Archived - Legislative Proposals Relating to Income Tax
This page has been archived on the Web
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.
Income Tax Act
1. (1) Subsection
90(8) of the Income Tax
Act is amended by striking out "and" at the end of paragraph (b), by adding "and" at the end of paragraph
(c) and by adding the following after
paragraph (c):
(d) subject to
subsection (8.1), an upstream deposit owing to an eligible bank
affiliate.
(2) Section 90 of the
Act is amended by adding the following after subsection (8):
Upstream
deposit — eligible bank affiliate
(8.1) For
the purposes of this section, if a taxpayer is an eligible Canadian bank and an
eligible bank affiliate of the taxpayer is owed, at any time in a particular
taxation year of the affiliate or the immediately preceding taxation year, an
upstream deposit,
(a) the affiliate is
deemed to make a loan to the taxpayer immediately before the end of the
particular year equal to the amount determined by the following formula, where
all amounts referred to in the formula are to be determined using Canadian
currency:
A – B – C
where
A is 90% of the
average of all amounts each of which is, in respect of a calendar month that
ends in the particular year, the greatest total amount at any time in the month
of the upstream deposits owing to the affiliate,
B is the lesser
of
(i) the
amount, if any, by which the affiliate's excess liquidity for the particular
year exceeds the average of all amounts each of which is, in respect of a
calendar month that ends in the particular year, the greatest total amount at
any time in the month of eligible Canadian indebtedness owing to the affiliate,
and
(ii) the
amount determined for A, and
C is the amount, if
any, by which the amount determined for A for the immediately preceding year
exceeds the amount determined for B for the immediately preceding year;
and
(b) if the formula in
paragraph (a) would, in the absence of
section 257, result in a negative amount for the particular year,
(i) the
taxpayer is deemed to repay immediately before the end of the particular year —
in an amount equal to the absolute value of the negative amount and in the order
in which they arose — loans made by the affiliate under paragraph (a) in a prior taxation year and not previously
repaid, and
(ii) the
repayment is deemed to not be part of a series of loans or other transactions
and repayments.
(3) Subsection 90(15)
of the Act is amended by adding the following definitions in alphabetical
order:
"eligible
bank affiliate"
« filiale
bancaire admissible »
"eligible
bank affiliate" has the same meaning as
in subsection 95(2.43).
"eligible
Canadian bank"
« banque
canadienne admissible »
"eligible
Canadian bank" has the same meaning as
in subsection 95(2.43).
"eligible
Canadian indebtedness"
« dettes
canadiennes admissibles »
"eligible
Canadian indebtedness" has the same meaning as
in subsection 95(2.43).
"excess
liquidity"
«
liquidités excédentaires »
"excess
liquidity"
has the same meaning as in subsection 95(2.43).
"upstream
deposit"
« dépôt
en amont »
"upstream
deposit" has
the same meaning as in subsection 95(2.43).
(4) Subsections
(1) to (3) apply in respect of taxation years of a foreign affiliate of a
taxpayer that begin after Announcement Date.
2. (1) The
portion of subparagraph 95(2)(a.1)(ii)
of the English version of the Act before clause (A) is replaced by the
following:
(ii) the property was not
(2) Subparagraph
95(2)(a.1)(ii) of the Act is amended by
striking out "nor" at the end of clause (A), by adding "or" at the end of clause
(B) and by adding the following after clause (B):
(C) an
indebtedness, or a lease obligation, of a person resident in Canada or in
respect of a business carried on in Canada, that was purchased and sold by the
affiliate on its own account,
(3) The portion of
paragraph 95(2)(a.1) of the Act after
subparagraph (ii) and before subparagraph (iii) is replaced by the
following:
unless more than 90% of the gross revenue of the
affiliate for the year from the sale of property is derived from the sale of
such property (other than a property described in subparagraph (ii) the cost of
which to any person is a cost referred to in subparagraph (i) or a property the income from the sale of
which is not included in computing the income from a business other than an
active business of the affiliate under this paragraph because of subsection
(2.31)) to persons with whom the affiliate deals at arm's length (which,
for this purpose, includes a sale of property to a non-resident corporation with
which the affiliate does not deal at arm's length for sale to persons with whom
the affiliate deals at arm's length) and, where this paragraph applies to
include income of the affiliate from the sale of property in the income of the
affiliate from a business other than an active business,
(4) Paragraph
95(2)(a.3) of the Act is amended by
replacing the portion after subparagraph (ii) and before subparagraph (iii) by
the following:
unless more than 90% of the gross revenue of the
affiliate derived directly or indirectly from indebtedness and lease obligations
(other than excluded revenue or revenue
that is not included in computing the income from a business other than an
active business of the affiliate under this paragraph because of subsection
(2.31)) was derived directly or indirectly from indebtedness and lease
obligations of non-resident persons with whom the affiliate deals at arm's
length and, where this paragraph applies to include income of the affiliate for
the year in the income of the affiliate from a business other than an active
business,
(5) Section 95 of the
Act is amended by adding the following after subsection (2.3):
Application
of paragraphs (2)(a.1) and (a.3)
(2.31) Paragraphs
(2)(a.1) and (a.3) do not apply to a controlled foreign
affiliate (for the purposes of section 17) of an eligible Canadian bank (as
defined in subsection (2.43)) in respect of activities carried out to earn
income from a property, other than a specified property of the affiliate,
if
(a) the affiliate sells
the property, or performs services as an agent in relation to a purchase or sale
of the property, and it is reasonable to conclude that the cost to any person of
the property is relevant in computing the income from
(i) a
business carried on by the bank or a person resident in Canada with whom the
bank does not deal at arm's length, or
(ii) a
business carried on in Canada by a non-resident person with whom the bank does
not deal at arm's length;
(b) the property has a
readily available fair market value and
(i) is
listed on a recognized stock exchange, or
(ii) would
be a mark-to-market property (as defined in subsection 142.2(1)) of the bank if
it were owned by the bank;
(c) the purchase and
sale of the property by the affiliate, or services performed by the affiliate as
agent in respect of the purchase or sale, are made
(i) on
terms and conditions that are substantially the same as the terms and conditions
of similar purchases or sales of, or services performed in respect of the
purchase or sale of, such property by persons dealing at arm's
length,
(ii) in
the course of a business
(A) that
regularly includes trading or dealing in securities principally with persons
with whom the affiliate deals at arm's length, and
(B) that
is principally carried on through a permanent establishment in a country other
than Canada, and
(iii) for
the purpose of enabling the purchase or sale of the property by a particular
person who deals at arm's length with the affiliate and the bank;
and
(d) the affiliate is a
foreign bank or a trader or dealer in securities and the activities of the
business are regulated
(i) under
the laws of the country under whose laws the affiliate is governed and any of
exists, was (unless the affiliate was continued in any jurisdiction) formed or
organized, or was last continued, and under the laws of each country in which
the business is carried on through a permanent establishment in that
country,
(ii) under
the laws of the country (other than Canada) in which the business is principally
carried on, or
(iii) if
the affiliate is related to a corporation, under the laws of the country under
whose laws that related corporation is governed and any of exists, was (unless
that related corporation was continued in any jurisdiction) formed or organized,
or was last continued, if those regulating laws are recognized under the laws of
the country in which the business is principally carried on and all those
countries are members of the European Union.
Specified
property
(2.32) For
purposes of subsection (2.31), "specified
property", of a foreign affiliate, means a property that is owned by the
affiliate for more than ten days and that is
(a) a share of the
capital stock of a corporation resident in Canada;
(b) a property traded
on a stock exchange located in Canada and not traded on a stock exchange located
in the jurisdiction in which the affiliate is resident; or
(c) a debt
obligation
(i) of
a corporation resident in Canada,
(ii) of
a trust or partnership, units of which are traded on a stock exchange located in
Canada, or
(iii) of,
or guaranteed by, the Government of Canada, the government of a province, an
agent of a province, a municipality in Canada or a municipal or public body
performing a function of government in Canada.
(6) The portion of
subsection 95(2.4) of the French version of the Act before subparagraph (a)(i) is replaced by the
following:
Application de l'alinéa (2)a.3)
(2.4) L'alinéa
(2)a.3) ne s'applique pas à une société
étrangère affiliée d'un contribuable pour ce qui est du revenu qu'elle tire
directement ou indirectement de dettes, dans la mesure où, à la fois
:
a) elle a tiré ce
revenu dans le cours des activités d'une entreprise menée principalement avec
des personnes avec lesquelles elle n'a aucun lien de dépendance et qu'elle
exploite à titre de banque étrangère, de société de fiducie, de caisse de
crédit, de compagnie d'assurance ou de négociateur ou courtier en valeurs
mobilières ou en marchandises, dont les activités sont régies par les lois des pays suivants,
selon le cas :
(7) Paragraph
95(2.4)(b) of the Act is replaced by the
following:
(b) all the following conditions are
satisfied:
(i) the income is derived by the
affiliate from trading or dealing in the indebtedness (which, for this purpose,
consists of income from the actual trading or dealing in the indebtedness and
interest earned by the affiliate during a short term holding period on
indebtedness acquired by it for the purpose of the trading or dealing) directly or indirectly with persons (in
this subsection referred to as "regular customers") that
(A) deal at arm's length with the affiliate, and
(B) are resident, or carry on business
through a permanent establishment, in a country other than Canada,
(ii) the
affiliate has a substantial market presence in the country, and
(iii) one
or more persons that deal at arm's length with the affiliate and are resident,
or carry on business through a permanent establishment, in the
country
(A) carry
on a business
(I) that
competes in the country with the business of the affiliate, and
(II) the
activities of which are regulated under the laws of the country or, where the
country is a member of the European Union, any country that is a member of the
European Union, in the same manner as are the activities of the business of the
affiliate, and
(B) have
a substantial market presence in the country,
(8) Section 95 of the
Act is amended by adding the following after subsection (2.42):
Definitions
— subsections (2.43) to (2.46)
(2.43) The
following definitions apply in this subsection and subsections (2.44) to
(2.46).
"Canadian
indebtedness"
« dettes
canadiennes »
"Canadian
indebtedness"
means indebtedness (other than upstream deposits) owed by persons resident in
Canada or in respect of businesses carried on in Canada.
"eligible
bank affiliate"
« filiale
bancaire admissible »
"eligible
bank affiliate", of an eligible Canadian
bank at any time, means a foreign bank that, at that time, is a controlled
foreign affiliate (for the purposes of section 17) of the eligible Canadian bank
and is described in subparagraph (a)(i)
of the definition "investment business"
in subsection (1).
"eligible
Canadian bank"
« banque
canadienne admissible »
"eligible
Canadian bank" means a bank listed in
Schedule I to the Bank
Act.
"eligible
Canadian indebtedness"
« dettes
canadiennes admissibles »
"eligible
Canadian indebtedness", owing to an eligible
bank affiliate of an eligible Canadian bank, means bonds, debentures, notes or
similar obligations of the Government of Canada, the government of a province,
an agent of a province, a municipality in Canada or a municipal or public body
performing a function of government in Canada, that are owing to the affiliate,
other than property in respect of which paragraph (2)(a.3) does not apply because of subsection
(2.31).
"eligible
currency hedge"
«
couverture de change admissible »
"eligible
currency hedge", of an eligible bank
affiliate of an eligible Canadian bank, means an agreement that provides for the
purchase, sale or exchange of currency and that
(a) can reasonably be
considered to have been made by the affiliate to reduce its risk of fluctuations
in the value of currency with respect to eligible Canadian indebtedness and
upstream deposits owing to the affiliate; and
(b) cannot reasonably
be considered to have been made by the affiliate to reduce its risk with respect
to property other than eligible Canadian indebtedness and upstream deposits
owing to the affiliate.
"excess
liquidity"
«
liquidités excédentaires »
"excess
liquidity",
of an eligible bank affiliate of an eligible Canadian bank for a taxation year
of the affiliate, means the amount, if any, by which
(a) the average of all
amounts each of which is, in respect of a month that ends in the twelve-month
period that begins 60 days prior to the beginning of the year — or, if the
affiliate was formed after the beginning of the period, in respect of a month
that ends in the year — the amount of the affiliate's relationship deposits for
the month, expressed in the affiliate's calculating currency for the year unless
the context requires otherwise,
exceeds
(b) the average of all
amounts each of which is, in respect of a month that ends in the period — or, if
the affiliate was formed after the beginning of the period, in respect of a
month that ends in the year — the amount of the affiliate's organic assets for
the month, expressed in the affiliate's calculating currency for the year unless
the context requires otherwise.
"organic
assets"
« actif
organique »
"organic
assets", of
an eligible bank affiliate of an eligible Canadian bank for a month, means the
total of all amounts in respect of the affiliate each of which is
(a) included in the
amounts reported as loans in the assets section of the consolidated monthly
balance sheet accepted by the Superintendent of Financial Institutions that is
filed for the month by the bank, or another corporation resident in Canada that
is related to the bank at the end of the month, or
(b) an amount owing to
the affiliate by a person that is related to the affiliate (other than an amount
described in paragraph (a))
but does not include the
amount of an eligible Canadian indebtedness or upstream deposit owing to the
affiliate.
"qualifying
indebtedness"
« dettes
déterminées »
"qualifying
indebtedness", owing to an eligible
bank affiliate of an eligible Canadian bank, means an upstream deposit owing to,
or an eligible Canadian indebtedness of, the affiliate, to the extent that it
can reasonably be considered that
(a) the upstream
deposit or the acquisition of eligible Canadian indebtedness, as the case may
be, is funded by
(i) property
transferred or lent by a person other than the bank or a person resident in
Canada that was not, at the time of the transfer or loan, dealing at arm's
length with the bank,
(ii) a
repayment of all or part of an upstream deposit owing to the affiliate,
or
(iii) the
purchase of eligible Canadian indebtedness by the bank or a person resident in
Canada that was not, at the time of the transfer or loan, dealing at arm's
length with the bank; and
(b) the proceeds of the
upstream deposit or the proceeds received by the vendor of the eligible Canadian
indebtedness, as the case may be, are used for a purpose other than to fund a
transfer or loan of property by the bank — or another person resident in Canada
that was not, at the time of the transfer or loan, dealing at arm's length with
the bank — to the affiliate or another foreign affiliate of the bank or of the
other person.
"relationship
deposits"
« dépôts
apparentés »
"relationship
deposits", of
an eligible bank affiliate of an eligible Canadian bank for a month, means the
total of all amounts included in the amounts reported as demand and notice
deposits, and fixed-term deposits in the liabilities section of the consolidated
monthly balance sheet accepted by the Superintendent of Financial Institutions
that is filed for the month by the bank, or another corporation resident in
Canada that is related to the bank at the end of the month, that are deposits
(other than of a temporary nature) of the affiliate made by a person who at the
end of the month
(a) deals at arm's
length with the affiliate; and
(b) is not resident in
Canada.
"total
specified indebtedness"
« dettes
désignées totales »
"total
specified indebtedness", owing to an eligible
bank affiliate of an eligible Canadian bank for a taxation year of the
affiliate, means the average of all amounts each of which is, in respect of a
month that ends in the year, the greatest total amount at any time in the month
that is the total of all amounts each of which is
(a) the amount of an
upstream deposit owing to the affiliate;
(b) the amount of an
eligible Canadian indebtedness owing to the affiliate; or
(c) the positive or
negative fair market value of an eligible currency hedge of the
affiliate.
"upstream
deposit"
« dépôt
en amont »
"upstream
deposit",
owing to an eligible bank affiliate of an eligible Canadian bank, means
indebtedness owing by the bank to the affiliate.
