I-3 - Taxation Act

Section 736 Disposition versions

2017-02-08

736. Despite section 729 and subject to section 736.0.5, where, at any time (in this section referred to as “that time”) a taxpayer is subject to a loss restriction event, the following rules apply:

(a)  no amount in respect of a net capital loss for a taxation year ending before that time is deductible in computing the taxpayer’s taxable income for a taxation year ending after that time; and

(b)  no amount in respect of a net capital loss for a taxation year ending after that time is deductible in computing the taxpayer’s taxable income for a taxation year ending before that time.

In addition, where, at that time, the taxpayer neither became nor ceased to be exempt from tax under this Part on the taxpayer’s taxable income, the following rules apply:

(a)  in computing the adjusted cost base to the taxpayer at and after that time of each capital property, other than a depreciable property, owned by the taxpayer immediately before that time, there is to be deducted an amount equal to the amount by which the adjusted cost base to the taxpayer of the capital property immediately before that time exceeds its fair market value immediately before that time;

(b)  each amount required by subparagraph a to be deducted in computing the adjusted cost base to the taxpayer of a property is deemed to be a capital loss of the taxpayer for the taxation year ending immediately before that time from the disposition of the property;

(c)  each capital property that is owned by the taxpayer immediately before that time (other than a property in respect of which an amount would, but for this subparagraph, be required under subparagraph a to be deducted in computing its adjusted cost base to the taxpayer or a depreciable property of a prescribed class to which, but for this subparagraph, paragraph a of section 736.0.2 would apply) and that the taxpayer designates after 19 December 2006 in accordance with paragraph e of subsection 4 of section 111 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) in respect of the loss restriction event, is deemed to have been disposed of by the taxpayer immediately before the time that is immediately before that time for proceeds of disposition equal to the lesser of the fair market value of the capital property immediately before that time and the greater of the adjusted cost base to the taxpayer of the capital property immediately before the disposition and the amount designated by the taxpayer after 19 December 2006, in respect of the loss restriction event, in accordance with that paragraph e in respect of the capital property, and is deemed, subject to the third paragraph, to have been reacquired by the taxpayer at that time at a cost equal to those proceeds of disposition; and

(d)  each amount that under subparagraph b or c is a capital loss or gain of the taxpayer from a disposition of a property for the taxation year ending immediately before that time is deemed, for the purposes of paragraph b of section 570, to be a capital loss or gain, as the case may be, of the taxpayer from the disposition of the property immediately before the time that a capital property of the taxpayer in respect of which subparagraph c would be applicable would be deemed by that subparagraph to have been disposed of by the taxpayer.

Despite subparagraph c of the second paragraph and for the purposes of Division II of Chapter II of Title III of Book III, sections 130, 130.1, 142 and 149 and any regulation made under paragraph a of section 130 or section 130.1, where the property is depreciable property of the taxpayer the capital cost of which to the taxpayer immediately before the disposition exceeds the proceeds of disposition determined under that subparagraph c, the following rules apply:

(a)  the capital cost of the property to the taxpayer at that time is deemed to be the amount that was its capital cost immediately before the disposition; and

(b)  the excess is deemed to have been allowed to the taxpayer in respect of the property under the regulations made under paragraph a of section 130 in computing the taxpayer’s income for taxation years that ended before that time.

For the purposes of subparagraph c of the second paragraph, the taxpayer is deemed to have designated a particular capital property, as well as an amount in its respect, after 19 December 2006 in accordance with paragraph e of subsection 4 of section 111 of the Income Tax Act in respect of the loss restriction event, or to have designated after that date, in respect of that event, in accordance with that paragraph e in respect of a particular capital property, a particular amount different from that designated by the taxpayer after that date, in relation to that event, in accordance with that paragraph e in its respect, if

(a)  the taxpayer files an application with the Minister in that respect, in a document containing information that is satisfactory to the Minister, on or before the day that is 90 days after the day on which a notice of assessment of tax payable for the taxation year ending immediately before that time or a notice that no tax is payable for the year is sent to the taxpayer;

(b)  it may reasonably be considered that the taxpayer’s designation regarding the particular capital property and the amount in its respect, or the change made to the amount designated in respect of the particular capital property, as the case may be, is justified only because of a difference between tax attributes, in particular the adjusted cost base of the particular capital property or the undeducted balance of a deductible loss, for the purposes of Part I of the Income Tax Act and the corresponding tax attributes for the purposes of this Part; and

(c)  the Minister is of the opinion that the tax consequences of the application are consistent with the objectives of subparagraph c of the second paragraph, and grants the application.

Chapter V.2 of Title II of Book I applies in relation to a designation made under paragraph e of subsection 4 of section 111 of the Income Tax Act or in relation to a designation made under this section before 20 December 2006.

1972, c. 23, s. 554; 1974, c. 18, s. 28; 1984, c. 15, s. 167; 1985, c. 25, s. 120; 1989, c. 77, s. 80; 1993, c. 16, s. 275; 1997, c. 3, s. 71; 2004, c. 4, s. 5; 2009, c. 5, s. 249; 2017, c. 1, s. 176.

2009-05-15

736. Notwithstanding section 729, where, at any time, in this section referred to as “that time”, control of a corporation has been acquired by a person or group of persons, the following rules apply:

(a)  no amount in respect of a net capital loss for a taxation year ending before that time is deductible in computing the corporation’s taxable income for a taxation year ending after that time;

(b)  no amount in respect of a net capital loss for a taxation year ending after that time is deductible in computing the corporation’s taxable income for a taxation year ending before that time.

In addition, where, at that time, the corporation neither became nor ceased to be exempt from tax under this Part on its taxable income, the following rules apply:

(a)  in computing the adjusted cost base to the corporation at and after that time of each capital property, other than a depreciable property, owned by the corporation immediately before that time, there shall be deducted an amount equal to the amount by which the adjusted cost base to the corporation of the capital property immediately before that time exceeds its fair market value immediately before that time;

(b)  each amount required by subparagraph a to be deducted in computing the adjusted cost base to the corporation of a property is deemed to be a capital loss of the corporation for the taxation year that ended immediately before that time from the disposition of the property;

(c)  each capital property that is owned by the corporation immediately before that time (other than a property in respect of which an amount would, but for this subparagraph, be required under subparagraph a to be deducted in computing its adjusted cost base to the corporation or a depreciable property of a prescribed class to which, but for this subparagraph, paragraph a of section 736.0.2 would apply) and that the corporation designates after 19 December 2006 in accordance with paragraph e of subsection 4 of section 111 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) in relation to the acquisition of control of the corporation, is deemed to have been disposed of by the corporation immediately before the time that is immediately before that time for proceeds of disposition equal to the lesser of the fair market value of the capital property immediately before that time and the greater of the adjusted cost base to the corporation of the capital property immediately before the disposition and the amount designated by the corporation after 19 December 2006, in relation to the acquisition of control of the corporation, in accordance with that paragraph e in respect of the capital property, and is deemed, subject to the third paragraph, to have been reacquired by it at that time at a cost equal to those proceeds of disposition;

(d)  each amount that by virtue of subparagraph b or c is a capital loss or gain of the corporation from a disposition of a property for the taxation year that ended immediately before that time is deemed, for the purposes of paragraph b of section 570, to be a capital loss or gain, as the case may be, of the corporation from the disposition of the property immediately before the time that a capital property of the corporation in respect of which subparagraph c would be applicable would be deemed by that subparagraph to have been disposed of by the corporation.

Notwithstanding subparagraph c of the second paragraph and for the purposes of Division II of Chapter II of Title III of Book III, sections 130, 130.1, 142 and 149 and any regulation made under paragraph a of section 130 or section 130.1, where the property is depreciable property of the corporation the capital cost of which to the corporation immediately before the disposition exceeds the proceeds of disposition determined under the said subparagraph c,

(a)  the capital cost of the property to the corporation at that time is deemed to be the amount that was its capital cost immediately before the disposition, and

(b)  the excess is deemed to have been allowed to the corporation in respect of the property under the regulations made under paragraph a of section 130 in computing its income for taxation years ending before that time.

For the purposes of subparagraph c of the second paragraph, the corporation is deemed to have designated a particular capital property, as well as an amount in its respect, after 19 December 2006 in accordance with paragraph e of subsection 4 of section 111 of the Income Tax Act in relation to the acquisition of control of the corporation, or to have designated after that date, in relation to the acquisition of control, in accordance with that paragraph e in respect of a particular capital property, a particular amount different from that designated by the corporation after that date, in relation to the acquisition of control, in accordance with that paragraph e in its respect, if

(a)  the corporation files an application with the Minister in that respect, in a document containing information that is satisfactory to the Minister, on or before the day that is 90 days after the day on which a notice of assessment of tax payable for the taxation year that ended immediately before that time or a notice that no tax is payable for the year is sent to the corporation;

(b)  it may reasonably be considered that the corporation’s designation regarding the particular capital property and the amount in its respect, or the change made to the amount designated in respect of the particular capital property, as the case may be, is justified only because of a difference between tax attributes, in particular the adjusted cost base of the particular capital property or the undeducted balance of a deductible loss, for the purposes of Part I of the Income Tax Act and the corresponding tax attributes for the purposes of this Part; and

(c)  the Minister is of the opinion that the tax consequences of the application are consistent with the objectives of subparagraph c of the second paragraph, and grants the application.

Chapter V.2 of Title II of Book I applies in relation to a designation made under paragraph e of subsection 4 of section 111 of the Income Tax Act or in relation to a designation made under this section before 20 December 2006.

1972, c. 23, s. 554; 1974, c. 18, s. 28; 1984, c. 15, s. 167; 1985, c. 25, s. 120; 1989, c. 77, s. 80; 1993, c. 16, s. 275; 1997, c. 3, s. 71; 2004, c. 4, s. 5; 2009, c. 5, s. 249.

2006-03-01

736. Notwithstanding section 729, where, at any time, in this section referred to as “that time”, control of a corporation has been acquired by a person or group of persons, the following rules apply:

(a)  no amount in respect of a net capital loss for a taxation year ending before that time is deductible in computing the corporation’s taxable income for a taxation year ending after that time;

(b)  no amount in respect of a net capital loss for a taxation year ending after that time is deductible in computing the corporation’s taxable income for a taxation year ending before that time.

In addition, where, at that time, the corporation neither became nor ceased to be exempt from tax under this Part on its taxable income, the following rules apply:

(a)  in computing the adjusted cost base to the corporation at and after that time of each capital property, other than a depreciable property, owned by the corporation immediately before that time, there shall be deducted an amount equal to the amount by which the adjusted cost base to the corporation of the property immediately before that time exceeds its fair market value immediately before that time;

(b)  each amount required by subparagraph a to be deducted in computing the adjusted cost base to the corporation of a property is deemed to be a capital loss of the corporation for the taxation year that ended immediately before that time from the disposition of the property;

(c)  each capital property owned by the corporation immediately before that time, other than a property in respect of which an amount would, but for this subparagraph, be required by subparagraph a to be deducted in computing its adjusted cost base to the corporation or a depreciable property of a prescribed class to which, but for this subparagraph, paragraph a of section 736.0.2 would apply, as is designated by the corporation in its fiscal return under this Part for the taxation year that ended immediately before that time or in a prescribed form filed with the Minister on or before the day that is 90 days after the day on which a notice of assessment of tax payable for the year or notification that no tax is payable for the year is sent to the corporation, is deemed to have been disposed of by the corporation immediately before the time that is immediately before that time for proceeds of disposition equal to the lesser of the fair market value of the property immediately before that time and the greater of the adjusted cost base to the corporation of the property immediately before the disposition and such amount as is designated by the corporation in respect of the property, and is deemed, subject to the third paragraph, to have been reacquired by it at that time at a cost equal to the proceeds of disposition thereof;

(d)  each amount that by virtue of subparagraph b or c is a capital loss or gain of the corporation from a disposition of a property for the taxation year that ended immediately before that time is deemed, for the purposes of paragraph b of section 570, to be a capital loss or gain, as the case may be, of the corporation from the disposition of the property immediately before the time that a capital property of the corporation in respect of which subparagraph c would be applicable would be deemed by that subparagraph to have been disposed of by the corporation.

Notwithstanding subparagraph c of the second paragraph and for the purposes of Division II of Chapter II of Title III of Book III, sections 130, 130.1, 142 and 149 and any regulation made under paragraph a of section 130 or section 130.1, where the property is depreciable property of the corporation the capital cost of which to the corporation immediately before the disposition exceeds the proceeds of disposition determined under the said subparagraph c,

(a)  the capital cost of the property to the corporation at that time is deemed to be the amount that was its capital cost immediately before the disposition, and

(b)  the excess is deemed to have been allowed to the corporation in respect of the property under the regulations made under paragraph a of section 130 in computing its income for taxation years ending before that time.

1972, c. 23, s. 554; 1974, c. 18, s. 28; 1984, c. 15, s. 167; 1985, c. 25, s. 120; 1989, c. 77, s. 80; 1993, c. 16, s. 275; 1997, c. 3, s. 71; 2004, c. 4, s. 5.