraphs (2.‍31)‍(g) and (2.‍32)‍(h), management refers to the direction or supervision of business activities but does not include the provision of advice.

    End of inserted block
Immediate intergenerational business transfer
Start of inserted block
(2.‍31)Paragraph (2)‍(e) applies at the time of a disposition of subject shares (in this subsection referred to as the “disposition time”) by a taxpayer to a purchaser corporation if the following conditions are met:
  • (a)the taxpayer has not previously, at any time after 2023, sought an exception to the application of subsection (1) under paragraph (2)‍(e) in respect of a disposition of shares that, at that time, derived their value from an active business that is relevant to the determination of whether the subject shares satisfy the condition set out in subparagraph (b)‍(iii);

  • (b)at the disposition time,

    • (i)the taxpayer is an individual (other than a trust),

    • (ii)the purchaser corporation is controlled by one or more children (within the meaning of paragraph (2.‍3)‍(a), in this subsection referred to as the “child” or “children”) of the taxpayer, each of whom is 18 years of age or older, and

    • (iii)the subject shares are qualified small business corporation shares or shares of the capital stock of a family farm or fishing corporation (as those terms are defined in subsection 110.‍6(1));

  • (c)at all times after the disposition time, the taxpayer does not — either alone or together with a spouse or common-law partner of the taxpayer — control, directly or indirectly in any manner whatever,

    • (i)the subject corporation,

    • (ii)the purchaser corporation, or

    • (iii)any other person or partnership (in this subsection referred to as a “relevant group entity”) that carries on, at the disposition time, an active business (referred to in this subsection as a “relevant business”) that is relevant to the determination of whether the subject shares satisfy the condition set out in subparagraph (b)‍(iii);

  • (d)at all times after the disposition time, the taxpayer does not – either alone or together with a spouse or common law partner of the taxpayer – own, directly or indirectly,

    • (i)50% or more of any class of shares, other than shares of a specified class as defined in subsection 256(1.‍1) (in this subsection referred to as “non-voting preferred shares”), of the capital stock of the subject corporation or of the purchaser corporation, or

    • (ii)50% or more of any class of equity interest (other than non-voting preferred shares) in any relevant group entity;

  • (e)within 36 months after the disposition time and at all times thereafter, the taxpayer and a spouse or common-law partner of the taxpayer do not own, directly or indirectly,

    • (i)any shares, other than non-voting preferred shares of the capital stock of the subject corporation or of the purchaser corporation, or

    • (ii)any equity interest (other than non-voting preferred shares) in any relevant group entity;

  • (f)subject to subsection (2.‍3), from the disposition time until 36 months after that time,

    • (i)the child or group of children, as the case may be, controls the purchaser corporation,

    • (ii)the child, or at least one member of the group of children, as the case may be, is actively engaged on a regular, continuous and substantial basis (within the meaning of paragraph 120.‍4(1.‍1)‍(a)) in a relevant business of the subject corporation or a relevant group entity, and

    • (iii)each relevant business of the subject corporation and any relevant group entity is carried on as an active business;

  • (g)subject to subsection (2.‍3), within 36 months after the disposition time or such greater period as is reasonable in the circumstances, the taxpayer and a spouse or common-law partner of the taxpayer take reasonable steps to

    • (i)transfer management of each relevant business of the subject corporation and any relevant group entity to the child or at least one member of the group of children referred to in subparagraph (f)‍(ii), and

    • (ii)permanently cease to manage each relevant business of the subject corporation and any relevant group entity; and

  • (h)the taxpayer and the child, or the taxpayer and each member of the group of children, as the case may be,

    • (i)jointly elect, in prescribed form, for paragraph (2)‍(e) to apply in respect of the disposition of the subject shares, and

    • (ii)file the election with the Minister on or before the taxpayer’s filing-due date for the taxation year that includes the disposition time.

      End of inserted block
Gradual intergenerational business transfer
Start of inserted block
(2.‍32)Paragraph (2)‍(e) applies at the time of a disposition of subject shares (referred to in this subsection as the “disposition time”) by a taxpayer to a purchaser corporation if the following conditions are met:
  • (a)the taxpayer has not previously, at any time after 2023, sought an exception to the application of subsection (1) pursuant to paragraph (2)‍(e) in respect of a disposition of shares that, at that time, derived their value from an active business that is relevant to the determination of whether the subject shares satisfy the condition set out in subparagraph (b)‍(iii);

  • (b)at the disposition time,

    • (i)the taxpayer is an individual (other than a trust),

    • (ii)the purchaser corporation is controlled by one or more children (within the meaning of paragraph (2.‍3)‍(a), and referred to in this subsection as the “child” or “children”) of the taxpayer, each of whom is 18 years of age or older, and

    • (iii)the subject shares are qualified small business corporation shares or shares of the capital stock of a family farm or fishing corporation (as those terms are defined in subsection 110.‍6(1));

  • (c)at all times after the disposition time, the taxpayer does not — either alone or together with a spouse or common-law partner of the taxpayer — control

    • (i)the subject corporation,

    • (ii)the purchaser corporation, or

    • (iii)any person or partnership (referred to in this subsection as a “relevant group entity”) that carries on, at the disposition time, an active business (referred to in this subsection as a “relevant business”) that is relevant to the determination of whether the subject shares satisfy the condition in subparagraph (b)‍(iii);

  • (d)at all times after the disposition time, the taxpayer does not — either alone or together with a spouse or common-law partner of the taxpayer — own, directly or indirectly,

    • (i)50% or more of any class of shares, other than shares of a specified class as defined in subsection 256(1.‍1) (in this subsection referred to as “non-voting preferred shares”), of the capital stock of the subject corporation or of the purchaser corporation, or

    • (ii)50% or more of any class of equity interest (other than non-voting preferred shares) in any relevant group entity;

  • (e)within 36 months after the disposition time and at all times thereafter, the taxpayer and a spouse or common-law partner of the taxpayer do not own, directly or indirectly,

    • (i)any shares, other than non-voting preferred shares of the capital stock of the subject corporation or of the purchaser corporation, or

    • (ii)any equity interest (other than non-voting preferred shares) in any relevant group entity;

  • (f)within 10 years after the disposition time (referred to in this subsection as the “final sale time”) and at all times after the final sale time, the taxpayer and a spouse or common-law partner of the taxpayer do not own, directly or indirectly,

    • (i)in the case of a disposition of subject shares that are, at the disposition time, shares of the capital stock of a family farm or fishing corporation (as those terms are defined in subsection 110.‍6(1)), interests (including any debt or equity interest) in any of the subject corporation, the purchaser corporation, and any relevant group entity with a fair market value that exceeds 50% of the fair market value of all the interests that were owned, directly or indirectly, by the taxpayer and a spouse or common-law partner of the taxpayer immediately before the disposition time, or

    • (ii)in the case of a disposition of subject shares that are, at the disposition time, qualified small business corporation shares as those terms are defined in subsection 110.‍6(1) (other than subject shares described in subparagraph (i)), interests (including any debt or equity interest) in any of the subject corporation, the purchaser corporation and any relevant group entity with a fair market value that exceeds 30% of the fair market value of all the interests that were owned, directly or indirectly, by the taxpayer and a spouse or common-law partner of the taxpayer immediately before the disposition time;

  • (g)subject to subsection (2.‍3), from the disposition time until the later of 60 months after the disposition time and the final sale time,

    • (i)the child or group of children, as the case may be, controls the purchaser corporation,

    • (ii)the child, or at least one member of the group of children, as the case may be, is actively engaged on a regular, continuous and substantial basis (within the meaning of paragraph 120.‍4(1.‍1)‍(a)) in a relevant business of the subject corporation or a relevant group entity, and

    • (iii)any relevant business of the subject corporation and any relevant group entity is carried on as an active business;

  • (h)subject to subsection (2.‍3), within 60 months of the disposition time or such greater period as is reasonable in the circumstances, the taxpayer and a spouse or common-law partner of the taxpayer take reasonable steps to

