Marginal note:Interest on small business development bonds
15.1 (1) Any amount received by a taxpayer as or on account of interest on a small business development bond shall, except for the purposes of Part IV, be deemed to have been received as a taxable dividend.
Marginal note:Rules for small business development bonds
(2) Where a corporation (in this section referred to as the “issuer”) has issued an obligation that is at any time a small business development bond, notwithstanding any other provision of this Act,
(a) in computing the issuer’s income for a taxation year, no deduction shall be made in respect of any amount paid or payable (depending on the method regularly followed in computing the issuer’s income) as or on account of interest on the obligation in respect of a period that includes that time;
(b) except for the purpose of subsection 129(1), to the extent that any amount paid by the issuer as or on account of interest on the obligation is not allowed as a deduction because of paragraph 15.1(2)(a), it shall, when paid, be deemed to have been paid as a taxable dividend; and
(c) except for the purposes of paragraph 125(1)(b), the issuer’s taxable income for any taxation year that includes a period throughout which the obligation was a small business development bond but
(i) the issuer was not an eligible small business corporation, or
(ii) all or substantially all of the proceeds from the issue of the obligation cannot reasonably be regarded as having been used by the issuer or a corporation with which it was not dealing at arm’s length in the financing of an active business carried on in Canada immediately before the obligation was issued
shall be deemed to be an amount equal to the total of
(iii) the amount paid or payable (depending on the method regularly followed in computing the issuer’s income) as or on account of interest on the obligation in respect of that period, and
(iv) the issuer’s taxable income otherwise determined for the year.
Marginal note:Definitions
(3) In this section,
- eligible small business corporation
eligible small business corporation at any time means a taxable Canadian corporation that at that time is
(a) a small business corporation, or
(b) a cooperative corporation (within the meaning assigned by subsection 136(2)) all or substantially all of the assets of which are used in an active business carried on by it in Canada; (société admissible exploitant une petite entreprise)
- joint election
joint election means an election that is made in prescribed form, containing prescribed information, jointly by the issuer of an obligation and the person who is the holder of the obligation at the time of the election, that is filed with the Minister by the holder, and in which the holder and the issuer elect that this section apply to the obligation; (choix conjoint)
- majority interest partner
majority interest partner[Repealed, 1998, c. 19, s. 76(1)]
- property used for specified purposes
property used for specified purposes[Repealed, 1994, c. 7, Sch. VIII, s. 6(1)]
- qualifying debt obligation
qualifying debt obligation of a corporation at a particular time means an obligation that is a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation issued after February 25, 1992 and before 1995,
(a) the principal amount of which is not less than $10,000 or more than $500,000,
(b) that is issued for a term of not more than 5 years and, except in the event of a failure or default under the terms or conditions of the obligation, not less than one year, and
(c) that was issued not more than 5 years before the particular time,
if the obligation is issued by the corporation
(d) as part of a proposal to, or an arrangement with, its creditors that has been approved by a court under the Bankruptcy and Insolvency Act,
(e) at a time when all or substantially all of its assets are under the control of a receiver, receiver-manager, sequestrator or trustee in bankruptcy, or
(f) at a time when, because of financial difficulty, the corporation is in default, or could reasonably be expected to default, on a debt held by a person with whom the corporation was dealing at arm’s length and the obligation is issued, in whole or in part, directly or indirectly in exchange or substitution for that debt; (créance admissible)
- small business development bond
small business development bond at any time means
(a) an obligation that is at that time a qualifying debt obligation issued after 1981 and before 1988 by a Canadian-controlled private corporation in respect of which a joint election was made within 90 days after the later of its issue date and March 30, 1983,
(b) an obligation that is at that time a qualifying debt obligation issued after February 25, 1992 by a Canadian-controlled private corporation in respect of which a joint election was made within 90 days after its issue date, or
(c) an obligation that is at that time a qualifying debt obligation issued by a Canadian-controlled private corporation if
(i) it is reasonable to consider that the corporation and the holder of the obligation intended that this section apply to the obligation, having regard to such factors as may be relevant, including the rate of interest stipulated under the terms of the obligation and the manner in which the corporation and the holder have treated the obligation for the purposes of this Act, and
(ii) the holder files with the Minister a joint election in respect of the obligation within 90 days after the date of notification by the Minister that a joint election in respect of the obligation has not been filed. (obligation pour le développement de la petite entreprise)
- specified property
specified property[Repealed, 1994, c. 7, Sch. VIII, s. 6(1)]
Marginal note:Money borrowed
(4) Notwithstanding any other provision of this Act, an amount paid or payable by a taxpayer pursuant to a legal obligation to pay interest on borrowed money used for the purpose of acquiring a small business development bond shall be deemed to be an amount paid or payable, as the case may be, on borrowed money used for the purpose of earning income from a business or property.
Marginal note:False declaration
(5) Where the Minister establishes that an issuer has knowingly or under circumstances amounting to gross negligence made a false declaration in a joint election in respect of an obligation, the reference in subparagraph 15.1(2)(c)(iii) to “the amount paid or payable” shall in respect of the obligation be read as a reference to “3 times the amount paid or payable”.
Marginal note:Disqualification
(6) Where at a particular time an issuer makes a joint election in respect of an obligation and
(a) the issuer or any other corporation associated at the time the obligation was issued with the issuer,
(b) an individual who controls or is a member of a related group that controls the issuer, or
(c) a partnership any member of which, who is a majority interest partner of the partnership, controls, or is a member of a related group that controls, the issuer
had at or before the particular time made a joint election in respect of any small business development bond or small business bond, as the case may be, for the purposes of this section, the issuer shall be deemed not to be an eligible small business corporation in respect of the obligation.
Marginal note:Exception
(7) Subsection 15.1(6) does not apply in respect of an obligation issued at any time where the issue price of the obligation does not exceed the amount, if any, by which
(a) $500,000
exceeds
(b) the total of all amounts each of which is the principal amount outstanding immediately after that time in respect of
(i) another obligation that is a small business development bond issued by
(A) the issuer, or
(B) a corporation associated with the issuer, or
(ii) a small business bond issued by
(A) an individual who controls, or is a member of a related group that controls, the issuer, or
(B) a partnership any member of which, who is a majority interest partner of the partnership, controls, or is a member of a related group that controls, the issuer.
(8) to (12) [Repealed, 1994, c. 7, Sch. VIII, s. 6(1)]
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 15.1
- 1994, c. 7, Sch. V, s. 90, Sch. VIII, s. 6, c. 8, s. 1
- 1998, c. 19, s. 76
- 2001, c. 17, s. 198
- Date modified: