Fall Economic Statement Implementation Act, 2023 (S.C. 2024, c. 15)
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Assented to 2024-06-20
PART 1Amendments to the Income Tax Act and to Other Legislation (continued)
R.S., c. 1 (5th Supp.)Income Tax Act (continued)
26 (1) Paragraph (a.1) of the definition trust in subsection 108(1) of the Act is replaced by the following:
(a.1) a trust (other than a trust described in paragraph (a), (d) or (h), a trust to which subsection 7(2) or (6) applies or a trust prescribed for the purpose of subsection 107(2)) all or substantially all of the property of which is held for the purpose of providing benefits to individuals each of whom is provided with benefits in respect of, or because of, an office or employment or former office or employment of any individual,
(2) The definition trust in subsection 108(1) of the Act is amended by striking out “or” at the end of paragraph (f), by adding “or” at the end of paragraph (g) and by adding the following after paragraph (g):
(h) an employee ownership trust.
(3) Subsections (1) and (2) apply in respect of transactions that occur on or after January 1, 2024.
27 (1) Subsection 111(1) of the Act is amended by adding the following after paragraph (a):
Marginal note:Restricted interest and financing expenses
(a.1) restricted interest and financing expenses for taxation years preceding the year, but no amount is deductible for the year in respect of restricted interest and financing expenses except to the extent of the amount determined by the formula
A + B
where
- A
- is the amount that would be the taxpayer’s excess capacity for the year if the amount determined for C in paragraph (b) of the definition excess capacity in subsection 18.2(1) were nil, and
- B
- is the total of all amounts, each of which is an amount of received capacity (as defined in subsection 18.2(1)) of the taxpayer for the year;
(2) Clause 111(1)(e)(ii)(A) of the Act is replaced by the following:
(A) the amount required by subsection 127(8) or 127.44(11) in respect of the partnership to be added in computing the investment tax credit or the CCUS tax credit (as defined in subsection 127.44(1)) of the taxpayer for the taxation year,
(3) Clause 111(1)(e)(ii)(A) of the Act, as enacted by subsection (2), is replaced by the following:
(A) the amount required by subsections 127(8), 127.44(11) or 127.45(8) in respect of the partnership to be added in computing the investment tax credit, the CCUS tax credit (as defined in subsection 127.44(1)) or the clean technology investment tax credit (as defined in subsection 127.45(1)) of the taxpayer for the taxation year,
(4) The portion of subsection 111(3) of the Act before subparagraph (a)(i.1) is replaced by the following:
Marginal note:Limitation on deductibility
(3) For the purposes of subsection (1),
(a) an amount in respect of a non-capital loss, restricted interest and financing expense, restricted farm loss, farm loss or limited partnership loss, as the case may be, for a taxation year is deductible, and an amount in respect of a net capital loss for a taxation year may be claimed, in computing the taxable income of a taxpayer for a particular taxation year only to the extent that it exceeds the total of
(i) amounts deducted under this section in respect of that non-capital loss, restricted interest and financing expense, restricted farm loss, farm loss or limited partnership loss in computing taxable income (or, in the case of a restricted interest and financing expense, in computing a non-capital loss) for taxation years preceding the particular taxation year,
(5) Paragraph 111(3)(a) of the Act is amended by striking out “and” at the end of subparagraph (i.1) and by adding the following after subparagraph (ii):
(iii) amounts claimed in respect of that limited partnership loss in computing taxable income for taxation years preceding the particular taxation year to the extent that subsection 18.2(2) denied a deduction in respect of those amounts for the preceding taxation year; and
(6) The portion of paragraph 111(3)(b) of the Act before subparagraph (i) is replaced by the following:
(b) no amount is deductible in respect of a non-capital loss, restricted interest and financing expense, net capital loss, restricted farm loss, farm loss or limited partnership loss, as the case may be, for a taxation year until
(7) Paragraph 111(3)(b) of the Act is amended by adding the following after subparagraph (i):
(i.1) in the case of a restricted interest and financing expense, the restricted interest and financing expenses,
(8) The portion of subsection 111(5) of the Act before subparagraph (a)(i) is replaced by the following:
Marginal note:Loss restriction event — certain losses and expenses
(5) If at any time a taxpayer is subject to a loss restriction event,
(a) no amount in respect of the taxpayer’s non-capital loss, restricted interest and financing expense or farm loss for a taxation year that ended before that time is deductible by the taxpayer for a taxation year that ends after that time, except that the portion of the taxpayer’s non-capital loss, restricted interest and financing expense or farm loss, as the case may be, for a taxation year that ended before that time as may reasonably be regarded as the taxpayer’s loss from carrying on a business or the taxpayer’s expense or loss incurred in the course of carrying on a business, as the case may be, and, if a business was carried on by the taxpayer in that year, the portion of the non-capital loss as may reasonably be regarded as being in respect of an amount deductible under paragraph 110(1)(k) in computing the taxpayer’s taxable income for that year is deductible by the taxpayer for a particular taxation year that ends after that time
(9) Section 111 of the Act is amended by adding the following after subsection (5):
Marginal note:Loss restriction event – cumulative unused excess capacity
(5.01) If at any time a particular taxpayer is subject to a loss restriction event, the cumulative unused excess capacity of any taxpayer for any taxation year that ends after that time shall be determined without regard to any absorbed capacity, excess capacity or transferred capacity of the particular taxpayer for any taxation year that ended before that time.
