C-29 1 42 64-65 Elizabeth II 2015-2016

A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures

Budget Implementation Act, 2016, No. 2

Budget Implementation Act, 2016, No. 2 2016 12 15 12 2016 90812

RECOMMENDATION

His 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, 2016 and other measures ”.

SUMMARY

Part 1 implements certain income tax measures proposed in the March 22, 2016 budget by

(

a) eliminating the eligible capital property rules and introducing a new class of depreciable property;

(

b) introducing rules to prevent the avoidance of the shareholder loan rules using back-to-back arrangements;

(

c) excluding derivatives from the application of the inventory valuation rules;

(

d) ensuring that the return on a linked note retains the same character whether it is earned at maturity or reflected in a secondary market sale;

(

e) clarifying the tax treatment of emissions allowances and eliminating the double taxation of certain free emissions allowances;

(

f) introducing rules so that any accrued foreign exchange gains on a foreign currency debt will be realized when the debt becomes a parked obligation;

(

g) ensuring that amounts are not inappropriately received tax-free by a policyholder as a result of a disposition of an interest in a life insurance policy;

(

h) preventing the misuse of an exception in the anti-avoidance rules in the Income Tax Act for cross-border surplus-stripping transactions;

(

i) indexing to inflation the maximum benefit amounts and the phase-out thresholds under the Canada child benefit, beginning in the 2020–21 benefit year;

(

j) amending the anti-avoidance rules in the Income Tax Act that prevent the multiplication of access to the small business deduction and the avoidance of the business limit and the taxable capital limit;

(

k) ensuring that an exchange of shares of a mutual fund corporation or investment corporation that results in the investor switching between funds will be considered for tax purposes to be a disposition at fair market value;

(

l) implementing the country-by-country reporting standards recommended by the Organisation for Economic Co-operation and Development;

(

m) clarifying the application of anti-avoidance rules in the Income Tax Act for back-to-back loans to multiple intermediary structures and character substitution; and

(

n) introducing rules to prevent the avoidance of withholding tax on rents, royalties and similar payments using back-to-back arrangements.

Part 1 implements other income tax measures confirmed in the March 22, 2016 budget by

(

a) allowing greater flexibility for recognizing charitable donations made by an individual’s former graduated rate estate;

(

b) clarifying what types of investment funds are excluded from the loss restriction event rules that otherwise limit a trust’s use of certain tax attributes;

(

c) ensuring that income arising in certain trusts on the death of the trust’s primary beneficiary is taxed in the trust and not in the hands of that beneficiary, subject to a joint election for certain testamentary trusts to report the income in that beneficiary’s final tax return;

(

d) clarifying that the Canada Revenue Agency and the courts may increase or adjust an amount included in an assessment that is under objection or appeal at any time, provided the total amount of the assessment does not increase; and

(

e) implementing the common reporting standard recommended by the Organisation for Economic Co-operation and Development for the automatic exchange of financial account information between tax authorities.

Part 1 also amends the Employment Insurance Act and various regulations to replace the term “child tax benefit” with “Canada child benefit”.

Part 2 implements certain goods and services tax and harmonized sales tax (GST/HST) measures proposed or confirmed in the March 22, 2016 budget by

(

a) adding certain exported call centre services to the list of GST/HST zero-rated exports;

(

b) strengthening the test for determining whether two corporations, or a partnership and a corporation, can be considered closely related;

(

c) ensuring that the application of the GST/HST is unaffected by income tax amendments that convert eligible capital property into a new class of depreciable property; and

(

d) clarifying that the Canada Revenue Agency and the courts may increase or adjust an amount included in an assessment that is under objection or appeal at any time, provided the total amount of the assessment does not increase.

Part 3 implements an excise measure confirmed in the March 22, 2016 budget by clarifying that the Canada Revenue Agency and the courts may increase or adjust an amount included in an assessment that is under objection or appeal at any time, provided the total amount of the assessment does not increase.

Division 1 of

Part 4 amends the Employment Insurance Act to specify what does not constitute suitable employment for the purposes of certain provisions of the Act.

Division 2 of

Part 4 amends the Old Age Security Act to provide that, in the case of low-income couples who have to live apart for reasons not attributable to either of them, the amount of the allowance is to be based on the income of the allowance recipient only.

Division 3 of

Part 4 amends the Canada Education Savings Act to replace the term “child tax benefit” with “Canada child benefit”. It also amends that Act to change the manner in which the eligibility for the Canada Learning Bond is established, including by eliminating the national child benefit supplement as an eligibility criterion and by adding an eligibility formula based on income and number of children.

Division 4 of

Part 4 amends the Canada Disability Savings Act to replace the term “child tax benefit” with “Canada child benefit”. It also amends the definition phase-out income .

Division 5 of

Part 4 amends the Royal Canadian Mint Act to enable the Royal Canadian Mint to anticipate profit with respect to the provision of goods or services, to clarify the powers of the Royal Canadian Mint, to confirm the current and legal tender status of all non-circulation $350 coins dated between 1999 and 2006 and to remove the requirement that the directors of the Royal Canadian Mint have experience in respect of metal fabrication or production, industrial relations or a related field.

Division 6 of

Part 4 amends the Financial Administration Act , the Bank of Canada Act and the Canada Mortgage and Housing Corporation Act to clarify certain powers of the Minister of Finance in relation to the sound and efficient management of federal funds and the operation of Crown corporations.

It amends the Financial Administration Act to provide that the Minister of Finance may lend, by way of auction, excess funds out of the Consolidated Revenue Fund and, with the authorization of the Governor in Council, may enter into contracts and agreements of a financial nature for the purpose of managing risks related to the financial position of the Government of Canada. It also amends the Bank of Canada Act to provide that the Minister of Finance may delegate to the Bank of Canada the management of the lending of money to agent corporations.

Finally, it amends the Canada Mortgage and Housing Corporation Act to provide that the Bank of Canada may act as a custodian of the financial assets of the Canada Mortgage and Housing Corporation.

Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

Short Title

Short title

This Act may be cited as the Budget Implementation Act, 2016, No. 2 .

PART 1

Amendments to the Income Tax Act and to Related Legislation

R.S., c. 1 (5th Supp.)

Income Tax Act

(1) Section 10 of the Income Tax Act is amended by adding the following after subsection (14):

Derivatives

(15) For the purposes of this section, property of a taxpayer that is a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement, or any similar agreement is deemed not to be inventory of the taxpayer.

(2) Subsection (1) applies to agreements entered into after March 21, 2016.

(1) The portion of paragraph 13(4.3)(

d) of the Act before subparagraph (ii) is replaced by the following:

(

d) any amount that would, if this Act were read without reference to this subsection, be included in the cost of a property of the transferor included in Class 14.1 of

Schedule II to the Income Tax Regulations (including a deemed acquisition under subsection (35)) or included in the proceeds of disposition of a property of the transferee included in that Class (including a deemed disposition under subsection (37)) in respect of the disposition or termination of the former property by the transferor is deemed to be

(

i) neither included in the cost nor the proceeds of disposition of property included in that Class,

(2) Section 13 of the Act is amended by adding the following after subsection (7.4):

Deemed capital cost

(7.41) Subsection (38) applies in respect of an amount repaid after 2016 as if that amount was repaid immediately before 2017, if

(

a) the amount is repaid by the taxpayer 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;

(

b) the amount of an eligible capital expenditure of the taxpayer in respect of the business was reduced by paragraph 14(10)(

c) because of the assistance referred to in paragraph (a); and

(c)

paragraph 20(1)(hh.1) does not apply in respect of the amount repaid.

Timing of deduction

(7.42) No amount may be deducted under paragraph 20(1)(

a) in respect of an amount of repaid assistance referred to in subsection (7.41) for any taxation year prior to the taxation year in which the assistance is repaid.

