I-3 - Taxation Act

Section 280.5 Disposition versions

2006-03-01

280.5. In this division,

“adjusted cost base reduction” of an individual in respect of a replacement share of the individual in respect of a qualifying disposition of the individual means the amount determined by the formula

D × (E / F);

“common share” means a share prescribed by regulation for the purposes of paragraph d of subsection 1 of section 110 of the Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th Supplement);

“eligible business corporation” at any time means, subject to section 280.14, a corporation that is, at that time, a taxable Canadian corporation all or substantially all of the fair market value of the assets of which at that time is attributable to assets of the corporation that are

(a)  assets used principally in an eligible business carried on by the corporation or by an eligible business corporation that is related to the corporation;

(b)  shares issued by or debt owing by other eligible business corporations that are related to the corporation; or

(c)  a combination of assets described in paragraphs a and b;

“eligible pooling arrangement” in respect of an individual means an agreement in writing made between the individual and another person or partnership, in this definition and section 280.7 referred to as the “investment manager”, where the agreement provides for

(a)  the transfer of funds or other property by the individual to the investment manager for the purpose of making investments on behalf of the individual;

(b)  the purchase of eligible small business corporation shares with those funds, or the proceeds of a disposition of the other property, within 60 days after receipt of those funds or the other property by the investment manager; and

(c)  the provision of a statement of account to the individual by the investment manager at the end of each month that ends after the transfer disclosing the details of the investment portfolio held by the investment manager on behalf of the individual at the end of that month and the details of the transactions made by the investment manager on behalf of the individual during the month;

“eligible small business corporation” at any time means, subject to section 280.14, a corporation that, at that time, is a Canadian-controlled private corporation all or substantially all of the fair market value of the assets of which at that time is attributable to assets of the corporation that are

(a)  assets used principally in an eligible business carried on primarily in Canada by the corporation or by an eligible small business corporation that is related to the corporation;

(b)  shares issued by or debt owing by other eligible small business corporations that are related to the corporation; or

(c)  a combination of assets described in paragraphs a and b;

“eligible small business corporation share” of an individual means a common share issued by a corporation to the individual if

(a)  at the time the share was issued, the corporation was an eligible small business corporation; and

(b)  immediately before and after the share was issued, the aggregate of the assets of the corporation and corporations related to it did not exceed $50,000,000;

“permitted deferral” of an individual in respect of a qualifying disposition of the individual means the amount determined by the formula

(A / B) × C;

“qualifying disposition” of an individual, other than a trust, means, subject to section 280.13, a disposition of shares of the capital stock of a corporation where each such share disposed of was

(a)  an eligible small business corporation share of the individual;

(b)  throughout the period during which the individual owned the share, a common share of an eligible business corporation; and

(c)  throughout the 185-day period that ended immediately before the disposition of the share, owned by the individual;

“replacement share” of an individual in respect of a qualifying disposition of the individual in a taxation year means an eligible small business corporation share of the individual that is

(a)  acquired by the individual in the year or within 120 days after the end of the year; and

(b)  designated by the individual to be a replacement share in respect of the qualifying disposition, in accordance with paragraph b of the definition of “replacement share” in subsection 1 of section 44.1 of the Income Tax Act, in the fiscal return that the individual filed for the year under Part I of that Act.

In the formulas provided for in the definitions of “adjusted cost base reduction” and “permitted deferral” in the first paragraph,

(a)  A is the lesser of

i.  the individual’s proceeds of disposition from the qualifying disposition, and

ii.  the aggregate of all amounts each of which is the cost to the individual of a replacement share in respect of the qualifying disposition;

(b)  B is the individual’s proceeds of disposition from the qualifying disposition;

(c)  C is the individual’s capital gain from the qualifying disposition;

(d)  D is the permitted deferral of the individual in respect of the qualifying disposition;

(e)  E is the cost to the individual of the replacement share; and

(f)  F is the cost to the individual of all the replacement shares of the individual in respect of the qualifying disposition.

For the purposes of paragraph b of the definition of “eligible small business corporation share” in the first paragraph, the assets of a corporation at any time means the assets that would be shown in its financial statements as of that time if those financial statements were prepared in accordance with generally accepted accounting principles used in Canada at that time, and if the value of an asset of a corporation that is a share issued by or debt owing by a related corporation were nil.

2003, c. 2, s. 99; 2005, c. 1, s. 82.