I-3 - Taxation Act

Section 172 Disposition versions

2021-06-02

172. Despite any other provision of this Act, other than section 173.1, for the purposes of this section, sections 169 to 171 and 173.2 to 174.0.1,

(a)  “specified shareholder” of a corporation at any time means a person who at that time, either alone or together with persons with whom that person is not dealing at arm’s length, owns shares of the capital stock of the corporation

i.  that give the holders thereof 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or

ii.  that have a fair market value of 25% or more of the fair market value of all of the issued and outstanding shares of the capital stock of the corporation;

(b)  “specified shareholder not resident in Canada” of a corporation at any time means a specified shareholder of the corporation who was at that time a person not resident in Canada or an investment corporation owned by persons not resident in Canada;

(b.1)  “equity contribution”, to a trust, means a transfer of property to the trust that is made

i.  in exchange for an interest as a beneficiary under the trust,

ii.  in exchange for a right to acquire an interest as a beneficiary under the trust, or

iii.  gratuitously by a person beneficially interested in the trust;

(b.2)  “tax-paid earnings”, of a trust resident in Canada for a taxation year, means the aggregate of all amounts each of which is the amount, in respect of a particular taxation year of the trust that ended before the year, determined by the formula

A - B;

(b.3)  “beneficiary” means a beneficiary within the meaning of the second paragraph of section 646;

(b.4)  “specified beneficiary”, of a trust at any time, means a person who at that time, either alone or together with persons with whom that person does not deal at arm’s length, has an interest as a beneficiary under the trust with a fair market value that is not less than 25% of the fair market value of all interests as a beneficiary under the trust;

(b.5)  “specified beneficiary not resident in Canada”, of a trust at any time, means a specified beneficiary of the trust who at that time is a person not resident in Canada;

(b.5.1)  “specified right”, at any time in respect of a property, means a right to, at that time, hypothecate, mortgage, assign, pledge or in any way encumber the property to secure payment of an obligation—other than a particular debt or other particular obligation described in paragraph a of section 174 or a debt or other obligation described in subparagraph ii of paragraph d of that section—or to use, invest, sell or otherwise dispose of the property unless it is established by the taxpayer that all of the proceeds (net of costs) received, or that would be received, from exercising the right must first be applied to reduce an amount described in subparagraph i or ii of paragraph d of section 174;

(b.5.2)  “security interest”, in respect of a property, means a right in the property that secures payment of an obligation;

(b.6)  “equity amount”, of a corporation or a trust for a taxation year, means

i.  in the case of a corporation resident in Canada, the aggregate of

(1)  the retained earnings of the corporation at the beginning of the year, except to the extent that those earnings include retained earnings of any other corporation,

(2)  the average of all amounts each of which is the corporation’s contributed surplus (other than any portion of that contributed surplus that arose at a time when the corporation was not resident in Canada, or that arose in connection with a disposition to which subsection 1.1 of section 212.1 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) applies or an investment to which subsection 2 of section 212.3 of that Act applies) at the beginning of a month that ends in the year, to the extent that it was contributed by a specified shareholder not resident in Canada of the corporation, and

(3)  the average of all amounts each of which is the corporation’s paid-up capital at the beginning of a month that ends in the year, excluding the paid-up capital in respect of shares of any class of the capital stock of the corporation owned by a person other than a specified shareholder not resident in Canada of the corporation,

ii.  in the case of a trust resident in Canada, the amount determined by the formula

C - D, or

iii.  in the case of a corporation or trust that is not resident in Canada, the amount determined by the formula

40% × (E - F);

(c)  “specified person not resident in Canada” in respect of a corporation or a trust means

i.  a specified shareholder not resident in Canada of the corporation or a specified beneficiary not resident in Canada of the trust, or

ii.  a person not resident in Canada not dealing at arm’s length with a specified shareholder of the corporation or with a specified beneficiary of the trust, as the case may be.

In the formulas in subparagraphs b.2 and b.6 of the first paragraph,

(a)  A is the taxable income of the trust under this Part for the particular year;

(b)  B is the total of tax payable under this Part by the trust for the particular year, tax payable by the trust for the particular year under Part I of the Income Tax Act and all income taxes payable by the trust for the particular year under the laws of a province, other than Québec;

(c)  C is the total of the average of all amounts each of which is the total amount of all equity contributions to the trust made before a month that ends in the year, to the extent that the contributions were made by a specified beneficiary not resident in Canada of the trust, and the tax-paid earnings of the trust for the year;