(3) Subsection 13(34) of the Act is replaced by the following:

Goodwill

(34) Where a taxpayer carries on a particular business,

(

a) there is deemed to be a single goodwill property in respect of the particular business;

(

b) if at any time the taxpayer acquires goodwill as part of an acquisition of all or a part of another business that is carried on, after the acquisition, as part of the particular business — or is deemed by subsection (35) to acquire goodwill in respect of the particular business — the cost of the goodwill is added at that time to the cost of the goodwill property in respect of the particular business;

(

c) if at any time the taxpayer disposes of goodwill as part of the disposition of part of the particular business, receives proceeds of disposition a portion of which is attributable to goodwill and continues to carry on the particular business or is deemed by subsection (37) to dispose of goodwill in respect of the particular business,

(

i) the taxpayer is deemed to dispose at that time of a portion of the goodwill property in respect of the particular business having a cost equal to the lesser of the cost of the goodwill property in respect of the particular business otherwise determined and the portion of the proceeds attributable to goodwill, and

(ii)

the cost of the goodwill property in respect of the particular business is reduced at that time by the amount determined under subparagraph (i); and

(

d) if paragraph (

c) applies to more than one disposition of goodwill at the same time, that paragraph and subsection (39) apply as if each disposition had occurred separately in the order designated by the taxpayer or, if the taxpayer does not designate an order, in the order designated by the Minister.

Outlays not relating to property

(35) If at any time a taxpayer makes or incurs an outlay or expense on account of capital for the purpose of gaining or producing income from a business carried on by the taxpayer, the taxpayer is deemed to acquire at that time goodwill in respect of the business with a cost equal to the amount of the outlay or expense if no portion of the amount is

(

a) the cost, or any part of the cost, of a property;

(

b) deductible in computing the taxpayer’s income from the business (determined without reference to this subsection);

(

c) not deductible in computing the taxpayer’s income from the business because of any provision of this Act (other than paragraph 18(1)(b)) or the Income Tax Regulations ;

(

d) paid or payable to a creditor of the taxpayer as, on account of or in lieu of payment of, any debt, or on account of the redemption, cancellation or purchase of any bond or debenture; or

(

e) where the taxpayer is a corporation, partnership or trust, paid or payable to a person as a shareholder, partner or beneficiary, as the case may be, of the taxpayer.

No addition to goodwill

(36) For greater certainty, no amount paid or payable may be included in Class 14.1 of

Schedule II to the Income Tax Regulations , if the amount is

(

a) in consideration for the purchase of shares; or

(

b) in consideration for the cancellation or assignment of an obligation to pay consideration referred to in paragraph (a).

Receipts not relating to property

(37) If at any time in a taxation year a taxpayer has or may become entitled to receive an amount (in this subsection referred to as the receipt ) on account of capital in respect of a business that is or was carried on by the taxpayer, the taxpayer is deemed to dispose, at that time, of goodwill in respect of the business for proceeds of disposition equal to the amount by which the receipt exceeds the total of all outlays or expenses that were made or incurred by the taxpayer for the purpose of obtaining the receipt and that were not otherwise deductible in computing the taxpayer’s income, if the following conditions are satisfied (determined without reference to this subsection):

(

a) the receipt is not included in computing the taxpayer’s income, or deducted in computing, for the purposes of this Act, any balance of undeducted outlays, expenses or other amounts for the taxation year or a preceding taxation year;

(

b) the receipt does not reduce the cost or capital cost of a property or the amount of an outlay or expense; and

(

c) the receipt is not included in computing any gain or loss of the taxpayer from a disposition of a capital property.

Class 14.1 — transitional rules

(38) If a taxpayer has incurred an eligible capital expenditure in respect of a business before January 1, 2017,

(

a) at the beginning of that day, the total capital cost of all property of the taxpayer included in Class 14.1 of

Schedule II to the Income Tax Regulations in respect of the business, each of which was an eligible capital property of the taxpayer immediately before that day or is the goodwill property in respect of the business, is deemed to be the amount determined by the formula

4/3 × (A + B –

C) where A

is the amount that is the cumulative eligible capital in respect of the business at the beginning of that day,

is the amount determined for F in the definition cumulative eligible capital in subsection 14(5) (as that subsection applied immediately before that day) in respect of the business at the beginning of that day, and

is the amount by which the total of all amounts determined, in respect of the business, for E or F in the definition cumulative eligible capital in subsection 14(5) (as that subsection applied immediately before that day), exceeds the total of all amounts determined for A to D.1 in that definition in respect of the business at the beginning of that day, including any adjustment required by subparagraph (d)(i);

(

b) at the beginning of that day, the capital cost of each property of the taxpayer included in the class in respect of the business, each of which was an eligible capital property of the taxpayer immediately before that day or is the goodwill property in respect of the business, is to be determined as follows:

(

i) the taxpayer shall designate the order in which the capital cost of each property that is not the goodwill property is determined and, if the taxpayer does not designate an order, the Minister may designate the order,

(ii)

the capital cost of a particular property that is not the goodwill property in respect of the business is deemed to be the lesser of the eligible capital expenditure of the taxpayer in respect of the particular property and the amount by which the total capital cost of the class determined under paragraph (

a) exceeds the total of all amounts each of which is an amount deemed by this subparagraph to be the capital cost of a property that is determined in advance of the determination of the capital cost of the particular property, and

(iii)

the capital cost of the goodwill property is deemed to be the amount by which the total capital cost of the class exceeds the total of all amounts each of which is an amount deemed by subparagraph (ii) to be the capital cost of a property;

(

c) an amount is deemed to have been allowed to the taxpayer in respect of property of the class under regulations made under paragraph 20(1)(

a) in computing the taxpayer’s income for taxation years ending before that day equal to the amount by which

(

i) the total of the total capital cost of the class and the amount determined for C in paragraph (

a) exceeds

(ii)

the amount determined for A in paragraph (a); and

(

d) if no taxation year of the taxpayer ends immediately before that day and the taxpayer would have had a particular amount included, because of paragraph 14(1)(b) (as that paragraph applied immediately before that day), in computing the taxpayer’s income from the business for the particular taxation year that includes that day if the particular year had ended immediately before that day,

(

i) for the purposes of the formula in paragraph (a), 3/2 of the particular amount is to be included in computing the amount for B of the definition cumulative eligible capital in subsection 14(5) (as that subsection applied immediately before that day),

(ii)

the taxpayer is deemed to dispose of a capital property in respect of the business immediately before that day for proceeds of disposition equal to twice the particular amount,

(iii)

if the taxpayer elects in writing to have this subparagraph apply and files that election with the Minister on or before the filing-due date for the particular year, subparagraph (ii) does not apply and an amount equal to the particular amount is to be included in computing the taxpayer’s income from the business for the particular year,

(iv)

if, on or after that day and in the particular year, the taxpayer acquires a property included in the class in respect of the business, or is deemed by subsection (35) to acquire goodwill in respect of the business, and the taxpayer elects in writing to have this subparagraph apply and files that election with the Minister on or before the filing-due date for the particular year,

(

A) for the purposes of subparagraphs (ii) and (iii), the particular amount is to be reduced by the lesser of the particular amount otherwise determined and 1/2 of the capital cost of the property or goodwill acquired (determined without reference to clause (B)), and

(

B) the capital cost of the property or goodwill acquired, as the case may be, is to be reduced by twice the amount by which the particular amount is reduced under clause (A), and

(

v) if, in the particular year and before that day, the taxpayer disposed of a qualified farm or fishing property (as defined in subsection 110.6(1)) that was an eligible capital property of the taxpayer, the capital property disposed of under subparagraph (ii), if any, is deemed to be a qualified farm or fishing property to the extent of the lesser of

(

A) the proceeds of disposition of the capital property, and

(

B) the amount by which the proceeds of disposition of the qualified farm or fishing property exceed its cost.

