C-22 1 37 49-50 Elizabeth II 2001

An Act to amend the Income Tax Act, the Income Tax Application Rules, certain Acts related to the Income Tax Act, the Canada Pension Plan, the Customs Act, the Excise Tax Act, the Modernization of Benefits and Obligations Act and another Act related to the Excise Tax Act

Income Tax Amendments Act, 2000

Income Tax, 2000 2001 6 14 17 2001 90144

SUMMARY

These amendments implement income tax measures announced in the February 2000 budget and the October 2000 Economic Statement and Budget Update, as well as a variety of amendments to the Income Tax Act and related statutes most of which were originally included in Bill C-43 (first reading in September 2000) or otherwise previously announced. The measures of greater significance are summarized below.

(1) Government’s Five-Year Tax Reduction Plan: provides $100 billion in tax relief by 2004-2005, reducing the federal income tax paid by individuals resident in Canada by 21% on average. Families with children will receive an even larger tax cut — about 27% on average. Measures included will

(

a) reduce tax rates at all income levels;

(

b) eliminate the 5% deficit reduction surtax;

(

c) increase support for families with children through the Canada Child Tax Benefit;

(

d) reduce the capital gains inclusion rate;

(

e) provide a tax-deferred capital gains rollover for investments in shares of certain small- and medium-sized active business corporations;

(

f) provide a tax-deferred rollover for shares received on certain foreign spin-offs;

(

g) reduce the 28% general corporate tax rate to 21%; and

(

h) defer the taxation of certain stock option benefits, increase the stock option deduction and allow an additional deduction for certain stock option shares donated to charity.

(2) Child Care Expense Deduction: increases the maximum annual amount deductible for child care expenses for each eligible child in respect of whom the disability tax credit may be claimed to $10,000 from $7,000.

(3) Disability Tax Credit: extends the disability tax credit to individuals who, but for extensive therapy, would be markedly restricted in their activities of daily living; provides a supplement for disabled children under the age of 18 years; extends the transferability of the credit to most relatives of a disabled person; and, starting in 2001, increases the amounts on which the credit and the new supplement are calculated to $6,000 and $3,500 from $4,293 and $2,941, respectively.

(4) Caregiver and Infirm Dependant Tax Credits: increases the amount on which each of these credits is calculated to $3,500 from $2,446.

(5) Medical Expense Tax Credit: includes reasonable incremental costs relating to the construction of the principal place of residence of an individual who lacks normal physical development or has a severe and prolonged ability impairment to enable the individual to gain access to, or to be mobile within, the residence.

(6) Donations of Ecological Gifts: halves the normal capital gains inclusion for an ecological gift the value of which has been certified by the Minister of the Environment; and clarifies rules for calculating any capital gain or loss realized as a result of such a gift.

(7) Scholarships, Fellowships and Bursaries: increases by $2,500 the exemption for scholarships, fellowships and bursaries received by a taxpayer in connection with the taxpayer’s enrolment in a program in respect of which the taxpayer may claim the education tax credit.

(8) Education Tax Credit: doubles the monthly amounts on which the credit allowed to full-time and part-time students is based to $400 and $120, respectively.

(9) Clergy Residence Deduction: provides clearer rules for determining the amount deductible in respect of a clergy’s residence.

(10) CPP/QPP Contributions on Self-Employed Earnings: introduces a deduction from business income for one-half of CPP/QPP contributions on self-employed earnings, with the other half of the contributions remaining eligible for the CPP/QPP tax credit.

(11) Thin Capitalization: amends the provisions to have the debt-to-equity ratio calculated on an averaged basis, reduces the acceptable debt-to-equity ratio to 2:1 from 3:1 and repeals the exemption for manufacturers of aircraft and aircraft components.

(12) Non-Resident-Owned Investment Corporations: phases out, over a three-year period, the special income tax regime for this type of corporation.

(13) Weak Currency Debt: limits the deductibility of interest expenses and adjusts foreign exchange gains and losses in respect of weak currency debts and associated hedging transactions.

(14) Government Assistance — SR & ED: categorizes as government assistance provincial deductions for SR & ED that exceed the amount of the SR & ED expenditures.

(15) Foreign Tax Credits — Oil and Gas Production Sharing Agreements: clarifies the eligibility for a business foreign tax credit of certain payments made by Canadian resident taxpayers to foreign governments on account of levies imposed in connection with production sharing agreements.

(16) Foreign Exploration and Development Expenses (FEDE): amends the rules to require that the FEDE of a claimant must relate to either foreign resource property acquired by the claimant or be made for the purpose of enhancing the value of foreign resource property owned, or to be owned, by the claimant; ensures appropriate treatment of FEDE in computing foreign tax credits, and imposes a 30% restriction for the annual deduction of new FEDE balances.

(17) Flow-Through Share Investment Tax Credit: introduces a temporary 15% investment tax credit for certain “grass roots” mineral exploration.

(18) Foreign Branch Banking: provides amendments to the Income Tax Act to accommodate branches of foreign banks operating in Canada.

(19) Capital Dividend Account: permits amounts distributed to a corporation from a trust in respect of capital gains or capital dividends realized or received by the trust to be included in the corporation’s capital dividend account.

(20) Taxpayer Migration: enhances Canada’s ability to tax the gains accrued by emigrants while they were resident in Canada.

(21) Trusts: addresses the tax treatment of property distributed from a Canadian trust to a non-resident beneficiary and introduces new measures dealing with the tax treatment of bare, protective and similar trusts as well as mutual fund trusts, health and welfare trusts and trusts governed by registered retirement savings plans and registered retirement income funds.

(22) Advertising Expenses: implements the income tax aspects of the June 1999 agreement between Canada and the United States concerning periodicals.

(23) Simultaneous Control: confirms that, in a chain of corporations, a corporation is controlled by its immediate parent even where the parent is itself controlled by a third corporation.

(24) Foreign Affiliates Held by Partnerships: ensures that Canadian corporations that are members of a partnership that holds shares of non-resident corporations are provided relief from double taxation on the income derived from those shares and receive the same tax treatment in respect of the disposition of those shares as if they held the shares directly.

(25) Foreign Affiliate Losses: provides that foreign accrual property losses of a foreign affiliate may be carried back three years and forward seven years for the purpose of determining the affiliate’s foreign accrual property income for a particular taxation year.

(26) Capital Tax: extends to the end of 2000 the additional capital tax on life insurance corporations.

(27) Stop-Loss Rule: extends the rule that suspends recognition of a loss when a corporation, trust or partnership transfers depreciable property to transferors who are affiliated persons (including individuals).

(28) Types of Property: amends the corporate divisive reorganization rules to no longer require that each transferee corporation receive its pro-rata share of each type of property in the case of certain public corporate divisive reorganizations.

(29) Replacement Property Rules: provides that the replacement property rules do not apply to shares of the capital stock of corporations.

(30) Limited Liability Partnerships: ensures that a member of a “limited liability partnership” (under provincial law) is not automatically a “limited partner” for the purposes of the Income Tax Act .

(31) Non-Resident Film and Video Actors: applies a new 23% withholding tax on payments to non-resident film and video actors and their corporations, with an option to have the actor and corporation pay regular

Part I tax on the net earnings instead.

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 Income Tax Amendments Act, 2000 .

PART 1

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

INCOME TAX ACT

(1) The portion of subsection 7(1) of the Income Tax Act before paragraph (

a) is replaced by the following:

Agreement to issue securities to employees

(1) Subject to subsections (1.1) and (8), where a particular qualifying person has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which it does not deal at arm’s length) to an employee of the particular qualifying person (or of a qualifying person with which the particular qualifying person does not deal at arm’s length),

(2) Subsection 7(1.3) of the Act is replaced by the following:

Order of disposition of securities

(1.3) For the purposes of this subsection, subsections (1.1) and (8), subdivision c, paragraph 110(1)( d.01 ), subparagraph 110(1)( d.1 )(ii) and subsections 110(2.1) and 147(10.4), and subject to subsection (1.31) and paragraph (14)( c ), a taxpayer is deemed to dispose of securities that are identical properties in the order in which the taxpayer acquired them and, for this purpose,

(

a) where a taxpayer acquires a particular security (other than under circumstances to which subsection (1.1) or (8) or 147(10.1) applies) at a time when the taxpayer also acquires or holds one or more other securities that are identical to the particular security and are, or were, acquired under circumstances to which any of subsections (1.1), (8) or 147(10.1) applied, the taxpayer is deemed to have acquired the particular security at the time immediately preceding the earliest of the times at which the taxpayer acquired those other securities; and

(

b) where a taxpayer acquires, at the same time, two or more identical securities under circumstances to which either subsection (1.1) or (8) applied, the taxpayer is deemed to have acquired the securities in the order in which the agreements under which the taxpayer acquired the rights to acquire the securities were made.

Disposition of newly-acquired security

(1.31) Where a taxpayer acquires, at a particular time, a particular security under an agreement referred to in subsection (1) and, on a day that is no later than 30 days after the day that includes the particular time, the taxpayer disposes of a security that is identical to the particular security, the particular security is deemed to be the security that is so disposed of if

(

a) no other securities that are identical to the particular security are acquired, or disposed of, by the taxpayer after the particular time and before the disposition;

(

b) the taxpayer identifies the particular security as the security so disposed of in the taxpayer’s return of income under this Part for the year in which the disposition occurs; and

(

c) the taxpayer has not so identified the particular security, in accordance with this subsection, in connection with the disposition of any other security.

(3) Paragraph 7(1.4)(

a) of the Act is replaced by the following:

(

a) a taxpayer disposes of rights under an agreement referred to in subsection (1) to acquire securities of a particular qualifying person that made the agreement or of a qualifying person with which it does not deal at arm’s length (which rights and securities are referred to in this subsection as the “exchanged option” and the “old securities”, respectively),

(4) Paragraph 7(1.4)(

d) of the Act is replaced by the following:

(

d) the taxpayer is deemed (other than for the purposes of subparagraph (9)( d )(ii)) not to have disposed of the exchanged option and not to have acquired the new option,

(5) Subsection 7(1.5) of the Act is replaced by the following:

Rules where securities exchanged

(1.5) For the purposes of this

section and paragraphs 110(1)(

d) to ( d.1 ), where

(

a) a taxpayer disposes of or exchanges securities of a particular qualifying person that were acquired by the taxpayer under circumstances to which either subsection (1.1) or (8) applied (in this subsection referred to as the “exchanged securities”),

(

b) the taxpayer receives no consideration for the disposition or exchange of the exchanged securities other than securities (in this subsection referred to as the “new securities”) of

(

i) the particular qualifying person,

(ii)

a qualifying person with which the particular qualifying person does not deal at arm’s length immediately after the disposition or exchange,

(iii)

a corporation formed on the amalgamation or merger of the particular qualifying person and one or more other corporations,

(iv)

a mutual fund trust to which the particular qualifying person has transferred property in circumstances to which subsection 132.2(1) applied, or

(

v) a qualifying person with which the corporation referred to in subparagraph (iii) does not deal at arm’s length immediately after the disposition or exchange, and

(

c) the total value of the new securities immediately after the disposition or exchange does not exceed the total value of the old securities immediately before the disposition or exchange,

the following rules apply:

(

d) the taxpayer is deemed not to have disposed of or exchanged the exchanged securities and not to have acquired the new securities,

(

e) the new securities are deemed to be the same securities as, and a continuation of, the exchanged securities, except for the purpose of determining if the new securities are identical to any other securities,

(

f) the qualifying person that issued the new securities is deemed to be the same person as, and a continuation of, the qualifying person that issued the exchanged securities, and

(

g) where the exchanged securities were issued under an agreement, the new securities are deemed to have been issued under that agreement.

