Budget Implementation Act, 2017, No. 2 (S.C. 2017, c. 33)

RECOMMENDATION

Her Excellency the Governor General recommends to the House of Commons the appropriation of public revenue under the circumstances, in the manner and for the purposes set out in a measure entitled “A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures”.

Short Title

Marginal note:Short title

1 This Act may be cited as the Budget Implementation Act, 2017, No. 2.

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

R.S., c. 1 (5th Supp.)Income Tax Act

• 2 (1) Subsection 10(14) of the Income Tax Act is repealed.

• (2) Section 10 of the Act is amended by adding the following before subsection (15):

  • Marginal note:Work in progress — transitional

    (14.1) If paragraph 34(a) applies in computing a taxpayer’s income from a business for the last taxation year of the taxpayer that begins before March 22, 2017, then

    • (a) for the purpose of computing the income of the taxpayer from the business, at the end of the first taxation year that begins after March 21, 2017,

      • (i) the amount of the cost of the taxpayer’s work in progress is deemed to be one-fifth of the amount of its cost determined without reference to this paragraph, and

      • (ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be one-fifth of the amount of its fair market value determined without reference to this paragraph;

    • (b) for the purpose of computing the income of the taxpayer from the business, at the end of the second taxation year that begins after March 21, 2017,

      • (i) the amount of the cost of the taxpayer’s work in progress is deemed to be two-fifths of the amount of its cost determined without reference to this paragraph, and

      • (ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be two-fifths of the amount of its fair market value determined without reference to this paragraph;

    • (c) for the purpose of computing the income of the taxpayer from the business, at the end of the third taxation year that begins after March 21, 2017,

      • (i) the amount of the cost of the taxpayer’s work in progress is deemed to be three-fifths of the amount of its cost determined without reference to this paragraph, and

      • (ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be three-fifths of the amount of its fair market value determined without reference to this paragraph; and

    • (d) for the purpose of computing the income of the taxpayer from the business, at the end of the fourth taxation year that begins after March 21, 2017,

      • (i) the amount of the cost of the taxpayer’s work in progress is deemed to be four-fifths of the amount of its cost determined without reference to this paragraph, and

      • (ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be four-fifths of the amount of its fair market value determined without reference to this paragraph.

• (3) Subsection 10(14.1) of the Act, as enacted by subsection (2), is repealed.

• (4) Subsections (1) and (3) come into force on January 1, 2024.

• (5) Subsection (2) applies to taxation years ending after March 21, 2017.

• 3 (1) The Act is amended by adding the following after section 10:

  Marginal note:Mark-to-market election

  • 10.1 (1) Subsection (4) applies to a taxpayer in respect of a taxation year and subsequent taxation years if the taxpayer elects to have subsection (4) apply to the taxpayer and has filed that election in prescribed form on or before its filing-due date for the taxation year.

  • Marginal note:Revocation

    (2) The Minister may, on application by the taxpayer in prescribed form, grant permission to the taxpayer to revoke its election under subsection (1). The revocation applies to each taxation year of the taxpayer that begins after the day on which the taxpayer is notified in writing that the Minister concurs with the revocation, on such terms and conditions as are specified by the Minister.

  • Marginal note:Subsequent election

    (3) Notwithstanding subsection (1), if a taxpayer has, under subsection (2), revoked an election, any subsequent election under subsection (1) shall result in subsection (4) applying to the taxpayer in respect of each taxation year that begins after the day on which the prescribed form in respect of the subsequent election is filed by the taxpayer.

  • Marginal note:Application

    (4) If this subsection applies to a taxpayer in respect of a taxation year,

    • (a) if the taxpayer is a financial institution (as defined in subsection 142.2(1)) in the taxation year, each eligible derivative held by the taxpayer at any time in the taxation year is, for the purpose of applying the provisions of this Act and with such modifications as the context requires, deemed to be mark-to-market property (as defined in subsection 142.2(1)) of the taxpayer for the taxation year; and

    • (b) in any other case, subsection (6) applies to the taxpayer in respect of each eligible derivative held by the taxpayer at the end of the taxation year.

  • Marginal note:Definition of eligible derivative

    (5) For the purposes of this section, an eligible derivative, of a taxpayer for a taxation year, means a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement or a similar agreement, held at any time in the taxation year by the taxpayer, if

    • (a) the agreement is not a capital property, a Canadian resource property, a foreign resource property or an obligation on account of capital of the taxpayer;

    • (b) either

      • (i) the taxpayer has produced audited financial statements prepared in accordance with generally accepted accounting principles in respect of the taxation year, or

      • (ii) if the taxpayer has not produced audited financial statements described in subparagraph (i), the agreement has a readily ascertainable fair market value; and

    • (c) where the agreement is held by a financial institution (as defined in subsection 142.2(1)), the agreement is not a tracking property (as defined in subsection 142.2(1)), other than an excluded property (as defined in subsection 142.2(1)), of the financial institution.

  • Marginal note:Deemed disposition

    (6) If this subsection applies to a taxpayer in respect of each eligible derivative held by the taxpayer at the end of a taxation year, for each eligible derivative held by the taxpayer at the end of the taxation year, the taxpayer is deemed

    • (a) to have disposed of the eligible derivative immediately before the end of the year and received proceeds or paid an amount, as the case may be, equal to its fair market value at the time of disposition; and

    • (b) to have reacquired, or reissued or renewed, the eligible derivative at the end of the year at an amount equal to the proceeds or the amount, as the case may be, determined under paragraph (a).

  • Marginal note:Election year — gains and losses

    (7) If a taxpayer holds, at the beginning of its first taxation year in respect of which an election referred to in subsection (1) applies (in this subsection referred to as the “election year”), an eligible derivative and, in the taxation year immediately preceding the election year, the taxpayer did not compute its profit or loss in respect of that eligible derivative in accordance with a method of profit computation that produces a substantially similar effect to subsection (6), then

    • (a) the taxpayer is deemed

      • (i) to have disposed of the eligible derivative immediately before the beginning of the election year and received proceeds or paid an amount, as the case may be, equal to its fair market value at that time, and

      • (ii) to have reacquired, or reissued or renewed, the eligible derivative at the beginning of the election year at an amount equal to the proceeds or the amount, as the case may be, determined under subparagraph (i);

    • (b) the profit or loss that would arise (determined without reference to this paragraph) on the deemed disposition in subparagraph (a)(i)

      • (i) is deemed not to arise in the taxation year immediately preceding the election year, and

      • (ii) is deemed to arise in the taxation year in which the taxpayer disposes of the eligible derivative (otherwise than because of paragraphs (6)(a) or 142.5(2)(a)); and

    • (c) for the purpose of applying subsection 18(15) in respect of the disposition of the eligible derivative referred to in subparagraph (b)(ii), the profit or loss deemed to arise because of that subparagraph is included in determining the amount of the transferor’s loss, if any, from the disposition.

  • Marginal note:Default realization method

    (8) If subsection (4) does not apply to a taxpayer referred to in paragraph (4)(b) in respect of a taxation year, a method of profit computation that produces a substantially similar effect to subsection (6) shall not be used for the purpose of computing the taxpayer’s income from a business or property in respect of a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement or a similar agreement for the taxation year.

  • Marginal note:Interpretation

    (9) For the purposes of subsections (4) to (7), if an agreement that is an eligible derivative of a taxpayer is not a property of the taxpayer, the taxpayer is deemed

    • (a) to hold the eligible derivative at any time while the taxpayer is a party to the agreement; and

    • (b) to have disposed of the eligible derivative when it is settled or extinguished in respect of the taxpayer.

• (2) Subsection (1) applies to taxation years that begin after March 21, 2017.

• 4 (1) Subsection 12(1) of the Act is amended by adding the following after paragraph (d.1):

  • (d.2) any amount deducted under paragraph 20(1)(m.3) as a reserve in computing the taxpayer’s income for the immediately preceding taxation year;

• (2) Subparagraphs 12(1)(z.7)(i) and (ii) of the Act are replaced by the following:

  • (i) if the taxpayer acquires a property under a derivative forward agreement in the year, the portion of the amount by which the fair market value of the property at the time it is acquired by the taxpayer exceeds the cost to the taxpayer of the property that is attributable to an underlying interest other than an underlying interest referred to in subparagraphs (b)(i) to (iii) of the definition derivative forward agreement in subsection 248(1), or

  • (ii) if the taxpayer disposes of a property under a derivative forward agreement in the year, the portion of the amount by which the proceeds of disposition (within the meaning assigned by subdivision c) of the property exceeds the fair market value of the property at the time the agreement is entered into by the taxpayer that is attributable to an underlying interest other than an underlying interest referred to in clauses (c)(i)(A) to (C) of the definition derivative forward agreement in subsection 248(1).

• (3) Subsection (1) applies in respect of bonds issued after 2000.

• (4) Subsection (2) applies to acquisitions and dispositions of property that occur after September 15, 2016.

• 5 (1) Paragraph 18(12)(b) of the Act is replaced by the following:

  • (b) if the conditions set out in subparagraph (a)(i) or (ii) are met, the amount for the work space that is deductible in computing the individual’s income for the year from the business shall not exceed the individual’s income for the year from the business, computed without reference to the amount and section 34.1; and

• (2) Paragraph 18(14)(c) of the Act is replaced by the following:

  • (c) the disposition is not a disposition that is deemed to have occurred by subsection 10.1(6) or (7), section 70, subsection 104(4), section 128.1, paragraph 132.2(3)(a) or (c) or subsection 138(11.3) or 149(10);

• (3) Paragraph 18(14)(c) of the Act, as enacted by subsection (2), is replaced by the following:

  • (c) the disposition is not a disposition that is deemed to have occurred by subsection 10.1(6) or (7), section 70, subsection 104(4), section 128.1, paragraph 132.2(3)(a) or (c) or subsection 138(11.3) or 138.2(4) or 149(10);

• (4) Section 18 of the Act is amended by adding the following after subsection (16):

  • Marginal note:Definitions

    (17) The following definitions apply in this subsection and subsections (18) to (23).

    offsetting position

    offsetting position, in respect of a particular position of a person or partnership (in this definition referred to as the “holder”), means one or more positions that

    • (a) are held by

      • (i) the holder,

      • (ii) a person or partnership that does not deal at arm’s length with, or is affiliated with, the holder (in this subsection and subsections (20), (22) and (23) referred to as the “connected person”), or

      • (iii) for greater certainty, by any combination of the holder and one or more connected persons;

    • (b) have the effect, or would have the effect if each of the positions held by a connected person were held by the holder, of eliminating all or substantially all of the holder’s risk of loss and opportunity for gain or profit in respect of the particular position; and

    • (c) if held by a connected person, can reasonably be considered to have been held with the purpose of obtaining the effect described in paragraph (b). (position compensatoire)

    position

    position, of a person or partnership, means one or more properties, obligations or liabilities of the person or partnership, if

    • (a) each property, obligation or liability is

      • (i) a share in the capital stock of a corporation,

      • (ii) an interest in a partnership,

      • (iii) an interest in a trust,

      • (iv) a commodity,

      • (v) foreign currency,

      • (vi) a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement or a similar agreement,

      • (vii) a debt owed to or owing by the person or partnership that, at any time,

        • (A) is denominated in a foreign currency,

        • (B) would be described in paragraph 7000(1)(d) of the Income Tax Regulations if that paragraph were read without reference to the words “other than one described in paragraph (a), (b) or (c)”, or

        • (C) is convertible into or exchangeable for an interest, or for civil law a right, in any property that is described in any of subparagraphs (i) to (iv),

      • (viii) an obligation to transfer or return to another person or partnership a property identical to a particular property described in any of subparagraphs (i) to (vii) that was previously transferred or lent to the person or partnership by that other person or partnership, or

      • (ix) an interest, or for civil law a right, in any property that is described in any of subparagraphs (i) to (vii); and

    • (b) it is reasonable to conclude that, if there is more than one property, obligation or liability, each of them is held in connection with each other. (position)

    successor position

    successor position, in respect of a position (in this definition referred to as the “initial position”), means a particular position if

    • (a) the particular position is an offsetting position in respect of a second position;

    • (b) the second position was an offsetting position in respect of the initial position that was disposed of at a particular time; and

    • (c) the particular position was entered into during the period that begins 30 days before, and ends 30 days after, the particular time. (position remplaçante)

    unrecognized loss

    unrecognized loss, in respect of a position of a person or partnership at a particular time in a taxation year, means the loss, if any, that would be deductible in computing the income of the person or partnership for the year with respect to the position if it were disposed of immediately before the particular time at its fair market value at the time of disposition. (perte non constatée)

    unrecognized profit

    unrecognized profit, in respect of a position of a person or partnership at a particular time in a taxation year, means the profit, if any, that would be included in computing the income of the person or partnership for the year with respect to the position if it were disposed of immediately before the particular time at its fair market value at the time of disposition. (bénéfice non constaté)

  • Marginal note:Application of subsection (19)

    (18) Subject to subsection (20), subsection (19) applies in respect of a disposition of a particular position by a person or partnership (in this subsection and subsections (19), (20) and (22) referred to as the “transferor”), if

    • (a) the disposition is not a disposition that is deemed to have occurred by section 70, subsection 104(4), section 128.1 or subsection 138(11.3) or 149(10);

    • (b) the transferor is not a financial institution (as defined in subsection 142.2(1)), a mutual fund corporation or a mutual fund trust; and

    • (c) the particular position was, immediately before the disposition, not a capital property, or an obligation or liability on account of capital, of the transferor.

  • Marginal note:Straddle losses

    (19) If this subsection applies in respect of a disposition of a particular position by a transferor, the portion of the transferor’s loss, if any, from the disposition of the particular position that is deductible in computing the transferor’s income for a particular taxation year is the amount determined by the formula

    A + B − C

    where

    A

    is

    • (a) if the particular taxation year is the taxation year in which the disposition occurs, the amount of the loss determined without reference to this subsection (which is, for greater certainty, subject to subsection (15)), and

    • (b) in any other taxation year, nil;

    B

    is

    • (a) if the disposition occurred in a preceding taxation year, the amount determined for C in respect of the disposition for the immediately preceding taxation year, and

    • (b) in any other case, nil; and

    C

    is the lesser of

    • (a) the amount determined for A for the taxation year in which the disposition occurs, and

    • (b) the amount determined by the formula

      D − (E + F)

      where

      D

      is the total of all amounts each of which is the amount of unrecognized profit at the end of the particular taxation year in respect of

      • (i) the particular position,

      • (ii) positions that are offsetting positions in respect of the particular position (or would be, to the extent that there is no successor position in respect of the particular position, if the particular position continued to be held by the transferor),

      • (iii) successor positions in respect of the particular position (for this purpose, a successor position in respect of a position includes a successor position that is in respect of a successor position in respect of the position), and

      • (iv) positions that are offsetting positions in respect of any successor position referred to in subparagraph (iii) (or would be, if any such successor position continued to be held by the holder),

      E

      is the total of all amounts each of which is the amount of unrecognized loss at the end of the particular taxation year in respect of positions referred to in subparagraphs (i) to (iv) of the description of D, and

      F

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

      G − H

      where

      G

      is the amount determined for A for the taxation year in which the disposition occurs in respect of any position that was disposed of prior to the disposition of the particular position, if

      • (i) the particular position was a successor position in respect of that position (for this purpose, a successor position in respect of a position includes a successor position that is in respect of a successor position in respect of the position), and

      • (ii) that position was

        • (A) an offsetting position in respect of the particular position,

        • (B) an offsetting position in respect of a position in respect of which the particular position was a successor position (for this purpose, a successor position in respect of a position includes a successor position that is in respect of a successor position in respect of the position), or

        • (C) the particular position, and

      H

      is the total of all amounts each of which is, in respect of a position described in G, an amount determined under the first formula in this subsection for the particular taxation year or a preceding taxation year.

  • Marginal note:Exceptions

    (20) Subsection (19) does not apply in respect of a particular position of a transferor if

    • (a) it is the case that

      • (i) either the particular position, or the offsetting position in respect of the particular position, consists of

        • (A) commodities that the holder of the position manufactures, produces, grows, extracts or processes, or

        • (B) debt that the holder of the position incurs in the course of a business that consists of one or any combination of the activities described in clause (A), and

      • (ii) it can reasonably be considered that the position not described in subparagraph (i) — the particular position if the offsetting position is described in subparagraph (i) or the offsetting position if the particular position is described in that subparagraph — is held to reduce the risk, with respect to the position described in subparagraph (i), from

        • (A) in the case of a position described in clause (i)(A), price changes or fluctuations in the value of currency with respect to the goods described in clause (i)(A), or

        • (B) in the case of a position described in clause (i)(B), fluctuations in interest rates or in the value of currency with respect to the debt described in clause (i)(B);

    • (b) the transferor or a connected person (in this paragraph referred to as the “holder”) continues to hold a position — that would be an offsetting position in respect of the particular position if the particular position continued to be held by the transferor — throughout a 30-day period beginning on the date of disposition of the particular position, and at no time during the period

      • (i) is the holder’s risk of loss or opportunity for gain or profit with respect to the position reduced in any material respect by another position entered into or disposed of by the holder, or

      • (ii) would the holder’s risk of loss or opportunity for gain or profit with respect to the position be reduced in any material respect by another position entered into or disposed of by a connected person, if the other position were entered into or disposed of by the holder; or

    • (c) it can reasonably be considered that none of the main purposes of the series of transactions or events, or any of the transactions or events in the series, of which the holding of both the particular position and offsetting position are part, is to avoid, reduce or defer tax that would otherwise be payable under this Act.

  • Marginal note:Application

    (21) For the purposes of subsections (17) to (23),

    • (a) if a position of a person or partnership is not a property of the person or partnership, the person or partnership is deemed

      • (i) to hold the position at any time while it is a position of the person or partnership, and

      • (ii) to have disposed of the position when the position is settled or extinguished in respect of the person or partnership;

    • (b) a disposition of a position is deemed to include a disposition of a portion of the position;

    • (c) a position held by one or more persons or partnerships referred to in paragraph (a) of the definition offsetting position in subsection (17) is deemed to be an offsetting position in respect of a particular position of a person or partnership if

      • (i) there is a high degree of negative correlation between changes in value of the position and the particular position, and

      • (ii) it can reasonably be considered that the principal purpose of the series of transactions or events, or any of the transactions in the series, of which the holding of both the position and the particular position are part, is to avoid, reduce or defer tax that would otherwise be payable under this Act; and

    • (d) one or more positions held by one or more persons or partnerships referred to in paragraph (a) of the definition offsetting position in subsection (17) are deemed to be a successor position in respect of a particular position of a person or partnership if

      • (i) a portion of the particular position was disposed of at a particular time,

      • (ii) the position is, or the positions include, as the case may be, a position that consists of the portion of the particular position that was not disposed of (in this paragraph referred to as the “remaining portion of the particular position”),

      • (iii) where there is more than one position, the position or positions that do not consist of the remaining portion of the particular position were entered into during the period that begins 30 days before, and ends 30 days after, the particular time,

      • (iv) the position is, or the positions taken together would be, as the case may be, an offsetting position in respect of a second position (within the meaning of the definition successor position in subsection (17)),

      • (v) the second position was an offsetting position in respect of the particular position, and

      • (vi) it can reasonably be considered that the principal purpose of the series of transactions or events, or any of the transactions in the series, of which the disposition of a portion of the particular position and the holding of one or more positions are part, is to avoid, reduce or defer tax that would otherwise be payable under this Act.

  • Marginal note:Different taxation years

    (22) Subsection (23) applies if

    • (a) at any time in a particular taxation year of a transferor, a position referred to in any of subparagraphs (ii) to (iv) of the description of D in subsection (19) (in this subsection and subsection (23) referred to as the “gain position”) is held by a connected person;

    • (b) the connected person disposes of the gain position in the particular taxation year; and

    • (c) the taxation year of the connected person in which the disposition referred to in paragraph (b) occurs ends after the end of the particular taxation year.

  • Marginal note:Different taxation years

    (23) If this subsection applies, for the purposes of the definition unrecognized profit in subsection (17) and subsection (19), the portion of the profit, if any, realized from the disposition of the gain position referred to in paragraph (22)(b) that is determined by the following formula is deemed to be unrecognized profit in respect of the gain position until the end of the taxation year of the connected person in which the disposition occurs:

    A × B/C

    where

    A

    is the amount of the profit otherwise determined;

    B

    is the number of days in the taxation year of the connected person in which the disposition referred to in paragraph (22)(b) occurs that are after the end of the particular taxation year; and

    C

    is the total number of days in the taxation year of the connected person in which the disposition referred to in paragraph (22)(b) occurs.

• (5) Subsection (1) applies to the 2011 and subsequent taxation years.

• (6) Subsection (2) applies to taxation years that begin after March 21, 2017.

• (7) Subsection (3) applies to taxation years that begin after 2017.

• (8) Subsection (4) applies in respect of a position (as defined in subsection 18(17) of the Act, as enacted by subsection (4)) of a person or partnership if

  • (a) the position is acquired, entered into, renewed or extended, or becomes owing, by the person or partnership after March 21, 2017; or

  • (b) an offsetting position (as defined in subsection 18(17) of the Act, as enacted by subsection (4)) in respect of the position is acquired, entered into, renewed or extended, or becomes owing, by the person or partnership or a connected person (within the meaning of subsection 18(17) of the Act, as enacted by subsection (4)) after March 21, 2017.