I-3 - Taxation Act

Section 1138 Disposition versions

2012-05-09

1138. (1)  The paid-up capital of a corporation computed after the application of sections 1136 and 1137 shall be reduced in the proportion that the aggregate of the following value and amounts is of the total of its assets:

(a)  the value of its investments in shares and bonds of other corporations;

(a.1)  the value of its investments in permanent shares of a savings and credit union and any participating interest in the nature of a permanent share of a savings and credit union;

(b)  the amount of loans and advances to other corporations;

(c)  the amounts of the loans and advances to a partnership or joint venture, to the extent that the amounts of the loans or advances are included in computing the paid-up capital of a corporation that has an interest in the partnership or joint venture;

(d)  the amounts of the bankers’ acceptances and other similar securities accepted by a bank or any other person which are assets thereof, to the extent that such acceptances and other securities are for the benefit of a corporation;

(d.1)  the amount of debts resulting from the selling of property or the provision of services to another corporation, where those debts are secured, in whole or in part, by a property of that other corporation;

(d.2)  except where they are described in any of paragraphs a to d.1 or would be described therein but for subsections 2 to 2.1.3, the amount of debts that are owed

i.  by another corporation, except a corporation referred to in paragraph a of section 1132, and that are secured, in whole or in part, by a property of that other corporation or have been in existence for more than six months, or

ii.  by a loan corporation, a trust corporation or a corporation trading in securities, to which the corporation is related;

(e)  the amount referred to in section 1138.4.

(1.1)  For the purposes of subsection 1, the value of a share is deemed equal to its cost where the amount included in the assets is less than that cost; in such a case, the amount by which the cost exceeds that amount must be included in the paid-up capital of the corporation if it is not already included therein under section 1136.

(2)  The following are deemed not to be loans and advances to other corporations:

(a)  (paragraph repealed);

(b)  amounts receivable by a subsidiary from its parent corporation whose head office is outside Canada;

(c)  (paragraph repealed).

(2.0.1)  (Subsection repealed).

(2.1)  (Subsection repealed).

(2.1.0.1)  For the purposes of this section,

(a)  a debt that, but for this subparagraph, would be a loan or an advance to a corporation, a partnership or a joint venture, is deemed not to be such a loan or such an advance, in a taxation year, where it has been substituted for a debt that was not, immediately before the substitution, such a loan or such an advance and where, in that year, the creditor and the debtor of the debt are associated corporations, in the case where the creditor and the debtor are corporations, or do not deal at arm’s length, in the other cases;

(b)  a debt that, but for this paragraph, would be a loan or an advance is deemed not to be such a loan or such an advance, in a taxation year, where

i.  the debt was acquired, in the year or in a preceding taxation year, by a person, a partnership or a joint venture, called “acquirer” in this paragraph, from a person, partnership or joint venture, called “assignor” in this paragraph, and the acquirer and assignor are associated at the time of the acquisition, in the case where the acquirer and the assignor are corporations, or do not deal at arm’s length at that time, in the other cases,

ii.  the debt is a debt that, before its disposition by the assignor, was substituted for a debt that was not, immediately before the substitution, a loan or an advance to a corporation, a partnership or a joint venture and in respect of which, at the time of the substitution, the creditor and debtor were associated corporations, in the case where the creditor and the debtor are corporations, or did not deal at arm’s length, in the other cases, and

iii.  in the taxation year, the acquirer and debtor are associated corporations, in the case where the acquirer and the debtor are corporations, or do not deal at arm’s length in the other cases.

(2.1.0.2)  For the purposes of this subsection and subsection 2.1.0.1,

(a)  where an acquirer, within the meaning of subparagraph i of paragraph b of subsection 2.1.0.1, acquires a debt from a particular assignor that is an assignor within the meaning of that subparagraph i and had itself acquired the debt from another such assignor to which it was associated, in the case where the assignors are corporations, or with which it did not deal at arm’s length, in the other cases, the acquirer is deemed to acquire the debt from the other assignor at the time at which the particular assignor had acquired the debt from the other assignor and to be associated at that time with the other assignor, in the case where the acquirer and the other assignor are corporations, or not to deal at arm’s length at that time with the other assignor, in the other cases;

(b)  (paragraph repealed);

(c)  to determine whether a partnership or a joint venture does not, at a particular time, deal at arm’s length with a person, another partnership or another joint venture, each partnership or joint venture is deemed to be, at that particular time and for the purposes of sections 17 to 21, a person.

(2.1.1)  Bankers’ acceptances and other similar securities the drawer of which is a corporation authorized to receive deposits of money and not referred to in subparagraph ii of paragraph d.2 of subsection 1 are deemed not to be bankers’ acceptances or other similar securities referred to in subsection 1.

(2.1.1.1)  For the purposes of subsection 1, an investment in bonds of another corporation, a loan or advance to another corporation, a banker’s acceptance and a similar security for the benefit of another corporation or a debt described in paragraph d.1 of that subsection 1 that is owed by another corporation is deemed not to be such property where the other corporation is a corporation referred to in paragraph a of section 1132 that is not related to the corporation, except where that property is included in the long-term debt of the other corporation or is, where that other corporation is a corporation trading in securities, a subordinated loan or another debt of that corporation whose repayment is subject to the prior approval of an agency empowered to regulate trading in securities.

