I-3 - Taxation Act

Section 127.16.2 Disposition versions

2021-12-10

127.16.2. For the purposes of this division in respect of a pertinent loan or indebtedness, within the meaning of subparagraph ii of subparagraph a of the second paragraph of section 127.16, and for the purpose of determining, for the purposes of this division, whether two persons are related to each other and consequently, under paragraph a of section 18, do not deal with each other at arm’s length, the following rules apply:

(a)  for the purpose of determining, at any time, whether two persons are related to each other or whether any person is controlled by any other person or group of persons, the following presumptions apply:

i.  each trust is deemed to be a corporation having a capital stock of a single class of voting shares divided into 100 issued shares, and

ii.  each beneficiary under a trust is deemed to own at that time a number of issued shares of that class of shares equal to the proportion of 100 that the fair market value at that time of the beneficiary’s interest in the trust is of the fair market value at that time of all beneficiaries’ interests in the trust;

(b)  for the purpose of determining, at any time, the extent to which any person owns shares of the capital stock of a corporation, if at that time a trust resident in Canada owns, but for this subparagraph, shares of the capital stock of the corporation, each beneficiary of the trust is deemed to own, and the trust is deemed not to own, at that time, the shares of each class of the capital stock of the corporation that are owned, but for this subparagraph, by the trust, the number of which is equal to the proportion of the total number of shares of the class of the capital stock of the corporation that are owned, but for this subparagraph, by the trust at that time that the fair market value, at that time, of the beneficiary’s interest in the trust is of the fair market value, at that time, of all beneficiaries’ interests in the trust; and

(c)  where a beneficiary’s share of the income or capital of a trust depends on the exercise by any person of, or the failure by any person to exercise, a power to appoint, the proportion to which subparagraph ii of subparagraph a and subparagraph b refer is deemed to be equal to 1, unless

i.  the trust is resident in Canada, and

ii.  it cannot reasonably be considered that one of the main purposes of the power to appoint is to avoid or limit the application of paragraph c.3 of subsection 1 of section 128.1 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) or of subsection 2 of sections 212.3 and 219.1 of that Act.

2021, c. 36, s. 56.