I-3 - Taxation Act

Section 418.26 Disposition versions

2009-05-15

418.26. Where, at any time after 12 November 1981, control of a corporation has been acquired by a person or group of persons, or a corporation ceases on or before 26 April 1995 to be exempt from tax under this Part on its taxable income, for the purposes of the provisions of the Act respecting the application of the Taxation Act (chapter I-4) and of this Part, other than sections 359.2, 359.2.1, 359.2.2, 359.4 and 359.13, relating to deductions in respect of drilling and exploration expenses, prospecting, exploration and development expenses, Canadian exploration and development expenses, foreign resource pool expenses, Canadian exploration expenses, Canadian development expenses or Canadian oil and gas property expenses, in this section referred to as “resource expenses”, incurred by the corporation before that time, the following rules apply:

(a)  the corporation is deemed after that time to be a corporation that had, at that time, acquired all the properties owned by the corporation immediately before that time from an original owner thereof;

(a.1)  where the corporation did not own a foreign resource property immediately before that time, the corporation is deemed to have owned a foreign resource property immediately before that time;

(b)  a joint election is deemed to have been filed in accordance with sections 418.23 and 418.24 in respect of the acquisition;

(c)  the resource expenses incurred by the corporation before that time are deemed to have been incurred by an original owner of the properties and not by the corporation;

(c.1)  the original owner is deemed to have been resident in Canada before that time while the corporation was resident in Canada;

(d)  (paragraph repealed);

(e)  where the corporation (in this subparagraph and the second paragraph referred to as the “transferee”) was, immediately before and at that time, a particular person, within the meaning of subsection 5 of section 544, or a subsidiary wholly-owned corporation, within the meaning of that subsection, of another corporation (in this subparagraph and the second paragraph and in section 418.28 referred to as the “transferor”), the amount corresponding, subject to the second paragraph, to the total of the amount that the transferor designates after 19 December 2006 in accordance with paragraph g of subsection 10 of section 66.7 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) in favour of the transferee for a taxation year of the transferor ending after that time and throughout which the transferee was such a particular person or such a subsidiary wholly-owned corporation of the transferor, and—if the total of the amounts designated by the transferor in accordance with that paragraph g in favour of any taxpayer for that year corresponds to the maximum total of the amounts that the transferor may then designate in accordance with that paragraph g in favour of any taxpayer for that year—of the portion on which the transferor and transferee agree and that the transferor specifies in its fiscal return under this Part for that year in respect of the transferee and not in respect of another taxpayer, of the amount by which the particular amount described in section 418.28 exceeds the maximum total of the amounts that the transferor may then designate in accordance with that paragraph g in favour of any taxpayer for that year,

i.  applies for the purpose of making a deduction under section 88.4 of the Act respecting the application of the Taxation Act, to the extent that that section refers to subsection 25 of section 29 of the Income Tax Application Rules (R.S.C. 1985, c. 2 (5th Suppl.)), or this division in respect of resource expenses incurred by the transferee before that time while the transferee was such a particular person or such a subsidiary wholly-owned corporation of the transferor, and

ii.  is deemed, for the purpose of computing an amount under the third paragraph of any of sections 418.16, 418.18 and 418.19, subparagraph c of the first paragraph of section 418.20, as that subparagraph would read if “to the higher of either 30% of the excess amount referred to in the second paragraph of the said section, or the amount by which” was replaced by “to the amount by which”, the third paragraph of section 418.21 and section 88.4 of the Act respecting the application of the Taxation Act, to the extent that that section refers to paragraph d of subsection 25 of section 29 of the Income Tax Application Rules, to be income of the transferee from the sources described in paragraph a or b of section 418.28 for its taxation year in which that taxation year of the transferor ends, and not to be income of the transferor from those sources for that year;

(f)  where the corporation (in this subparagraph and the second paragraph referred to as the “transferee”) was, immediately before and at that time, a particular person, within the meaning of subsection 5 of section 544, or a subsidiary wholly-owned corporation, within the meaning of that subsection, of another corporation (in this subparagraph and the second paragraph and in section 418.29 referred to as the “transferor”), the amount corresponding, subject to the second paragraph, to the total of the amount that the transferor designates after 19 December 2006 in accordance with paragraph h of subsection 10 of section 66.7 of the Income Tax Act in favour of the transferee for a taxation year of the transferor ending after that time and throughout which the transferee was such a particular person or such a subsidiary wholly-owned corporation of the transferor, and—if the total of the amounts designated by the transferor in accordance with that paragraph h in favour of any taxpayer for that year corresponds to the maximum total of the amounts that the transferor may then designate in accordance with that paragraph h in favour of any taxpayer for that year—of the portion on which the transferor and transferee agree and that the transferor specifies in its fiscal return under this Part for that year in respect of the transferee and not in respect of another taxpayer, of the amount by which the particular amount described in section 418.29 exceeds the maximum total of the amounts that the transferor may then designate in accordance with that paragraph h in favour of any taxpayer for that year, is deemed,

i.  for the purpose of computing an amount under the third paragraph of section 418.17 or 418.17.3 or subparagraph c of the first paragraph of section 418.20, as that subparagraph would read if “to the higher of either 30% of the excess amount referred to in the second paragraph of the said section, or the amount by which” was replaced by “to the amount by which”, to be income of the transferee from the sources described in paragraph a or b of section 418.29 for its taxation year in which that taxation year of the transferor ends, and

ii.  for the purpose of computing an amount under the third paragraph of section 418.17 or 418.17.3 or subparagraph c of the first paragraph of section 418.20, as that subparagraph would read if “to the higher of either 30% of the excess amount referred to in the second paragraph of the said section, or the amount by which” was replaced by “to the amount by which”, not to be the income of the transferor from those sources for that year;

(g)  where, immediately before and at that time, the corporation (in this subparagraph referred to as the “transferee”) and another corporation (in this subparagraph referred to as the “transferor”) were both subsidiary wholly-owned corporations, within the meaning of subsection 5 of section 544, of the same particular person, within the meaning of that subsection, and if the transferee and the transferor agree after 19 December 2006 in accordance with paragraph i of subsection 10 of section 66.7 of the Income Tax Act to have that paragraph i apply to them for a taxation year of the transferor ending after that time, subparagraph e or f or both, as the agreement provides, apply for that year to the transferee and to the transferor as though one were, in relation to the other, the particular person, within the meaning of subsection 5 of section 544; and

(h)  where that time is after 15 January 1987 and at that time the corporation was a member of a partnership that owned a Canadian resource property or a foreign resource property at that time, for the purposes of subparagraph a, the corporation is deemed to have owned immediately before that time that portion of the property owned by the partnership at that time that is equal to its percentage share of the aggregate of amounts that would be paid to all members of the partnership if it were wound up at that time, and, for the purposes of subparagraph iii of subparagraph a of the third paragraph of section 418.16, subparagraph 2 of subparagraph i of subparagraph a of the third paragraph of section 418.17, subparagraph a of the third paragraph of section 418.17.3, subparagraph iii of subparagraph a of the third paragraph of section 418.18, subparagraph 2 of subparagraph i of subparagraph a of the third paragraph of section 418.19, subparagraph i of subparagraph c of the first paragraph of section 418.20 and subparagraph 2 of subparagraph i of subparagraph a of the third paragraph of section 418.21 and of section 88.4 of the Act respecting the application of the Taxation Act, to the extent that that section refers to clause B of subparagraph i of paragraph d of subsection 25 of section 29 of the Income Tax Application Rules, for a taxation year ending after that time, the lesser of the following amounts is deemed to be the income of the corporation for the year that can reasonably be attributed to production from the property:

i.  its share of the part of the income of the partnership for the fiscal period of the partnership ending in the year that may reasonably be regarded as being attributable to the production from the property, and

ii.  an amount that would be determined under subparagraph i for the year if its share of the income of the partnership for the fiscal period of the partnership ending in the year were determined on the basis of the percentage share referred to in this subparagraph h.

However, when the aggregate of the amounts determined for a taxation year of the transferor under subparagraph e or f of the first paragraph in relation to the transferee would, but for this paragraph, exceed the particular amount described in section 418.28 or 418.29, the amount otherwise determined for the year under that subparagraph in respect of the transferee or another taxpayer must be reduced, if applicable, to the amount specified by the transferor in its fiscal return under this Part for the year or, if the transferor fails to specify such an amount, to the amount specified by the Minister, so that the aggregate is equal to the particular amount.

