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)
8 (1) Subsection 24(1) of the Act is repealed.
(2) Subsection 24(2) of the Act is replaced by the following:
Marginal note:Business carried on by spouse or common-law partner or controlled corporation
(2) If, at any time, an individual ceases to carry on a business and the individual’s spouse or common-law partner, or a corporation controlled directly or indirectly in any manner whatever by the individual, carries on the business and acquires all of the property included in Class 14.1 of Schedule II to the Income Tax Regulations in respect of the business owned by the individual immediately before that time and that had value at that time, the following rules apply:
(a) the individual is deemed to have, immediately before that time, disposed of the property and received proceeds of disposition equal to the lesser of the capital cost and the cost amount to the individual of the property immediately before the disposition;
(b) the spouse, common-law partner or corporation, as the case may be, is deemed to have acquired the property at a cost equal to those proceeds; and
(c) if the amount that was the capital cost to the individual of the property exceeds the amount determined under paragraph 70(5)(b) to be the cost to the person that acquired the property, for the purposes of sections 13 and 20 and any regulations made for the purpose of paragraph 20(1)(a),
(i) the capital cost to the person of the property is deemed to be the amount that was the capital cost to the individual of the property, and
(ii) the excess is deemed to have been allowed to the person in respect of the property under regulations made for the purposes of paragraph 20(1)(a) in computing income for taxation years that ended before the person acquired the property.
(3) Subsection 24(3) of the Act is repealed.
(4) Subsections (1) to (3) come into force or are deemed to have come into force on January 1, 2017.
9 (1) Subsection 25(3) of the Act is replaced by the following:
Marginal note:Dispositions in extended fiscal period
(3) If subsection (1) applies in respect of a fiscal period of a business of an individual, for the purpose of computing the individual’s income for the fiscal period, section 13 is to be read without reference to its subsection (8).
(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.
10 (1) The Act is amended by adding the following after section 27:
Marginal note:Emissions allowances
27.1 (1) Notwithstanding section 10, for the purpose of computing a taxpayer’s income from a business, an emissions allowance shall be valued at the cost at which the taxpayer acquired it.
Marginal note:Determination of cost of emissions allowances
(2) If at any particular time a taxpayer that owns one emissions allowance, or two or more identical emissions allowances (for the purposes of this subsection two or more emissions allowances will be considered identical if they could be used to settle the same emissions obligations), acquires one or more other emissions allowances (in this subsection referred to as newly acquired emissions allowances), each of which is identical to each of the previously-acquired emissions allowances, for the purposes of computing, at any subsequent time, the cost of the taxpayer of each of the identical emissions allowances,
(a) the taxpayer is deemed to have disposed of each of the previously-acquired emissions allowances immediately before the particular time for proceeds equal to its cost to the taxpayer immediately before the particular time; and
(b) the taxpayer is deemed to have acquired each of the identical emissions allowances at the particular time at a cost equal to the amount determined by the formula
(A + B)/C
where
- A
- is the total cost to the taxpayer immediately before the particular time of the previously-acquired emissions allowances,
- B
- is the total cost to the taxpayer (determined without reference to this section) of the newly-acquired emissions allowances, and
- C
- is the number of the identical emissions allowances owned by the taxpayer immediately after the particular time.
Marginal note:Expense restriction
(3) Notwithstanding any other provision of this Act, in computing a taxpayer’s income from a business for a taxation year, the total amount deductible in respect of a particular emissions obligation for a taxation year shall not exceed the amount determined by the formula
A + B x C
where
- A
- is the total cost of emissions allowances either
(a) used by the taxpayer to settle the particular emissions obligation in the year, or
(b) held by the taxpayer at the end of the taxation year that can be used to satisfy the particular emissions obligation in respect of the year;
- B
- is the amount determined by the formula
D − (E + F)
where
- D
- is the number of emissions allowances required to satisfy the particular emissions obligation in respect of the taxation year,
- E
- is the number of emissions allowances used by the taxpayer to settle the particular emissions obligation in the year, and
- F
- is the number of emissions allowances held by the taxpayer at the end of the taxation year that can be used to satisfy the particular emissions obligation in respect of the year; and
- C
- is the fair market value of an emissions allowance at the end of the taxation year that could be used to satisfy the particular emissions obligation in respect of the year.
Marginal note:Income inclusion in following year
(4) There shall be included in computing the income of a taxpayer for a taxation year as income from a business the amount deducted in respect of an emissions obligation referred to in subsection (3) for the immediately preceding taxation year to the extent that the emissions obligation was not settled in the immediately preceding taxation year.
Marginal note:Proceeds of disposition
(5) If a taxpayer surrenders an emissions allowance to settle an emissions obligation, the taxpayer’s proceeds from the disposition of the emissions allowance are deemed to be equal to the taxpayer’s cost of the emissions allowance.
Marginal note:Loss restriction event
(6) Notwithstanding subsection (1), each emissions allowance held at the end of the taxpayer’s taxation year that ends immediately before the time at which the taxpayer is subject to a loss restriction event is to be valued at the cost at which the taxpayer acquired the property, or its fair market value at the end of the year, whichever is lower, and after that time the cost at which the taxpayer acquired the property is, subject to a subsequent application of this subsection and subsection (2), deemed to be that lower amount.
(2) Subsection (1) applies in respect of emissions allowances acquired in taxation years that begin after 2016. However, if a taxpayer elects in their return of income for their 2016 or 2017 taxation year, subsection (1) applies in respect of emissions allowances acquired by the taxpayer in taxation years that end after 2012.
11 (1) Paragraph 28(1)(d) of the Act is replaced by the following:
(d) the total of all amounts each of which is an amount included in computing the taxpayer’s income for the year from the business because of subsection 13(1), 80(13) or 80.3(3) or (5),
(2) Paragraph 28(1)(g) of the Act is replaced by the following:
(g) the total of all amounts each of which is an amount deducted for the year under paragraph 20(1)(a) or (uu), subsection 20(16), section 30 or subsection 80.3(2) or (4) in respect of the business,
(3) Subsections (1) and (2) come into force or are deemed to have come into force on January 1, 2017.
12 (1) Clause 38(a.1)(ii)(B) of the Act is replaced by the following:
(B) the subject of a gift to which subsection 118.1(5.1) applies and that is made by the taxpayer’s estate to a qualified donee, or
(2) Clause 38(a.2)(ii)(B) of the Act is replaced by the following:
(B) the subject of a gift to which subsection 118.1(5.1) applies and that is made by the taxpayer’s estate to a qualified donee (other than a private foundation);
(3) Subsections (1) and (2) apply to the 2016 and subsequent taxation years.
13 (1) Subparagraph 39(1)(a)(i) of the Act is repealed.
(2) Clause 39(1)(a)(i.1)(B) of the Act is replaced by the following:
(B) the disposition is deemed by section 70 to have occurred and the object is the subject of a gift to which subsection 118.1(5.1) applies and that is made by the taxpayer’s estate to an institution that would be described in clause (A) if the disposition were made at the time the estate makes the gift,
(3) Subparagraph 39(1)(b)(ii) of the Act is replaced by the following:
(ii) property described in any of subparagraphs 39(1)(a)(ii) to (iii) and (v); and
(4) Section 39 of the Act is amended by adding the following after subsection (2):
Marginal note:Deemed gain — parked obligation
(2.01) For the purposes of subsection (2), if a debt obligation owing by a taxpayer (referred to in this subsection and subsections (2.02) and (2.03) as the debtor) is denominated in a foreign currency and the debt obligation has become a parked obligation at a particular time, the debtor is deemed at that time to have made the gain, if any, that the debtor otherwise would have made if it had paid an amount at the particular time in satisfaction of the debt obligation equal to
(a) if the debt obligation has become a parked obligation at the particular time as a result of its acquisition by the holder of the debt obligation, the amount paid by the holder to acquire the debt obligation; and
(b) in any other case, the fair market value of the debt obligation at the particular time.
Marginal note:Parked obligation
(2.02) For the purposes of subsection (2.01), a debt obligation owing by a debtor is a parked obligation at a particular time if
(a) both
(i) at that time, the holder of the debt obligation does not deal at arm’s length with the debtor or, if the debtor is a corporation, has a significant interest in the debtor, and
(ii) at any previous time, a person who held the debt obligation dealt at arm’s length with the debtor and, where the debtor is a corporation, did not have a significant interest in the debtor; and
(b) it can reasonably be considered that one of the main purposes of the transaction or event or series of transactions or events that resulted in the debt obligation meeting the condition in subparagraph (a)(i) is to avoid the application of subsection (2).
Marginal note:Interpretation
(2.03) For the purposes of subsections (2.01) and (2.02),
(a) paragraph 80(2)(j) applies for the purpose of determining whether two persons are related to each other or whether any person is controlled by any other person; and
(b) paragraph 80.01(2)(b) applies for the purpose of determining whether a person has a significant interest in a corporation.
(5) Subsections (1) and (3) come into force or are deemed to have come into force on January 1, 2017.
(6) Subsection (2) applies to the 2016 and subsequent taxation years.
