Income Tax Act

Marginal note:Definitions

• 18.2 (1) The following definitions apply in this section and section 18.21.

  absorbed capacity

  absorbed capacity of a taxpayer for a taxation year means the lesser of

  • (a) the taxpayer’s cumulative unused excess capacity for the year, determined as if the taxpayer’s absorbed capacity for the year were nil, and

  • (b) the amount determined by the formula

    A − (B + C)

    where

    A

    is the taxpayer’s interest and financing expenses for the year,

    B

    is

    • (i) if subsection 18.21(2) applies in respect of the taxpayer for the year, the amount determined in respect of the taxpayer for the year under that subsection, and

    • (ii) in any other case, the amount determined by the formula

      D × E

      where

      D

      is the taxpayer’s ratio of permissible expenses for the year, and

      E

      is the taxpayer’s adjusted taxable income for the year, and

    C

    is the taxpayer’s interest and financing revenues for the year. (capacité absorbée)

  adjusted taxable income

  adjusted taxable income of a taxpayer for a taxation year means the amount determined by the formula

  A + B − C

  where

  A

  is the positive or negative amount determined by the formula

  D − E

  where

  D

  is

  • (a) if the taxpayer is non-resident, the taxpayer’s taxable income earned in Canada for the year (determined without regard to subsection (2) and paragraphs 12(1)(l.2) and 111(1)(a.1)), and

  • (b) in any other case, the taxpayer’s taxable income for the year (determined without regard to subsection (2), paragraphs 12(1)(l.2) and 111(1)(a.1) and clause 95(2)(f.11)(ii)(D)), and

  E

  is the total of

  • (a) the taxpayer’s non-capital loss for the year (determined without regard to subsection (2), paragraphs 12(1)(l.2) and 111(1)(a.1) and clause 95(2)(f.11)(ii)(D)), and

  • (b) the total of all amounts each of which is, in respect of a corporation that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the year — or a controlled foreign affiliate of a partnership, of which the taxpayer or a controlled foreign affiliate of the taxpayer is a member, at the end of an affiliate taxation year ending in a fiscal period of the partnership — an amount determined by the formula

    T × U ÷ V

    where

    T

    is the lesser of

    • (i) the affiliate’s foreign accrual property loss (determined without regard to clause 95(2)(f.11)(ii)(D)) for the affiliate taxation year, and

    • (ii) the amount by which the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year exceeds the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year,

    U

    is the amount that is included in the taxpayer’s interest and financing expenses for the year in respect of the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

    V

    is the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year;

  B

  is the total of all amounts (subject to paragraph (k), other than an amount that can reasonably be considered to be in respect of exempt interest and financing expenses) each of which is

  • (a) the taxpayer’s interest and financing expenses for the year,

  • (b) an amount deducted by the taxpayer in computing its income for the year under paragraph 20(1)(a) or 59.1(a) or subsection 66(4), 66.1(2) or (3), 66.2(2), 66.21(4), 66.4(2) or 66.7(1), (2), (2.3), (3), (4) or (5), other than any portion of that amount that is described in subparagraph (c)(ii) of the description of A in the definition interest and financing expenses,

  • (c) an amount deducted by the taxpayer in computing its income for the year under subsection 20(16), other than any portion of that amount that is described in paragraph (d) of the description of A in the definition interest and financing expenses,

  • (d) in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula

    F × G − H

    where

    F

    is the total of all amounts, each of which is an amount deducted by the partnership under paragraph 20(1)(a) or subsection 20(16) in computing its income or loss from the source, or the source in a particular place, for the fiscal period, other than any portion of that amount that is described in subparagraph (c)(ii) of the description of A in the definition interest and financing expenses,

    G

    is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”, and

    H

    is the portion of an amount referred to in the description of F that can reasonably be considered to not be deductible in computing the taxpayer’s income for the year, or to not be included in computing the taxpayer’s non-capital loss for the year, because of subsection 96(2.1),

  • (e) the portion of an amount deducted under paragraph 111(1)(e) for the year, in respect of a partnership of which the taxpayer is a member, that can reasonably be considered to be attributable to an amount referred to in the description of H in paragraph (d) in respect of a fiscal period of the partnership ending in a preceding taxation year of the taxpayer,

  • (f) an amount deducted by the taxpayer under paragraph 110(1)(k) in computing its taxable income for the year,

  • (g) an amount deducted by the taxpayer under subsection 104(6) in computing its income for the year, except to the extent of any portion of the amount that has been designated under subsection 104(19) for the year,

  • (h) an amount determined by the formula

    I × J ÷ K

    where

    I

    is the amount deducted by the taxpayer under paragraph 111(1)(a) in computing its taxable income for the year, in respect of the taxpayer’s non-capital loss (other than a specified pre-regime loss of the taxpayer in respect of the year) for another taxation year (referred to in this paragraph as the “taxpayer loss year”),

    J

    is the lesser of

    • (i) the non-capital loss for the taxpayer loss year, and

    • (ii) the amount determined by the formula

      W − X − Y

      where

      W

      is the total of all amounts, each of which is an amount that is

      • (A) the interest and financing expenses of the taxpayer for the taxpayer loss year, determined without regard to any amount or portion of an amount that is not deductible because of subsection (2) or clause 95(2)(f.11)(ii)(D),

      • (B) described in any of paragraphs (b) to (g) or (j) to (m) of the description of B for the taxpayer loss year, or

      • (C) deducted by the taxpayer under paragraph 111(1)(a.1) in computing its taxable income for the taxpayer loss year,

      X

      is the total of all amounts, each of which is an amount

      • (A) described in any of paragraphs (a) to (f), (h) or (j) of the description of C for the taxpayer loss year, or

      • (B) included in the income of the taxpayer for the taxpayer loss year by reason of paragraph 12(1)(l.2), and

      Y

      is the total of all amounts, each of which is an amount determined by the formula

      Z × Z.1 ÷ Z.2

      where

      Z

      is the lesser of

      • (A) the foreign accrual property loss, for an affiliate taxation year, of a corporation (referred to throughout the description of Y as the “affiliate”) that, at the end of the affiliate taxation year, is a controlled foreign affiliate of the taxpayer, or is a controlled foreign affiliate of a partnership of which the taxpayer or a controlled foreign affiliate of the taxpayer is a member at any time, and

      • (B) the amount by which the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year (determined without regard to any amount or portion of an amount that is not deductible because of clause 95(2)(f.11)(ii)(D)) exceeds the total of all amounts, each of which is

        • (I) the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year, or

        • (II) an amount included under subclause 95(2)(f.11)(ii)(D)(II) in respect of the affiliate for the affiliate taxation year,

      Z.1

      is the amount that is included in the taxpayer’s interest and financing expenses for the taxpayer loss year in respect of the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

      Z.2

      is the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

    K

    is the non-capital loss for the taxpayer loss year,

  • (i) 25% of the amount deducted, in respect of a specified pre-regime loss of the taxpayer in respect of the year, by the taxpayer under paragraph 111(1)(a) in computing its taxable income for the year,

  • (j) in respect of a corporation (referred to in this paragraph as the “affiliate”) that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the year — or that is a controlled foreign affiliate of a partnership, of which the taxpayer or a controlled foreign affiliate of the taxpayer is a member at any time, at the end of an affiliate taxation year ending in a fiscal period of the partnership — the additional amount that would be included in the taxpayer’s income, either under subsection 91(1) or because an amount would be included in the income of a partnership under that subsection, in respect of the affiliate’s foreign accrual property income for the affiliate taxation year, if the affiliate’s foreign accrual property income for the affiliate taxation year were increased by the amount determined by the formula

    L × M ÷ N

    where

    L

    is the amount that, in computing the foreign accrual property income of the affiliate for the affiliate taxation year, is the prescribed amount for the description of F in the definition foreign accrual property income in subsection 95(1), in respect of a foreign accrual property loss of the affiliate for another affiliate taxation year (referred to in this paragraph as the “affiliate loss year”),

    M

    is the lesser of

    • (i) the affiliate’s foreign accrual property loss for the affiliate loss year, and

    • (ii) the amount by which the affiliate’s relevant affiliate interest and financing expenses for the affiliate loss year (determined without regard to any amount or portion of an amount that is not deductible because of clause 95(2)(f.11)(ii)(D)) exceeds the total of all amounts, each of which is

