I-3 - Taxation Act

Section 740.4.3 Disposition versions

2021-06-04

740.4.3. A taxpayer is considered to have satisfied the condition of paragraph b of section 740.4.2 in respect of a share if

(a)  the taxpayer or the connected person referred to in paragraph a of the definition of “synthetic equity arrangement” in section 1 (in this section referred to as the “synthetic equity arrangement party”) obtains accurate representations in writing from its counterparty, or from each member of a group comprised of all its counterparties each of which is affiliated with each other (each member of this group of counterparties being in this section referred to as an “affiliated counterparty”), in relation to the synthetic equity arrangement, that

i.  the counterparty or affiliated counterparty is not a tax-indifferent investor and it does not reasonably expect to become a tax-indifferent investor during the particular period referred to in section 740.4.2, and

ii.  all or substantially all of the counterparty’s or affiliated counterparty’s risk of loss and opportunity for gain or profit in respect of the share during the particular period referred to in section 740.4.2 has not been eliminated and cannot reasonably be expected by it to be eliminated;

(b)  the synthetic equity arrangement party obtains accurate representations in writing from its counterparty, or from each affiliated counterparty, in relation to the synthetic equity arrangement that the counterparty, or each affiliated counterparty,

i.  is not a tax-indifferent investor and does not reasonably expect to become a tax-indifferent investor during the particular period referred to in section 740.4.2,

ii.  has entered into one or more specified synthetic equity arrangements that have the effect of eliminating all or substantially all of its risk of loss and opportunity for gain or profit, in relation to the share, if

(1)  in the case of a counterparty, that counterparty has entered into a specified synthetic equity arrangement with its own counterparty (a counterparty of a counterparty or of an affiliated counterparty being in this section referred to as a “specified counterparty”), or has entered into a specified synthetic equity arrangement with each member of a group of its own counterparties each member of which is affiliated with every other member (each member of this group of counterparties being in this section referred to as an “affiliated specified counterparty”), or

(2)  in the case of an affiliated counterparty, each affiliated counterparty has entered into a specified synthetic equity arrangement with the same specified counterparty or with an affiliated specified counterparty that is part of the same group of affiliated specified counterparties, and

iii.  has obtained accurate representations in writing from each of its own specified counterparties, or from each member of the group of affiliated specified counterparties referred to in subparagraphs 1 and 2 of subparagraph ii, that

(1)  it is not a tax-indifferent investor and it does not reasonably expect to become a tax-indifferent investor during the particular period referred to in section 740.4.2, and

(2)  all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share during the particular period referred to in section 740.4.2 has not been eliminated and cannot reasonably be expected by it to be eliminated;

(c)  the synthetic equity arrangement party obtains accurate representations in writing from its counterparty, or from each affiliated counterparty, in relation to the synthetic equity arrangement that the counterparty, or each affiliated counterparty,

i.  is not a tax-indifferent investor and does not reasonably expect to become a tax-indifferent investor during the particular period referred to in section 740.4.2,

ii.  has entered into specified synthetic equity arrangements

(1)  that have the effect of eliminating all or substantially all of its risk of loss and opportunity for gain or profit in relation to the share,

(2)  where no single specified counterparty or group of affiliated specified counterparties has been provided with all or substantially all of the risk of loss and opportunity for gain or profit in relation to the share, and

(3)  where each specified counterparty or affiliated specified counterparty deals at arm’s length with each other (other than in the case of affiliated specified counterparties, within the same group, of affiliated specified counterparties), and

iii.  has obtained accurate representations in writing from each of its specified counterparties, or from each of its affiliated specified counterparties, that

(1)  it is a person resident in Canada and it does not reasonably expect to cease to be resident in Canada during the particular period referred to in section 740.4.2, and

(2)  all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share during the particular period referred to in section 740.4.2 has not been eliminated and cannot reasonably be expected by it to be eliminated; or

(d)  where a person or partnership is a party to a synthetic equity arrangement chain in respect of the share, the person or partnership

i.  has obtained all or substantially all of the risk of loss and opportunity for gain or profit in respect of the share under the synthetic equity arrangement chain,

ii.  has entered into one or more specified synthetic equity arrangements that have the effect of eliminating all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share, and

iii.  obtains accurate representations in writing of the type described in any of paragraphs a to c, as if it were a synthetic equity arrangement party, from each of its counterparties where each such counterparty deals at arm’s length with that person or partnership.