FAPI
adjustment — eligible bank affiliate
(2.44) If
a non-resident corporation (in this subsection referred to as the "affiliate")
is, throughout a taxation year of the affiliate, an eligible bank affiliate of
an eligible Canadian bank, and the bank elects in writing under this subsection,
in respect of the affiliate for the year, and files the election with the
Minister on or before the filing-due date of the bank for the particular
taxation year of the bank in which the year ends,
(a) there is to be
deducted in computing the amount determined for A in the definition "foreign accrual property income" in
subsection (1) in respect of the affiliate for the year, the lesser
of
(i) the
amount determined, without reference to this paragraph, for A in the definition
"foreign accrual property income" in
subsection (1) in respect of the affiliate for the year, and
(ii) the
amount determined by the following formula, where each amount referred to in the
formula is to be determined using Canadian currency:
A – B – C – D
where
A is the total of all
amounts each of which is the affiliate's income for the year that is from a
qualifying indebtedness owing to, or an eligible currency hedge of, the
affiliate and that would, in the absence of this subsection, be included in
computing the income of the affiliate from a business other than an active
business of the affiliate,
B is the total of all
amounts each of which is the affiliate's loss for the year that is from a
qualifying indebtedness owing to, or an eligible currency hedge of, the
affiliate and that would, in the absence of this subsection, be deducted in
computing the income of the affiliate from a business other than an active
business of the affiliate,
C is the total of all
amounts each of which is the amount, if any, by which an amount included in
computing A or B in respect of an upstream deposit exceeds the amount that would
be the affiliate's income, or is less than the amount that would be the
affiliate's loss, as the case may be, for the year from the upstream deposit if
the interest received or receivable by the affiliate in respect of the upstream
deposit were computed at an interest rate equal to the lesser of
(A) the
rate of interest in respect of the upstream deposit, and
(B) the
benchmark rate of interest, acceptable to the Minister, that is
(I) if
the upstream deposit is denominated in a qualifying currency (as defined in
subsection 261(1)) that is the affiliate's calculating currency, the average,
for the year, of a daily inter-bank offered rate for loans denominated in that
currency with a term to maturity of three months, or
(II) in
any other case, the average, for the year, of a daily rate for Canadian dollar
denominated bankers' acceptances with a term to maturity of three
months,
D is the amount
determined by the formula
E × F/G
where
E is the amount, if
any, by which the amount determined for A exceeds the total of the amounts
determined for B and C,
F is the amount, if
any, by which the total specified indebtedness owing to the affiliate for the
year exceeds the affiliate's excess liquidity for the year, and
G is the total
specified indebtedness owing to the affiliate for the year, and
(b) there is to be
included, in computing the income of the affiliate from an active business for
the year, an amount equal to the proportion of the amount computed under the
formula in subparagraph (a)(ii),
computed as if each amount referred to in that formula were determined using the
affiliate's calculating currency, that the amount that is required to be
deducted under paragraph (a) for the
year is of the amount described in subparagraph (a)(ii).
Investment
business and excluded property
(2.45) If
an election is made under subsection (2.44) in respect of an eligible bank
affiliate of an eligible Canadian bank for a taxation year of the
affiliate,
(a) for the purposes of
the definition "investment business" in
subsection (1), the bank, and any other person resident in Canada that does not
deal at arm's length with the bank, are deemed to deal at arm's length with the
affiliate in respect of the making of upstream deposits, and acquisitions of
Canadian indebtedness from the bank or the other person, by the affiliate in the
course of a business carried on by the affiliate in the year if the affiliate's
excess liquidity for the year is at least 90% of the total specified
indebtedness owing to the affiliate for the year; and
(b) for the purposes of
paragraph (b) of the definition "excluded property" in subsection
(1),
(i) the
fair market value of each upstream deposit and Canadian indebtedness owing to,
and eligible currency hedge of, the affiliate is deemed to be nil,
(ii) at
any particular time, the lesser of the following amounts is deemed to be the
fair market value of a property of the affiliate that is excluded property at
that particular time,
(A) the
total of all amounts each of which is the fair market value of an upstream
deposit or Canadian indebtedness owing to, or an eligible currency hedge of, the
affiliate, and
(B) the
amount, if any, by which
(I) the
affiliate's relationship deposits for the calendar month that is two months
prior to the particular time (or if the affiliate was formed less than two
months prior to the particular time, for the calendar month that includes the
particular time)
exceeds
(II) the
amount of the affiliate's organic assets for the calendar month that is two
month prior to the particular time (or if the affiliate was formed less than two
months prior to the particular time, for the calendar month that includes the
particular time); and
(iii) the
amount, if any, by which the amount in clause (ii)(A) exceeds the amount in
subparagraph (ii) is deemed to be the fair market value of a property of the
eligible bank affiliate that is not excluded property at that time.
(9) The definition
"specified deposit" in subsection 95(2.5) of
the Act is replaced by the following:
"specified
deposit"
« dépôt déterminé »
"specified deposit", of a foreign affiliate of a taxpayer, means a
deposit of the affiliate made with a permanent establishment in a country other
than Canada of a prescribed financial institution resident in Canada if
the income from the deposit is income of the affiliate for the year that would,
in the absence of paragraph
(2)(a.3), be income from an active
business carried on by the
affiliate in a country other than Canada, other than a business the
principal purpose of which is to derive income from property (including
interest, dividends, rents, royalties or any similar returns, or substitutes
therefor) or profits from the disposition of investment property.
