Explanatory Notes to Legislative Proposals Relating to the Income Tax Act and Regulations

Preface

These explanatory notes describe proposed amendments to the Income Tax Act and Income Tax Regulations. These explanatory notes describe these proposed amendments, clause by clause, for the assistance of Members of Parliament, taxpayers and their professional advisors.

The Honourable François-Philippe Champagne, P.C., M.P.
Minister of Finance and National Revenue

These notes are intended for information purposes only and should not be construed as an official interpretation of the provisions they describe.

Income Tax Act

Clause 1

Group sickness or accident insurance plans

Income Tax Act (the Act or ITA)
6(1)(e.1)

Paragraph 6(1)(e.1) includes the amount of an employer's contributions to a group sickness or accident insurance plan in an employee's income for the year in which the contributions are made, except to the extent that paragraph 6(1)(f) applies to contributions made in respect of wage-loss replacement benefits.

Paragraph 6(1)(e.1) is amended to add a reference to plans that are administered by employee life and health trusts (ELHTs). This amendment simply clarifies that the provision of a group sickness or accident insurance plan through an ELHT does not change the character of plans described in paragraph 6(1)(e.1).

Clause 2

Definitions

ITA
13(21)

"undepreciated capital cost"

Subsection 13(21) contains a number of definitions that apply for the purposes of section 13, including the definition "undepreciated capital cost", which also applies for the purposes of the Act by operation of subsection 248(1). A taxpayer's undepreciated capital cost of depreciable property of a prescribed class is determined by the formula in this definition.

This definition is amended to add new variable E.2, which incorporates into the formula any reductions in the undepreciated capital cost of depreciable property of a class that are required by new subsection 81(6). For more information, see the commentary to that subsection.

The amendments to add new variable E.2 to the definition "undepreciated capital cost" are deemed to have come into force on December 31, 2023.

Clause 3

Definitions

ITA
18.2(1)

Section 18.2, together with section 18.21 and paragraph 12(1)(l.2), is the core rule of the excessive interest and financing expenses limitation ("EIFEL") regime.

Subsection 18.2(1) defines a number of terms that apply for the purposes of sections 18.2 and 18.21 in determining the application of the excessive interest and financing expenses limitation.

"adjusted taxable income"

A taxpayer's adjusted taxable income is a measure of its earnings before interest, taxes, and depreciation, and is determined based on tax, rather than accounting, concepts. It is relevant to the EIFEL rules.

Paragraph (b) of variable D is amended to allow taxable income, as determined for the purposes of this paragraph, to be a negative number. This is intended to ensure that the use of carried-over losses is properly accounted for in the computation of a taxpayer's adjusted taxable income. Specifically, it ensures that the taxpayer's adjusted taxable income computation fully reflects all components of the taxpayer's taxable income computation for the year, other than any denials of interest deductions or income inclusions under the EIFEL rules. As a result, if the amount deducted by the taxpayer for the year in respect of carried-over losses is greater than the amount that would be its taxable income computed without regard to both that deduction and any denials of interest deductions or income inclusions under the EIFEL rules, the amount determined under this paragraph will be a negative number, and any adjustments under variables B or C will take as their starting point that negative number.

Paragraph (g) of variable B is amended in order that amounts attributable to subsection 18.2(2) are excluded from the deduction add back under subsection 104(6) in the adjusted taxable income computation. This amendment addresses a possible circularity by ensuring that the effect of subsection 18.2(2) is excluded from the deduction add back under subsection 104(6) within the adjusted taxable income computation.

These amendments would apply to taxation years that end after Announcement Date.

Clause 4

Adjustments to cost base

ITA
53(1)(e)(ix)

Paragraph 53(1)(e) provides that the adjusted cost base of a taxpayer's interest in a partnership is increased by various amounts, including the taxpayer's share of governmental assistance related to a Canadian resource property or an exploration or development expense incurred in Canada. The reason for such increase under subparagraph 53(1)(e)(ix) is that such assistance is recognized through a reduction in the taxpayer's cumulative Canadian exploration expense (CEE), cumulative Canadian development expense (CDE) or cumulative Canadian oil and gas property expense (COGPE).

Clause 53(1)(e)(ix)(A) is amended to provide than an amount that is received as an "excluded loan" as defined in subsection 12(11) will not be treated as government assistance for these purposes. This parallels the related change to the definition "assistance" in subsection 66(15).

This amendment comes into force on January 1, 2020 and applies to loans made after December 31, 2019.

Amounts to be deducted

ITA
53(2)(k)(i)

Paragraph 53(2)(k) provides that the adjusted cost base of a property is reduced by the amount of government assistance received or receivable.

Subparagraph 53(2)(k)(i) is amended by adding new clause (E), which provides that an amount received as an "excluded loan" (as defined in subsection 12(11)) does not result in a reduction of the adjusted cost base of the property.

This amendment comes into force on January 1, 2020 and applies to loans made after December 31, 2019.

Clause 5

Amounts to be included in income

ITA
56(1)(a)(i)

Subparagraph 56(1)(a)(i) of the Act includes in the income of a taxpayer certain pension benefits received in the year, with the exceptions listed in clauses (D) to (G). Subparagraph 56(1)(a)(i) is amended by adding clause (H), a new exception for an amount paid or transferred from a registered pension plan to an unclaimed property authority in respect of an unlocated individual.

A corresponding amendment is made to the definition of "superannuation or pension benefit" under subsection 248(1) of the Act to require that when the unclaimed property authority subsequently pays the property to an eligible taxpayer, that payment is included in the income of the taxpayer (reported via T4A slip).

See the additional commentary on the new definitions "unclaimed property authority" and "unlocated individual" in subsection 248(1) of the Act.

This amendment applies in respect of amounts paid or transferred to an unclaimed property authority after 2025.

Clause 6

Transfer of superannuation benefits

ITA
60(j)

Paragraph 60(j) allows a taxpayer a special deduction in respect of amounts paid, in a year or within 60 days after the end of the year, to registered pension plans (RPP), registered retirement savings plans (RRSP) and registered retirement income funds (RRIF). The deduction available to a taxpayer under this paragraph is generally limited to lump sum payments received by a taxpayer from a non-registered pension plan that are attributable to services rendered while the taxpayer or the taxpayer's deceased spouse or common-law partner was not resident in Canada and included in computing the taxpayer's income.

Subparagraph 60(j)(i) is amended by dividing it into two clauses. Clause (A) (the traditional rule) refers to benefits from non-registered pension plans that are attributable to services rendered while the taxpayer or the taxpayer's deceased spouse was not resident in Canada. Clause (B) is a new accommodation for transfers from pension plans that are "foreign plans" as defined in subsection 6804(1) of the Income Tax Regulations, if the taxpayer's or deceased spouse's contributions to the plan were a prescribed contribution for the purposes of paragraph 207.6(5.1)(a). New clause (B) is intended to allow the paragraph 60(j) deduction for payments made to a taxpayer's RPP, RRSP or RRIF from a non-registered pension plan under which the taxpayer or taxpayer's deceased spouse rendered services in Canada under a "foreign plan" that reported pension adjustments in respect of the plan member for the member's years of service under the foreign plan.

This amendment is deemed to have come into force on January 1, 2024.

Clause 7

Definitions

ITA
66(15)

"assistance"

Subsection 66(15) provides a definition of "assistance", which may apply for the purposes of calculating a taxpayer's cumulative Canadian exploration expense, cumulative Canadian development expense and cumulative Canadian oil and gas property expense.

The definition is amended to provide that an "excluded loan" (as defined in subsection 12(11)) is not government assistance.

This amendment comes into force on January 1, 2020 and applies to loans made after December 31, 2019.

Clause 8

Where ss. 74.1 to 74.3 do not apply

ITA
74.5(12)

Subsection 74.5(12) sets out a list of specified transfers of property that are exempt from the spousal attribution rules under sections 74.1 to 74.3.

Paragraph 74.5(12)(d) is intended to exempt contributions to a first home savings account (FHSA) from the spousal attribution rules. However, as individuals are unable to contribute to a spouse's or common-law partner's FHSA directly, the amendment repeals paragraph (d) and replaces it with an amendment to paragraph (c) in order to appropriately ensure that investment income earned in an FHSA will not be attributed back to the transferor individual.

Paragraph (c) currently provides an exception from the spousal attribution rules under sections 74.1 to 74.3 for a transfer of property by an individual to the individual's spouse or common-law partner where the transferred property is contributed to a tax-free savings account (TFSA) of which the spouse or common-law partner is the holder. Paragraph (c) is amended to extend the same exception in relation to an FHSA. In particular, the exception from the attribution rules applies only while the transferred property (or any substituted property) remains in a FHSA and only to the extent that the contribution does not result in an excess FHSA amount.

This amendment is deemed to have come into force on April 1, 2023.

Clause 9

Ship of resident corporations – gains

ITA

81(1)(c.2)

Subsection 81(1) of the Act provides that certain amounts are not included in income and therefore are exempt from income tax. Paragraph 81(1)(c) provides a longstanding exemption for non-residents' international shipping income, and paragraph 81(1)(c.1) extends this exemption to certain Canadian-resident corporations.

A capital gain realized by a non-resident from the disposition of a ship used principally in international traffic is generally not subject to tax in Canada, because such a ship is not taxable Canadian property of the non-resident. To improve alignment between the treatment of the gains of non-residents and the gains of residents, new paragraph 81(1)(c.2) is added to exempt from tax the portion of a capital gain earned from the disposition of a vessel (including the furniture, fittings, radiocommunication equipment and other equipment attached to the vessel) that can reasonably be considered to have accrued while the vessel was property of a corporation resident in Canada that can benefit from the exemption in paragraph 81(1)(c.1) and the ship was used by the corporation solely to earn income from international shipping.

This amendment applies to the portion of a taxable capital gain that accrues on or after December 31, 2023.

Ship of resident corporations – excess recapture

ITA

81(1)(c.3)

Since new subsection 81(6) and new variable E.2 in the definition "undepreciated capital cost" in subsection 13(21) require reductions to the undepreciated capital cost of a vessel for years during which the income from the vessel is exempt, new paragraph 81(1)(c.3) is added to exempt from tax a portion of a corporation's recapture on the disposition of a vessel that was used by the corporation to earn exempt international shipping income (under paragraph 81(1)(c.1)). Pursuant to new subsection 1101(2d) of the Regulations, each such ship will be included in a separate prescribed Class 7.

The amount of recapture that is exempt from tax is the portion of the recapture under subsection 13(1) proportional to the reductions to undepreciated capital cost required by subsection 81(6) (i.e., new variable E.2) over the sum of those reductions and the depreciation allowed to the taxpayer (i.e., the sum of variables E.2 and E of the definition "undepreciated capital cost"). This proportion reflects the reductions to undepreciated capital cost that were taken in years when the income from the ship was exempt over all reductions to undepreciated capital cost that are in respect of tax depreciation.

This amendment is deemed to have come into force on December 31, 2023.

Ship of resident corporations – undepreciated capital cost

ITA

81(6)

An outlay or expense that is made or incurred for the purpose of gaining or producing exempt income is not deductible in computing a taxpayer's income from a business or property because of paragraph 18(1)(c). As a result, a corporation resident in Canada that benefits from the exemption in paragraph 81(1)(c.1) in a year is precluded from claiming capital cost allowance in respect of a ship that is used that year to earn its exempt income from international shipping.

New subsection 81(6), in combination with new variable E.2 in the definition "undepreciated capital cost" in subsection 13(21), requires a taxpayer to reduce the undepreciated capital cost of a prescribed class that includes a vessel it used to earn exempt income from international shipping by the greatest amount it could have claimed under paragraph 20(1)(a), but for paragraph 18(1)(c). This subsection would ensure that the appropriate capital cost allowance is available where a ship is used to earn exempt income during some years and non-exempt income during other years. Pursuant to new subsection 1101(2d) of the Regulations, each such vessel will be included in a separate prescribed Class 7.

This amendment is deemed to have come into force on December 31, 2023.

Clause 10

Foreign affiliate share-for-share exchange – exception

ITA
85.1(4)

Paragraph 85.1(4)(a) of the Act is an anti-avoidance rule that contains an exception to the rule in subsection 85.1(3), which otherwise allows a taxpayer to transfer the shares of a foreign affiliate (the first affiliate) to another foreign affiliate (the second affiliate) on a "rollover" basis. The exception provides that the rollover in subsection 85.1(3) does not apply to the transfer of a share of the first affiliate where all or substantially all of the first affiliate's property is excluded property (as defined in subsection 95(1)) and the share is subsequently disposed of as part of a transaction or event, or as part of a series, to an arm's length person or partnership (other than a foreign affiliate in which the taxpayer has a qualifying interest (as defined in paragraph 95(2)(m) of the Act)).

Paragraph (a) is intended to prevent taxpayers from transferring shares of a directly held foreign affiliate to another foreign affiliate on a rollover basis to defer Canadian taxation of a capital gain on the disposition of the first affiliate shares in certain circumstances. In the absence of this paragraph, such a deferral would be available if the first affiliate shares were excluded property at the time of that disposition because the gain would be included in computing the hybrid surplus of a disposing foreign affiliate, which is generally not subject to tax until it is distributed to a taxpayer.

Paragraph (a) is substantially re-organized and amended to strengthen the existing exception to the subsection 85.1(3) rollover in certain ways, as well as to deny the rollover in cases where there is a disposition to a non-arm's length non-resident (other than a controlled foreign affiliate, for purposes of section 17, of the taxpayer or a successor corporation of the taxpayer). This latter amendment targets not only the deferral of tax on capital gains, but also transactions that could give rise to the avoidance or deferral of tax in respect of distributions from foreign affiliates.

Subparagraph (a)(i) now provides, as a condition for the application of this subsection, that there must be – as part of a transaction, event or series that includes the disposition to which the rollover under subsection 85.1(3) otherwise applies – a disposition of property that is any of: the share of the particular foreign affiliate, property substituted for that share or property that derives any of its fair market value from the share or property substituted for the share. This latter disposition, now referred to throughout paragraph (a) as the "relevant disposition", may be the initial disposition to which the rollover otherwise applies, or it may be a separate, subsequent disposition.

The main changes to this initial condition in subparagraph (a)(i) are the express inclusion of dispositions of property that is substituted for the share of the particular affiliate, or that derives any of its fair market value from either the share or substituted property. These changes are intended to address a range of scenarios, including where there is a direct or indirect sale of an interest in the particular foreign affiliate (e.g., through the sale of shares of a holding company), for example following one or more substitutions of property, without the same particular affiliate shares that were originally transferred to the second affiliate being directly disposed of to the acquirer. Notably, to capture all relevant scenarios, subparagraph (a)(i) does not require a specific person to have substituted, or effected the substitution of, one property for another, or to have disposed of a substituted property (or of the particular affiliate shares or any property that derives any of its value from those shares) to a relevant acquirer. However, subparagraph (a)(i) specifically excludes a disposition of any property that is shares of a corporation resident in Canada. This recognizes that, even though such property may be substituted for, or derive its value from, the particular foreign affiliate share, such a disposition is not expected to give rise to the policy concerns that paragraph (a) seeks to address.

A relevant disposition only triggers a denial of the rollover if it is to an "acquirer" described in subparagraph (a)(ii). This reference to an "acquirer" is added, replacing the reference to a "person or partnership", in order to facilitate the interpretation rule in new subsection 85.1(4.1).

In general, subparagraph (a)(ii) retains the requirement, now expressed in clause (A), that the acquirer not deal at arm's length with the taxpayer, unless the acquirer is a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)) or the property is not excluded property (as defined in subsection 95(1)) of a foreign affiliate of certain relevant taxpayers. These two exceptions, expressed in new subclauses (I) and (II), largely reflect a continuation of the existing rule and policy but with certain changes. First, the period for which the arm's length status of the acquirer is tested is changed from being immediately after the transaction, event or series, to being at any time during the period that begins immediately before the transaction, event or series and ends immediately after such transaction, event or series. If the acquirer is arm's length at any point during that period, the condition is met.

Second, the time at which the excluded property status is tested is changed from immediately before the initial transfer of the particular foreign affiliate share to the time of the relevant disposition. This change is intended to better target the conversion of a taxable capital gain into tax-deferred hybrid surplus. It is assumed that, if the disposed-of property is not excluded property at the time of the relevant disposition, the relevant disposition will give rise to foreign accrual property income and thus it would not be appropriate to deny the rollover.

Finally, two new terms are introduced, "particular person" and "successor corporation", which are both defined in new subsection 85.1(4.2). These definitions are relevant for the arm's length test, the qualifying interest test and the excluded property test, and generally expand the scope of entities whose status must be considered under these tests to include certain Canadian entities within the taxpayer's corporate group. Clause (A) now tests whether an acquirer deals at arm's length with the taxpayer or a person that is a particular person in respect of the taxpayer. Further, the exception for arm's length acquirers that are qualifying interest foreign affiliates of the taxpayer is now expanded to include qualifying interest foreign affiliates of successor corporations of the taxpayer. Finally, the excluded property test is expanded to consider whether the disposed-of property is excluded property of the taxpayer, a particular person in respect of the taxpayer or a partnership any member of which is the taxpayer or a particular person in respect of the taxpayer. These changes, collectively, recognize that corporate transformations or reorganizations that result in a change in the identity of the taxpayer before the relevant disposition should not defeat the application of this anti-avoidance rule where the mischief it seeks to address could otherwise arise (subject to the application of the general anti-avoidance rule), nor deny the benefit of the exception for dispositions to qualifying interest foreign affiliates in cases where the policy is not undermined.

Subparagraph (a)(ii) is further amended to include clause (B), which denies the rollover if the acquirer is a non-resident person that does not deal at arm's length with the taxpayer (other than a non-resident corporation that is a controlled foreign affiliate of the taxpayer, or of a successor corporation of the taxpayer, for the purposes of section 17). Because, as noted above, this clause addresses policy concerns beyond the conversion of taxable capital gains into hybrid surplus, there is no requirement that the disposed-of property be excluded property of a foreign affiliate at the time of the relevant disposition. Similarly, as under clause (A), the new definitions "particular person" and "successor corporation" are relevant for the arm's length test and the section 17 controlled foreign affiliate test under this clause (B).

The amendments to subsection 85.1(4) apply to dispositions that occur on or after Announcement Date.

In addition, to ensure that subsection 85.1(4) applies appropriately in respect of structures containing partnerships:

• the membership "look-through" rules for tiered partnerships in subsection 93.1(3) are extended to apply for the purposes of subsection 85.1(4.1) (by adding a reference to that subsection in paragraph 93.1(3)(c)); and
• new rules are introduced in new subsection 85.1(4.1), applicable for the purposes of subparagraph 85.1(4)(a)(ii), to determine whether a partnership is dealing, or not, at arm's length with a person or another partnership.

For more information, see the commentary on subsection 85.1(4.1).

Interpretation – partnerships

ITA
85.1(4.1)

New subsection 85.1(4.1) of the Act provides rules of interpretation for the purposes of applying paragraph 85.1(4)(a). Paragraphs (a) and (b) of the subsection provide rules for determining whether a partnership is dealing, or not, at arm's length with a person or another partnership for the purposes of clauses 85.1(4)(a)(ii)(A) and (B), respectively. Where a taxpayer transfers shares of a particular foreign affiliate to another foreign affiliate, these new rules apply if either or both of the "relevant taxpayer" (which refers to the taxpayer or a particular person, within the meaning of new subsection 85.1(4.2)) and a subsequent acquirer (referred to as the "acquirer") of the particular foreign affiliate shares (or property that is substituted for, or derives its value from, those shares) are partnerships.

The first series of rules, in paragraph 85.1(4.1)(a), deem certain parties to be dealing at arm's length for the purposes of clause 85.1(4)(a)(ii)(A). They provide that, if only one party is a partnership, the relevant taxpayer is deemed to deal at arm's length with the acquirer if any member of the partnership deals at arm's length with the other party. If both parties are partnerships, the rule deems the relevant taxpayer to deal at arm's length with the acquirer if any member of one party deals at arm's length with the other party or with a member of the other party.

The second series of rules, in paragraph 85.1(4.1)(b), deem certain acquirers to be non-resident persons with whom the relevant taxpayer does not deal at arm's length for the purposes of clause 85.1(4)(a)(ii)(B). They provide that, if only one party is a partnership, the acquirer is deemed to be a non-resident person with whom the relevant taxpayer does not deal at arm's length if:

• any member of the partnership does not deal at arm's length with the other party; and
• the acquirer is a non-resident person or, if the acquirer is a partnership, any member of the acquirer is a non-resident person.

If both parties are partnerships, the acquirer is deemed to be a non-resident person with whom the relevant taxpayer does not deal at arm's length if:

• one party, or any member of that party, does not deal at arm's length with the other party, or any member of that other party; and
• any member of the acquirer is a non-resident person.

Note that it is possible for both deeming rules to apply in respect of the same acquirer. For example, if the acquirer is a partnership, one member of which deals at arm's length with a relevant taxpayer and another member of which does not deal at arm's length with the relevant taxpayer, the acquirer is deemed to deal at arm's length with the relevant taxpayer for the purposes of clause 85.1(4)(a)(ii)(A) and is deemed not to deal at arm's length with the relevant taxpayer for the purposes of clause 85.1(4)(ii)(B) (further assuming at least one member of the acquirer is a non-resident person). In that case, the rollover is denied under clause 85.1(4)(ii)(B) and, if the disposed-of property is excluded property (as defined in subsection 95(1)), under clause 85.1(4)(ii)(A).

New subsection 85(4.1) applies in respect of dispositions that occur on or after Announcement Date.

Definitions

ITA
85.1(4.2)

New subsection 85.1(4.2) of the Act provides two definitions that apply for the purposes of that subsection and subsection 85.1(4).

"particular person"

The definition "particular person" is relevant for the purposes of subsection 85.1(4), which denies a taxpayer a rollover under subsection 85.1(3) of shares of a foreign affiliate of the taxpayer in certain situations.

A particular person in respect of a taxpayer, at any time, means a person that is, at that time,

• resident in Canada and not dealing at arm's length with the taxpayer;
• a successor corporation of the taxpayer; or
• resident in Canada and not dealing at arm's length with any other particular person in respect of the taxpayer.

Although this definition applies in respect of a taxpayer, the "successor corporation" reference contemplates situations where the taxpayer has been transformed, i.e., through an amalgamation or wind-up such that that taxpayer no longer exists.

"successor corporation"

The definition "successor corporation" is relevant for the purposes of paragraph 85.1(4)(a), which denies a rollover under subsection 85.1(3) of shares of a foreign affiliate of a taxpayer in certain situations. It is also relevant for the definition "particular person" in this subsection.

A successor corporation, of a particular corporation, means a corporation into which the particular corporation is transformed by means of an amalgamation (within the meaning of subsection 87(1)) or a winding-up under subsection 88(1). This is an iterative concept, which includes multiple such transformations of a particular corporation.

New subsection 85(4.2) applies in respect of dispositions that occur on or after Announcement Date.

Clause 11

Foreign merger – anti-avoidance

ITA
87(8.3)

Subsection 87(8.3) of the Act is intended to prevent the use of certain structures aimed at circumventing the anti-avoidance rule in subsection 85.1(4). In particular, it is intended to ensure that certain foreign merger transactions cannot be used to effectively transfer shares of a foreign affiliate in a manner that is inconsistent with subsection 85.1(4). Subsection 87(8.3) is amended, in parallel to amendments made to subsection 85.1(4).

Subsection 87(8.3) provides that subsection 87(8), which allows certain foreign mergers to qualify for the tax-deferred amalgamation provisions in subsections 87(4) and (5), does not apply in respect of a taxpayer's shares of a predecessor foreign corporation (as defined in subsection 87(8.1)) in the context of a foreign merger (as defined in subsection 87(8.1)) where four conditions are present.

The first condition, contained in paragraph 87(8.3)(a), is maintained. It requires that the new foreign corporation is, immediately after the foreign merger, a foreign affiliate of the taxpayer.

Paragraphs (b) and (c) are restructured and amended in line with the amendments to paragraph 85.1(4)(a), modified for the foreign merger context as required. For more information, see the note to subsection 85.1(4).

In addition, to ensure that subsection 87(8.3) applies appropriately in respect of structures containing partnerships:

• new rules are introduced in new subsection 87(8.31), applicable for the purposes of paragraph 87(8.3)(c), to determine whether a partnership is dealing, or not, at arm's length with a person or another partnership; and
• the membership "look-through" rules for tiered partnerships in subsection 93.1(3) are amended to reflect the addition of new subsection 87(8.31) by removing the reference to subsection 87(8.3) and adding a reference to subsection 87(8.31) to paragraph 93.1(3)(c).

For more information, see the commentary on subsection 87(8.31).

The amendments to subsection 87(8.3) apply to dispositions that occur on or after Announcement Date.

Interpretation –partnerships

ITA
87(8.31)

New subsection 87(8.31) of the Act is added to provide rules for determining whether a partnership is dealing, or not, at arm's length with a person or another partnership for the purposes of paragraph 87(8.3). Where a taxpayer's shares of a predecessor foreign corporation that is a foreign affiliate of the taxpayer are exchanged for or become shares of a new foreign corporation or foreign parent corporation, these new rules apply if either or both of the "relevant taxpayer" (which refers to the taxpayer or a particular person, within the meaning of new subsection 85.1(4.2)) and a subsequent acquirer of the new foreign corporation shares (or property that is substituted for, or derives its value from, those shares) are partnerships.

This new subsection mirrors new subsection 85.1(4.1) and ensures consistency in the application of the anti-avoidance rules contained in subsections 85.1(4) and 87(8.3). For more information, see the note to subsection 85.1(4.1).

New subsection 87(8.31) applies in respect of dispositions that occur on or after Announcement Date.

Clause 12

Foreign accrual tax — DMTT regime

ITA
91(4.01)

Subsection 91(4) provides for a deduction in computing the income of a taxpayer resident in Canada. The deduction is available where the taxpayer has included an amount under subsection 91(1) in computing income in respect of a share of the capital stock of a controlled foreign affiliate of the taxpayer. As a consequence of a number of jurisdictions introducing a "domestic minimum top-up tax regime" (DMTT regime), as defined in subsection 5907(1) of the Regulations, new subsections 91(4.01) to (4.03) are introduced to supplement the existing definition "foreign accrual tax" in subsection 95(1). These new foreign accrual tax (FAT) rules ensure the appropriate amount of income or profits tax paid by a foreign affiliate of a taxpayer under such DMTT regimes is taken into account in determining the deduction available to the taxpayer under subsection 91(4) as FAT paid in respect of a foreign affiliate's foreign accrual property income (FAPI).

These new FAT rules treat taxes paid under a DMTT regime similarly to the treatment under the related amendments made to the surplus rules in section 5907 of the Regulations and the foreign tax credit rules in section 126. However, the FAT rules have been adapted in light of the differences between the treatment of foreign taxes paid by a foreign affiliate of a taxpayer for purposes of the FAT deduction and the treatment for purposes of an affiliate's surplus accounts and the computation of a taxpayer's foreign tax credit.

Under these new FAT rules, a portion of income or profits tax paid by a FAPI-generating affiliate (i.e., the particular affiliate), or its shareholder affiliate, under a DMTT regime of a country other than Canada is deductible as FAT under subsection 91(4) only if that portion satisfies a two-part test and the exception in subsection 91(4.03) does not apply to that portion.

The first component of the two-part test, the income or profits component, is met only if the tested portion of tax can reasonably be considered to be in respect of income or profits (as determined under the DMTT regime) of the particular affiliate or the shareholder affiliate, as the case may be. New subsection 91(4.02) contains an interpretation rule for purposes of this income or profits component that identifies the amount of tax payable under a DMTT regime that can reasonably be considered to be in respect of income or profits of a foreign affiliate.

The second component of the two-part test, being the activities component, is met only if the income or profits ascertained under the income or profits component of the test can reasonably be considered to be derived from an activity the income, profit or gains from which are included in the particular affiliate's FAPI that formed part of the taxpayer's subsection 91(1) income inclusion.

The reference to "shareholder affiliate" in this subsection refers to the foreign affiliate described in subparagraph (a)(ii) of the definition "foreign accrual tax" in subsection 95(1).

For more information, see the commentary to new subsections 91(4.02) and (4.03), the definition "foreign accrual tax" in subsection 95(1) and the new definition "domestic minimum top-up tax regime" in subsection 5907(1) of the Regulations.

New subsection 91(4.01) is deemed to come into force on Announcement Date.

Interpretation — DMTT regime

ITA
91(4.02)

New subsection 91(4.02) contains an interpretation rule that applies for the purpose of subsection 91(4.01). The main thrust of the rule is to determine whether tax payable by a foreign affiliate under a DMTT regime, as defined in subsection 5907(1) of the Regulations, can reasonably be considered to be in respect of income or profits (as determined under that regime) of the foreign affiliate. This subsection provides that the rule contained in new subsection 5907(1.192) of the Regulations, which applies for surplus purposes, is also applicable for the purpose of determining the deduction available to a taxpayer under subsection 91(4) for foreign accrual tax paid in respect of a foreign affiliate's foreign accrual property income.  For more information, see the commentary on subsection 91(4.01) and subsection 5907(1.192) of the Regulations.

New subsection 91(4.02) is deemed to come into force on Announcement Date.

Exception — DMTT regime

ITA
91(4.03)

New subsection 91(4.03) prevents an amount paid in respect of an amount of tax payable under a DMTT regime, as defined in subsection 5907(1) of the Regulations, from being taken into account in determining the deduction available to a taxpayer under subsection 91(4) for FAT in respect of a foreign affiliate's foreign accrual property income in certain circumstances. This exclusion applies if the amount of tax payable under the regime was determined taking into account any taxes imposed under this Act (other than any tax imposed under Part XIII). This reflects that double taxation is already mitigated by virtue of the Canadian tax being taken into account under the DMTT regime, and is intended to prevent a circularity that can otherwise arise where a DMTT regime does not implement the exclusions for cross-border taxes that are described in the commentary to the definition "Qualified Domestic Minimum Top-up Tax" in Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two), published by the Organisation for Economic Co-operation and Development (the "Model Rules").

This exclusion applies to both any amount of income or profits tax paid and any amount prescribed as FAT under paragraph (b) of the definition "foreign accrual tax" in subsection 95(1).

New subsection 91(4.03) is deemed to come into force on Announcement Date.

Clause 13

Tiered partnerships

ITA
93.1(3)(c)

Subsection 93.1(3) of the Act provides "look-through" rules for tiered partnerships that apply for the purposes of certain provisions of the Act. Paragraph 93.1(3)(c) is amended to add a reference to new subsections 85.1(4.1) and 87(8.31). For further information, please see the commentary on subsections 85.1(4) and (4.1) and 87(8.31).

This amendment is deemed to come into force on Announcement Date.

Clause 14

Tracking interests

ITA
94.2(2)

Where a trust meets the conditions in subsection 94.2(1), subparagraph 94.2(2)(a)(i) deems the trust to be a non-resident corporation that is controlled by the beneficiary referred to in subsection 94.2(1) and, where applicable, by any particular person of which the beneficiary is a controlled foreign affiliate.

In parallel to the introduction of new subsection 94.2(5), subparagraph 94.2(2)(a)(i) is amended to introduce an exception from this deemed control, which exception applies where the sole reason the condition in paragraph 94.2(1)(b) is met is that the condition in subparagraph (b)(i) is satisfied in respect of fixed interests in the trust that are tracking interests.

This amendment ensures that, where the "tracking arrangement" rules in subsection 95(11) apply in tandem with subsection 94.2(5) to effectively convert a class of tracking interests in a trust into shares of a separate controlled foreign affiliate for foreign accrual property income purposes, those tracking interests are disregarded in determining if the trust itself is a controlled foreign affiliate under subsection 94.2(2). Therefore, where all the fixed interests in a trust are tracking interests (e.g., the trust is an "umbrella trust"), the trust itself will not be a controlled foreign affiliate unless the contributed restricted property condition in subparagraph 94.2(1)(b)(ii) is met.

This amendment applies in respect of taxation years of trusts beginning after February 26, 2018.

Tracking interests

ITA

94.2(5)

Section 94.2 provides certain rules that are relevant in applying various provisions of the Act in respect of non-resident trusts that meet the conditions in subsection 94.2(1). Among other things, these rules generally result in the attribution of the foreign accrual property income ("FAPI") of such a trust to a taxpayer that directly – or indirectly, through a controlled foreign affiliate – holds fixed interests representing at least 10% of the fair market value of any class of fixed interests in the trust.

New subsection 94.2(5) is principally intended to provide certain rules for determining the portion of a trust's FAPI that is attributable to a taxpayer where the trust meets the conditions in subsection 94.2(1) and takes the form of an "umbrella trust". An umbrella trust is, in general terms, a single trust consisting of several sub-funds traded as individual investment funds, with the assets and liabilities of each sub-fund being isolated from the assets and liabilities of other sub-funds within the trust. An umbrella trust typically issues a separate class of participating (or "tracking") interests for each sub-fund, which provides holders with exposure to the returns on assets of the particular sub-fund and not assets of other sub-funds.

Subsection 94.2(5) governs how the "tracking arrangement" rules in subsection 95(11) operate in determining the portion of an umbrella trust's FAPI that is attributable to a taxpayer under subsection 91(1) (as well as any related deductions under subsection 91(4) and the filing requirements under section 233.4), in instances where subsection 94.2(2) applies to bring the trust within the scope of those rules. The main purpose is to allow this determination to be made based on the income, gains and losses realized in a particular sub-fund, of the umbrella trust, in which the taxpayer has invested, and not on the basis of the income, gains and losses realized in other sub-funds in which the taxpayer has not invested.

Subsection 94.2(5) applies in respect of a trust if two conditions are met.

First, the condition in subparagraph 94.2(1)(b)(i) must be met in respect of a class of fixed interests in the trust that are tracking interests (within the meaning of subsection 95(8)). In other words, the beneficiary and/or other persons or partnerships referenced in that subparagraph must hold tracking interests of a particular class in respect of the trust that have a combined fair market value equal to at least 10% of the total fair market value of all the interests of the class. Thus, subsection 94.2(5) does not apply to trusts without a class of tracking interests.

Second, it must be the case that subsection 95(11) would apply in respect of the trust if the new exception in subsection 95(13) were disregarded. This condition indirectly incorporates the conditions in subsection 95(10), as applied to the non-resident corporation that a trust is deemed to be as a result of the application of subsection 94.2(2). If subsection 94.2(2) does not apply in respect of a trust, this condition will not be satisfied in respect of that trust. Likewise, this condition is not satisfied if the taxpayer (i.e., the beneficiary of the trust referenced in subsection 94.2(1) or a particular person of which that beneficiary is a controlled foreign affiliate) does not hold a tracking interest in respect of the deemed non-resident corporation or the taxpayer (or its controlled foreign affiliate) does not hold shares of a tracking class of the deemed non-resident corporation.

Where these conditions are met, three consequences result:

• Paragraph (a) disapplies the new exception in subsection 95(13), such that subsection 95(11) applies in respect of the trust even in instances where the requirements for that exception are met;
• Paragraph (b) deems the beneficiary and any particular person referenced in subsection 94.2(1) (i.e., the beneficiary that holds tracking interests in respect of the trust and any taxpayer of which that beneficiary is a controlled foreign affiliate) to control the separate corporation that the sub-fund is deemed to be under paragraph 95(11)(a); and
• Paragraph (c) adapts the provisions of subsection 94.2(3), which address double taxation, to the context of the deemed separate corporation. As a result, any FAPI inclusion of the beneficiary or particular person referenced in subsection 94.2(1) that would otherwise arise in respect of the deemed separate corporation is affected by two adjustments. First, the FAPI is reduced by reference to distributions of the trust that satisfy the condition in paragraph 94.2(3)(a) (regarding hypothetical subsection 104(13) inclusions). The second adjustment is to the beneficiary's or particular person's participating percentage, based on the alterations made to distribution entitlements under paragraph 94.2(3)(b).

This amendment applies in respect of taxation years of trusts beginning after February 26, 2018.

Clause 15

Tracking class — separate corporation

ITA
95(11)

Subsection 95(11), together with subsection 95(12), is intended to prevent the avoidance of controlled foreign affiliate status – and therefore accrual-based taxation of foreign accrual property income ("FAPI") – through the use of tracking arrangements. As such, these rules are not intended to apply in respect of any foreign affiliate that is already a controlled foreign affiliate without regard to these rules. The application of these rules to such controlled foreign affiliates could, in certain cases, prevent a FAPI inclusion under subsection 91(1) that would otherwise occur. That result would be contrary to the underlying policy of ensuring that controlled foreign affiliate status (and consequent accrual taxation of FAPI) cannot be avoided through the use of tracking interests.

To clarify that the tracking arrangement rules do not apply in respect of a foreign affiliate that is otherwise a controlled foreign affiliate, the preamble to subsection 95(11) is amended by adding the words "other than a controlled foreign affiliate".

This amendment applies in respect of taxation years of foreign affiliates beginning after February 26, 2018.

Exception — no avoidance purpose

ITA
95(13)

Subsections 95(10) to (12) (i.e., the tracking arrangement rules) are intended to prevent the avoidance of controlled foreign affiliate status – and therefore accrual-based taxation of foreign accrual property income ("FAPI") – through the use of tracking arrangements. Subsection 95(11) addresses tracking arrangements where the tracking is embedded in shares of a foreign affiliate, and subsection 95(12) applies in respect of all other tracking arrangements involving foreign affiliates.

New subsection 95(13) implements a Department of Finance comfort letter dated March 25, 2019, and would ensure the tracking arrangement rules do not apply in respect of a foreign affiliate of a taxpayer in situations where avoiding, preventing or deferring the inclusion in income of any amount in respect of FAPI under subsection 91(1) is not a purpose of creating or issuing a tracking interest in the affiliate that is acquired or held by the taxpayer or a foreign affiliate of the taxpayer, or a purpose of the taxpayer or foreign affiliate of the taxpayer acquiring or holding that tracking interest. This is implemented by way of an exception to subsections 95(11) and (12) that applies where there is no such FAPI avoidance purpose.

The focus of this purpose test is on the purpose of creating, issuing, acquiring or holding a tracking interest specifically, as opposed to the taxpayer's purpose of acquiring or holding an interest in the foreign affiliate more generally. Accordingly, the test is satisfied, for example, in cases where the taxpayer's sole purpose for acquiring an interest in the foreign affiliate was to earn an investment return but the purpose for structuring the interest as a tracking interest was to avoid an income inclusion in respect of FAPI.

Because of new paragraph 94.2(5)(a), subsection 95(13) does not apply in the case of a trust in respect of which subsection 94.2(2) applies.

This amendment applies in respect of taxation years of foreign affiliates beginning after February 26, 2018.

Clause 16

Reference to trust or estate

ITA
104(1)

Subsection 104(1) provides a rule under which a reference to a trust or estate is read in the Act as a reference to the trustee or the executor, administrator, heir or other legal representative having ownership or control over trust property.

Subsection 104(1) currently provides that, except for the purposes of certain specified provisions, references in the Act to trusts are considered not to include an arrangement where a trust can reasonably be considered to act as agent for its beneficiaries with respect to all dealings in all of the trust's property. These arrangements are generally known as "bare trusts". Trusts described in paragraphs (a) to (e.1) of the definition "trust" in subsection 108(1) are expressly not affected by this exclusion. Subsection 104(1) currently provides that the exclusion for bare trusts does not apply for the purposes of section 150. As such, these trusts are generally required to file an annual trust return and are subject to the beneficial ownership reporting requirements set out in section 204.2 of the Income Tax Regulations.

Subsection 150(1.3) also provides that for the purpose of section 150 a trust includes an arrangement under which a trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust's property.

Subsection 150(1.3) is being amended to more clearly define the beneficial ownership arrangements that are subject to the reporting rules. This subsection will, subject to the exceptions in subsection 150(1.31), deem certain beneficial ownership arrangements that would not otherwise constitute a trust for the purposes of the Act to be a trust for the purposes of the beneficial ownership reporting rules. 

Subsection 104(1) is amended to remove the reference to section 150. As such, beneficial ownership arrangements that are not otherwise treated as trusts for the purposes of the Act will only be subject to the beneficial ownership reporting requirements if they are deemed to be trusts under new subsection 150(1.3). This amendment will apply for taxation years that end after December 30, 2024.

Clause 17

Definitions

ITA
122.6

"eligible individual"

The definition "eligible individual" in section 122.6 describes certain requirements for an individual to be eligible for the Canada Child Benefit.  Paragraph (e) of this definition describes certain residency requirements that must be met for an individual to be eligible for the Canada Child Benefit.

