I-3 - Taxation Act

Section 262.0.1 Disposition versions

2020-09-24

262.0.1. The rules set out in the second paragraph apply if

(a)  at any time a corporation resident in Canada or a partnership of which such a corporation is a member (such corporation or partnership being in this section and section 262.0.2 referred to as the “borrowing party”) has received a loan from, or become indebted to, a creditor that is a foreign affiliate (in this section and section 262.0.2 referred to as a “creditor affiliate”) of a qualifying entity or that is a partnership (in this section referred to as a “creditor partnership”) of which such an affiliate is a member; and

(b)  the loan or indebtedness is at a later time repaid, in whole or in part;

(c)  (paragraph repealed).

The rules to which the first paragraph refers, in relation to the borrowing party’s capital gain or capital loss in respect of the repayment of the loan or indebtedness that would be determined, in the absence of this section, under section 262, are the following:

(a)  in the case of a capital gain, the gain is to be reduced,

i.  if the creditor is a creditor affiliate, by an amount, not exceeding that capital gain, that is equal to twice the aggregate of all amounts each of which is an amount that would—in the absence of subparagraph ii of paragraph g of subsection 2 of section 40 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) and paragraph g.04 of subsection 2 of section 95 of that Act and on the assumption that the creditor affiliate’s capital loss in respect of the repayment of the loan or indebtedness were a capital gain of the creditor affiliate, the creditor affiliate had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of a qualifying entity had any income, loss, capital gain or capital loss for any taxation year—be included in computing a qualifying entity’s income for the purposes of the Income Tax Act under subsection 1 of section 91 of that Act for its taxation year that includes the last day of the taxation year of the creditor affiliate that includes the later time, or

ii.  if the creditor is a creditor partnership, by an amount, not exceeding that capital gain, that is equal to twice the amount that is the total of each amount, determined in respect of a particular member of the creditor partnership that is a foreign affiliate of a qualifying entity, that is equal to the aggregate of all amounts each of which is an amount that would—in the absence of subparagraph ii of paragraph g of subsection 2 of section 40 of the Income Tax Act and paragraph g.04 of subsection 2 of section 95 of that Act and on the assumption that the creditor partnership’s capital loss in respect of the repayment of the loan or indebtedness were a capital gain of the creditor partnership, the particular member had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of a qualifying entity had any income, loss, capital gain or capital loss for any taxation year—be included in computing a qualifying entity’s income for the purposes of the Income Tax Act under subsection 1 of section 91 of that Act for its taxation year that includes the last day of the taxation year of the particular member that includes the last day of the creditor partnership’s fiscal period that includes the later time; and

(b)  in the case of a capital loss, the amount of the loss is to be reduced,

i.  if the creditor is a creditor affiliate, by an amount, not exceeding that capital loss, that is, in relation to the creditor affiliate’s capital gain in respect of the repayment of the loan or indebtedness, equal to twice the aggregate of all amounts each of which is an amount that would—in the absence of paragraph g.04 of subsection 2 of section 95 of the Income Tax Act and on the assumption that the creditor affiliate had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of a qualifying entity had any income, loss, capital gain or capital loss for any taxation year—be included in computing a qualifying entity’s income for the purposes of the Income Tax Act under subsection 1 of section 91 of that Act for its taxation year that includes the last day of the taxation year of the creditor affiliate that includes the later time, or

ii.  if the creditor is a creditor partnership, by an amount, not exceeding that capital loss, that is, in relation to the creditor partnership’s capital gain in respect of the repayment of the loan or indebtedness, equal to twice the amount that is the total of each amount, determined in respect of a particular member of the creditor partnership that is a foreign affiliate of a qualifying entity, that is equal to the aggregate of all amounts each of which is an amount that would—in the absence of paragraph g.04 of subsection 2 of section 95 of the Income Tax Act and on the assumption that the particular member had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of a qualifying entity had any income, loss, capital gain or capital loss for any taxation year—be included in computing a qualifying entity’s income for the purposes of the Income Tax Act under subsection 1 of section 91 of that Act for its taxation year that includes the last day of the taxation year of the particular member that includes the last day of the creditor partnership’s fiscal period that includes the later time.

The first and second paragraphs do not apply in respect of a repayment, in whole or in part, of a loan or indebteness if a valid election was made in respect of the repayment under subsection 2.3 of section 39 of the Income Tax Act.

Chapter V.2 of Title II of Book I of Part I applies in relation to an election referred to in the third paragraph. However, for the application of section 21.4.7 to such an election, a taxpayer is deemed to have complied with a requirement of section 21.4.6 if the taxpayer complies with it on or before 23 March 2021.

2015, c. 21, s. 153; 2020, c. 16, s. 52.

2015-10-21

262.0.1. The rules set out in the second paragraph apply if

(a)  at any time a corporation resident in Canada or a partnership of which such a corporation is a member (such corporation or partnership in this section referred to as the “borrowing party”) has received a loan from, or become indebted to, a creditor that is a foreign affiliate (in this section referred to as a “creditor affiliate”) of the borrowing party or that is a partnership (in this section referred to as a “creditor partnership”) of which such an affiliate is a member;

(b)  the loan or indebtedness is at a later time repaid, in whole or in part; and

(c)  the amount of the borrowing party’s capital gain or capital loss that would be determined, in the absence of this section, under section 262 in respect of the repayment is equal to the amount of the creditor affiliate’s or creditor partnership’s capital gain or capital loss, as the case may be, that would be determined for the purposes of subdivision i of Division B of Part I of the Income Tax Act (R.S.C. 1985, c. 1, (5th Suppl.)), in respect of the repayment, in the absence of paragraph g.04 of subsection 2 of section 95 of that Act.

The rules to which the first paragraph refers in relation to the borrowing party’s capital gain or capital loss in respect of the repayment of the loan or indebtedness are the following:

(a)  in the case of a capital gain, the amount of the borrowing party’s capital gain that would be determined, in the absence of this section, under section 262, is to be reduced,

i.  if the creditor is a creditor affiliate, by an amount, not exceeding that capital gain, that is equal to twice the amount that would–in the absence of paragraph g.04 of subsection 2 of section 95 of the Income Tax Act and on the assumption that the creditor affiliate’s capital loss in respect of the repayment of the loan or indebtedness were a capital gain of the creditor affiliate, the creditor affiliate had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of the borrowing party had any income, loss, capital gain or capital loss for any taxation year–be included in computing the borrowing party’s income for the purposes of the Income Tax Act under subsection 1 of section 91 of that Act for its taxation year that includes the last day of the taxation year of the creditor affiliate that includes the later time, or

ii.  if the creditor is a creditor partnership, by an amount, not exceeding that capital gain, that is equal to twice the amount that is the total of each amount, determined in respect of a particular member of the creditor partnership that is a foreign affiliate of the borrowing party, that would–in the absence of paragraph g.04 of subsection 2 of section 95 of the Income Tax Act and on the assumption that the creditor partnership’s capital loss in respect of the repayment of the loan or indebtedness were a capital gain of the creditor partnership, the particular member had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of the borrowing party had any income, loss, capital gain or capital loss for any taxation year–be included in computing the borrowing party’s income for the purposes of the Income Tax Act under subsection 1 of section 91 of that Act for its taxation year that includes the last day of the taxation year of the particular member that includes the last day of the creditor partnership’s fiscal period that includes the later time; and

(b)  in the case of a capital loss, the amount of the borrowing party’s capital loss that would be determined, in the absence of this section, under section 262, is to be reduced,

i.  if the creditor is a creditor affiliate, by an amount, not exceeding that capital loss, that is equal to twice the amount, in relation to the capital gain of the creditor affiliate in respect of the repayment of the loan or indebtedness, that would–in the absence of paragraph g.04 of subsection 2 of section 95 of the Income Tax Act and on the assumption that the creditor affiliate had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of the borrowing party had any income, loss, capital gain or capital loss for any taxation year–be included in computing the borrowing party’s income for the purposes of the Income Tax Act under subsection 1 of section 91 of that Act for its taxation year that includes the last day of the taxation year of the creditor affiliate that includes the later time, or

ii.  if the creditor is a creditor partnership, by an amount, not exceeding that capital loss, that is equal to twice the amount, in relation to the capital gain of the creditor partnership in respect of the repayment of the loan or indebtedness, that is the total of each amount, determined in respect of a particular member of the creditor partnership that is a foreign affiliate of the borrowing party, that would–in the absence of paragraph g.04 of subsection 2 of section 95 of the Income Tax Act and on the assumption that the particular member had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of the borrowing party had any income, loss, capital gain or capital loss for any taxation year–be included in computing the borrowing party’s income for the purposes of the Income Tax Act under subsection 1 of section 91 of that Act for its taxation year that includes the last day of the taxation year of the particular member that includes the last day of the creditor partnership’s fiscal period that includes the later time.

2015, c. 21, s. 153.