Emigrant

(1.6) For the purposes of this

section and paragraph 110(1)( d.1 ), a taxpayer is deemed not to have disposed of a share acquired under circumstances to which subsection (1.1) applied solely because of subsection 128.1(4).

Rights ceasing to be exercisable

(1.7) For the purposes of paragraphs (1)(

b) and 110(1)( d ), where a taxpayer receives at a particular time one or more particular amounts in respect of rights of the taxpayer to acquire securities under an agreement referred to in subsection (1) ceasing to be exercisable in accordance with the terms of the agreement, and the cessation would not, if this Act were read without reference to this subsection, constitute a transfer or disposition of those rights by the taxpayer,

(

a) the taxpayer is deemed to have disposed of those rights at the particular time to a person with whom the taxpayer was dealing at arm’s length and to have received the particular amounts as consideration for the disposition; and

(

b) for the purpose of determining the amount, if any, of the benefit that the taxpayer is deemed by paragraph (1)(

b) to have received as a consequence of the disposition referred to in paragraph ( a ), the taxpayer is deemed to have paid an amount to acquire those rights equal to the amount, if any, by which

(

i) the amount paid by the taxpayer to acquire those rights (determined without reference to this subsection)

exceeds

(ii)

the total of all amounts each of which is an amount received by the taxpayer before the particular time in respect of the cessation.

(6) The portion of subsection 7(2) of the Act before paragraph (

a) is replaced by the following:

Securities held by trustee

(2) If a security is held by a trustee in trust or otherwise, whether absolutely, conditionally or contingently, for an employee, the employee is deemed, for the purposes of this

section and paragraphs 110(1)(

d) to ( d.1 ),

(7) The portion of paragraph 7(6)(

a) of the Act before subparagraph (

i) is replaced by the following:

(

a) for the purposes of this

section (other than subsection (2)) and paragraphs 110(1)(

d) to ( d.1 ),

(8) The portion of subsection 7(7) of the Act before the definition qualifying person is replaced by the following:

Definitions

(7) The

definitions in this subsection apply in this

section and in subsection 47(3), paragraphs 53(1)( j ), 110(1)(

d) and ( d.01 ) and subsections 110(1.5), (1.6) and (2.1).

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

Deferral in respect of non-CCPC employee options

(8) Where a particular qualifying person (other than a Canadian-controlled private corporation) has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which it does not deal at arm’s length) to a taxpayer who is an employee of the particular qualifying person (or of a qualifying person with which the particular qualifying person does not deal at arm’s length), in applying paragraph (1)(

a) in respect of the taxpayer’s acquisition of a security under the agreement, the reference in that paragraph to “the taxation year in which the employee acquired the securities” shall be read as a reference to “the taxation year in which the employee disposed of or exchanged the securities” if

(

a) the acquisition is a qualifying acquisition; and

(

b) the taxpayer elects, in accordance with subsection (10), to have this subsection apply in respect of the acquisition.

Meaning of qualifying acquisition

(9) For the purpose of subsection (8), a taxpayer’s acquisition of a security under an agreement made by a particular qualifying person is a qualifying acquisition if

(

a) the acquisition occurs after February 27, 2000;

(

b) the taxpayer would, if this Act were read without reference to subsection (8), be entitled to deduct an amount under paragraph 110(1)(

d) in respect of the acquisition in computing income for the taxation year in which the security is acquired;

(

c) where the particular qualifying person is a corporation, the taxpayer was not, at the time immediately after the agreement was made, a person who would, if the references in the portion of the definition specified shareholder in subsection 248(1) before paragraph (

a) to “in a taxation year” and “at any time in the year” were read as references to “at any time” and “at that time”, respectively, be a specified shareholder of any of

(

i) the particular qualifying person,

(ii)

any qualifying person that, at that time, was an employer of the taxpayer and was not dealing at arm’s length with the particular qualifying person, and

(iii)

the qualifying person of which the taxpayer had, under the agreement, a right to acquire a security; and

(

d) where the security is a share,

(

i) it is of a class of shares that, at the time the acquisition occurs, is listed on a prescribed stock exchange, and

(ii)

where rights under the agreement were acquired by the taxpayer as a result of one or more dispositions to which subsection (1.4) applied, none of the rights that were the subject of any of the dispositions included a right to acquire a share of a class of shares that, at the time the rights were disposed of, was not listed on any prescribed stock exchange.

Election for the purpose of subsection (8)

(10) For the purpose of subsection (8), a taxpayer’s election to have that subsection apply in respect of the taxpayer’s acquisition of a particular security under an agreement referred to in subsection (1) is in accordance with this subsection if

(

a) the election is filed, in the prescribed form and manner at a particular time that is before January 16 of the year following the year in which the acquisition occurs, with a person who would be required to file an information return in respect of the acquisition if subsection (8) were read without reference to paragraph (8)( b );

(

b) the taxpayer is resident in Canada at the time the acquisition occurs; and

(

c) the specified value of the particular security does not exceed the amount by which

(i)

$100,000

exceeds

(ii)

the total of all amounts each of which is the specified value of another security acquired by the taxpayer at or before the particular time under an agreement referred to in subsection (1), where

(

A) the taxpayer’s right to acquire that other security first became exercisable in the year that the taxpayer’s right to acquire the particular security first became exercisable, and

(

B) at or before the particular time, the taxpayer has elected in accordance with this subsection to have subsection (8) apply in respect of the acquisition of that other security.

Meaning of specified value

(11) For the purpose of paragraph (10)( c ), the specified value of a particular security acquired by a taxpayer under an agreement referred to in subsection (1) is the amount determined by the formula

A / B where A

is the fair market value, determined at the time the agreement was made, of a security that was the subject of the agreement at the time the agreement was made; and

(

a) except where paragraph (

b) applies, 1, and

(

b) where the number or type of securities that are the subject of the agreement has been modified in any way after the time the agreement was made, the number of securities (including any fraction of a security) that it is reasonable to consider the taxpayer would, at the time the particular security was acquired, have a right to acquire under the agreement in lieu of one of the securities that was the subject of the agreement at the time the agreement was made.

Identical options — order of exercise

(12) Unless the context otherwise requires, a taxpayer is deemed to exercise identical rights to acquire securities under agreements referred to in subsection (1)

(

a) where the taxpayer has designated an order, in the order so designated; and

(

b) in any other case, in the order in which those rights first became exercisable and, in the case of identical rights that first became exercisable at the same time, in the order in which the agreements under which those rights were acquired were made.

Revoked election

(13) For the purposes of this

section (other than this subsection), an election filed by a taxpayer to have subsection (8) apply to the taxpayer’s acquisition of a security is deemed never to have been filed if, before January 16 of the year following the year in which the acquisition occurs, the taxpayer files with the person with whom the election was filed a written revocation of the election.

Deferral deemed valid

(14) For the purposes of this

section and paragraph 110(1)( d ), where a taxpayer files an election to have subsection (8) apply in respect of the taxpayer’s acquisition of a particular security and subsection (8) would not apply to the acquisition if this

section were read without reference to this subsection, the following rules apply if the Minister so notifies the taxpayer in writing:

(

a) the acquisition is deemed, for the purpose of subsection (8), to be a qualifying acquisition;

(

b) the taxpayer is deemed to have elected, in accordance with subsection (10), at the time of the acquisition, to have subsection (8) apply in respect of the acquisition; and

(

c) if, at the time the Minister sends the notice, the taxpayer has not disposed of the security, the taxpayer is deemed (other than for the purpose of subsection (1.5)) to have disposed of the security at that time and to have acquired the security immediately after that time other than under an agreement referred to in subsection (1).

Withholding

(15) Where, because of subsection (8), a taxpayer is deemed by paragraph (1)(

a) to have received a benefit from employment in a taxation year, the benefit is deemed to be nil for the purpose of subsection 153(1).

Prescribed form for deferral

(16) Where, at any time in a taxation year, a taxpayer holds a security that was acquired under circumstances to which subsection (8) applied, the taxpayer shall file with the Minister, with the taxpayer’s return of income for the year, a prescribed form containing prescribed information relating to the taxpayer’s acquisition and disposition of securities under agreements referred to in subsection (1).

(10) Subsections (1), (4), (6), (7) and (9) apply to the 2000 and subsequent taxation years except that

(

a) a share acquired in 2000 under an agreement referred to in subsection 7(1) of the Act, as enacted by subsection (1), is deemed to comply with the requirements of paragraph 7(9)(

d) of the Act, as enacted by subsection (9), if, at all times during the period beginning at the time the agreement was made (determined without reference to subsection 7(1.4) of the Act, as enacted by subsections (3) and (4)) and ending at the time the share was acquired, the class of shares to which the share belongs was listed on a prescribed stock exchange;

(

b) an election under subsection 7(10) of the Act, as enacted by subsection (9), to have subsection 7(8) of the Act, as enacted by subsection (9), apply in respect of a security acquired in 2000 is deemed to have been filed in a timely manner if it is filed on or before the day that is 60 days after the day on which this Act receives royal assent; and

(

c) a written request under subsection 7(13) of the Act, as enacted by subsection (9), to revoke an election in respect of a security acquired in 2000 is deemed to have been filed in a timely manner if it is filed on or before the day that is 60 days after the day on which this Act receives royal assent.

(11) Subsection (2) applies to securities acquired, but not disposed of, before February 28, 2000 and to securities acquired after February 27, 2000.

(12) Subsection (3) applies to the 1998 and subsequent taxation years.

(13) Subsection 7(1.5) of the Act, as enacted by subsection (5), applies to dispositions and exchanges of securities by a taxpayer that occur after February 27, 2000.

(14) Subsection 7(1.6) of the Act, as enacted by subsection (5), applies after 1992.

(15) Subsection 7(1.7) of the Act, as enacted by subsection (5), applies to amounts received on or after March 16, 2001, other than amounts received on or after that day

(

a) pursuant to an agreement in writing made before that day in settlement of claims arising as a result of a cessation occurring before that day; or

(

b) pursuant to an order or judgment issued before that day in respect of claims arising as a result of a cessation occurring before that day.

(16) Subsection (8) applies after 1997, except that

(

a) it does not apply to a right under an agreement to which subsection 7(7) of the Act, as enacted by subsection 3(7) of

chapter 22 of the Statutes of Canada, 1999, does not (except for the purpose of applying paragraph 7(3)(

b) of the Act) apply; and

(

b) before 2000, the portion of subsection 7(7) of the Act, as enacted by subsection (8), before the definition qualifying person shall be read as follows:

(7) The

definitions in this subsection apply in this

section and in paragraph 110(1)(

d) and subsections 110(1.5) and (1.6).

(1) Paragraph 8(1)(

a) of the Act is repealed.

(2) Paragraph 8(1)(

c) of the Act is replaced by the following:

Clergy residence

(

c) where, in the year, the taxpayer

(

i) is a member of the clergy or of a religious order or a regular minister of a religious denomination, and

(ii)

(

A) in charge of a diocese, parish or congregation,

(

B) ministering to a diocese, parish or congregation, or

(

C) engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination,

the amount, not exceeding the taxpayer’s remuneration for the year from the office or employment, equal to

(iii)

the total of all amounts including amounts in respect of utilities, included in computing the taxpayer’s income for the year under

section 6 in respect of the residence or other living accommodation occupied by the taxpayer in the course of, or because of, the taxpayer’s office or employment as such a member or minister so in charge of or ministering to a diocese, parish or congregation, or so engaged in such administrative service, or

(iv)

rent and utilities paid by the taxpayer for the taxpayer’s principal place of residence (or other principal living accommodation), ordinarily occupied during the year by the taxpayer, or the fair rental value of such a residence (or other living accommodation), including utilities, owned by the taxpayer or the taxpayer’s spouse or common-law partner, not exceeding the lesser of

(

A) the greater of

(I)

$1,000 multiplied by the number of months (to a maximum of ten) in the year, during which the taxpayer is a person described in subparagraphs (

i) and (ii), and

(II)

one-third of the taxpayer’s remuneration for the year from the office or employment, and

(

B) the amount, if any, by which

(

I) the rent paid or the fair rental value of the residence or living accommodation, including utilities

exceeds

(II)

the total of all amounts each of which is an amount deducted, in connection with the same accommodation or residence, in computing an individual’s income for the year from an office or employment or from a business (other than an amount deducted under this paragraph by the taxpayer), to the extent that the amount can reasonably be considered to relate to the period, or a portion of the period, in respect of which an amount is claimed by the taxpayer under this paragraph;

(3) Subsection 8(10) of the Act is replaced by the following:

Certificate of employer

(10) An amount otherwise deductible for a taxation year under paragraph (1)( c ), ( f ), (

h) or ( h.1 ) or subparagraph (1)( i )(ii) or (iii) by a taxpayer shall not be deducted unless a prescribed form, signed by the taxpayer’s employer certifying that the conditions set out in the applicable provision were met in the year in respect of the taxpayer, is filed with the taxpayer’s return of income for the year.

(4) Subsections (1) and (3) apply to the 1998 and subsequent taxation years except that in its application to the 1998 to 2000 taxation years the reference to paragraph (1)(c), (

f) in subsection 8(10), as enacted by subsection (3), shall be read as a reference to paragraph (1)(f) .

(5) Subsection (2) applies to the 2001 and subsequent taxation years.

(1) Section 10 of the Act is amended by adding the following after subsection (11):

Removing property from inventory

(12) If at any time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer in Canada immediately before that time, a property that was immediately before that time described in the inventory of the business or the part of the business, as the case may be, (other than a property that was disposed of by the taxpayer at that time), the taxpayer is deemed

(

a) to have disposed of the property immediately before that time for proceeds of disposition equal to its fair market value at that time; and

(

b) to have received those proceeds immediately before that time in the course of carrying on the business or the part of the business, as the case may be.

Adding property to inventory

(13) If at any time a property becomes included in the inventory of a business or part of a business that a non-resident taxpayer carries on in Canada after that time (other than a property that was, otherwise than because of this subsection, acquired by the taxpayer at that time), the taxpayer is deemed to have acquired the property at that time at a cost equal to its fair market value at that time.

Work in progress

(14) For the purposes of subsections (12) and (13), property that is included in the inventory of a business includes property that would be so included if paragraph 34(

a) did not apply.

(2) Subsection (1) applies after December 23, 1998.

(1) Paragraph 12(1)(

c) of the Act is replaced by the following:

Interest

(

c) subject to subsections (3) and (4.1), any amount received or receivable by the taxpayer in the year (depending on the method regularly followed by the taxpayer in computing the taxpayer’s income) as, on account of, in lieu of payment of or in satisfaction of, interest to the extent that the interest was not included in computing the taxpayer’s income for a preceding taxation year;

(2) Paragraph 12(1)( i.1 ) of the Act is replaced by the following:

Bad debts recovered

( i.1 )

where an amount is received in the year on account of a debt in respect of which a deduction for bad debts was made under subsection 20(4.2) in computing the taxpayer’s income for a preceding taxation year, the amount determined by the formula

A × B / C where A

is 1/2 of the amount so received,

is the amount that was deducted under subsection 20(4.2) in respect of the debt, and

is the total of the amount that was so deducted under subsection 20(4.2) and the amount that was deemed by that subsection or subsection 20(4.3) to be an allowable capital loss in respect of the debt;

(3) Subsection 12(1) of the Act is amended by adding the following after paragraph ( o ):

Foreign oil and gas production taxes

( o.1 )

the total of all amounts, each of which is the taxpayer’s production tax amount for a foreign oil and gas business of the taxpayer for the year, within the meaning assigned by subsection 126(7);

(4) Subsection (1) applies to taxation years that end after September 1997.

(5) Subsection (2) applies in respect of taxation years that end after February 27, 2000 except that, for taxation years that ended after February 27, 2000 and before October 18, 2000, the reference to the fraction “1/2” in the description of A in paragraph 12(1)( i .1) of the Act, as enacted by subsection (2), shall be read as a reference to the fraction “2/3”.

(6) Subsection (3) applies to taxation years of a taxpayer that begin after the earlier of

(

a) December 31, 1999; and

(

b) where, for the purposes of subsection 117(26), a date is designated in writing by the taxpayer and the designation is filed with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent, the later of

(

i) the date so designated, and

(ii)

December 31, 1994.

(1) Clause 13(7)( b )(ii)(

B) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2” and by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(2) Clause 13(7)( d )(i)(

B) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2” and by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(3) Paragraph 13(7)(

e) of the Act is amended by replacing the references to the fraction “3/4” with references to the fraction “1/2” and by replacing the reference to the expression “4/3 of” with a reference to the word “twice”.

(4) Subparagraph 13(7)( f )(ii) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(5) The definition disposition of property in subsection 13(21) of the Act is repealed.

(6) Subparagraph 13(21.1)( b )(ii) of the Act is amended by replacing the reference to the fraction “1/4” with a reference to the fraction “1/2”.

(7) Paragraph 13(21.2)(

a) of the Act is replaced by the following:

(

a) a person or partnership (in this subsection referred to as the “transferor”) disposes at a particular time (otherwise than in a disposition described in any of paragraphs (

c) to (

g) of the definition superficial loss in

section 54) of a depreciable property of a particular prescribed class of the transferor,

(8) Subparagraph 13(21.2)( e )(ii) of the Act is replaced by the following:

(ii)

where two or more properties of a prescribed class of the transferor are disposed of at the same time, subparagraph (

i) applies as if each property so disposed of had been separately disposed of in the order designated by the transferor or, if the transferor does not designate an order, in the order designated by the Minister,

(9) Section 13 of the Act is amended by adding the following after subsection (33):

Deductible expenses

(34) Notwithstanding paragraph 1102(1)(

a) of the Regulations, for taxation years that end after 1987 and before December 6, 1996, the classes of property prescribed for the purpose of paragraph 20(1)(

a) are deemed to include property of a taxpayer that, if the Act were read without reference to sections 66 to 66.4, would be included in one of the classes.

(10) Subsections (1) and (2) apply to changes in use of property that occur in taxation years that end after February 27, 2000 except that, for changes in use of property that occur in a taxpayer’s taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the references in clauses 13(7)( b )(ii)(

B) and 13(7)( d )(i)(

B) of the Act, as enacted by subsections (1) and (2), respectively, to the fraction “1/2” shall be read as references to the fraction in paragraph 38(

a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year and the references to the word “twice” shall be read as references to the expression “the fraction that is the reciprocal of the fraction in paragraph 38( a ), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the taxpayer for the year, multiplied by”.

(11) Subsection (3) applies to acquisitions of property that occur in taxation years that end after February 27, 2000 except that, for acquisitions of property in a taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, of a person or partnership from whom the property was acquired, the references in paragraph 13(7)(

e) of the Act, as enacted by subsection (3), to the fraction “1/2” shall be read as references to the fraction in paragraph 38(

a) of the Act, as enacted by subsection 22(1), that applies to the person or partnership from whom the taxpayer acquired the property for the year in which the person or partnership disposed of the property, and the references to the word “twice” shall be read as references to the expression “the fraction that is the reciprocal of the fraction in paragraph 38( a ), as enacted by subsection 22(1) of the Income Tax Amendments Act, 2000, that applies to the person or partnership from whom the taxpayer acquired the property for the year in which the person or partnership disposed of the property, multiplied by”.

(12) Subsection (4) applies to acquisitions of property that occur in taxation years that end after February 27, 2000 except that, for acquisitions of property that occur in a taxpayer’s taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference in subparagraph 13(7)( f )(ii) of the Act, as enacted by subsection (4), to the fraction “1/2” shall be read as a reference to the fraction in paragraph 38(

a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year.

(13) Subsection (5) applies to transactions and events that occur after December 23, 1998.

(14) Subsection (6) applies to taxation years that end after February 27, 2000 except that, for a taxpayer’s taxation year that includes February 28, 2000 or October 17, 2000, or began after February 28, 2000 and ended before October 17, 2000, the reference in subparagraph 13(21.1)( b )(ii) of the Act, as enacted by subsection (6), to the fraction “1/2” shall be read as a reference to the fraction determined when the fraction in paragraph 38(

a) of the Act, as enacted by subsection 22(1), that applies to the taxpayer for the year is subtracted from 1.

(15) Subsections (7) and (8) apply after November 1999 except that, if an individual (other than a trust) so elects in writing and files the election with the Minister of National Revenue on or before the individual’s filing-due date for the taxation year in which this Act receives royal assent, subsection (7) does not apply in respect of the disposition of a property by the individual before July 2000

(

a) to a person who was obliged on November 30, 1999 to acquire the property pursuant to the terms of an agreement in writing made on or before that day; or

(

b) in a transaction, or as part of a series of transactions, the arrangements for which, evidenced in writing, were substantially advanced before December 1999, other than a transaction or series of transactions a main purpose of which can reasonably be considered to have been to enable an unrelated person to obtain the benefit of

(

i) any deduction in computing income, taxable income, taxable income earned in Canada or tax payable under the Act, or

(ii)

any balance of undeducted outlays, expenses or other amounts.

(1) Subsection 14(1) of the Act is replaced by the following:

Eligible capital property — inclusion in income from business

(1) Where, at the end of a taxation year, the total of all amounts each of which is an amount determined, in respect of a business of a taxpayer, for E in the definition cumulative eligible capital in subsection (5) (in this

section referred to as an “eligible capital amount”) or for F in that definition exceeds the total of all amounts determined for A to D in that definition in respect of the business (which excess is in this subsection referred to as “the excess”), there shall be included in computing the taxpayer’s income from the business for the year the total of

(

a) the amount, if any, that is the lesser of

(

i) the excess, and

(ii)

the amount determined for F in the definition cumulative eligible capital in subsection (5) at the end of the year in respect of the business, and

(

b) the amount, if any, determined by the formula

2/3 × (A – B – C –

D) where A

is the excess,

is the amount determined for F in the definition cumulative eligible capital in subsection (5) at the end of the year in respect of the business,

is 1/2 of the amount determined for Q in the definition cumulative eligible capital in subsection (5) at the end of the year in respect of the business, and

is the amount claimed by the taxpayer, not exceeding the taxpayer’s exempt gains balance for the year in respect of the business.