(d)  D is the average of all amounts each of which is the total of all amounts that were paid or became payable by the trust to a beneficiary of the trust in respect of the beneficiary’s interest under the trust before a month that ends in the year except to the extent that the amount is

i.  included in computing the beneficiary’s income for a taxation year because of section 663,

ii.  an amount in respect of which tax was deducted under Part XIII of the Income Tax Act because of paragraph c of subsection 1 of section 212 of that Act, or

iii.  paid or payable to a person other than a specified beneficiary not resident in Canada of the trust;

(e)  E is the average of all amounts each of which is the cost of a property, other than an interest as a member of a partnership, owned by the corporation or trust at the beginning of a month that ends in the year, that is used by the corporation or trust in the year in, or held by it in the year in the course of, carrying on a business in Canada; and

(f)  F is the average of all amounts each of which is the total of all amounts outstanding, at the beginning of a month that ends in the year, in relation to a debt or other obligation to pay an amount that was payable by the corporation or trust and that may reasonably be regarded as relating to a business carried on by it in Canada, other than a debt or obligation that is included in the outstanding debts to specified persons not resident in Canada of the corporation or trust.

For the purpose of determining whether a particular person is a specified shareholder of a corporation at any time, the particular person or the person with whom the particular person is not dealing at arm’s length, as the case may be, is deemed at that time to own the shares referred to in subparagraph a of the first paragraph and the corporation referred to in subparagraph b of the first paragraph is deemed at that time to have redeemed, acquired or cancelled the shares referred to in the said subparagraph b, where the particular person or the person with whom the particular person is not dealing at arm’s length has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, other than a right that is not exercisable at that time because the exercise thereof is contingent on the death, bankruptcy or permanent disability of an individual,

(a)  to, or to acquire, shares in a corporation or to control the voting rights of shares in a corporation; or

(b)  to cause a corporation to redeem, acquire or cancel any of its shares, other than shares held by the particular person or the person with whom the particular person is not dealing at arm’s length.

For the purpose of determining whether a particular person is a specified beneficiary of a trust at any time, the following rules apply:

(a)  if the particular person, or a person with whom the particular person does not deal at arm’s length, has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, to acquire an interest as a beneficiary under the trust, the particular person or the person with whom the particular person does not deal at arm’s length, as the case may be, is deemed at that time to own the interest;

(b)  if the particular person, or a person with whom the particular person does not deal at arm’s length, has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, to cause a trust to redeem, acquire or cancel any interest in it as a beneficiary (other than an interest held by the particular person or a person with whom the particular person does not deal at arm’s length), the trust is deemed at that time to have redeemed, acquired or cancelled the interest, unless the right is not exercisable at that time because the exercise of the right is contingent on the death, bankruptcy or permanent disability of an individual; and

(c)  if the amount of income or capital of the trust that the particular person, or a person with whom the particular person does not deal at arm’s length, may receive as a beneficiary of the trust depends on the exercise by any person of, or the failure by any person to exercise, a discretionary power, that person is deemed to have fully exercised, or to have failed to exercise, the power, as the case may be.

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

(a)  if a property is partly used or held by a taxpayer in a taxation year in the course of carrying on a business in Canada, the cost of the property to the taxpayer is deemed for the year to be equal to the proportion of the cost to the taxpayer of the property (determined without reference to this paragraph) that the proportion of the use or holding made of the property in the course of carrying on a business in Canada in the year is of the whole use or holding made of the property in the year; and

(b)  if a corporation or trust is deemed to own a portion of a property of a partnership because of section 174.1 at any time,

i.  the property is deemed to have, at that time, a cost to the corporation or trust equal to the proportion of the cost of the property to the partnership that is the proportion that the debts and other obligations to pay an amount of the partnership allocated to it under section 174.1 is of the total amount of all debts and other obligations to pay an amount of the partnership, and

ii.  in the case of a partnership that carries on a business in Canada, the corporation or trust is deemed to use or hold the property in the course of carrying on a business in Canada to the extent the partnership uses or holds the property in the course of carrying on a business in Canada for the fiscal period of the partnership that includes that time.

1972, c. 23, s. 160; 1973, c. 18, s. 5; 1984, c. 15, s. 42; 1986, c. 15, s. 51; 1994, c. 22, s. 109; 1997, c. 3, s. 71; 2003, c. 2, s. 57; 2015, c. 24, s. 36; 2017, c. 29, s. 47; 2020, c. 16, s. 42; 2021, c. 14, s. 29.

