I-3 - Taxation Act

Section 113.4 Disposition versions

2020-09-24

113.4. Where, at a particular time, a person or partnership (in this section and sections 113.5 to 113.7 referred to as the “intended borrower”) owes an amount as or on account of a debt or other obligation to pay an amount (in this section and sections 113.5 to 113.7 referred to as the “shareholder debt”) to another person or partnership (in this section and sections 113.5 to 113.7 referred to as the “immediate funder”) and the conditions of the second paragraph are met at that time, the intended borrower is, for the purposes of this division and sections 487.1 to 487.5.4, deemed to receive a loan at that time from each particular ultimate funder to whom the second paragraph refers, the amount of which is equal to the amount determined by the formula

(A × B / C) − (D − E).

The conditions referred to in the first paragraph are as follows:

(a)  in the absence of this section, section 113 would not apply in respect of the shareholder debt;

(b)  at the particular time, a funder, in respect of a particular funding arrangement,

i.  owes an amount to a person or partnership as or on account of a debt or other obligation to pay an amount that is not a debt or other obligation in respect of which section 113 applies, or would apply if it were not a pertinent loan or indebtedness within the meaning of section 113.1, and that is a debt or other obligation in respect of which either of the following conditions is met:

(1)  recourse in respect of the debt or other obligation is limited in whole or in part, either immediately or in the future and either absolutely or contingently, to a funding arrangement, or

(2)  it can reasonably be concluded that all or a portion of the particular funding arrangement was entered into or was permitted to remain owing because all or a portion of the debt or other obligation was entered into or was permitted to remain owing, or the funder anticipated that all or a portion of the debt or other obligation would become owing or remain owing, or

ii.  has a specified right in respect of a particular property that was granted directly or indirectly by a person or partnership and

(1)  the existence of the specified right is required under the terms and conditions of the particular funding arrangement, or

(2)  it can reasonably be concluded that all or a portion of the particular funding arrangement was entered into, or was permitted to remain in effect, because the specified right was granted or the funder anticipated that it would be granted; and

(c)  at the particular time, one or more funders is an ultimate funder.

In the formula in the first paragraph,

(a)  A is the lesser of

i.  the amount owing as or on account of the shareholder debt at the particular time, and

ii.  the aggregate of all amounts each of which is, at the particular time,

(1)  an amount owing as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to an ultimate funder under a funding arrangement in respect of the shareholder debt, or

(2)  the fair market value of a particular property in respect of which an ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt;

(b)  B is the aggregate of all amounts each of which is, at the particular time,

i.  an amount owing as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to the particular ultimate funder under a funding arrangement in respect of the shareholder debt, or

ii.  the fair market value of a particular property in respect of which the particular ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt;

(c)  C is the aggregate determined under subparagraph ii of subparagraph a;

(d)  D is the aggregate of all amounts each of which is, in respect of the shareholder debt, an amount that the intended borrower has been deemed under this section to have received from the particular ultimate funder as a loan at any time before the particular time; and

(e)  E is the aggregate of all amounts each of which is a repayment deemed, under section 113.5 or 113.6, to have occurred before the particular time, in respect of a loan that has been deemed to have been received from the particular ultimate funder and that is referred to in subparagraph d.

2020, c. 16, s. 36.