I-3 - Taxation Act

Section 517.5.10 Disposition versions

2017-12-07

517.5.10. A series of transactions that includes the disposition by an individual of eligible shares of a corporation (in this section referred to as the “particular corporation”) may be considered to be an eligible business transfer of the individual only if

(a)  throughout the period that begins 30 days after the disposition of the shares and ends at the end of that series of transactions, the aggregate of all amounts each of which is the amount of the residual financial interest of a person who is the individual, any other individual in respect of whom, but for this section, section 517.5.5 would apply in relation to the disposition of a share of the particular corporation in connection with that series of transactions, or their respective spouses, does not exceed

i.  where the particular corporation is referred to in paragraph a of the definition of “eligible share” in the first paragraph of section 517.5.3, 80% of the aggregate of all amounts each of which is the fair market value, immediately before the beginning of the series of transactions, of a share of the capital stock of a corporation (in this section referred to as the “corporation concerned”) that is the particular corporation, the purchaser corporation or a corporation in which the particular corporation has a substantial interest at that time, or

ii.  where the particular corporation is referred to in paragraph b of the definition of “eligible share” in the first paragraph of section 517.5.3, 60% of the aggregate of all amounts each of which is the fair market value, immediately before the beginning of the series of transactions, of a share of the capital stock of a corporation concerned;

(b)  the terms and conditions of reimbursement or redemption of the residual financial interests the amount of which is included in the first aggregate referred to in subparagraph a provide that no later than 10 years after the disposition of the shares, that aggregate will not exceed

i.  where the particular corporation is referred to in paragraph a of the definition of “eligible share” in the first paragraph of section 517.5.3, 50% of the aggregate of all amounts each of which is the fair market value, immediately before the beginning of the series of transactions, of a share of the capital stock of a corporation concerned, or

ii.  where the particular corporation is referred to in paragraph b of the definition of “eligible share” in the first paragraph of section 517.5.3, 30% of the aggregate of all amounts each of which is the fair market value, immediately before the beginning of the series of transactions, of a share of the capital stock of a corporation concerned;

(c)  where the residual financial interest of a person described in subparagraph a includes a share of the capital stock of a corporation concerned,

i.  the redemption of the share may not be required by the person before the expiry of the 10-year period referred to in subparagraph b unless the redemption aims to comply with the requirement of subparagraph i or ii of subparagraph b,

ii.  the share entitles its holder to a cumulative dividend at a rate not exceeding a reasonable rate according to market conditions and the rate of that dividend is not based on a corporation’s profitability,

iii.  the share is redeemable at any time at the option of the corporation concerned, and

iv.  the share is convertible only into one or more shares that satisfy the conditions of subparagraphs i to iii or into one or more debts that satisfy the conditions of subparagraphs i to iii of subparagraph d; and

(d)  where the residual financial interest of a person described in subparagraph a includes a debt of a corporation concerned,

i.  the reimbursement of the debt may not be required by the person before the expiry of the 10-year period referred to in subparagraph b unless the reimbursement aims to comply with the requirement of subparagraph i or ii of subparagraph b,

ii.  the debt entitles its holder to a reasonable return according to market conditions and the return rate of the debt is not based on a corporation’s profitability,

iii.  the debt is reimbursable at any time, with accrued interest, at the option of the corporation concerned, and

iv.  the debt is convertible only into one or more shares that satisfy the conditions of subparagraphs i to iii of subparagraph c or into one or more debts that satisfy the conditions of subparagraphs i to iii.

In this section, the amount of the residual financial interest of a person described in subparagraph a of the first paragraph, at any time, means an amount equal to the aggregate of all amounts each of which is the fair market value, at that time, of a financial interest that the person holds, directly or indirectly, in a corporation concerned and that is a share of the capital stock of the corporation concerned or a debt of the corporation concerned.

For the purposes of the second paragraph, the following rules apply:

(a)  where a trust in which an individual or the individual’s spouse has a beneficial interest holds, directly or indirectly, a financial interest in a corporation concerned, the individual is deemed to hold the financial interest;

(b)  where an individual or the individual’s spouse holds, directly or indirectly, a financial interest in an entity that is a trust, a partnership or a corporation, which entity holds, directly or indirectly, a financial interest in a corporation concerned, the individual is deemed to hold the financial interest in the corporation concerned; and

(c)  where more than one individual would otherwise be required to include the same amount in computing their residual financial interest because of subparagraph a or b, only one of those individuals is required to take that amount into account in establishing the amount of that individual’s residual financial interest in the corporation concerned.

For the purposes of subparagraphs a and b of the first paragraph, no account is to be taken of the residual financial interest of a person described in subparagraph a of the first paragraph in a corporation concerned or of the fair market value, immediately before the beginning of the series of transactions, of the shares of the capital stock of such a corporation, if that corporation is

(a)  a corporation carrying on a business substantially all the income of which is not derived from the sale, leasing, rental or development, as the case may be, of properties, or the rendering of services, similar to those of a business that, before the disposition of the shares, was carried on by the particular corporation, by the purchaser corporation or by a corporation in which the purchaser corporation or the particular corporation held a direct or indirect interest; or

(b)  a corporation that does not carry on a qualified business.

For the purpose of determining the end of the period described in subparagraph a of the first paragraph, the series of transactions to which that subparagraph applies is deemed not to include a transaction consisting in the redemption or reimbursement of the residual financial interest of an individual.

2017, c. 1, s. 137; 2017, c. 29, s. 81.

2017-02-08

517.5.10. A series of transactions that includes the disposition by an individual of eligible primary and manufacturing sectors shares of a corporation (in this section referred to as the “particular corporation”) may be considered to be an eligible business transfer of the individual only if

(a)  throughout the period that begins 30 days after the disposition of the shares and ends at the end of that series of transactions, the aggregate of all amounts each of which is the amount of the residual financial interest of a person who is the individual, any other individual in respect of whom, but for this section, section 517.5.5 would apply in relation to the disposition of a share of the particular corporation in connection with that series of transactions, or their respective spouses, does not exceed

i.  where the particular corporation is referred to in paragraph a or b of the definition of “eligible primary and manufacturing sectors share” in the first paragraph of section 517.5.3, 80% of the aggregate of all amounts each of which is the fair market value, immediately before the beginning of the series of transactions, of a share of the capital stock of a corporation (in this section referred to as the “corporation concerned”) that is the particular corporation, the purchaser corporation or a corporation in which the particular corporation has a substantial interest at that time, or

ii.  in any other case, 60% of the aggregate of all amounts each of which is the fair market value, immediately before the beginning of the series of transactions, of a share of the capital stock of a corporation concerned;

(b)  the terms and conditions of reimbursement or redemption of the residual financial interests the amount of which is included in the first aggregate referred to in subparagraph a provide that no later than 10 years after the disposition of the shares, that aggregate will not exceed

i.  where the particular corporation is referred to in paragraph a or b of the definition of “eligible primary and manufacturing sectors share” in the first paragraph of section 517.5.3, 50% of the aggregate of all amounts each of which is the fair market value, immediately before the beginning of the series of transactions, of a share of the capital stock of a corporation concerned, or

ii.  in any other case, 30% of the aggregate of all amounts each of which is the fair market value, immediately before the beginning of the series of transactions, of a share of the capital stock of a corporation concerned;

(c)  where the residual financial interest of a person described in subparagraph a includes a share of the capital stock of a corporation concerned,

i.  the redemption of the share may not be required by the person before the expiry of the 10-year period referred to in subparagraph b unless the redemption aims to comply with the requirement of subparagraph i or ii of subparagraph b,

ii.  the share entitles its holder to a cumulative dividend at a rate not exceeding a reasonable rate according to market conditions and the rate of that dividend is not based on a corporation’s profitability,

iii.  the share is redeemable at any time at the option of the corporation concerned, and

iv.  the share is convertible only into one or more shares that satisfy the conditions of subparagraphs i to iii or into one or more debts that satisfy the conditions of subparagraphs i to iii of subparagraph d; and

(d)  where the residual financial interest of a person described in subparagraph a includes a debt of a corporation concerned,

i.  the reimbursement of the debt may not be required by the person before the expiry of the 10-year period referred to in subparagraph b unless the reimbursement aims to comply with the requirement of subparagraph i or ii of subparagraph b,

ii.  the debt entitles its holder to a reasonable return according to market conditions and the return rate of the debt is not based on a corporation’s profitability,

iii.  the debt is reimbursable at any time, with accrued interest, at the option of the corporation concerned, and

iv.  the debt is convertible only into one or more shares that satisfy the conditions of subparagraphs i to iii of subparagraph c or into one or more debts that satisfy the conditions of subparagraphs i to iii.

In this section, the amount of the residual financial interest of a person described in subparagraph a of the first paragraph, at any time, means an amount equal to the aggregate of all amounts each of which is the fair market value, at that time, of a financial interest that the person holds, directly or indirectly, in a corporation concerned and that is a share of the capital stock of the corporation concerned or a debt of the corporation concerned.

For the purposes of the second paragraph, the following rules apply:

(a)  where a trust in which an individual or the individual’s spouse has a beneficial interest holds, directly or indirectly, a financial interest in a corporation concerned, the individual is deemed to hold the financial interest;

(b)  where an individual or the individual’s spouse holds, directly or indirectly, a financial interest in an entity that is a trust, a partnership or a corporation, which entity holds, directly or indirectly, a financial interest in a corporation concerned, the individual is deemed to hold the financial interest in the corporation concerned; and

(c)  where more than one individual would otherwise be required to include the same amount in computing their residual financial interest because of subparagraph a or b, only one of those individuals is required to take that amount into account in establishing the amount of that individual’s residual financial interest in the corporation concerned.

For the purposes of subparagraphs a and b of the first paragraph, no account is to be taken of the residual financial interest of a person described in subparagraph a of the first paragraph in a corporation concerned or of the fair market value, immediately before the beginning of the series of transactions, of the shares of the capital stock of such a corporation, if that corporation is

(a)  a corporation carrying on a business substantially all the income of which is not derived from the sale, leasing, rental or development, as the case may be, of properties, or the rendering of services, similar to those of a business that, before the disposition of the shares, was carried on by the particular corporation, by the purchaser corporation or by a corporation in which the purchaser corporation or the particular corporation held a direct or indirect interest; or

(b)  a corporation that does not carry on a qualified business.

For the purpose of determining the end of the period described in subparagraph a of the first paragraph, the series of transactions to which that subparagraph applies is deemed not to include a transaction consisting in the redemption or reimbursement of the residual financial interest of an individual.

2017, c. 1, s. 137.