(10) Paragraph (b) of the description of E in the definition non-capital loss in subsection 111(8) of the Act is replaced by the following:
(b) an amount deducted under paragraph (1)(a.1) or (b) or section 110.6, or deductible under any of paragraphs 110(1)(d) to (d.3), (f), (g) and (k), section 112 and subsections 113(1) and 138(6), in computing the taxpayer’s taxable income for the year, or
(11) Subsection 111(8) of the Act is amended by adding the following in alphabetical order:
- restricted interest and financing expense
restricted interest and financing expense of a taxpayer for a taxation year means the amount determined by the formula
A + B + C
where
- A
- is the total of all amounts each of which is the portion of an amount that is not deductible in computing the income for the taxation year of the taxpayer from a business or property, or the taxable income of the taxpayer for the year, or does not reduce the amount determined under paragraph 3(b) in respect of the taxpayer for the year, because of subsection 18.2(2),
- B
- is the amount determined under paragraph 12(1)(l.2) in respect of the taxpayer for the taxation year, and
- C
- is the total of all amounts, each of which is an amount determined by the formula
D × E
where
- D
- is the portion of an amount that is not deductible because of subclause 95(2)(f.11)(ii)(D)(I), or an amount that is included because of subclause 95(2)(f.11)(ii)(D)(II), in determining, in respect of the taxpayer for an affiliate taxation year (as defined in subsection 18.2(1)) of a controlled foreign affiliate of the taxpayer ending in the taxation year, an amount of the affiliate that is described in subparagraph 95(2)(f)(ii), and
- E
- is the taxpayer’s specified participating percentage (as defined in subsection 18.2(1)) in respect of the affiliate for the affiliate taxation year; (dépense d’intérêts et de financement restreinte)
(12) The portion of subsection 111(9) of the Act before paragraph (a) is replaced by the following:
Marginal note:Exception
(9) In this section, a taxpayer’s non-capital loss, restricted interest and financing expense, net capital loss, restricted farm loss, farm loss and limited partnership loss for a taxation year during which the taxpayer was not resident in Canada shall be determined as if
(13) Subsections (1) and (4) to (12) apply in respect of taxation years of a taxpayer that begin on or after October 1, 2023. However, subsections (1) to (10) also apply in respect of a taxation year of a taxpayer that begins before, and ends after, October 1, 2023 if
(a) any of the taxpayer’s three immediately preceding taxation years was, because of a transaction or event or a series of transactions or events, shorter than it would have been in the absence of that transaction, event or series; and
(b) it can reasonably be considered that one of the purposes of the transaction, event or series was to defer the application of paragraph 12(1)(l.2) of the Act, as enacted by subsection 2(1), or the application of section 18.2 or 18.21 of the Act, as enacted by subsection 7(1), to the taxpayer.
(14) Subsection (2) is deemed to have come into force on January 1, 2022.
(15) Subsection (3) is deemed to have come into force on March 28, 2023.
28 (1) Section 112 of the Act is amended by adding the following after subsection (2):
Marginal note:Mark-to-market property
(2.01) No deduction may be made under subsection (1) or (2) or 138(6) in computing the taxable income of a corporation for a taxation year in respect of a dividend received on a share if
(a) the corporation is a financial institution at any time in the year; and
(b) the share
(i) is a mark-to-market property of the corporation for the year, or
(ii) would be a mark-to-market property of the corporation for the year if the share was held at any time in the year by the corporation.
Marginal note:Tracking property and preferred shares
(2.02) For the purpose of paragraph (2.01)(b),
(a) a share (other than a share of a financial institution) is deemed to be a mark-to-market property of the corporation for the year if the share
(i) is a tracking property of the corporation at any time in the year, or
(ii) would be a tracking property of the corporation if the share was held at any time in the year by the corporation; and
(b) a taxable preferred share is deemed not to be a mark-to-market property of the corporation for the year unless the share would be described in subparagraph (a)(i) or (ii) if paragraph (a) were read without reference to “(other than a share of a financial institution)”.
(2.03) Subsection (2.01) does not apply to a dividend received by an insurance corporation in a taxation year that is
(a) either
(i) received on a share (other than a share described in subparagraph (2.02)(a)(i)) held by the corporation in connection with an insurance contract entered into, issued or acquired in the ordinary course of an insurance business of the corporation, or
(ii) deemed to be received by the corporation as a result of a designation by a mutual fund trust under subsection 104(19) in respect of a unit of the trust that is held by the corporation in connection with an insurance contract entered into, issued or acquired in the ordinary course of an insurance business of the corporation; and
(b) identified in the corporation’s return of income under this Part for the year.
(2) Paragraph 112(6)(c) of the Act is replaced by the following:
(c) financial institution, mark-to-market property and tracking property have the same meaning as in subsection 142.2(1).
(3) Subsections (1) and (2) apply in respect of dividends received after 2023.
29 (1) Subsection 113(3) of the Act is amended by adding the following definitions in alphabetical order:
- deductible
deductible, in relation to an amount in respect of a payment, in computing relevant foreign income or profits, has the same meaning as in subsection 18.4(1). (déductible)
- entity
entity has the same meaning as in subsection 95(1). (entité)
- equity interest
equity interest has the same meaning as in subsection 18.4(1). (participation au capital)
- foreign expense restriction rule
foreign expense restriction rule has the same meaning as in subsection 18.4(1). (régle étrangère de restriction des dépenses)
- foreign hybrid mismatch rule
foreign hybrid mismatch rule has the same meaning as in subsection 18.4(1). (règle étrangère d’asymétrie hybride)
- foreign taxation year
foreign taxation year of an entity has the same meaning as in subsection 18.4(1). (année d’imposition étrangère)
- relevant foreign income or profits
relevant foreign income or profits of an entity for a foreign taxation year has the same meaning as in subsection 18.4(1). (revenus ou bénéfices étrangers pertinents)
(2) Section 113 of the Act is amended by adding the following after subsection (4):
Marginal note:Deduction restriction
(5) Any amount that, in the absence of this subsection, would be a dividend received by a corporation resident in Canada on a share owned by it of the capital stock of a foreign affiliate of the corporation is deemed, for the purposes of this section (other than this subsection), not to be a dividend received by the corporation on a share of the capital stock of the affiliate to the extent of the total of all amounts, each of which, in respect of the dividend,
(a) is an amount that is or can reasonably be expected to be deductible in computing
(i) relevant foreign income or profits, for a foreign taxation year, of
(A) the affiliate, or
(B) another entity (other than the corporation) because that entity has a direct or indirect equity interest in the affiliate, or
(ii) income or profits of the affiliate that are taken into account in determining relevant foreign income or profits of another entity for a foreign taxation year; or
(b) would, in the absence of any foreign hybrid mismatch rule or foreign expense restriction rule, be described in paragraph (a).
Marginal note:Deduction for foreign taxes
(6) If, for the purposes of this section (other than subsection (5)), all or any portion of a particular amount is deemed by subsection (5) not to be a dividend received by a corporation on a share of the capital stock of a foreign affiliate in a taxation year of the corporation, there may be deducted from the corporation’s income for the taxation year for the purpose of computing its taxable income for the year an amount equal to the lesser of
(a) the particular amount or portion of the particular amount, as the case may be, and
(b) the amount determined by the formula
A × B
where
- A
- is the non-business-income tax paid by the corporation applicable to the particular amount or portion of the particular amount, as the case may be, and
- B
- is the corporation’s relevant tax factor for the year.
Marginal note:Filing Requirement
(7) Each corporation shall file with its return of income for a taxation year a prescribed form containing prescribed information if subsection (5) deems an amount not to be a dividend received by the corporation on a share of the capital stock of a foreign affiliate.
(3) Subsections (1) and (2) apply in respect of any dividend received by a corporation resident in Canada on a share owned by the corporation of the capital stock of a foreign affiliate of the corporation on or after July 1, 2022, except that subsection 113(7) of the Act, as enacted by subsection (2), does not apply in respect of any dividend received before July 1, 2023.
- Date modified: