I-3 - Taxation Act

Section 597.0.13 Disposition versions

2015-12-04

597.0.13. For the purposes of this chapter, the following rules apply:

(a)  if it can reasonably be considered that one of the main reasons that a person or partnership

i.  is at any time a shareholder of a corporation is to cause the condition of paragraph b of the definition of “closely held corporation” in the first paragraph of section 593 to be satisfied in respect of the corporation, the condition is deemed not to have been satisfied at that time in respect of the corporation,

ii.  holds at any time an interest in a trust is to cause the condition of subparagraph 1 of subparagraph ii of paragraph h of the definition of “exempt foreign trust” in the first paragraph of section 593 to be satisfied in respect of the trust, the condition is deemed not to have been satisfied at that time in respect of the trust, and

iii.  holds at any time a property is to cause the condition of subparagraph ii of subparagraph b of the first paragraph of section 597.0.12 to be satisfied in respect of the property or an identical property held by any person, the condition is deemed not to have been satisfied at that time in respect of the property or the identical property;

(b)  where, at or before a specified time in a trust’s particular taxation year, a resident contributor to the trust contributes to the trust property that is restricted property of the trust, or property for which restricted property of the trust is substituted, and the trust is at that specified time an exempt foreign trust because of paragraph f of the definition of “exempt foreign trust” in the first paragraph of section 593, the amount of the trust’s income for the particular year from the restricted property, and the amount of any taxable capital gain from the disposition in the particular year by the trust of the restricted property, are to be included in computing the income of the resident contributor for its taxation year in which the particular taxation year of the trust ends and not in computing the income of the trust for that particular year; and

(c)  where at a specified time in a particular taxation year a trust is an exempt foreign trust because of paragraph h of the definition of “exempt foreign trust” in the first paragraph of section 593, at a time immediately before a particular time in the immediately following taxation year (determined without reference to section 597.0.3) there is a resident contributor to, or resident beneficiary under, the trust, at the time that is immediately before the particular time a beneficiary under the trust holds a fixed interest in the trust, and at the particular time the interest ceases to be a fixed interest in the trust, the following rules apply:

i.  the trust is deemed, other than for the purposes of section 597.0.3, not to be an exempt foreign trust at any time in the trust’s taxation year (in this section referred to as the “assessment year”) that ends, in accordance with section 597.0.3, at the time that is immediately before the particular time,

ii.  the trust shall include in computing its income for its assessment year the amount determined by the formula

A - B - C, and

iii.  if the trust has tax payable for its assessment year, then throughout the period that begins at the trust’s balance-due day for each taxation year that ends in the interest gross-up period, within the meaning assigned by subparagraph c of the second paragraph, and ends at the trust’s balance-due day for its assessment year, the trust is deemed to have unpaid tax (in addition to any unpaid tax otherwise determined in respect of the trust under that section) for the purposes of section 1037 equal to the amount determined by the formula

D/E × 25.75%.

In the formulas in the first paragraph,

(a)  A is the amount by which the aggregate of all amounts each of which is equal to the fair market value of a property held by the trust at the end of its assessment year exceeds the aggregate of all amounts each of which is equal to the principal amount outstanding at the end of the assessment year of a liability of the trust;

(b)  B is the amount by which the aggregate of all amounts each of which is equal to the fair market value of a property held by the trust at the earliest time (in this paragraph referred to as the “initial time”) at which there is a resident contributor to, or resident beneficiary under, the trust and at which the trust is an exempt foreign trust exceeds the aggregate of all amounts each of which is equal to the principal amount outstanding at the initial time of a liability of the trust;

(c)  C is the aggregate of all amounts each of which is the amount of a contribution made to the trust in the period that begins at the initial time and ends at the end of its assessment year (in this paragraph referred to as the “interest gross-up period”);

(d)  D is the amount determined in accordance with subparagraph ii of subparagraph c of the first paragraph in respect of the trust for the assessment year; and

(e)  E is the number of the trust’s taxation years that end in the interest gross-up period.

2015, c. 36, s. 29.