Subparagraph (e)(iv) of the definition currently provides that individuals are eligible to receive the Canada Child Benefit if they or their cohabiting spouse or common-law partner are determined to be a member of a class defined in the Humanitarian Designated Classes Regulations made under the Immigration Act (which was replaced with the Immigration and Refugee Protection Act effective June 28, 2002), where all other eligibility requirements are met. Individuals eligible under subparagraph (e)(iv) would also be considered a protected person within the meaning of the Immigration and Refugee Protection Act and thus, are already eligible to receive the Canada Child Benefit under subparagraph (e)(iii), where all other eligibility requirements are met.

As the Humanitarian Designated Classes Regulations are no longer relevant, subparagraph (e)(iv) is repealed.

This amendment comes into force on Royal Assent.

Clause 18

Death of child — eligible individual

ITA
122.62(10)(c)

Subsection 122.62(10) is a counterpart to subsection 122.62(9). Subsection 122.62(10) addresses circumstances in which there has been the death of a child for whom an individual was an eligible individual in respect of the Canada Child Benefit immediately before the death of the child. This subsection deems this individual to be an eligible individual in respect of the deceased qualified dependant for the purposes of the Canada Child Benefit for each of the six months following the death of the qualified dependant child if that qualified dependant is deemed to be a qualified dependant at the beginning of that month because of subsection 122.62(9).

This is a relieving provision that works in parallel with subsection 122.62(9) and allows an eligible individual to continue receiving the Canada Child Benefit for a deceased child for up to six months following the child's death.

New paragraph 122.62(10)(c) provides that an individual must, at the beginning of each month, continue to satisfy the conditions in paragraphs (c) to (e) of the definition "eligible individual" in section 122.6, in order to be eligible to receive the Canada Child Benefit for a deceased child for that month. These paragraphs generally prescribe certain residency requirements that must be met in order for an individual to be eligible for the Canada Child Benefit. They also exclude individuals who are exempt from tax as employees of a country other than Canada and those individual's family members.

This amendment applies to months that begin after the Announcement Date.

Clause 19

Definitions

ITA
122.92(1)

"qualifying relation"

Subsection 122.92(1) sets out definitions that apply for the purpose of the Multigenerational Home Renovation Tax Credit.

A "qualifying relation" of a qualifying individual for a renovation period taxation year means an individual who is:

• at least 18 years of age by the end of the year; and
• at any time in the year, a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece or nephew of the qualifying individual or the qualifying individual's cohabiting spouse or common-law partner.

The definition "qualifying relation" is amended to also include the spouses and common-law partners of the individuals who are captured by the existing definition.

Most spouses and common-law partners of the listed individuals were already included in "qualifying relation" by virtue of subsection 252(2) of the Act. However, as a result of this amendment, the spouses and common-law partners of the nieces and nephews of qualifying individuals (or of the cohabiting spouses or common-law partners of qualifying individuals) would be eligible to claim the credit.

This amendment applies to the 2023 and subsequent taxation years, in respect of work performed and paid for and/or goods acquired on or after January 1, 2023.

Clause 20

Exception — DMTT regime

ITA
126(4.14)

New subsection 126(4.14) is analogous to subsection 91(4.03), which denies the deduction with respect to foreign income or profits tax paid under a DMTT regime, as defined in subsection 126(7), in certain circumstances. For more information, please see the commentary to subsection 91(4.03).

The only notable distinction between the two rules is that the reference in subsection 126(4.14) to an "amount paid in respect of that particular amount" ensures that the exclusion applies to both an amount of foreign income or profits tax paid by a taxpayer and an amount paid by an agent on behalf of the taxpayer that is treated as equivalent to a payment by the taxpayer.

New subsection 126(4.14) is deemed to come into force on Announcement Date.

Business-income tax — DMTT regime

ITA
126(4.7)

Subsection 126(7) contains a definition of the term "business-income tax" paid by a taxpayer for a taxation year for the purposes of determining the taxpayer's foreign tax credit (FTC). As a consequence of a number of jurisdictions introducing DMTT regime, as defined in subsection 126(7), new subsection 126(4.7), along with new subsections 126(4.14) and (4.8) and the new definitions in subsection 126(7), are introduced to ensure the appropriate amount of income or profits taxes paid by a taxpayer under such DMTT regimes is taken into account in determining the amount of business-income tax paid by a taxpayer. These new FTC rules are similar to the rules in new subsections 91(4.01) and (4.02) (which apply for the purposes of the definition "foreign accrual tax" in subsection 95(1)) and the various amendments to section 5907 of the Regulations (which apply for the foreign affiliate surplus rules). However, these new FTC rules have been adapted in light of the differences in the treatment of foreign taxes paid by a taxpayer for purposes of the FTC rules compared to the treatment of foreign taxes paid by a foreign affiliate of a taxpayer under the foreign accrual tax and surplus rules.

This subsection, along with the interpretation rule introduced in new subsection 126(4.8), supplements the existing definition "business-income tax" in subsection 126(7) to ensure that foreign income or profits tax paid by the taxpayer under a DMTT regime is business-income tax for purposes of the FTC rules only if the portion of tax satisfies a two-part test.

The first component of the two-part test, the income or profits component, is met only if the tested portion of tax can reasonably be considered to be in respect of income or profits (as determined under the DMTT regime) of the taxpayer. New subsection 126(4.8) contains an interpretation rule for purposes of this income or profits component that identifies the amount of tax payable under a DMTT regime that can reasonably be considered to be in respect of income or profits of a taxpayer.

The second component of the two-part test, being the activities component, is met only if the income or profits ascertained under the income or profits component of the test can reasonably be considered to be derived from an activity the income, profit or gains from which would be included in the taxpayer's income from a business carried on in the business country. It is not necessary for the taxpayer to have included income in respect of that activity in its income from that business at the time that the tax is paid. Rather, there simply needs to be a reasonable expectation, at the time of the tax payment, that the activity giving rise to such income or profits (as determined under that DMTT regime) would generate income, profit or gains that would be taken into account in the taxpayer's income from that business.

For more information, see the commentary to new subsections 126(4.14) and (4.8), as well as the new definitions "DMTT group", "fiscal year" and "domestic minimum top-up tax regime" in subsection 126(7).

New subsection 126(4.7) is deemed to come into force on Announcement Date.

Interpretation — DMTT regime

ITA
126(4.8)

New subsection 126(4.8) contains an interpretation rule that applies for the purposes of subsection 126(4.7) and new paragraph (j) of the definition "non-business-income tax" in subsection 126(7). The main thrust of the rule is to determine whether tax payable by a taxpayer under a DMTT regime, as defined in subsection (7), can reasonably be considered to be in respect of income or profits (determined under that regime) of the taxpayer. This rule is analogous to the rule in new subsection 5907(1.192) of the Regulations, which is used to determine the amount of tax payable under a DMTT regime for purposes of computing a foreign affiliate's surplus accounts. For more information, see the commentary on subsection 5907(1.192) of the Regulations.

Although a permanent establishment is not a separate legal entity from the taxpayer, a DMTT regime would generally treat it as a separate constituent entity from the taxpayer. The reference to "income or profits, as determined under that tax regime, of a taxpayer" in the preamble of this subsection, and the subsequent reference in variable B, is intended to refer to the income or profits of the taxpayer's permanent establishment under the DMTT regime.

New subsection 126(4.8) is deemed to come into force on Announcement Date.

Definitions

ITA
126(7)

"domestic minimum top-up tax regime"

Subsection 126(7) is amended to add the definition "domestic minimum top-up tax regime", consequential on the introduction of new rules applicable in determining a taxpayer's foreign tax credit under new subsections 126(4.7) and (4.8) and paragraph (j) of the definition "non-business-income tax" in this subsection. The definition has the meaning assigned by subsection 5907(1) of the Regulations. For more information, see the commentary to the definition in subsection 5907(1) of the Regulations.

This definition is deemed to come into force on Announcement Date.

"DMTT group"

Subsection 126(7) is amended to add the definition "DMTT group", consequential on the introduction of certain rules applicable in determining a taxpayer's foreign tax credit under new subsections 126(4.7) and (4.8) and paragraph (j) of the definition "non-business-income tax" in this subsection. The definition has the meaning assigned by subsection 5907(1) of the Regulations. For more information, see the commentary to the definition in subsection 5907(1) of the Regulations.

This definition is deemed to come into force on Announcement Date.

"fiscal year"

Subsection 126(7) is amended to add the definition "fiscal year", consequential on the introduction of new rules applicable in determining a taxpayer's foreign tax credit under new subsections 126(4.7) and (4.8) and paragraph (j) of the definition "non-business-income tax" in this subsection. The definition has the meaning assigned by subsection 5907(1) of the Regulations. For more information, see the commentary to the definition in subsection 5907(1) of the Regulations.

This definition is deemed to come into force on Announcement Date.

"non-business-income tax"

Subsection 126(7) defines the term "non-business-income tax" paid by a taxpayer for a taxation year for the purposes of determining the taxpayer's foreign tax credit and the amount of any deduction which may be available under subsection 20(12) in computing the taxpayer's income for a taxation year. As a consequence of a number of jurisdictions introducing a DMTT regime, as defined in subsection 126(7), paragraph (j) of the definition is introduced to ensure the appropriate amount of foreign taxes paid by a taxpayer under such DMTT regimes is taken into account in determining the taxpayer's non-business-income tax.

Specifically, paragraph (j) excludes any portion of tax paid by the taxpayer under a DMTT regime that cannot reasonably be considered to be in respect of the taxpayer's income or profits (as determined under that tax regime). New subsection 126(4.8) contains an interpretation rule for purposes of this test that identifies the amount of tax payable under a DMTT regime that can reasonably be considered to be in respect of income or profits (as determined under the tax regime) of the taxpayer. For more information, see the commentary to subsection 126(4.8).

These amendments are deemed to come into force on Announcement Date.

Clause 21

Employee life and health trust

ITA
144.1(2)

Subsection 144.1(2) sets out the conditions that must govern a trust throughout a taxation year in order for the trust to qualify as an employee life and health trust (ELHT).

Paragraph 144.1(2)(b) requires that the terms of the trust must provide that, on wind up of the trust, the remaining property of the trust may only be distributed as provided in any of subparagraphs (i) to (iii). Key employees and individuals related to key employees are not permitted to receive trust property on wind-up under subparagraph 144.1(2)(b)(i).

Subparagraph 144.1(2)(b)(iii) is amended to relax the requirement related to a distribution to His Majesty in right of Canada or a province. Previously, such a distribution could not be made prior to the death of the last beneficiary described in subparagraph 144.1(2)(d)(i) or (ii). The amended subparagraph adds a reference to "other than a key employee or an individual who is related to a key employee". As a consequence, if the last beneficiary (or beneficiaries) of an ELHT is a key employee or related person, a distribution of ELHT property to the crown is permitted.

Paragraph 144.1(2)(d) requires that the trust have no beneficiaries other than persons each of whom is an employee of a participating employer, an employee's spouse or common-law partner, a member of the employee's household who is related to the employee, another ELHT or His Majesty in right of Canada or a province. This paragraph is amended to include a reference to receiving a payment from a benefit described in paragraphs (b) or (e) of the definition "designated employee benefit" in subsection 144.1(1), which is intended to ensure that any individual can receive life insurance and death benefit payouts.

Paragraph 144.1(2)(e) requires that an ELHT contain at least one class of beneficiaries that represents at least 25% of all of the beneficiaries of the trust who are employees of a participating employer. In addition, clause (B) requires either at least 75% of the members of the class must not be key employees of the employer, or that contributions to the trust in respect of key employees who deal at arm's length with their employer are determined in connection with a collective bargaining agreement.

Clause 144.1(2)(e)(i)(B) is amended in a few ways. The prior preamble to clause (B) which required "either" of two conditions to be met to form a reference class (subclauses (I) or (II)) is now replaced by a cumulative 75% test that can be met by either subclause. The conditions in each subclause are also amended to extend the excluded individuals to non-employees and family members. Specifically, 75% or more of the class must now either be:

• individuals that are not key employees (or individuals related to key employees) as described in subclause (I), or
• individuals who deal at arm's length with participating employers and whose contributions to the trust are determined in connection with a collective bargaining agreement as described in subclause (II).

This amendment is intended to ensure that a reference class consisting solely of non-employees or non-arm's length unionized individuals does not qualify to permit excessively generous benefits to shareholder employees and their families.

Clause 22

Definitions

ITA
146(1)

Consequential on the introduction of tax rules applicable to RRSPs established at the direction of an unclaimed property authority, the definitions "benefit", "issuer", "refund of premiums", and "retirement savings plan" in subsection 146(1) are amended.

See the additional commentary for the new definitions "unclaimed property authority" and "unlocated individual" in subsection 248(1), as well as the commentary on new subsections 146(23) and (24).

"benefit"

The definition "benefit" describes amounts received from an RRSP that are required to be included in an annuitant's income under subsection 146(8). Paragraphs (a) to (c.1) of the definition set out various exemptions from being a taxable "benefit".

The definition is amended to add paragraph (c.2) to the list of amounts paid out of an RRSP that are exempted from being a "benefit" to a taxpayer. Paragraph (c.2) will exclude amounts paid or transferred from an RRSP to an unclaimed property authority. As a result, for the purposes of subsection 146(8) of the Act, the amount will not be a taxable benefit.

This amendment applies in respect of amounts paid or transferred to an unclaimed property authority after 2025.

"issuer"

The definition "issuer" means the trustee or other person described in the definition of "retirement savings plan" with whom the annuitant has arranged to establish an RRSP. This definition is amended to include an arrangement established at the direction of an unclaimed property authority. In cases where the annuitant is an unlocated individual, an unclaimed property authority (or a delegated agent) may function as an issuer of an RRSP, notwithstanding the ordinary requirement that an annuitant and an issuer enter a contract.

This amendment comes into force on January 1, 2026.

