I-3 - Taxation Act

Section 851.22.39 Disposition versions

2006-03-01

851.22.39. Where, at any time within the period described in paragraph c of subsection 11 of section 142.7 of the Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th Supplement), a Canadian affiliate of an entrant bank described in paragraph a of that subsection 11 transfers property to the entrant bank, and any part of the consideration for the transfer is the assumption by the entrant bank in respect of its Canadian banking business of a debt obligation of the Canadian affiliate, the following rules apply:

(a)  if the Canadian affiliate and the entrant bank make a valid election for the purposes of paragraph a of subsection 8 of section 142.7 of the Income Tax Act,

i.  both the value of that part of the consideration for the transfer of the property and, for the purpose of determining the consequences of the assumption of the obligation and any subsequent settlement or extinguishment of that obligation, the value of the consideration given to the foreign bank for the assumption of the obligation are deemed to be an amount, in this paragraph referred to as the “assumption amount”, equal to the amount outstanding on account of the principal amount of the obligation at that time, and

ii.  the assumption amount shall not be considered a term of the transaction that differs from that which would have been made between persons dealing at arm’s length solely because it is not equal to the fair market value of the obligation at that time;

(b)  where the obligation is denominated in a foreign currency, and the foreign affiliate and the entrant bank make a valid election for the purposes of paragraph b of subsection 8 of section 142.7 of the Income Tax Act,

i.  the amount of any income, loss, capital gain or capital loss in respect of the obligation due to the fluctuation in the value of the foreign currency relative to Canadian currency realized by

(1)  the Canadian affiliate on the assumption of the obligation is deemed to be nil, and

(2)  the entrant bank on the settlement or extinguishment of the obligation shall be determined based on the amount of the obligation in Canadian currency at the time it became an obligation of the Canadian affiliate, and

ii.  for the purposes of an election made in respect of the obligation under paragraph a, the amount outstanding on account of the principal amount of the obligation at that time is the aggregate of all amounts each of which is an amount that was advanced to the Canadian affiliate on account of principal, that remains outstanding at that time, and that is determined using the exchange rate that applied between the foreign currency and Canadian currency at the time of the advance; and

(c)  for the purposes of sections 176 to 176.2 and 179 in respect of the debt obligation, the obligation is deemed not to have been settled or extinguished by virtue of its assumption by the entrant bank and the entrant bank is deemed to be the same corporation as, and a continuation of, the Canadian affiliate.

2004, c. 8, s. 170.