    • (i)transfer management of each relevant business of the subject corporation and any relevant group entity to the child or at least one member of the group of children referred to in subparagraph (g)‍(ii), and

    • (ii)permanently cease to manage each relevant business of the subject corporation and any relevant group entity; and

  • (i)the taxpayer and the child, or the taxpayer and each member of the group of children, as the case may be,

    • (i)jointly elect, in prescribed form, for paragraph (2)‍(e) to apply in respect of the disposition of the subject shares, and

    • (ii)file the election with the Minister on or before the taxpayer’s filing-due date for the taxation year that includes the disposition time.

      End of inserted block

(3)Subsections (1) and (2) apply to dispositions of shares that occur on or after January 1, 2024.

18(1)Paragraph 87(2)‍(j.‍6) of the Act is replaced by the following:

  • Continuing corporation

    (j.‍6)for the purposes of paragraphs 12(1)‍(t) and (x), subsections 12(2.‍2) and 13(7.‍1), (7.‍4) and (24), paragraphs 13(27)‍(b) and (28)‍(c), subsections 13(29) and 18(9.‍1), paragraphs 20(1)‍(e), (e.‍1), (v) and (hh), sections 20.‍1 and 32, paragraph 37(1)‍(c), subsection 39(13), subparagraphs 53(2)‍(c)‍(vi) and (h)‍(ii), paragraph 53(2)‍(s), subsections 53(2.‍1), 66(11.‍4), 66.‍7(11), Insertion start 84.‍1(2.‍31) and (2.‍32) Insertion end and 127(10.‍2), section 139.‍1, subsection 152(4.‍3), the determination of D in the definition undepreciated capital cost in subsection 13(21) and the determination of L in the definition cumulative Canadian exploration expense in subsection 66.‍1(6), the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(2)Subsection 87(2) of the Act is amended by adding the following after paragraph (qq):

  • Certain investment tax credits
    Start of inserted block

    (qq.‍1)for the purposes of section 127.‍44 and Part XII.‍7, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

    End of inserted block

(3)Paragraph 87(2)‍(qq.‍1) of the Act, as enacted by subsection (2), is replaced by the following:

  • Certain investment tax credits

    (qq.‍1)for the purposes of sections 127.‍44 Insertion start and 127.‍45 Insertion end and Part XII.‍7, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(4)Paragraph 87(2.‍1)‍(a) of the Act is replaced by the following:

  • (a)determining the new corporation’s non-capital loss, net capital loss, restricted farm loss, farm loss, limited partnership loss or Insertion start restricted interest and financing expense Insertion end , as the case may be, for any taxation year,

(5)Subsection 87(2.‍1) of the Act is amended by adding the following after paragraph (a):

  • Start of inserted block

    (a.‍1)determining, for any taxation year, the new corporation’s absorbed capacity, excess capacity and transferred capacity in determining its cumulative unused excess capacity for a taxation year, and

    End of inserted block

(6)Paragraph 87(2.‍1)‍(b) of the Act is replaced by the following:

  • (b)determining the extent to which subsections 111(3) to (5.‍4) and paragraph 149(10)‍(c) apply to restrict the deductibility by the new corporation of any non-capital loss, net capital loss, restricted farm loss, farm loss, limited partnership loss or Insertion start restricted interest and financing expense Insertion end , as the case may be,

(7)Paragraph 87(2.‍1)‍(d) of the Act is replaced by the following:

  • (d)the income of the new corporation ( Insertion start other than as a result of an amount of interest and financing expenses being deductible by the new corporation because of paragraph (a.‍1) Insertion end ) or any of its predecessors, or

(8)Subsection 87 of the Act is amended by adding the following after subsection (2.‍11)

Adjusted taxable income — non-capital losses
Start of inserted block
(2.‍12)Where there has been an amalgamation of two or more corporations, for the purpose of determining the amount for paragraph (h) in the description of B in the definition adjusted taxable income in subsection 18.‍2(1) in respect of an amount deducted by the new corporation under paragraph 111(1)‍(a) in computing its taxable income for a taxation year, the new corporation is deemed to be the same corporation as, and a continuation of, a particular predecessor corporation if it may reasonably be considered that
  • (a)the amount deducted is in respect of all or any portion of a non-capital loss for another taxation year; and

  • (b)the non-capital loss or the portion of the non-capital loss, as the case may be, is a non-capital loss of the particular predecessor corporation for the other taxation year.