2020-09-24

172. Despite any other provision of this Act, other than section 173.1, for the purposes of this section, sections 169 to 171 and 173.2 to 174.0.1,

(a)  “specified shareholder” of a corporation at any time means a person who at that time, either alone or together with persons with whom that person is not dealing at arm’s length, owns shares of the capital stock of the corporation

i.  that give the holders thereof 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or

ii.  that have a fair market value of 25% or more of the fair market value of all of the issued and outstanding shares of the capital stock of the corporation;

(b)  “specified shareholder not resident in Canada” of a corporation at any time means a specified shareholder of the corporation who was at that time a person not resident in Canada or an investment corporation owned by persons not resident in Canada;

(b.1)  “equity contribution”, to a trust, means a transfer of property to the trust that is made

i.  in exchange for an interest as a beneficiary under the trust,

ii.  in exchange for a right to acquire an interest as a beneficiary under the trust, or

iii.  gratuitously by a person beneficially interested in the trust;

(b.2)  “tax-paid earnings”, of a trust resident in Canada for a taxation year, means the aggregate of all amounts each of which is the amount, in respect of a particular taxation year of the trust that ended before the year, determined by the formula

A - B;

(b.3)  “beneficiary” means a beneficiary within the meaning of the second paragraph of section 646;

(b.4)  “specified beneficiary”, of a trust at any time, means a person who at that time, either alone or together with persons with whom that person does not deal at arm’s length, has an interest as a beneficiary under the trust with a fair market value that is not less than 25% of the fair market value of all interests as a beneficiary under the trust;

(b.5)  “specified beneficiary not resident in Canada”, of a trust at any time, means a specified beneficiary of the trust who at that time is a person not resident in Canada;

(b.5.1)  “specified right”, at any time in respect of a property, means a right to, at that time, hypothecate, mortgage, assign, pledge or in any way encumber the property to secure payment of an obligation—other than a particular debt or other particular obligation described in paragraph a of section 174 or a debt or other obligation described in subparagraph ii of paragraph d of that section—or to use, invest, sell or otherwise dispose of the property unless it is established by the taxpayer that all of the proceeds (net of costs) received, or that would be received, from exercising the right must first be applied to reduce an amount described in subparagraph i or ii of paragraph d of section 174;

(b.5.2)  “security interest” in respect of a property, means a right in the property that secures payment of an obligation;

(b.6)  “equity amount”, of a corporation or a trust for a taxation year, means

i.  in the case of a corporation resident in Canada, the aggregate of

(1)  the retained earnings of the corporation at the beginning of the year, except to the extent that those earnings include retained earnings of any other corporation,

(2)  the average of all amounts each of which is the corporation’s contributed surplus (other than any portion of that contributed surplus that arose in connection with an investment to which subsection 2 of section 212.3 of the Income Tax Act (R.S.C. 1985, c. 1, (5th Suppl.)) applies) at the beginning of a month that ends in the year, to the extent that it was contributed by a specified shareholder not resident in Canada of the corporation, and

(3)  the average of all amounts each of which is the corporation’s paid-up capital at the beginning of a month that ends in the year, excluding the paid-up capital in respect of shares of any class of the capital stock of the corporation owned by a person other than a specified shareholder not resident in Canada of the corporation,

ii.  in the case of a trust resident in Canada, the amount determined by the formula

C - D, or

iii.  in the case of a corporation or trust that is not resident in Canada, the amount determined by the formula

40% × (E - F);

(c)  “specified person not resident in Canada” in respect of a corporation or a trust means

i.  a specified shareholder not resident in Canada of the corporation or a specified beneficiary not resident in Canada of the trust, or

ii.  a person not resident in Canada not dealing at arm’s length with a specified shareholder of the corporation or with a specified beneficiary of the trust, as the case may be.

In the formulas in subparagraphs b.2 and b.6 of the first paragraph,

(a)  A is the taxable income of the trust under this Part for the particular year;

(b)  B is the total of tax payable under this Part by the trust for the particular year, tax payable by the trust for the particular year under Part I of the Income Tax Act and all income taxes payable by the trust for the particular year under the laws of a province, other than Québec;

(c)  C is the total of the average of all amounts each of which is the total amount of all equity contributions to the trust made before a month that ends in the year, to the extent that the contributions were made by a specified beneficiary not resident in Canada of the trust, and the tax-paid earnings of the trust for the year;

(d)  D is the average of all amounts each of which is the total of all amounts that were paid or became payable by the trust to a beneficiary of the trust in respect of the beneficiary’s interest under the trust before a month that ends in the year except to the extent that the amount is

i.  included in computing the beneficiary’s income for a taxation year because of section 663,

ii.  an amount in respect of which tax was deducted under Part XIII of the Income Tax Act because of paragraph c of subsection 1 of section 212 of that Act, or

iii.  paid or payable to a person other than a specified beneficiary not resident in Canada of the trust;

