Income Tax Application Rules

Canada (Federal)· I-3.31· 671 sections· current to 2017-01-01In force

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7Short title
This Act may be cited as the Income Tax Application Rules.
8Definitions
In this Act,
8[p2]
amended Act means, according to the context in which that expression appears,
8[p2](a)
the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as amended by section 1 of chapter 63 of the Statutes of Canada, 1970-71-72, and by any subsequent Act, and
8[p2](b)
the Income Tax Act, as amended from time to time; (loi modifiée)
8[p5]
former Act means the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it was before being amended by section 1 of chapter 63 of the Statutes of Canada, 1970-71-72. (ancienne loi)
9Application of 1970-71-72, c. 63, s. 1
Subject to the amended Act and this Act, section 1 of chapter 63 of the Statutes of Canada, 1970-71-72, applies to the 1972 and subsequent taxation years.
10Application of Part XIII of amended Act
10(4)
Where an amount is paid or credited by a person resident in Canada to a non-resident person as, on account of, in lieu of payment of or in satisfaction of, interest payable on any bond, debenture, mortgage, note or similar obligation issued before 1976 by the person resident in Canada to the non-resident person, for the purposes of computing the tax under Part XIII of the amended Act payable by the non-resident person on the amount, the reference in subsection 212(1) of that Act to “25%” shall be read as a reference to “15%”.
10(4)(a)
who is resident in a prescribed country, and
10(4)(b)
with whom the person resident in Canada was dealing at arm’s length,
10(5)Repealed
[Repealed, 2007, c. 35, s. 69]
10(6)Limitation on non-resident’s tax rate
Notwithstanding any provision of the amended Act, where an agreement or convention between the Government of Canada and the government of any other country that has the force of law in Canada provides that where an amount is paid or credited, or deemed to be paid or credited, to a resident of that other country the rate of tax imposed thereon shall not exceed a specified rate,
10(6)(a)
any reference in Part XIII of the amended Act to a rate in excess of the specified rate shall, in respect of such an amount, be read as a reference to the specified rate; and
10(6)(b)
except where the amount can reasonably be attributed to a business carried on by that person in Canada, that person shall, for the purpose of the agreement or convention in respect of the amount, be deemed not to have a permanent establishment in Canada.
12Definitions
In this section and sections 13 to 18,
12[p16]
enactment has the meaning assigned by section 2 of the Interpretation Act; (texte)
12[p17]
old law means the Income War Tax Act, The 1948 Income Tax Act, and the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as amended from time to time otherwise than by section 1 of chapter 63 of the Statutes of Canada, 1970-71-72, or any subsequent Act; (législation antérieure)
12[p18]
The 1948 Income Tax Act means The Income Tax Act, chapter 52 of the Statutes of Canada, 1948, together with all Acts passed in amendment thereof. (Loi de l’impôt sur le revenu (1948))
13References relating to same subject-matter
13(1)
Subject to this Act and unless the context otherwise requires, a reference in any enactment to a particular Part or provision of the amended Act shall be construed, as regards any transaction, matter or thing to which the old law applied, to include a reference to the Part or provision, if any, of the old law relating to, or that may reasonably be regarded as relating to, the same subject-matter.
14Part IV of former Act
Part IV of the former Act is continued in force but does not apply in respect of gifts made after 1971.
15Part VIII of former Act
Part VIII of the former Act is continued in force but as though the references in that Part that, according to the context in which they appear, are references to or to provisions of the Income Tax Act were read as references to or to provisions of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as amended from time to time otherwise than by section 1 of chapter 63 of the Statutes of Canada, 1970-71-72, or any subsequent Act.
16Construction of certain references
In any enactment, a reference by number to any provision of the Income Tax Act that, according to the context in which the reference appears, is a reference to shall, for greater certainty, be read as reference to the provision described in paragraph (a), (b) or (c), as the case may be, and not to any other provision of the Income Tax Act, or the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, having the same number.
16(a)
a provision of Part IV of the former Act,
16(b)
a provision of Part VIII of the former Act, or
16(c)
a provision of the amended Act having the same number as a provision described in paragraph (a) or (b),
17Income War Tax Act, s. 8
17(1)
A taxpayer may deduct from the tax otherwise payable under Part I of the amended Act for a taxation year such amount as would, if the Income War Tax Act applied to the taxation year, be deductible from tax because of subsections 8(6), (7) and (7A) of the Income War Tax Act.
17(2)S.C. 1947, c. 63, s. 16
There may be deducted in computing income for a taxation year under Part I of the amended Act an amount that would be deductible under section 16 of chapter 63 of the Statutes of Canada, 1947, from income as defined by the Income War Tax Act if that Act applied to the taxation year.
17(3)Idem
There may be deducted from the tax for a taxation year otherwise payable under Part I of the amended Act an amount that would be deductible under section 16 of chapter 63 of the Statutes of Canada, 1947, from the total of taxes payable under the Income War Tax Act and The Excess Profits Tax Act, 1940, if those Acts applied to the taxation year.
17(4)Retrospection
Where there is a reference in the amended Act to any act, matter or thing done or existing before a taxation year, it shall be deemed to include a reference to the act, matter or thing, even though it was done or existing before the commencement of that Act.
17(5)Amount not previously included as income
Where, on the application of a method adopted by a taxpayer for computing income from a business, other than a business that is a profession, or farm or property for a taxation year to which the amended Act applies, an amount received in the year would not be included in computing the taxpayer’s income for the year because on the application of that method it would have been included in computing the taxpayer’s income for the purposes of the Income Tax Act or the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, for a preceding taxation year in respect of which it was receivable, if the amount was not included in computing the income for the preceding year, it shall be included in computing the income for the year in which it was received.
17(6)S.C. 1949 (2nd S.), c. 25, s. 53
There may be deducted in computing income for a taxation year under Part I of the amended Act an amount that would be deductible under section 53 of chapter 25 of the Statutes of Canada, 1949 (Second Session), in computing income under The 1948 Income Tax Act if that Act applied to the taxation year.
17(7)Idem
There may be deducted from the tax for a taxation year otherwise payable under Part I of the amended Act an amount that would be deductible under section 53 of chapter 25 of the Statutes of Canada, 1949 (Second Session), from the tax payable under Part I of The 1948 Income Tax Act if that Act applied to the taxation year.
17(8)Registered pension plan
A reference in the amended Act to a registered pension plan shall, in respect of a period while the plan was an approved superannuation or pension fund or plan, be construed as a reference to that approved superannuation or pension fund or plan.
18General depreciation provisions
18(1)
Where the capital cost to a taxpayer of any depreciable property that was acquired by the taxpayer before 1972 was required by any provision of the old law to be determined for the purpose of computing the amount of any deduction under any such provision in respect of that property, or would have been required by any provision of the old law to be determined for that purpose if any deduction under any such provision had been claimed by the taxpayer in respect of that property, the amount of the capital cost so required to be determined or that would have been so required to be determined, as the case may be, shall be deemed, for all purposes of the amended Act, to be the capital cost to the taxpayer of that property.
18(2)Idem
Where a taxpayer acquired depreciable property before the beginning of the 1949 taxation year, for the purposes of section 13 of the amended Act and any regulations made under paragraph 20(1)(a) of that Act an amount equal to the total of shall be deemed to have been allowed to the taxpayer under regulations made under paragraph 20(1)(a) of the amended Act in computing income for a taxation year before the 1949 taxation year.
18(2)(a)
all deductions allowed in computing the taxpayer’s income for the purpose of the Income War Tax Act as “special depreciation”, “extra depreciation” or allowances in lieu of depreciation for property the taxpayer had at the beginning of the 1949 taxation year (except deductions allowed under subparagraph 6(1)(n)(ii) of that Act), and
18(2)(b)
½ of all amounts allowed to the taxpayer under subparagraph 6(1)(n)(ii) of that Act for property that the taxpayer had at the beginning of the 1949 taxation year,
18(3)Provisoes not applicable
The second and third provisoes to paragraph 6(1)(n) of the Income War Tax Act do not apply with respect to sales made after the beginning of the 1949 taxation year.
18(4)Reference to depreciation
Reference in this section to depreciation shall be deemed to include a reference to allowances in respect of depreciable property of a taxpayer made under paragraph 5(1)(a) of the Income War Tax Act.
18(5)Deduction deemed depreciation
An amount deducted under paragraph 5(1)(u) of the Income War Tax Act in respect of amounts of a capital nature shall, for the purpose of this section, be deemed to be depreciation taken into account in ascertaining the taxpayer’s income for the purpose of that Act or in ascertaining the taxpayer’s loss for the taxation year for which it was deducted.
19Income maintenance payments
19(1)
Notwithstanding section 9, paragraph 6(1)(f) of the amended Act does not apply in respect of amounts received by a taxpayer in a taxation year that were payable to the taxpayer in respect of the loss, in consequence of an event occurring before 1974, of all or any part of the taxpayer’s income from an office or employment, under a plan, described in that paragraph, that was established before June 19, 1971.
19(2)Effect of certain changes made in plan established before June 19, 1971
For the purposes of this section, a plan described in paragraph 6(1)(f) of the amended Act that was in existence before June 19, 1971 does not cease to be a plan established before that date solely because of changes made therein on or after that date for the purpose of ensuring that the plan qualifies as one entitling the employer of persons covered under the plan to a reduction, as provided for by subsection 50(2) of the Unemployment Insurance Act, in the amount of the employer’s premium payable under that Act in respect of insured persons covered under the plan.