(7) Subsection (4) is deemed to have come into force on March 22, 2016. However, subsection 39(2.01) of the Act, as enacted by subsection (4), does not apply to a debtor in respect of a debt obligation owing by that debtor at the time that the obligation meets the conditions to become a parked obligation under subsection 39(2.02) of the Act, as enacted by subsection (4), because of a written agreement entered into before March 22, 2016, if that time is before 2017.
14 (1) Paragraph (b) of the description of B in subsection 39.1(2) of the Act is replaced by the following:
(b) if the entity is a partnership, twice the amount, if any, claimed under subsection (4) by the individual for the year in respect of the entity, and
(2) Subsection 39.1(5) of the Act is repealed.
(3) Subsections (1) and (2) apply in respect of taxation years that begin after 2016.
15 (1) Section 40 of the Act is amended by adding the following after subsection (12):
Marginal note:Class 14.1 — transitional rules
(13) Subsection (14) applies in respect of a disposition by a taxpayer of a property that is included in Class 14.1 of Schedule II to the Income Tax Regulations in respect of a business of the taxpayer if
(a) the property was an eligible capital property of the taxpayer immediately before January 1, 2017;
(b) the amount determined for Q in the definition cumulative eligible capital in subsection 14(5) in respect of the business immediately before January 1, 2017 is greater than nil;
(c) the amount determined for B in that definition in respect of the business immediately before January 1, 2017 is nil; and
(d) no amount is included in the taxpayer’s income for a taxation year because of paragraph 13(38)(d).
Marginal note:Class 14.1 — transitional rules
(14) If this subsection applies in respect of a disposition at any time by a taxpayer of a property, the taxpayer’s capital gain from the disposition is to be reduced by such amount as the taxpayer claims, not exceeding the amount by which
(a) 2/3 of the amount determined for Q in the definition cumulative eligible capital in subsection 14(5) in respect of the business immediately before 2017
exceeds
(b) the total of all amounts each of which is an amount claimed under this subsection in respect of another disposition at or before that time.
Marginal note:Class 14.1 — transitional rules
(15) Subsection (16) applies in respect of a disposition by an individual of a property that is included in Class 14.1 of Schedule II to the Income Tax Regulations in respect of a business of the individual if
(a) the property was an eligible capital property of the individual immediately before January 1, 2017; and
(b) the individual’s exempt gains balance in respect of the business is greater than nil for the taxation year that includes January 1, 2017.
Marginal note:Class 14.1 — transitional rules
(16) If this subsection applies in respect of a disposition at any time by an individual of a property, the individual’s capital gain from the disposition is to be reduced by such amount as the individual claims, not exceeding the amount by which
(a) twice the amount of the individual’s exempt gains balance in respect of the business for the taxation year that includes January 1, 2017
exceeds
(b) the total of
(i) if paragraph 13(38)(d) applies in respect of the business for the individual’s taxation year that includes January 1, 2017, the amount determined for D in paragraph 14(1)(b) for the purposes of paragraph 13(38)(d), and
(ii) the total of all amounts each of which is an amount claimed under this subsection in respect of another disposition at or before that time.
(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.
16 Subparagraph 53(1)(e)(iii) of the Act is replaced by the following:
(iii) the taxpayer’s share of the amount, if any, by which
(A) any proceeds of a life insurance policy received by the partnership after 1971 and before that time in consequence of the death of any person whose life was insured under the policy,
exceeds the total of all amounts each of which is
(B) the adjusted cost basis (in this subparagraph as defined in subsection 148(9)), immediately before the death, of
(I) if the death occurs before March 22, 2016, the policy to the partnership, and
(II) if the death occurs after March 21, 2016, a policyholder’s interest in the policy,
(C) the amount by which the fair market value of consideration given in respect of a disposition of an interest in the policy exceeds the greater of the amount determined under subparagraph 148(7)(a)(i) in respect of the disposition and the adjusted cost basis to the policyholder of the interest immediately before the disposition, if
(I) the death occurs after March 21, 2016, and
(II) the disposition was by a policyholder (other than a taxable Canadian corporation) after 1999 and before March 22, 2016, or
(D) if the death occurs after March 21, 2016, an interest in the policy was disposed of by a policyholder (other than a taxable Canadian corporation) after 1999 and before March 22, 2016 and subsection 148(7) applied to the disposition, the amount, if any, determined by the formula
A − B
where
- A
- is the amount, if any, by which the lesser of the adjusted cost basis to the policyholder of the interest immediately before the disposition and the fair market value of consideration given in respect of the disposition exceeds the amount determined under subparagraph 148(7)(a)(i) in respect of the disposition, and
- B
- is the absolute value of the negative amount, if any, that would be, in the absence of section 257, the adjusted cost basis, immediately before the death, of the interest in the policy,
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