Class 14.1 — transitional rule

(39) If at any time a taxpayer disposes of a particular property included in Class 14.1 of

Schedule II to the Income Tax Regulations in respect of a business and none of subsections 24(2), 70(5.1), 73(3.1), 85(1), 88(1), 98(3) and (5), 107(2) and 107.4(3) apply to the disposition, then for the purpose of determining the undepreciated capital cost of the class, the taxpayer is deemed to have acquired a property of the class immediately before that time with a capital cost equal to the least of 1/4 of the proceeds of disposition of the particular property, 1/4 of the capital cost of the particular property and

(

a) if the particular property is not goodwill and is acquired before January 1, 2017 by the taxpayer, 1/4 of the capital cost of the particular property;

(

b) if the particular property is not goodwill, is acquired on or after that day by the taxpayer and subsection (40) deems an amount to have been allowed under paragraph 20(1)(

a) in respect of the taxpayer’s acquisition of the particular property, that amount;

(

c) if the particular property (other than a property to which paragraph (

b) applies) is not goodwill and is acquired on or after that day by the taxpayer — in circumstances under which any of subsections 24(2), 70(5.1), 73(3.1), 85(1), 88(1), 98(3) and (5), 107(2) and 107.4(3) apply — from a person or partnership that would have been deemed under this subsection to have acquired a property if none of those subsections had applied, the capital cost of the property that would have been deemed under this subsection to have been acquired by the person or partnership;

(

d) if the particular property is goodwill, the amount by which

(

i) the total of all amounts each of which is

(A)

1/4 of the amount determined under subparagraph (38)(b)(iii) in respect of the business,

(

B) if goodwill is acquired on or after that day by the taxpayer and subsection (40) deems an amount to have been allowed under paragraph 20(1)(

a) in respect of the taxpayer’s acquisition of the goodwill, that amount, or

(

C) if goodwill is acquired (other than an acquisition in respect of which clause (

B) applies) on or after that day by the taxpayer — in circumstances under which any of subsections 24(2), 70(5.1), 73(3.1), 85(1), 88(1), 98(3) and (5), 107(2) and 107.4(3) apply — from a person or partnership that would have been deemed under this subsection to have acquired a property if none of those subsections had applied, the capital cost of the property that would have been deemed under this subsection to have been acquired by the person or partnership

exceeds

(ii)

the total of all amounts each of which is the capital cost of a property deemed by this subsection to have been acquired by the taxpayer at or before that time in respect of another disposition of goodwill in respect of the business; and

(

e) in any other case, nil.

Class 14.1 — transitional rule

(40) If at any time a taxpayer acquires a particular property included in Class 14.1 of

Schedule II to the Income Tax Regulations in respect of a business, the acquisition of the particular property is part of a transaction or series of transactions or events that includes a disposition (in this subsection referred to as the prior disposition ) at or before that time of the particular property, or a similar property, by the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer and subsection (39) applies in respect of the prior disposition, then for the purpose of determining the undepreciated capital cost of the class, an amount is deemed to have been allowed under paragraph 20(1)(

a) to the taxpayer in respect of the particular property in computing the taxpayer’s income for taxation years ending before the acquisition equal to the lesser of the capital cost of the property deemed by subsection (39) to be acquired in respect of the prior disposition and 1/4 of the capital cost of the particular property.

Class 14.1 — transitional rule

(41) For the purposes of subsections (38) to (40) and (42), paragraph 20(1)(hh.1), subsections 40(13) to (16) and paragraph 79(4)(b), cumulative eligible capital , eligible capital expenditure , eligible capital property and exempt gains balance have the meanings that would be assigned to those expressions if the Act read as it did immediately before 2017.

Class 14.1 — transitional rules

(42) If a taxpayer owns property included in Class 14.1 of

Schedule II to the Income Tax Regulations in respect of a business at the beginning of 2017, that was an eligible capital property in respect of the business immediately before 2017,

(

a) for the purposes of the Act and its regulations (other than this section,

section 20 and any regulations made for the purposes of paragraph 20(1)(a)), if the amount determined for A in the definition cumulative eligible capital in subsection 14(5) would have been increased immediately before 2017 if the property had been disposed of immediately before that time, the capital cost of the property is deemed to be increased by 4/3 of the amount of that increase;

(

b) for purposes of this section,

section 20 and any regulations made for the purposes of paragraph 20(1)(a), if the taxpayer was deemed by subsection 14(12) to continue to own eligible capital property in respect of the business and not to have ceased to carry on the business until a time that is after 2016, the taxpayer is deemed to continue to own the property and to continue to carry on the business until the time that is immediately before the first time one of the events that would be described in any of paragraphs 14(12)(

c) to (g) (as they read immediately before 2017, if the reference to “eligible capital property” in paragraph 14(12)(

d) were read as “eligible capital property or capital property”) occurs;

(

c) for the purposes of the descriptions of D.1 and K in the definition undepreciated capital cost in subsection (21), the taxpayer is deemed not to have paid or received any amounts before 2017 as or on account of an existing or proposed countervailing or anti-dumping duty in respect of depreciable property of the class; and

(d)

subsection (7.1) does not apply to assistance that a taxpayer received or is entitled to receive before 2017 in respect of a property that was an eligible capital property immediately before 2017.

(4) Subsection (1) applies in respect of dispositions and terminations that occur after 2016.

(5) Subsections (2) and (3) come into force or are deemed to have come into force on January 1, 2017.

(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.

(1) Section 15 of the Act is amended by adding the following after subsection (2.15):

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.

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;

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;

is the total amount determined under paragraph (

b) of the description of A;

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

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.

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.

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,

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

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,

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

is the amount determined under subparagraph (ii) in the description of D.

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.

Back-to-back arrangement —

definitions

(2.192) The following

definitions apply in this subsection and subsections (2.16) to (2.191).

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 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 has the same meaning as in subsection 18(5). ( droit déterminé )

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.

(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):

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

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.

(1) Paragraph 20(1)(

b) of the Act is replaced by the following:

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:

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:

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):

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

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.

(1) Subsection 24(1) of the Act is repealed.

(2) Subsection 24(2) of the Act is replaced by the following:

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.

(1) Subsection 25(3) of the Act is replaced by the following:

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.

(1) The Act is amended by adding the following after

section 27:

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.

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,

is the total cost to the taxpayer (determined without reference to this section) of the newly-acquired emissions allowances, and

is the number of the identical emissions allowances owned by the taxpayer immediately after the particular time.

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;

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,

is the number of emissions allowances used by the taxpayer to settle the particular emissions obligation in the year, and

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

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.

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.

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.

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.

(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.

(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.

(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):

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.

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).

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.

(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.

(1) Section 40 of the Act is amended by adding the following after subsection (12):

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).

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.

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.

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.

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

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,

(1) The definition eligible capital property in

section 54 of the Act is repealed.

(2) Paragraph (

k) of the definition proceeds of disposition in

section 54 of the Act is replaced by the following:

(

k) any amount that would otherwise be proceeds of disposition of property of a taxpayer to the extent that the amount is deemed by subsection 84.1(1), 212.1(1.1) or 212.2(2) to be a dividend paid to the taxpayer; ( produit de disposition )

(3) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.

(4) Subsection (2) applies in respect of dispositions that occur after March 21, 2016.

(1) The definition goodwill amount in subsection 56.4(1) of the Act is replaced by the following:

goodwill amount , of a taxpayer, is an amount the taxpayer has or may become entitled to receive that would, if this Act were read without reference to this section, be required to be included in the proceeds of disposition of a property included in Class 14.1 of

Schedule II to the Income Tax Regulations , or is an amount to which subsection 13(38) applies, in respect of a business carried on by the taxpayer through a permanent establishment located in Canada. ( montant pour achalandage )

(2) Paragraph 56.4(3)(

b) of the Act is replaced by the following:

(

b) the amount would, if this Act were read without reference to this section, be required to be included in the proceeds of disposition of a property included in Class 14.1 of

Schedule II to the Income Tax Regulations , or is an amount to which subsection 13(38) applies, in respect of the business to which the restrictive covenant relates, and the particular taxpayer elects (or if the amount is payable by the purchaser in respect of a business carried on in Canada by the purchaser, the particular taxpayer and the purchaser jointly elect) in prescribed form to apply this paragraph in respect of the amount; or

(3) Paragraph 56.4(4)(

b) of the Act is replaced by the following:

(

b) if an election has been made under paragraph (3)(

b) in respect of the amount, to be considered to be incurred by the purchaser on account of capital for the purpose of determining the cost of the property or for the purposes of subsection 13(35), as the case may be, and not to be an amount paid or payable for all other purposes of the Act; and

(4) Subsections (1) to (3) come into force or are deemed to have come into force on January 1, 2017.

(1) Paragraph 69(5)(

d) of the Act is replaced by the following:

(d)

subsections 13(21.2), 18(15) and 40(3.4) and (3.6) do not apply in respect of any property disposed of on the winding-up.

(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.

(1) Subsection 70(3.1) of the Act is replaced by the following:

Exception

(3.1) For the purposes of this section, rights or things do not include an interest in a life insurance policy (other than an annuity contract of a taxpayer where the payment therefor was deductible in computing the taxpayer’s income because of paragraph 60(

l) or was made in circumstances in which subsection 146(21) applied), land included in the inventory of a business, a Canadian resource property or a foreign resource property.