(e)  E is the average of all amounts each of which is the cost of a property, other than an interest as a member of a partnership, owned by the corporation or trust at the beginning of a month that ends in the year, that is used by the corporation or trust in the year in, or held by it in the year in the course of, carrying on a business in Canada; and

(f)  F is the average of all amounts each of which is the total of all amounts outstanding, at the beginning of a month that ends in the year, in relation to a debt or other obligation to pay an amount that was payable by the corporation or trust and that may reasonably be regarded as relating to a business carried on by it in Canada, other than a debt or obligation that is included in the outstanding debts to specified persons not resident in Canada of the corporation or trust.

For the purpose of determining whether a particular person is a specified shareholder of a corporation at any time, the particular person or the person with whom the particular person is not dealing at arm’s length, as the case may be, is deemed at that time to own the shares referred to in subparagraph a of the first paragraph and the corporation referred to in subparagraph b of the first paragraph is deemed at that time to have redeemed, acquired or cancelled the shares referred to in the said subparagraph b, where the particular person or the person with whom the particular person is not dealing at arm’s length has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, other than a right that is not exercisable at that time because the exercise thereof is contingent on the death, bankruptcy or permanent disability of an individual,

(a)  to, or to acquire, shares in a corporation or to control the voting rights of shares in a corporation; or

(b)  to cause a corporation to redeem, acquire or cancel any of its shares, other than shares held by the particular person or the person with whom the particular person is not dealing at arm’s length.

For the purpose of determining whether a particular person is a specified beneficiary of a trust at any time, the following rules apply:

(a)  if the particular person, or a person with whom the particular person does not deal at arm’s length, has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, to acquire an interest as a beneficiary under the trust, the particular person or the person with whom the particular person does not deal at arm’s length, as the case may be, is deemed at that time to own the interest;

(b)  if the particular person, or a person with whom the particular person does not deal at arm’s length, has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, to cause a trust to redeem, acquire or cancel any interest in it as a beneficiary (other than an interest held by the particular person or a person with whom the particular person does not deal at arm’s length), the trust is deemed at that time to have redeemed, acquired or cancelled the interest, unless the right is not exercisable at that time because the exercise of the right is contingent on the death, bankruptcy or permanent disability of an individual; and

(c)  if the amount of income or capital of the trust that the particular person, or a person with whom the particular person does not deal at arm’s length, may receive as a beneficiary of the trust depends on the exercise by any person of, or the failure by any person to exercise, a discretionary power, that person is deemed to have fully exercised, or to have failed to exercise, the power, as the case may be.

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

(a)  if a property is partly used or held by a taxpayer in a taxation year in the course of carrying on a business in Canada, the cost of the property to the taxpayer is deemed for the year to be equal to the proportion of the cost to the taxpayer of the property (determined without reference to this paragraph) that the proportion of the use or holding made of the property in the course of carrying on a business in Canada in the year is of the whole use or holding made of the property in the year; and

(b)  if a corporation or trust is deemed to own a portion of a property of a partnership because of section 174.1 at any time,

i.  the property is deemed to have, at that time, a cost to the corporation or trust equal to the proportion of the cost of the property to the partnership that is the proportion that the debts and other obligations to pay an amount of the partnership allocated to it under section 174.1 is of the total amount of all debts and other obligations to pay an amount of the partnership, and

ii.  in the case of a partnership that carries on a business in Canada, the corporation or trust is deemed to use or hold the property in the course of carrying on a business in Canada to the extent the partnership uses or holds the property in the course of carrying on a business in Canada for the fiscal period of the partnership that includes that time.

1972, c. 23, s. 160; 1973, c. 18, s. 5; 1984, c. 15, s. 42; 1986, c. 15, s. 51; 1994, c. 22, s. 109; 1997, c. 3, s. 71; 2003, c. 2, s. 57; 2015, c. 24, s. 36; 2017, c. 29, s. 47; 2020, c. 16, s. 42.

2017-12-07

172. Despite any other provision of this Act, other than section 173.1, for the purposes of this section, sections 169 to 171 and 173.2 to 174.0.1,

(a)  “specified shareholder” of a corporation at any time means a person who at that time, either alone or together with persons with whom that person is not dealing at arm’s length, owns shares of the capital stock of the corporation

i.  that give the holders thereof 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or

ii.  that have a fair market value of 25% or more of the fair market value of all of the issued and outstanding shares of the capital stock of the corporation;

(b)  “specified shareholder not resident in Canada” of a corporation at any time means a specified shareholder of the corporation who was at that time a person not resident in Canada or an investment corporation owned by persons not resident in Canada;

(b.1)  “equity contribution”, to a trust, means a transfer of property to the trust that is made

i.  in exchange for an interest as a beneficiary under the trust,

ii.  in exchange for a right to acquire an interest as a beneficiary under the trust, or

iii.  gratuitously by a person beneficially interested in the trust;

(b.2)  “tax-paid earnings”, of a trust resident in Canada for a taxation year, means the aggregate of all amounts each of which is the amount, in respect of a particular taxation year of the trust that ended before the year, determined by the formula

A - B;

(b.3)  “beneficiary” means a beneficiary within the meaning of the second paragraph of section 646;

(b.4)  “specified beneficiary”, of a trust at any time, means a person who at that time, either alone or together with persons with whom that person does not deal at arm’s length, has an interest as a beneficiary under the trust with a fair market value that is not less than 25% of the fair market value of all interests as a beneficiary under the trust;

(b.5)  “specified beneficiary not resident in Canada”, of a trust at any time, means a specified beneficiary of the trust who at that time is a person not resident in Canada;

(b.5.1)  “specified right”, at any time in respect of a property, means a right to, at that time, hypothecate, mortgage, assign, pledge or in any way encumber the property to secure payment of an obligation—other than a particular debt or other particular obligation described in paragraph a of section 174 or a debt or other obligation described in subparagraph ii of paragraph d of that section—or to use, invest, sell or otherwise dispose of the property unless it is established by the taxpayer that all of the proceeds (net of costs) received, or that would be received, from exercising the right must first be applied to reduce an amount described in subparagraph i or ii of paragraph d of section 174;

(b.5.2)  “security interest”, in respect of a property, means a right or an interest in the property that secures payment of an obligation;

(b.6)  “equity amount”, of a corporation or a trust for a taxation year, means

i.  in the case of a corporation resident in Canada, the aggregate of

(1)  the retained earnings of the corporation at the beginning of the year, except to the extent that those earnings include retained earnings of any other corporation,

(2)  the average of all amounts each of which is the corporation’s contributed surplus (other than any portion of that contributed surplus that arose in connection with an investment to which subsection 2 of section 212.3 of the Income Tax Act (R.S.C. 1985, c. 1, (5th Suppl.)) applies) at the beginning of a month that ends in the year, to the extent that it was contributed by a specified shareholder not resident in Canada of the corporation, and

(3)  the average of all amounts each of which is the corporation’s paid-up capital at the beginning of a month that ends in the year, excluding the paid-up capital in respect of shares of any class of the capital stock of the corporation owned by a person other than a specified shareholder not resident in Canada of the corporation,

ii.  in the case of a trust resident in Canada, the amount determined by the formula

C - D, or

iii.  in the case of a corporation or trust that is not resident in Canada, the amount determined by the formula

40% × (E - F);

(c)  “specified person not resident in Canada” in respect of a corporation or a trust means

i.  a specified shareholder not resident in Canada of the corporation or a specified beneficiary not resident in Canada of the trust, or

ii.  a person not resident in Canada not dealing at arm’s length with a specified shareholder of the corporation or with a specified beneficiary of the trust, as the case may be.

In the formulas in subparagraphs b.2 and b.6 of the first paragraph,

(a)  A is the taxable income of the trust under this Part for the particular year;

(b)  B is the total of tax payable under this Part by the trust for the particular year, tax payable by the trust for the particular year under Part I of the Income Tax Act and all income taxes payable by the trust for the particular year under the laws of a province, other than Québec;

(c)  C is the total of the average of all amounts each of which is the total amount of all equity contributions to the trust made before a month that ends in the year, to the extent that the contributions were made by a specified beneficiary not resident in Canada of the trust, and the tax-paid earnings of the trust for the year;

(d)  D is the average of all amounts each of which is the total of all amounts that were paid or became payable by the trust to a beneficiary of the trust in respect of the beneficiary’s interest under the trust before a month that ends in the year except to the extent that the amount is

i.  included in computing the beneficiary’s income for a taxation year because of section 663,

ii.  an amount in respect of which tax was deducted under Part XIII of the Income Tax Act because of paragraph c of subsection 1 of section 212 of that Act, or

iii.  paid or payable to a person other than a specified beneficiary not resident in Canada of the trust;

(e)  E is the average of all amounts each of which is the cost of a property, other than an interest as a member of a partnership, owned by the corporation or trust at the beginning of a month that ends in the year, that is used by the corporation or trust in the year in, or held by it in the year in the course of, carrying on a business in Canada; and

(f)  F is the average of all amounts each of which is the total of all amounts outstanding, at the beginning of a month that ends in the year, in relation to a debt or other obligation to pay an amount that was payable by the corporation or trust and that may reasonably be regarded as relating to a business carried on by it in Canada, other than a debt or obligation that is included in the outstanding debts to specified persons not resident in Canada of the corporation or trust.

For the purpose of determining whether a particular person is a specified shareholder of a corporation at any time, the particular person or the person with whom the particular person is not dealing at arm’s length, as the case may be, is deemed at that time to own the shares referred to in subparagraph a of the first paragraph and the corporation referred to in subparagraph b of the first paragraph is deemed at that time to have redeemed, acquired or cancelled the shares referred to in the said subparagraph b, where the particular person or the person with whom the particular person is not dealing at arm’s length has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, other than a right that is not exercisable at that time because the exercise thereof is contingent on the death, bankruptcy or permanent disability of an individual,

(a)  to, or to acquire, shares in a corporation or to control the voting rights of shares in a corporation; or

(b)  to cause a corporation to redeem, acquire or cancel any of its shares, other than shares held by the particular person or the person with whom the particular person is not dealing at arm’s length.

For the purpose of determining whether a particular person is a specified beneficiary of a trust at any time, the following rules apply:

(a)  if the particular person, or a person with whom the particular person does not deal at arm’s length, has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, to acquire an interest as a beneficiary under the trust, the particular person or the person with whom the particular person does not deal at arm’s length, as the case may be, is deemed at that time to own the interest;

(b)  if the particular person, or a person with whom the particular person does not deal at arm’s length, has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, to cause a trust to redeem, acquire or cancel any interest in it as a beneficiary (other than an interest held by the particular person or a person with whom the particular person does not deal at arm’s length), the trust is deemed at that time to have redeemed, acquired or cancelled the interest, unless the right is not exercisable at that time because the exercise of the right is contingent on the death, bankruptcy or permanent disability of an individual; and

(c)  if the amount of income or capital of the trust that the particular person, or a person with whom the particular person does not deal at arm’s length, may receive as a beneficiary of the trust depends on the exercise by any person of, or the failure by any person to exercise, a discretionary power, that person is deemed to have fully exercised, or to have failed to exercise, the power, as the case may be.

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

(a)  if a property is partly used or held by a taxpayer in a taxation year in the course of carrying on a business in Canada, the cost of the property to the taxpayer is deemed for the year to be equal to the proportion of the cost to the taxpayer of the property (determined without reference to this paragraph) that the proportion of the use or holding made of the property in the course of carrying on a business in Canada in the year is of the whole use or holding made of the property in the year; and

(b)  if a corporation or trust is deemed to own a portion of a property of a partnership because of section 174.1 at any time,

i.  the property is deemed to have, at that time, a cost to the corporation or trust equal to the proportion of the cost of the property to the partnership that is the proportion that the debts and other obligations to pay an amount of the partnership allocated to it under section 174.1 is of the total amount of all debts and other obligations to pay an amount of the partnership, and

ii.  in the case of a partnership that carries on a business in Canada, the corporation or trust is deemed to use or hold the property in the course of carrying on a business in Canada to the extent the partnership uses or holds the property in the course of carrying on a business in Canada for the fiscal period of the partnership that includes that time.

1972, c. 23, s. 160; 1973, c. 18, s. 5; 1984, c. 15, s. 42; 1986, c. 15, s. 51; 1994, c. 22, s. 109; 1997, c. 3, s. 71; 2003, c. 2, s. 57; 2015, c. 24, s. 36; 2017, c. 29, s. 47.

2015-10-26

172. Despite any other provision of this Act, other than section 173.1, for the purposes of this section, sections 169 to 171 and 173.2 to 174,

(a)  “specified shareholder” of a corporation at any time means a person who at that time, either alone or together with persons with whom that person is not dealing at arm’s length, owns shares of the capital stock of the corporation

i.  that give the holders thereof 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or

ii.  that have a fair market value of 25% or more of the fair market value of all of the issued and outstanding shares of the capital stock of the corporation;

(b)  “specified shareholder not resident in Canada” of a corporation at any time means a specified shareholder of the corporation who was at that time a person not resident in Canada or an investment corporation owned by persons not resident in Canada;

(b.1)  “equity contribution”, to a trust, means a transfer of property to the trust that is made

i.  in exchange for an interest as a beneficiary under the trust,

ii.  in exchange for a right to acquire an interest as a beneficiary under the trust, or

iii.  gratuitously by a person beneficially interested in the trust;