(2.1.2)  For the purposes of subsection 1, an investment in shares of a bank or a particular corporation related to a bank or a savings and credit union, a loan or an advance to such a particular corporation, an investment in bonds of another corporation, a property described in paragraph a.1 of subsection 1, a property described in paragraph b or c of that subsection that is a commercial paper, a property described in that paragraph c that is an investment in bonds of a partnership or a property described in any of paragraphs d to d.2 of that subsection, is deemed not to be such a property if it was not held without interruption by the corporation throughout a 120-day period that includes the date of the end of its taxation year.

(2.1.2.1)  For the purposes of paragraphs d.1 and d.2 of subsection 1, a debt referred to in any of those paragraphs, that is owed by a corporation, is deemed not to be such property where it is a debt that has been owed by that corporation for six months or less and that is a trade account receivable as consideration for the disposition of a property or the provision of a service, or a tax receivable in relation to the disposition of a property or the provision of a service where the disposition or provision gave rise to a trade account receivable or would give rise to a trade account receivable if the consideration for the disposition or provision were unpaid.

(2.1.2.2)  For the purposes of subsection 1, the amount of the debts referred to in paragraphs d.1 and d.2 of that subsection must be reduced by the part, attributable to those debts, of the reserve for doubtful debts that is deducted, in accordance with subsection 3, in computing the amount of the assets of the corporation.

(2.1.2.3)  For the purposes of subsection 1 and despite section 1.7, a reference to another corporation in subsection 1 is deemed not to be a reference to a government of a country, province, state or to another political subdivision of a country, other than a municipality or municipal body performing government functions.

(2.1.3)  For the purposes of paragraph d.1 of subsection 1, a debt resulting from the selling of property or the provision of services to another corporation is deemed not to be such a debt where that other corporation is

(a)  a corporation authorized to receive deposits of money and not referred to in subparagraph ii of paragraph d.2 of subsection 1; or

(b)  a corporation that is the parent corporation of the corporation and whose head office is outside Canada.

(2.1.4)  For the purposes of subsection 2.1.2, the particular corporation referred to in that subsection is deemed not to be related to a bank or savings and credit union in respect of an investment by another corporation in shares of the particular corporation or a loan or an advance by that other corporation to the particular corporation, if the particular corporation is not related to the bank or the savings and credit union at any time during the period the other corporation holds the investment or is the creditor of the loan or the advance.

(2.2)  No reduction of the paid-up capital shall be permitted under subsection 1 in respect of a loan, an advance, a debt described in paragraph d.2 of that subsection, or a banker’s acceptance or a similar security if it is established that the loan, advance, debt or banker’s acceptance or security was made or issued as part of a series of loans, advances, such debts or banker’s acceptances or similar securities and repayments or transactions with a view to unduly reducing the paid-up capital.

(3)  The amount of the assets of a corporation is that shown in the corporation’s financial statements, after deduction of the provisions and reserves for amortization or depletion, of the reserve for doubtful debts provided it was deducted in computing income under Part I, and of any amount deducted in computing the corporation’s paid-up capital under any of paragraphs b, b.1 and b.1.1 of section 1137, to which is added

(a)  any amount having reduced the amount of the assets that must be included in the paid-up capital, and

(b)  the amount of the assets of a partnership or a joint venture in the proportion that the share of that corporation of the income or loss of the partnership or the joint venture is of the income or loss of the partnership or the joint venture, on the assumption that, if the income and loss of the partnership or joint venture for a fiscal period are nil, the income of the partnership or joint venture for that fiscal period is equal to $1,000,000, reduced by the amount of the interest of the corporation in the partnership or joint venture shown as an asset in its financial statements.

(3.1)  For the purposes of subsection 3, a corporation may deduct, in computing the amount of its assets, an amount shown in its financial statements resulting from a transaction between a partnership or a joint venture and its members, except to the extent that the transaction increased the amount of the corporation’s interest in the partnership or joint venture, shown as an asset in its financial statements.

(4)  For the purposes of paragraph b of subsection 3, a corporation shall not include in computing the amount of its assets any amount shown in the financial statements of the partnership or joint venture resulting from an operation between the partnership or joint venture and its members.

(5)  (Subsection repealed).

1972, c. 23, s. 851; 1979, c. 38, s. 27; 1980, c. 13, s. 110; 1986, c. 15, s. 202; 1986, c. 19, s. 206; 1987, c. 67, s. 200; 1990, c. 7, s. 212; 1991, c. 8, s. 99; 1993, c. 19, s. 146; 1993, c. 64, s. 194; 1995, c. 1, s. 194; 1995, c. 63, s. 243; 1997, c. 3, s. 71; 1997, c. 14, s. 276; 1997, c. 85, s. 313; 1999, c. 83, s. 263; 2000, c. 39, s. 252; 2001, c. 51, s. 225; 2002, c. 40, s. 314; 2003, c. 9, s. 426; 2005, c. 23, s. 258; 2005, c. 38, s. 318; 2006, c. 13, s. 219; 2009, c. 5, s. 557; 2012, c. 8, s. 247.

2009-05-15

1138. (1)  The paid-up capital of a corporation computed after the application of sections 1136 and 1137 shall be reduced in the proportion that the aggregate of the following value and amounts is of the total of its assets:

(a)  the value of its investments in shares and bonds of other corporations;

(a.1)  the value of its investments in permanent shares of a savings and credit union and any participating interest in the nature of a permanent share of a savings and credit union;

(b)  the amount of loans and advances to other corporations;

(c)  the amounts of the loans and advances to a partnership or joint venture, to the extent that the amounts of the loans or advances are included in computing the paid-up capital of a corporation that has an interest in the partnership or joint venture;

(d)  the amounts of the bankers’ acceptances and other similar securities accepted by a bank or any other person which are assets thereof, to the extent that such acceptances and other securities are for the benefit of a corporation;

(d.1)  the amount of debts resulting from the selling of property or the provision of services to another corporation, where those debts are secured, in whole or in part, by a property of that other corporation;

(d.2)  except where they are described in any of paragraphs a to d.1 or would be described therein but for subsections 2 to 2.1.3, the amount of debts that are owed

i.  by another corporation, except a corporation referred to in paragraph a of section 1132, and that are secured, in whole or in part, by a property of that other corporation or have been in existence for more than six months, or

ii.  by a loan corporation, a trust corporation or a corporation trading in securities, to which the corporation is related;

(e)  the amount referred to in section 1138.4.

(1.1)  For the purposes of subsection 1, the value of a share is deemed equal to its cost where the amount included in the assets is less than that cost; in such a case, the amount by which the cost exceeds that amount must be included in the paid-up capital of the corporation if it is not already included therein under section 1136.

(2)  The following are deemed not to be loans and advances to other corporations:

(a)  (paragraph repealed);

(b)  amounts receivable by a subsidiary from its parent corporation whose head office is outside Canada;

(c)  (paragraph repealed).

(2.0.1)  (Subsection repealed).

(2.1)  (Subsection repealed).

(2.1.0.1)  For the purposes of this section,

(a)  a debt that, but for this subparagraph, would be a loan or an advance to a corporation, a partnership or a joint venture, is deemed not to be such a loan or such an advance, in a taxation year, where it has been substituted for a debt that was not, immediately before the substitution, such a loan or such an advance and where, in that year, the creditor and the debtor of the debt are associated corporations, in the case where the creditor and the debtor are corporations, or do not deal at arm’s length, in the other cases;

(b)  a debt that, but for this paragraph, would be a loan or an advance is deemed not to be such a loan or such an advance, in a taxation year, where

i.  the debt was acquired, in the year or in a preceding taxation year, by a person, a partnership or a joint venture, called “acquirer” in this paragraph, from a person, partnership or joint venture, called “assignor” in this paragraph, and the acquirer and assignor are associated at the time of the acquisition, in the case where the acquirer and the assignor are corporations, or do not deal at arm’s length at that time, in the other cases,

ii.  the debt is a debt that, before its disposition by the assignor, was substituted for a debt that was not, immediately before the substitution, a loan or an advance to a corporation, a partnership or a joint venture and in respect of which, at the time of the substitution, the creditor and debtor were associated corporations, in the case where the creditor and the debtor are corporations, or did not deal at arm’s length, in the other cases, and

iii.  in the taxation year, the acquirer and debtor are associated corporations, in the case where the acquirer and the debtor are corporations, or do not deal at arm’s length in the other cases.

(2.1.0.2)  For the purposes of this subsection and subsection 2.1.0.1,

(a)  where an acquirer, within the meaning of subparagraph i of paragraph b of subsection 2.1.0.1, acquires a debt from a particular assignor that is an assignor within the meaning of that subparagraph i and had itself acquired the debt from another such assignor to which it was associated, in the case where the assignors are corporations, or with which it did not deal at arm’s length, in the other cases, the acquirer is deemed to acquire the debt from the other assignor at the time at which the particular assignor had acquired the debt from the other assignor and to be associated at that time with the other assignor, in the case where the acquirer and the other assignor are corporations, or not to deal at arm’s length at that time with the other assignor, in the other cases;

(b)  (paragraph repealed);

(c)  to determine whether a partnership or a joint venture does not, at a particular time, deal at arm’s length with a person, another partnership or another joint venture, each partnership or joint venture is deemed to be, at that particular time and for the purposes of sections 17 to 21, a person.

(2.1.1)  Bankers’ acceptances and other similar securities the drawer of which is a corporation authorized to receive deposits of money and not referred to in subparagraph ii of paragraph d.2 of subsection 1 are deemed not to be bankers’ acceptances or other similar securities referred to in subsection 1.

(2.1.1.1)  For the purposes of subsection 1, an investment in bonds of another corporation, a loan or advance to another corporation, a banker’s acceptance and a similar security for the benefit of another corporation or a debt described in paragraph d.1 of that subsection 1 that is owed by another corporation is deemed not to be such property where the other corporation is a corporation referred to in paragraph a of section 1132 that is not related to the corporation, except where that property is included in the long-term debt of the other corporation or is, where that other corporation is a corporation trading in securities, a subordinated loan or another debt of that corporation whose repayment is subject to the prior approval of an agency empowered to regulate trading in securities.

(2.1.2)  For the purposes of subsection 1, an investment in shares of a bank or a particular corporation related to a bank or a savings and credit union, a loan or an advance to such a particular corporation, an investment in bonds of another corporation, a property described in paragraph a.1 of subsection 1, a property described in paragraph b or c of that subsection that is a commercial paper, a property described in that paragraph c that is an investment in bonds of a partnership or a property described in any of paragraphs d to d.2 of that subsection, is deemed not to be such a property if it was not held without interruption by the corporation throughout a 120-day period that includes the date of the end of its taxation year.

(2.1.2.1)  For the purposes of paragraphs d.1 and d.2 of subsection 1, a debt referred to in any of those paragraphs, that is owed by a corporation, is deemed not to be such property where it is a debt that has been owed by that corporation for six months or less and that is a trade account receivable as consideration for the disposition of a property or the provision of a service, or a tax receivable in relation to the disposition of a property or the provision of a service where the disposition or provision gave rise to a trade account receivable or would give rise to a trade account receivable if the consideration for the disposition or provision were unpaid.

(2.1.2.2)  For the purposes of subsection 1, the amount of the debts referred to in paragraphs d.1 and d.2 of that subsection must be reduced by the part, attributable to those debts, of the reserve for doubtful debts that is deducted, in accordance with subsection 3, in computing the amount of the assets of the corporation.

(2.1.2.3)  For the purposes of subsection 1 and despite section 1.7, a reference to another corporation in subsection 1 is deemed not to be a reference to a government of a country, province, state or to another political subdivision of a country, other than a municipality or municipal body performing government functions.

(2.1.3)  For the purposes of paragraph d.1 of subsection 1, a debt resulting from the selling of property or the provision of services to another corporation is deemed not to be such a debt where that other corporation is

(a)  a corporation authorized to receive deposits of money and not referred to in subparagraph ii of paragraph d.2 of subsection 1; or

(b)  a corporation that is the parent corporation of the corporation and whose head office is outside Canada.

(2.1.4)  For the purposes of subsection 2.1.2, the particular corporation referred to in that subsection is deemed not to be related to a bank or savings and credit union in respect of an investment by another corporation in shares of the particular corporation or a loan or an advance by that other corporation to the particular corporation, if the particular corporation is not related to the bank or the savings and credit union at any time during the period the other corporation holds the investment or is the creditor of the loan or the advance.

(2.2)  No reduction of the paid-up capital shall be permitted under subsection 1 in respect of a loan, an advance, a debt described in paragraph d.2 of that subsection, or a banker’s acceptance or a similar security if it is established that the loan, advance, debt or banker’s acceptance or security was made or issued as part of a series of loans, advances, such debts or banker’s acceptances or similar securities and repayments or transactions with a view to unduly reducing the paid-up capital.

(3)  The amount of the assets of a corporation is that shown in the corporation’s financial statements, after deduction of the provisions and reserves for amortization or depletion, of the reserve for doubtful debts provided it was deducted in computing income under Part I, and of any amount deducted in computing the corporation’s paid-up capital under any of paragraphs b, b.1 and b.1.1 of section 1137, to which is added

(a)  any amount having reduced the amount of the assets that must be included in the paid-up capital, and

(b)  the amount of the assets of a partnership or a joint venture in the proportion that the share of that corporation of the income or loss of the partnership or the joint venture is of the income or loss of the partnership or the joint venture, on the assumption that, if the income and loss of the partnership or joint venture for a fiscal period are nil, the income of the partnership or joint venture for that fiscal period is equal to $1,000,000, reduced by the amount of the interest of the corporation in the partnership or joint venture shown as an asset in its financial statements.

(3.1)  For the purposes of subsection 3, a corporation

(a)  may deduct, in computing the amount of its assets,

i.  an amount shown in its financial statements resulting from a transaction between a partnership or a joint venture and its members, except to the extent that the transaction increased the amount of the corporation’s interest in the partnership or joint venture, shown as an asset in its financial statements, and

ii.  the amount of the share of the unallocated deficit of a partnership that the corporation deducted in computing its paid-up capital in accordance with subparagraph b of the second paragraph of subsection 3 of section 1136; and

(b)  shall include in computing the amount of its assets the amount of the share of the retained profits of a partnership that the corporation included in computing its paid-up capital in accordance with subparagraph a of the second paragraph of subsection 3 of section 1136.

(4)  For the purposes of paragraph b of subsection 3, a corporation shall not include in computing the amount of its assets any amount shown in the financial statements of the partnership or joint venture resulting from an operation between the partnership or joint venture and its members.

(5)  (Subsection repealed).