(2) Subsection 70(5.1) of the Act is replaced by the following:

Transfer or distribution — Class 14.1

(5.1) Notwithstanding subsection (6), if property included in Class 14.1 of

Schedule II to the Income Tax Regulations of the taxpayer in respect of a business carried on by the taxpayer immediately before the taxpayer’s death that is a property to which subsection (5) would otherwise apply is, as a consequence of the death, transferred or distributed (otherwise than by way of a distribution of property by a trust that claimed a deduction under paragraph 20(1)(

a) or (

b) in respect of the property or in circumstances to which subsection 24(2) applies) to any person (in this subsection referred to as the beneficiary ), the following rules apply:

(a)

paragraphs (5)(

a) and (

b) do not apply in respect of the property;

(

b) the taxpayer is deemed to have, immediately before the taxpayer’s death, disposed of the property and received proceeds of disposition equal to the lesser of the capital cost and the cost amount to the taxpayer of the property immediately before the death;

(

c) the beneficiary is deemed to have acquired the property at the time of the death at a cost equal to those proceeds; and

(d)

paragraph (5)(

c) applies as if the references to “paragraph (a)” were read as references to “paragraph (5.1)(b)” and the reference to “paragraph (b)” were read as reference to “paragraph (5.1)(c)”.

(3) Subsection 70(6.2) of the Act is replaced by the following:

Election

(6.2) Subsection (5.1), (6) or (6.1) does not apply to any property of a deceased taxpayer in respect of which the taxpayer’s legal representative elects, in the taxpayer’s return of income under this Part (other than a return of income filed under subsection (2) or 104(23), paragraph 128(2)(

e) or subsection 150(4)) for the year in which the taxpayer died, to have subsection (5) or (5.4), as the case may be, apply.

(4) The portion of subsection 70(9.8) of the Act before paragraph (

a) is replaced by the following:

Leased farm or fishing property

(9.8) For the purposes of subsections (9) and 73(3) and paragraph (

d) of the definition qualified farm or fishing property in subsection 110.6(1), a property of an individual is, at a particular time, deemed to be used by the individual in a farming or fishing business carried on in Canada if, at that particular time, the property is being used, principally in the course of carrying on a farming or fishing business in Canada, by

(5) Subsections (1) to (4) come into force or are deemed to have come into force on January 1, 2017.

(1) Paragraph 73(3)(

a) of the Act is replaced by the following:

(

a) the property was, before the transfer, land in Canada or depreciable property in Canada of a prescribed class, of the taxpayer;

(2) Paragraph 73(3.1)(

c) of the Act is repealed.

(3) Subsection 73(3.1) of the Act is amended by adding “and” at the end of paragraph (

e) and by repealing paragraphs (

f) and (g).

(4) Subsections (1) to (3) come into force or are deemed to have come into force on January 1, 2017.

(1) Paragraph 79(4)(

b) of the Act is replaced by the following:

(b)

paragraph 20(1)(hh.1) applies, where the cost of the property to the person was an eligible capital expenditure at the time the property was acquired;

(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.

(1) Paragraph 80(2)(

c) of the Act is replaced by the following:

(c)

subsections (3) to (5) and (8) to (13) apply in numerical order to the forgiven amount in respect of a commercial obligation;

(2) Paragraph 80(2)(

f) of the Act is repealed.

(3) Subsection 80(7) of the Act is repealed.

(4) The portion of subsection 80(9) of the Act before paragraph (

a) is replaced by the following:

Reductions of adjusted cost bases of capital properties

(9) If a commercial obligation issued by a debtor is settled at any time and amounts have been designated under subsections (5) and (8) to the maximum extent permitted in respect of the settlement, subject to subsection (18)

(5) Subsection 80(10) of the Act is replaced by the following:

Reduction of adjusted cost bases of certain shares and debts

(10) If a commercial obligation issued by a debtor is settled at any time in a taxation year and amounts have been designated by the debtor under subsections (5), (8) and (9) to the maximum extent permitted in respect of the settlement, subject to subsection (18) the remaining unapplied portion of that forgiven amount shall be applied (to the extent that it is designated in a prescribed form filed with the debtor’s return of income under this Part for the year) to reduce immediately after that time the adjusted cost bases to the debtor of capital properties, owned by the debtor immediately after that time, that are shares of the capital stock of corporations of which the debtor is a specified shareholder at that time and debts issued by corporations of which the debtor is a specified shareholder at that time (other than shares of the capital stock of corporations related to the debtor at that time, debts issued by corporations related to the debtor at that time and excluded properties).

(6) The portion of subsection 80(11) of the Act before paragraph (

a) is replaced by the following:

Reduction of adjusted cost bases of certain shares, debts and partnership interests

(11) If a commercial obligation issued by a debtor is settled at any time in a taxation year and amounts have been designated by the debtor under subsections (5), (8), (9) and (10) to the maximum extent permitted in respect of the settlement, subject to subsection (18) the remaining unapplied portion of that forgiven amount shall be applied (to the extent that it is designated in a prescribed form filed with the debtor’s return of income under this Part for the year) to reduce immediately after that time the adjusted cost bases to the debtor of

(7) The portion of subsection 80(12) of the Act before paragraph (

a) is replaced by the following:

Capital gain where current year capital loss

(12) If a commercial obligation issued by a debtor (other than a partnership) is settled at any time in a taxation year and amounts have been designated by the debtor under subsections (5), (8) and (9) to the maximum extent permitted in respect of the settlement,

(8) The portion of paragraph (

a) of the description of D in subsection 80(13) of the Act before subparagraph (

i) is replaced by the following:

(

a) if the debtor has designated amounts under subsections (5), (8), (9) and (10) to the maximum extent permitted in respect of the settlement, the amount, if any, by which

(9) Paragraph 80(14.1)(

c) of the Act is replaced by the following:

(

c) amounts were designated under subsections (5), (8), (9) and (10) by each of those directed persons to the maximum extent permitted in respect of the settlement of each of those notional obligations; and

(10) Paragraph 80(15)(

b) of the Act is replaced by the following:

(

b) for the purpose of paragraph (a), the relevant limit in respect of the partnership obligation is the amount that would be included in computing the member’s income for the year as a consequence of the application of subsection (13) and

section 96 to the settlement of the partnership obligation if the partnership had designated amounts under subsections (5), (8), (9) and (10) to the maximum extent permitted in respect of each obligation settled in that fiscal period and if income arising from the application of subsection (13) were from a source of income separate from any other sources of partnership income; and

(11) Subsections (1) to (10) come into force or are deemed to have come into force on January 1, 2017.

(1) Paragraph 80.4(2)(

e) of the Act is replaced by the following:

(

e) the total of

(

i) the amount of interest for the year paid on all such loans and debts (other than loans deemed to have been made under subsection 15(2.17)) not later than 30 days after the end of the year, and

(ii)

the specified interest amounts, for the year, in respect of all such loans that are deemed to have been made under subsection 15(2.17).

(2) Subsection 80.4(7) of the Act is amended by adding the following in alphabetical order:

specified interest amount , for a year, in respect of a loan (referred to in this definition as the deemed loan ) deemed to have been made under subsection 15(2.17) by an ultimate funder (as defined in subsection 15(2.192)), means the amount determined by the formula

A × (B/C) where A

is the amount of interest for the year paid not later than 30 days after the end of the year on all debts — owing by one or more funders (as defined in subsection 15(2.192), but excluding any funders that are ultimate funders as defined in subsection 15(2.192)) under one or more funding arrangements (as defined in subsection 15(2.192)) to the ultimate funder — that gave rise to the deemed loan;

is the average amount outstanding for the year in respect of the deemed loan; and

is the total of all amounts each of which is the average amount outstanding in the year as or on account of an amount owing under a debt described in A. ( montant d’intérêts déterminé )

(3) Subsections (1) and (2) apply in respect of

(

a) loans received and indebtedness incurred after March 21, 2016; and

(

b) any portion of a particular loan received or indebtedness incurred 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.

(1) Subparagraph 84(1)(c.3)(

i) of the Act is replaced by the following:

(

i) on the issuance of shares of that class or shares of another class for which the shares of that class were substituted (other than an issuance to which

section 51, 66.3, 84.1, 85, 85.1, 86 or 87 or subsection 192(4.1), 194(4.1) or 212.1(1.1) applied),

(2) Subsection (1) comes into force or is deemed to have come into force on March 22, 2016.

