Income Tax Act

Marginal note:International banking centres — definitions

• 33.1 (1) In this section,

  eligible deposit

  dépôt admissible

  eligible deposit, at any particular time, means a debt owing at the particular time by a taxpayer that is a prescribed financial institution as or on account of an amount deposited with the taxpayer by

  • (a) a non-resident person with whom the taxpayer is dealing at arm’s length at the particular time, where

    • (i) at the particular time, the deposit is recorded in the books of account of an international banking centre business of the taxpayer,

    • (ii) at the particular time, the taxpayer is not obligated, either immediately or in the future and either absolutely or contingently, to repay any portion of the debt to a person other than a non-resident person, and

    • (iii) before the deposit was recorded in the books of account of the international banking centre business, the taxpayer made reasonable inquiries and had no reasonable cause to believe that any portion of the amount was deposited on behalf of, for the benefit of or as a condition of any transaction with, a person (other than a non-resident person with whom the taxpayer was dealing at arm’s length), or

  • (b) another prescribed financial institution with whom the taxpayer is dealing at arm’s length at the particular time, where

    • (i) at or before the time at which the deposit was made, the prescribed financial institution provided written notice to the taxpayer that the deposit was being made from deposits recorded in the books of account of an international banking centre business of that prescribed financial institution, and

    • (ii) a reasonable rate of interest is paid or payable by the taxpayer in respect of the deposit; (dépôt admissible)

  eligible loan

  prêt admissible

  eligible loan, at any particular time, means

  • (a) a loan or deposit (in this paragraph referred to as a “loan”) made by a taxpayer that is a prescribed financial institution to a non-resident person (in this paragraph referred to as the “borrower”) with whom the taxpayer is dealing at arm’s length at the particular time, where

    • (i) at the particular time, neither a person other than a non-resident person nor a person with whom the taxpayer is not dealing at arm’s length is obligated to the taxpayer, either immediately or in the future and either absolutely or contingently, to pay to the taxpayer any amount in respect of the loan,

    • (ii) the loan was recorded in the books of account of an international banking centre business of the taxpayer throughout the period commencing with the later of

      • (A) the time at which the loan was made, and

      • (B) the earliest of

        • (I) the time at which the loan was first recorded in the books of account of a branch or office of the taxpayer located in Canada,

        • (II) the end of the first taxation year in respect of which the taxpayer has made any designation under subsection 33.1(3), and

        • (III) the end of 1992

        and ending at the particular time,

    • (iii) in the case of a loan made before the end of the first taxation year in respect of which the taxpayer has made any designation under subsection 33.1(3) (other than a loan recorded in the books of account of an international banking centre business of the taxpayer at the time at which the loan was made) or a loan made to a foreign bank, the taxpayer made reasonable inquiries before the loan was recorded in the books of account of the international banking centre business and had no reasonable cause to believe that the borrower had used or would use any proceeds of the loan, directly or indirectly, for the purpose of

      • (A) earning income in Canada, or

      • (B) making a loan to a person other than a non-resident person, and

    • (iv) in the case of any other loan, the taxpayer, before the loan was recorded in the books of account of the international banking centre business,

      • (A) obtained a statement signed by or on behalf of the borrower that the borrower would not use any proceeds of the loan, directly or indirectly, for a purpose described in subparagraph 33.1(1) eligible loan (a)(iii), and

      • (B) had no reasonable cause to believe that the borrower would use any proceeds of the loan, directly or indirectly, for a purpose described in subparagraph (iii),

  • (b) a loan acquired by a taxpayer that is a prescribed financial institution from a foreign bank with which the taxpayer is not dealing at arm’s length at the time the loan was acquired, where the conditions described in subparagraphs (i) to (iii) are met at the particular time, or

  • (c) a deposit made by a taxpayer that is a prescribed financial institution with another prescribed financial institution with whom the taxpayer is dealing at arm’s length at the particular time where, at or before the time at which the deposit was made, the taxpayer provided written notice to the prescribed financial institution that the deposit was being made from deposits recorded in the books of account of an international banking centre business of the taxpayer; (prêt admissible)

  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; (banque étrangère)

  non-resident person

  personne non-résidente

  non-resident person at any time, with respect to a taxpayer, includes a person that the taxpayer, based on reasonable inquiries, believes at that time to be a person not resident in Canada. (personne non-résidente)

• Marginal note:Interpretation

  (2) For the purposes of this section,

  • (a) a partnership shall be deemed to be a person;

  • (b) where a member of a partnership and a person do not deal with each other at arm’s length, the partnership and the person shall be deemed not to deal with each other at arm’s length;

  • (c) a partnership is a non-resident person only where all of its members are non-resident non-resident persons; and

  • (d) a deposit made by or to a non-resident person or a loan made to a non-resident person does not include a deposit made by or to, or a loan made to, as the case may be, a fixed place of business in Canada of the non-resident person.

• Marginal note:Designation and exemption

  (3) Where a taxpayer that was, throughout a taxation year, a prescribed financial institution has designated in respect of the year, by filing a prescribed form with the Minister on or before the day that is 90 days after the commencement of the year, a branch or office of the taxpayer in the metropolitan area of Montreal in the Province of Quebec or in the metropolitan area of Vancouver in the Province of British Columbia as a branch or office in which an international banking centre business of the taxpayer is to be carried on and has not revoked that designation by filing a prescribed form with the Minister on or before that day, in computing the income of the taxpayer for the year no amount shall be added or deducted in respect of the taxpayer’s income or loss, as the case may be, for the year from the international banking centre business.