20Depreciable property
20(1)
If the capital cost to a taxpayer of any depreciable property (other than a property that was, at any time, eligible capital property as defined in the amended Act at that time) acquired by the taxpayer before 1972 and owned by the taxpayer without interruption from December 31, 1971 until such time after 1971 as the taxpayer disposed of it is less than the fair market value of the property on valuation day and less than the proceeds of disposition thereof otherwise determined,
20(1)(a)
for the purposes of section 13 of the amended Act, subdivision c of Division B of Part I of that Act and any regulations made under paragraph 20(1)(a) of that Act, the taxpayer’s proceeds of disposition of the property shall be deemed to be an amount equal to the total of its capital cost to the taxpayer and the amount, if any, by which the proceeds of disposition thereof otherwise determined exceed the fair market value of the property on valuation day,
20(1)(b)
where the property has, by one or more transactions or events (other than the death of a taxpayer to which subsection 70(5) of the amended Act applies) between persons not dealing at arm’s length, become vested in another taxpayer
20(1)(b)(i)
for the purposes of the amended Act (other than, where paragraph 13(7)(e) of that Act applies in determining the capital cost to that other taxpayer of the property, for the purposes of paragraphs 8(1)(j) and (p) and sections 13 and 20 of that Act), that other taxpayer shall be deemed to have acquired the property at a capital cost equal to the proceeds deemed to have been received for the property by the person from whom that other taxpayer acquired the property, and
20(1)(b)(ii)
for the purposes of this subsection, that other taxpayer shall be deemed to have acquired the property before 1972 at a capital cost equal to the capital cost of the property to the taxpayer who actually owned the property at the end of 1971, and to have owned it without interruption from December 31, 1971 until such time after 1971 as that other taxpayer disposed of it, and
20(1)(c)
where the disposition occurred because of an election under subsection 110.6(19) of the amended Act,
20(1)(c)(i)
for the purposes of that Act (other than paragraphs 8(1)(j) and (p) and sections 13 and 20 of that Act), the taxpayer is deemed to have reacquired the property at a capital cost equal to
20(1)(c)(i)(A)
where the amount designated in respect of the property in the election did not exceed 110% of the fair market value of the property at the end of February 22, 1994, the taxpayer’s proceeds of disposition determined under paragraph (a) in respect of the disposition of the property that immediately preceded the reacquisition minus the amount, if any, by which the amount designated in respect of the property in the election exceeded that fair market value, and
20(1)(c)(i)(B)
in any other case, the amount otherwise determined under subsection 110.6(19) of that Act to be the cost to the taxpayer of the property immediately after the reacquisition referred to in that subsection minus the amount by which the fair market value of the property on valuation day exceeded the capital cost of the property at the time it was last acquired before 1972, and
20(1)(c)(ii)
for the purposes of this subsection, the taxpayer’s capital cost of the property after the reacquisition shall be deemed to be equal to the taxpayer’s capital cost of the property before the reacquisition and the taxpayer shall be considered to have owned the property without interruption from December 31, 1971 until such time after February 22, 1994 as the taxpayer disposes of it.
20(1.1)Where depreciable property disposed of to spouse, trust or child
Subsection (1) does not apply in any case where except that where the spouse, common-law partner, trust, transferee or child, as the case may be, subsequently disposes of the property at any time, subsection (1) applies as if the spouse, common-law partner, trust, transferee or child, as the case may be, had acquired the property before 1972 and owned it without interruption from December 31, 1971 until that time.
20(1.1)(a)
subsection 70(6) or 73(1) of the amended Act applies in respect of the disposition by a taxpayer of any depreciable property of a prescribed class to the spouse, common-law partner, trust or transferee, as the case may be, referred to therein, and
20(1.1)(b)
subsection 70(9) of the amended Act applies in respect of the disposition by a taxpayer of any depreciable property of a prescribed class to a child referred to therein,
20(1.11)Extended meaning of child
For the purposes of subsection (1.1), child of a taxpayer includes
20(1.11)(a)
a child of the taxpayer’s child;
20(1.11)(b)
a child of the taxpayer’s child’s child; and
20(1.11)(c)
a person who, at any time before attaining the age of 21 years, was wholly dependent on the taxpayer for support and of whom the taxpayer had, at that time, in law or in fact, the custody and control.
20(1.2)Other transfers of depreciable property
Where, because of a transaction or an event in respect of which any of subsections 70(5), 85(1), (2) and (3), 87(2), section 88, subsections 97(2), 98(3) and (5) and 107(2) of the amended Act applies, a taxpayer has at any particular time after 1971 acquired any depreciable property of a prescribed class from a person who acquired the property before 1972 and owned it without interruption from December 31, 1971 until the particular time, for the purposes of subsection (1) the taxpayer shall be deemed to have acquired the property before 1972 and to have owned it without interruption from December 31, 1971 until such time after 1971 as the taxpayer disposed of it.
20(1.3)Transfers before 1972 not at arm’s length
Without restricting the generality of section 18, if any depreciable property (other than a property that was, at any time, eligible capital property as defined in the amended Act at that time) has been transferred before 1972 in circumstances such that subsection 20(4) of the former Act would, if that provision applied to transfers of property made in the 1972 taxation year, apply, paragraph 69(1)(b) of the amended Act does not apply to the transfer and subsection 20(4) of the former Act applies thereto.
20(1.4)Depreciable property received as dividend in kind
The capital cost to a taxpayer, as of any particular time after 1971, of any depreciable property (other than depreciable property referred to in subsection (1.3) or deemed by subparagraph (1)(b)(ii) to have been acquired by the taxpayer before 1972 or a property that was, at any time, eligible capital property as defined in the amended Act at that time) acquired by the taxpayer before 1972 as, on account of, in lieu of payment of or in satisfaction of, a dividend payable in kind (other than a stock dividend) in respect of a share owned by the taxpayer of the capital stock of a corporation, is deemed to be the fair market value of that property at the time the property was so received.
20(2)Recapture of capital cost allowances
In determining a taxpayer’s income for a taxation year from farming or fishing, subsection 13(1) of the amended Act does not apply in respect of the disposition by the taxpayer of property (other than a property that was, at any time, eligible capital property as defined in the amended Act at that time) acquired by the taxpayer before 1972 unless the taxpayer has elected to make a deduction for that or a preceding taxation year, in respect of the capital cost of property acquired by the taxpayer before 1972, under regulations made under paragraph 20(1)(a) of that Act other than a regulation providing solely for an allowance for computing income from farming or fishing.
20(3)Depreciable property of partnership of prescribed class
For the purposes of the amended Act, where a partnership had, on December 31, 1971, partnership property that was depreciable property of a prescribed class,
20(3)(a)
the capital cost to the partnership of each property of that class shall be deemed to be an amount determined as follows: and the amount determined under subparagraph (iv) is the capital cost to the partnership of that property;
20(3)(a)(i)
determine, for each person who, because of having been a member of the partnership on the later of June 18, 1971 and the day the partnership was created, and thereafter without interruption until December 31, 1971, can reasonably be regarded as having had an interest in the property of that class on December 31, 1971, the persons acquisition cost in respect of property of that class,
20(3)(a)(ii)
determine, for each such person, the amount that is that proportion of the person’s acquisition cost in respect of property of that class that 100% is of the person’s percentage in respect of property of that class,
20(3)(a)(iii)
select the amount determined under subparagraph (ii) for a person described therein that is not greater than any amount so determined for any other such person, and
20(3)(a)(iv)
determine that proportion of the amount selected under subparagraph (iii) (in this subsection referred to as the “capital cost of that class”) that the fair market value on December 31, 1971 of that property is of the fair market value on that day of all property of that class,
20(3)(b)
for the purposes of sections 13 and 20 of the amended Act and any regulations made under paragraph 20(1)(a) of that Act, the undepreciated capital cost to the partnership of property of that class as of any time after 1971 shall be computed as though the amount, if any, by which the capital cost of that class to the partnership exceeds the undepreciated cost to the partnership of that class had been allowed to the partnership in respect of property of that class under regulations made under paragraph 20(1)(a) of the amended Act in computing income for taxation years before that time;
20(3)(c)
in computing the income for the 1972 and subsequent taxation years of each person who was a member of the partnership on June 18, 1971 and thereafter without interruption until December 31, 1971, there may be deducted such amount as the person claims for the year, not exceeding the amount, if any, by which the total of
20(3)(c)(i)
the lesser of
20(3)(c)(i)(A)
the amount, if any, by which the amount that was the capital cost to the person of all property of that class exceeds the percentage, equal to the person’s percentage in respect of property of that class, of the capital cost of that class to the partnership, and
20(3)(c)(i)(B)
the amount that was the undepreciated capital cost to the person of property of that class as of December 31, 1971, and
20(3)(c)(ii)
the amount, if any, by which exceeds exceeds the total of all amounts deducted under this paragraph in computing the persons income for preceding taxation years, and, for the purposes of section 3 of the amended Act, the amount so claimed shall be deemed to be a deduction permitted by subdivision e of Division B of Part I of that Act; and
20(3)(c)(ii)(A)
the undepreciated capital cost to the person of property of that class as of December 31, 1971, less the amount, if any, determined under subparagraph (i) in respect of property of that class,
20(3)(c)(ii)(B)
the percentage, equal to the person’s percentage in respect of property of that class, of the undepreciated cost to the partnership of that class,
20(3)(d)
notwithstanding paragraph (c), a person who became a member of the partnership after June 18, 1971 and who was a member of the partnership thereafter without interruption until December 31, 1971 shall be deemed to be a person described in paragraph (c) and the amount that may be claimed thereunder as a deduction in computing the person’s income for any taxation year shall not exceed 10% of the total of the amounts determined under subparagraphs (c)(i) and (ii).
20(4)Definitions
In subsection (3),
20(4)[p85]
acquisition cost of a person who was a member of a partnership on December 31, 1971 in respect of depreciable property of a prescribed class that was partnership property of the partnership on December 31, 1971 means the total of the undepreciated capital cost to the person of property of that class as of December 31, 1971 and the total depreciation allowed to the person before 1972 in respect of property of that class; (coût d’acquisition)
20(4)[p86]
percentage of a member of a partnership in respect of any depreciable property of a prescribed class that was partnership property of the partnership on December 31, 1971 means the interest of the member of the partnership in property of that class, expressed as a percentage of the total of the interests of all members of the partnership in property of that class on that day; (pourcentage)
20(4)[p87]
undepreciated cost to the partnership of any class of depreciable property means an amount determined as follows: and the amount selected under paragraph (c) is the undepreciated cost to the partnership of that class. (fraction non amortie du coût, pour la société de personnes)
20(4)[p87](a)
determine, for each person who, because of having been a member of the partnership on the later of June 18, 1971 and the day the partnership was created, and thereafter without interruption until December 31, 1971, can reasonably be regarded as having had an interest in property of that class on December 31, 1971, the amount, if any, by which the undepreciated capital cost to the person of property of that class as of December 31, 1971 exceeds the amount, if any, determined under subparagraph (3)(c)(i) for the person in respect of property of that class,
20(4)[p87](b)
determine, for each such person, the amount that is that proportion of the amount determined under paragraph (a) that 100% is of the person’s percentage in respect of property of that class, and
20(4)[p87](c)
select the amount determined under paragraph (b) for a person described therein that is not greater than any amount so determined for any other such person,
20(5)Other depreciable property of partnership
For the purposes of the amended Act, where a partnership had, on December 31, 1971, any particular partnership property that was depreciable property other than depreciable property of a prescribed class,
20(5)(a)
the cost to the partnership of the particular property shall be deemed to be the amount that would be determined under paragraph (3)(a) to be the capital cost thereof if
20(5)(a)(i)
the particular property constituted a prescribed class of property, and
20(5)(a)(ii)
the acquisition cost of each person described therein in respect of the particular property were its actual cost to the person or the amount at which the person was deemed by subsection 20(6) of the former Act to have acquired it, as the case may be;
20(5)(b)
for the purposes of sections 13 and 20 of the amended Act and any regulations made under paragraph 20(1)(a) of that Act, the undepreciated capital cost of property of any class as of any particular time after 1971 shall be computed as if the amount, if any, by which exceeds
20(5)(b)(i)
the amount determined under paragraph (a) to have been the cost to the partnership of the particular property,
20(5)(b)(ii)
the amount that would be determined under the definition undepreciated cost to the partnership in subsection (4) to be the undepreciated cost to the partnership of any class of depreciable property comprising the particular property if had been allowed to the partnership in respect of the particular property under regulations made under paragraph 20(1)(a) of the amended Act in computing income for taxation years ending before the particular time; and
20(5)(b)(ii)(A)
paragraph (a) of that definition were read without reference to the words “the later of June 18, 1971 and the day the partnership was created, and thereafter without interruption until”,
20(5)(b)(ii)(B)
the amount determined under subparagraph 3(c)(i) for any person in respect of that class were nil, and
20(5)(b)(ii)(C)
the undepreciated capital cost to each person described in the definition acquisition cost in subsection (4) of the particular property as of December 31, 1971 were the amount, if any, by which the amount assumed by subparagraph (a)(ii) to have been the acquisition cost of the person in respect of the property exceeds the total of all allowed to the person in respect of the property under regulations made under paragraph 11(1)(a) of the former Act in computing income for taxation years ending before 1972,
20(5)(c)
in computing the income for the 1972 and subsequent taxation years of each person who was, on December 31, 1971, a member of the partnership, there may be deducted such amount as the person claims for the year, not exceeding the amount, if any, by which exceeds and for the purposes of section 3 of the amended Act the amount so claimed shall be deemed to be a deduction permitted by subdivision e of Division B of Part I of that Act.
20(5)(c)(i)
the amount by which exceeds
20(5)(c)(i)(A)
the amount assumed by clause (b)(ii)(C) to have been the undepreciated capital cost to the person of the particular property as of December 31, 1971
20(5)(c)(i)(B)
a percentage of the amount determined under subparagraph (b)(ii) in respect of the particular property, equal to the percentage that would be the person’s percentage (within the meaning assigned by subsection (4)) in respect of the particular property if that property constituted a prescribed class,
20(5)(c)(ii)
the total of all amounts deducted under this paragraph in computing the person’s income for preceding taxation years,
21Government right
21(1)
If as a result of a disposition occurring after 1971 a taxpayer has or may become entitled to receive an amount (in this section referred to as the actual amount) that may reasonably be considered to be consideration received by the taxpayer for the disposition of, or for allowing the expiration of, a government right, in respect of a business carried on by the taxpayer throughout the period beginning January 1, 1972 and ending immediately after the disposition occurred, for the purposes of the amended Act the amount that the taxpayer has or may become entitled to receive is deemed to be the amount, if any, by which the actual amount exceeds the greater of
21(1)(a)
the total of all amounts each of which is an outlay or expenditure made or incurred by the taxpayer as a result of a transaction that occurred before 1972 for the purpose of acquiring the government right, or the taxpayer’s original right in respect of the government right, to the extent that the outlay or expenditure was not otherwise deducted in computing the income of the taxpayer for any taxation year and would, if made or incurred by the taxpayer as a result of a transaction that occurred after 1971, be an eligible capital expenditure of the taxpayer; and
21(1)(b)
the fair market value to the taxpayer on December 31, 1971 of the taxpayer’s specified right in respect of the government right, if no outlay or expenditure was made or incurred by the taxpayer for the purpose of acquiring the right or, if an outlay or expenditure was made or incurred, if that outlay or expenditure would have been an eligible capital expenditure of the taxpayer if it had been made or incurred as a result of a transaction that occurred after 1971.
21(2)Idem
Where the taxpayer and the person by whom the actual amount has become payable to the taxpayer were not dealing with each other at arm’s length, for the purposes of computing the income of that person the portion of the actual amount in excess of the amount deemed by subsection (1) to be the amount that has become payable to the taxpayer shall be deemed not to have been an outlay, expense or cost, as the case may be, of that person.
21(2.1)Idem
Where after 1971 a taxpayer has acquired a particular government right referred to in subsection (1) and an actual amount subsequently becomes payable to the taxpayer as consideration for the disposition by the taxpayer of, or for the taxpayer allowing the expiration of, the particular government right or any other government right acquired by the taxpayer for the purpose of effecting the continuation, without interruption, of rights that are substantially similar to the rights that the taxpayer had under the particular government right, for the purpose of the amended Act, the amount that has so become payable to the taxpayer shall be deemed to be the amount that would, if that person and the taxpayer had at all times been the same person, be determined under subsection (1) to be the amount that would have become so payable to the taxpayer.
21(2.1)(a)
from a person with whom the taxpayer was not dealing at arm’s length, or
21(2.1)(b)
under an agreement with a person with whom the taxpayer was not dealing at arm’s length, if under the terms of the agreement that person allowed the right to expire so that the taxpayer could acquire a substantially similar right from the authority that had issued the right to that person,
21(2.2)Amalgamations
For the purposes of this section, an amalgamation (within the meaning of section 87 of the amended Act) of two or more Canadian corporations shall be deemed to be a transaction between persons not dealing at arm’s length.
21(3)Definitions
In this section,
21(3)[p116]
government right of a taxpayer means a right or licence
21(3)[p116](a)
that enables the taxpayer to carry on a business activity in accordance with a law of Canada or of a province or Canadian municipality, to an extent to which the taxpayer would otherwise be unable to carry it on in accordance therewith,
21(3)[p116](b)
that was granted or issued by Her Majesty in right of Canada or a province or a Canadian municipality, or by a department, board, agency or any other body authorized by or under a law of Canada, a province or a Canadian municipality to grant or issue such a right or licence, and
21(3)[p116](c)
that was acquired by the taxpayer
21(3)[p116](c)(i)
as a result of a transaction that occurred before 1972, or
21(3)[p116](c)(ii)
at a particular time for the purpose of affecting the continuation, without interruption, of rights that are substantially similar to the rights that the taxpayer had under a government right held by the taxpayer before the particular time; (droit gouvernemental)
21(3)[p122]
original right of a taxpayer in respect of a government right means a right or licence if the government right was acquired by the taxpayer for the purpose of effecting the continuation, without interruption, of rights that are substantially similar to the rights that the taxpayer had under the right or licence; (droit initial)
21(3)[p122](a)
described in the definition government right in this subsection, and
21(3)[p122](b)
acquired by the taxpayer as a result of a transaction that occurred before 1972 for a purpose other than the purpose described in subparagraph (c)(ii) of that definition,
21(3)[p125]
specified right of a taxpayer in respect of a government right means a right owned by a taxpayer on December 31, 1971 that was
21(3)[p125](a)
an original right, or
21(3)[p125](b)
a government right that was acquired by the taxpayer in substitution for the original right or that was one of a series of government rights acquired by the taxpayer for the purpose of effecting the continuation, without interruption, of rights that are substantially similar to the rights that the taxpayer had under the original right. (droit particulier)
23Rules applicable
23(3)
For the purposes of computing the income of a taxpayer for a taxation year ending after 1971 from a business that is a profession,
23(3)(a)
there may be deducted such amount as the taxpayer claims, not exceeding the lesser of
23(3)(a)(i)
the amount deducted under this paragraph in computing the taxpayer’s income from the business for the preceding taxation year, and
23(3)(a)(ii)
the taxpayer’s investment interest in the business at the end of the year;
23(3)(b)
where the taxation year is the taxpayer’s 1972 taxation year, the amount deducted under paragraph (a) in computing the taxpayer’s income for the preceding taxation year from the business shall be deemed to be an amount equal to the taxpayer’s 1971 receivables in respect of the business;
23(3)(c)
there shall be included the amount deducted under paragraph (a) in computing the taxpayer’s income for the preceding taxation year from the business; and
23(3)(d)
there shall be included amounts received by the taxpayer in the year on account of debts in respect of the business that were established by the taxpayer to have become bad debts before the end of the 1971 fiscal period of the business.
23(4)Application of para. (3)(a)
Paragraph (3)(a) does not apply to allow a deduction in computing the income of a taxpayer from a business that is a profession
23(4)(a)
for the taxation year in which the taxpayer died; or
23(4)(b)
for any taxation year, if, at any time in the year or the following year.
23(4)(b)(i)
in the case of a taxpayer who at no time in the year was resident in Canada, the taxpayer ceased to carry on the business, or
23(4)(b)(ii)
in the case of any other taxpayer, the taxpayer ceased to be resident in Canada and ceased to carry on the business
23(4.1)Certain persons deemed to be carrying on business by means of partnership
For the purposes of paragraph (a) of the definition investment interest in subsection (5),
23(4.1)(a)
where subsection 98(1) of the amended Act applies, the persons who are deemed not to have ceased to be members of a partnership because of that subsection shall be deemed to be carrying on business in Canada by means of that partnership; and
23(4.1)(b)
a taxpayer who has a residual interest in a partnership (within the meaning assigned by section 98.1 of the amended Act) shall be deemed to be carrying on business in Canada by means of that partnership.
23(5)Definitions
In this section,
23(5)[p145]
investment interest in a business at the end of a taxation year of a taxpayer means
23(5)[p145](a)
in the case of a taxpayer other than a corporation, the total of all amounts each of which is an amount in respect of a proprietorship or partnership by means of which the taxpayer carried on that business in Canada in the year, equal to,
23(5)[p145](a)(i)
in respect of each such proprietorship, the amount, if any, by which exceeds
23(5)[p145](a)(i)(A)
the total of such of the amounts that were included in computing the taxpayer’s income for that or a preceding taxation year as were receivable by the taxpayer at the end of the fiscal period of the proprietorship ending in the taxation year,
23(5)[p145](a)(i)(B)
the amount claimed under paragraph 20(1)(l) of the amended Act as a reserve for doubtful debts in computing the taxpayer’s income from the business for the fiscal period of the proprietorship ending in the year, and
23(5)[p145](a)(ii)
in respect of each such partnership, the adjusted cost base to the taxpayer of the taxpayer’s interest in the partnership immediately after the end of the fiscal period of the partnership ending in the year,
23(5)[p145](b)
in the case of a taxpayer that is a corporation, the lesser of
23(5)[p145](b)(i)
the amount thereof that would be determined under paragraph (a) in respect of the corporation if that paragraph applied to a taxpayer that is a corporation, and
23(5)[p145](b)(ii)
that proportion of its 1971 receivables in respect of the business that is of
23(5)[p145](b)(ii)(A)
the amount, if any, by which 10 exceeds the number of its taxation years ending after 1971 and either before or coincidentally with the taxation year,
23(5)[p145](b)(ii)(B)
10; (participation aux investissements)
23(5)[p156]
1971 receivables in respect of a business of a taxpayer means the total of
23(5)[p156](a)
all amounts that became receivable by the taxpayer in respect of property sold or services rendered in the course of the business (within the meaning given that expression in section 34 of the amended Act) in taxation years ending before 1972 and that were not included in computing the taxpayer’s income for any such taxation year, other than debts that were established by the taxpayer to have become bad debts before the end of the 1971 fiscal period of the business, and
23(5)[p156](b)
the total of all amounts each of which is an amount, in respect of each partnership by means of which the taxpayer carried on that business before 1972, equal to such portion of the total that would be determined under paragraph (a) in respect of the partnership, if the references in that paragraph to “the taxpayer” were read as references to “the partnership”, as is designated by the taxpayer in the taxpayer’s return of income under Part I of the amended Act for the year to be attributable to the taxpayer, except that where the total of the portions so designated by all members of the partnership is less than the total that would be so determined under paragraph (a) in respect of the partnership, the Minister may designate the portion of that total that is attributable to the taxpayer, in which case the portion so designated by the Minister in respect of the taxpayer shall be deemed to …
24Definition of valuation day for capital gains and losses
In this Act, valuation day means
24(a)
December 22, 1971, in relation to any property prescribed to be a publicly-traded share or security; and
24(b)
December 31, 1971, in relation to any other property.
26Capital gains subject to tax
26(1)
The provisions of subdivision c of Division B of Part I of the amended Act apply to dispositions of property made after 1971 and to transactions or events occurring after 1971 because of which any disposition of property was made or deemed to have been made in accordance with the provisions of that subdivision.
26(1.1)Principal amount of certain obligations
For the purposes of subsection 39(3) and section 80 of the amended Act, the principal amount of any debt or other obligation of a taxpayer to pay an amount that was outstanding on January 1, 1972 (in this subsection referred to as an “obligation”) shall be deemed to be the lesser of and in applying paragraph 39(3)(a) of the amended Act to an obligation, the reference in that paragraph to “the amount for which the obligation was issued” shall be read as a reference to “the lesser of the principal amount of the obligation and the amount for which the obligation was issued”.
26(1.1)(a)
the principal amount, otherwise determined for the purposes of the amended Act, of the obligation, and
26(1.1)(b)
the fair market value, on valuation day, of the obligation,
26(3)Cost of acquisition of capital property owned on Dec. 31, 1971
For the purpose of computing the adjusted cost base to a taxpayer of any capital property (other than depreciable property or an interest in a partnership) that was owned by the taxpayer on December 31, 1971 and thereafter without interruption until such time as the taxpayer disposed of it, its cost to the taxpayer shall be deemed to be the amount that is neither the greatest nor the least of the following three amounts, namely, except that where two or more of the amounts determined under paragraphs (a) to (c) in respect of any property are the same amount, that amount shall be deemed to be its costs to the taxpayer.
26(3)(a)
its actual cost to the taxpayer or, if the property was an obligation, its amortized cost to the taxpayer on January 1, 1972,
26(3)(b)
its fair market value on valuation day, and
26(3)(c)
the amount, if any, by which the total of exceeds the total of
26(3)(c)(i)
the taxpayer’s proceeds of disposition of the property, determined without reference to subsection 13(21.1) of the amended Act,
26(3)(c)(ii)
all amounts required by subsection 53(2) of the amended Act to be deducted in computing its adjusted cost base to the taxpayer immediately before the disposition, and
26(3)(c)(iii)
all amounts described in clause (5)(c)(ii)(B) that are relevant in computing its adjusted cost base to the taxpayer immediately before the disposition,
26(3)(c)(iv)
all amounts required by subsection 53(1) of the amended Act (other than paragraphs 53(1)(f.1) to (f.2)) to be added in computing its adjusted cost base to the taxpayer immediately before the disposition, and
26(3)(c)(v)
all amounts described in clause (5)(c)(i)(B) that are relevant in computing its adjusted cost base to the taxpayer immediately before the disposition,
26(4)Determination of cost where property not disposed of
For the purpose of computing the adjusted cost base to a taxpayer of any capital property (other than depreciable property or an interest in a partnership) at any particular time before the taxpayer disposed of it, where the property was owned by the taxpayer on December 31, 1971 and thereafter without interruption until the particular time, its costs to the taxpayer shall be deemed to be the amount that would be determined under subsection (3) to be its cost to the taxpayer if the taxpayer had disposed of it at the particular time and the taxpayer’s proceeds of disposition had been its fair market value at that time.
26(5)Where property disposed of in transaction not at arm’s length
Where any capital property (other than depreciable property or an interest in a partnership) that was owned by a taxpayer (in this subsection referred to as the “original owner”) on June 18, 1971 has, by one or more transactions or events between persons not dealing at arm’s length, become vested in another taxpayer (in this subsection referred to as the “subsequent owner”) and the original owner has not elected under subsection (7) in respect of the property, notwithstanding the provisions of the amended Act, for the purposes of computing, at any particular time after 1971, the adjusted cost base of the property to the subsequent owner,
26(5)(a)
the subsequent owner shall be deemed to have owned the property on June 18, 1971 and thereafter without interruption until the particular time;
26(5)(b)
for the purposes of this section, the actual cost of the property to the subsequent owner or, if the property was an obligation, its amortized cost to the subsequent owner on January 1, 1972 shall be deemed to be the amount that was its actual cost or amortized cost, on January 1, 1972, as the case may be, to the original owner; and
26(5)(c)
where the property became vested in the subsequent owner after 1971, there shall be added to the cost to the subsequent owner of the property (as determined under subsection (3)) the amount, if any, by which exceeds and there shall be deducted from the cost to the subsequent owner of the property the amount, if any, by which the total determined under subparagraph (ii) exceeds the total determined under subparagraph (i).
26(5)(c)(i)
the total of all amounts each of which is
26(5)(c)(i)(A)
a capital gain (other than any amount deemed by subsection 40(3) of the amended Act to be a capital gain) from the disposition after 1971 of the property by a person who owned the property before it so became vested in the subsequent owner,
26(5)(c)(i)(B)
an amount required by subsection 53(1) of the amended Act to be added in computing the adjusted cost base of the property to a person (other than the subsequent owner) described in clause (A),
26(5)(c)(i)(C)
an amount determined under paragraph 88(1)(d) of the amended Act in computing the cost of the property to the subsequent owner or a person who owned the property before it became vested in the subsequent owner, or
26(5)(c)(i)(D)
an amount by which a gain otherwise determined of a person who owned the property before it became so vested in the subsequent owner was reduced because of paragraph 40(2)(b) or (c) of the amended Act,
26(5)(c)(ii)
the total of all amounts each of which is
26(5)(c)(ii)(A)
a capital loss or an amount that would, but for paragraph 40(2)(e) and subsection 85(4) of the amended Act (as that Act read in its application to property disposed of on or before April 26, 1995) and paragraphs 40(2)(e.1) and (e.2) and subsection 40(3.3) of the amended Act, be a capital loss from the disposition to a corporation after 1971 of the property by a person who owned the property before it became vested in the subsequent owner, or
26(5)(c)(ii)(B)
an amount required by subsection 53(2) of the amended Act to be deducted in computing the adjusted cost base of the property to a person (other than the subsequent owner) described in clause (A),
26(5.1)Idem
For the purposes of subsection (5), an amalgamation (within the meaning assigned by section 87 of the amended Act) of two or more Canadian corporations shall be deemed to be a transaction between persons not dealing at arm’s length.
26(5.2)Transfer of capital property to a corporation
For the purposes of subsection (5), where a taxpayer has disposed of capital property after May 6, 1974 to a corporation in respect of which an election under section 85 of the amended Act was made, the disposition shall be deemed to be a transaction between persons not dealing at arm’s length.
26(6)Reacquired property
Where a taxpayer has, at any time after June 18, 1971 and before 1972, disposed of any property owned by the taxpayer on that day and has, within 30 days after that time, reacquired the same property or acquired a substantially identical property, for the purposes of this section
26(6)(a)
the taxpayer shall be deemed to have owned the property so reacquired or the substantially identical property so acquired, as the case may be, on June 18, 1971 and thereafter without interruption until the time the taxpayer so reacquired or acquired it as the case may be;
26(6)(b)
where the property was property so reacquired, its actual cost or its amortized cost on January 1, 1972, as the case may be, to the taxpayer shall be determined as if the taxpayer had not so disposed of and so reacquired it; and
26(6)(c)
where the property was substantially identical property so acquired, its actual cost or its amortized cost on January 1, 1972, as the case may be, to the taxpayer shall be deemed to be the amount that was the actual cost or the amortized cost on January 1, 1972, as the case may be, to the taxpayer of the property so disposed of by the taxpayer.
26(7)Election re cost
Where, but for this subsection, the cost to an individual of any property actually owned by the individual on December 31, 1971 would be determined under subsection (3) or (4) otherwise than because of subsection (5) and the individual has so elected, in prescribed manner and not later than the day on or before which the individual is required by Part I of the amended Act to file a return of income for the first taxation year in which the individual disposes of all or any part of the property, other than the cost to the individual of each capital property (other than depreciable property, an interest in a partnership or any property described in any of paragraphs (a) to (e) that was disposed of by the individual before that taxation year) actually owned by the individual on December 31, 1971 shall be deemed to be its fair market value on valuation day.
26(7)(a)
personal-use property of the individual that was not listed personal property or real property,
26(7)(b)
listed personal property, if the individual’s gain or loss, as the case may be, from the disposition thereof was, because of subsection 46(1) or (2) of the amended Act, nil,
26(7)(c)
the individual’s principal residence, if the individual’s gain from the disposition thereof was, because of paragraph 40(2)(b) of the amended Act, nil,
26(7)(d)
personal-use property of the individual that was real property (other than the individual’s principal residence), if the individual’s gain from the disposition thereof was, because of subsection 46(1) or (2) of the amended Act, nil, or