1972, c. 23, s. 851; 1979, c. 38, s. 27; 1980, c. 13, s. 110; 1986, c. 15, s. 202; 1986, c. 19, s. 206; 1987, c. 67, s. 200; 1990, c. 7, s. 212; 1991, c. 8, s. 99; 1993, c. 19, s. 146; 1993, c. 64, s. 194; 1995, c. 1, s. 194; 1995, c. 63, s. 243; 1997, c. 3, s. 71; 1997, c. 14, s. 276; 1997, c. 85, s. 313; 1999, c. 83, s. 263; 2000, c. 39, s. 252; 2001, c. 51, s. 225; 2002, c. 40, s. 314; 2003, c. 9, s. 426; 2005, c. 23, s. 258; 2005, c. 38, s. 318; 2006, c. 13, s. 219; 2009, c. 5, s. 557.

2006-06-13

1138. (1)  The paid-up capital of a corporation computed after the application of sections 1136 and 1137 shall be reduced in the proportion that the aggregate of the following value and amounts is of the total of its assets:

(a)  the value of its investments in shares and bonds of other corporations;

(a.1)  the value of its investments in permanent shares of a savings and credit union and any participating interest in the nature of a permanent share of a savings and credit union;

(b)  the amount of loans and advances to other corporations;

(c)  the amounts of the loans and advances to a partnership or joint venture, to the extent that the amounts of the loans or advances are included in computing the paid-up capital of a corporation that has an interest in the partnership or joint venture;

(d)  the amounts of the bankers’ acceptances and other similar securities accepted by a bank or any other person which are assets thereof, to the extent that such acceptances and other securities are for the benefit of a corporation;

(d.1)  the amount of debts resulting from the selling of property or the provision of services to another corporation, where those debts are secured, in whole or in part, by a property of that other corporation;

(d.2)  except where they are described in any of paragraphs a to d.1 or would be described therein but for subsections 2 to 2.1.3, the amount of debts that are owed

i.  by another corporation, except a corporation referred to in paragraph a of section 1132, and that are secured, in whole or in part, by a property of that other corporation or have been in existence for more than six months, or

ii.  by a loan corporation, a trust corporation or a corporation trading in securities, to which the corporation is related;

(e)  the amount referred to in section 1138.4.

(1.1)  For the purposes of subsection 1, the value of a share is deemed equal to its cost where the amount included in the assets is less than that cost; in such a case, the amount by which the cost exceeds that amount must be included in the paid-up capital of the corporation if it is not already included therein under section 1136.

(2)  The following are deemed not to be loans and advances to other corporations:

(a)  (paragraph repealed);

(b)  amounts receivable by a subsidiary from its parent corporation whose head office is outside Canada;

(c)  (paragraph repealed).

(2.0.1)  (Subsection repealed).

(2.1)  (Subsection repealed).

(2.1.0.1)  For the purposes of this section,

(a)  a debt that, but for this subparagraph, would be a loan or an advance to a corporation, a partnership or a joint venture, is deemed not to be such a loan or such an advance, in a taxation year, where it has been substituted for a debt that was not, immediately before the substitution, such a loan or such an advance and where, in that year, the creditor and the debtor of the debt are associated corporations, in the case where the creditor and the debtor are corporations, or do not deal at arm’s length, in the other cases;

(b)  a debt that, but for this paragraph, would be a loan or an advance is deemed not to be such a loan or such an advance, in a taxation year, where

i.  the debt was acquired, in the year or in a preceding taxation year, by a person, a partnership or a joint venture, called “acquirer” in this paragraph, from a person, partnership or joint venture, called “assignor” in this paragraph, and the acquirer and assignor are associated at the time of the acquisition, in the case where the acquirer and the assignor are corporations, or do not deal at arm’s length at that time, in the other cases,

ii.  the debt is a debt that, before its disposition by the assignor, was substituted for a debt that was not, immediately before the substitution, a loan or an advance to a corporation, a partnership or a joint venture and in respect of which, at the time of the substitution, the creditor and debtor were associated corporations, in the case where the creditor and the debtor are corporations, or did not deal at arm’s length, in the other cases, and

iii.  in the taxation year, the acquirer and debtor are associated corporations, in the case where the acquirer and the debtor are corporations, or do not deal at arm’s length in the other cases.

(2.1.0.2)  For the purposes of this subsection and subsection 2.1.0.1,

(a)  where an acquirer, within the meaning of subparagraph i of paragraph b of subsection 2.1.0.1, acquires a debt from a particular assignor that is an assignor within the meaning of that subparagraph i and had itself acquired the debt from another such assignor to which it was associated, in the case where the assignors are corporations, or with which it did not deal at arm’s length, in the other cases, the acquirer is deemed to acquire the debt from the other assignor at the time at which the particular assignor had acquired the debt from the other assignor and to be associated at that time with the other assignor, in the case where the acquirer and the other assignor are corporations, or not to deal at arm’s length at that time with the other assignor, in the other cases;

(b)  (paragraph repealed);

(c)  to determine whether a partnership or a joint venture does not, at a particular time, deal at arm’s length with a person, another partnership or another joint venture, each partnership or joint venture is deemed to be, at that particular time and for the purposes of sections 17 to 21, a person.

(2.1.1)  Bankers’ acceptances and other similar securities the drawer of which is a corporation authorized to receive deposits of money and not referred to in subparagraph ii of paragraph d.2 of subsection 1 are deemed not to be bankers’ acceptances or other similar securities referred to in subsection 1.

(2.1.1.1)  For the purposes of subsection 1, an investment in bonds of another corporation, a loan or advance to another corporation, a banker’s acceptance and a similar security for the benefit of another corporation or a debt described in paragraph d.1 of that subsection 1 that is owed by another corporation is deemed not to be such property where the other corporation is a corporation referred to in paragraph a of section 1132 that is not related to the corporation, except where that property is included in the long-term debt of the other corporation or is, where that other corporation is a corporation trading in securities, a subordinated loan or another debt of that corporation whose repayment is subject to the prior approval of an agency empowered to regulate trading in securities.

(2.1.2)  For the purposes of subsection 1, an investment in shares of a bank or a particular corporation related to a bank or a savings and credit union, a loan or an advance to such a particular corporation, an investment in bonds of another corporation, a property described in paragraph a.1 of subsection 1, a property described in paragraph b or c of that subsection that is a commercial paper, a property described in that paragraph c that is an investment in bonds of a partnership or a property described in any of paragraphs d to d.2 of that subsection, is deemed not to be such a property if it was not held without interruption by the corporation throughout a 120-day period that includes the date of the end of its taxation year.

(2.1.2.1)  For the purposes of paragraphs d.1 and d.2 of subsection 1, a debt referred to in any of those paragraphs, that is owed by a corporation, is deemed not to be such property where it is a debt that has been owed by that corporation for six months or less and that is a trade account receivable as consideration for the disposition of a property or the provision of a service, or a tax receivable in relation to the disposition of a property or the provision of a service where the disposition or provision gave rise to a trade account receivable or would give rise to a trade account receivable if the consideration for the disposition or provision were unpaid.

(2.1.2.2)  For the purposes of subsection 1, the amount of the debts referred to in paragraphs d.1 and d.2 of that subsection must be reduced by the part, attributable to those debts, of the reserve for doubtful debts that is deducted, in accordance with subsection 3, in computing the amount of the assets of the corporation.

(2.1.3)  For the purposes of paragraph d.1 of subsection 1, a debt resulting from the selling of property or the provision of services to another corporation is deemed not to be such a debt where that other corporation is

(a)  a corporation authorized to receive deposits of money and not referred to in subparagraph ii of paragraph d.2 of subsection 1; or

(b)  a corporation that is the parent corporation of the corporation and whose head office is outside Canada.

(2.1.4)  For the purposes of subsection 2.1.2, the particular corporation referred to in that subsection is deemed not to be related to a bank or savings and credit union in respect of an investment by another corporation in shares of the particular corporation or a loan or an advance by that other corporation to the particular corporation, if the particular corporation is not related to the bank or the savings and credit union at any time during the period the other corporation holds the investment or is the creditor of the loan or the advance.

(2.2)  No reduction of the paid-up capital shall be permitted under subsection 1 in respect of a loan, an advance, a debt described in paragraph d.2 of that subsection, or a banker’s acceptance or a similar security if it is established that the loan, advance, debt or banker’s acceptance or security was made or issued as part of a series of loans, advances, such debts or banker’s acceptances or similar securities and repayments or transactions with a view to unduly reducing the paid-up capital.

(3)  The amount of the assets of a corporation is that shown in the corporation’s financial statements, after deduction of the provisions and reserves for amortization or depletion, of the reserve for doubtful debts provided it was deducted in computing income under Part I, and of any amount deducted in computing the corporation’s paid-up capital under any of paragraphs b, b.1 and b.1.1 of section 1137, to which is added

(a)  any amount having reduced the amount of the assets that must be included in the paid-up capital, and

(b)  the amount of the assets of a partnership or a joint venture in the proportion that the share of that corporation of the income or loss of the partnership or the joint venture is of the income or loss of the partnership or the joint venture, on the assumption that, if the income and loss of the partnership or joint venture for a fiscal period are nil, the income of the partnership or joint venture for that fiscal period is equal to $1,000,000, reduced by the amount of the interest of the corporation in the partnership or joint venture shown as an asset in its financial statements.

(3.1)  For the purposes of subsection 3, a corporation may deduct, in computing the amount of its assets, an amount shown in its financial statements resulting from a transaction between a partnership or a joint venture and its members, except to the extent that the transaction increased the amount of the corporation’s interest in the partnership or joint venture, shown as an asset in its financial statements.

(4)  For the purposes of paragraph b of subsection 3, a corporation shall not include in computing the amount of its assets any amount shown in the financial statements of the partnership or joint venture resulting from an operation between the partnership or joint venture and its members.

(5)  (Subsection repealed).

1972, c. 23, s. 851; 1979, c. 38, s. 27; 1980, c. 13, s. 110; 1986, c. 15, s. 202; 1986, c. 19, s. 206; 1987, c. 67, s. 200; 1990, c. 7, s. 212; 1991, c. 8, s. 99; 1993, c. 19, s. 146; 1993, c. 64, s. 194; 1995, c. 1, s. 194; 1995, c. 63, s. 243; 1997, c. 3, s. 71; 1997, c. 14, s. 276; 1997, c. 85, s. 313; 1999, c. 83, s. 263; 2000, c. 39, s. 252; 2001, c. 51, s. 225; 2002, c. 40, s. 314; 2003, c. 9, s. 426; 2005, c. 23, s. 258; 2005, c. 38, s. 318; 2006, c. 13, s. 219.

2006-03-01

1138. (1)  The paid-up capital of a corporation computed after the application of sections 1136 and 1137 shall be reduced in the proportion that the aggregate of the following value and amounts is of the total of its assets:

(a)  the value of its investments in shares and bonds of other corporations;

(a.1)  the value of its investments in permanent shares of a savings and credit union and any participating interest in the nature of a permanent share of a savings and credit union;

(b)  the amount of loans and advances to other corporations;

(c)  the amounts of the loans and advances to a partnership or joint venture, to the extent that the amounts of the loans or advances are included in computing the paid-up capital of a corporation that has an interest in the partnership or joint venture;

(d)  the amounts of the bankers’ acceptances and other similar securities accepted by a bank or any other person which are assets thereof, to the extent that such acceptances and other securities are for the benefit of a corporation;

(d.1)  the amount of debts resulting from the selling of property or the provision of services to another corporation, where those debts are secured, in whole or in part, by a property of that other corporation;

(d.2)  except where they are described in any of paragraphs a to d.1 or would be described therein but for subsections 2 to 2.1.3, the amount of debts that are owed

i.  by another corporation, except a corporation referred to in paragraph a of section 1132, and that are secured, in whole or in part, by a property of that other corporation or have been in existence for more than six months, or

ii.  by a loan corporation, a trust corporation or a corporation trading in securities, to which the corporation is related;

(e)  the amount referred to in section 1138.4.

(1.1)  For the purposes of subsection 1, the value of a share is deemed equal to its cost where the amount included in the assets is less than that cost; in such a case, the amount by which the cost exceeds that amount must be included in the paid-up capital of the corporation if it is not already included therein under section 1136.

(2)  The following are deemed not to be loans and advances to other corporations:

(a)  moneys on deposit with another corporation authorized to accept them and not referred to in subparagraph ii of paragraph d.2 of subsection 1, and loans granted to such a corporation;

(b)  amounts receivable by a subsidiary from its parent corporation whose head office is outside Canada;

(c)  (paragraph repealed).

(2.0.1)  (Subsection repealed).

(2.1)  (Subsection repealed).

(2.1.0.1)  For the purposes of this section,

(a)  a debt that, but for this subparagraph, would be a loan or an advance to a corporation, a partnership or a joint venture, is deemed not to be such a loan or such an advance, in a taxation year, where it has been substituted for a debt that was not, immediately before the substitution, such a loan or such an advance and where, in that year, the creditor and the debtor of the debt are associated corporations, in the case where the creditor and the debtor are corporations, or do not deal at arm’s length, in the other cases;

(b)  a debt that, but for this paragraph, would be a loan or an advance is deemed not to be such a loan or such an advance, in a taxation year, where

i.  the debt was acquired, in the year or in a preceding taxation year, by a person, a partnership or a joint venture, called "acquirer" in this paragraph, from a person, partnership or joint venture, called "assignor" in this paragraph, and the acquirer and assignor are associated at the time of the acquisition, in the case where the acquirer and the assignor are corporations, or do not deal at arm’s length at that time, in the other cases,

ii.  the debt is a debt that, before its disposition by the assignor, was substituted for a debt that was not, immediately before the substitution, a loan or an advance to a corporation, a partnership or a joint venture and in respect of which, at the time of the substitution, the creditor and debtor were associated corporations, in the case where the creditor and the debtor are corporations, or did not deal at arm’s length, in the other cases, and

iii.  in the taxation year, the acquirer and debtor are associated corporations, in the case where the acquirer and the debtor are corporations, or do not deal at arm’s length in the other cases.

(2.1.0.2)  For the purposes of this subsection and subsection 2.1.0.1,

(a)  where an acquirer, within the meaning of subparagraph i of paragraph b of subsection 2.1.0.1, acquires a debt from a particular assignor that is an assignor within the meaning of that subparagraph i and had itself acquired the debt from another such assignor to which it was associated, in the case where the assignors are corporations, or with which it did not deal at arm’s length, in the other cases, the acquirer is deemed to acquire the debt from the other assignor at the time at which the particular assignor had acquired the debt from the other assignor and to be associated at that time with the other assignor, in the case where the acquirer and the other assignor are corporations, or not to deal at arm’s length at that time with the other assignor, in the other cases;

(b)  (paragraph repealed);

(c)  to determine whether a partnership or a joint venture does not, at a particular time, deal at arm’s length with a person, another partnership or another joint venture, each partnership or joint venture is deemed to be, at that particular time and for the purposes of sections 17 to 21, a person.

(2.1.1)  Bankers’ acceptances and other similar securities the drawer of which is a corporation authorized to receive deposits of money and not referred to in subparagraph ii of paragraph d.2 of subsection 1 are deemed not to be bankers’ acceptances or other similar securities referred to in subsection 1.

(2.1.1.1)  For the purposes of subsection 1, an investment in bonds of another corporation, a loan or advance to another corporation, a banker’s acceptance and a similar security for the benefit of another corporation or a debt described in paragraph d.1 of that subsection 1 that is owed by another corporation is deemed not to be such property where the other corporation is a corporation referred to in paragraph a of section 1132 that is not related to the corporation, except where that property is included in the long-term debt of the other corporation or is, where that other corporation is a corporation trading in securities, a subordinated loan or another debt of that corporation whose repayment is subject to the prior approval of an agency empowered to regulate trading in securities.

(2.1.2)  For the purposes of subsection 1, an investment in shares of a bank or a particular corporation related to a bank or a savings and credit union, a loan or an advance to such a particular corporation, an investment in bonds of another corporation, a property described in paragraph a.1 of subsection 1, a property described in paragraph b or c of that subsection that is commercial paper or a property described in any of paragraphs d to d.2 of that subsection, is deemed not to be such property if it was not held without interruption by the corporation throughout a 120-day period that includes the date of the end of its taxation year.

(2.1.2.1)  For the purposes of paragraphs d.1 and d.2 of subsection 1, a debt referred to in any of those paragraphs, that is owed by a corporation, is deemed not to be such property where it is a debt that has been owed by that corporation for six months or less and that is a trade account receivable as consideration for the disposition of a property or the provision of a service, or a tax receivable in relation to the disposition of a property or the provision of a service where the disposition or provision gave rise to a trade account receivable or would give rise to a trade account receivable if the consideration for the disposition or provision were unpaid.

(2.1.2.2)  For the purposes of subsection 1, the amount of the debts referred to in paragraphs d.1 and d.2 of that subsection must be reduced by the part, attributable to those debts, of the reserve for doubtful debts that is deducted, in accordance with subsection 3, in computing the amount of the assets of the corporation.

(2.1.3)  For the purposes of paragraph d.1 of subsection 1, a debt resulting from the selling of property or the provision of services to another corporation is deemed not to be such a debt where that other corporation is

(a)  a corporation authorized to receive deposits of money and not referred to in subparagraph ii of paragraph d.2 of subsection 1; or

(b)  a corporation that is the parent corporation of the corporation and whose head office is outside Canada.

(2.1.4)  For the purposes of subsection 2.1.2, the particular corporation referred to in that subsection is deemed not to be related to a bank or savings and credit union in respect of an investment by another corporation in shares of the particular corporation or a loan or an advance by that other corporation to the particular corporation, if the particular corporation is not related to the bank or the savings and credit union at any time during the period the other corporation holds the investment or is the creditor of the loan or the advance.

(2.2)  No reduction of the paid-up capital shall be permitted under subsection 1 in respect of a loan, an advance, a debt described in paragraph d.2 of that subsection, or a banker’s acceptance or a similar security if it is established that the loan, advance, debt or banker’s acceptance or security was made or issued as part of a series of loans, advances, such debts or banker’s acceptances or similar securities and repayments or transactions with a view to unduly reducing the paid-up capital.

(3)  The amount of the assets of a corporation is that shown in the corporation’s financial statements, after deduction of the provisions and reserves for amortization or depletion, of the reserve for doubtful debts provided it was deducted in computing income under Part I, and of any amount deducted in computing the corporation’s paid-up capital under any of paragraphs b, b.1 and b.1.1 of section 1137, to which is added

(a)  any amount having reduced the amount of the assets that must be included in the paid-up capital, and

(b)  the amount of the assets of a partnership or a joint venture in the proportion that the share of that corporation of the income or loss of the partnership or the joint venture is of the income or loss of the partnership or the joint venture, on the assumption that, if the income and loss of the partnership or joint venture for a fiscal period are nil, the income of the partnership or joint venture for that fiscal period is equal to $1,000,000, reduced by the amount of the interest of the corporation in the partnership or joint venture shown as an asset in its financial statements.

(4)  For the purposes of paragraph b of subsection 3, a corporation shall not include in computing the amount of its assets any amount shown in the financial statements of the partnership or joint venture resulting from an operation between the partnership or joint venture and its members.

(5)  (Subsection repealed).

1972, c. 23, s. 851; 1979, c. 38, s. 27; 1980, c. 13, s. 110; 1986, c. 15, s. 202; 1986, c. 19, s. 206; 1987, c. 67, s. 200; 1990, c. 7, s. 212; 1991, c. 8, s. 99; 1993, c. 19, s. 146; 1993, c. 64, s. 194; 1995, c. 1, s. 194; 1995, c. 63, s. 243; 1997, c. 3, s. 71; 1997, c. 14, s. 276; 1997, c. 85, s. 313; 1999, c. 83, s. 263; 2000, c. 39, s. 252; 2001, c. 51, s. 225; 2002, c. 40, s. 314; 2003, c. 9, s. 426; 2005, c. 23, s. 258; 2005, c. 38, s. 318.