• Marginal note:Income or loss from an international banking centre business

  (4) Subject to subsection 33.1(5), the amount of a taxpayer’s income or loss, as the case may be, for a taxation year from an international banking centre business shall be determined on the assumption that

  • (a) the international banking centre business was a separate business carried on by the taxpayer the only income or loss of which was derived from eligible loans for the period in the year during which they were recorded in the books of account of the business; and

  • (b) the only amount payable for the year by the taxpayer in respect of interest on money borrowed for the purpose of earning income from the business was equal to the total of

    • (i) the total of all amounts each of which is the interest payable by the taxpayer in respect of an eligible deposit for the period in the year during which it was recorded in the books of account of the business, and

    • (ii) the amount equal to that proportion of

      • (A) the total of all amounts each of which is the amount determined in respect of a day in the year equal to the amount, if any, by which

        • (I) 96% of the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible loan recorded in the books of account of the business at the end of the day

        exceeds

        • (II) the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible deposit recorded in the books of account of the business at the end of the day

      that

      • (B) the total determined under subparagraph 33.1(4)(b)(i)

      is of

      • (C) the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible deposit recorded in the books of account of the business at the end of a day in the year.

• Marginal note:Restriction

  (5) A taxpayer’s income for a taxation year from an international banking centre business shall not exceed that proportion of that income determined in accordance with subsection 33.1(4) that

  • (a) the total of all amounts each of which is an amount determined in respect of a day in the year equal to the lesser of

    • (i) 96% of the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible loan recorded in the books of account of the business at the end of the day, and

    • (ii) the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible deposit recorded in the books of account of the business at the end of the day

  is of

  • (b) 96% of the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible loan recorded in the books of account of the business at the end of a day in the year.

• Marginal note:Election

  (6) For the purposes of subsections (4) and (5), where a taxpayer so elects in the taxpayer’s return of income for a taxation year or in a prescribed form filed with the Minister within 90 days after the day of sending of a notice of assessment for the year or a notification that no tax is payable for the year, an eligible deposit recorded in the books of account of an international banking centre business of the taxpayer at the end of a day in the year is deemed not to have been recorded at any time in the day in the books of account of that business and is deemed to have been recorded throughout that day in the books of account of another international banking centre business of the taxpayer designated by the taxpayer in the election.

• Marginal note:Election restriction

  (7) A taxpayer may elect, as provided in subsection 33.1(6), only in respect of eligible deposits recorded in the books of account of an international banking centre business at the end of a day to the extent that the total of those deposits exceeds 96% of the total of all amounts outstanding on account of the principal amounts of eligible loans recorded in the books of account of the business at the end of the day.

• Marginal note:Limitation

  (8) In computing the income of a taxpayer for a taxation year, an amount paid or payable by the taxpayer on a deposit for the period in the year during which it was an eligible deposit shall, notwithstanding any other provision of this Act, be deductible only in computing the income or loss of the taxpayer from an international banking centre business.

• Marginal note:Exception

  (9) Where less than 90% of the revenue of a taxpayer for a taxation year from loans or deposits for the period in the year during which they were recorded in the books of account of an international banking centre business was derived from eligible loans in respect of which employees of the taxpayer actively participated in the solicitation, negotiation, analysis or management thereof while employed at a branch or office designated under subsection 33.1(3) as a branch or office in which an international banking centre business of the taxpayer is to be carried on, the amount, if any, of the taxpayer’s income for the year from the international banking centre business shall, notwithstanding subsection 33.1(3), be included in computing the taxpayer’s income for the year.

• Marginal note:No deduction permitted

  (10) Notwithstanding any other provision of this Act, in computing the income of a taxpayer no deduction shall be made in respect of any amount paid or payable in respect of indebtedness of the taxpayer to any person where, under an arrangement of which the taxpayer was aware or ought to have been aware at the time the indebtedness was incurred by the taxpayer, any portion of the indebtedness may reasonably be regarded as having been provided directly or indirectly from proceeds of a loan recorded in the books of account of an international banking centre business of a prescribed financial institution and any person has, in respect of that loan, signed a statement described in subparagraph (a)(iv) of the definition eligible loan in subsection 33.1(1).

• Marginal note:Application

  (11) For greater certainty,

  • (a) where at any time a loan or deposit of a taxpayer ceases to be an eligible loan otherwise than by virtue of its disposition to another person, the taxpayer shall be deemed to have disposed of the loan or deposit in the course of carrying on an international banking centre business and to have received proceeds of disposition therefor equal to the fair market value of the loan or deposit at that time and to have reacquired the loan or deposit immediately after that time at a cost equal to its fair market value at that time;

  • (b) a taxpayer’s loss for a taxation year from an international banking centre business shall not be included in determining the taxpayer’s non-capital loss for the year; and

  • (c) the amount, if any, by which

    • (i) the amount that would be a taxpayer’s income for a taxation year from an international banking centre business if this section were read without reference to subsection 33.1(5)

    exceeds

    • (ii) the taxpayer’s income for the year from the international banking centre business

    shall be added in computing the income of the taxpayer for the year.

• Marginal note:Return

  (12) Every taxpayer that has, in respect of a taxation year, designated a branch or office under subsection 33.1(3) as a branch or office in which an international banking centre business of the taxpayer is to be carried on shall, within six months after the end of the year, file with the Minister a return in prescribed form containing prescribed information.