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Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Full Document:  

Act current to 2022-11-16 and last amended on 2022-10-18. Previous Versions

PART IIncome Tax (continued)

DIVISION BComputation of Income (continued)

SUBDIVISION BIncome or Loss from a Business or Property (continued)

Marginal note:PHSP premiums

  •  (1) Notwithstanding paragraphs 18(1)(a) and (h) and subject to subsection (2), there may be deducted in computing an individual’s income for a taxation year from a business carried on by the individual and in which the individual is actively engaged on a regular and continuous basis, directly or as a member of a partnership, an amount payable by the individual or partnership in respect of the year as a premium, contribution or other consideration under a private health services plan in respect of the individual, the individual’s spouse or common-law partner or any person who is a member of the individual’s household if

    • (a) in the year or in the preceding taxation year

      • (i) the total of all amounts each of which is the individual’s income from such a business for a fiscal period that ends in the year exceeds 50% of the individual’s income for the year, or

      • (ii) the individual’s income for the year does not exceed the total of $10,000 and the total referred to in subparagraph (i) in respect of the individual for the year,

      on the assumption that the individual’s income from each business is computed without reference to this subsection and the individual’s income is computed without reference to this subsection and Subdivision E; and

    • (b) the amount is payable under a contract between the individual or partnership and

      • (i) a person licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada an insurance business or the business of offering to the public its services as trustee,

      • (ii) a person or partnership engaged in the business of offering to the public its services as an administrator of private health services plans, or

      • (iii) a person the taxable income of which is exempt under section 149 and that is a business or professional organization of which the individual is a member or a trade union of which the individual or a majority of the individual’s employees are members.

  • Marginal note:Limit

    (2) For the purpose of calculating the amount deductible under subsection (1) in computing an individual’s income for a taxation year from a particular business,

    • (a) no amount may be deducted to the extent that

      • (i) it is deducted under this section in computing another individual’s income for any taxation year, or

      • (ii) it is included in calculating a deduction under section 118.2 in computing an individual’s tax payable under this Part for any taxation year;

    • (b) where an amount payable under a private health services plan relates to a period in the year throughout which

      • (i) each of one or more persons

        • (A) is employed on a full-time basis (other than on a temporary or seasonal basis) in the particular business or in another business carried on by

          • (I) the individual (otherwise than as a member of a partnership),

          • (II) a partnership of which the individual is a majority-interest partner, or

          • (III) a corporation affiliated with the individual, and

        • (B) has accumulated not less than three months of service in that employment since the person last became so employed, and

      • (ii) the total number of persons employed in a business described in clause (i)(A), with whom the individual deals at arm’s length and to whom coverage is extended under the plan, is not less than 50% of the total number of persons each of whom is a person

        • (A) who carries on the particular business or is employed in a business described in clause (i)(A), and

        • (B) to whom coverage is extended under the plan,

      the amount so deductible in relation to the period shall not exceed the individual’s cost of equivalent coverage under the plan in respect of each employed person who deals at arm’s length with the individual and who is described in subparagraph (i) in relation to the period;

    • (c) subject to paragraph (d), where an amount payable under a private health services plan relates to a particular period in the year, other than a period described in paragraph (b), the amount so deductible in relation to the particular period shall not exceed the amount determined by the formula

      (A/365) × (B + C)

      where

      A
      is the number of days in the year that are included in the particular period,
      B
      is the product obtained when $1,500 is multiplied by the number of persons each of whom is covered under the plan, and
      • (i) is the individual or the individual’s spouse or common-law partner, or

      • (ii) is a member of the individual’s household and has attained the age of 18 years before the beginning of the particular period, and

      C
      is the product obtained when $750 is multiplied by the number of members of the individual’s household who, but for the fact that they have not attained the age of 18 years before the particular period began, would be included in computing the product under the description of B; and
    • (d) where an amount payable under a private health services plan relates to a particular period in the year (other than a period described in paragraph (b)) and one or more persons with whom the individual deals at arm’s length are described in subparagraph (b)(i) in relation to the particular period, the amount so deductible in relation to the particular period shall not exceed the lesser of the amount determined under the formula set out in paragraph (c) and the individual’s cost of equivalent coverage in respect of any such person in relation to the particular period.

  • Marginal note:Equivalent coverage

    (3) For the purpose of subsection (2), an amount payable in respect of an individual under a private health services plan in relation to a period does not exceed the individual’s cost of equivalent coverage under the plan in respect of another person in relation to the period to the extent that, in relation to the period, the amount does not exceed the product obtained when

    • (a) the amount that would be the individual’s cost of coverage under the plan if the benefits and coverage in respect of the individual, the individual’s spouse or common-law partner and the members of the individual’s household were identical to the benefits and coverage made available in respect of the other person, the other person’s spouse or common-law partner and the members of the other person’s household

    is multiplied by

    • (b) the percentage of the cost of coverage under the plan in respect of the other person that is payable by the individual or a partnership of which the individual is a member.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1999, c. 22, s. 10
  • 2000, c. 12, s. 142
  • 2013, c. 40, s. 12(E)

Marginal note:Borrowed money used to earn income from property

  •  (1) Where

    • (a) at any time after 1993 borrowed money ceases to be used by a taxpayer for the purpose of earning income from a capital property (other than real or immovable property or depreciable property), and

