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)
45 (1) Paragraph 126(4.4)(a) of the Act is replaced by the following:
(a) a disposition or acquisition of property deemed to be made by subsection 10(12) or (13) or 45(1), section 70, 128.1 or 132.2, subsections 138(11.3) or 142.5(2), paragraph 142.6(1)(b) or subsections 142.6(1.1) or (1.2) or 149(10) is not a disposition or acquisition, as the case may be; and
(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.
46 (1) Subparagraph 128.1(1)(b)(iii) of the Act is replaced by the following:
(iii) property included in Class 14.1 of Schedule II to the Income Tax Regulations, in respect of a business carried on by the taxpayer in Canada at the time of disposition, and
(2) Subparagraph 128.1(4)(b)(ii) of the Act is replaced by the following:
(ii) capital property used in, property included in Class 14.1 of Schedule II to the Income Tax Regulations in respect of or property described in the inventory of, a business carried on by the taxpayer through a permanent establishment (as defined by regulation) in Canada at the particular time,
(3) Subsections (1) and (2) come into force or are deemed to have come into force on January 1, 2017.
47 (1) The portion of subsection 130(2) of the Act before paragraph (a) is replaced by the following:
Marginal note:Application of subsections 131(1) to (3.2), (4.1) and (6)
(2) Where a corporation was an investment corporation throughout a taxation year (other than a corporation that was a mutual fund corporation throughout the year), subsections 131(1) to (3.2), (4.1) and (6) apply in respect of the corporation for the year
(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.
48 (1) Section 131 of the Act is amended by adding the following after subsection (4):
Marginal note:Sections not applicable
(4.1) Sections 51, 85, 85.1, 86 and 87 do not apply to a taxpayer that holds a share (in this subsection referred to as the old share) of a class of shares, that is recognized under securities legislation as or as part of an investment fund, of a mutual fund corporation if the taxpayer exchanges or otherwise disposes of the old share for another share (in this subsection referred to as the new share) of a mutual fund corporation, unless
(a) if the exchange or disposition occurs in the course of a transaction, event or series of transactions or events described in subsections 86(1) or 87(1),
(i) all shares of the class (determined without reference to subsection 248(6)) that includes the old share at the time of the exchange or disposition are exchanged for shares of the class that includes the new share,
(ii) the old share and the new share derive their value in the same proportion from the same property or group of properties, and
(iii) the transaction, event or series was undertaken solely for bona fide purposes and not to cause this paragraph to apply; or
(b) if the old share and the new share are shares of the same class (determined without reference to subsection 248(6)) of shares of the same mutual fund corporation,
(i) the old share and the new share derive their value in the same proportion from the same property or group of properties held by the corporation that is allocated to that class, and
(ii) that class is recognized under securities legislation as or as part of a single investment fund.
(2) The description of A in the definition capital gains redemptions in subsection 131(6) of the Act is replaced by the following:
- A
- is the sum of
(a) the total of all amounts paid by the corporation in the year on the redemption of shares of its capital stock, and
(b) the total of all amounts each of which is an amount equal to the fair market value of the shares of the corporation’s capital stock that were exchanged in the year for other shares of the corporation’s capital stock if
(i) paragraph (4.1) applies to the exchange, and
(ii) the amount is not included in the amount determined for paragraph (a),
(3) Section 131 of the Act is amended by adding the following after subsection (8):
Marginal note:Election to be a mutual fund corporation
(8.01) A corporation is deemed to be a mutual fund corporation, from the date it was incorporated until the earlier of the date the corporation meets the conditions to qualify as a mutual fund corporation under subsection (8) and December 31, 2017, if the corporation
(a) was incorporated after 2014 and before March 22, 2016;
(b) would have been a mutual fund corporation on March 22, 2016 if it could have elected on or before that date to be a public corporation under paragraph (b) of the definition public corporation in subsection 89(1), had the conditions prescribed in paragraph 4800(1)(b) of the Income Tax Regulations been satisfied;
(c) on March 22, 2016, had at least one class of shares that was recognized under securities legislation as an investment fund; and
(d) elects to have this subsection apply in the corporation’s return of income for the corporation’s first taxation year that ends after March 21, 2016.
