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

Marginal note:Sale of inventory

• 23 (1) Where, on or after disposing of or ceasing to carry on a business or a part of a business, a taxpayer has sold all or any part of the property that was included in the inventory of the business, the property so sold shall, for the purposes of this Part, be deemed to have been sold by the taxpayer in the course of carrying on the business.

• Marginal note:Reference to property in inventory

  (3) A reference in this section to property that was included in the inventory of a business shall be deemed to include a reference to property that would have been so included if the income from the business had not been computed in accordance with the method authorized by subsection 28(1) or paragraph 34(a).

• 24 (1) [Repealed, 2016, c. 12, s. 8]

• Marginal note:Business carried on by spouse or common-law partner or controlled corporation

  (2) If, at any time, an individual ceases to carry on a business and the individual’s spouse or common-law partner, or a corporation controlled directly or indirectly in any manner whatever by the individual, carries on the business and acquires all of the property included in Class 14.1 of Schedule II to the Income Tax Regulations in respect of the business owned by the individual immediately before that time and that had value at that time, the following rules apply:

  • (a) the individual is deemed to have, immediately before that time, disposed of the property and received proceeds of disposition equal to the lesser of the capital cost and the cost amount to the individual of the property immediately before the disposition;

  • (b) the spouse, common-law partner or corporation, as the case may be, is deemed to have acquired the property at a cost equal to those proceeds; and

  • (c) if the amount that was the capital cost to the individual of the property exceeds the amount determined under paragraph 70(5)(b) to be the cost to the person that acquired the property, for the purposes of sections 13 and 20 and any regulations made for the purpose of paragraph 20(1)(a),

    • (i) the capital cost to the person of the property is deemed to be the amount that was the capital cost to the individual of the property, and

    • (ii) the excess is deemed to have been allowed to the person in respect of the property under regulations made for the purposes of paragraph 20(1)(a) in computing income for taxation years that ended before the person acquired the property.

• (3) [Repealed, 2016, c. 12, s. 8]

24.1 [Repealed, 1996, c. 21, s. 6(1)]

Marginal note:Fiscal period of business disposed of by individual

• 25 (1) Where an individual was the proprietor of a business and disposed of it during a fiscal period of the business, the fiscal period may, if the individual so elects and subsection 249.1(4) does not apply in respect of the business, be deemed to have ended at the time it would have ended if the individual had not disposed of the business during the fiscal period.

• Marginal note:Election

  (2) An election under subsection 25(1) is not valid unless the individual, at the time when the fiscal period of the business would, if the election were valid, be deemed to have ended, is resident in Canada.

• Marginal note:Dispositions in extended fiscal period

  (3) If subsection (1) applies in respect of a fiscal period of a business of an individual, for the purpose of computing the individual’s income for the fiscal period, section 13 is to be read without reference to its subsection (8).

Special Cases

Marginal note:Banks — inclusions in income

• 26 (1) There shall be included in computing the income of a bank for its first taxation year that commences after June 17, 1987 and ends after 1987 the total of

  • (a) the total of the specific provisions of the bank, as determined, or as would be determined if such a determination were required, under the Minister’s rules, as at the end of its immediately preceding taxation year,

  • (b) the total of the general provisions of the bank, as determined, or as would be determined if such a determination were required, under the Minister’s rules, as at the end of its immediately preceding taxation year,

  • (c) the amount, if any, by which

    • (i) the amount of the special provision for losses on trans-border claims of the bank, as determined, or as would be determined if such a determination were required, under the Minister’s rules, that was deductible by the bank under subsection 26(2) in computing its income for its immediately preceding taxation year

    exceeds

    • (ii) that part of the amount determined under subparagraph 26(1)(c)(i) that was a realized loss of the bank for that immediately preceding taxation year, and

  • (d) the amount, if any, of the tax allowable appropriations account of the bank, as determined, or as would be determined if such a determination were required, under the Minister’s rules, at the end of its immediately preceding taxation year.

• Marginal note:Banks — deductions from income

  (2) In computing the income for a taxation year of a bank, there may be deducted an amount not exceeding the total of

  • (a) that part of the total of the amounts of the five-year average loan loss experiences of the bank, as determined, or as would be determined if such a determination were required, under the Minister’s rules, for all taxation years before its first taxation year that commences after June 17, 1987 and ends after 1987 that is specified by the bank for the year and was not deducted by the bank in computing its income for any preceding taxation year,

  • (b) that part of the total of the amounts transferred by the bank to its tax allowable appropriations account, as permitted under the Minister’s rules, for all taxation years before its first taxation year that commences after June 17, 1987 and ends after 1987 that is specified by the bank for the year and was not deducted by the bank in computing its income for any preceding taxation year,

  • (c) that part of the amount, if any, by which

    • (i) the amount of the special provision for losses on trans-border claims, as determined, or as would be determined if such a determination were required, under the Minister’s rules, that was deductible by the bank under this subsection in computing its income for its last taxation year before its first taxation year that commences after June 17, 1987 and ends after 1987

    exceeds

    • (ii) that part of the amount determined under subparagraph 26(2)(c)(i) that was a realized loss of the bank for that last taxation year

    that is specified by the bank for the year and was not deducted by the bank in computing its income for any preceding taxation year,

  • (d) where the tax allowable appropriations account of the bank at the end of its last taxation year before its first taxation year that commences after June 17, 1987 and ends after 1987, as determined, or as would be determined if such a determination were required, under the Minister’s rules, is a negative amount, that part of such amount expressed as a positive number that is specified by the bank for the year and was not deducted by the bank in computing its income for any preceding taxation year, and

  • (e) that part of the total of the amounts calculated in respect of the bank for the purposes of the Minister’s rules, or that would be calculated for the purposes of those rules if such a calculation were required, under Procedure 8 of the Procedures for the Determination of the Provision for Loan Losses as set out in Appendix 1 of those rules, for all taxation years before its first taxation year that commences after June 17, 1987 and ends after 1987 that is specified by the bank for the year and was not deducted by the bank in computing its income for any preceding taxation year.

• Marginal note:Write-offs and recoveries

  (3) In computing the income of a bank, the following rules apply:

  • (a) any amount that was recorded by the bank as a realized loss or a write-off of an asset that was included by the bank in the calculation of an amount deductible under the Minister’s rules, or would have been included in the calculation of such an amount if such a calculation had been required, for any taxation year before its first taxation year that commences after June 17, 1987 and ends after 1987, shall, for the purposes of paragraph 12(1)(i) and section 12.4, be deemed to have been deducted by the bank under paragraph 20(1)(p) in computing its income for the year for which it was so recorded; and

  • (b) any amount that was recorded by the bank as a recovery of a realized loss or a write-off of an asset that was included by the bank in the calculation of an amount deductible under the Minister’s rules, or would have been included in the calculation of such an amount if such a calculation had been required, for any taxation year before its first taxation year that commences after June 17, 1987 and ends after 1987 shall, for the purposes of section 12.4, be deemed to have been included by the bank under paragraph 12(1)(i) in computing its income for the year for which it was so recorded.

• Definition of Minister’s rules

  (4) For the purposes of this section, Minister’s rules means the Rules for the Determination of the Appropriations for Contingencies of a Bank issued under the authority of the Minister of Finance pursuant to section 308 of the Bank Act for the purposes of subsections (1) and (2) of this section.

Marginal note:Application of Part I to Crown corporation

• 27 (1) This Part applies to a federal Crown corporation as if

  • (a) any income or loss from a business carried on by the corporation as agent of Her Majesty, or from a property of Her Majesty administered by the corporation, were an income or loss of the corporation from the business or the property, as the case may be; and

  • (b) any property, obligation or debt of any kind whatever held, administered, entered into or incurred by the corporation as agent of Her Majesty were a property, obligation or debt, as the case may be, of the corporation.

• Marginal note: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.

• Marginal note:Transfers of land for disposition

  (3) Where land of Her Majesty has been transferred to a prescribed federal Crown corporation for purposes of disposition, the acquisition of the property by the corporation and any disposition thereof shall be deemed not to have been in the course of the business carried on by the corporation.

Marginal note:Emissions allowances

• 27.1 (1) Notwithstanding section 10, for the purpose of computing a taxpayer’s income from a business, an emissions allowance shall be valued at the cost at which the taxpayer acquired it.

• Marginal note:Determination of cost of emissions allowances

  (2) If at any particular time a taxpayer that owns one emissions allowance, or two or more identical emissions allowances (for the purposes of this subsection two or more emissions allowances will be considered identical if they could be used to settle the same emissions obligations), acquires one or more other emissions allowances (in this subsection referred to as newly acquired emissions allowances), each of which is identical to each of the previously-acquired emissions allowances, for the purposes of computing, at any subsequent time, the cost of the taxpayer of each of the identical emissions allowances,

  • (a) the taxpayer is deemed to have disposed of each of the previously-acquired emissions allowances immediately before the particular time for proceeds equal to its cost to the taxpayer immediately before the particular time; and

  • (b) the taxpayer is deemed to have acquired each of the identical emissions allowances at the particular time at a cost equal to the amount determined by the formula

    (A + B)/C

    where

    A

    is the total cost to the taxpayer immediately before the particular time of the previously-acquired emissions allowances,

    B

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

    C

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

• Marginal note:Expense restriction

  (3) Notwithstanding any other provision of this Act, in computing a taxpayer’s income from a business for a taxation year, the total amount deductible in respect of a particular emissions obligation for a taxation year shall not exceed the amount determined by the formula

  A + B x C

  where

  A

  is the total cost of emissions allowances either

  • (a) used by the taxpayer to settle the particular emissions obligation in the year, or

  • (b) held by the taxpayer at the end of the taxation year that can be used to satisfy the particular emissions obligation in respect of the year;

  B

  is the amount determined by the formula

  D − (E + F)

  where

  D

  is the number of emissions allowances required to satisfy the particular emissions obligation in respect of the taxation year,

  E

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

  F

  is the number of emissions allowances held by the taxpayer at the end of the taxation year that can be used to satisfy the particular emissions obligation in respect of the year; and

  C

  is the fair market value of an emissions allowance at the end of the taxation year that could be used to satisfy the particular emissions obligation in respect of the year.

• Marginal note:Income inclusion in following year

  (4) There shall be included in computing the income of a taxpayer for a taxation year as income from a business the amount deducted in respect of an emissions obligation referred to in subsection (3) for the immediately preceding taxation year to the extent that the emissions obligation was not settled in the immediately preceding taxation year.

• Marginal note:Proceeds of disposition

  (5) If a taxpayer surrenders an emissions allowance to settle an emissions obligation, the taxpayer’s proceeds from the disposition of the emissions allowance are deemed to be equal to the taxpayer’s cost of the emissions allowance.

• Marginal note:Loss restriction event

  (6) Notwithstanding subsection (1), each emissions allowance held at the end of the taxpayer’s taxation year that ends immediately before the time at which the taxpayer is subject to a loss restriction event is to be valued at the cost at which the taxpayer acquired the property, or its fair market value at the end of the year, whichever is lower, and after that time the cost at which the taxpayer acquired the property is, subject to a subsequent application of this subsection and subsection (2), deemed to be that lower amount.