I-3 - Taxation Act

Section 517.5.5 Disposition versions

2021-12-10

517.5.5. Where eligible shares of an individual, other than a trust, are disposed of in connection with an eligible business transfer of the individual and, but for this section, a dividend equal to the excess amount that corresponds to the amount by which the aggregate determined under section 517.3 exceeds the aggregate determined under section 517.3.1 would, under section 517.2, be deemed to have been paid by the purchaser corporation to the individual, and received by the individual from the purchaser corporation, at the time of the disposition of those shares, the following rules apply:

(a)  the lesser of the amount of that excess amount and the amount that would be determined in respect of the disposition of those shares under paragraph b of subsection 1 of section 84.1 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) if that section were read without reference to paragraph e of its subsection 2 (in this section referred to as the “deemed dividend amount”) is deemed to be a capital gain from the disposition of those shares, to the extent of the amount the individual designates to that effect in the individual’s fiscal return filed under this Part (in this section referred to as the “designated capital gain”) for the year of disposition, without, however, exceeding the amount (in this section referred to as the “particular amount”) determined in accordance with the second paragraph, and, despite any other provision of this Act,

i.  for the purposes of section 234, where a reserve is claimed in accordance with subparagraph b of the first paragraph of that section in respect of the portion of the proceeds of disposition of the shares that is payable after the end of the year of disposition, the gain from the disposition of those shares is deemed to be equal to the amount by which the designated capital gain exceeds the amount of the reserve (which excess amount is in this subparagraph and subparagraphs ii and iii referred to as the “reduced capital gain”) and, for the purpose of determining the reserve that the individual may claim in respect of the disposition of the shares, subparagraph b of the first paragraph of section 234 is to be read without reference to its subparagraph iii,

ii.  for the purpose of determining the tax payable under this Part by the individual for the year of disposition,

(1)  section 28 is to be read, in respect of the designated capital gain or reduced capital gain, as the case may be, without reference to subparagraph ii of its paragraph b and, in respect of the amount the individual may subtract in accordance with its paragraph c, as if the designated capital gain or reduced capital gain were not taken into account for the purposes of subparagraph i of its paragraph b,

(2)  an amount is deductible by the individual under Book IV, except Title VI.5, only to the extent that the individual’s income, determined in accordance with subparagraph 1, exceeds one-half of the amount of the designated capital gain or reduced capital gain, as the case may be,

(3)  an amount is deductible by the individual under Title VI.5 of Book IV, in respect of a capital gain other than the designated capital gain or reduced capital gain, as the case may be, only to the extent that the individual’s taxable income, determined otherwise and taking subparagraphs 1 and 2 into account, exceeds one-half of the amount of the designated capital gain or reduced capital gain, and

(4)  an amount is deductible by the individual under section 729 only to the extent that the excess amount referred to in paragraph b of section 28 that would be determined for the year, in respect of the individual, if the amount of the designated capital gain or reduced capital gain, as the case may be, were not taken into account, and

iii.  the amount determined under paragraph b of section 28, to which paragraph b of section 728.0.1 refers for the purpose of determining the individual’s non-capital loss or farm loss for the year of disposition, and the amount determined under subparagraph i of paragraph b of section 28, to which paragraph a of section 730 refers for the purpose of determining the individual’s net capital loss for the year of disposition, are computed without taking the amount of the designated capital gain or reduced capital gain, as the case may be, into account; and

(b)  the amount of the designated capital gain in respect of the disposition of those shares is deemed not to be a dividend paid by the purchaser corporation and received by the individual at the time of the disposition of those shares.

The particular amount to which the first paragraph refers is equal to twice the least of the amounts that would be determined in respect of the individual for the year either, where subsection 1 of section 84.1 of the Income Tax Act does not apply in respect of the disposition of shares because of paragraph e of subsection 2 of that section, under subparagraphs a to e of the first paragraph of section 726.7 or 726.7.1, as the case may be, or, where subsection 1 of that section 84.1 applies in respect of the disposition of shares, under subparagraphs a to d of the first paragraph of section 726.7 or 726.7.1, as the case may be, if the deemed dividend amount were a capital gain realized by the individual in the year from the disposition of eligible shares and if subparagraph 1 of subparagraph ii of subparagraph a of the first paragraph were not taken into account.

2017, c. 1, s. 137; 2017, c. 29, s. 76; 2021, c. 36, s. 70.