(10) Section 95 of
the Act is amended by adding the following after subsection (3):
Application
of paragraph (2)(b) — eligible Canadian
bank
(3.01) Paragraph
(2)(b) does not apply to a controlled
foreign affiliate (for the purposes of section 17) of an eligible Canadian bank
(as defined in subsection (2.43)) in respect of services performed in connection
with the purchase or sale of a property described in paragraph (2.31)(b) if
(a) the services have
been performed by the affiliate
(i) under
terms and conditions that are substantially the same as the terms and conditions
that would have been made between persons who deal at arm's length with each
other,
(ii) in
the course of a business
(A) that
regularly includes trading or dealing in securities principally with persons
with whom the affiliate deals at arm's length, and
(B) that
is principally carried on through a permanent establishment in a country other
than Canada, and
(iii) for
the purpose of enabling the acquisition or disposition of the property by a
person who, at the time of the acquisition or disposition, deals at arm's length
with the affiliate and the eligible Canadian bank; and
(b) the affiliate is a
foreign bank or a trader or dealer in securities and the activities of the
business are regulated
(i) under
the laws of the country under whose laws the affiliate is governed and any of
exists, was (unless the affiliate was continued in any jurisdiction) formed or
organized, or was last continued, and under the laws of each country in which
the business is carried on through a permanent establishment in that
country,
(ii) under
the laws of the country (other than Canada) in which the business is principally
carried on, or
(iii) if
the affiliate is related to a corporation, under the laws of the country under
whose laws that related corporation is governed and any of exists, was (unless
that related corporation was continued in any jurisdiction) formed or organized,
or was last continued, if those regulating laws are recognized under the laws of
the country in which the business is principally carried on and all those
countries are members of the European Union.
(11) Subsections
(1) to (10) apply in respect of taxation years of a foreign affiliate of a
taxpayer that begin after October 2012.
3. (1) The
Act is amended by adding the following after section 125.2:
Part XIII
tax — eligible bank affiliate
125.21 There may be deducted in
computing the tax payable under this Part for a taxation year by a particular
corporation that is throughout the year an eligible Canadian bank (as defined in
subsection 95(2.43)) the total of all amounts, each of which is the amount, if
any, by which
(a) an amount paid
under paragraph 212(1)(b) in respect of
interest paid or credited in the year by the particular corporation in respect
of an upstream deposit (as defined in subsection 95(2.43)) owing to a
non-resident corporation that is, throughout the year, an eligible bank
affiliate (as defined in subsection 95(2.43)) of the particular
corporation
exceeds
(b) the total of all
amounts each of which is a portion of the amount described in paragraph (a) that is available to the non-resident
corporation or any other person or partnership at any time as a credit or
reduction of, or deduction from, any amount otherwise payable to the government
of a country other than Canada, or a political subdivision of that country,
having regard to all available provisions of the laws of that country, or
political subdivision, as the case may be, any tax treaty with that country and
any other agreements entered into by that country or political
subdivision.
(2) Subsection
(1) applies in respect of taxation years that begin after October
2012.
Income Tax Regulations
4. (1) Paragraph
(b) of the definition "earnings" in subsection 5907(1) of the Income Tax Regulations is replaced by
the following:
(b) in any other case,
the total of all amounts each of which is an amount of income that would be
required under paragraph 95(2)(a) or subsection 95(2.44) of the Act to be
included in computing the affiliate's income or loss from an active business for
the year if that income were computed taking into account the rules in
subsection (2.03); (gains)
(2) Subparagraph
(d)(ii) of the definition "exempt earnings" in subsection 5907(1) of the
Regulations is amended by striking out "or" at the end of clause (H) and by
adding the following after clause (I):
(J) an
amount that is required to be included in computing the particular affiliate's
income from an active business for the year under subsection 95(2.44) of the Act
if the amount is in respect of income that would, in the absence of paragraph
95(2)(a.3) of the Act, be income from an
active business carried on by the particular affiliate in a designated treaty
country, or
(3) Subsections
(1) and (2) apply in respect of taxation years of a foreign affiliate of a
taxpayer that begin after October 2012.
Report a problem on this page
- Date modified: