Budget Implementation Act, 2016, No. 2 (S.C. 2016, c. 12)
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Assented to 2016-12-15
PART 1Amendments to the Income Tax Act and to Related Legislation (continued)
R.S., c. 1 (5th Supp.)Income Tax Act (continued)
4 (1) Section 14 of the Act is repealed.
(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.
5 (1) Section 15 of the Act is amended by adding the following after subsection (2.15):
Marginal note:Back-to-back arrangement — application
(2.16) Subsection (2.17) applies at any time if
(a) at that time, a person or partnership (referred to in this subsection and subsections (2.17) to (2.192) as the intended borrower) has an amount outstanding as or on account of a debt or other obligation to pay an amount (in this subsection and subsections (2.17) to (2.192) referred to as the shareholder debt) to a person or partnership (in this subsection and subsections (2.17) to (2.192) referred to as the immediate funder);
(b) subsection (2) would not, in the absence of this subsection and subsection (2.17), apply to the shareholder debt;
(c) at that time, a funder, in respect of a particular funding arrangement,
(i) has an amount outstanding as or on account of a debt or other obligation to pay an amount (other than a debt or other obligation to pay an amount to which subsection (2) applies or would apply if it were not a pertinent loan or indebtedness, as defined in subsection (2.11)) to a person or partnership that meets either of the following conditions:
(A) recourse in respect of the debt or other obligation is limited in whole or in part, either immediately or in the future and either absolutely or contingently, to a funding arrangement, or
(B) it can reasonably be concluded that all or a portion of the particular funding arrangement was entered into or was permitted to remain outstanding because
(I) all or a portion of the debt or other obligation was entered into or was permitted to remain outstanding, or
(II) the funder anticipated that all or a portion of the debt or other obligation would become owing or remain outstanding, or
(ii) has a specified right in respect of a particular property that was granted directly or indirectly by a person or partnership and
(A) the existence of the specified right is required under the terms and conditions of the particular funding arrangement, or
(B) it can reasonably be concluded that all or a portion of the particular funding arrangement was entered into, or was permitted to remain in effect, because
(I) the specified right was granted, or
(II) the funder anticipated that the specified right would be granted; and
(d) at that time, one or more funders is an ultimate funder.
Marginal note:Back-to-back arrangement — consequences
(2.17) If this subsection applies at a particular time, then for the purposes of this section and section 80.4, the intended borrower is deemed to receive a loan from each particular ultimate funder at the particular time, the amount of which is equal to the amount determined by the formula
A × B/C – (D – E)
where
- A
- is the lesser of
(a) the amount outstanding as or on account of the shareholder debt at the particular time, and
(b) the total of all amounts, each of which is, at the particular time,
(i) an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to an ultimate funder under a funding arrangement in respect of the shareholder debt, or
(ii) the fair market value of a particular property in respect of which an ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt;
- B
- is the total of all amounts, each of which is, at the particular time,
(a) an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to the particular ultimate funder under a funding arrangement in respect of the shareholder debt, or
(b) the fair market value of a particular property in respect of which the particular ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt;
- C
- is the total amount determined under paragraph (b) of the description of A;
- D
- is the total of all amounts, each of which is, in respect of the shareholder debt, an amount that the intended borrower has been deemed by this subsection to have received from the particular ultimate funder as a loan at any time before the particular time; and
- E
- is the total amount of any repayments deemed by subsections (2.19) and (2.191) to have occurred before the particular time, in respect of any deemed loans from the particular ultimate funder that are referred to in the description of D.
Marginal note:Back-to-back arrangement — conditions for deemed repayment
(2.18) Subsection (2.19) applies in respect of an intended borrower and a particular ultimate funder at a particular time if
(a) prior to the particular time, subsection (2.17) has applied in respect of a shareholder debt to deem one or more loans to have been received by the intended borrower from the particular ultimate funder; and
(b) at the particular time,
(i) an amount owing in respect of the shareholder debt is repaid in whole or in part,
(ii) an amount owing in respect of a debt or other obligation owing to the particular ultimate funder by a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt is repaid in whole or in part, or
(iii) either
(A) there is a decrease in the fair market value of a property in respect of which a specified right was granted by the particular ultimate funder to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt, or
(B) a right described in clause (A) is extinguished.
Marginal note:Back-to-back arrangement — deemed repayment
(2.19) If this subsection applies in respect of an intended borrower and a particular ultimate funder at a particular time,
(a) the intended borrower is deemed, for the purposes of this section, paragraph 20(1)(j), section 80.4 and subsection 227(6.1), to repay, in whole or in part, one or more of the deemed loans referred to in paragraph (2.18)(a) at the particular time; and
(b) the total amount of the deemed repayments referred to in paragraph (a) is to be determined by the following formula:
A – B – C
where
- A
- is the total of all amounts, each of which is the amount of a loan deemed by subsection (2.17) to have been received, at any time before the particular time, by the intended borrower from the particular ultimate funder in respect of the shareholder debt,
- B
- is the total of all amounts deemed by this subsection to have been repaid, at any time before the particular time, by the intended borrower in respect of any loans referred to in the description of A, and
- C
- is the amount determined by the formula
D × E/F
where
- D
- is the lesser of
(i) the amount outstanding as or on account of the shareholder debt, immediately after the particular time, and
(ii) the total of all amounts, each of which is, immediately after the particular time,
(A) an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to an ultimate funder under a funding arrangement in respect of the shareholder debt, or
(B) the fair market value of a particular property in respect of which an ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt,
- E
- is the total of all amounts, each of which is, immediately after the particular time
(i) an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to the particular ultimate funder under a funding arrangement in respect of the shareholder debt, or
(ii) the fair market value of a particular property in respect of which the particular ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt, and
- F
- is the amount determined under subparagraph (ii) in the description of D.
Marginal note:Negative amounts
(2.191) If, in the absence of section 257, the formula in subsection (2.17) would result in a negative amount at a particular time,
(a) the intended borrower is deemed, for the purposes of this section, paragraph 20(1)(j), section 80.4 and subsection 227(6.1), to repay, in whole or in part, one or more of the loans deemed by subsection (2.17) to have been received by the intended borrower from the particular ultimate funder before the particular time; and
(b) the total amount of the deemed repayments referred to in paragraph (a) is equal to the absolute value of that negative amount.
Marginal note:Back-to-back arrangement — definitions
(2.192) The following definitions apply in this subsection and subsections (2.16) to (2.191).
- funder
funder, in respect of a funding arrangement, means
(a) if the funding arrangement is described in paragraph (a) of the definition funding arrangement, the immediate funder;
(b) if the funding arrangement is described in paragraph (b) of the definition funding arrangement, the creditor in respect of the debt or other obligation or the grantor of the specified right, as the case may be; and
(c) a person or partnership that does not deal at arm’s length with a person or partnership referred to in paragraph (a) or (b). (bailleur de fonds)
- funding arrangement
funding arrangement means
(a) the shareholder debt; and
(b) each debt or other obligation or specified right, owing by or granted to a funder, in respect of a particular funding arrangement, if the debt or other obligation or specified right meets the conditions in subparagraph (2.16)(c)(i) or (ii) in respect of a funding arrangement. (mécanisme de financement)
- specified right
specified right has the same meaning as in subsection 18(5). (droit déterminé)
- ultimate funder
ultimate funder means a funder, if subsection (2) would apply to the shareholder debt if the creditor under the shareholder debt were the funder instead of the immediate funder. (bailleur de fonds ultime)
(2) Subsection (1) applies in respect of
(a) if the immediate funder in respect of a shareholder debt is a debtor, or holder of a specified right, under a funding arrangement under which an ultimate funder is the creditor or the grantor of the specified right,
(i) loans received and indebtedness incurred in respect of the shareholder debt after March 21, 2016, and
(ii) any portion of a particular loan received or indebtedness incurred in respect of the shareholder debt before March 22, 2016 that remains outstanding on that day, as if that portion were a separate loan or indebtedness that was received or incurred, as the case may be, on March 22, 2016 in the same manner and on the same terms as the particular loan or indebtedness; and
(b) in any other case,
(i) loans received and indebtedness incurred after 2016, and
(ii) any portion of a particular loan received or indebtedness incurred before January 1, 2017 that remains outstanding on that day, as if that portion were a separate loan or indebtedness that was received or incurred, as the case may be, on January 1, 2017 in the same manner and on the same terms as the particular loan or indebtedness.