Election re capital gain

(1.01) Where, at any time in a taxation year, a taxpayer disposes of an eligible capital property (other than goodwill) in respect of a business, the cost of the property to the taxpayer can be determined, the proceeds of the disposition (in this subsection referred to as the “actual proceeds”) exceed that cost, the taxpayer’s exempt gains balance in respect of the business for the year is nil and the taxpayer so elects under this subsection in the taxpayer’s return of income for the year,

(

a) for the purposes of subsection (5), the proceeds of disposition of the property are deemed to be equal to that cost;

(

b) the taxpayer is deemed to have disposed at that time of a capital property that had at that time an adjusted cost base to the taxpayer equal to that cost, for proceeds of disposition equal to the actual proceeds; and

(

c) where the eligible capital property is at that time a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer, the capital property deemed by paragraph (

b) to have been disposed of by the taxpayer is deemed to have been at that time a qualified farm property of the taxpayer.

(2) The portion of subsection 14(1.1) of the Act before the description of B in paragraph (

b) is replaced by the following:

Deemed taxable capital gain

(1.1) For the purposes of

section 110.6 and paragraph 3(

b) as it applies for the purposes of that section, an amount included under paragraph (1)(

b) in computing a taxpayer’s income for a particular taxation year from a business is deemed to be a taxable capital gain of the taxpayer for the year from the disposition in the year of qualified farm property to the extent of the lesser of

(

a) the amount included under paragraph (1)(

b) in computing the taxpayer’s income for the particular year from the business, and

(

b) the amount determined by the formula

A – B where A

is the amount by which the total of

(i)

3/4 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in a preceding taxation year that began after 1987 and ended before February 28, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer,

(ii)

2/3 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in the particular year or a preceding taxation year that ended after February 27, 2000 and before October 18, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer, and

(iii)

1/2 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in the particular year or a preceding taxation year that ended after October 17, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer

exceeds the total of

(iv)

3/4 of the total of all amounts each of which is

(

A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in a preceding taxation year that began after 1987 and ended before February 28, 2000, or

(

B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A),

(v)

2/3 of the total of all amounts each of which is

(

A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in the particular year or a preceding taxation year that ended after February 27, 2000 and before October 18, 2000, or

(

B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A), and

(vi)

1/2 of the total of all amounts each of which is

(

A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in the particular year or a preceding taxation year that ended after October 17, 2000, or

(

B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A), and

(3) The portion of subsection 14(3) of the Act before paragraph (

c) is replaced by the following:

Acquisition of eligible capital property

(3) Notwithstanding any other provision of this Act, where at any particular time a person or partnership (in this subsection referred to as the “taxpayer”) has, directly or indirectly, in any manner whatever, acquired an eligible capital property in respect of a business from a person or partnership with which the taxpayer did not deal at arm’s length (in this subsection referred to as the “transferor”) and the property was an eligible capital property of the transferor (other than property acquired by the taxpayer as a consequence of the death of the transferor), the eligible capital expenditure of the taxpayer in respect of the business is, in respect of that acquisition, deemed to be equal to 4/3 of the amount, if any, by which

(

a) the amount determined for E in the definition cumulative eligible capital in subsection (5) in respect of the disposition of the property by the transferor

exceeds the total of

(

b) the total of all amounts that can reasonably be considered to have been claimed as deductions under

section 110.6 for taxation years that ended before February 28, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time,

( b.1 )

9/8 of the total of all amounts that can reasonably be considered to have been claimed as deductions under

section 110.6 for taxation years that ended after February 27, 2000 and before October 18, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time, and

( b.2 )

3/2 of the total of all amounts that can reasonably be considered to have been claimed as deductions under

section 110.6 for taxation years that end after October 17, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time,

except that, where the taxpayer disposes of the property after the particular time, the amount of the eligible capital expenditure deemed by this subsection to be made by the taxpayer in respect of the property shall be determined at any time after the disposition as if the total of the amounts determined under paragraphs ( b ), ( b.1 ) and ( b.2 ) in respect of the disposition were the lesser of

(4) The description of B in the definition cumulative eligible capital in subsection 14(5) of the Act is replaced by the following:

is the total of

( a )

3/2 of all amounts included under paragraph (1)(

b) in computing the taxpayer’s income from the business for taxation years that ended before that time and after October 17, 2000,

( b )

9/8 of all amounts included under paragraph (1)(

b) in computing the taxpayer’s income from the business for taxation years that ended

(

i) before that time, and

(ii)

after February 27, 2000 and before October 18, 2000,

(

c) all amounts included under paragraph (1)(

b) in computing the taxpayer’s income from the business for taxation years that ended

(

i) before the earlier of that time and February 28, 2000, and

(ii)

after the taxpayer’s adjustment time,

(

d) all amounts each of which is the amount that would have been included under subparagraph (1)( a )(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) in computing the taxpayer’s income from the business, if the amount determined for D in that subparagraph for the year were nil, for taxation years that ended

(

i) before the earlier of that time and February 28, 2000, and

(ii)

after February 22, 1994, and

(

e) all taxable capital gains included, because of the application of subparagraph (1)( a )(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) to the taxpayer in respect of the business, in computing the taxpayer’s income for taxation years that began before February 23, 1994,

(5) The description of R in the definition cumulative eligible capital in subsection 14(5) of the Act is replaced by the following:

is the total of all amounts included, in computing the taxpayer’s income from the business for taxation years that ended before that time and after the taxpayer’s adjustment time, under subparagraph (1)( a )(iv) in respect of taxation years that ended before February 28, 2000 and under paragraph (1)(

a) in respect of taxation years that end after February 27, 2000;

(6) The description of B in the definition exempt gains balance in subsection 14(5) of the Act is replaced by the following:

is the total of all amounts each of which is the amount determined for D in subparagraph (1)( a )(

v) in respect of the business for a preceding taxation year that ended before February 28, 2000 or the amount determined for D in paragraph (1)(

b) for a preceding taxation year that ended after February 27, 2000.

(7) Section 14 of the Act is amended by adding the following after subsection (13):

Ceasing to use property in Canadian business

(14) If at a particular time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer in Canada immediately before the particular time, a property that was immediately before the particular time eligible capital property of the taxpayer (other than a property that was disposed of by the taxpayer at the particular time), the taxpayer is deemed to have disposed of the property immediately before the particular time for proceeds of disposition equal to the amount determined by the formula

A – B where A

is the fair market value of the property immediately before the particular time, and

(

a) where at a previous time before the particular time the taxpayer ceased to use the property in connection with a business or part of a business carried on by the taxpayer outside Canada and began to use it in connection with a business or part of a business carried on by the taxpayer in Canada, the amount, if any, by which the fair market value of the property at the previous time exceeded its cost to the taxpayer at the previous time, and

(

b) in any other case, nil.

Beginning to use property in Canadian business

(15) If at a particular time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer outside Canada immediately before the particular time, and begins to use, in connection with a business or part of a business carried on by the taxpayer in Canada, a property that is an eligible capital property of the taxpayer, the taxpayer is deemed to have disposed of the property immediately before the particular time and to have reacquired the property at the particular time for consideration equal to the lesser of the cost to the taxpayer of the property immediately before the particular time and its fair market value immediately before the particular time.

(8) Subsections (1) to (6) apply to taxation years that end after February 27, 2000 except that, for taxation years that ended after February 27, 2000 and before October 18, 2000, the reference to the fraction “2/3” in the formula in paragraph 14(1)(

b) of the Act, as enacted by subsection (1), shall be read as a reference to the fraction “8/9”.

(9) Subsection (7) applies after June 27, 1999 in respect of an authorized foreign bank, and after August 8, 2000 in any other case.

(1) Section 17 of the Act is amended by adding the following after subsection (11):

Determination of whether persons related

(11.1) For the purposes of this section, in determining whether persons are related to each other at any time, any rights referred to in subparagraph 251(5)( b )(

i) that exist at that time are deemed not to exist at that time to the extent that the exercise of those rights is prohibited at that time under a law of the country under the law of which the corporation was formed or last continued and is governed, that restricts the foreign ownership or control of the corporation.

Back-to-back loans

(11.2) For the purposes of subsection (2) and paragraph (3)( b ), where a non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “intermediate lender”) makes a loan to a non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “intended borrower”) because the intermediate lender received a loan from another non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “initial lender”)

(

a) the loan made by the intermediate lender to the intended borrower is deemed to have been made by the initial lender to the intended borrower (to the extent of the lesser of the amount of the loan made by the initial lender to the intermediate lender and the amount of the loan made by the intermediate lender to the intended borrower) under the same terms and conditions and at the same time as it was made by the intermediate lender; and

(

b) the loan made by the initial lender to the intermediate lender and the loan made by the intermediate lender to the intended borrower are deemed not to have been made to the extent of the amount of the loan deemed to have been made under paragraph ( a ).

Determination of whether persons related

(11.3) For the purpose of applying paragraph (3)(

b) in respect of a corporation resident in Canada described in paragraph (2)( b ), in determining whether persons described in subparagraph (3)( b )(

i) are related to each other at any time, any rights referred to in paragraph 251(5)(

b) that otherwise exist at that time are deemed not to exist at that time where, if the rights were exercised immediately before that time,

(

a) all of those persons would at that time be controlled foreign affiliates of the corporation resident in Canada; and

(

b) because of subsection (8), subsection (1) would not apply to the corporation resident in Canada in respect of the amount that would, but for this subsection, have been deemed to have been owing at that time to the corporation resident in Canada by the non-resident person described in subparagraph (3)( b )(i).

(2) The definition exempt loan or transfer in subsection 17(15) of the Act is replaced by the following:

exempt loan or transfer

prêt ou transfert de biens exclu

exempt loan or transfer means

(

a) a loan made by a corporation resident in Canada where the interest rate charged on the loan is not less than the interest rate that a lender and a borrower would have been willing to agree to if they were dealing at arm’s length with each other at the time the loan was made;

(

b) a transfer of property (other than a transfer of property made for the purpose of acquiring shares of the capital stock of a foreign affiliate of a corporation or a foreign affiliate of a person resident in Canada with whom the corporation was not dealing at arm’s length) or payment of an amount owing by a corporation resident in Canada pursuant to an agreement made on terms and conditions that persons who were dealing at arm’s length at the time the agreement was entered into would have been willing to agree to;

(

c) a dividend paid by a corporation resident in Canada on shares of a class of its capital stock; and

(

d) a payment made by a corporation resident in Canada on a reduction of the paid-up capital in respect of shares of a class of its capital stock (not exceeding the total amount of the reduction).

(3) Subsections (1) and (2) apply to taxation years that begin after February 23, 1998.

(1) Subsection 18(1) of the Act is amended by striking out the word “and” at the end of paragraph ( t ), by adding the word “and” at the end of paragraph (

u) and by adding the following after paragraph ( u ):

Interest — authorized foreign bank

(

v) where the taxpayer is an authorized foreign bank, an amount in respect of interest that would otherwise be deductible in computing the taxpayer’s income from a business carried on in Canada, except as provided in

section 20.2.

(2) Paragraph 18(3.1)(

b) of the Act is replaced by the following:

(

b) the amount of such an outlay or expense shall, to the extent that it would otherwise be deductible in computing the taxpayer’s income for the year, be included in computing the cost or capital cost, as the case may be, of the building to the taxpayer, to the person with whom the taxpayer does not deal at arm’s length, to the corporation of which the taxpayer is a specified shareholder or to the partnership of which the taxpayer’s share of any income or loss is 10% or more, as the case may be.

(3) Paragraph 18(4)(

a) of the Act is replaced by the following:

(

a) the amount, if any, by which

(

i) the average of all amounts each of which is, in respect of a calendar month that ends in the year, the greatest total amount at any time in the month of the corporation’s outstanding debts to specified non-residents,

exceeds

(ii)

two times the total of

(

A) the retained earnings of the corporation at the beginning of the year, except to the extent that those earnings include retained earnings of any other corporation,

(

B) the average of all amounts each of which is the corporation’s contributed surplus at the beginning of a calendar month that ends in the year, to the extent that it was contributed by a specified non-resident shareholder of the corporation, and

(

C) the average of all amounts each of which is the corporation’s paid-up capital at the beginning of a calendar month that ends in the year, excluding the paid-up capital in respect of shares of any class of the capital stock of the corporation owned by a person other than a specified non-resident shareholder of the corporation,

(4) Paragraph (

b) of the definition outstanding debts to specified non-residents in subsection 18(5) of the Act is replaced by the following:

(

b) an amount outstanding at the particular time as or on account of a debt or other obligation to pay an amount to

(

i) a non-resident insurance corporation to the extent that the obligation was, for the non-resident insurance corporation’s taxation year that included the particular time, designated insurance property in respect of an insurance business carried on in Canada through a permanent establishment as defined by regulation, or

(ii)

an authorized foreign bank, if the bank uses or holds the obligation at the particular time in its Canadian banking business;

(5) Subsection 18(8) of the Act is repealed.

(6) Subparagraph 18(9)( a )(ii) of the Act is replaced by the following:

(ii)

as, on account of, in lieu of payment of or in satisfaction of, interest, taxes (other than taxes imposed on an insurer in respect of insurance premiums of a non-cancellable or guaranteed renewable accident and sickness insurance policy, or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less), rent or royalties in respect of a period that is after the end of the year, or

(7) Section 18 of the Act is amended by adding the following after subsection (9.01):

Application of subsection (9) to insurers

(9.02) For the purpose of subsection (9), an outlay or expense made or incurred by an insurer on account of the acquisition of an insurance policy (other than a non-cancellable or guaranteed renewable accident and sickness insurance policy or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less) is deemed to be an expense incurred as consideration for services rendered consistently throughout the period of coverage of the policy.

(8) Subsections (1) and (4) apply after June 27, 1999.

(9) Subsection (2) applies to outlays and expenses made or incurred after December 21, 2000.

(10) Subsections (3) and (5) apply to taxation years that begin after 2000.

(11) Subsections (6) and (7) apply to taxation years that begin after 1999 except that, where a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year in which this Act receives royal assent, they apply to taxation years that end after 1997.

(1) Subsection 18.1(15) of the Act is replaced by the following:

Non-applicability of

section 18.1

(15) Subject to subsections (1) and (14), this

section does not apply to a taxpayer’s matchable expenditure in respect of a right to receive production if

(

a) no portion of the expenditure can reasonably be considered to have been paid to another taxpayer, or to a person with whom the other taxpayer does not deal at arm’s length, to acquire the right from the other taxpayer and

(

i) the taxpayer’s expenditure cannot reasonably be considered to relate to a tax shelter or tax shelter investment (within the meaning assigned by subsection 143.2(1)) and none of the main purposes for making the expenditure is that the taxpayer, or a person with whom the taxpayer does not deal at arm’s length, obtain a tax benefit, or

(ii)

before the end of the taxation year in which the expenditure is made, the total of all amounts each of which is included in computing the taxpayer’s income for the year (other than any portion of such an amount that is the subject of a reserve claimed by the taxpayer for the year under this Act) in respect of the right to receive production to which the matchable expenditure relates exceeds 80% of the expenditure; or

(

b) the expenditure is in respect of commissions or other expenses related to the issuance of an insurance policy for which all or a portion of a risk has been ceded to the taxpayer (in this paragraph referred to as the “reinsurer”) and both the reinsurer and the person to whom the expenditure is made or is to be made are insurers subject to the supervision of

(

i) the Superintendent of Financial Institutions, in the case of an insurer that is required by law to report to the Superintendent of Financial Institutions, or

(ii)

in any other case, the Superintendent of Insurance or other similar officer or authority of the province under whose laws the insurer is incorporated.

(2) Subsection (1) applies to expenditures made after November 17, 1996.

(1) The portion of subsection 19(1) of the Act before subparagraph ( b )(

i) is replaced by the following:

Limitation re advertising expense — newspapers

(1) In computing income, no deduction shall be made in respect of an otherwise deductible outlay or expense of a taxpayer for advertising space in an issue of a newspaper for an advertisement directed primarily to a market in Canada unless

(

a) the issue is a Canadian issue of a Canadian newspaper; or

(

b) the issue is an issue of a newspaper that would be a Canadian issue of a Canadian newspaper except that

(2) The definition substantially the same in subsection 19(5) of the Act is repealed.

(3) The definition Canadian issue in subsection 19(5) of the Act is replaced by the following:

Canadian issue

édition canadienne

Canadian issue of a newspaper means an issue, including a special issue,

(

a) the type of which, other than the type for advertisements or features, is set in Canada,

(

b) all of which, exclusive of any comics supplement, is printed in Canada,

(

c) that is edited in Canada by individuals resident in Canada, and

(

d) that is published in Canada;

(4) The portion of the definition Canadian newspaper or periodical in subsection 19(5) of the Act before paragraph (

a) is replaced by the following:

Canadian newspaper

journal canadien

Canadian newspaper means a newspaper the exclusive right to produce and publish issues of which is held by one or more of the following:

(5) Section 19 of the Act is amended by adding the following after subsection (5):

Interpretation

(5.1) In this section, each of the following is deemed to be a Canadian citizen:

(

a) a trust or corporation described in paragraph 149(1)(

o) or ( o.1 ) formed in connection with a pension plan that exists for the benefit of individuals a majority of whom are Canadian citizens;

(

b) a trust described in paragraph 149(1)(

r) or ( x ), the annuitant in respect of which is a Canadian citizen;

(

c) a mutual fund trust, within the meaning assigned by subsection 132(6), other than a mutual fund trust the majority of the units of which are held by citizens or subjects of a country other than Canada;

(

d) a trust, each beneficiary of which is a person, partnership, association or society described in any of paragraphs (

a) to (

e) of the definition Canadian newspaper in subsection (5); and

(

e) a person, association or society described in paragraph (

c) or (

d) of the definition Canadian newspaper in subsection (5).

(6) Subsections 19(6) to (8) of the Act are replaced by the following:

Trust property

(6) Where the right that is held by any person, partnership, association or society described in the definition Canadian newspaper in subsection (5) to produce and publish issues of a newspaper is held as property of a trust or estate, the newspaper is not a Canadian newspaper unless each beneficiary under the trust or estate is a person, partnership, association or society described in that definition.

Grace period

(7) A Canadian newspaper that would, but for this subsection, cease to be a Canadian newspaper, is deemed to continue to be a Canadian newspaper until the end of the 12th month that follows the month in which it would, but for this subsection, have ceased to be a Canadian newspaper.

Non-Canadian newspaper

(8) Where at any time one or more persons or partnerships that are not described in any of paragraphs (

a) to (

e) of the definition Canadian newspaper in subsection (5) have any direct or indirect influence that, if exercised, would result in control in fact of a person or partnership that holds a right to produce or publish issues of a newspaper, the newspaper is deemed not to be a Canadian newspaper at that time.

(7) Subsections (1) to (4) and (6) apply in respect of advertisements placed in an issue dated after May 2000.

(8) Subsection (5) applies in respect of advertisements placed in an issue dated after June 1996 except that, in applying subsection 19(5.1) of the Act, as enacted by subsection (5), to advertisements placed in an issue dated after June 1996 and before June 2000, the references in that subsection 19(5.1) to “Canadian newspaper” shall be read as references to “Canadian newspaper or periodical”.

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

section 19:

Definitions

19.01

(1) The

definitions in this subsection apply in this section.

advertisement directed at the Canadian market

annonce destinée au marché canadien

advertisement directed at the Canadian market has the same meaning as the expression “directed at the Canadian market” in

section 2 of the Foreign Publishers Advertising Services Act and includes a reference to that expression made by or under that Act.

original editorial content

contenu rédactionnel original

original editorial content in respect of an issue of a periodical means non-advertising content

(

a) the author of which is a Canadian citizen or a permanent resident of Canada within the meaning assigned by the Immigration Act and, for this purpose, author includes a writer, a journalist, an illustrator and a photographer; or

(

b) that is created for the Canadian market and has not been published in any other edition of that issue of the periodical published outside Canada.

periodical

périodique

periodical has the meaning assigned by

section 2 of the Foreign Publishers Advertising Services Act .

Limitation re advertising expenses — periodicals

(2) Subject to subsections (3) and (4), in computing income, no deduction shall be made by a taxpayer in respect of an otherwise deductible outlay or expense for advertising space in an issue of a periodical for an advertisement directed at the Canadian market.

100% deduction

(3) A taxpayer may deduct in computing income an outlay or expense of the taxpayer for advertising space in an issue of a periodical for an advertisement directed at the Canadian market if

(

a) the original editorial content in the issue is 80% or more of the total non-advertising content in the issue; and

(

b) the outlay or expense would, but for subsection (2), be deductible in computing the taxpayer’s income.

50% deduction

(4) A taxpayer may deduct in computing income 50% of an outlay or expense of the taxpayer for advertising space in an issue of a periodical for an advertisement directed at the Canadian market if

(

a) the original editorial content in the issue is less than 80% of the total non-advertising content in the issue; and

(

b) the outlay or expense would, but for subsection (2), be deductible in computing the taxpayer’s income.

Application

(5) For the purposes of subsections (3) and (4),

(

a) the percentage that original editorial content is of total non-advertising content is the percentage that the total space occupied by original editorial content in the issue is of the total space occupied by non-advertising content in the issue; and

(

b) the Minister may obtain the advice of the Department of Canadian Heritage for the purpose of

(

i) determining the result obtained under paragraph ( a ), and

(ii)

interpreting any expression defined in this

section that is defined in the Foreign Publishers Advertising Services Act .

Editions of issues

(6) For the purposes of this section,

(

a) where an issue of a periodical is published in several versions, each version is an edition of that issue; and

(

b) where an issue of a periodical is published in only one version, that version is an edition of that issue.

(2) Subsection (1) applies in respect of advertisements placed in an issue dated after May 2000.

(1) Paragraph 20(1)(

b) of the Act is replaced by the following:

Cumulative eligible capital amount

(

b) such amount as the taxpayer claims in respect of a business, not exceeding 7% of the taxpayer’s cumulative eligible capital in respect of the business at the end of the year except that, where the year is less than 12 months, the amount allowed as a deduction under this paragraph shall not exceed that proportion of the maximum amount otherwise allowable that the number of days in the taxation year is of 365;

(2) The portion of paragraph 20(1)(

e) of the Act before subparagraph (

i) is replaced by the following:

Expenses re financing

(

e) such part of an amount (other than an excluded amount) that is not otherwise deductible in computing the income of the taxpayer and that is an expense incurred in the year or a preceding taxation year

(3) The portion of paragraph 20(1)(

e) of the Act after subparagraph (ii.2) and before subparagraph (iii) is replaced by the following:

(including a commission, fee, or other amount paid or payable for or on account of services rendered by a person as a salesperson, agent or dealer in securities in the course of the issuance, sale or borrowing) that is the lesser of

(4) Paragraph 20(1)(

e) of the Act is amended by adding the following before subparagraph (v):

(iv.1)

excluded amount means

(

A) an amount paid or payable as or on account of the principal amount of a debt obligation or interest in respect of a debt obligation,

(

B) an amount that is contingent or dependent on the use of, or production from, property, or

(

C) an amount that is computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a corporation,

(5) Subparagraph 20(1)( f )(ii) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(6) Paragraph 20(1)( z.1 ) of the Act is amended by replacing the reference to the fraction “3/4” with a reference to the fraction “1/2”.

(7) Subparagraph 20(1)( hh )(ii) of the Act is replaced by the following:

(ii)

that is, by reason of subparagraph 12(1)( x )(vi) or subsection 12(2.2), not included under paragraph 12(1)(

x) in computing the taxpayer’s income for the year or a preceding taxation year, where the particular amount relates to an outlay or expense (other than an outlay or expense that is in respect of the cost of property of the taxpayer or that is or would be, if amounts deductible by the taxpayer were not limited by reason of paragraph 66(4)( b ), subsection 66.1(2), subparagraph 66.2(2)( a )(ii), the words “30% of” in clause 66.21(4)( a )(ii)(B), clause 66.21(4)( a )(ii)(

C) or (

D) or subparagraph 66.4(2)( a )(ii), deductible under

section 66, 66.1, 66.2, 66.21 or 66.4) that would, if the particular amount had not been received, have been deductible in computing the taxpayer’s income for the year or a preceding taxation year;

(8) Subsection 20(4.2) of the Act is replaced by the following:

Bad debts re eligible capital property

(4.2) Where, in respect of one or more dispositions of eligible capital property by a taxpayer, an amount that is described in paragraph (

a) of the description of E in the definition cumulative eligible capital in subsection 14(5) in respect of the taxpayer is established by the taxpayer to have become a bad debt in a taxation year, there shall be deducted in computing the taxpayer’s income for the year the amount determined by the formula

(A + B) – (C + D + E + F + G +

H) where A

is the lesser of

( a )

1/2 of the total of all amounts each of which is such an amount that was so established to have become a bad debt in the year or a preceding taxation year, and

(

b) the amount that is

(

i) where the year ended after February 27, 2000, the amount, if any, that would be the total of all amounts determined by the formula in paragraph 14(1)( b ) (if that formula were read without reference to the description of

D) for the year, or for a preceding taxation year that ended after February 27, 2000, and

(ii)

where the year ended before February 28, 2000, nil;

is the amount, if any, by which

( a )

3/4 of the total of all amounts each of which is such an amount that was so established to be a bad debt in the year or a preceding taxation year

exceeds the total of

( b )

3/2 of the amount by which

(

i) the value of A

exceeds

(ii)

the amount included in the value of A because of subparagraph ( b )(

i) of the description of A in respect of taxation years that ended after February 27, 2000 and before October 18, 2000, and

( c )

9/8 of the amount included in the value of A because of subparagraph ( b )(

i) of the description of A in respect of taxation years that ended after February 27, 2000 and before October 18, 2000;

is the total of all amounts each of which is an amount determined under subsection 14(1) or (1.1) for the year, or a preceding taxation year, that ends after October 17, 2000 and in respect of which a deduction can reasonably be considered to have been claimed under

section 110.6 by the taxpayer;

is the total of all amounts each of which is an amount determined under subsection 14(1) or (1.1) for the year, or a preceding taxation year, that ended after February 27, 2000 and before October 18, 2000 and in respect of which a deduction can reasonably be considered to have been claimed under

section 110.6 by the taxpayer;

is the total of all amounts each of which is an amount determined under subsection 14(1) or (1.1) for a preceding taxation year that ended before February 28, 2000 and in respect of which a deduction can reasonably be considered to have been claimed under

section 110.6 by the taxpayer;

is the total of

( a )

2/3 of the total of all amounts each of which is the value determined in respect of the taxpayer for D in the formula in paragraph 14(1)(

b) for the year, or a preceding taxation year, that ends after October 17, 2000, and

( b )

8/9 of the total of all amounts each of which is the value determined in respect of the taxpayer for D in the formula in paragraph 14(1)(

b) for the year, or a preceding taxation year, that ended after February 27, 2000 and before October 18, 2000;

is the total of all amounts each of which is the value determined in respect of the taxpayer for D in the formula in subparagraph 14(1)( a )(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) for a preceding taxation year; and

is the total of all amounts deducted by the taxpayer under this subsection for preceding taxation years.

Deemed allowable capital loss

(4.3) Where, in respect of one or more dispositions of eligible capital property by a taxpayer, an amount that is described in paragraph (

a) of the description of E in the definition cumulative eligible capital in subsection 14(5) in respect of the taxpayer is established by the taxpayer to have become a bad debt in a taxation year, the taxpayer is deemed to have an allowable capital loss from a disposition of capital property in the year equal to the lesser of

(

a) the total of the value determined for A and 2/3 of the value determined for B in the formula in subsection (4.2) in respect of the taxpayer for the year; and

(

b) the total of all amounts each of which is

(

i) the value determined for C or paragraph (

a) of the description of F in the formula in subsection (4.2) in respect of the taxpayer for the year,

(ii)

3/4 of the value determined for D or paragraph (

b) of the description of F in the formula in subsection (4.2) in respect of the taxpayer for the year, or

(iii)

2/3 of the value determined for E or G in the formula in subsection (4.2) in respect of the taxpayer for the year.

(9) Subsection (1) applies to taxation years that begin after December 21, 2000.

(10) Subsections (2) to (4) apply to expenses incurred by a taxpayer after November 1999, other than expenses incurred pursuant to a written agreement made by the taxpayer before December 1999.

(11) Subsections (5) and (6) apply in respect of amounts that become payable after February 27, 2000 except that, for amounts that became payable after February 27, 2000 and before October 18, 2000, the reference to the fraction “1/2” in subparagraph 20(1)( f )(ii) of the Act, as enacted by subsection (5), and in paragraph 20(1)( z.1 ) of the Act, as enacted by subsection (6), shall be read as a reference to the fraction “2/3”.

(12) Subsection (7) applies to taxation years that begin after 2000.

(13) Subsection (8) applies to taxation years that end after February 27, 2000 except that, for taxation years that ended after February 27, 2000 and before October 18, 2000,

(

a) the reference to the fraction “1/2” in paragraph (

a) of the description of A in subsection 20(4.2) of the Act, as enacted by subsection (8), shall be read as a reference to the fraction “2/3”;

(

b) the reference to the fraction “3/2” in paragraph (

b) of the description of B in subsection 20(4.2) of the Act, as enacted by subsection (8), shall be read as a reference to the fraction “9/8”;

(

c) the reference to the fraction “2/3” in paragraph 20(4.3)(

a) and subparagraph 20(4.3)( b )(iii) of the Act, as enacted by subsection (8), shall be read as a reference to the fraction “8/9”; and

(

d) subparagraph 20(4.3)( b )(ii) of the Act, as enacted by subsection (8), shall be read without reference to the expression “3/4 of”.

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

section 20.1:

Interest — authorized foreign bank —

interpretation

20.2

(1) The following

definitions apply in this section.

branch advance

avance de succursale

branch advance of an authorized foreign bank means an amount allocated or provided by, or on behalf of, the bank to, or for the benefit of, its Canadian banking business under terms that were documented, before the amount was so allocated or provided, to the same extent as, and in a form similar to the form in which, the bank would ordinarily document a loan by it to a person with whom it deals at arm’s length.

branch financial statements

états financiers de succursale

branch financial statements of an authorized foreign bank for a taxation year means the unconsolidated statements of assets and liabilities and of income and expenses for the year, in respect of its Canadian banking business,

(

a) that form part of the bank’s annual report for the year filed with the Superintendent of Financial Institutions as required under

section 601 of the Bank Act , and accepted by the Superintendent, and

(

b) if no filing is so required for the taxation year, that are prepared in a manner consistent with the statements in the annual report or reports so filed and accepted for the period or periods in which the taxation year falls,

except if the Minister demonstrates that the statements are not prepared in accordance with generally-accepted accounting principles in Canada as modified by any specifications applicable to the bank made by the Superintendent of Financial Institutions under subsection 308(4) of the Bank Act (in this definition referred to as “modified GAAP”), in which case it means the statements subject to such modifications as are required to make them comply with modified GAAP.

calculation period

période de calcul

calculation period of an authorized foreign bank for a taxation year means any one of a series of regular periods into which the year is divided in a designation by the bank in its return of income for the year or, in the absence of such a designation, by the Minister,

(

a) none of which is longer than 31 days;

(

b) the first of which commences at the beginning of the year and the last of which ends at the end of the year; and

(

c) that are, unless the Minister otherwise agrees in writing, consistent with the calculation periods designated for the bank’s preceding taxation year.

Formula elements

(2) The following descriptions apply for the purposes of the formulae in subsection (3) for any calculation period in a taxation year of an authorized foreign bank:

is the amount of the bank’s assets at the end of the period;

is the amount of the bank’s branch advances at the end of the period;

IBA

is the total of all amounts each of which is a reasonable amount on account of notional interest for the period, in respect of a branch advance, that would be deductible in computing the bank’s income for the year if it were interest payable by, and the advance were indebtedness of, the bank to another person and if this Act were read without reference to paragraph 18(1)(

v) and this section;

is the total of all amounts each of which is an amount on account of interest for the period in respect of a liability of the bank to another person or partnership that would be deductible in computing the bank’s income for the year if this Act were read without reference to paragraph 18(1)(

v) and this section; and

is the amount of the bank’s liabilities to other persons and partnerships at the end of the period.

Interest deduction

(3) In computing the income of an authorized foreign bank from its Canadian banking business for a taxation year, there may be deducted on account of interest for each calculation period of the bank for the year,

(

a) where the total amount at the end of the period of its liabilities to other persons and partnerships and branch advances is 95% or more of the amount of its assets at that time, an amount not exceeding

(

i) if the amount of liabilities to other persons and partnerships at that time is less than 95% of the amount of its assets at that time, the amount determined by the formula

IL + IBA × (0.95 × A – L) / BA

and

(ii)

if the amount of those liabilities at that time is greater than or equal to 95% of the amount of its assets at that time, the amount determined by the formula

IL × (0.95 × A) / L

and

(

b) in any other case, the total of

(

i) the amount determined by the formula

IL + IBA

and

(ii)

the product of

(

A) the amount claimed by the bank, in its return of income for the year, not exceeding the amount determined by the formula

(0.95 × A) – (L + BA)

and

(

B) the average, based on daily observations, of the Bank of Canada bank rate for the period.

Branch amounts

(4) Only amounts that are in respect of an authorized foreign bank’s Canadian banking business, and that are recorded in the books of account of the business in a manner consistent with the manner in which they are required to be treated for the purposes of the branch financial statements, shall be used to determine

(

a) the amounts in subsection (2); and

(

b) the amounts in subsection (3) of an authorized foreign bank’s assets, liabilities to other persons and partnerships, and branch advances.

Notional interest

(5) For the purposes of the description of IBA in subsection (2), a reasonable amount on account of notional interest for a calculation period in respect of a branch advance is the amount that would be payable on account of interest for the period by a notional borrower, having regard to the duration of the advance, the currency in which repayment is required and all other terms, as adjusted by paragraph ( c ), of the advance, if

(

a) the borrower were a person that dealt at arm’s length with the bank, that carried on the bank’s Canadian banking business and that had the same credit-worthiness and borrowing capacity as the bank;

(

b) the advance were a loan by the bank to the borrower; and

(

c) any of the terms of the advance (excluding the rate of interest, but including the structure of the interest calculation, such as whether the rate is fixed or floating and the choice of any reference rate referred to) that are not terms that would be made between the bank as lender and the borrower, having regard to all the circumstances, including the nature of the Canadian banking business, the use of the advanced funds in the business and normal risk management practices for banks, were instead terms that would be agreed to by the bank and the borrower.

Weak currency debt —

interpretation

20.3

(1) The

definitions in this subsection apply in this section.

exchange date

date de l’échange

exchange date in respect of a debt of a taxpayer that is at any time a weak currency debt means, if the debt is incurred or assumed by the taxpayer

(

a) in respect of borrowed money that is denominated in the final currency, the day that the debt is incurred or assumed by the taxpayer; and

(

b) in respect of borrowed money that is not denominated in the final currency, or in respect of the acquisition of property, the day on which the taxpayer uses the borrowed money or the acquired property, directly or indirectly, to acquire funds that are, or to settle an obligation that is, denominated in the final currency.

hedge

opération de couverture

hedge in respect of a debt of a taxpayer that is at any time a weak currency debt means any agreement made by the taxpayer

(

a) that can reasonably be regarded as having been made by the taxpayer primarily to reduce the taxpayer’s risk, with respect to payments of principal or interest in respect of the debt, of fluctuations in the value of the weak currency; and

(

b) that is identified by the taxpayer as a hedge in respect of the debt in a designation in prescribed form filed with the Minister on or before the 30th day after the day the taxpayer enters into the agreement.

weak currency debt

dette en devise faible

weak currency debt of a taxpayer at a particular time means a particular debt in a foreign currency (in this

section referred to as the “weak currency”), incurred or assumed by the taxpayer at a time (in this

section referred to as the “commitment time”) after February 27, 2000, in respect of a borrowing of money or an acquisition of property, where

(

a) any of the following applies, namely,

(

i) the borrowed money is denominated in a currency (in this

section referred to as the “final currency”) other than the weak currency, is used for the purpose of earning income from a business or property and is not used to acquire funds in a currency other than the final currency,

(ii)

the borrowed money or the acquired property is used, directly or indirectly, to acquire funds that are denominated in a currency (in this

section referred to as the “final currency”) other than the weak currency, that are used for the purpose of earning income from a business or property and that are not used to acquire funds in a currency other than the final currency,

(iii)

the borrowed money or the acquired property is used, directly or indirectly, to settle an obligation that is denominated in a currency (in this

section referred to as the “final currency”) other than the weak currency, that is incurred or assumed for the purpose of earning income from a business or property and that is not incurred or assumed to acquire funds in a currency other than the final currency, or

(iv)

the borrowed money or the acquired property is used, directly or indirectly, to settle another debt of the taxpayer that is at any time a weak currency debt in respect of which the final currency (which is deemed to be the final currency in respect of the particular debt) is a currency other than the currency of the particular debt;

(

b) the amount of the particular debt (together with any other debt that would, but for this paragraph, be at any time a weak currency debt, and that can reasonably be regarded as having been incurred or assumed by the taxpayer as part of a series of transactions that includes the incurring or assumption of the particular debt) exceeds $500,000; and

(

c) either of the following applies, namely,

(

i) if the rate at which interest is payable at the particular time in the weak currency in respect of the particular debt is determined under a formula based on the value from time to time of a reference rate (other than a reference rate the value of which is established or materially influenced by the taxpayer), the interest rate at the commitment time, as determined under the formula as though interest were then payable, exceeds by more than two percentage points the rate at which interest would have been payable at the commitment time in the final currency if

(

A) the taxpayer had, at the commitment time, instead incurred or assumed an equivalent amount of debt in the final currency on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating) with those modifications that the difference in currency requires, and

(

B) interest on the equivalent amount of debt referred to in clause (

A) was payable at the commitment time, or

(ii)

in any other case, the rate at which interest is payable at the particular time in the weak currency in respect of the particular debt exceeds by more than two percentage points the rate at which interest would have been payable at the particular time in the final currency if at the commitment time the taxpayer had instead incurred or assumed an equivalent amount of debt in the final currency on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating), with those modifications that the difference in currency requires.

Interest and gain

(2) Notwithstanding any other provision of this Act, the following rules apply in respect of a particular debt of a taxpayer (other than a corporation described in one or more of paragraphs ( a ), ( b ), (

c) and (

e) of the definition specified financial institution in subsection 248(1)) that is at any time a weak currency debt:

(

a) no deduction on account of interest that accrues on the debt for any period that begins after the day that is the later of June 30, 2000 and the exchange date during which it is a weak currency debt shall exceed the amount of interest that would, if at the commitment time the taxpayer had instead incurred or assumed an equivalent amount of debt, the principal and interest in respect of which were denominated in the final currency, on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating) have accrued on the equivalent debt during that period, with those modifications that the difference in currency requires;

(

b) the amount, if any, of the taxpayer’s gain or loss (in this

section referred to as a “foreign exchange gain or loss”) for a taxation year on the settlement or extinguishment of the debt that arises because of the fluctuation in the value of any currency shall be included or deducted, as the case may be, in computing the taxpayer’s income for the year from the business or the property to which the debt relates; and

(

c) the amount of any interest on the debt that was, because of this subsection, not deductible is deemed, for the purpose of computing the taxpayer’s foreign exchange gain or loss on the settlement or extinguishment of the debt, to be an amount paid by the taxpayer to settle or extinguish the debt.

Hedges

(3) In applying subsection (2) in circumstances where a taxpayer has entered into a hedge in respect of a debt of the taxpayer that is at any time a weak currency debt, the amount paid or payable in the weak currency for a taxation year on account of interest on the debt, or paid in the weak currency in the year on account of the debt’s principal, shall be decreased by the amount of any foreign exchange gain, or increased by the amount of any foreign exchange loss, on the hedge in respect of the amount so paid or payable.

Repayment of principal

(4) If the amount (expressed in the weak currency) outstanding on account of principal in respect of a debt of the taxpayer that is at any time a weak currency debt is reduced before maturity (whether by repayment or otherwise), the amount (expressed in the weak currency) of the reduction is deemed, except for the purposes of determining the rate of interest that would have been charged on an equivalent loan in the final currency and applying paragraph (

b) of the definition weak currency debt in subsection (1), to have been a separate debt from the commitment time.

(2) Section 20.2, as enacted by subsection (1), applies after June 27, 1999 except that in its application to amounts allocated or provided before the day that is 14 days after August 8, 2000, the definition branch advance in subsection 20.2(1), as enacted by subsection (1), shall be read as follows:

branch advance of an authorized foreign bank at a particular time means an amount allocated or provided by, or on behalf of, the bank to, or for the benefit of, its Canadian banking business under terms that were documented, on or before December 31, 2000, to the same extent as, and in a form similar to the form in which, the bank would ordinarily document a loan by it to a person with whom it deals at arm’s length.

(3) Section 20.3 of the Act, as enacted by subsection (1), applies to taxation years that end after February 27, 2000.

(4) A designation described in paragraph (

b) of the definition hedge in subsection 20.3(1) of the Act, as enacted by subsection (1), is deemed to have been filed in a timely manner if it is filed on or before the later of July 31, 2000 and the 30th day after the day the taxpayer agrees to the hedge.

(1) Subsection 21(2) of the Act is replaced by the following:

Borrowed money used for exploration or development

(2) Where in a taxation year a taxpayer has used borrowed money for the purpose of exploration, development or the acquisition of property and the expenses incurred by the taxpayer in respect of those activities are Canadian exploration and development expenses, Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses, foreign resource expenses in respect of a country, or foreign exploration and development expenses, as the case may be, if the taxpayer so elects under this subsection in the taxpayer’s return of income for the year,

(

a) in computing the taxpayer’s income for the year and for such of the three immediately preceding taxation years as the taxpayer had, paragraphs 20(1)( c ), ( d ), (

e) and ( e.1 ) do not apply to the amount or to the part of the amount specified in the taxpayer’s election that, but for that election, would be deductible in computing the taxpayer’s income (other than exempt income or income that is exempt from tax under this Part) for any such year in respect of the borrowed money used for the exploration, development or acquisition of property, as the case may be; and

(

b) the amount or the part of the amount, as the case may be, described in paragraph (

a) is deemed to be Canadian exploration and development expenses, Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses, foreign resource expenses in respect of a country, or foreign exploration and development expenses, as the case may be, incurred by the taxpayer in the year.

(2) Subsection 21(4) of the Act is amended by striking out the word “and” at the end of paragraph (

a) and by replacing the portion after paragraph (

a) with the following:

(

b) in each taxation year, if any, after that preceding taxation year and before the particular year, made an election under this subsection covering the total amount that, but for that election, would have been deductible in computing the taxpayer’s income (other than exempt income or income that is exempt from tax under this Part) for each such year in respect of the borrowed money used for the exploration, development or acquisition of property, as the case may be, and

(

c) so elects in the taxpayer’s return of income for the particular year,

the following rules apply:

( d )

paragraphs 20(1)( c ), ( d ), (

e) and ( e.1 ) do not apply to the amount or to the part of the amount specified in the election that, but for the election, would be deductible in computing the taxpayer’s income (other than exempt income or income that is exempt from tax under this Part) for the particular year in respect of the borrowed money used for the exploration, development or acquisition of property, and

(

e) the amount or part of the amount, as the case may be, is deemed to be Canadian exploration and development expenses, Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses, foreign resource expenses in respect of a country, or foreign exploration and development expenses, as the case may be, incurred by the taxpayer in the particular year.

(3) Subsections (1) and (2) apply to taxation years that begin after 2000.

(1) Paragraph 24(2)(

d) of the Act is replaced by the following:

(

d) for the purpose of determining after that time the amount required to be included under paragraph 14(1)(

b) in computing the income of the spouse, the common-law partner or the corporation in respect of any subsequent disposition of property of the business, there shall be added to the amount otherwise determined for Q in the definition cumulative eligible capital in subsection 14(5) the amount, if any, determined for Q in that definition in respect of the business of the individual immediately before the individual ceased to carry on business.

(2) Subsection (1) applies to taxation years that end after February 27, 2000.

(1) Subsection 27(2) of the Act is replaced by the following:

Presumption

(2) Notwithstanding any other provision of this Act, a prescribed federal Crown corporation and any corporation controlled by such a corporation are each deemed not to be a private corporation and paragraphs 149(1)(

d) to ( d.4 ) do not apply to those corporations.

(2) Subsection (1) applies to taxation years and fiscal periods that begin after 1998.

(1) Paragraphs 28(4)(

a) and (

b) of the Act are replaced by the following:

(

a) for the year, if the taxpayer was non-resident throughout the year; and

(

b) for the part of the year throughout which the taxpayer was resident in Canada, if the taxpayer was resident in Canada at any time in the year.

(2) Subsection 28(4.1) of the Act is repealed.

(3) Subsection (1) applies to the 1998 and subsequent taxation years.

(4) Subsection (2) applies after December 23, 1998.

(1) The definition foreign bank in subsection 33.1(1) of the Act is replaced by the following:

foreign bank

banque étrangère

foreign bank has the meaning assigned by the definition foreign bank in

section 2 of the Bank Act (read without reference to paragraph ( g )), except that an authorized foreign bank is not considered to be a foreign bank in respect of its Canadian banking business;

(2) Subsection (1) applies after June 27, 1999.

(1) The definition mining property in subsection 35(2) of the Act is replaced by the following:

mining property

bien minier

mining property means

(

a) a right, licence or privilege to prospect, explore, drill or mine for minerals in a mineral resource in Canada, or

(

b) real property in Canada (other than depreciable property) the principal value of which depends on its mineral resource content;

(2) Subsection (1) applies to shares received after December 21, 2000.

(1) Subsection 37(1) of the Act is amended by adding the following after paragraph ( d ):

( d.1 )

the total of all amounts each of which is the super-allowance benefit amount (within the meaning assigned by subsection 127(9)) for the year or for a preceding taxation year in respect of the taxpayer in respect of a province,

(2) Subsection (1) applies to taxation years that begin after February 2000 except that, if a taxpayer’s first taxation year that begins after February 2000 ends before 2001, subsection (1) applies to the taxpayer’s taxation years that begin after 2000.

(1) Paragraph 38(

a) of the Act is replaced by the following:

(

a) subject to paragraphs ( a.1 ) and ( a.2 ), a taxpayer’s taxable capital gain for a taxation year from the disposition of any property is 1/2 of the taxpayer’s capital gain for the year from the disposition of the property;

(2) Paragraph 38( a.1 ) of the Act is amended by replacing the reference to the fraction “3/8” with a reference to the fraction “1/4”.

(3) Section 38 of the Act is amended by adding the following after paragraph ( a.1 ):

( a.2 )

a taxpayer’s taxable capital gain for a taxation year from the disposition of a property is 1/4 of the taxpayer’s capital gain for the year from the disposition of the property where

(

i) the disposition is the making of a gift to a qualified donee (other than a private foundation) of a property described, in respect of the taxpayer, in paragraph 110.1(1)(

d) or in the definition total ecological gifts in subsection 118.1(1), or

(ii)

the disposition is deemed by

section 70 to have occurred and the taxpayer is deemed by subsection 118.1(5) to have made a gift described in subparagraph (

i) of the property;

(4) Paragraphs 38(

b) and (

c) of the Act are amended by replacing the references to the fraction “3/4” with references to the fraction “1/2”.

(5) Subsections (1) and (4) apply to the 2000 and subsequent taxation years except that

(

a) for a taxation year of a taxpayer that ended before February 28, 2000, the references to the fraction “1/2” in paragraph 38(

a) of the Act, as enacted by subsection (1), and in paragraphs 38(

b) and (

c) of the Act, as enacted by subsection (4), shall be read as references to the fraction “3/4”,

(

b) for a taxpayer’s taxation year that began after February 28, 2000 and ended before October 17, 2000, the references to the fraction “1/2” in paragraph 38(

a) of the Act as enacted by subsection (1) and in paragraphs 38(

b) and (

c) of the Act, as enacted by subsection (4), shall be read as references to the fraction “2/3”,

(

c) for a taxation year of a taxpayer that includes February 28, 2000 but does not include October 18, 2000, the references to the fraction “1/2” in paragraph 38(

a) of the Act, as enacted by subsection (1), and in paragraphs 38(

b) and (

c) of the Act, as enacted by subsection (4), shall be read as references to the fraction that applies to the taxpayer for that year, and for this purpose,

(

i) where the amount of the taxpayer’s net capital gains from dispositions of property in the period that began at the beginning of the year and ended at the end of February 27, 2000 (in this paragraph referred to as the “first period”) exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the period that begins at the beginning of February 28, 2000 and ends at the end of the year (in this paragraph referred to as the “second period”), the fraction that applies to the taxpayer for the year is 3/4,

(ii)

where the amount of the taxpayer’s net capital losses from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 3/4,

(iii)

where the amount of the taxpayer’s net capital gains from dispositions of property in the first period is less than the amount of the taxpayer’s net capital losses from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 2/3,

(iv)

where the amount of the taxpayer’s net capital losses from dispositions of property in the first period is less than the amount of the taxpayer’s net capital gains from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 2/3,

(

v) where the taxpayer has only net capital gains, or only net capital losses, from dispositions of property in each of the first and second periods, the fraction that applies to the taxpayer for the year is the fraction determined by the formula

(3/4 × A + 2/3 × B) / (A +

B) where A

is the net capital gains or the net capital losses, as the case may be, of the taxpayer from dispositions of property in the first period, and

is the net capital gains or the net capital losses, as the case may be, of the taxpayer from dispositions of property in the second period, and

(vi)

where the net capital gains and net capital losses of the taxpayer for the year are nil, the fraction that applies to the taxpayer for the year is 2/3,

(

d) for a taxation year of a taxpayer that began after February 27, 2000 and includes October 18, 2000, the references to the fraction “1/2” in paragraph 38(

a) of the Act, as enacted by subsection (1), and in paragraphs 38(

b) and (

c) of the Act, as enacted by subsection (4), shall be read as references to the fraction that applies to the taxpayer for that year, and for this purpose,

(

i) where the amount of the taxpayer’s net capital gains from dispositions of property in the period that began at the beginning of the year and ended at the end of October 17, 2000 (in this paragraph referred to as the “first period”) exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the period that begins at the beginning of October 18, 2000 and ends at the end of the year (in this paragraph referred to as the “second period”), the fraction that applies to the taxpayer for the year is 2/3,

(ii)

where the amount of the taxpayer’s net capital losses from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 2/3,

(iii)

where the amount of the taxpayer’s net capital gains from dispositions of property in the first period is less than the amount of the taxpayer’s net capital losses from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 1/2,

(iv)

where the amount of the taxpayer’s net capital losses from dispositions of property in the first period is less than the amount of the taxpayer’s net capital gains from dispositions of property in the second period, the fraction that applies to the taxpayer for the year is 1/2,

(

v) where the taxpayer has only net capital gains, or only net capital losses, from dispositions of property in each of the first and second periods, the fraction that applies to the taxpayer for the year is the fraction determined by the formula

(2/3 × A + 1/2 × B)/(A +

B) where A

is the net capital gains or the net capital losses, as the case may be, of the taxpayer from dispositions of property in the first period, and

is the net capital gains or the net capital losses, as the case may be, of the taxpayer from dispositions of property in the second period, and

(vi)

where the net capital gains and net capital losses of the taxpayer for the year are nil, the fraction that applies to the taxpayer for the year is 1/2,

(

e) for a taxation year of a taxpayer that includes February 27, 2000 and October 18, 2000, the references to the fraction “1/2” in paragraph 38(

a) of the Act, as enacted by subsection (1), and in paragraphs 38(

b) and (

c) of the Act, as enacted by subsection (4), shall be read as references to the fraction that applies to the taxpayer for that year, and for this purpose,

(

i) the fraction that applies to the taxpayer for the year is 3/4, where

(

A) the amount by which the amount of the taxpayer’s net capital gains from dispositions of property in the period that began at the beginning of the year and ended at the end of February 27, 2000 (in this paragraph referred to as the “first period”) exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the period that began at the beginning of February 28, 2000 and ended at the end of October 17, 2000 (in this paragraph referred to as the “second period”)

exceeds

(

B) the amount of the taxpayer’s net capital losses from dispositions of property in the period that begins at the beginning of October 18, 2000 and ends at the end of the year (in this paragraph referred to as the “third period”),

(ii)

the fraction that applies to the taxpayer for the year is 3/4, where

(

A) the amount by which the amount of the taxpayer’s net capital losses from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the second period

exceeds

(

B) the amount of the taxpayer’s net capital gains from dispositions of property in the third period,

(iii)

the fraction that applies to the taxpayer for the year is 2/3, where

(

A) the amount by which the amount of the taxpayer’s net capital gains from dispositions of property in the second period exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the first period

exceeds

(

B) the amount of the taxpayer’s net capital losses from dispositions of property in the third period,

(iv)

the fraction that applies to the taxpayer for the year is 2/3, where

(

A) the amount by which the amount of the taxpayer’s net capital losses from dispositions of property in the second period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the first period

exceeds

(

B) the amount of the taxpayer’s net capital gains from dispositions of property in the third period,

(

v) where the taxpayer has net capital gains in each of the first and second periods and the total amount of those net capital gains in those periods exceeds the amount of the taxpayer’s net capital losses in the third period, the fraction that applies to the taxpayer for the year is the fraction that is determined by the formula

(3/4 × A + 2/3 × B) / (A +

B) where A

is the net capital gains of the taxpayer from dispositions of property in the first period, and

is the net capital gains of the taxpayer from dispositions of property in the second period,

(vi)

where the taxpayer has net capital losses in each of the first and second periods and the total amount of those net capital losses in those periods exceeds the amount of the taxpayer’s net capital gains in the third period, the fraction that applies to the taxpayer for the year is the fraction that is determined by the formula

(3/4 × A + 2/3 × B) / (A +

B) where A

is the net capital losses of the taxpayer from dispositions of property in the first period, and

is the net capital losses of the taxpayer from dispositions of property in the second period,

(vii)

where the taxpayer has only net capital gains, or only net capital losses, from dispositions of property in each of the first, second and third periods, the fraction that applies to the taxpayer for the year is the fraction that is determined by the formula

(3/4 × A + 2/3 × B + 1/2 × C) / (A + B +

C) where A

is the taxpayer’s net capital gains or net capital losses, as the case may be, from dispositions of property in the first period,

is the taxpayer’s net capital gains or net capital losses, as the case may be, from dispositions of property in the second period, and

is the taxpayer’s net capital gains or net capital losses, as the case may be, from dispositions of property in the third period,

(viii)

where the amount of the taxpayer’s net capital gains from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the second period and the taxpayer has net capital gains from dispositions of property in the third period, the fraction that applies to the taxpayer for the year is the fraction that is determined by the formula

(3/4 × A + 1/2 × B) / (A +

B) where A

is the amount by which the taxpayer’s net capital gains from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital losses from dispositions of property in the second period, and

is the taxpayer’s net capital gains from dispositions of property in the third period,

(ix)

where the amount of the taxpayer’s net capital losses from dispositions of property in the first period exceeds the amount of the taxpayer’s net capital gains from dispositions of property in the second period and the taxpayer has net capit