    End of inserted block

(9)Subsection (1) comes into force or is deemed to have come into force on January 1, 2024.

(10)Subsection (2) is deemed to have come into force on January 1, 2022.

(11)Subsection (3) is deemed to have come into force on March 28, 2022.

(12)Subsections (4) and (6) apply in respect of amalgamations that occur on or after October 1, 2023.

(13)Subsections (5), (7) and (8) apply in respect of amalgamations that occur in any taxation year.

19(1)Subsection 88(1) of the Act is amended by adding the following after paragraph (e.‍3):

  • Start of inserted block

    (e.‍31)for the purposes of section 127.‍44 and Part XII.‍7 at the end of any particular taxation year ending after the subsidiary was wound up, the parent is deemed to be the same corporation as, and a continuation of, the subsidiary;

    End of inserted block

(2)Paragraph 88(1)‍(e.‍31) of the Act, as enacted by subsection (1), is replaced by the following :

  • (e.‍31)for the purposes of sections 127.‍44 Insertion start and 127.‍45 Insertion end and Part XII.‍7 at the end of any particular taxation year ending after the subsidiary was wound up, the parent is deemed to be the same corporation as, and a continuation of, the subsidiary;

(3)The portion of subsection 88(1.‍1) of the Act before paragraph (a) is replaced by the following:

Non-capital losses, etc.‍, of subsidiary
(1.‍1)Where a Canadian corporation (in this subsection Insertion start and subsection (1.‍11) Insertion end referred to as the “subsidiary”) has been wound up and not less than 90% of the issued shares of each class of the capital stock of the subsidiary were, immediately before the winding-up, owned by another Canadian corporation (in this subsection Insertion start and subsection (1.‍11) Insertion end referred to as the “parent”) and all the shares of the subsidiary that were not owned by the parent immediately before the winding-up were owned at that time by a person or persons with whom the parent was dealing at arm’s length, for the purpose of computing the taxable income of the parent under this Part and the tax payable under Part IV by the parent for any taxation year commencing after the commencement of the winding-up, such portion of any non-capital loss, restricted farm loss, farm loss or limited partnership loss of the subsidiary as may reasonably be regarded as its loss from carrying on a particular business (in this subsection referred to as the “subsidiary’s loss business”) and any other portion of any non-capital loss or limited partnership loss of the subsidiary as may reasonably be regarded as being derived from any other source or being in respect of a claim made under section 110.‍5 for any particular taxation year of the subsidiary (in this subsection referred to as the “subsidiary’s loss year”), Insertion start and the portion of the restricted interest and financing expense of the subsidiary for any particular taxation year of the subsidiary (in this subsection referred to as the “subsidiary’s expense year”) that may reasonably be regarded as an expense or loss incurred by the subsidiary in the course of carrying on a particular business (in this subsection referred to as the “subsidiary’s expense business”) and any other portion of the restricted interest and financing expense of the subsidiary that may reasonably be regarded as being incurred in respect of any other source Insertion end , to the extent that it

(4)The portion of subsection 88(1.‍1) of the Act after paragraph (b) and before paragraph (c) is replaced by the following:

shall, for the purposes of this subsection, paragraphs 111(1)‍(a), Insertion start (a.‍1) Insertion end , (c), (d) and (e), subsection 111(3) and Part IV,

(5)Subsection 88(1.‍1) of the Act is amended by striking out “and” at the end of paragraph (d) and by adding the following after paragraph (d.‍1):