(1) Paragraphs 85(1)(

d) to (d.12) of the Act are repealed.

(2) Paragraph 85(1)(e.1) of the Act is replaced by the following:

(e.1)

where two or more properties, each of which is a property described in paragraph (e), are disposed of at the same time, paragraph (

e) applies as if each property so disposed of had been separately disposed of in the order designated by the taxpayer before the time referred to in subsection (6) for the filing of an election in respect of those properties or, if the taxpayer does not so designate any such order, in the order designated by the Minister;

(3) The portion of paragraph 85(1)(e.3) of the Act before subparagraph (ii) is replaced by the following:

(e.3)

where, under any of paragraphs (c.1) and (e), the amount that the taxpayer and the corporation have agreed on in their election in respect of the property (in this paragraph referred to as the elected amount ) would be deemed to be an amount that is greater or less than the amount that would be deemed, subject to paragraph (c), to be the elected amount under paragraph (b), the elected amount is deemed to be the greater of

(

i) the amount deemed by paragraph (c.1) or (e), as the case may be, to be the elected amount, and

(4) Paragraph 85(1.1)(

e) of the Act is repealed.

(5) Subsections (1) to (4) come into force or are deemed to have come into force on January 1, 2017.

(1) Paragraph 87(2)(

f) of the Act is repealed.

(2) Paragraph 87(2)(g.3) of the Act is replaced by the following:

(g.3)

for the purposes of applying subsections 13(21.2), 18(15) and 40(3.4) to any property that was disposed of by a predecessor corporation before the amalgamation, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(3) Subsections (1) and (2) come into force or are deemed to have come into force on January 1, 2017.

(1) Paragraph 88(1)(c.1) of the Act is repealed.

(2) Paragraph 88(1)(d.1) of the Act is replaced by the following:

(d.1)

subsection 84(2) and

section 21 of the Income Tax Application Rules do not apply to the winding-up of the subsidiary, and subsection 13(21.2) does not apply to the winding-up of the subsidiary with respect to property acquired by the parent on the winding-up;

(3) Subsections (1) and (2) come into force or are deemed to have come into force on January 1, 2017.

(1) Subparagraph (c.1)(

i) of the definition capital dividend account in subsection 89(1) of the Act is replaced by the following:

(i)

1/2 of the total of all amounts each of which is an amount required by paragraph 14(1)(b) (as it read before 2017) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ended after February 27, 2000 and before October 18, 2000,

(2) Subparagraph (c.2)(

i) of the definition capital dividend account in subsection 89(1) of the Act is replaced by the following:

(

i) the total of all amounts each of which is an amount required by paragraph 14(1)(b) (as it read before 2017) or subparagraph 13(38)(d)(iii) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ends after October 17, 2000,

(3) Subparagraph (d)(iii) of the definition capital dividend account in subsection 89(1) of the Act is replaced by the following:

(iii)

the adjusted cost basis (in this paragraph as defined in subsection 148(9)), immediately before the death, of

(

A) if the death occurs before March 22, 2016, a policy referred to in subparagraph (

i) or (ii) to the corporation, and

(

B) if the death occurs after March 21, 2016, a policyholder’s interest in a policy referred to in subparagraph (

i) or (ii),

(4) Paragraph (

d) of the definition capital dividend account in subsection 89(1) of the Act is amended by adding the following after subparagraph (iv):

(

v) 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 total of

(

A) the amount, if any, by which the fair market value of consideration given in respect of the disposition exceeds the total of

(

I) 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, and

(II)

the amount by which the paid-up capital of any class of the capital stock of a corporation resulting from the disposition is reduced at the beginning of March 22, 2016 because of the application of paragraphs 148(7)(

c) and (

f) in respect of the disposition, and

(

B) if the paid-up capital in respect of a class of shares of the capital stock of a corporation was increased before March 22, 2016 as described in subparagraph 148(7)(f)(iii) in respect of the disposition, the amount, if any, by which the total reduction in the paid-up capital in respect of that class — not exceeding the amount of that increase — after that increase and before March 22, 2016 (except to the extent that the amount of the reduction was deemed by subsection 84(4) or (4.1) to be a dividend received by a taxpayer) exceeds the amount determined under subparagraph 148(7)(a)(

i) in respect of the disposition, or

(vi)

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

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,

(5) Subparagraph (b)(iii) of the definition paid-up capital in subsection 89(1) of the Act is replaced by the following:

(iii)

if the particular time is after March 31, 1977, an amount equal to the paid-up capital in respect of that class of shares at the particular time, computed without reference to the provisions of this Act except subsections 51(3) and 66.3(2) and (4), sections 84.1 and 84.2, subsections 85(2.1), 85.1(2.1) and (8), 86(2.1), 87(3) and (9), paragraph 128.1(1)(c.3), subsections 128.1(2) and (3),

section 135.2, subsections 138(11.7), 139.1(6) and (7), 148(7), 192(4.1) and 194(4.1) and sections 212.1 and 212.3,

(6) Subsections (1) and (2) come into force or are deemed to have come into force on January 1, 2017.

(1) Paragraph 94(4)(

b) of the Act is replaced by the following:

(b)

subsections (8.1) and (8.2), paragraph (14)(a), subsections 70(6) and 73(1), the definition Canadian partnership in subsection 102(1), paragraph 107.4(1)(c), the definition qualified disability trust in subsection 122(3), paragraph (

a) of the definition mutual fund trust in subsection 132(6), the definition eligible trust in subsection 135.2(1) and subparagraph (b)(

i) of the definition investment fund in subsection 251.2(1);

(2) Subsection (1) is deemed to have come into force on March 21, 2013, except that paragraph 94(4)(

b) of the Act, as enacted by subsection (1), is to be read without reference to

(

a) before July 1, 2015, “the definition eligible trust in subsection 135.2(1)”; and

(

b) for taxation years that end before 2016, “the definition qualified disability trust in subsection 122(3),”.

(1) Clause 95(2)(d.1)(ii)(

B) of the Act is replaced by the following:

(B)

subsections 13(21.2), 18(15) and 40(3.4) in respect of any property that was disposed of, at any time before the merger, by a foreign affiliate predecessor, and

(2) Subclause 95(2)(e)(v)(A)(II) of the Act is replaced by the following:

(II)

subsections 13(21.2), 18(15) and 40(3.4) in respect of any property that was disposed of, at any time before the liquidation and dissolution, by the disposing affiliate, and

(3) Clause 95(2)(f.11)(ii)(

A) of the Act is replaced by the following:

(

A) this Act is to be read without reference to subsections 17(1) and 18(4) and

section 91, except that, where the foreign affiliate is a member of a partnership,

section 91 is to be applied to determine the income or loss of the partnership and for that purpose subsection 96(1) is to be applied to determine the foreign affiliate’s share of that income or loss of the partnership,

(4) Subsections (1) to (3) come into force or are deemed to have come into force on January 1, 2017.

(1) The portion of subsection 96(1.7) of the Act before the formula is replaced by the following:

Gains and losses

(1.7) Notwithstanding subsection (1) or

section 38, if in a particular taxation year of a taxpayer, the taxpayer is a member of a partnership with a fiscal period that ends in the particular year, the amount of a taxable capital gain, allowable capital loss or allowable business investment loss of the taxpayer for the particular year determined in respect of the partnership is the amount determined by the formula

(2) The description of A in subsection 96(1.7) of the Act is replaced by the following:

is the amount of the taxpayer’s taxable capital gain, allowable capital loss or allowable business investment loss, as the case may be, for the particular year otherwise determined under this

section in respect of the partnership;

(3) The portion of subsection 96(3) of the Act before paragraph (

a) is replaced by the following:

Agreement or election of partnership members

(3) If a taxpayer who was a member of a partnership at any time in a fiscal period has, for any purpose relevant to the computation of the taxpayer’s income from the partnership for the fiscal period, made or executed an agreement, designation or election under or in respect of the application of any of subsections 13(4), (4.2) and (16),

section 15.2, subsections 20(9) and 21(1) to (4),

section 22, subsection 29(1),

section 34, clause 37(8)(a)(ii)(B), subsections 44(1) and (6), 50(1) and 80(5) and (9) to (11),

section 80.04, subsections 86.1(2), 88(3.1), (3.3) and (3.5) and 90(3), the definition relevant cost base in subsection 95(4) and subsections 97(2), 139.1(16) and (17) and 249.1(4) and (6) that, if this Act were read without reference to this subsection, would be a valid agreement, designation or election,

(4) Subsection 96(8) 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).

(5) Subsections (1) to (4) come into force or are deemed to have come into force on January 1, 2017.

(1) The portion of subsection 97(2) of the Act before paragraph (

a) is replaced by the following:

(2) Notwithstanding any other provision of this Act other than subsections (3) and 13(21.2), where a taxpayer at any time disposes of any property that is a capital property, Canadian resource property, foreign resource property or inventory of the taxpayer to a partnership that immediately after that time is a Canadian partnership of which the taxpayer is a member, if the taxpayer and all the other members of the partnership jointly so elect in prescribed form within the time referred to in subsection 96(4),

(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.

(1) Paragraph 98(3)(

b) of the Act is amended by adding “and” at the end of subparagraph (

i) and by repealing subparagraph (i.1).

(2) Subsection 98(3) of the Act is amended by adding “and” at the end of paragraph (e), by striking out “and” at the end of paragraph (

f) and by repealing paragraph (g).

(3) Paragraph 98(5)(

b) of the Act is amended by adding “and” at the end of subparagraph (

i) and by repealing subparagraph (i.1).

(4) Subsection 98(5) of the Act is amended by adding “and” at the end of paragraph (f), by striking out “and” at the end of paragraph (

g) and by repealing paragraph (h).

(5) Subsections (1) to (4) come into force or are deemed to have come into force on January 1, 2017.

(1) Subparagraph (

i) of the description of B in paragraph 104(6)(

b) of the Act is replaced by the following:

(

i) if the trust is a trust for which a day is to be determined under paragraph (4)(

a) or (a.4) by reference to a death or later death, as the case may be, that has not occurred before the beginning of the year, the total of

(

A) the part of its income (determined without reference to this subsection and subsection (12)) for the year that became payable in the year to, or that was included under subsection 105(2) in computing the income of, a beneficiary (other than an individual whose death is that death or later death, as the case may be), and

(

B) the total of all amounts each of which

(

I) is included in its income (determined without reference to this subsection and subsection (12)) for the year — if the year is the year in which that death or later death, as the case may be, occurs and paragraph (13.4)(

b) does not apply in respect of the trust for the year — because of the application of subsection (4), (5), (5.1) or (5.2) or 12(10.2), and

(II)

is not included in the amount determined for clause (

A) for the year, and

(2) The portion of paragraph 104(13.4)(

b) of the Act before subparagraph (

i) is replaced by the following:

(

b) subject to paragraph (b.1), the trust’s income (determined without reference to subsections (6) and (12)) for the particular year is, notwithstanding subsection (24), deemed

(3) Subsection 104(13.4) of the Act is amended by striking out “and” at the end of paragraph (

b) and by adding the following after that paragraph:

(b.1)

paragraph (

b) does not apply in respect of the trust for the particular year, unless

(

i) the individual is resident in Canada immediately before the death,

(ii)

the trust is, immediately before the death, a testamentary trust that

(

A) is a post-1971 spousal or common-law partner trust, and

(

B) was created by the will of a taxpayer who died before 2017, and

(iii)

an election — made jointly between the trust and the legal representative administering the individual’s graduated rate estate in prescribed form — that paragraph (

b) applies is filed with

(

A) the individual’s return of income under this Part for the individual’s year, and

(

B) the trust’s return of income under this Part for the particular year; and

(4) Subparagraph 104(13.4)(c)(

i) of the Act is replaced by the following:

(

i) the references in paragraph 150(1)(

c) to “year” and in subparagraph (a)(ii) of the definition balance-due day in subsection 248(1) to “taxation year” are to be read as “calendar year in which the taxation year ends”, and

(5) Subsections (1) to (4) apply to the 2016 and subsequent taxation years.

(1) Paragraph 107(2)(b.1) of the Act is amended by adding “and” at the end of subparagraph (

i) and by repealing subparagraph (ii).

(2) Paragraph 107(2)(

f) of the Act is repealed.

(3) Paragraph 107(2.001)(

c) of the Act is replaced by the following:

(

c) the property is capital property used in, or property described in the inventory of, a business carried on by the trust through a permanent establishment (as defined by regulation) in Canada immediately before the time of the distribution.

(4) Subsections (1) to (3) come into force or are deemed to have come into force on January 1, 2017.

(1) Paragraph 107.4(3)(

e) of the Act is repealed.

(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.

(1) Subsection 108(1.1) of the Act is replaced by the following:

Testamentary trust not disqualified

(1.1) For the purpose of the definition testamentary trust in subsection (1), a contribution to a particular trust does not include

(

a) a qualifying expenditure (within the meaning of

section 118.04 or 118.041) of a beneficiary under the trust; or

(

b) an amount paid to, or on behalf of, the trust by another trust if

(

i) the trust is an individual’s graduated rate estate (determined without regard to the payment and this subsection),

(ii)

paragraph 104(13.4)(

b) applies to the other trust, for a taxation year that ends at a time determined by reference to the individual’s death, because of a joint election made under subparagraph 104(13.4)(b.1)(iii) by the other trust and the legal representative administering the estate,

(iii)

the payment is on account of the tax payable by the individual, for the individual’s taxation year that includes the day on which the individual dies, under

(

A) this Part, or

(

B) the law of the province, in which the individual was resident immediately before the individual’s death, that imposes a tax on the taxable income of individuals resident in that province, and

(iv)

the amount of the payment does not exceed the amount by which that tax payable is greater than it would have been if paragraph 104(13.4)(

b) did not apply to the other trust in respect of the taxation year referred to in subparagraph (ii).

(2) Subsection (1) applies to the 2016 and subsequent taxation years.

(1) Paragraph (

d) of the definition qualified farm or fishing property in subsection 110.6(1) of the Act is replaced by the following:

(

d) a property included in Class 14.1 of

Schedule II to the Income Tax Regulations , used by a person or partnership referred to in any of subparagraphs (a)(

i) to (v), or by a personal trust from which the individual acquired the property, in the course of carrying on a farming or fishing business in Canada; ( bien agricole ou de pêche admissible )

(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.

(1) Subsection 111(5.2) of the Act is repealed.

(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.

(1) The portion before paragraph (

a) of subsection 116(5.2) of the Act is replaced by the following:

Certificates for dispositions

(5.2) If a non-resident person has, in respect of a disposition, or a proposed disposition, in a taxation year to a taxpayer of property (other than excluded property) that is a life insurance policy in Canada, a Canadian resource property, a property (other than capital property) that is real property, or an immovable, situated in Canada, a timber resource property, depreciable property that is a taxable Canadian property or any interest in, or for civil law any right in, or any option in respect of, a property to which this subsection applies (whether or not that property exists),

(2) Subsection (1) comes into force or is deemed to have come into force on January 1, 2017.

(1) Clause (c)(i)(

C) of the definition total charitable gifts in subsection 118.1(1) of the Act is replaced by the following:

(

C) by the individual’s estate if subsection (5.1) applies to the gift and the particular year is the taxation year in which the individual dies or the preceding taxation year, or

(2) Subparagraph (c)(ii) of the definition total charitable gifts in subsection 118.1(1) of the Act is amended by striking out “or” at the end of clause (

A) and by replacing clause (

B) with the following:

(

B) by the trust if

(

I) the trust is an individual’s estate,

(II)

subsection (5.1) applies to the gift, and

(III)

the particular year is a taxation year

in which the estate is the individual’s graduated rate estate, and

that precedes the taxation year in which the gift is made, or

(

C) by the trust if

(

I) the end of the particular year is determined by paragraph 104(13.4)(

a) because of an individual’s death,

(II)

the gift is made after the particular year and on or before the trust’s filing-due date for the particular year, and

(III)

the subject of the gift is property that is held by the trust at the time of the individual’s death or is property that was substituted for that property; ( total des dons de bienfaisance )

(3) Clause (c)(i)(

C) of the definition total cultural gifts in subsection 118.1(1) of the Act is replaced by the following:

(

C) by the individual’s estate if subsection (5.1) applies to the gift and the particular year is the taxation year in which the individual dies or the preceding taxation year, or

(4) Subparagraph (c)(ii) of the definition total cultural gifts in subsection 118.1(1) of the Act is amended by striking out “or” at the end of clause (