6 (1) Subsection 18(1) of the Act is amended by striking out “and” at the end of paragraph (v), by adding “and” at the end of paragraph (w) and by adding the following after paragraph (w):
Marginal note:Derivatives — lower of cost and market
(x) any reduction in a taxation year in the value of a property if
(i) the method used by the taxpayer to value the property at the end of the year for purposes of computing the taxpayer’s profit from a business or property is the cost at which the taxpayer acquired it or its fair market value at the end of the year, whichever is lower,
(ii) the property is described in subsection 10(15), and
(iii) the property is not disposed of by the taxpayer in the year; and
Marginal note:Payment for shares
(y) an amount referred to in subsection 13(36).
(2) Paragraph 18(1)(x) of the Act, as enacted by subsection (1), applies to agreements entered into after March 21, 2016.
(3) Paragraph 18(1)(y) of the Act, as enacted by subsection (1), comes into force or is deemed to have come into force on January 1, 2017.
7 (1) Paragraph 20(1)(b) of the Act is replaced by the following:
Marginal note:Incorporation expenses
(b) the lesser of
(i) the portion of the amount (that is not otherwise deductible in computing the income of the taxpayer) that is an expense incurred in the year for the incorporation of a corporation, and
(ii) $3,000 less the total of all amounts each of which is an amount deducted by another taxpayer in respect of the incorporation of the corporation;
(2) Paragraph 20(1)(hh.1) of the Act is replaced by the following:
Marginal note:Repayment of obligation
(hh.1) 3/4 of any amount repaid by the taxpayer in the year (on or after the time the taxpayer ceases to carry on a business) under a legal obligation to repay all or part of an amount the taxpayer received or was entitled to receive that was assistance from a government, municipality or other public authority (whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance) in respect of, or for the acquisition of, property the cost of which was an eligible capital expenditure of the taxpayer in respect of the business if the amount of the eligible capital expenditure of the taxpayer in respect of the business was reduced by paragraph 14(10)(c) because of the amount of the assistance the taxpayer received or was entitled to receive;
(3) Subsections 20(4.2) and (4.3) of the Act are replaced by the following:
Marginal note:Former eligible capital property
(4.2) If an amount is deductible under subsection (4) in respect of the disposition of a depreciable property and subsection 13(39) applied to the disposition of the depreciable property, the amount deductible under subsection (4) is equal to 3/4 of the amount that would be deductible without reference to this subsection.
(4) Section 20 of the Act is amended by adding the following after subsection (14.1):
Marginal note:Sales of linked notes
(14.2) For the purposes of subsection (14), the amount determined by the following formula is deemed to be interest that accrued on an assigned or otherwise transferred debt obligation — that is, at any time, described in paragraph 7000(1)(d) of the Income Tax Regulations — to which the transferee has become entitled to for a period commencing before the time of the transfer and ending at that particular time that is not payable until after that particular time:
A − B
where
- A
- is the price for which the debt obligation was assigned or otherwise transferred at the particular time; and
- B
- is the amount by which the price (converted to Canadian currency using the exchange rate prevailing at the particular time, if the debt obligation is denominated in a foreign currency) for which the debt obligation was issued exceeds the portion, if any, of the principal amount of the debt obligation (converted to Canadian currency using the exchange rate prevailing at the particular time, if the debt obligation is denominated in a foreign currency) that was repaid by the issuer on or before the particular time.
(5) Subsection 20(16.1) of the Act is amended by striking out “and” at the end of paragraph (a), by adding “and” at the end of paragraph (b) and by adding the following after paragraph (b):
(c) in respect of a taxation year in respect of property included in Class 14.1 of Schedule II to the Income Tax Regulations unless the taxpayer has ceased to carry on the business to which the class relates.
(6) Subsection (1) applies in respect of expenses incurred after 2016.
(7) Subsections (2) and (5) come into force or are deemed to have come into force on January 1, 2017.
(8) Subsection (3) applies to dispositions that occur after 2016.
(9) Subsection (4) applies to transfers occurring after 2016.
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