2017-12-07

517.5.5. Where eligible shares of an individual, other than a trust, are disposed of in connection with an eligible business transfer of the individual and, but for this section, a dividend equal to the excess amount that corresponds to the amount by which the aggregate determined under section 517.3 exceeds the aggregate determined under section 517.3.1 would, under section 517.2, be deemed to have been paid by the purchaser corporation to the individual, and received by the individual from the purchaser corporation, at the time of the disposition of those shares, the following rules apply:

(a)  the lesser of the amount of that excess amount and the amount determined in respect of the disposition of those shares under paragraph b of subsection 1 of section 84.1 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) (in this section referred to as the “deemed dividend amount”) is deemed to be a capital gain from the disposition of those shares, to the extent of the amount the individual designates to that effect in the individual’s fiscal return filed under this Part (in this section referred to as the “designated capital gain”) for the year of disposition, without, however, exceeding the amount (in this section referred to as the “particular amount”) determined in accordance with the second paragraph, and, despite any other provision of this Act,

i.  for the purposes of section 234, where a reserve is claimed in accordance with subparagraph b of the first paragraph of that section in respect of the portion of the proceeds of disposition of the shares that is payable after the end of the year of disposition, the gain from the disposition of those shares is deemed to be equal to the amount by which the designated capital gain exceeds the amount of the reserve (which excess amount is in this subparagraph and subparagraphs ii and iii referred to as the “reduced capital gain”) and, for the purpose of determining the reserve that the individual may claim in respect of the disposition of the shares, subparagraph b of the first paragraph of section 234 is to be read without reference to its subparagraph iii,

ii.  for the purpose of determining the tax payable under this Part by the individual for the year of disposition,

(1)  section 28 is to be read, in respect of the designated capital gain or reduced capital gain, as the case may be, without reference to subparagraph ii of its paragraph b and, in respect of the amount the individual may subtract in accordance with its paragraph c, as if the designated capital gain or reduced capital gain were not taken into account for the purposes of subparagraph i of its paragraph b,

(2)  an amount is deductible by the individual under Book IV, except Title VI.5, only to the extent that the individual’s income, determined in accordance with subparagraph 1, exceeds one-half of the amount of the designated capital gain or reduced capital gain, as the case may be,

(3)  an amount is deductible by the individual under Title VI.5 of Book IV, in respect of a capital gain other than the designated capital gain or reduced capital gain, as the case may be, only to the extent that the individual’s taxable income, determined otherwise and taking subparagraphs 1 and 2 into account, exceeds one-half of the amount of the designated capital gain or reduced capital gain, and

(4)  an amount is deductible by the individual under section 729 only to the extent that the excess amount referred to in paragraph b of section 28 that would be determined for the year, in respect of the individual, if the amount of the designated capital gain or reduced capital gain, as the case may be, were not taken into account, and

iii.  the amount determined under paragraph b of section 28, to which paragraph b of section 728.0.1 refers for the purpose of determining the individual’s non-capital loss or farm loss for the year of disposition, and the amount determined under subparagraph i of paragraph b of section 28, to which paragraph a of section 730 refers for the purpose of determining the individual’s net capital loss for the year of disposition, are computed without taking the amount of the designated capital gain or reduced capital gain, as the case may be, into account; and

(b)  the amount of the designated capital gain in respect of the disposition of those shares is deemed not to be a dividend paid by the purchaser corporation and received by the individual at the time of the disposition of those shares.

The particular amount to which the first paragraph refers is equal to twice the least of the amounts that would be determined in respect of the individual for the year under paragraphs a to d of section 726.7 or 726.7.1, as the case may be, if the deemed dividend amount were a capital gain realized by the individual in the year from the disposition of shares of the capital stock of a family farm or fishing corporation or of eligible small business corporation shares, as the case may be, and if subparagraph 1 of subparagraph ii of subparagraph a of the first paragraph were not taken into account.

2017, c. 1, s. 137; 2017, c. 29, s. 76.

2017-02-08

517.5.5. Where eligible shares of a primary and manufacturing sectors corporation of an individual, other than a trust, are disposed of in connection with an eligible business transfer of the individual and, but for this section, a dividend equal to the excess amount that corresponds to the amount by which the aggregate determined under section 517.3 exceeds the aggregate determined under section 517.3.1 would, under section 517.2, be deemed to have been paid by the purchaser corporation to the individual, and received by the individual from the purchaser corporation, at the time of the disposition of those shares, the following rules apply:

(a)  the lesser of the amount of that excess amount and the amount determined in respect of the disposition of those shares under paragraph b of subsection 1 of section 84.1 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) is deemed, for the purposes of this Part, to be a capital gain from the disposition of those shares, up to twice the amount determined in respect of the individual for the year under

i.  subparagraph a of the first paragraph of section 726.7, where the shares disposed of are shares described in paragraph a of the definition of “eligible primary and manufacturing sectors shares” in the first paragraph of section 517.5.3,

ii.  subparagraph a of the first paragraph of section 726.7.1, where the shares disposed of are shares described in paragraph c of the definition of “eligible primary and manufacturing sectors shares” in the first paragraph of section 517.5.3, or

iii.  subparagraph a of the first paragraph of section 726.7.2, where the shares disposed of are shares described in paragraph b of the definition of “eligible primary and manufacturing sectors shares” in the first paragraph of section 517.5.3; and

(b)  the amount of the capital gain determined under paragraph a in respect of the disposition of those shares is deemed not to be a dividend paid by the purchaser corporation and received by the individual at the time of the disposition of those shares.

2017, c. 1, s. 137.