2019, c. 14, s. 213; 2021, c. 18, s. 54.

2019-06-19

740.4.3. A taxpayer is considered to have satisfied the condition of paragraph b of section 740.4.2 in respect of a share if

(a)  the taxpayer or the connected person referred to in paragraph a of the definition of “synthetic equity arrangement” in section 1 (in this section referred to as the “synthetic equity arrangement party”) obtains accurate representations in writing from its counterparty, or from each member of a group comprised of all its counterparties each of which is affiliated with each other (each member of this group of counterparties being in this section referred to as an “affiliated counterparty”), in relation to the synthetic equity arrangement, that

i.  the counterparty or affiliated counterparty is not a tax-indifferent investor and it does not reasonably expect to become a tax-indifferent investor during the particular period referred to in section 740.4.2, and

ii.  the counterparty or affiliated counterparty has not eliminated and it does not reasonably expect to eliminate all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share during the particular period referred to in section 740.4.2;

(b)  the synthetic equity arrangement party obtains accurate representations in writing from its counterparty, or from each affiliated counterparty, in relation to the synthetic equity arrangement that the counterparty, or each affiliated counterparty,

i.  is not a tax-indifferent investor and does not reasonably expect to become a tax-indifferent investor during the particular period referred to in section 740.4.2,

ii.  has entered into one or more specified synthetic equity arrangements that have the effect of eliminating all or substantially all of its risk of loss and opportunity for gain or profit, in relation to the share, if

(1)  in the case of a counterparty, that counterparty has entered into a specified synthetic equity arrangement with its own counterparty (a counterparty of a counterparty or of an affiliated counterparty being in this section referred to as a “specified counterparty”), or has entered into a specified synthetic equity arrangement with each member of a group of its own counterparties each member of which is affiliated with every other member (each member of this group of counterparties being in this section referred to as an “affiliated specified counterparty”), or

(2)  in the case of an affiliated counterparty, each affiliated counterparty has entered into a specified synthetic equity arrangement with the same specified counterparty or with an affiliated specified counterparty that is part of the same group of affiliated specified counterparties, and

iii.  has obtained accurate representations in writing from each of its own specified counterparties, or from each member of the group of affiliated specified counterparties referred to in subparagraphs 1 and 2 of subparagraph ii, that

(1)  it is not a tax-indifferent investor and it does not reasonably expect to become a tax-indifferent investor during the particular period referred to in section 740.4.2, and

(2)  it has not eliminated and it does not reasonably expect to eliminate all or substantially all of its risk of loss and opportunity for gain or profit in relation to the share during the particular period referred to in section 740.4.2;

(c)  the synthetic equity arrangement party obtains accurate representations in writing from its counterparty, or from each affiliated counterparty, in relation to the synthetic equity arrangement that the counterparty, or each affiliated counterparty,

i.  is not a tax-indifferent investor and does not reasonably expect to become a tax-indifferent investor during the particular period referred to in section 740.4.2,

ii.  has entered into specified synthetic equity arrangements

(1)  that have the effect of eliminating all or substantially all of its risk of loss and opportunity for gain or profit in relation to the share,

(2)  where no single specified counterparty or group of affiliated specified counterparties has been provided with all or substantially all of the risk of loss and opportunity for gain or profit in relation to the share, and

(3)  where each specified counterparty or affiliated specified counterparty deals at arm’s length with each other (other than in the case of affiliated specified counterparties, within the same group, of affiliated specified counterparties), and

iii.  has obtained accurate representations in writing from each of its specified counterparties, or from each of its affiliated specified counterparties, that

(1)  it is a person resident in Canada and it does not reasonably expect to cease to be resident in Canada during the particular period referred to in section 740.4.2, and

(2)  it has not eliminated and it does not reasonably expect to eliminate all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share during the particular period referred to in section 740.4.2; or

(d)  where a person or partnership is a party to a synthetic equity arrangement chain in respect of the share, the person or partnership

i.  has obtained all or substantially all of the risk of loss and opportunity for gain or profit in respect of the share under the synthetic equity arrangement chain,

ii.  has entered into one or more specified synthetic equity arrangements that have the effect of eliminating all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share, and

iii.  obtains accurate representations in writing of the type described in any of paragraphs a to c, as if it were a synthetic equity arrangement party, from each of its counterparties where each such counterparty deals at arm’s length with that person or partnership.

2019, c. 14, s. 213.