      • (A) the affiliate’s relevant affiliate interest and financing revenues for the affiliate loss year, or

      • (B) an amount included under subclause 95(2)(f.11)(ii)(D)(II) in respect of the affiliate for the affiliate loss year, and

    N

    is the affiliate’s foreign accrual property loss for the affiliate loss year,

  • (k) the amount that would be the taxpayer’s loss for the year, or that would be the taxpayer’s share of the loss of a partnership of which the taxpayer is a member, if the taxpayer or partnership had no income or loss other than a loss that can reasonably be considered to be incurred by the taxpayer or the partnership in respect of activities funded by a borrowing (within the meaning of the definition exempt interest and financing expenses) that results in exempt interest and financing expenses of the taxpayer or the partnership,

  • (l) an amount deducted under subsection 127(5) or (6), 127.44(3), 127.45(6), 127.48(3) or 127.49(6) in respect of a property acquired in a preceding taxation year in computing the taxpayer’s tax payable for a preceding taxation year to the extent that it

    • (i) is included in an amount determined under paragraph 13(7.1)(e) or subparagraph 53(2)(c)(vi) to (vi.4) or (h)(ii) or for I in the definition undepreciated capital cost in subsection 13(21), and

    • (ii) was not included

      • (A) in computing the taxpayer’s income for the year or a preceding taxation year, and

      • (B) under this paragraph in calculating the taxpayer’s adjusted taxable income for a preceding taxation year, or

  • (m) an amount described in clause 12(1)(x)(i)(C) or subparagraph 12(1)(x)(ii) that is received by the taxpayer in the year to the extent that it

    • (i) reduces the cost or capital cost of a property,

    • (ii) is not included in computing the income of the taxpayer for the year under paragraph 12(1)(x), and

    • (iii) would be included in computing the income of the taxpayer for the year under paragraph 12(1)(x) if that paragraph were read without reference to its subparagraphs (vi) and (vii); and

  C

  is the total of all amounts each of which is

  • (a) the taxpayer’s interest and financing revenues for the year,

  • (b) an amount included under subsection 13(1) in computing the taxpayer’s income for the year,

  • (c) in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula

    O × P

    where

    O

    is an amount that is included by the partnership under subsection 13(1) in computing its income or loss from the source, or the source in a particular place, for the fiscal period, and

    P

    is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”,

  • (d) an amount included under subsection 59(1) or (3.2) or paragraph 59.1(b) in computing the taxpayer’s income for the year,

  • (e) in the case of a corporation

    • (i) 100/28 of the total of the amounts that would be deductible by it under subsection 126(1) from its tax for the year otherwise payable under this Part if those amounts were determined without reference to sections 123.3 and 123.4, or

    • (ii) the amount determined by multiplying the total of the amounts that would be deductible by it under subsection 126(2) from its tax for the year otherwise payable under this Part, if those amounts were determined without reference to section 123.4, by the relevant factor for the year,

  • (f) in the case of a trust, the amount determined by the formula

    Q × (1 ÷ (R × S))

    where

    Q

    is the total of the amounts deductible by it under subsection 126(1) or (2) from its tax for the year otherwise payable under this Part for the year,

    R

    is the percentage (expressed as a decimal fraction) referred to in paragraph 122(1)(a) in respect of the year, and

    S

    is 1 plus the percentage (expressed as a decimal fraction) referred to in subsection 120(1) in respect of the year,

  • (g) an amount included under section 110.5 in computing the taxpayer’s taxable income for the year,

  • (h) an amount included under subsection 104(13) in computing the taxpayer’s income for the year, except to the extent of any portion of the amount that

    • (i) has been designated under subsection 104(19) for the year, or

    • (ii) gives rise to a deduction under paragraph 94.2(3)(a) in computing the foreign accrual property income for an affiliate taxation year of an entity that is a controlled foreign affiliate of the taxpayer at the end of the affiliate taxation year,

  • (i) an amount of the taxpayer’s taxable income for the year that is not, because of an Act of Parliament, subject to tax under this Part, or

  • (j) the amount that would be the taxpayer’s income for the year, or that would be the taxpayer’s share of the income of a partnership of which the taxpayer is a member, if the taxpayer or partnership had no income or loss other than income that can reasonably be considered to be earned by the taxpayer or the partnership in respect of activities funded by a borrowing (within the meaning of the definition exempt interest and financing expenses) that results in exempt interest and financing expenses of the taxpayer or the partnership. (revenu imposable rajusté)

  affiliate taxation year

  affiliate taxation year of a controlled foreign affiliate means the period for which the accounts of the affiliate have been ordinarily made up, but no such period may exceed 53 weeks. (année d’imposition de la société affiliée)

  cumulative unused excess capacity

  cumulative unused excess capacity of a taxpayer for a particular taxation year means the total of all amounts each of which is

  • (a) the excess capacity of the taxpayer for the particular year, or

  • (b) the excess capacity of the taxpayer for any of the three immediately preceding taxation years, if the taxpayer’s excess capacity for each of those years is determined according to the following rules:

    • (i) if the taxpayer has an amount of transferred capacity for any taxation year (referred to in this definition as the “transfer year”) preceding the particular year,

      • (A) there are to be reductions to the taxpayer’s excess capacity for the transfer year and the three taxation years immediately preceding the transfer year (each referred to in this subparagraph as a “relevant year”) in a total amount equal to the total of all amounts each of which is an amount of transferred capacity of the taxpayer for the transfer year (referred to in this definition as the “total transferred capacity amount”), and

      • (B) the amount by which the taxpayer’s excess capacity for a particular relevant year is to be reduced is equal to the lesser of

        • (I) the taxpayer’s excess capacity for the particular relevant year, determined taking into consideration any reductions to that excess capacity under

          1 this subparagraph, in respect of amounts of transferred capacity for years preceding the transfer year, and

          2 subparagraph (ii), in respect of amounts of absorbed capacity for the transfer year and any years preceding the transfer year, and

        • (II) the amount, if any, by which the total transferred capacity amount for the transfer year exceeds the reductions, under this subparagraph in respect of that total transferred capacity amount, to the taxpayer’s excess capacity for any relevant years preceding the particular relevant year, and

    • (ii) if the taxpayer has an amount of absorbed capacity for a taxation year (referred to in this definition as the “absorbed capacity year”),

      • (A) there are to be reductions to the taxpayer’s excess capacity for the three taxation years immediately preceding the absorbed capacity year (each referred to in this subparagraph as a “relevant year”) in a total amount equal to the amount of absorbed capacity for the absorbed capacity year, and

      • (B) the amount by which the taxpayer’s excess capacity for a particular relevant year is to be reduced is equal to the lesser of

        • (I) the taxpayer’s excess capacity for the particular relevant year, determined taking into account any reductions to that excess capacity under

          1 subparagraph (i), in respect of amounts of transferred capacity for years preceding the absorbed capacity year, and

          2 this subparagraph, in respect of amounts of absorbed capacity for years preceding the absorbed capacity year, and

        • (II) the amount, if any, by which the amount of absorbed capacity for the absorbed capacity year exceeds the reductions under this subparagraph in respect of that amount of absorbed capacity to the taxpayer’s excess capacity for the relevant years preceding the particular relevant year. (capacité excédentaire cumulative inutilisée)

  eligible group entity

  eligible group entity, in respect of a taxpayer resident in Canada, at any time, means a corporation, or a trust, resident in Canada

  • (a) that is, at that time, related (other than because of a right referred to in paragraph 251(5)(b)) to the taxpayer;

  • (b) that would, at that time, be affiliated with the taxpayer if section 251.1 were read without reference to the definition controlled in subsection 251.1(3);

  • (c) that is a trust in respect of which the taxpayer’s interest in the trust is not a fixed interest (as defined in subsection 94(1)); or

  • (d) that is a beneficiary of the taxpayer, if the taxpayer is a trust, whose interest in the taxpayer is not a fixed interest (as defined in subsection 94(1)) (other than a beneficiary that is a registered charity, or a non-profit organization, with whom the taxpayer deals at arm’s length). (entité admissible du groupe)

  excess capacity

  excess capacity of a taxpayer for a taxation year means

  • (a) if subsection 18.21(2) applies in respect of the taxpayer for the year, nil; and

  • (b) in any other case, the amount determined by the formula

    A − B − C

    where

    A

    is the amount determined by the formula

    D × E + F

    where

    D

    is the ratio of permissible expenses of the taxpayer for the year,

    E

    is the adjusted taxable income of the taxpayer for the year, and

    F

    is the amount determined by the formula

    G − H × I

    where

    G

    is the interest and financing revenues of the taxpayer for the year,

    H

    is the ratio of permissible expenses of the taxpayer for the year, and

    I

    is the lesser of

    • (i) the amount by which the interest and financing revenues of the taxpayer for the year exceed the interest and financing expenses of the taxpayer for the year, and

    • (ii) either

      • (A) if the adjusted taxable income of the taxpayer for the year would, in the absence of section 257, be a negative amount, the absolute value of the negative amount, or

      • (B) in any other case, nil,

    B

    is the interest and financing expenses of the taxpayer for the year, and

    C

    is the amount deductible by the taxpayer under paragraph 111(1)(a.1) in the year. (capacité excédentaire)

  excluded entity

  excluded entity for a particular taxation year means

  • (a) a corporation that is throughout the particular year a Canadian-controlled private corporation in respect of which the amount determined for C in paragraph 125(5.1)(a) for the year is less than $50,000,000;

  • (b) a particular taxpayer resident in Canada, if $1,000,000 is not less than the amount determined by the formula

    A − B

    where

    A

    is the total of all amounts, each of which is the interest and financing expenses or the exempt interest and financing expenses of

    • (i) the particular taxpayer for the particular taxation year, or

    • (ii) another taxpayer resident in Canada for a taxation year (referred to in this subparagraph as the “relevant taxation year”) ending in the particular taxation year, if the other taxpayer is an eligible group entity in respect of the particular taxpayer at the end of the relevant taxation year, and

    B

    is the amount that would be determined for A if

    • (i) the reference in the description of A to “the interest and financing expenses or the exempt interest and financing expenses” were read as a reference to “the interest and financing revenues”, and

    • (ii) the interest and financing revenues of a financial institution group entity were excluded; or

  • (c) a taxpayer resident in Canada if

    • (i) all or substantially all of the businesses, if any, and all or substantially all of the undertakings and activities of

      • (A) the taxpayer are, throughout the particular year, carried on in Canada, and

      • (B) each eligible group entity in respect of the taxpayer are, throughout the eligible group entity’s taxation year that ends in the particular year, carried on in Canada,

    • (ii) throughout the year, it is the case that

      A ≥ B

      where

      A

      is $5,000,000, and

      B

      is the greater of

      • (A) the total of all amounts, each of which is the amount at which the shares of the capital stock of a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member, would be valued for the purpose of the balance sheet of the taxpayer or the eligible group entity if that balance sheet were prepared in accordance with generally accepted accounting principles used in Canada, other than any amount or portion of an amount that is already included under this clause because the value of the shares of the capital stock of a particular foreign affiliate reflects the value of shares of the capital stock of another foreign affiliate that is owned, directly or indirectly, by the particular foreign affiliate, or

      • (B) the total of all amounts, each of which is the amount that can reasonably be considered to be the proportionate share, of the taxpayer or an eligible group entity in respect of the taxpayer, of the fair market value of all property of a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member, other than a property that is shares of the capital stock of another corporation that is a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member,

    • (iii) no person or partnership is, at any time in the particular year,

      • (A) a specified shareholder or a specified beneficiary (as those terms are defined in subsection 18(5)) of the taxpayer, or of any eligible group entity in respect of the taxpayer, that is not resident in Canada, or

      • (B) a partnership more than 50% of the fair market value of all interests in which can reasonably be considered to be held, directly or indirectly through one or more trusts or partnerships, by non-resident persons, if the property of the partnership includes,

        • (I) if the taxpayer or the eligible group entity in respect of the taxpayer is a corporation, shares, or a right to acquire shares, of the capital stock of the taxpayer or an eligible group entity in respect of the taxpayer that, either alone or together with shares, or rights to acquire shares, held by persons or partnerships with whom the partnership does not deal at arm’s length,

          1 provide 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or

          2 have 25% or more of the fair market value of all capital stock in the corporation, or

        • (II) if the taxpayer or the eligible group entity in respect of the taxpayer is a trust, an interest, or a right to acquire an interest, as a beneficiary in the taxpayer or an eligible group entity in respect of the taxpayer that, either alone or together with interests, or rights to acquire interests, held by persons or partnerships with whom the partnership does not deal at arm’s length, has 25% or more of the fair market value of all interests as a beneficiary in the trust, and

    • (iv) all or substantially all of the interest and financing expenses of the taxpayer and of each eligible group entity in respect of the taxpayer for the particular year are paid or payable to persons or partnerships that are not, at any time in the particular year, tax-indifferent persons or partnerships that do not deal at arm’s length with the taxpayer or any eligible group entity in respect of the taxpayer. (entité exclue)

  excluded interest

  excluded interest, for a taxation year or fiscal period, means an amount of interest or a lease financing amount, if

  • (a) the amount is paid in, or payable in or in respect of, the year or period by a corporation or partnership (in this definition referred to as the “payer”) to another corporation or partnership (in this definition referred to as the “payee”) in respect of a debt or a lease in respect of a particular property;

  • (b) throughout the period during which the amount accrued (in this definition referred to as the “relevant period”)

    • (i) if the amount is interest, the debt is owed by the payer to the payee, or

    • (ii) if the amount is a lease financing amount, the lease is between the payer and payee;

  • (c) where the payer is not a financial institution group entity, the payee is not a financial institution group entity;

  • (d) throughout the relevant period and at the time of payment

    • (i) each of the payer and payee is

      • (A) a taxable Canadian corporation, or

      • (B) a partnership, no member of which is a natural person, a trust or a corporation that is not a taxable Canadian corporation, and

    • (ii) one of the following conditions is met:

      • (A) if the payee is a partnership, all the members of the payee (other than another partnership) are eligible group entities in respect of

        • (I) if the payer is a partnership, each member of the payer (other than another partnership), and

        • (II) in any other case, the payer, or

      • (B) if the payee is not a partnership, the payee is an eligible group entity in respect of

        • (I) if the payer is a partnership, each member of the payer (other than another partnership), and

        • (II) in any other case, the payer; and

  • (e) the payer — or, if the payer is a partnership, each member of the payer — and the payee — or, if the payee is a partnership, each member of the payee — file with the Minister, in respect of the year or period of both the payer and the payee, a joint election in writing in prescribed manner under this paragraph that

    • (i) specifies

      • (A) the amount of the interest or lease financing amount,

      • (B) if the amount is interest, the amounts outstanding, at the beginning and end of the relevant period, as or on account of the debt in respect of which this paragraph applies, and

      • (C) if the amount is a lease financing amount, the fair market value of the particular property at the time the lease began, and

    • (ii) is filed on or before the earliest of the filing-due date of

      • (A) the payer for its year,

      • (B) the payee for its year, and

      • (C) if the payer or the payee is a partnership, any member of the payer or payee for the member’s taxation year that includes the end of the fiscal period of the payer or the payee, as the case may be. (intérêts exclus)

  excluded lease

  excluded lease for a taxation year of a taxpayer means a lease

  • (a) to which the rules in subsection 16.1(1) apply;

  • (b) that would not be considered to be a lease for a term of more than one year for purposes of paragraph (b) of the definition specified leasing property in subsection 1100(1.11) of the Income Tax Regulations; or

  • (c) that is in respect of property

    • (i) that would not be considered, at the time the lease was entered into, to have a fair market value in excess of $25,000 for purposes of paragraph (c) of that definition, or

    • (ii) that would be considered, at all times in the taxation year, exempt property for purposes of subsection 1100(1.13) of the Income Tax Regulations. (bail exclu)

  exempt interest and financing expenses

  exempt interest and financing expenses of a taxpayer for a taxation year means the total of all amounts, each of which would, if the description of A in the definition interest and financing expenses were read without reference to “exempt interest and financing expenses”, be included in interest and financing expenses of the taxpayer for that year, and that is incurred in respect of a borrowing or other financing (referred to in this definition as the “borrowing”), if 

  • (a) the taxpayer or a partnership of which the taxpayer is a member entered into an agreement with a public sector authority to design, build and finance — or to design, build, finance, maintain and operate — property that the public sector authority, or another public sector authority, owns or has a leasehold interest in or right to acquire;

  • (b) the borrowing was entered into in respect of the agreement;

  • (c) it can reasonably be considered that all or substantially all of the amount is directly or indirectly borne by a public sector authority referred to in paragraph (a); and

  • (d) the amount was paid or payable to

    • (i) a person that deals at arm’s length with the taxpayer or the partnership of which the taxpayer is a member, or

    • (ii) a particular person that does not deal at arm’s length with the taxpayer or the partnership of which the taxpayer is a member if it may reasonably be considered that all or substantially all of the amount paid or payable to the particular person was paid or payable by the particular person to one or more persons that deal at arm’s length with the taxpayer or the partnership of which the taxpayer is a member. (dépenses d’intérêts et de financement exonérées)

  financial holding corporation

  financial holding corporation, for a taxation year, means a corporation (other than a corporation described in any of paragraphs (a) to (f) of the definition financial institution group entity) if, throughout the year,

  • (a) the fair market value of the capital stock of the corporation is primarily attributable to any combination of shares or indebtedness of one or more entities described in any of paragraphs (a) to (f) of the definition financial institution group entity that are controlled by the corporation; or

  • (b) the corporation is incorporated under the Insurance Companies Act and shares of the capital stock of the corporation are listed on a designated stock exchange. (société de portefeuille financière)

  financial institution group entity

  financial institution group entity means a taxpayer that at any time in a taxation year is

  • (a) a bank;

  • (b) a credit union;

  • (c) an insurance corporation;

  • (d) an entity authorized under the laws of Canada or a province to carry on the business of offering its services as a trustee to the public;

  • (e) an entity whose principal business consists of one or more of

    • (i) the lending of money to persons with whom the entity deals at arm’s length,

    • (ii) the purchasing of debt obligations issued by persons with whom the entity deals at arm’s length, or

    • (iii) activities which principally give rise to amounts described in paragraphs (a) to (d) of the description of A in the definition interest and financing revenues and are principally conducted with persons with whom the entity deals at arm’s length;

  • (f) a particular entity that is an eligible group entity in respect of an entity described in any of paragraphs (a) to (e), if the particular entity, or a partnership of which the particular entity is a member and from which the particular entity primarily derives its income,

    • (i) is authorized under provincial securities laws to engage in, and primarily engages in, the business of

      • (A) dealing in securities, or

      • (B) providing portfolio management, investment advice, fund administration or fund management; or

    • (ii) primarily engages in the business of providing portfolio management, investment advice, fund administration or fund management, including any services connected to those activities, in respect of real estate; or

  • (g) a particular entity (other than a financial holding corporation) that is an eligible group entity in respect of any entity described in any of paragraphs (a) to (f) if all or substantially all of the activities of the particular entity are ancillary to the activities or business carried on by one or more entities described in paragraphs (a) to (f) that are eligible group entities in respect of the particular entity. (entité du groupe d’institutions financières)

  fixed interest commercial trust

  fixed interest commercial trust at any time means a trust resident in Canada, if at that time

  • (a) the only beneficiaries that may for any reason receive, at or after that time and directly from the trust, any of the income or capital of the trust are beneficiaries that hold fixed interests (as defined in subsection 94(1)) in the trust; and

  • (b) any of the conditions set out in clauses (h)(ii)(A) to (C) in the definition exempt foreign trust in subsection 94(1) is met. (fiducie commerciale à participation fixe)

  foreign accrual property loss

  foreign accrual property loss of a foreign affiliate for an affiliate taxation year has the meaning assigned by subsection 5903(3) of the Income Tax Regulations. (perte étrangère accumulée, relative à des biens)

  interest and financing expenses

  interest and financing expenses of a taxpayer for a particular taxation year means the amount determined by the formula

  A − B

  where

  A

  is the total of all amounts (other than an amount that is included in exempt interest and financing expenses), each of which is

  • (a) an amount that

    • (i) is paid in, or payable in or in respect of, a year as, on account of, in lieu of payment of or in satisfaction of, interest (other than excluded interest for the particular year or an amount that is deemed to be interest under subsection 137(4.1)),

    • (ii) would, in the absence of this section, be deductible (other than under a provision referred to in subparagraph (c)(i)) by the taxpayer in computing its income for the particular year, and

    • (iii) is not described in any other paragraph in this definition,

  • (b) an amount that, in the absence of this section and on the assumption that it is not deductible under another provision of this Act (other than any of the provisions referred to in subparagraph (c)(i)), would be deductible in computing the taxpayer’s income for the particular year under any of subparagraphs 20(1)(e)(ii) to (ii.2) and paragraphs 20(1)(e.1) to (f),

  • (c) the portion of an amount, if

    • (i) the amount, in the absence of this section, would be deductible in computing the taxpayer’s income for the particular year and is claimed by the taxpayer under paragraph 20(1)(a) or subsection 66(4), 66.1(2) or (3), 66.2(2), 66.21(4), 66.4(2) or 66.7(1), (2), (2.3), (3), (4) or (5), and

    • (ii) the portion can reasonably be considered to be attributable to an amount paid or payable on or after February 4, 2022 that either

      • (A) is described in subparagraph (a)(i), or

      • (B) would otherwise have been deductible in a taxation year under a provision referred to in paragraph (b), but for the application of another provision of this Act,

  • (d) the portion of an amount that would, in the absence of this section, be deductible in computing the taxpayer’s income for the particular year under subsection 20(16), to the extent that the portion can reasonably be considered to be described in subparagraph (c)(ii),

  • (e) an amount that is paid or payable by the taxpayer in a year or that is a loss or a capital loss of the taxpayer for a year, as the case may be, under or as a result of an agreement or arrangement, if

    • (i) the amount would, in the absence of this section

      • (A) be deductible (other than under subparagraph 20(1)(e)(i)) in computing the taxpayer’s income for the particular year, or

      • (B) in the case of a capital loss, reduce the amount determined under paragraph 3(b) in respect of the taxpayer or be deductible in computing the taxpayer’s taxable income for the particular year (except to the extent it has already been included under this paragraph for a previous year),

    • (ii) the agreement or arrangement is entered into as or in relation to a borrowing or other financing that the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer enters into, whether currently or in the future, and absolutely or contingently, and

    • (iii) the amount can reasonably be considered to increase (or be part of) the cost of funding with respect to the borrowing or other financing (including as a result of any hedge of the cost of funding or of the borrowing or other financing) of the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer;

  • (f) a particular amount that

    • (i) is in respect of an agreement or arrangement that gives rise to, or can reasonably be expected to give rise to, an amount that

      • (A) is included in computing a taxpayer’s interest and financing expenses for a taxation year under paragraph (e), or

      • (B) reduces the taxpayer’s interest and financing expenses for a taxation year under the description of B,

    • (ii) would, in the absence of this section, be deductible by the taxpayer in computing its income for the particular year,

    • (iii) is not deductible under any of the provisions listed in paragraph (b), and

    • (iv) is an expense or fee payable under the agreement or arrangement or an expense that is incurred in contemplation of, in the course of entering into or in relation to, the agreement or arrangement,

  • (g) a lease financing amount (other than in respect of an excluded lease for the particular year) that

    • (i) would, in the absence of this section, be deductible by the taxpayer in computing its income for the particular year, and

    • (ii) is not excluded interest for the particular year,

  • (h) in respect of the income or loss of a partnership, for a fiscal period that ends in the particular year, from any source or from sources in a particular place, an amount determined by the formula

    C × D − E − F

    where

    C

    is the total of all amounts, each of which is an amount that

    • (i) is deductible by the partnership in computing its income or loss from the source, or the source in a particular place, for a fiscal period, and that would be described in any of paragraphs (a) to (g) if the references to the taxpayer were read as references to the partnership, or

    • (ii) would be included under paragraph (j) in determining the interest and financing expenses of the partnership for the purposes of determining its income or loss from the source, or the source in a particular place, for the fiscal period, if the partnership were a taxpayer for the purposes of this section,

    D

    is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”,

    E

    is the amount, if any, included in computing the taxpayer’s income under paragraph 12(1)(l.1) in respect of the amount referred to in the description of C, and

    F

    is the portion of an amount determined for C that can reasonably be considered to not be deductible in computing the taxpayer’s income for the particular year, and to not be included in computing the taxpayer’s non-capital loss for the particular year, because of subsection 96(2.1),

  • (i) the portion of an amount that, in the absence of this section, would be deductible in computing the taxpayer’s taxable income for the particular year and is claimed by the taxpayer under paragraph 111(1)(e) in respect of a partnership of which the taxpayer is a member that can reasonably be considered to be attributable to an amount referred to in the description of F in paragraph (h) in respect of a fiscal period of the partnership ending in another taxation year of the taxpayer, or

  • (j) in respect of a corporation that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the particular year, an amount determined by the formula

    G × H

    where

    G

    is the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

    H

    is the taxpayer’s specified participating percentage in respect of the affiliate for the affiliate taxation year; and

  B

  is the total of all amounts, each of which is

  • (a) an amount received or receivable (other than as a dividend or in respect of exempt interest and financing expenses) by the taxpayer in a year, or a gain of the taxpayer for a year, as the case may be, under or as a result of an agreement or arrangement to the extent that

    • (i) the amount is included in computing the taxpayer’s income for the particular year,

    • (ii) the agreement or arrangement is entered into

      • (A) as a borrowing or other financing of the taxpayer or of a person or partnership that does not deal at arm’s length with the taxpayer, or

      • (B) in relation to a borrowing or other financing of the taxpayer or of a person or partnership that does not deal at arm’s length with the taxpayer to hedge the cost of funding or the borrowing or other financing,

    • (iii) the amount can reasonably be considered to reduce the cost of funding with respect to the borrowing or other financing of the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer, and

    • (iv) the amount cannot reasonably be considered to be excluded, reduced, offset or otherwise effectively sheltered from tax under this Part because

      • (A) an amount is deductible under any of subsections 20(11) to (12.1) and 126(1) and (2), and

      • (B) an amount is deductible in respect of income or profits tax paid to a country other than Canada that

        • (I) can reasonably be considered to have been paid in respect of the amount, and

        • (II) is not a tax substantially similar to tax under subsection 212(1), or

  • (b) in respect of the income or loss of a partnership, for a fiscal period that ends in the particular year, from any source or from sources in a particular place, an amount determined by the formula

    I × J

    where

    I

    is an amount that would be described in paragraph (a) if

    • (i) the references to the taxpayer in that paragraph were read as references to the partnership, and

    • (ii) the reference in subparagraph (a)(i) to “the taxpayer’s income for the particular year” were read as “the partnership’s income or loss from the source, or the source in a particular place, for a fiscal period”, and

    J

    is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”. (dépenses d’intérêts et de financement)

  interest and financing revenues

  interest and financing revenues of a taxpayer for a taxation year means the amount determined by the formula

  A − B

  where

  A

  is the total of all amounts (other than any amount included under the description of B in the definition interest and financing expenses), each of which is

  • (a) an amount received or receivable as, on account of, in lieu of payment or in satisfaction of, interest (other than excluded interest for the year, an amount that is deemed to be interest under subsection 137(4.1) or any amount described in any other paragraph in this definition) that is included in computing the taxpayer’s income for the year,

  • (b) an amount that is included in computing the taxpayer’s income for the year because of subsection 12(9) or section 17.1 (other than any amount described in any other paragraph in this definition),

  • (c) a fee or similar amount in respect of a guarantee, or similar credit support, provided by the taxpayer for the payment of any amount on a debt obligation owing by another person or partnership that is included in computing the taxpayer’s income for the year (other than any amount described in any other paragraph in this definition),

  • (d) an amount received or receivable (other than as a dividend) by the taxpayer, or a gain of the taxpayer, as the case may be, under or as a result of an agreement or arrangement, if

    • (i) the amount is included in computing the taxpayer’s income for the year,

    • (ii) the agreement or arrangement is entered into as or in relation to a loan or other financing owing to or provided by the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer, and

    • (iii) the amount can reasonably be considered to increase (or be part of) the return of the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer with respect to the loan or other financing (including as a result of any hedge of the return or of the loan or other financing),

  • (e) a lease financing amount (other than in respect of a lease that would be an excluded lease for the year, if the definition excluded lease were read without regard to its paragraph (a)) that

    • (i) is included in computing the taxpayer’s income for the year, and

    • (ii) is not excluded interest for the year,

  • (f) in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula

    C × D

    where

    C

    is the total of all amounts, each of which is an amount that

    • (i) is included by the partnership in computing its income or loss from the source, or the source in a particular place, for a fiscal period and that would be described in paragraphs (a) to (e) if the references to the taxpayer were read as references to the partnership, or

    • (ii) would be included under paragraph (g) in determining the interest and financing revenues of the partnership for the purposes of determining its income or loss from the source, or the source in a particular place, for the fiscal period, if the partnership were a taxpayer for the purposes of this section, and

    D

    is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”, or

  • (g) in respect of a corporation that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the year, an amount determined by the formula

    E × F − G

    where

    E

    is the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year,

    F

    is the taxpayer’s specified participating percentage in respect of the affiliate for the affiliate taxation year, and

    G

    is an amount (other than any portion of the amount that is in respect of income tax paid under subsection 212(1)) that is deducted under subsection 91(4) in computing the taxpayer’s income for any taxation year in respect of foreign accrual tax (as defined in subsection 95(1)) applicable to an amount that is included in the taxpayer’s income under subsection 91(1) in respect of the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year, and

  B

  is the total of all amounts, each of which is

  • (a) an amount paid or payable by the taxpayer, or a loss or a capital loss of the taxpayer, as the case may be, under or as a result of an agreement or arrangement, to the extent that

    • (i) the amount

      • (A) is deductible in computing the taxpayer’s income for the year, or

      • (B) in the case of a capital loss, reduces the amount determined under paragraph 3(b) in respect of the taxpayer or is deductible in computing the taxpayer’s taxable income for the year (except to the extent it has already been taken into account in determining an amount under this paragraph for a previous year),

    • (ii) the agreement or arrangement is entered into

      • (A) as a loan or other financing owing to or provided by the taxpayer, or a person or partnership that does not deal at arm’s length with the taxpayer, or

      • (B) in relation to a loan or other financing owing to or provided by the taxpayer, or a person or partnership that does not deal at arm’s length with the taxpayer, to hedge the cost of funding or the borrowing or other financing, and

    • (iii) the amount can reasonably be considered to reduce the return of the taxpayer, or a person or partnership that does not deal at arm’s length with the taxpayer, in respect of the loan or other financing;

  • (b) in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula

    H × I

    where

    H

    is an amount that would be described in paragraph (a) if

    • (i) the references to the taxpayer in that paragraph were read as references to the partnership, and

    • (ii) the reference in subparagraph (a)(i) to “the taxpayer’s income for the year” were read as “the partnership’s income or loss from the source, or the source in a particular place, for a fiscal period”, and

    I

    is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”,

  • (c) the portion of any amount included under the description of A (referred to in this paragraph as the “subject amount”) that can reasonably be considered to be excluded, reduced, offset or otherwise effectively sheltered from tax under this Part because an amount is deductible

    • (i) under any of subsections 20(11) to (12.1) and 126(1) and (2), and

    • (ii) in respect of income or profits tax paid to a country other than Canada that

      • (A) can reasonably be considered to have been paid in respect of the subject amount, and

      • (B) is not a tax substantially similar to tax under subsection 212(1),

  • (d) the portion of any amount included under A that is not, because of an Act of Parliament, subject to tax under this Part. (revenus d’intérêts et de financement)

  lease financing amount

  lease financing amount means an amount that is the portion of a particular payment in respect of a particular lease entered into by a taxpayer that would be considered to be on account of interest if

  • (a) the lessee had received a loan at the time the particular lease began and in a principal amount equal to the fair market value at that time of the property that is the subject of the particular lease;

  • (b) interest had been charged on the principal amount of the loan outstanding from time to time at the rate — determined in accordance with section 4302 of the Income Tax Regulations — in effect at the time described in paragraph (a), compounded semi-annually not in advance; and

  • (c) the particular payment was a blended payment of principal and interest, calculated in accordance with paragraph (b), on the loan applied firstly on account of interest on principal, secondly on account of interest on unpaid interest and thirdly on account of principal. (montant du crédit-bail)

  public sector authority

  public sector authority means His Majesty in right of Canada, His Majesty in right of a province, an entity referred to in any of paragraphs 149(1)(c) to (d.6), a hospital authority (as defined in subsection 123(1) of the Excise Tax Act) or a registered charity that is a public college, school authority or university (each as defined in subsection 123(1) of the Excise Tax Act). (administration du secteur public)

  ratio of permissible expenses

  ratio of permissible expenses of a taxpayer for a taxation year means the percentage that is

  • (a) if the taxpayer’s taxation year begins on or after October 1, 2023, and before January 1, 2024, 40%, other than for the purpose of determining the taxpayer’s cumulative unused excess capacity for any taxation year that begins on or after January 1, 2024; and

  • (b) if the taxpayer’s taxation year begins on or after January 1, 2024, and for the purposes referred to in paragraph (a) for which 40% is not the applicable percentage, 30%. (ratio des dépenses admissibles)

  received capacity

  received capacity means an amount of received capacity of a transferee for a taxation year as determined under subsection (4). (capacité reçue)

  relevant affiliate interest and financing expenses

  relevant affiliate interest and financing expenses of a controlled foreign affiliate of a taxpayer (determined as though the definition taxpayer in this subsection did not include the words “or a partnership”) for an affiliate taxation year means, subject to subsection (19), the total of all amounts (other than an amount that is deductible in computing any income or loss of the affiliate that is included in computing the affiliate’s income or loss from an active business because of paragraph 95(2)(a) or an amount that is described in clause 95(2)(a)(ii)(D) and treated as nil for the purposes of determining an amount for A or D in the definition foreign accrual property income in subsection 95(1)), each of which would be the affiliate’s interest and financing expenses (determined without regard to paragraph (j) of the description of A in the definition interest and financing expenses) for the affiliate taxation year for the purposes of determining, in respect of the taxpayer for the affiliate taxation year, each amount referred to in subparagraph 95(2)(f)(i) or (ii), if

  • (a) the references in the definition interest and financing expenses to “in the absence of this section” were read as references to “in the absence of clause 95(2)(f.11)(ii)(D)”; and

  • (b) clause 95(2)(f.11)(ii)(A) were read without regard to the reference to subsection 18.2(2). (dépenses d’intérêts et de financement de la société affiliée pertinentes)

  relevant affiliate interest and financing revenues

  relevant affiliate interest and financing revenues of a controlled foreign affiliate of a taxpayer (determined as though the definition taxpayer in this subsection did not include the words “or a partnership”) for an affiliate taxation year means, subject to subsection (19), the total of all amounts (other than an amount included in computing the affiliate’s income or loss from an active business under paragraph 95(2)(a) or (2.44)(b)), each of which would be the affiliate’s interest and financing revenues (determined without regard to paragraph (g) of the description of A in the definition interest and financing revenues) for the affiliate taxation year for the purposes of determining, in respect of the taxpayer for the affiliate taxation year, each amount referred to in subparagraph 95(2)(f)(i) or (ii), if clause 95(2)(f.11)(ii)(A) were read without regard to the reference to subsection 18.2(2). (revenus d’intérêts et de financement de la société affiliée pertinents)

  relevant inter-affiliate interest

  relevant inter-affiliate interest, of a controlled foreign affiliate of a taxpayer for an affiliate taxation year, means an amount of interest to the extent that the amount

  • (a) is paid or payable by the affiliate to, or received or receivable by the affiliate from, a controlled foreign affiliate (in this definition referred to as the “other affiliate”) of

    • (i) the taxpayer, or

    • (ii) a taxpayer that is an eligible group entity in respect of the taxpayer; and

  • (b) would, in the absence of subsection (19), be included in

    • (i) if the amount is paid or payable by the affiliate, the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year and the other affiliate’s relevant affiliate interest and financing revenues for an affiliate taxation year, or

    • (ii) if the amount is received or receivable by the affiliate, the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year and the other affiliate’s relevant affiliate interest and financing expenses for an affiliate taxation year. (intérêts pertinents entre sociétés affiliées)

  special purpose loss corporation

  special purpose loss corporation, for a taxation year, means a particular corporation that 

  • (a) is an eligible group entity in respect of a financial holding corporation to which the particular corporation has interest paid or payable in the year;

  • (b) is formed or exists solely for the purpose of generating a loss of the particular corporation; and

  • (c) would, in the absence of this section, have a loss for the year that is, or will be, utilized by a financial institution group entity that is an eligible group entity in respect of the particular corporation. (société à usage déterminé ayant subi des pertes)

  specified participating percentage

  specified participating percentage of a taxpayer, in respect of a controlled foreign affiliate of the taxpayer for an affiliate taxation year, means the percentage that would be the taxpayer’s aggregate participating percentage (as defined in subsection 91(1.3)), determined without regard to clause 95(2)(f.11)(ii)(D), in respect of the affiliate for the affiliate taxation year, if the definition participating percentage in subsection 95(1) were read without reference to

  • (a) its paragraph (a); and

  • (b) the portion of its paragraph (b) before its subparagraph (b)(i). (pourcentage de participation déterminé)

  specified pre-regime loss

  specified pre-regime loss of a taxpayer, in respect of a taxation year, means the taxpayer’s non-capital loss for a preceding taxation year, if

  • (a) the preceding year ends before February 4, 2022;

  • (b) the taxpayer files with the Minister, in respect of the loss, an election in writing in prescribed manner under this definition;

  • (c) the election specifies

    • (i) the loss,

    • (ii) each amount deducted, in respect of the loss, by the taxpayer under paragraph 111(1)(a) in computing its taxable income

      • (A) for the year, and

      • (B) each taxation year that precedes the year, and

    • (iii) the taxpayer’s adjusted taxable income for the year; and

  • (d) the election is filed on or before the filing-due date of the taxpayer for the year. (perte antérieure au régime déterminée)

  tax-indifferent

  tax-indifferent means a person or partnership that is

  • (a) a person exempt from tax under section 149;

  • (b) a non-resident person;

  • (c) a partnership more than 50% of the fair market value of all interests in which can reasonably be considered to be held, directly or indirectly through one or more trusts or partnerships, by any combination of persons described in paragraph (a) or (b); or

  • (d) a trust resident in Canada if more than 50% of the fair market value of all interests as beneficiaries under the trust can reasonably be considered to be held, directly or indirectly through one or more trusts or partnerships, by any combination of persons described in paragraph (a) or (b). (indifférent relativement à l’impôt)

  taxpayer

  taxpayer has the meaning assigned by subsection 248(1), but does not include a natural person or a partnership. (contribuable)

  transaction

  transaction includes an arrangement or event. (opération)

  transferred capacity

  transferred capacity means an amount of transferred capacity of a transferor for a taxation year as determined under subsection (4). (capacité transférée)

• Marginal note:Excessive interest and financing expenses limitation

  (2) Notwithstanding any other provision of this Act, in computing the income for a taxation year of a taxpayer (other than an excluded entity for the year) from a business or property or the taxable income of the taxpayer for the year, no deduction shall be made — and in determining the amount under paragraph 3(b) in respect of the taxpayer for the year, no reduction shall be made — in respect of any amount that is described in any of paragraphs (a) to (g) and (i) of the description of A in the definition interest and financing expenses in subsection (1) that would, in the absence of this section, be deductible in computing that income or taxable income — or would reduce that amount determined under paragraph 3(b) — to the extent of the proportion of that amount that is determined by the formula

  (A − (B + C + D + E)) ÷ F

  where

  A

  is the taxpayer’s interest and financing expenses for the year;

  B

  is

  • (a) if subsection 18.21(2) applies in respect of the taxpayer for the year, the amount determined in respect of the taxpayer for the year under that subsection, and

  • (b) in any other case, the amount determined by the formula

    G × H

    where

    G

    is the taxpayer’s ratio of permissible expenses for the year, and

    H

    is the taxpayer’s adjusted taxable income for the year;

  C

  is the taxpayer’s interest and financing revenues for the year;

  D

  is the amount by which the total of all amounts each of which is an amount of received capacity of the taxpayer for the year, as determined under subsection (4), exceeds the total amount deductible under paragraph 111(1)(a.1) for the year;

  E

  is the amount of the taxpayer’s absorbed capacity for the year; and

  F

  is

  • (a) if no amount is included in the taxpayer’s interest and financing expenses for the year under paragraph (j) of the description of A of that definition, or under paragraph (h) of the description of A of that definition in respect of a controlled foreign affiliate of a partnership of which the taxpayer is a member, the amount determined for A in that definition for the taxpayer for the year, or

  • (b) in any other case, the amount that would be determined for A in the definition interest and financing expenses in subsection (1) for the taxpayer for the year if the reference to “the affiliate’s interest and financing expenses” in the definition relevant affiliate interest and financing expenses were read as a reference to “an amount determined for A in the definition interest and financing expenses for the affiliate”.

• Marginal note:Amount deemed deducted

  (3) All or any portion, of a particular amount described in paragraph (c) or (d) of the description of A in the definition interest and financing expenses in subsection (1), that would, in the absence of subsection (2), have been deducted in computing the income of a taxpayer for a taxation year but that is not deductible because of subsection (2), is deemed to have been deductible and to have been deducted in the year for purposes of determining, in respect of any taxpayer at any time, such of the following amounts to which the particular amount relates:

  • (a) the total depreciation (as defined in subsection 13(21)) allowed for property of a prescribed class;

  • (b) the amount the taxpayer may deduct under subsection 66(4);

  • (c) the cumulative Canadian exploration expense (as defined in subsection 66.1(6));

  • (d) the cumulative Canadian development expense (as defined in subsection 66.2(5));

  • (e) the cumulative foreign resource expense (as defined in subsection 66.21(1)) in respect of a country;

  • (f) the cumulative Canadian oil and gas property expense (as defined in subsection 66.4(5)); and

  • (g) the amount the taxpayer may deduct under subsections 66.7(1), (2) or (2.3) to (5).

• Marginal note:Transfer of cumulative unused excess capacity

  (4) For the purposes of this section, a taxpayer and another taxpayer (referred to in this section as the “transferor” and the “transferee”, respectively) may jointly elect in prescribed form to designate an amount equal to all or a portion of the transferor’s cumulative unused excess capacity, and that amount is an amount of transferred capacity of the transferor for a taxation year and an amount of received capacity of the transferee for a taxation year, if

  • (a) the taxation year of the transferor ends in the taxation year of the transferee;

  • (b) each of the transferor and the transferee is

    • (i) a taxable Canadian corporation or a fixed interest commercial trust throughout its taxation year, and

    • (ii) an eligible group entity in respect of the other at the end of its taxation year;

  • (c) where the transferor is a financial institution group entity or a financial holding corporation for its taxation year, the transferee is, for its taxation year,

    • (i) a financial institution group entity,

    • (ii) a financial holding corporation, or

    • (iii) a special purpose loss corporation;

  • (d) the election or amended election

    • (i) specifies the amount of the transferred capacity, and

    • (ii) is filed with the Minister by the transferor

      • (A) on or before the later of the filing-due date of

        • (I) the transferor for its taxation year, and

        • (II) the transferee for its taxation year, or

      • (B) on or before the day that is 90 days after the day of sending of

        • (I) a notice of assessment of tax payable under this Part by the transferor or the transferee for their respective taxation years, or

        • (II) a notification that no tax is payable under this Part by the transferor or the transferee for their respective taxation years;

  • (e) the total of all amounts each of which would, if this subsection were read without reference to this paragraph, be an amount of transferred capacity of the transferor for its taxation year in respect of any transferee, does not exceed the transferor’s cumulative unused excess capacity for the year;

  • (f) if the transferee is a financial holding corporation and the transferor is a financial institution group entity, it is the case that

    A ≥ B

    where

    A

    is the total of all amounts, each of which is an amount that is included in computing the income of the financial holding corporation for its taxation year in respect of excluded interest, the payer of which is, for the taxation year of the payer in which the interest is payable,

    • (i) a financial institution group entity, or

    • (ii) a special purpose loss corporation, if the amount gives rise to a loss of the special purpose loss corporation that is, or will be, utilized solely by a financial institution group entity, and

    B

    is the total of all amounts, each of which would, in the absence of this paragraph, be an amount that is both

    • (i) received capacity of the financial holding corporation for its taxation year, and

    • (ii) transferred capacity of a financial institution group entity for one of its taxation years;

  • (g) if the transferee is a special purpose loss corporation and the transferor is a financial institution group entity, it is the case that

    C ≥ D

    where

    C

    is the total of all amounts, each of which is an amount that

    • (i) would, in the absence of this section, be deductible in computing the income of the special purpose loss corporation for its taxation year,

    • (ii) is paid or payable to a financial holding corporation,

    • (iii) meets the conditions set out in paragraphs (a) to (d) of the definition excluded interest, and

    • (iv) would, in the absence of this section, give rise to a loss that is, or will be, utilized solely by a financial institution group entity, and

    D

    is the total of all amounts, each of which would, in the absence of this paragraph, be an amount that is both

    • (i) received capacity of the special purpose loss corporation for its taxation year, and

    • (ii) transferred capacity of a financial institution group entity for one of its taxation years;

  • (h) an amended election has not been filed in accordance with this section;

  • (i) where the election is an amended election,

    • (i) the following conditions are met:

      • (A) in the absence of any assessment, the condition set out in paragraph (e) would be met in respect of a prior election under this subsection made by the transferor and transferee for their respective taxation years, and

      • (B) subsection (9) does not apply to a tax benefit in respect of a prior election for the taxation year of the transferor or transferee, or

    • (ii) the Minister grants permission to amend the prior election under subsection (5); and

  • (j) the transferee files an information return in accordance with subsection (6) for the calendar year in which the transferee’s taxation year ends.

• Marginal note:Late or amended election

  (5) The Minister may extend the time for making an election, or grant permission to amend an election, under subsection (4) if

  • (a) the transferor and the transferee demonstrate to the satisfaction of the Minister that

    • (i) the transferor, the transferee and each other eligible group entity in respect of the transferor and transferee made reasonable efforts to determine all amounts that may reasonably be considered relevant in making the election, and

    • (ii) the election or amended election, as the case may be, is filed as soon as circumstances permit; and

  • (b) in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the election to be made or amended.

• Marginal note:Summary — cumulative unused excess capacity transfers

  (6) If one or more elections are filed under subsection (4), in which amounts are designated as received capacity of a particular transferee for a taxation year ending in a calendar year, the particular transferee shall file with the Minister for the calendar year an information return in prescribed form within six months after the end of the calendar year in respect of

  • (a) each such election; and

  • (b) each election filed under subsection (4) for a taxation year ending in the calendar year, by any other transferee that is an eligible group entity in respect of the particular transferee at the end of the other transferee’s taxation year.

• Marginal note:Summary — filing by designated filer

  (7) For the purposes of this section, if any taxpayer is required to file an information return for a calendar year under subsection (6), the taxpayer is deemed to have filed the information return if

  • (a) an information return under subsection (6) is filed for the calendar year by any other taxpayer (in this subsection referred to as the “designated filer” in respect of the taxpayer for the year) that is an eligible group entity in respect of the taxpayer at the end of the taxpayer’s taxation year ending in the calendar year; and

  • (b) the taxpayer jointly elects, with each other transferee described in paragraph (6)(b), to designate under this paragraph the designated filer to be a designated filer in respect of the taxpayer and each other transferee for the calendar year.

• Marginal note:Assessment

  (8) If an election or an amended election has been made under subsection (4), the Minister shall, notwithstanding subsections 152(4) and (5), assess or reassess the tax, interest or penalties payable under this Act by any taxpayer for any relevant taxation year as is necessary to give effect to the election or amended election.

• Marginal note:Anti-avoidance — group status

  (9) If, at any time, a particular taxpayer is, becomes or ceases to be an eligible group entity, in respect of another taxpayer, a financial institution group entity or a financial holding corporation and it may reasonably be considered, having regard to all the circumstances, that one of the main purposes of the particular taxpayer being, becoming or ceasing to be an eligible group entity, in respect of the other taxpayer, a financial institution group entity or a financial holding corporation is to enable any taxpayer to obtain a tax benefit (within the meaning of subsection 245(1)), the particular taxpayer is deemed not to be, to have become, or to remain, as the case may be, an eligible group entity, in respect of the other taxpayer, a financial institution group entity or a financial holding corporation, as the case may be, at that time.

• Marginal note:Benefits conferred

  (10) For the purposes of this Part, if a transferor and a transferee file an election (including an amended election) under subsection (4), no benefit is considered to have been conferred on the transferee as a consequence of the election.

• Marginal note:Consideration for election

  (11) For the purposes of this Part, if property is acquired at any time by a transferor as consideration for filing an election or amended election with a transferee under subsection (4)

  • (a) where the property was owned by the transferee immediately before that time,

    • (i) the transferee is deemed to have disposed of the property at that time for proceeds equal to the fair market value of the property at that time, and

    • (ii) no amount may be deducted in computing the transferee’s income as a consequence of the transfer of the property, except any amount arising as a consequence of subparagraph (i);

  • (b) the cost at which the property was acquired by the transferor at that time is deemed to be equal to the fair market value of the property at that time; and

  • (c) the transferor is not required to add an amount in computing income solely because of the acquisition at that time of the property.

• Marginal note:Partnerships

  (12) For the purposes of this section,

  • (a) a person or partnership that is (or is deemed by this paragraph to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership; and

  • (b) a person’s share of the income or loss of a partnership includes the person’s direct or indirect, through one or more other partnerships, share of that income or loss.

• Marginal note:Anti-avoidance — interest and financing revenues and expenses

  (13) A particular amount that would, in the absence of this subsection, be included under the description of A in the definition interest and financing revenues, or the description of B in the definition interest and financing expenses, in computing the income or loss of a taxpayer for a taxation year, must not be so included, if

  • (a) an amount in respect of the particular amount is deductible in computing the foreign accrual property income of a corporation that is a foreign affiliate, but not a controlled foreign affiliate, of the taxpayer or of a person or partnership that does not deal at arm’s length with the taxpayer;

  • (b) the particular amount is received or receivable, directly or indirectly and in whole or in part, by the taxpayer, or a partnership of which it is a member, from

    • (i) a person that does not deal at arm’s length with the taxpayer and that is

      • (A) an excluded entity,

      • (B) a natural person, or

      • (C) if the taxpayer is not a financial institution group entity or a financial holding corporation, a financial institution group entity or a financial holding corporation, or

    • (ii) a partnership of which a person described in subparagraph (i) is a member; or

  • (c) one of the main purposes of a transaction or series of transactions is to include the particular amount under the description of A in the definition interest and financing revenues, or the description of B in the definition interest and financing expenses, in computing the income or loss of the taxpayer for a taxation year and

    • (i) the transaction or series results in an amount that

      • (A) is not included in the description of B in the definition interest and financing revenues, or the description of A in the definition interest and financing expenses, in computing the income or loss of the taxpayer, or of a person not dealing at arm’s length with the taxpayer, for a taxation year, and

      • (B) is deductible in computing the income of loss for a taxation year of the taxpayer or a person or partnership not dealing at arm’s length with the taxpayer, or

    • (ii) it can reasonably be considered that, in the absence of the transaction or series, the particular amount or an amount for which the particular amount was substituted

      • (A) would have been included in computing the income or loss for a taxation year (other than as a dividend) of the taxpayer, or a person or partnership not dealing at arm’s length with the taxpayer, and

      • (B) would not have been included under the description of A in the definition interest and financing revenues, or the description of B in the definition interest and financing expenses, in computing the income or loss of the taxpayer or a person not dealing at arm’s length with the taxpayer.

• Marginal note:Anti-avoidance — excluded entity

  (14) For the purposes of subparagraph (c)(iv) of the definition excluded entity, a person or partnership is deemed to be tax-indifferent and not to deal at arm’s length with the taxpayer or any eligible group entity in respect of the taxpayer throughout a taxation year of the taxpayer if

  • (a) any portion of the interest and financing expenses of the taxpayer for the year is paid or payable by the taxpayer or any eligible group entity in respect of the taxpayer to the person or partnership as part of a transaction or series of transactions; and

  • (b) it can reasonably be considered that one of the main purposes of the transaction or series is to avoid that portion of the interest and financing expenses being paid or payable to a person or partnership that is tax-indifferent and does not deal at arm’s length with the taxpayer or any eligible group entity in respect of the taxpayer.

• Marginal note:Deemed eligible group entities

  (15) If two taxpayers are eligible group entities in respect of a third taxpayer, they are deemed to be eligible group entities in respect of each other.

• Marginal note:Eligible group entities — related

  (16) For the purposes of paragraph (a) of the definition eligible group entity in subsection (1)

  • (a) despite subsection 104(1), a reference to a person that is a trust does not include a reference to the trustee or other persons that own or control the trust property; and

  • (b) a corporation or a trust is deemed not to be related to a taxpayer where the corporation or trust would, but for this paragraph, be related to the taxpayer solely because the taxpayer is controlled by His Majesty in right of Canada, His Majesty in right of a province or an entity referred to in any of paragraphs 149(1)(c) to (d.6).

• Marginal note:Eligible group entities — affiliated

  (17) For the purposes of paragraph (b) of the definition eligible group entity in subsection (1), a corporation or a trust is deemed not to be affiliated with a taxpayer where that corporation or trust would, but for this subsection, be affiliated with the taxpayer solely because

  • (a) the taxpayer is controlled by His Majesty in right of Canada, His Majesty in right of a province or an entity referred to in any of paragraphs 149(1)(c) to (d.6); or

  • (b) if the corporation or trust is a registered charity or a non-profit organization with whom the taxpayer deals at arm’s length, the corporation or trust is a majority-interest beneficiary (within the meaning of subsection 251.1(3)) of the taxpayer.

• Marginal note:Filing requirement

  (18) Each taxpayer shall file with its return of income for the taxation year a prescribed form containing prescribed information for the purpose of determining the deductibility of its interest and financing expenses and determining its exempt interest and financing expenses.

• Marginal note:Relevant inter-affiliate interest

  (19) If an amount is paid or payable by a controlled foreign affiliate (referred to in this subsection as the “payer affiliate”) of a taxpayer and received or receivable by a controlled foreign affiliate (referred to in this subsection as the “recipient affiliate”) of the taxpayer, or a taxpayer that is an eligible group entity in respect of the taxpayer, and the amount is relevant inter-affiliate interest of the payer affiliate for an affiliate taxation year (referred to in this subsection as the “payer affiliate year”) and of the recipient affiliate for an affiliate taxation year (referred to in this subsection as the “recipient affiliate year”),

  • (a) the amount included, in respect of the relevant inter-affiliate interest, in the payer affiliate’s relevant affiliate interest and financing expenses for the payer affiliate year is the lesser of

    • (i) the relevant inter-affiliate interest, and

    • (ii) the amount determined by the formula

      A + B

      where

      A

      is the amount determined by the formula

      (C − D) × E ÷ C

      where

      C

      is the total of all amounts, each of which would — if the relevant inter-affiliate interest were not paid or payable — be, in respect of the payer affiliate for the payer affiliate year, the specified participating percentage of

      • (A) the taxpayer, or

      • (B) another taxpayer that is an eligible group entity in respect of the taxpayer, and

      D

      is the total of all amounts, each of which is, in respect of the recipient affiliate for the recipient affiliate year, the specified participating percentage of

      • (A) the taxpayer, or

      • (B) another taxpayer that is an eligible group entity in respect of the taxpayer, and

      E

      is the relevant inter-affiliate interest, and

      B

      is the lesser of

      • (A) the relevant inter-affiliate interest, and

      • (B) the amount determined by the formula

        (F − G) × H ÷ I

        where

        F

        is the payer affiliate’s relevant affiliate interest and financing revenues for the payer affiliate year,

        G

        is the amount that would be the payer affiliate’s relevant affiliate interest and financing expenses for the payer affiliate year if the payer affiliate had no relevant inter-affiliate interest for the payer affiliate year,

        H

        is the amount determined for E, and

        I

        is the total of all amounts, each of which is an amount of relevant inter-affiliate interest of the payer affiliate for the payer affiliate year that would, in the absence of this paragraph, be included in the payer affiliate’s relevant affiliate interest and financing expenses; and

  • (b) the amount included, in respect of the relevant inter-affiliate interest, in the recipient affiliate’s relevant affiliate interest and financing revenues for the recipient affiliate year is the lesser of

    • (i) the amount referred to in E, and

    • (ii) the amount determined by the formula

      J × K ÷ L

      where

      J

      is the amount determined for B,

      K

      is the amount determined for C, and

      L

      is the amount determined for D.