I-3 - Taxation Act

Section 316.1 Disposition versions

2006-03-01

316.1. Where a particular individual, other than a trust, or a trust of which the particular individual is a beneficiary, receives a loan from or becomes indebted to a creditor or creditor trust, directly or indirectly by means of a trust or by any other means, and it may reasonably be considered that one of the main reasons for making the loan or incurring the indebtedness is to reduce or avoid tax by causing income from the loaned property to be included in the income of the particular individual, the following rules apply:

(a)  any income of the particular individual, for a taxation year, from the loaned property that relates to the period or periods in the year throughout which the creditor or the creditor trust, as the case may be, is resident in Canada and the particular individual is not dealing at arm’s length with the creditor or the original transferor in respect of the creditor trust, as the case may be, is deemed to be income of the creditor or creditor trust, as the case may be, for that taxation year and not income of the particular individual;

(b)  where section 467 applies in respect of the loaned property and income therefrom is deemed to be income of the creditor trust and not income of the particular individual, as provided for in subparagraph a, section 467 shall be applied after the application of subparagraph a.

Subparagraph a of the first paragraph does not apply, in respect of such income of the individual

(a)  to the extent that sections 462.1 to 462.4 apply or would, but for section 462.16, apply to such income;

(b)  in the case of a creditor, to the extent that section 467 applies to such income;

(c)  in the case of a creditor trust,

i.  to the extent that subparagraph a of the first paragraph applies to such income in the case of a creditor;

ii.  to the extent that section 467 applies to such income otherwise than by reason of subparagraph b of the first paragraph.

In this section,

“beneficiary” of a trust means an individual who is beneficially interested in the trust;

“creditor”, in respect of a particular individual, or of a trust of which the particular individual is a beneficiary, having received a loan or incurred a debt, means the individual, other than a trust, who made the loan or became the creditor and with whom the particular individual does not deal at arm’s length;

“creditor trust”, in respect of a particular individual, or of a trust of which the particular individual is a beneficiary, having received a loan or incurred a debt, means the trust that made the loan or became the creditor and to which property has, directly or indirectly by means of a trust or by any other means, been transferred by another individual, in this section referred to as the “original transferor”, who is not a trust, who is resident in Canada at any time in the period during which the loan or indebtedness is outstanding and with whom the particular individual does not deal at arm’s length;

“loaned property”, in respect of a particular individual, or of a trust of which the particular individual is a beneficiary, having received a loan or incurred a debt, includes property that the loan or indebtedness enabled or assisted the particular individual, or the trust in which the particular individual is a beneficiary, to acquire, and property substituted for such property or for the loaned property.

1990, c. 59, s. 147; 1993, c. 16, s. 131; 1994, c. 22, s. 142; 1996, c. 39, s. 273.