Chapter V.2 of Title II of Book I applies in relation to a designation or agreement made under any of paragraphs g, h and i of subsection 10 of section 66.7 of the Income Tax Act or in relation to a designation or agreement made under this section before 20 December 2006.

1989, c. 77, s. 49; 1993, c. 16, s. 170; 1995, c. 49, s. 114; 1997, c. 3, s. 71; 1997, c. 14, s. 73; 1998, c. 16, s. 161; 2000, c. 5, s. 96; 2004, c. 8, s. 86; 2009, c. 5, s. 136.

2006-03-01

418.26. Where, at any time after 12 November 1981, control of a corporation has been acquired by a person or group of persons, or a corporation ceases on or before 26 April 1995 to be exempt from tax under this Part on its taxable income, for the purposes of the provisions of the Act respecting the application of the Taxation Act (chapter I-4) and of this Part, other than sections 359.2, 359.2.1, 359.2.2, 359.4 and 359.13, relating to deductions in respect of drilling and exploration expenses, prospecting, exploration and development expenses, Canadian exploration and development expenses, foreign resource pool expenses, Canadian exploration expenses, Canadian development expenses or Canadian oil and gas property expenses, in this section referred to as “resource expenses”, incurred by the corporation before that time, the following rules apply:

(a)  the corporation is deemed after that time to be a corporation that had, at that time, acquired all the properties owned by the corporation immediately before that time from an original owner thereof;

(a.1)  where the corporation did not own a foreign resource property immediately before that time, the corporation is deemed to have owned a foreign resource property immediately before that time;

(b)  a joint election is deemed to have been filed in accordance with sections 418.23 and 418.24 in respect of the acquisition;

(c)  the resource expenses incurred by the corporation before that time are deemed to have been incurred by an original owner of the properties and not by the corporation;

(c.1)  the original owner is deemed to have been resident in Canada before that time while the corporation was resident in Canada;

(d)  (paragraph repealed);

(e)  where the corporation, in this paragraph referred to as the “transferee”, was, immediately before and at that time, a particular corporation, within the meaning of subsection 5 of section 544, or a subsidiary wholly-owned corporation, within the meaning assigned by that paragraph, of another corporation, in this paragraph and in section 418.28 referred to as the “transferor”,

i.  the transferor may designate in favour of the transferee, in respect of a taxation year of the transferor ending after that time, if throughout that year the transferee was such a particular corporation or subsidiary wholly-owned corporation of the transferor, an amount not exceeding the amount referred to in section 418.28, for the purpose of making a deduction under section 88.4 of the Act respecting the application of the Taxation Act, to the extent that that section refers to subsection 25 of section 29 of the Income Tax Application Rules (Revised Statutes of Canada, 1985, chapter 2, 5th Supplement), or this division in respect of resource expenses incurred by the transferee before that time while the transferee was such a particular corporation or subsidiary wholly-owned corporation of the transferor, to the extent that the amount so designated is not designated in favour of any other taxpayer under this paragraph and only if both corporations agree to have this paragraph apply to them in respect of that year and notify the Minister in writing of the agreement in the fiscal return under this Part of the transferor for that year; and

ii.  the amount so designated is deemed, for the purpose of computing an amount under the third paragraph of sections 418.16, 418.18 and 418.19, subparagraph c of the first paragraph of section 418.20, as that subparagraph would read but for the words “to the higher of either 30% of the excess amount referred to in the second paragraph of the said section, or” and if the words “or the amount by which” read “to the amount by which”, the third paragraph of section 418.21 and section 88.4 of the Act respecting the application of the Taxation Act, to the extent that that section refers to paragraph d of subsection 25 of section 29 of the Income Tax Application Rules, to be income from the sources described in paragraph a or b, as the case may be, of section 418.28 of the transferee for its taxation year in which that taxation year of the transferor ends, and not to be income from those sources for that year;

(f)  where the corporation, in this paragraph referred to as the “transferee”, was, immediately before and at that time, a particular corporation, within the meaning assigned by subsection 5 of section 544, or a subsidiary wholly-owned corporation, within the meaning of that subsection, of another corporation, in this paragraph and in section 418.29 referred to as the “transferor”, the transferor may designate in favour of the transferee, in respect of a taxation year of the transferor ending after that time, if throughout the year the transferee was such a particular corporation or subsidiary wholly-owned corporation of the transferor, an amount not exceeding the amount referred to in section 418.29, for the purposes of making a deduction under this division in respect of resource expenses incurred by the transferee before that time while the transferee was such a particular corporation or subsidiary wholly-owned corporation of the transferor, to the extent that the amount so designated is not designated in favour of another taxpayer under this paragraph and only if both corporations agree to have this paragraph apply to them in respect of that year and notify the Minister in writing of the agreement in the fiscal return under this Part of the transferor for that year, and the amount so designated is deemed

i.  for the purpose of computing an amount under the third paragraph of section 418.17 or 418.17.3 or subparagraph c of the first paragraph of section 418.20, as that subparagraph would read but for the words “to the higher of either 30% of the excess amount referred to in the second paragraph of the said section, or” and if the words “or the amount by which” read “to the amount by which”, to be income of the transferee from the sources described in paragraph a or b, as the case may be, of section 418.29 for its taxation year in which that taxation year of the transferor ends, and

ii.  for the purpose of computing an amount under the third paragraph of section 418.17 or 418.17.3 or subparagraph c of the first paragraph of section 418.20, as that subparagraph would read but for the words “to the higher of either 30% of the excess amount referred to in the second paragraph of the said section, or” and if the words “or the amount by which” read “to the amount by which”, not to be the income of the transferor from those sources for that year;

(g)  where, immediately before and at that time, the corporation, in this paragraph referred to as the “transferee”, and another corporation, in this paragraph referred to as the “transferor”, were both subsidiary wholly-owned corporations, within the meaning assigned by subsection 5 of section 544, of the same particular corporation, within the meaning of that subsection, and if the transferee and the transferor agree to have this paragraph apply to them in respect of a taxation year of the transferor ending after that time and notify the Minister in writing of the agreement in the fiscal return under this Part of the transferor for that year, paragraph e or f or both, as the agreement provides, shall apply for that year to the transferee and transferor as though one were, in relation to the other, the particular corporation, within the meaning of subsection 5 of section 544;

(h)  where that time is after 15 January 1987 and at that time the corporation was a member of a partnership that owned a Canadian resource property or a foreign resource property at that time, for the purposes of paragraph a, the corporation is deemed to have owned immediately before that time that portion of the property owned by the partnership at that time that is equal to its percentage share of the aggregate of amounts that would be paid to all members of the partnership if it were wound up at that time, and, for the purposes of subparagraph iii of subparagraph a of the third paragraph of section 418.16, subparagraph 2 of subparagraph i of subparagraph a of the third paragraph of section 418.17, subparagraph a of the third paragraph of section 418.17.3, subparagraph iii of subparagraph a of the third paragraph of section 418.18, subparagraph 2 of subparagraph i of subparagraph a of the third paragraph of section 418.19, subparagraph i of subparagraph c of the first paragraph of section 418.20 and subparagraph 2 of subparagraph i of subparagraph a of the third paragraph of section 418.21 and of section 88.4 of the Act respecting the application of the Taxation Act, to the extent that that section refers to clause B of subparagraph i of paragraph d of subsection 25 of section 29 of the Income Tax Application Rules, for a taxation year ending after that time, the lesser of the following amounts is deemed to be the income of the corporation for the year that can reasonably be attributed to production from the property:

i.  its share of the part of the income of the partnership for the fiscal period of the partnership ending in the year that may reasonably be regarded as being attributable to the production from the property, and

ii.  an amount that would be determined under subparagraph i for the year if its share of the income of the partnership for the fiscal period of the partnership ending in the year were determined on the basis of the percentage share referred to in this paragraph.

1989, c. 77, s. 49; 1993, c. 16, s. 170; 1995, c. 49, s. 114; 1997, c. 3, s. 71; 1997, c. 14, s. 73; 1998, c. 16, s. 161; 2000, c. 5, s. 96; 2004, c. 8, s. 86.