(b.2)  “tax-paid earnings”, of a trust resident in Canada for a taxation year, means the aggregate of all amounts each of which is the amount, in respect of a particular taxation year of the trust that ended before the year, determined by the formula

A - B;

(b.3)  “beneficiary” means a beneficiary within the meaning of the second paragraph of section 646;

(b.4)  “specified beneficiary”, of a trust at any time, means a person who at that time, either alone or together with persons with whom that person does not deal at arm’s length, has an interest as a beneficiary under the trust with a fair market value that is not less than 25% of the fair market value of all interests as a beneficiary under the trust;

(b.5)  “specified beneficiary not resident in Canada”, of a trust at any time, means a specified beneficiary of the trust who at that time is a person not resident in Canada;

(b.6)  “equity amount”, of a corporation or a trust for a taxation year, means

i.  in the case of a corporation resident in Canada, the aggregate of

(1)  the retained earnings of the corporation at the beginning of the year, except to the extent that those earnings include retained earnings of any other corporation,

(2)  the average of all amounts each of which is the corporation’s contributed surplus (other than any portion of that contributed surplus that arose in connection with an investment to which subsection 2 of section 212.3 of the Income Tax Act (R.S.C. 1985, c. 1, (5th Suppl.)) applies) at the beginning of a month that ends in the year, to the extent that it was contributed by a specified shareholder not resident in Canada of the corporation, and

(3)  the average of all amounts each of which is the corporation’s paid-up capital at the beginning of a month that ends in the year, excluding the paid-up capital in respect of shares of any class of the capital stock of the corporation owned by a person other than a specified shareholder not resident in Canada of the corporation,

ii.  in the case of a trust resident in Canada, the amount determined by the formula

C - D, or

iii.  in the case of a corporation or trust that is not resident in Canada, the amount determined by the formula

40% × (E - F);

(c)  “specified person not resident in Canada” in respect of a corporation or a trust means

i.  a specified shareholder not resident in Canada of the corporation or a specified beneficiary not resident in Canada of the trust, or

ii.  a person not resident in Canada not dealing at arm’s length with a specified shareholder of the corporation or with a specified beneficiary of the trust, as the case may be.

In the formulas in subparagraphs b.2 and b.6 of the first paragraph,

(a)  A is the taxable income of the trust under this Part for the particular year;

(b)  B is the total of tax payable under this Part by the trust for the particular year, tax payable by the trust for the particular year under Part I of the Income Tax Act and all income taxes payable by the trust for the particular year under the laws of a province, other than Québec;

(c)  C is the total of the average of all amounts each of which is the total amount of all equity contributions to the trust made before a month that ends in the year, to the extent that the contributions were made by a specified beneficiary not resident in Canada of the trust, and the tax-paid earnings of the trust for the year;

(d)  D is the average of all amounts each of which is the total of all amounts that were paid or became payable by the trust to a beneficiary of the trust in respect of the beneficiary’s interest under the trust before a month that ends in the year except to the extent that the amount is

i.  included in computing the beneficiary’s income for a taxation year because of section 663,

ii.  an amount in respect of which tax was deducted under Part XIII of the Income Tax Act because of paragraph c of subsection 1 of section 212 of that Act, or

iii.  paid or payable to a person other than a specified beneficiary not resident in Canada of the trust;

(e)  E is the average of all amounts each of which is the cost of a property, other than an interest as a member of a partnership, owned by the corporation or trust at the beginning of a month that ends in the year, that is used by the corporation or trust in the year in, or held by it in the year in the course of, carrying on a business in Canada; and

(f)  F is the average of all amounts each of which is the total of all amounts outstanding, at the beginning of a month that ends in the year, in relation to a debt or other obligation to pay an amount that was payable by the corporation or trust and that may reasonably be regarded as relating to a business carried on by it in Canada, other than a debt or obligation that is included in the outstanding debts to specified persons not resident in Canada of the corporation or trust.

For the purpose of determining whether a particular person is a specified shareholder of a corporation at any time, the particular person or the person with whom the particular person is not dealing at arm’s length, as the case may be, is deemed at that time to own the shares referred to in subparagraph a of the first paragraph and the corporation referred to in subparagraph b of the first paragraph is deemed at that time to have redeemed, acquired or cancelled the shares referred to in the said subparagraph b, where the particular person or the person with whom the particular person is not dealing at arm’s length has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, other than a right that is not exercisable at that time because the exercise thereof is contingent on the death, bankruptcy or permanent disability of an individual,

(a)  to, or to acquire, shares in a corporation or to control the voting rights of shares in a corporation; or

(b)  to cause a corporation to redeem, acquire or cancel any of its shares, other than shares held by the particular person or the person with whom the particular person is not dealing at arm’s length.