(4) Subsection (1) applies in respect of transactions and events that occur after 2016.
(5) Subsections (2) and (3) come into force or are deemed to have come into force on January 1, 2017.
49 (1) Paragraph 132.11(1)(b) of the Act is replaced by the following:
(b) if the trust’s taxation year ends on December 15 because of paragraph (a), subject to subsection (1.1), each subsequent taxation year of the trust is deemed to be the period that begins at the beginning of December 16 of a calendar year and that ends at the end of December 15 of the following calendar year or at any earlier time that is determined under paragraph 128.1(4)(a), 132.2(3)(b), 142.6(1)(a) or 249(4)(a); and
(2) Subsection (1) is deemed to have come into force on March 21, 2013.
50 (1) Paragraph 139.1(4)(b) of the Act is replaced by the following:
(b) no amount paid or payable to a stakeholder in connection with the disposition, alteration or dilution of the stakeholder’s ownership rights in the particular corporation may be included in Class 14.1 of Schedule II to the Income Tax Regulations;
(2) The portion of subsection 139.1(18) of the Act before paragraph (a) is replaced by the following:
Marginal note:Acquisition of control
(18) For the purposes of subsections 10(10), 13(21.2) and (24) and 18(15), sections 18.1 and 37, subsection 40(3.4), the definition superficial loss in section 54, section 55, subsections 66(11), (11.4) and (11.5), 66.5(3) and 66.7(10) and (11), section 80, paragraph 80.04(4)(h), subsections 85(1.2) and 88(1.1) and (1.2), sections 111 and 127 and subsections 249(4) and 256(7), control of an insurance corporation (and each corporation controlled by it) is deemed not to be acquired solely because of the acquisition of shares of the capital stock of the insurance corporation, in connection with the demutualization of the insurance corporation, by a particular corporation that at a particular time becomes a holding corporation in connection with the demutualization where, immediately after the particular time,
(3) Subsections (1) and (2) come into force or are deemed to have come into force on January 1, 2017.
51 (1) Subparagraph 142.7(13)(a)(ii) of the Act is repealed.
(2) Paragraph 142.7(13)(c) of the Act is replaced by the following:
(c) for the purposes of applying subsection 13(21.2), 18(15) and 40(3.4) to any property that was disposed of by the affiliate, after the dissolution or winding-up of the affiliate, the entrant bank is deemed to be the same corporation as, and a continuation of, the affiliate.
(3) Subsections (1) and (2) come into force or are deemed to have come into force on January 1, 2017.
52 (1) The definition earned income in subsection 146(1) of the Act is amended by adding “or” at the end of paragraph (f), by striking out “or” at the end of paragraph (g) and by repealing paragraph (h).
(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.
53 Subsection 148(7) of the Act is replaced by the following:
Marginal note:Disposition at non-arm’s length and similar cases
(7) If an interest of a policyholder in a life insurance policy is, at any time (referred to in this subsection as the disposition time), disposed of (other than a disposition under paragraph (2)(b)) by way of a gift, by distribution from a corporation or by operation of law only to any person, or in any manner whatever to any person with whom the policyholder was not dealing at arm’s length,
(a) the policyholder is deemed to become entitled to receive, at the disposition time, proceeds of the disposition equal to the greatest of
(i) the value of the interest at the disposition time,
(ii) an amount equal to
(A) if the disposition time is before March 22, 2016, nil, and
(B) if the disposition time is after March 21, 2016, the fair market value at the disposition time of the consideration, if any, given for the interest, and
(iii) an amount equal to
(A) if the disposition time is before March 22, 2016, nil, and
(B) if the disposition time is after March 21, 2016, the adjusted cost basis to the policyholder of the interest immediately before the disposition time;
(b) the person that acquires the interest because of the disposition is deemed to acquire it, at the disposition time, at a cost equal to the amount determined under paragraph (a) in respect of the disposition;
(c) in computing the paid-up capital in respect of each class of shares of the capital stock of a corporation at any time at or after the disposition time there shall be deducted the amount determined by the formula
(A − B × C/D) × E/A
where
- A
- is the increase, if any, as a result of the disposition, in the paid-up capital in respect of all the shares of the capital stock of the corporation,
- B
- is the amount determined under paragraph (a) in respect of the disposition,
- C
- is
(i) if consideration is given for the interest, the fair market value at the disposition time of consideration that is shares of the capital stock of the corporation given for the interest, and
(ii) if no consideration is given for the interest, 1,
- D
- is
(i) if consideration is given for the interest, the fair market value at the disposition time of the consideration given for the interest, and
(ii) if no consideration is given for the interest, 1, and
- E
- is the increase, if any, as a result of the disposition, in the paid-up capital in respect of the class of shares, computed without reference to this paragraph as it applies to the disposition;
(d) any contribution of capital to a corporation or partnership in connection with the disposition is deemed, to the extent that it exceeds the amount determined under subparagraph (a)(i) in respect of the disposition, not to result in a contribution of capital for the purpose of applying paragraphs 53(1)(c) and (e) at or after the disposition time;
(e) any contributed surplus of a corporation that arose in connection with the disposition is deemed, to the extent that it exceeds the amount determined under subparagraph (a)(i) in respect of the disposition, not to be contributed surplus for the purpose of applying subsection 84(1) at or after the disposition time; and
(f) if the disposition time is before March 22, 2016,
(i) subparagraphs (ii) and (iii) and paragraphs (c) to (e) apply in respect of the disposition only if the disposition is after 1999 and at least one person whose life was insured under the policy before March 22, 2016 is alive on March 22, 2016,
(ii) in applying paragraphs (c) to (e) in respect of the disposition, a reference in those paragraphs to “the disposition time” is to be read as “the beginning of March 22, 2016”,
(iii) if at any time (referred to in this subparagraph as the conversion time) before March 22, 2016 the paid-up capital of a class of shares of the capital stock of a corporation was increased, the increase occurred as a result of any action by which the corporation converted any of its contributed surplus into paid-up capital in respect of the class of shares, the contributed surplus arose in connection with the disposition, and subsection 84(1) did not apply to deem the corporation to pay a dividend at the conversion time in respect of the increase, in computing the paid-up capital in respect of that class of shares after March 21, 2016, there shall be deducted the amount determined by the formula
(A − B × A/D) × C/A
where
- A
- is the increase, if any, as a result of the conversion, in the paid-up capital in respect of all the shares of the capital stock of the corporation, computed without reference to this paragraph as it applies to the disposition,
- B
- is the amount determined under subparagraph (a)(i) in respect of the disposition,
- C
- is the increase, if any, as a result of the conversion, in the paid-up capital in respect of the class of shares, computed without reference to this paragraph as it applies to the disposition, and
- D
- is the total amount of the corporation’s contributed surplus that arose in connection with the disposition, and
(iv) if any consideration given for the interest includes a share of the capital stock of a corporation, the share (or a share substituted for the share) is disposed of (referred to in this subparagraph as the share disposition) after March 21, 2016 by a taxpayer and subsection 84.1(1) applies in respect of the share disposition, then for the purposes of applying section 84.1, the adjusted cost base to the taxpayer of the share immediately before the share disposition is to be reduced by the amount determined by the formula
(A − B x A/C)/D
where
- A
- is the total of all amounts each of which is the fair market value at the disposition time of a share of that capital stock given as consideration for the interest,
- B
- is 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,
- C
- is the fair market value at the disposition time of the consideration, if any, given for the interest, and
- D
- is the total number of shares of that capital stock given as consideration for the interest.
54 (1) Subsection 149(10) of the Act is amended by adding “and” at the end of paragraph (b), by striking out “and” at the end of paragraph (c) and by repealing paragraph (d).
(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.
55 (1) The portion of subsection 152(9) of the Act before paragraph (a) is replaced by the following:
Marginal note:Alternative basis for assessment
(9) At any time after the normal reassessment period, the Minister may advance an alternative basis or argument — including that all or any portion of the income to which an amount relates was from a different source — in support of all or any portion of the total amount determined on assessment to be payable or remittable by a taxpayer under this Act unless, on an appeal under this Act
(2) Subsection (1) comes into force on the day on which this Act receives royal assent, except that subsection (1) does not apply in respect of appeals instituted on or before that day.
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