  • Start of inserted block

    (d.‍2)in the case of the portion of any restricted interest and financing expense of the subsidiary that may reasonably be regarded as being incurred in carrying on the subsidiary’s expense business, be deemed, for the taxation year of the parent in which the subsidiary’s expense year ended, to be a restricted interest and financing expense of the parent from carrying on the subsidiary’s expense business that was not deductible by the parent in computing its taxable income for any taxation year that commenced before the commencement of the winding-up, and

  • (d.‍3)in the case of any other portion of any restricted interest and financing expense of the subsidiary that may reasonably be regarded as being incurred in respect of any other source, be deemed, for the taxation year of the parent in which the subsidiary’s expense year ended, to be a restricted interest and financing expense of the parent that was incurred in respect of that other source and that was not deductible by the parent in computing its taxable income for any taxation year that commenced before the commencement of the winding-up,

    End of inserted block

(6)The portion of paragraph 88(1.‍1)‍(e) of the Act before subparagraph (i) is replaced by the following:

  • (e)if control of the parent has been acquired by a person or group of persons at any time after the commencement of the winding-up, or control of the subsidiary has been acquired by a person or group of persons at any time whatever, no amount in respect of the subsidiary’s non-capital loss, farm loss or Insertion start restricted interest and financing expense Insertion end for a taxation year ending before that time is deductible in computing the taxable income of the parent for a particular taxation year ending after that time, except that such portion of the subsidiary’s non-capital loss or farm loss as may reasonably be regarded as its loss from carrying on a business, Insertion start or restricted interest and financing expense as may reasonably be regarded as being the subsidiary’s expense or loss incurred in the course of carrying on a business Insertion end and, where a business was carried on by the subsidiary in that year, such portion of the non-capital loss as may reasonably be regarded as being in respect of an amount deductible under paragraph 110(1)‍(k) in computing its taxable income for the year, is deductible only

(7)The portion of paragraph 88(1.‍1)‍(e) of the Act after subparagraph (ii) is replaced by the following:

  • and for the purpose of this paragraph, where this subsection applied to the winding-up of another corporation in respect of which the subsidiary was the parent and this paragraph applied in respect of losses Insertion start and restricted interest and financing expenses Insertion end of that other corporation, the subsidiary shall be deemed to be the same corporation as, and a continuation of, that other corporation with respect to those losses Insertion start and restricted interest and financing expenses Insertion end ,

(8)Subsection 88(1.‍1) of the Act is amended by adding “and” at the end of paragraph (f) and by adding the following after that paragraph:

  • Start of inserted block

    (g)any portion of a restricted interest and financing expense of the subsidiary that would otherwise be deemed by paragraph (d.‍2) or (d.‍3) to be a restricted interest and financing expense of the parent for a particular taxation year beginning after the commencement of the winding-up shall be deemed, for the purpose of computing the parent’s taxable income for taxation years beginning after the commencement of the winding-up, to be a restricted interest and financing expense of the parent for its immediately preceding taxation year and not for the particular year, where the parent so elects in its return of income under this Part for the particular year.

    End of inserted block

(9)Section 88 of the Act is amended by adding the following after subsection (1.‍1):

Cumulative unused excess capacity of subsidiary
Start of inserted block
(1.‍11)If a subsidiary has been wound up in the circumstances described in subsection (1.‍1), for the purpose of computing the cumulative unused excess capacity of the parent for any taxation year of the parent that commenced after the commencement of the winding up, the absorbed capacity, the excess capacity and any transferred capacity, of the subsidiary for any particular taxation year are deemed to be an amount of absorbed capacity, an amount of excess capacity and an amount of transferred capacity, respectively, of the parent for the taxation year of the parent in which the subsidiary’s particular taxation year ended.
End of inserted block
Adjusted taxable income — non-capital losses of subsidiary
Start of inserted block
(1.‍12)If paragraph (1.‍1)‍(c), (d) or (d.‍1) deems a particular portion of a non-capital loss for a taxation year (referred to in this paragraph as the “subsidiary loss year”) of a subsidiary that has been wound up to be the parent’s non-capital loss for a taxation year (referred to in this paragraph as the “parent loss year”) and the parent deducts an amount in respect of the parent’s non-capital loss under paragraph 111(1)‍(a) in computing taxable income for a particular taxation year, for the purpose of determining the amount included under paragraph (h) of the description of B in the definition adjusted taxable income in subsection 18.‍2(1) in respect of the parent’s non-capital loss in computing the parent’s adjusted taxable income for the particular taxation year, any amount of the subsidiary for the subsidiary loss year that is referred to in the description of W or X in the definition adjusted taxable income in subsection 18.‍2(1) and that relates to the source from which the particular portion is derived (and any amount deemed by this subsection to be an amount of the subsidiary for the subsidiary loss year relating to the source) is deemed to be an amount of the parent relating to the source for the parent loss year.
End of inserted block

(10)Paragraph 88(2)‍(c) of the Act is replaced by the following:

  • (c)for the purpose of computing the income of the corporation for its taxation year that includes the particular time, paragraph 12(1)‍(t) shall be read as follows:

    • 12(1)‍(t)the amount deducted under subsection 127(5) or (6) Insertion start or 127.‍44(3) Insertion end in computing the taxpayer’s tax payable for the year or a preceding taxation year to the extent that it was not included under this paragraph in computing the taxpayer’s income for a preceding taxation year or is not included in an amount determined under paragraph 13(7.‍1)‍(e) or 37(1)‍(e) or subparagraph 53(2)‍(c)‍(vi), Insertion start (c)‍(vi.‍1) Insertion end or (h)‍(ii) or the amount determined for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.‍1(6);”.

(11)Paragraph 88(2)‍(c) of the Act, as amended by subsection (10), is replaced by the following:

  • (c)for the purpose of computing the income of the corporation for its taxation year that includes the particular time, paragraph 12(1)‍(t) shall be read as follows:

    • 12(1)‍(t)the amount deducted under subsection 127(5) or (6), 127.‍44(3) or Insertion start 127.‍45(6) Insertion end in computing the taxpayer’s tax payable for the year or a preceding taxation year to the extent that it was not included under this paragraph in computing the taxpayer’s income for a preceding taxation year or is not included in an amount determined under paragraph 13(7.‍1)‍(e) or 37(1)‍(e) or subparagraph 53(2)‍(c)‍(vi) Insertion start to (c)‍(vi.‍2) Insertion end or (h)‍(ii) or the amount determined for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.‍1(6);”.

(12)Subsections (1) and (10) are deemed to have come into force on January 1, 2022.

(13)Subsections (2) and (11) are deemed to have come into force on March 28, 2023.

(14)Subsections (3) to (8) apply in respect of windings-up that begin on or after October 1, 2023.

(15)Subsection (9) applies in respect of windings-up that begin in any taxation year.

20(1)Paragraph (a) of the description of D in the definition low rate income pool in subsection 89(1) of the Act is replaced by the following:

  • (a)if the non-CCPC Insertion start was a substantive CCPC at any time in its preceding taxation year or Insertion end would, but for paragraph (d) of the definition Canadian-controlled private corporation in subsection 125(7), be a Canadian-controlled private corporation in its preceding taxation year, 80% of its aggregate investment income for its preceding taxation year, and

(2)The description of G in the definition low rate income pool in subsection 89(1) of the Act is replaced by the following:

G
is the total of all amounts each of which is a taxable dividend (other than an eligible dividend, a capital gains dividend within the meaning assigned by subsection 130.‍1(4) or 131(1) or a taxable dividend deductible by the non-CCPC under subsection 130.‍1(1) in computing its income for the particular taxation year or for its preceding taxation year) that became payable by the non-CCPC

Insertion start (a) Insertion end in the particular taxation year but before the particular time, Insertion start or Insertion end

Start of inserted block

(b)in the preceding taxation year, but only to the extent of the lesser of

(i)the amount included under the description of D in the particular taxation year, and

(ii)the portion of the taxable dividend that did not reduce the non-CCPC’s low rate income pool in the preceding taxation year, and

End of inserted block

(3)Subsections (1) and (2) apply to taxation years that begin on or after April 7, 2022.