A) and by replacing clause (

B) with the following:

(

B) by the trust if

(

I) the trust is an individual’s estate,

(II)

subsection (5.1) applies to the gift, and

(III)

the particular year is a taxation year

in which the estate is the individual’s graduated rate estate, and

that precedes the taxation year in which the gift is made, or

(

C) by the trust if

(

I) the end of the particular year is determined by paragraph 104(13.4)(

a) because of an individual’s death,

(II)

the gift is made after the particular year and on or before the trust’s filing-due date for the particular year, and

(III)

the subject of the gift is property that is held by the trust at the time of the individual’s death or is property that was substituted for that property; ( total des dons de biens culturels )

(5) Clause (c)(i)(

A) of the definition total ecological gifts in subsection 118.1(1) of the Act is replaced by the following:

(

A) by the individual, or the individual’s spouse or common-law partner, in the particular year or any of the 10 preceding taxation years,

(6) Clause (c)(i)(

C) of the definition total ecological gifts in subsection 118.1(1) of the Act is replaced by the following:

(

C) by the individual’s estate if subsection (5.1) applies to the gift and the particular year is the taxation year in which the individual dies or the preceding taxation year, or

(7) Subparagraph (c)(ii) of the definition total ecological gifts in subsection 118.1(1) of the Act is amended by striking out “or” at the end of clause (

A) and by replacing clause (

B) with the following:

(

B) by the trust if

(

I) the trust is an individual’s estate,

(II)

subsection (5.1) applies to the gift, and

(III)

the particular year is a taxation year

in which the estate is the individual’s graduated rate estate, and

that precedes the taxation year in which the gift is made, or

(

C) by the trust if

(

I) the end of the particular year is determined by paragraph 104(13.4)(

a) because of an individual’s death,

(II)

the gift is made after the particular year and on or before the trust’s filing-due date for the particular year, and

(III)

the subject of the gift is property that is held by the trust at the time of the individual’s death or is property that was substituted for that property; ( total des dons de biens écosensibles )

(8) The portion of subsection 118.1(5.1) of the Act before paragraph (

a) is replaced by the following:

Gifts by graduated rate estate

(5.1) This subsection applies to a gift made by an individual’s graduated rate estate (determined without reference to paragraph (

a) of the definition graduated rate estate in subsection 248(1)) if the gift is made no more than 60 months after the individual’s death, the death occurs after 2015 and either

(9) Paragraph 118.1(19)(

c) of the Act is replaced by the following:

(

c) either,

(

i) if the taxpayer is an individual’s graduated rate estate,

(

A) the individual dealt at arm’s length with the donee immediately before the individual’s death, and

(

B) the graduated rate estate deals at arm’s length with the donee (determined without reference to paragraph 251(1)(b)), or

(ii)

if subparagraph (

i) does not apply, the taxpayer deals at arm’s length with the donee; and

(10) Subsections (1) to (9) apply to the 2016 and subsequent taxation years.

(1) Section 122.61 of the Act is amended by adding the following after subsection (4):

Annual adjustment

(5) Each amount expressed in dollars in subsection (1) shall be adjusted so that, where the base taxation year in relation to a particular month is after 2018, the amount to be used under that subsection for the month is the total of

(

a) the amount that would, but for subsection (7), be the relevant amount used under subsection (1) for the month that is one year before the particular month, and

(

b) the product obtained by multiplying

(

i) the amount referred to in paragraph (a)

(ii)

the amount, adjusted in such manner as is prescribed and rounded to the nearest one-thousandth or, where the result obtained is equidistant from 2 such consecutive one-thousandths, to the higher thereof, that is determined by the formula

(A/B) − 1 where A

is the Consumer Price Index (within the meaning assigned by subsection 117.1(4)) for the 12-month period that ended on September 30 of the base taxation year, and

is the Consumer Price Index for the 12 month period preceding the period referred to in the description of A.

(2) Section 122.61 of the Act is amended by adding the following after subsection (6.1):

Rounding

(7) If an amount referred to in subsection (1), when adjusted as provided in subsection (5), is not a multiple of one dollar, it shall be rounded to the nearest multiple of one dollar or, where it is equidistant from 2 such consecutive multiples, to the higher thereof.

(1) Subparagraphs 125(1)(a)(

i) and (ii) of the Act are replaced by the following:

(

i) the total of all amounts each of which is the amount of income of the corporation for the year from an active business carried on in Canada, other than an amount that is

(

A) described in paragraph (

a) of the description of A in the definition specified partnership income in subsection (7) for the year,

(

B) described in subparagraph (a)(

i) of the definition specified corporate income in subsection (7) for the year, or

(

C) paid or payable to the corporation by another corporation with which it is associated, that is deemed by subsection 129(6) to be income for the year from an active business carried on by the corporation in circumstances where the associated corporation is not a Canadian-controlled private corporation or is a Canadian-controlled private corporation that has made an election under subsection 256(2) in respect of its taxation year in which the amount was paid or payable,

(ii)

the specified partnership income of the corporation for the year, and

(ii.1)

the specified corporate income of the corporation for the year

(2) Section 125 of the Act is amended by adding the following after subsection (3):

Reduction — business limit

(3.1) The business limit for the year of a corporation under subsection (2), (3) or (4) is reduced by the total of all amounts each of which is the portion, if any, of the business limit that the corporation assigns to another corporation under subsection (3.2).

Assignment

(3.2) For the purpose of this section, a Canadian-controlled private corporation (in this subsection referred to as the first corporation ) may assign all or any portion of its business limit under subsection (2), (3) or (4) for a taxation year of the first corporation to another Canadian-controlled private corporation (in this subsection referred to as the second corporation ) for a taxation year of the second corporation if

(

a) the second corporation has an amount of income, for its taxation year, referred to in subparagraph (a)(

i) of the definition specified corporate income in subsection (7) from the provision of services or property directly to the first corporation;

(

b) the first corporation’s taxation year ends in the second corporation’s taxation year;

(

c) the amount assigned does not exceed the amount determined by the formula

A − B where A

is the amount of income referred to in paragraph (a), and

is the portion of the amount described in A that is deductible by the first corporation in respect of the amount of income referred to in clause (1)(a)(i)(

A) or (

B) for the year; and

(

d) a prescribed form is filed with the Minister by

(

i) the first corporation in its return of income for its taxation year, and

(ii)

the second corporation in its return of income for its taxation year.

(3) The portion of subsection 125(5) of the Act before paragraph (

a) is replaced by the following:

Special rules for business limit

(5) Notwithstanding subsections (2), (3) and (4),

(4) The portion of subsection 125(5.1) of the Act before the formula is replaced by the following:

Business limit reduction

(5.1) Notwithstanding subsections (2), (3), (4) and (5), a Canadian-controlled private corporation’s business limit for a particular taxation year ending in a calendar year is the amount, if any, by which its business limit otherwise determined for the particular year exceeds the amount determined by the formula

(5) The description of A in the definition specified partnership income in subsection 125(7) is replaced by the following:

is the total of all amounts each of which is an amount in respect of a partnership of which the corporation was a member, or a designated member, in the year equal to the least of

(

a) the total of all amounts each of which is an amount in respect of an active business carried on in Canada by the corporation as a member, or a designated member, of the partnership determined by the formula

G – H where G

is the total of all amounts each of which is

(

i) the corporation’s share of the income (determined in accordance with Subdivision J of Division

B) of the partnership for a fiscal period of the business that ends in the year,

(ii)

income of the corporation for the year from the provision (directly or indirectly, in any manner whatever) of services or property to the partnership, or

(iii)

an amount included in the corporation’s income for the year in respect of the business under any of subsections 34.2(2), (3) and (12), and

is the total of all amounts deducted in computing the corporation’s income for the year from the business (other than amounts that were deducted in computing the income of the partnership from the business or the income of the corporation described under subparagraph (ii) of the description of

G) or in respect of the business under subsection 34.2(4) or (11),

(

b) an amount equal to

(

i) if the corporation was a member of the partnership, the corporation’s specified partnership business limit for the year, and

(ii)

if the corporation was a designated member of the partnership, the total of all amounts assigned to it under subsection (8) for the year and, where no such amounts have been assigned, nil, and

(

c) nil, if

(

i) the corporation is a member, or a designated member, of the partnership (including indirectly through one or more other partnerships) in the year, and

(ii)

the partnership provides services or property to either

(

A) a private corporation (directly or indirectly in any manner whatever) in the year, if

(

I) the corporation (or one of its shareholders) or a person who does not deal at arm’s length with the corporation (or one of its shareholders) holds a direct or indirect interest in the private corporation, and

(II)

it is not the case that all or substantially all of the partnership’s income for the year from an active business is from the provision of services or property to

persons (other than the private corporation) that deal at arm’s length with the partnership and each person that holds a direct or indirect interest in the partnership, or

partnerships with which the partnership deals at arm’s length, other than a partnership in which a person that does not deal at arm’s length with the corporation holds a direct or indirect interest, or

(

B) a particular partnership (directly or indirectly in any manner whatever) in the year, if

(

I) the corporation (or one of its shareholders) does not deal at arm’s length with the particular partnership or a person that holds a direct or indirect interest in the particular partnership, and

(II)

it is not the case that all or substantially all of the partnership’s income for the year from an active business is from the provision of services or property to

persons that deal at arm’s length with the partnership and each person that holds a direct or indirect interest in the partnership, or

partnerships (other than the particular partnership) with which the partnership deals at arm’s length, other than a partnership in which a person that does not deal at arm’s length with the corporation holds a direct or indirect interest, and

(6) Paragraph (

b) of the description of B in the definition specified partnership income in subsection 125(7) of the Act is replaced by the following:

(

b) the total of all amounts each of which is an amount in respect of a partnership of which the corporation was a member, or a designated member, in the year equal to the amount determined by the formula

N – O where N

is the amount determined in respect of the partnership for the year under paragraph (

a) of the description of A, and

is the amount determined in respect of the partnership for the year

(

i) if the corporation was a member of the partnership, under subparagraph (b)(

i) of the description of A, and

(ii)

if the corporation was a designated member of the partnership, under subparagraph (b)(ii) of the description of A; ( revenu de société de personnes déterminé )

(7) Subsection 125(7) of the Act is amended by adding the following in alphabetical order:

designated member , of a particular partnership in a taxation year, means a Canadian-controlled private corporation that provides (directly or indirectly, in any manner whatever) services or property to the particular partnership at any time in the corporation’s taxation year where, at any time in the year,

(

a) the corporation is not a member of the particular partnership, and

(

b) either

(

i) one of its shareholders holds a direct or indirect interest in the particular partnership, or

(ii)

if subparagraph (

i) does not apply,

(

A) the corporation does not deal at arm’s length with a person that holds a direct or indirect interest in the particular partnership, and

(

B) it is not the case that all or substantially all of the corporation’s income for the year from an active business is from providing services or property to

(

I) persons with which the corporation deals at arm’s length, or

(II)

partnerships (other than the particular partnership) with which the corporation deals at arm’s length, other than a partnership in which a person that does not deal at arm’s length with the corporation holds a direct or indirect interest; ( associé désigné )

specified corporate income, of a corporation for a taxation year, means the lesser of

(

a) the lesser of

(

i) the total of all amounts each of which is income from an active business of the corporation for the year from the provision of services or property to a private corporation (directly or indirectly, in any manner whatever) if

(

A) at any time in the year, the corporation (or one of its shareholders) or a person who does not deal at arm’s length with the corporation (or one of its shareholders) holds a direct or indirect interest in the private corporation, and

(

B) it is not the case that all or substantially all of the corporation’s income for the year from an active business is from the provision of services or property to

(

I) persons (other than the private corporation) with which the corporation deals at arm’s length, or

(II)

partnerships with which the corporation deals at arm’s length, other than a partnership in which a person that does not deal at arm’s length with the corporation holds a direct or indirect interest, and

(ii)

the total of all amounts each of which is the portion, if any, of the business limit of a private corporation described in subparagraph (

i) for a taxation year that the private corporation assigns to the corporation under subsection (3.2), and

(

b) an amount that the Minister determines to be reasonable in the circumstances; ( revenu de société déterminé )

specified partnership business limit, of a person for a taxation year, at any particular time, means the amount determined by the formula

(K/L) × M – T where K

is the total of all amounts each of which is the person’s share of the income (determined in accordance with Subdivision J of Division

B) of a partnership of which the person was a member for a fiscal period ending in the year from an active business carried on in Canada,

is the total of all amounts each of which is the income of the partnership for a fiscal period referred to in paragraph (

a) of the description of A in the definition specified partnership income in this subsection from an active business carried on in Canada,

is the lesser of

(

a) the amount of the business limit indicated in subsection (2) for a corporation that is not associated in a taxation year with one or more other Canadian-controlled private corporations, and

(

b) the product obtained by the formula

(Q/R) × S where Q

is the amount referred to in paragraph (a),

is 365, and

is the total of all amounts each of which is the number of days in a fiscal period of the partnership that ends in the year, and

is the total of all amounts each of which is an amount, if any, that the person assigns under subsection (8); ( plafond des affaires de société de personnes déterminé )

(8) Section 125 of the Act is amended by adding the following after subsection (7):

Assignment — specified partnership business limit

(8) For the purpose of the definition specified partnership income in subsection (7), a person that is a member of a partnership in a taxation year may assign to a designated member of the partnership — for a taxation year of the designated member — all or any portion of the person’s specified partnership business limit (determined without reference to this assignment) in respect of the person’s taxation year if

(

a) the person is described in paragraph (

b) of the definition designated member in subsection (7) in respect of the designated member in the designated member’s taxation year;

(

b) the specified partnership business limit of the person is in respect of a fiscal period of the partnership that ends in the designated member’s taxation year; and

(

c) a prescribed form is filed with the Minister by

(

i) the designated member in its return of income for the designated member’s taxation year, and

(ii)

the person in its return of income for the person’s taxation year.

Anti-avoidance

(9) If a corporation provides services or property to a person or partnership that holds a direct or indirect interest in a particular partnership or corporation and one of the reasons for the provision of the services or property to the person or partnership, instead of to the particular partnership or corporation, is to avoid the application of subparagraph (1)(a)(ii) or (ii.1) in respect of the income from the provision of the services or property, no amount in respect of the corporation’s income from the provision of the services or property is to be included in the total amount determined under paragraph (1)(a).

Computational rule — specified corporate income

(10) For the purpose of determining an amount for a taxation year in respect of a corporation under clause (1)(a)(i)(

B) or subparagraph (1)(a)(ii.1), an amount of income is to be excluded if the amount is

(

a) income from an active business of the corporation for the year from the provision of services or property to another corporation with which the corporation is associated (in this subsection referred to as the associated corporation ); and

(

b) not deductible by the associated corporation for its taxation year in respect of an amount included in the income of the associated corporation that is

(

i) referred to in any of clauses (1)(a)(i)(

A) to (C), or

(ii)

reasonable to consider as being attributable to or derived from an amount referred to in clause (1)(a)(i)(C).

(9) Subsections (1) to (8) apply to

(

a) taxation years that begin after March 21, 2016; and

(

b) a person’s taxation year that begins before March 22, 2016 and ends after March 21, 2016 if

(

i) the person would be entitled to make an assignment to a corporation under subsection 125(3.2) of the Act (as enacted by subsection (2)) or under subsection 125(8) of the Act (as enacted by subsection (8)) if subsections (1) to (8) applied to the person’s taxation year that begins before March 22, 2016 and ends after March 21, 2016,

(ii)

the taxation year of the corporation referred to in subparagraph (

i) begins after March 21, 2016,

(iii)

the person makes such an assignment for its taxation year that begins before March 22, 2016 and ends after March 21, 2016 and the assignment is to the corporation for its taxation year that begins after March 21, 2016, and

(iv)

the person files with the Minister of National Revenue the prescribed form that is required to be filed under subsection 125(3.2) of the Act (as enacted by subsection (2)) in its return of income for its taxation year that begins before March 22, 2016 and ends after March 21, 2016, on or before the day that is the later of the filing-due date of the person (as defined under subsection 248(1) of the Act) or 60 days after this Act receives royal assent.

(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.

(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.

(1) The portion of subsection 130(2) of the Act before paragraph (

a) is replaced by the following:

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.

(1) Section 131 of the Act is amended by adding the following after subsection (4):

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:

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):

Election to be a mutual fund corporation

(8.01) A corporation is deemed to be a mutual fund corporation,