    • (b) the amount of the borrowed money that was so used by the taxpayer immediately before that time exceeds the total of

      • (i) where the taxpayer disposed of the property at that time for an amount of consideration that is not less than the fair market value of the property at that time, the amount of the borrowed money used to acquire the consideration,

      • (ii) where the taxpayer disposed of the property at that time and subparagraph 20.1(1)(b)(i) does not apply, the amount of the borrowed money that, if the taxpayer had received as consideration an amount of money equal to the amount by which the fair market value of the property at that time exceeds the amount included in the total by reason of subparagraph 20.1(1)(b)(iii), would be considered to be used to acquire the consideration,

      • (iii) where the taxpayer disposed of the property at that time for consideration that includes a reduction in the amount of the borrowed money, the amount of the reduction, and

      • (iv) where the taxpayer did not dispose of the property at that time, the amount of the borrowed money that, if the taxpayer had disposed of the property at that time and received as consideration an amount of money equal to the fair market value of the property at that time, would be considered to be used to acquire the consideration,

    an amount of the borrowed money equal to the excess shall, to the extent that the amount is outstanding after that time, be deemed to be used by the taxpayer for the purpose of earning income from the property.

  • Marginal note:Borrowed money used to earn income from business

    (2) Where at any particular time after 1993 a taxpayer ceases to carry on a business and, as a consequence, borrowed money ceases to be used by the taxpayer for the purpose of earning income from the business, the following rules apply:

    • (a) where, at any time (in this paragraph referred to as the “time of disposition”) at or after the particular time, the taxpayer disposes of property that was last used by the taxpayer in the business, an amount of the borrowed money equal to the lesser of

      • (i) the fair market value of the property at the time of disposition, and

      • (ii) the amount of the borrowed money outstanding at the time of disposition that is not deemed by this paragraph to have been used before the time of disposition to acquire any other property

      shall be deemed to have been used by the taxpayer immediately before the time of disposition to acquire the property;

    • (b) subject to paragraph 20.1(2)(a), the borrowed money shall, after the particular time, be deemed not to have been used to acquire property that was used by the taxpayer in the business;

    • (c) the portion of the borrowed money outstanding at any time after the particular time that is not deemed by paragraph 20.1(2)(a) to have been used before that subsequent time to acquire property shall be deemed to be used by the taxpayer at that subsequent time for the purpose of earning income from the business; and

    • (d) the business shall be deemed to have fiscal periods after the particular time that coincide with the taxation years of the taxpayer, except that the first such fiscal period shall be deemed to begin at the end of the business’s last fiscal period that began before the particular time.

  • Marginal note:Deemed dispositions

    (3) For the purpose of paragraph 20.1(2)(a),

    • (a) where a property was used by a taxpayer in a business that the taxpayer has ceased to carry on, the taxpayer shall be deemed to dispose of the property at the time at which the taxpayer begins to use the property in another business or for any other purpose;

    • (b) where a taxpayer, who has at any time ceased to carry on a business, regularly used a property in part in the business and in part for some other purpose,

      • (i) the taxpayer shall be deemed to have disposed of the property at that time, and

      • (ii) the fair market value of the property at that time shall be deemed to equal the proportion of the fair market value of the property at that time that the use regularly made of the property in the business was of the whole use regularly made of the property; and

    • (c) where the taxpayer is a trust, subsections 104(4) to 104(5.2) do not apply.

  • Marginal note:Amount payable for property

    (4) Where an amount is payable by a taxpayer for property, the amount shall be deemed, for the purposes of this section and, where subsection 20.1(2) applies with respect to the amount, for the purposes of this Act, to be payable in respect of borrowed money used by the taxpayer to acquire the property.

  • Marginal note:Interest in partnership

    (5) For the purposes of this section, where borrowed money that has been used to acquire an interest in a partnership is, as a consequence, considered to be used at any time for the purpose of earning income from a business or property of the partnership, the borrowed money shall be deemed to be used at that time for the purpose of earning income from property that is the interest in the partnership and not to be used for the purpose of earning income from the business or property of the partnership.

  • Marginal note:Refinancings

    (6) Where at any time a taxpayer uses borrowed money to repay money previously borrowed that was deemed by paragraph 20.1(2)(c) immediately before that time to be used for the purpose of earning income from a business,

    • (a) paragraphs 20.1(2)(a) to 20.1(2)(c) apply with respect to the borrowed money; and

    • (b) subsection 20(3) does not apply with respect to the borrowed money.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1994, c. 21, s. 13
  • 2013, c. 34, s. 98

Marginal note:Interest — authorized foreign bank — interpretation

  •  (1) The following definitions apply in this section.

    branch advance

    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. (avance de succursale)

    branch financial statements

    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. (états financiers de succursale)

    calculation period

    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. (période de calcul)

  • Marginal note: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:

    A
    is the amount of the bank’s assets at the end of the period;
    BA
    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;
    IL
    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
    L
    is the amount of the bank’s liabilities to other persons and partnerships at the end of the period.
  • Marginal note: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.

  • Marginal note: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.

  • Marginal note: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.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2001, c. 17, s. 14
 
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