21(1)The portion of subsection 91(1.‍2) of the Act before paragraph (a) is replaced by the following:

Deemed year-end
(1.‍2)If this subsection applies at a particular time in respect of a foreign affiliate of a particular taxpayer resident in Canada, then for the purposes of this section, Insertion start sections 18.‍2 Insertion end and 92 Insertion start and clause 95(2)‍(f.‍11)‍(ii)‍(D) Insertion end ,

(2)Subsection (1) applies in respect of a taxation year of a foreign affiliate of a taxpayer that ends in a taxation year of the taxpayer beginning on or after October 1, 2023. However, subsection (1) also applies in respect of a taxation year of a foreign affiliate of a taxpayer that ends in a taxation year of the taxpayer that begins before, and ends after, October 1, 2023 if

  • (a)any of the taxpayer’s three immediately preceding taxation years was, because of a transaction or event or a series of transactions or events, shorter than it would have been in the absence of that transaction, event or series; and

  • (b)it can reasonably be considered that one of the purposes of the transaction, event or series was to defer the application of paragraph 12(1)‍(l.‍2) of the Act, as enacted by subsection 2(1), or the application of section 18.‍2 or 18.‍21 of the Act, as enacted by subsection 7(1), to the taxpayer.

22(1)Paragraph 92(1)‍(a) of the Act is replaced by the following:

  • (a)there shall be added in respect of that share any amount included in respect of that share under subsection 91(1) or (3) in computing the taxpayer’s income for the year or any preceding taxation year (or that would have been required to have been so included in computing the taxpayer’s income but for subsection 56(4.‍1) and sections 74.‍1 to 75 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952), Insertion start except that, if the amount so included is greater than it otherwise would have been because of the application of clause 95(2)‍(f.‍11)‍(ii)‍(D), the amount added under this paragraph shall be the amount that would have been so included in the absence of that clause Insertion end ; and

(2)Subsection (1) applies in respect of a taxation year of a foreign affiliate of a taxpayer that ends in a taxation year of the taxpayer beginning on or after October 1, 2023. However, subsection (1) also applies in respect of a taxation year of a foreign affiliate of a taxpayer that ends in a taxation year of the taxpayer that begins before, and ends after, October 1, 2023 if

  • (a)any of the taxpayer’s three immediately preceding taxation years was, because of a transaction or event or a series of transactions or events, shorter than it would have been in the absence of that transaction, event or series; and

  • (b)it can reasonably be considered that one of the purposes of the transaction, event or series was to defer the application of paragraph 12(1)‍(l.‍2) of the Act, as enacted by subsection 2(1), or the application of section 18.‍2 or 18.‍21 of the Act, as enacted by subsection 7(1), to the taxpayer.

23(1)The portion of subsection 94.‍2(2) of the Act before paragraph (a) is replaced by the following:

Deemed corporation
(2)If this subsection applies at any time to a beneficiary under, or a particular person in respect of, a trust, then for the purposes of applying this section, Insertion start section 18.‍2 Insertion end , subsections 91(1) to (4), paragraph 94.‍1(1)‍(a), section 95, Insertion start the definition restricted interest and financing expense in subsection 111(8) Insertion end and Insertion start section Insertion end 233.‍4 to the beneficiary under, and, if applicable, to the particular person in respect of, the trust

(2)Subsection (1) applies in respect of taxation years of a taxpayer that begin on or after October 1, 2023. However, subsection (1) also applies in respect of a taxation year that begins before, and ends after, October 1, 2023 if

  • (a)any of the taxpayer’s three immediately preceding taxation years was, because of a transaction or event or a series of transactions or events, shorter than it would have been in the absence of that transaction, event or series; and

  • (b)it can reasonably be considered that one of the purposes of the transaction, event or series was to defer the application of paragraph 12(1)‍(l.‍2) of the Act, as enacted by subsection 2(1), or the application of section 18.‍2 or 18.‍21 of the Act, as enacted by subsection 7(1), to the taxpayer.

24(1)Paragraph (b) of the description of A in the definition foreign accrual property income in subsection 95(1) of the Act is replaced by the following:

Start of inserted block

(b)a dividend from another foreign affiliate of the taxpayer, except for any portion of the dividend that would be deemed under subsection 113(5) not to be a dividend received by the affiliate on a share of the capital stock of the other affiliate for the purposes of section 113, if the affiliate were a corporation resident in Canada,

End of inserted block

(2)Paragraph (a) of the description of H in the definition foreign accrual property income in subsection 95(1) of the Act is replaced by the following:

(a)if the affiliate was a member of a partnership at the end of the fiscal period of the partnership that ended in the year and the partnership received a dividend at a particular time in that fiscal period from a corporation that would be, if the reference in subsection 93.‍1(1) to “corporation resident in Canada” were a reference to “taxpayer resident in Canada”, a foreign affiliate of the taxpayer for the purposes of sections 93 and 113 at that particular time, then the portion of the amount of that dividend that

Insertion start (i) Insertion end is included in the value determined for A in respect of the affiliate for the year and that would be, if the reference in subsection 93.‍1(2) to “corporation resident in Canada” were a reference to “taxpayer resident in Canada”, deemed by paragraph 93.‍1(2)‍(a) to have been received by the affiliate for the purposes of sections 93 and 113, and

Start of inserted block

(ii)would not be deemed under subsection 113(5) not to be a dividend received by the affiliate on a share of the capital stock of the other affiliate for the purposes of section 113, if the affiliate were a corporation resident in Canada, and

End of inserted block

(3)Clause 95(2)‍(f.‍11)‍(ii)‍(A) of the Act is replaced by the following:

  • (A)this Act is to be read without reference to subsections Insertion start 12.‍7(3) Insertion end , 17(1), 18(4) Insertion start and 18.‍4(4) Insertion end and section 91, except that, where the foreign affiliate is a member of a partnership, section 91 is to be applied to determine the income or loss of the partnership and for that purpose subsection 96(1) is to be applied to determine the foreign affiliate’s share of that income or loss of the partnership,

(4)Clause 95(2)‍(f.‍11)‍(ii)‍(A) of the Act, as enacted by subsection (3), is replaced by the following:

  • (A)this Act is to be read without reference to subsections 12.‍7(3), 17(1), 18(4), Insertion start 18.‍2(2) Insertion end and 18.‍4(4) and section 91, except that, where the foreign affiliate is a member of a partnership, section 91 is to be applied to determine the income or loss of the partnership and for that purpose subsection 96(1) is to be applied to determine the foreign affiliate’s share of that income or loss of the partnership,

(5)Clause 95(2)‍(f.‍11)‍(ii)‍(A) of the Act, as enacted by subsection (4), is replaced by the following:

  • (A)this Act is to be read without reference to subsections 17(1), 18(4), 18.‍2(2) and 18.‍4(4) and section 91, except that, where the foreign affiliate is a member of a partnership, section 91 is to be applied to determine the income or loss of the partnership and for that purpose subsection 96(1) is to be applied to determine the foreign affiliate’s share of that income or loss of the partnership,

(6)Subparagraph 95(2)‍(f.‍11)‍(ii) of the Act is amended by striking out “and” at the end of clause (B) and by adding the following after clause (C):

  • Start of inserted block

    (D)if the foreign affiliate is a controlled foreign affiliate of the taxpayer at the end of the taxation year, and the taxpayer is not an excluded entity (as defined in subsection 18.‍2(1)) for its taxation year (referred to in this clause as the “taxpayer year”) in which the taxation year ends,

    • (I)notwithstanding any other provision of this Act, no deduction shall be made in respect of any amount that is included in the affiliate’s relevant affiliate interest and financing expenses (as defined in subsection 18.‍2(1)) for the taxation year, to the extent of the proportion of that amount that is determined by the first formula in subsection 18.‍2(2) in respect of the taxpayer for the taxpayer year, and