For the purpose of determining whether a particular person is a specified beneficiary of a trust at any time, the following rules apply:

(a)  if the particular person, or a person with whom the particular person does not deal at arm’s length, has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, to acquire an interest as a beneficiary under the trust, the particular person or the person with whom the particular person does not deal at arm’s length, as the case may be, is deemed at that time to own the interest;

(b)  if the particular person, or a person with whom the particular person does not deal at arm’s length, has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, to cause a trust to redeem, acquire or cancel any interest in it as a beneficiary (other than an interest held by the particular person or a person with whom the particular person does not deal at arm’s length), the trust is deemed at that time to have redeemed, acquired or cancelled the interest, unless the right is not exercisable at that time because the exercise of the right is contingent on the death, bankruptcy or permanent disability of an individual; and

(c)  if the amount of income or capital of the trust that the particular person, or a person with whom the particular person does not deal at arm’s length, may receive as a beneficiary of the trust depends on the exercise by any person of, or the failure by any person to exercise, a discretionary power, that person is deemed to have fully exercised, or to have failed to exercise, the power, as the case may be.

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

(a)  if a property is partly used or held by a taxpayer in a taxation year in the course of carrying on a business in Canada, the cost of the property to the taxpayer is deemed for the year to be equal to the proportion of the cost to the taxpayer of the property (determined without reference to this paragraph) that the proportion of the use or holding made of the property in the course of carrying on a business in Canada in the year is of the whole use or holding made of the property in the year; and

(b)  if a corporation or trust is deemed to own a portion of a property of a partnership because of section 174.1 at any time,

i.  the property is deemed to have, at that time, a cost to the corporation or trust equal to the proportion of the cost of the property to the partnership that is the proportion that the debts and other obligations to pay an amount of the partnership allocated to it under section 174.1 is of the total amount of all debts and other obligations to pay an amount of the partnership, and

ii.  in the case of a partnership that carries on a business in Canada, the corporation or trust is deemed to use or hold the property in the course of carrying on a business in Canada to the extent the partnership uses or holds the property in the course of carrying on a business in Canada for the fiscal period of the partnership that includes that time.

1972, c. 23, s. 160; 1973, c. 18, s. 5; 1984, c. 15, s. 42; 1986, c. 15, s. 51; 1994, c. 22, s. 109; 1997, c. 3, s. 71; 2003, c. 2, s. 57; 2015, c. 24, s. 36.

2006-03-01

172. Notwithstanding any other provision of this Part, other than section 173.1, for the purposes of this section and sections 169 to 171 and 174,

(a)  “specified shareholder” of a corporation at any time means a person who at that time, either alone or together with persons with whom that person is not dealing at arm’s length, owns shares of the capital stock of the corporation

i.  that give the holders thereof 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or

ii.  that have a fair market value of 25% or more of the fair market value of all of the issued and outstanding shares of the capital stock of the corporation;

(b)  “specified shareholder not resident in Canada” of a corporation at any time means a specified shareholder of the corporation who was at that time a person not resident in Canada or an investment corporation owned by persons not resident in Canada;

(c)  “specified person not resident in Canada” means

i.  a specified shareholder not resident in Canada of the corporation; or

ii.  a person not resident in Canada or an investment corporation owned by persons not resident in Canada not dealing at arm’s length with a specified shareholder of the corporation.

For the purpose of determining whether a particular person is a specified shareholder of a corporation at any time, the particular person or the person with whom the particular person is not dealing at arm’s length, as the case may be, is deemed at that time to own the shares referred to in subparagraph a of the first paragraph and the corporation referred to in subparagraph b of the first paragraph is deemed at that time to have redeemed, acquired or cancelled the shares referred to in the said subparagraph b, where the particular person or the person with whom the particular person is not dealing at arm’s length has at that time a right under a contract or otherwise, either immediately or in the future and either absolutely or contingently, other than a right that is not exercisable at that time because the exercise thereof is contingent on the death, bankruptcy or permanent disability of an individual,

(a)  to, or to acquire, shares in a corporation or to control the voting rights of shares in a corporation; or

(b)  to cause a corporation to redeem, acquire or cancel any of its shares, other than shares held by the particular person or the person with whom the particular person is not dealing at arm’s length.

1972, c. 23, s. 160; 1973, c. 18, s. 5; 1984, c. 15, s. 42; 1986, c. 15, s. 51; 1994, c. 22, s. 109; 1997, c. 3, s. 71; 2003, c. 2, s. 57.