"refund of premiums"

The definition "refund of premiums" is relevant in determining the amount that, on the death of an annuitant under an RRSP, is included in a beneficiary's income rather than the annuitant's income. The definition is amended such that a payment out of an RRSP held under the direction of unclaimed property authority is not a "refund of premiums". Among other things, the practical effect is to turn off the rollover rules in paragraph 60(l). Survivor beneficiaries who claim and receive RRSP property held under the direction of an unclaimed property authority will have a taxable income inclusion under subsection 146(8) unless they receive a tax-free transfer via new subsection 146(24).

This amendment comes into force on January 1, 2026.

"retirement savings plan"

The definition "retirement savings plan" is relevant for determining the types of arrangements that qualify to register with the Canada Revenue Agency as an RRSP. This definition is amended to include the arrangements or plans established by unclaimed property authorities. Two of the traditional requirements to be a "retirement savings plan" (i.e., an annuitant is a contracting party; contributions are made by the annuitant or a spouse to the issuer of the plan) will not apply to arrangements established at the direction of an unclaimed property authority.

This amendment comes into force on January 1, 2026.

"spousal or common-law partner plan"

The definition "spousal or common-law partner plan" is relevant for the purposes of the special attribution rules in subsections 146(8.3) and 146.3(5.1) that require a taxpayer to include in income certain amounts otherwise included in the income of the taxpayer's spouse in respect of an RRSP or a RRIF.

The definition "spousal or common-law partner plan" is amended by adding paragraph (c) to include a reference to a member's account under a pooled registered pension plan that has received a payment out of or a transfer from a spousal plan in relation to a taxpayer.

For further information see commentary on new subsection 147.5(13.1).

This amendment comes into force on Announcement Date.

Acceptance of plan for registration

ITA
146(3)

Subsection 146(3) provides rules for the types of RRSPs that may qualify for registration. New paragraph 146(3)(c) is added to permit RRSPs established under the direction of an unclaimed property authority in respect of an unlocated individual to qualify for registration notwithstanding that it does not meet the prescribed conditions under subsection 146(2).

See the additional commentary in the amendments to subsection 248(1) that introduce the definitions of unclaimed property authority and unlocated individual.

This amendment comes into force on January 1, 2026.

Definitions

ITA
146(16)

Subsection 146(16) allows taxpayers to transfer funds on a tax-deferred basis from their registered retirement savings plan (RRSP) to registered vehicles listed in that subsection before maturity of the transferor RRSP.

Paragraph (a.2) of the French version of subsection 146(16) was erroneously repealed. Paragraph (a.2) permits transfers from an RRSP to an FHSA under certain conditions. This amendment restores paragraph (a.2) in the French version of the Act.

This amendment is deemed to have come into force on June 20, 2024.

Unclaimed property authority RRSP – post-death treatment

ITA
146(23)

Subsection 146(23) is introduced to modify rules for an RRSP established by an unclaimed property authority in respect of an unlocated individual. This new subsection turns off RRSP rules that ordinarily apply at the death of an annuitant in respect of property held by the RRSP including subsection 146(8.8) to (8.93), paragraph 146(4)(c) and a portion of subsection 146(20).

Paragraph 146(23)(a) creates exceptions to the rules in subsections 146(8.8) to (8.93) that ordinarily apply on the death of the annuitant. An RRSP held under the direction of an unclaimed property authority will not be required to include the fair market value of the plan property as an income of the annuitant in the year of the annuitant's death. Tax considerations will apply at a later date when an eligible claimant receives the property from the unclaimed property authority.

Paragraph 146(23)(b) provides that paragraph 146(4)(c) will not apply to an RRSP held by an unclaimed property authority. Ordinarily under paragraph (4)(c), an RRSP trust ceases to be tax-exempt after December 31 of the year that follows the year of death of the annuitant. As a result of paragraph (23)(b), an RRSP held under the direction of an unclaimed property authority will not lose tax-exempt status following the death of the annuitant.

Paragraph 146(23)(c) modifies how subsection 146(20) will apply to an RRSP established and managed under the direction of an unclaimed property authority as a depositary RRSP. It specifies that subsection 146(20) is to be read without reference to its paragraph (c). As a result, whether or not the unlocated individual is alive in the year in which an amount is credited or added to the plan, the crediting or adding is deemed not to have been received by any person (and thus is not a taxable amount).

This amendment applies in respect of RRSPs established by an unclaimed property authority after 2025.

Unclaimed property authority RRSP – transfers

ITA
146(24)

New subsection 146(24) creates a deeming rule for RRSPs established by an unclaimed property authority in respect of an unlocated individual. It applies when a claimant of the unclaimed RRSP property is:

• the formerly unlocated individual;
• a surviving spouse or common-law partner of the unlocated individual; or
• a child or grandchild that was financially dependent (by reason of mental or physical infirmity) on the unlocated individual immediately before their death.

If one of those individuals is the eligible claimant of RRSP property held under the direction of an unclaimed property authority, that individual will be deemed to be the annuitant of the RRSP for the purposes of subsection 146(16) and will thus be afforded the same tax-deferred transfer rights that are ordinarily available to an RRSP annuitant.

This amendment applies in respect of RRSPs established by an unclaimed property authority after 2025.

Clause 23

Trust ceasing to be a TFSA on death of holder

ITA
146.2(9)

Subsection 146.2(9) provides several rules that modify the tax treatment of trusteed TFSAs on the death of the holder.

• Paragraph 146.2(9)(a) deems the trusteed arrangement to continue to be a TFSA for specified provisions of the Act and Regulations from the time the holder dies until the end of the following year (the "exempt period").
• Paragraph 146.2(9)(b) requires a taxpayer to include in income any payment from the trust during the exempt period made in satisfaction of the taxpayer's beneficial interest in the trust, to the extent it represents income earned on or appreciation in the value of the trust's property during that period.
• Paragraph 146.2(9)(c) is relevant only if the trust continues to exist after the end of the exempt period. It provides that the trust is required to include in its income for its first taxation year any income or appreciation accrued during the post-death exempt period that was not paid out during the exempt period.

The formula in paragraph 146.2(9)(b), which determines the amount of income to be included in a taxpayer's income, previously A – B, is replaced by A – B – C. Variable A remains the amount of the payment. Former variable B is largely preserved under new variable C while new variable B is the amount of "exempt contribution" (as defined in subsection 207.01(1) – see also the amendment to this definition) derived from the payment. Variable C reflects amounts paid by the trust other than amounts covered by variable B (such amounts remain limited to the fair market value of the TFSA trust prior to death). The amendment to paragraph 146.2(9)(b) would allow amounts paid from a TFSA that become an "exempt contribution" of the surviving spouse, even the portion arising from income or appreciation accrued during the exempt period, to not be included in the income of the spouse.

Paragraph 146.2(9)(c) is also amended to ensure that the amount included in the income of the trust in its first taxation year following the exempt period excludes payments from which exempt contributions are derived. This is achieved by subtracting all exempt-period payments (variable B) and the fair market value of the TFSA trust upon the holder's death (variable C) from the sum of the fair market value of the TFSA trust upon the end of the exempt-period and all payments made from the trust during the exempt period (variable A).

The resulting tax treatment mirrors the tax treatment of investment income within a TFSA of a successor holder within the exempt period and is intended to provide relief for cases where a spouse has not been or cannot be designated (as is the case under the Quebec civil code) as the successor holder of a TFSA. Specifically, provided that post-death investment income is paid to a surviving spouse who then makes an exempt contribution of at least that amount, the full post-death balance of a trusteed TFSA could be paid out to the surviving spouse without being included in income. In other words, the amount that is not included in a survivor's income is no longer limited to the fair market value of the TFSA at the holder's death. However, income or appreciation accruing after the exempt period would continue to give rise to an income inclusion, as under current practice.

This amendment comes into force on January 1, 2026.

Clause 24

Definitions

ITA
146.3(1)

Consequential on the introduction of tax rules applicable to RRIFs established at the direction of an unclaimed property authority, several definitions in subsection 146.3(1) are amended.

See the additional commentary for the new definitions "unclaimed property authority" and "unlocated individual" in subsection 248(1), as well as the commentary on new subsections 146.3(1.6), (1.7), (23) and (24).

"designated benefit"

A "designated benefit" is relevant in the case of a distribution out of a RRIF to a spouse or child after the death of the RRIF annuitant. The definition is amended such that a payment out of a RRIF held under the direction of unclaimed property authority is not a "designated benefit". Among other things, the practical effect is to turn off the rollover rules in paragraph 60(l). Survivor beneficiaries who claim and receive RRIF property held by an unclaimed property authority will have a taxable income inclusion under subsection 146.3(5) unless they receive a tax-free transfer described in new subsection 146.3(17).

"carrier"

The definition "carrier" refers to the trustee or other person described in the definition of retirement income fund with whom the annuitant has arranged to establish a RRIF. This definition is amended to include an arrangement established at the direction of an unclaimed property authority. In cases where the annuitant is an unlocated individual, an unclaimed property authority (or a delegated agent) may function as a carrier of a RRIF, notwithstanding the ordinary requirement that an annuitant and a carrier enter into a contract.

"retirement income fund"

The definition of "retirement income fund" describes the types of arrangements that qualify for registration the Canada Revenue Agency that are relevant to subsection 146.3(2). This definition is amended in two ways. First, the traditional arrangements that constitute a "retirement income fund" will now be paragraph (a). Second, a new paragraph (b) provides that an arrangement established by an "unclaimed property authority" in respect of an "unlocated individual" is also a retirement income fund, notwithstanding the absence of an annuitant as a contracting party.

These amendments come into force on January 1, 2026.

Minimum amount – unclaimed property

ITA
146.3(1.6) and (1.7)

New subsection 146.3(1.6) provides that a registered retirement income fund established by an unclaimed property authority will be deemed to have a minimum amount (as defined in subsection 146.3(1)) of zero for each taxation year that the plan is held by the unclaimed property authority. Accordingly, such a RRIF will not be required to make minimum payments to the annuitant (until the year of the claim).

New subsection 146.3(1.7) provides two conditions that will apply in the year a claim is made to an unclaimed property authority to receive property from a registered retirement income fund held by authority. Under paragraph (1.7)(a), when an unclaimed property authority directs a transfer of property to a claimant, a catch-up minimum amount shall be payable (and is taxable) in the year of the claim. The "minimum amount" will be equal to the total of minimum amounts that would have been payable in the current year and each preceding taxation year.

For example, Fred Flatstone opened an RRSP in his early twenties with a bank that he later forgot about it. Later he found out that the account was transferred to an unclaimed property authority and was converted into a RRIF when Fred reached age 71. Fred claimed the amount in 2025 at age 75. For illustrative purposes, assume that a $500 minimum amount would ordinarily have been paid to Fred in each year from age 72 to 75 (i.e., taxation years 2022 to 2025). The minimum amount that the unclaimed property will need to pay to Fred in 2025 (reported as taxable income via a T4RIF) is $2,000.

Furthermore, under paragraph (1.7)(b), an amount not less than the "minimum amount" determined under paragraph (1.7)(a) must be paid to the claimant before a tax-deferred amount (net of the minimum amount paid out) may be transferred to another registered retirement vehicle. Note from the commentary on new subsection 146.3(17) that a limited group of claimants are entitled to tax-deferred transfers.

It is intended that no tax be withheld from the accumulated minimum amount withdrawn from a RRIF, consistent with current practice with respect to withholding on RRIF minimum amounts (see paragraph 103(6)(d.1) of the Income Tax Regulations).

These amendments come into force on January 1, 2026.

Acceptance of fund for registration

ITA
146.3(2)(f)(iii)

Paragraph 146.3(2)(f) prohibits a RRIF from receiving property other than property transferred from the registered vehicles listed in that paragraph.

Subparagraph 146.3(2)(f)(iii) is amended as a consequence of the introduction in 2023 of clause 60(j)(iv)(C) that permits a RRIF to receive property from non-registered pension plans under the conditions set out in paragraph 60(j).

This amendment is deemed to have come into force on August 4, 2023.

Acceptance of fund for registration

ITA
146.3(2.1)

Subsection 146.3(2) sets out the conditions that a RRIF must comply with in order to be registered with the Canada Revenue Agency. New subsection 146.3(2.1) of the Act would permit RRIFs established by an unclaimed property authority in respect of an unlocated individual to qualify for registration without satisfying all the standard registration requirements that would ordinarily apply to traditional RRIFs.

This amendment comes into force on January 1, 2026.

Benefits taxable

ITA
146.3(5)

Under subsection 146.3(5) of the Act, amounts received by a taxpayer from a RRIF are generally required to be included in the taxpayer's income (i.e., via T4RIF) subject to certain exceptions.

New paragraph 146.3(5)(e) provides an exception from the income inclusion requirement when property from an unclaimed RRIF is paid or transferred to an "unclaimed property authority". Tax considerations will apply at a later date when an eligible claimant receives the property from the unclaimed property authority.

This amendment applies in respect of amounts paid or transferred to an unclaimed property authority after 2025.

Transfer to PRPP or RPP

ITA
146.3(14.1)

Subsection 146.3(14.1) provides for the direct transfer of an amount from an annuitant's RRIF to a money purchase provision of a registered pension plan (RPP) and similar arrangements.

Subsection 146.3(14.1) is amended in two ways. First, the reference to "transferred at the direction of the annuitant directly to" that appears in each of paragraphs (a) to (c) is moved to the preamble.

Second, a new paragraph (d) is added to permit a direct transfer of an amount from an annuitant's RRIF to a defined benefit provision of an RPP not exceeding the amount necessary to fund additional benefits that will be provided as a consequence of a past service event (for example, crediting past years of service under an RPP).

This amendment is deemed to have come into force on January 1, 2025.

Unclaimed property authority RRIF – post-death treatment

ITA
146.3(16)

Subsection 146.3(16) is introduced to modify rules for a RRIF established by an unclaimed property authority in respect of an unlocated individual. This new subsection turns off rules that ordinarily apply at the death of a RRIF annuitant, including subsections 146.3(3.1) and (6.1) to (6.4) and a portion of subsection 146.3(15).

Paragraph 146.3(16)(a) creates exceptions to the rules in subsections 146.3(6.1) to (6.4) that ordinarily apply on the death of the annuitant. A RRIF held under the direction of an unclaimed property authority will not be required to include the fair market value of the plan property as an income of the annuitant in the year of the annuitant's death. Tax considerations will apply at a later date when an eligible claimant receives the property from the unclaimed property authority.

Paragraph (16)(b) provides that subsection 146.3(3.1) will not apply to a RRIF held by an unclaimed property authority. Ordinarily under subsection (3.1), a RRIF trust ceases to be tax-exempt after December 31 of the year that follows the year of death of the annuitant. As a result of paragraph (16)(b), a RRIF held under the direction of an unclaimed property authority will not lose tax-exempt status following the death of the annuitant.

Paragraph (16)(c) modifies how subsection 146.3(15) will apply to an RRIF established and managed under the direction of an unclaimed property authority as a depositary RRIF. Specifically, 146.3(15) is to be read without reference to its paragraph (c). As a result, whether or not the unlocated individual is alive in the year in which an amount is credited or added to the plan, the crediting or adding is deemed not to have been received by any person (and thus is not a taxable amount).

This amendment applies in respect of RRIFs established by an unclaimed property authority that receive property in respect of an amount paid or transferred to an unclaimed property authority after 2025.

Unclaimed property authority RRIF – transfers

ITA
146.3(17)

New subsection 146.3(17) creates a deeming rule for RRIFs established by an unclaimed property authority in respect of an unlocated individual. It applies when a claimant of the unclaimed RRIF property is:

• the formerly unlocated individual;
• a surviving spouse or common-law partner of the unlocated individual; or
• a child or grandchild that was financially dependent (by reason of mental or physical infirmity) on the unlocated individual immediately before their death.

If one of those individuals is the eligible claimant of the RRIF property, that individual will be deemed to be the annuitant of the RRIF for the purposes of paragraphs 146.3(2)(d) and (e) and subsection 146.3(14.1), thus the claimant will be afforded the same tax-deferred transfer rights that are ordinarily available to a RRIF annuitant.

This amendment applies in respect of RRIFs established by an unclaimed property authority that receive property in respect of an amount paid or transferred to the unclaimed property authority after 2025.

Clause 25

Definitions

ITA
146.5(1)

"advanced life deferred annuity"

The definition "advanced life deferred annuity" (ALDA) in subsection 146.5(1) of the Act provides the conditions that an annuity contract must meet to qualify as an ALDA contract.

Paragraph (f) of the definition describes the sole type of lump sum death benefit payable from an ALDA. Subparagraph (f)(ii) is amended in two ways. First, it is now calculated with reference to a formula (A + B – C).  Originally, the amount determined under paragraph (f) was effectively the amount of the purchase price of the annuity contract less the amount of any annuity payments made from the contract. Those two amounts are now expressed as variables A and C of the formula. Second, a new amount (variable B) is added that effectively represents an amount of interest calculated on the purchase price from the date of the annuity purchase to the date of the payment of the lump sum death benefit. In short, if the annuity purchase price plus interest exceeds the total annuity payments to the annuitant, the contract may pay the residual amount to a survivor of the annuitant.

This amendment is deemed to have come into force on January 1, 2023.

Clause 26

Definitions

ITA
146.6(1)

"first home savings account" or "FHSA"

A "first home savings account" or "FHSA" is defined as an arrangement that has been registered with the Minister of National Revenue and has not ceased to be a FHSA pursuant to subsection 146.6(16).

The definition is amended to clarify that the arrangement must be a qualifying arrangement in order to be considered an FHSA. See the definition of "qualifying arrangement", which sets out the conditions that an arrangement must meet in order to be a qualifying arrangement at any particular time.

"annual FHSA limit"

The definition "annual FHSA limit" is used in the determination of the amount an individual may deduct under subsection 146.6(5), in respect of contributions to a FHSA, in computing the individual's income for a particular taxation year. The annual FHSA limit for a particular taxation year is the least of paragraphs (a), (b) and (c) of the definition.

The definition is amended to ensure that designated withdrawals made after a qualifying withdrawal do not unintentionally result in disallowance of deductions for contributions made prior to the qualifying withdrawal. In particular, variable C in paragraph (a) of the definition is amended to subtract amounts contributed to an FHSA after the taxpayer's first qualifying withdrawal from the total of all designated amounts described in paragraph (b) of the definition designated amount in subsection 207.01(1) for the year.

These amendments are deemed to have come into force on April 1, 2023.

Clause 27

Former employee

ITA
147.2(9) and (10)

Section 147.2 provides the rules that govern the deductibility of employer and employee contributions to registered pension plans (RPPs). The subsection is amended by adding new subsections (9) and (10) that will apply to the pension benefit entitlements of orphaned employees (i.e., members of a defined benefit pension plan whose employer or former employer no longer participates in the plan for ongoing benefit accumulation of employees). Together, these two subsections will permit other employers to make contributions to the pension plan to ensure that the plan has sufficient assets to pay for the legacy pension benefits of the orphaned employees.

New subsection 147.2(9) sets out the conditions under which other employers will be permitted (under new subsection (10)) to make contributions to fund legacy benefits. For plans that are not individual pension plans, relief is being provided where a plan member's employer or former employer has ceased to be a participating employer under the plan and the member has not become an employee of any of the other participating employers under the plan.

If the conditions set out in subsection (9) are met, new subsection 147.2(10) deems the member to be a former employee of all other participating employers. Since subsection 147.2(2) requires that employer contributions be made "in respect of the employees or former employees" of an employer, the deeming rule in new subsection 147.2(10) will effectively permit any participating employer under a defined benefit pension plan to make unfunded liability contributions towards the legacy benefits of orphaned employees.

These amendments come into force on Announcement Date.

Clause 28

Commutation of annuity contract

ITA
147.4(4) and (5)

Where an individual acquires ownership of an annuity in satisfaction of the individual's entitlement to benefits under a registered pension plan (RPP) and certain other conditions are met, subsection 147.4(1) deems the individual not to have received an amount from the RPP as a result of acquiring the annuity and deems amounts received under the contract to be amounts received under the RPP. As a consequence, there is no immediate taxation on acquisition of the annuity and any payments under the contract are included in the recipient's income (under subparagraph 56(1)(a)(i), as a superannuation or pension benefit) in the year in which they are received.

The Act currently prohibits the value of the annuity from being transferred to a registered vehicle of the annuitant. Section 147.4 is amended by adding subsections (4) and (5) to allow for a transfer of the commuted value of the annuity in certain circumstances.

Subsection 147.4(4) sets out the situations in which an annuity contract may be commuted and transferred on a tax-deferred basis. First, the conditions set out in paragraphs 147.4(1)(a) to © must be satisfied when the annuitant acquired an interest in the annuity contract. Second, the transfer must be made because:

• a spouse or common-law partner or former spouse or common-law partner becomes entitled to a portion of the benefits under the contract on the breakdown of marriage or common-law partnership; or
• the Pension Benefits Standards Act, 1985, or similar law of a province permits the annuitant to commute or surrender the annuity.

New subsection 147.4(5) effectively deems an amount transferred from an annuity contract to a registered vehicle of the annuitant to be an amount transferred from the RPP (i.e., the original source of funds that purchased the annuity). Accordingly, it effectively permits a tax-deferred transfer to that other registered vehicle as if section 147.3 applied to a transfer out of an RPP.

Note that if the original annuity purchase was sourced from a defined benefit provision of an RPP, the prescribed limit that applies under paragraph 147.3(4)(c) to transfers out of a defined benefit provision will also apply to the indirect transfer from the annuity to other registered vehicles.

This amendment is deemed to have come into force on January 1, 2018.

Clause 29

Definitions

ITA
147.5(1)

Subsection 147.5(1) defines terms that are relevant for the purposes of section 147.5 (pooled registered pension plans).

A "member" of a pooled pension plan is defined an individual (other than a trust) who holds an account under the plan.

The definition "member" is amended to define a member of a pooled pension plan as an individual (other than a trust) that is a member of the plan under the Pooled Registered Pension Plans Act or a similar law of a province. This amendment will ensure that a member of a pooled pension plan for income tax purposes reflects the definition of member in federal or provincial legislation.

Amount included in income

ITA
147.5(13.1)

Subsection 147.5(13.1) is introduced as a spousal attribution rule, equivalent to subsection 146(8.3) and 146.3(5.1), designed to discourage income-splitting via the use of a spousal RRSP. New subsection 147.5(13.1) is an anti-avoidance provision which prevents the use of a pooled registered pension plan (PRPP) as a means of avoiding the spousal attribution rules that apply to RRSPs and RRIFs.

New subsection 147.5(13.1) requires a member's spouse to include in income any amount received in a year by the member out of a PRPP to the extent that the spouse made contributions to a spousal RRSP that were deductible by the taxpayer under subsection 146(5.1) for that year or for either of the two preceding years and to the extent that the PRPP received transfers from a "spousal or common-law partner plan" (as defined in subsection 146(1)). This rule does not apply where, at the time the amount is received by the member, the member and spouse were living separate and apart by reason of a marriage breakdown.

See commentary on the definition of "spousal or common-law partner plan" in subsection 146(1).

This amendment comes into force on Announcement Date.

Clause 30

Exceptions – trusts

ITA
150(1.2)

Subsection 150(1) stipulates the tax return requirements and the filing dates for different categories of taxpayers. Subsection 150(1.1) sets out exceptions to subsection 150(1), when the filing of a tax return is not required. Subsection 150(1.2) provides that subsection 150(1.1) does not apply in respect of an express trust, unless it meets one of the exceptions listed in subsection 150(1.2).

In addition, a trust that is required to file a return under subsection 150(1) is not required to provide the additional information set out in section 204.2 of the Regulations if it meets one of the exceptions listed in subsection 150(1.2). As such, trusts that are required to file a return, and that do not meet one of these exceptions, will be required to provide the additional information outlined in section 204.2 of the Regulations.

Several amendments are being made to add or broaden exceptions in subsection 150(1.2).

ITA
150(1.2)(a)

Paragraph 150(1.2)(a) provides that beneficial reporting does not apply to trusts that have been in existence for less than three months at the end of the year—this is intended to capture two possibilities: trusts that were created less than three months before the end of the year and short-term trusts that existed for a period of less than three months (e.g., a trust created in June that is dissolved in July). Paragraph (a) is amended to clarify that the three-month relieving rule applies to trusts that have been in existence for three months during the year.

ITA
150(1.2)(b) and (c)

Paragraph 150(1.2)(b) provides that the beneficial ownership reporting requirement does not apply in respect of a trust if the trust hold assets with a total fair market value that does not exceed $50,000 throughout the year, where the only assets held by the trust throughout the year are one or more of:

• money,
• certain government debt obligations,
• a share, debt obligation or right listed on a designated stock exchange,
• a share of the capital stock of a mutual fund corporation,
• a unit of a mutual fund trust,
• an interest in a related segregated fund (within the meaning assigned by paragraph 138.1(1)(a), and
• an interest, as a beneficiary under a trust, that is listed on a designated stock exchange.

Paragraph 150(1.2)(b) is amended to remove the requirement that the assets of the trust constitute the specific assets currently prescribed in that paragraph.

New paragraph 150(1.2)(b.1) provides an expanded relieving exception where each beneficiary of the trust is an individual and related to each trustee of the trust. This new exception would apply where:

• each trustee is an individual,
• each beneficiary is an individual and is related to each trustee, and
• the total fair market value of the property of the trust does not exceed $250,000 throughout the year and the only assets held by the trust throughout the year are one or more of
  • money,
  • a guaranteed investment certificate issued by a Canadian bank, trust company incorporated under the laws of Canada or of a province,
  • a debt obligation described in paragraph (a) of the definition fully exempt interest in subsection 212(3),
  • debt obligations issued by
    • a corporation, mutual fund trust or limited partnership the shares or units of which are listed on a designated stock exchange in Canada,
    • a corporation the shares of which are listed on a designated stock exchange outside Canada, or
    • an authorized foreign bank that are payable at a branch in Canada of the bank,
• a share, debt obligation or right listed on a designated stock exchange,
• a share of the capital stock of a mutual fund corporation,
• a unit of a mutual fund trust,
• an interest in a related segregated fund trust (within the meaning assigned by paragraph 138.1(1)(a)),
• an interest as a beneficiary under a trust, all the units of which are listed on a designated stock exchange,
• personal use property of the trust, or
• a right to receive income or gains on property described above.

Paragraph 150(1.2)(c) provides an exemption to the beneficial ownership reporting requirements for trusts that are required under the relevant rules of professional conduct or the laws of Canada or a province to hold funds for the purposes of the activity that is regulated under those rules or laws, provided the trust is not maintained as a separate trust for a particular client or clients (this provides an exception for a professional's general trust account, but not for specific client accounts).

Paragraph 150(1.2)(c) is amended to extend this exception to specific accounts provided the only assets held by the trust throughout the year are money with a value that does not exceed $250,000.

These amendments will apply for taxation years that end after December 30, 2024.

ITA
150(1.2)(b.1)

Paragraph 150(1.2)(b.1) introduced rules that provide the criteria for a relieving exemption that applies for taxation years that end after December 30, 2024. Subparagraph 150(1.2)(b.1)(ii) provides the requirement that each beneficiary is an individual and is related to each trustee. Two amendments are being made to this subparagraph.

• The first amendment provides that the individual beneficiaries of the trust may not themselves be trusts.
• The second amendment provides that a graduated rate estate of an individual may be a beneficiary of the trust provided that individual was a beneficiary of the trust immediately before their death.

This amendment will apply for taxation years that end after December 30, 2025.

ITA
150(1.2)(b.1)

Subparagraph 150(1.2)(b.1)(iii) provides the requirement that, in order to qualify for the relieving rule of paragraph 150(1.2)(b.1), the property in the trust must not exceed a fair market value of $250,000 and must consist of certain assets, including money and a guaranteed investment certificate issued by a Canadian bank or trust company.

Subparagraph 150(1.2)(b.1)(iii) is amended to provide that the qualifying assets would include deposits in a Canadian bank, trust company or credit union incorporated under the laws of Canada or of a province and a guaranteed investment certificate issued by a credit union.

This amendment will apply for taxation years that end after December 30, 2025.

ITA
150(1.2)(c)

Subparagraph 150(1.2)(c)(ii) is amended to expand the type of property that may be held in specific client trust accounts to include deposits in a Canadian bank or credit union, a guaranteed investment certificate issued by a Canadian bank, trust company or credit union incorporated under the laws of Canada or of a province.

This amendment will apply for taxation years that end after December 30, 2025.

ITA
150(1.2)(j)

Paragraph 150(1.2)(j) provides an exemption to the beneficial ownership reporting requirements for trusts that are graduated rate estates. In order to qualify as a graduated rate estate, a return must be filed for that trust. This paragraph is amended to provide that the exemption is also available to a trust that would be a graduated rate estate if a return was filed for the trust.

This amendment will apply for taxation years that end after December 30, 2024.

ITA

150(1.2)(n)

Paragraph 150(1.2)(n) provides that the beneficial ownership reporting requirement does not apply in respect of trusts under or governed by registered plans or funds. Paragraph 150(1.2)(n) is amended by adding a new subparagraph (xii) to extend this exception to a subset of retirement compensation arrangements (commonly known as supplemental pension plans) whose primary purpose is to provide annual or more frequent periodic retirement benefits to supplement the retirement benefits provided under one or more specified registered retirement vehicles. 

This amendment applies to taxation years that end after December 30, 2025.

ITA
150(1.2)(q)

Paragraph 150(1.2)(q) provides, for greater certainty, that the limitation in this subsection would not apply to statutorily created trust relationships, such as those of bankruptcy trustees or provincial guardians. This paragraph is intended to provide greater certainty for such trustees by providing that the relevant statute does not need to require that property be held in trust in order for the trust to qualify for the exemption.

This amendment will apply for taxation years that end after December 30, 2024.

ITA
150(1.2)(r)

New paragraph 150(1.2)(r) provides an exemption from the beneficial ownership reporting requirements for a trust that is an employee ownership trust.

This amendment applies to taxation years that end after December 30, 2025.

Deemed trust

ITA
150(1.3)

Subsection 150(1.3) currently provides that, for the purposes of section 150, trusts include an arrangement where a trust can reasonably be considered to act as agent for its beneficiaries with respect to all dealings in all of the trust's property. These arrangements are generally known as "bare trusts". This, along with current subsection 104(1), mean that bare trusts are currently subject to the reporting requirements in this section and section 204.2 of the Regulations.

Existing subsection 150(1.3) is repealed. This, along with the amendment to remove the reference to section 150 in subsection 104(1), means that beneficial ownership arrangements that are not otherwise treated as trusts for the purposes of the Act will only be subject to the beneficial ownership reporting requirements if they are express trusts that meet the criteria of new subsection 150(1.3).

The amendment to repeal subsection 150(1.3) applies to taxation years that end after December 30, 2024. This means that "bare trusts" will not be required to file returns for taxations years ending on December 31, 2024.

Subsection 150(1.3) is replaced with new wording to provide greater certainty and to effectively define what constitutes a "bare trust" for the purposes of the beneficial ownership reporting requirements. This new subsection relies upon the existing trust concept of the division of legal and beneficial ownership and is intended, subject to the exceptions in subsection 150(1.31), to capture those arrangements that would normally constitute bare trusts (provided those bare trusts are also express trusts under applicable law). This change, together with the exceptions in new 150(1.31), is intended to provide more clarity on the arrangements that are subject to the reporting rules.

New subsection 150(1.3) provides that for the purposes of section 150 and section 204.2 of the Regulations:

• an express trust that is otherwise not considered to be trust under the Act, must report its beneficial ownership information if

• one or more persons (the legal owner) have legal ownership of property that is held for the use of, or benefit of, one or more persons or partnerships, and
• the legal owner can reasonably be considered to act as agent for the persons or partnerships who have the use of, or benefit of, the property;

• each person that is a legal owner of an arrangement set out above is deemed to be a trustee of the trust; and
• each person or partnership that has the use or benefit of property under an arrangement that is set out above is deemed to be a beneficiary of the trust.

Subsection 150(1.31) provides that subsection 150(1.3) does not apply to an arrangement that meets one of the exceptions listed in paragraphs 150(1.31)(a) to (g).

Subject to the exemptions in subsection 150(1.2), if subsection 150(1.3) applies to a trust in a year, beneficial ownership information of that trust would be required to be reported to the CRA for that year.

The amendment to add the new version of subsection 150(1.3) applies to taxation years that end after December 30, 2025. Accordingly, it would first be applicable to taxation years that end on December 31, 2025. This is intended to allow taxpayers and their advisors sufficient time to consider their circumstances in light of new subsections 150(1.3) and (1.31) (discussed below).

Deemed trust — exceptions

ITA
150(1.31)

New subsection 150(1.31) provides that subsection 150(1.3) does not apply to a trust that meets one of the exceptions listed in paragraphs (a) to (g). Some of the exceptions describe arrangements that may not be express trusts under applicable law (and therefore would not fall within the scope of subsection 150(1.3)). However, they have been included nonetheless to provide additional certainty that those arrangements are not intended to be subject to reporting obligations.

New subsection 150(1.31) provides that subsection 150(1.3) does not apply to a trust for a taxation year if:

• Each person or partnership that is considered to be a beneficiary by subsection (1.3) at any time in the year is also a legal owner of the property referred to in that paragraph at that time and there are no legal owners that are not considered to be beneficiaries. This would provide greater certainty that subsection 150(1.3) would not apply in circumstances where individuals hold the property both for their own use and benefit and for that of another person, such as where family members hold a joint bank account.
• The legal owners are individuals that are related persons and the property is real property that would be the principal residence of one or more of the legal owners for the year if those legal owners had designated the property for the year under the definition principal residence in section 54. This would exclude circumstances such as where a parent is on title to allow a child to obtain a mortgage.
• The legal owner is an individual and the property is real property that is held for the use of, or benefit of, the legal owner's spouse or common-law partner during the year and would be the legal owner's principal residence for the year if the legal owner had designated the property for the year under the definition principal residence in section 54. This would exclude circumstances where spouses jointly occupy a family home, but only one spouse is on title.
• Under the trust the property is held throughout the year solely for the use of, or benefit of, a partnership, each legal owner is a partner of the partnership, and a member of the partnership is, or but for subsection 220(2.1) would be, required under section 229 of the Regulations to make an information return for a fiscal period of the partnership that includes December 31 of that year. This would exclude circumstances where a partner holds property for the use or benefit of the partnership.
• The legal owner holds the property pursuant to an order of a court.
• A trust where Canadian resource property is held for the use or benefit of one or more publicly listed companies (or subsidiaries or partnerships of such companies).
• A trust where a non-profit organization holds funds it has received from the federal or provincial governments for the use or benefit of other non-profit organizations.

This amendment applies to taxation years that end after December 30, 2025.

Related persons

ITA
150(1.32)

New subsection 150(1.32) provides that, for the purposes of section 150:

• a related person includes an aunt, uncle, niece and nephew; and
• a person is related to himself or herself.

This amendment will ensure that the $250,000 threshold exemption in paragraph 150(1.2)(b.1) will operate as intended and also expands the list of individuals who would be considered to be related for the purposes of the relieving rule.

This amendment applies to taxation years that end after December 30, 2025.

Solicitor-client privilege

ITA
150(1.4)

Paragraph 150(1.2)(c) provides an exception to the trust reporting requirements for a lawyer's or notary's general trust account, but not for all specific client accounts. Subsection 150(1.4) provides that, for greater certainty, the trust reporting requirements do not require the disclosure of information that is subject to solicitor-client privilege.

Subsection 150(1.4) is amended to update the cross-reference to subsection 150(1.3) consequential on the repeal and subsequent reinstatement of that subsection.

Clause 31

Withholding

ITA
153(1)

Subsection 153(1) requires the withholding of income tax from any of the payments described in paragraphs 153(1)(a) to (v).

Under paragraph 153(1)(b), administrators of registered pension plans making a payment of a superannuation or pension benefit are required to withhold tax from the payment and remit any tax withheld to the Receiver General. Consequential on an exclusion from taxable income under new clause 56(1)(a)(i)(H), new paragraph 153(1)(b) is amended to exclude from the withholding requirement amounts paid or transferred from a registered pension plan to an "unclaimed property authority". As a result, administrators of registered pension plans will be permitted to transfer the gross amount of an unclaimed benefit entitlement of an unlocated individual to an unclaimed property authority. Note from an amendment to the definition of "superannuation or pension benefit" in subsection 248(1) that a subsequent payment from the authority to a claimant will be a taxable event under subparagraph 56(1)(a)(i) and will be subject to tax withholding under paragraph 153(1)(b).

See the additional commentary on the new definition of "unclaimed property authority" in subsection 248(1) for a list of federal and provincial laws under which unclaimed property authorities operate, as well as the commentary on the new definition "unlocated individual".

Paragraph 153(1)(j) provides that a payment out of or under an RRSP is subject to the income tax withholding requirements imposed under subsection 153(1). Paragraph (j) is amended to provide an exemption from withholding for amounts described in 146(1)(c.2), specifically an amount that is paid or transferred from an RRSP to an unclaimed property authority in respect of an unlocated individual. A subsequent payment from an RRSP held under the direction of the authority to a claimant (other than a tax-deferred transfer) will be a taxable event under subsection 146(8) and will be subject to tax withholding under paragraph 153(1)(j).

See the additional commentary on new subsections 146(23) and (24) that modify how certain tax rules will apply to RRSPs held under the direction of unclaimed property authorities.

Paragraph 153(1)(l) provides that a payment out of or under a RRIF is subject to the income tax withholding requirements imposed under subsection 153(1). Paragraph (1) is amended to exclude from withholding requirements an amount described in paragraph 146.3(5)(e), specifically an amount paid or transferred from a RRIF to an unclaimed property authority. A subsequent payment from a RRIF held under the direction of the authority to a claimant (other than a tax-deferred transfer) will be a taxable event under subsection 146.3(5) and will be subject to tax withholding under paragraph 153(1)(1).

See the additional commentary on new subsections 146.3(1.6), (1.7), (16) and (17) that modify how certain tax rules will apply to RRIFs held under the direction of unclaimed property authorities.

These amendments apply in respect of amounts paid to an unclaimed property authority after 2025.

Clause 32

Definitions

ITA
183.3(1)

"reorganization transaction"

A redemption, acquisition or cancellation (together referred to as a "redemption") of equity that is made upon a "reorganization transaction" is generally excluded from the netting rule in subsection 183.3(2), which calculates the amount of Part II.2 tax payable. The types of redemption that qualify as a "reorganization transaction" are listed in the definition.

Paragraph (c) of the definition describes a winding-up of a covered entity during which all or substantially all of the property owned by the covered entity is distributed to the equity holders. This paragraph is reorganized into two new subparagraphs:

• subparagraph (i) describes the existing type of winding-up in paragraph (c), and
• subparagraph (ii) describes a winding-up to which subsection 88(1) applies. This might occur, for instance, in the course of an internal reorganization to eliminate cross-shareholdings (i.e., corporate incest).

This amendment is deemed to come into force on January 1, 2024.

Similar Transactions

ITA
183.3(5)

Subsection 183.3(5) is an anti-avoidance rule that applies to deem, for purposes of subsection 183.3(2), a covered entity to acquire its own equity if a specified affiliate of the covered entity acquires equity of the covered entity.

Subsection 183.3(5) is amended, for greater certainty, to also apply for purposes of the definitions in subsection 183.3(1) so that, for instance, the acquisition of equity might satisfy the "reorganization transaction" definition, that is excluded from the formula in subsection 183.3(2).

This amendment is deemed to come into force on January 1, 2024.

Clause 33

Definitions

ITA
207.01(1)

Subsection 207.01(1) contains definitions that apply in Part XI.01 and in Part XLIX of the Regulations.

In general terms, an "exempt contribution" is a TFSA contribution made by an individual (the survivor) with proceeds received from an arrangement that was the TFSA of the survivor's deceased spouse.

Paragraph (d) requires that the amount of the contribution not exceed the least of three amounts. One of these amounts (subparagraph (ii)) is the excess of the proceeds of disposition referred to in paragraphs 146.2(8)(a), (10)(a) or (11)(a) in connection with the arrangement (from which the survivor payment is made) over the total of all other exempt contributions made by the survivor in relation to that arrangement. The proceeds of disposition referred to in those three paragraphs (trusts, annuity contracts, and deposits) is the total the fair market value of the trust's properties, the contract, or the deposit, as the case may be, immediately before the individual's death.

In conjunction with the amendment to subsection 146.2(9), paragraph (d) is amended to repeal subparagraph (ii). Therefore, the amount of contributions that the survivor is permitted to designate in respect of survivor payments is no longer limited to the fair market value of TFSA property immediately before the death of the survivor's spouse. This means that appreciation in the value of the property following the death can be contributed by the survivor as an exempt contribution. Subparagraph (i) is amended to eliminate its two clauses so as to present as a single sentence and subparagraph (iii) is renumbered to become new subparagraph (ii).

This amendment comes into force on January 1, 2026.

Clause 34

Securities Lending Arrangements

ITA
207.04(7)

New subsection 207.04(7) ensures that rights to property received as consideration under certain securities lending arrangements are deemed not to be non-qualified investments for the purposes of taxes under Part I and Part XI.01 of the Act that apply in respect of non-qualified investments.

Paragraph (a) requires that the lent property under the securities lending arrangement is a security listed on a designated stock exchange. This requirement would generally be expected to be a more restrictive subset of the 'qualified security' definition in subsection 260(1), which applies in respect of securities lending arrangements.

Paragraph (b) requires the lender under the securities lending arrangement to be the registered plan trust.

Paragraphs (c) and (d) are conditions that relate to the borrower of the lent property. Paragraph (c) requires the borrower of the security under the securities lending arrangement to be a registered securities dealer resident in Canada. Paragraph (d) requires that the lent security is not lent or transferred to a person not dealing at arm's length with the controlling individual of the registered plan (i.e., holder of a TFSA, FHSA, or RDSP; annuitant of an RRSP or RRIF; or the subscriber of a RESP).

Paragraphs (e) through (g) ensure the lender is afforded certain safeguards against incremental economic and legal risks under the securities lending arrangement. Paragraph (e) requires that lender has a right to recall the security at any time under the terms of the securities lending arrangement. Paragraph (f) requires that equivalent collateral to the lent security is held in trust for the lender in the form of cash or government bonds. Specifically, the collateral is intended to always be of at least equivalent value to the lent security for the duration it is lent (though it is not intended to preclude the ability to provide such collateral in excess of the value of the lent security). Finally, paragraph (g) requires that the controlling individual of the registered plan provides informed consent to the details of the securities lending arrangement.

This amendment is deemed to have come into force on January 1, 2023.

Clause 35

Definitions

ITA
207.5(1)

Subsection 207.5(1) contains the definitions that apply for the purposes of the Part XI.3 tax applicable to retirement compensation arrangements.

Paragraph (a) of the definition of "specified arrangement" is amended to make it clearer that the benefits provided by the retirement compensation arrangement are supplemental to the benefits provided out of or under a registered pension plan, registered retirement savings plan, deferred profit sharing plan, pooled registered pension plan, or any combination thereof.

This amendment is deemed to have come into force on March 28, 2023.

Clause 36

Definitions

ITA
248(1)

"superannuation or pension benefit"

The definition of superannuation or pension benefit includes amounts received out of or under a superannuation or pension fund or plan. The definition is amended, consequential on the introduction of rules that apply to unclaimed retirement property that is paid to an unclaimed property authority.

The previous paragraphs (a), (b), and (c) now appear as subparagraphs (a)(i) to (iii). The new paragraph (b) applies in the case where property from a registered pension plan, an RRSP or a RRIF is paid to an unclaimed property authority and held by the authority as a non-registered cash account. When that non-registered property is subsequently paid by the authority to a clamant, that payment will be a "superannuation or pension benefit" and will be included in the claimant's taxable income under subparagraph 56(1)(a)(i) (and reported to the CRA via a T4A).

If unclaimed property from a registered pension plan, RRSP or RRIF is transferred to an unclaimed property authority to be held by the authority (or a delegated entity) as an RRSP or RRIF, a subsequent payment of that property from the RRSP or RRIF to a claimant will not be a "superannuation or pension benefit". See the commentary on the amendments to sections 146 and 146.3 that will apply to RRSPs and RRIFs established under the direction of an unclaimed property authority.

This amendment applies in respect of amounts paid to an individual by an unclaimed property authority if an amount in respect of the payment was paid to the unclaimed property authority after 2025.

"unclaimed property authority"

The new definition of unclaimed property generally describes five entities that are authorized under five statutes (one federal, four provincial) to hold assets of unlocated individuals. The definition is added to the Act consequential on amendments to subsections 56(1) and 153(1) and sections 146 and 146.3 of the Act that will modify how tax rules apply to property paid or transferred from registered pension plans, RRSPs and RRIFs to be held under the direction of the authorized entities.

This amendment comes into force on January 1, 2026.

"unlocated individual"

Consequential on the introduction of modified tax rules that will apply to unclaimed retirement property that is paid or transferred to unclaimed property authorities, a new definition of "unlocated individual" is added to subsection 248(1) of the Act.  An "unlocated individual" is generally a member of a registered pension plan, or an annuitant or former annuitant of an RRSP or a RRIF, who cannot be located by the administrator, issuer or carrier of the registered vehicle. See the additional commentary on the new definition "unclaimed property authority".

This amendment comes into force on January 1, 2026.

Clause 37

Definitions

ITA
256.1(1)

"specified provision"

Section 256.1 provides certain rules that relate to a number of other provisions in the Act meant to constrain the trading of corporate tax attributes among arm's length persons. subsection 256.1(1) provides definitions that apply for the purposes of section 256.1.

The definition "specified provision" is relevant in applying the anti-avoidance rules in subsections 256.1(3) and (6), which deem an acquisition of control to occur in certain circumstances.

The definition of "specified provision" in subsection 256.1(1) is amended to correct a cross-reference that was inadvertently changed in Bill C-59. This amendment is deemed to have come into force on August 9, 2022, consistent with the application of the corresponding amendment in Bill C-47.

Income Tax Regulations

Clause 38

Additional Reporting – Trusts

Income Tax Regulations (the Regulations or ITR)
204.2(1)

Subsection 204.2(1) requires all trusts that are required to file a return of income to provide additional information, except for those trusts specifically listed in paragraphs 150(1.2)(a) to (p) of the Act. This additional information includes the name, address, date of birth (in the case of an individual other than a trust), jurisdiction of residence and taxpayer identification number (or TIN, as defined in subsection 270(1) of the Act) for each person who, in the year,

• is a trustee, beneficiary or settlor (as defined in subsection 17(15) of the Act) of the trust; or
• has the ability (through the terms of the trust or a related agreement) to exert influence over trustee decisions regarding the appointment of income or capital of the trust. This would include, for example, a protector of the trust.

Consequential on the introduction of new subparagraphs 150(1.2)(q) and (r) of the Act, subsection 204.2(1) is amended to provide that the reporting exemption applies to trusts listed in paragraphs 150(1.2)(a) to (r) of the Act. The addition of paragraph 150(1.2)(q) will apply for taxation years that end after December 30, 2024. The addition of paragraph 150(1.2)(r) will apply for taxation years that end after December 30, 2025.

 Subsection 204.2(1) is also amended to clarify that every trust, other than those trusts specifically listed in subsection 150(1.2) of the Act, that is required to file a return of income is also required to provide the prescribed beneficial ownership information of the trust. This subsection is also amended to include the requirement to provide the prescribed information of a partnership that is a beneficiary of a trust. This amendment applies to taxation years that end after December 30, 2024.

New subsection 204.2(3) of the Regulations provides a more targeted definition of "settlor" for the purposes of this regulation than the definition included in subsection 17(15) of the Act. Consequential on the introduction of new subsection 204.2(3) of the Regulations, paragraph 204.2(1)(a) of the Regulations is amended to remove the reference to a settlor being defined in subsection 17(15) of the Act. This amendment applies to taxation years that end after December 30, 2024.

ITR
204.2(2)

Subsection 204.2(2) provides that for the purposes of subsection (1), the requirement to provide information in respect of the beneficiaries of a trust is met if

• the required information is provided in respect of each beneficiary of the trust whose identity is known or ascertainable with reasonable effort by the person making the return at the time of filing the return;
• in respect of a trust, the beneficiaries of which are all of the members of an Indigenous group, community or people that holds rights recognized and affirmed by section 35 of The Constitution Act, 1982, or an identifiable class of the members of an Indigenous group, community or people that holds rights recognized and affirmed by section 35 of The Constitution Act, 1982, the person making the return provides a sufficiently detailed description of the class of beneficiaries to determine with certainty whether any particular person is a member of that class of beneficiaries;
• in respect of a trust where some but not all of the units of which are listed on a designated stock exchange, the person making the return provides the required information regarding the beneficiaries of those unlisted classes of units; and
• for beneficiaries whose identity is not known or ascertainable with reasonable effort by the person making the return, the person making the return provides sufficiently detailed information to determine with certainty whether any particular person is a beneficiary of the trust.

For example, the beneficiary of a trust may not be known where the trust provides for a class of beneficiaries that includes the settlor's current children and grandchildren and any children or grandchildren that the settlor may have in the future. In these circumstances the reporting requirement will be met if the relevant information in respect of all of the settlor's current children and grandchildren are included as well as the details of the terms of the trust that extend the class of beneficiaries to any of the settlor's future children or grandchildren.

New paragraph 204.2(2)(e) provides that the reporting requirements for a trust that is an alter ego trust or a joint spousal or common-law partner trust, are met if the person making the return provides the required information regarding the beneficiaries of the trust, other than those beneficiaries who are contingent beneficiaries. This exemption is provided in light of the fact that such trusts may essentially function as will substitutes and the contingent beneficiaries of the trust may not know that they are beneficiaries. This amendment applies to taxation years that end after December 30, 2025.

Definition of settlor

ITR
204.2(3)

New subsection 204.2(3) defines a settlor for the purposes of subsection 204.2(1) of the Regulations. This subsection provides that a settlor is any person or partnership that has directly or indirectly, in any manner whatever, transferred property to the trust at or before that time, other than a transfer made by the person or partnership to the trust for fair market value consideration or pursuant to a legal obligation to make the transfer.

This amendment applies to taxation years that end after December 30, 2024.

Clause 39

Elections

ITR
600

Section 600 prescribes certain provisions for the purposes of subsection 220(3.2) of the Act, under which the Minister may allow for the late filing, amendment or revocation of certain elections.

Paragraph 600(c) is amended to add references to paragraph (e) of the definition "excluded interest" and paragraph (b) of the definition "specified pre-regime loss" in subsection 18.2(1) (i.e., in respect of the election required for excluded interest and specified pre-regime loss, respectively), consequential to the enactment of the excessive interest and financing limitation (EIFEL) rules in sections 18.2 and 18.21.

Paragraph 600(c.1) is introduced to add a reference to clause 95(2)(f.11)(ii)(E) in respect of the election to forgo a foreign accrual property loss.

 For further information, please see the commentary for the definitions "excluded interest" and "specified pre-regime loss" in subsection 18.2(1) and paragraph 95(2)(f.11) of the Act.

This amendment is deemed to have come into force on October 1, 2023.

Clause 40

International Shipping Vessel

ITR
1101(2d)

Section 1101 provides separate classes in respect of certain properties described in Schedule II to the Regulations.

Proposed new subsection 1101(2d) of the Regulations provides that each vessel of a taxpayer described in Class 7 in Schedule II, including the furniture, fittings, radiocommunication equipment and other equipment attached to the vessel, that has been used by the taxpayer to earn income that would not be included in computing the income of the taxpayer because of paragraph 81(1)(c.1) of the Act – i.e., that has been used by taxpayer to earn exempt international shipping income – is prescribed to be a separate class of property.

This amendment is deemed to have come into force on December 31, 2023.

Clause 41

Prescribed benefits

ITR
3100(1)(b)(i)

Subparagraph 3100(1)(b)(i) lists certain forms of assistance from a government, municipality or other public authority that may constitute "prescribed benefits" for the purpose of paragraph (b) of the definition "tax shelter" in subsection 237.1(1) of the Act.

Subparagraph 3100(1)(b)(i) is amended to provide that an "excluded loan" (as defined in subsection 12(11) of the Act) will not be treated as government assistance for these purposes.

This amendment comes into force on January 1, 2022.

Prescribed benefits

ITR
3100(3)

For the purpose of paragraph (b) of the definition "tax shelter" in subsection 237.1(1) of the Act, subsection 3100(3) provides that a "prescribed benefit" in respect of an interest in a property may include an amount that is a limited-recourse amount because of subsection 143.2(1), (7) or (13) of the Act. Certain exceptions to this rule are then set out in paragraphs 3100(3)(a), (b) and (c).

Subsection 3100(3) is amended to add a new exception in paragraph (d). Paragraph 3100(3)(d) provides that an amount will not be considered a specified limited-recourse amount where the amount is an "excluded loan" as defined in subsection 12(11) of the Act.

This amendment comes into force on January 1, 2022.

Clause 42

Interpretation

ITR
5907(1)

Subsection 5907(1) provides definitions for the purposes of Part LIX of the Regulations.

Various definitions are being amended, and new definitions are being introduced, in order to take into account, in the surplus computations of foreign affiliates of corporations resident in Canada, the income or profits tax paid under certain foreign tax laws ("DMTT regimes") that have been enacted or brought into effect with the intent of implementing a "Qualified Domestic Minimum Top-up Tax", as defined in Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two) (the "Model Rules"), published by the Organisation for Economic Co-operation and Development.

In general terms, the definitions "exempt deficit", "exempt surplus", "hybrid deficit", "hybrid surplus", "hybrid underlying tax", "taxable surplus" and "underlying foreign tax" are amended to reflect, in the relevant surplus and tax accounts of a foreign affiliate, income or profits tax paid by the affiliate under a DMTT regime. New subsection 5907(1.011) is also introduced to ensure that the income or profits tax paid under a DMTT regime is only taken into account in determining a foreign affiliate's' surplus and tax accounts where expressly provided by those definitions.

Amendments are also made to those definitions because of the new rules introduced in subsections 5907(1.14) to (1.193), which can be summarized in general terms as follows:

• New subsections (1.14) to (1.191) provide various rules to ensure that the income or profits tax paid under a DMTT regime is matched to the appropriate foreign affiliate (e.g., in the case of subsection (1.14), where one entity pays tax under a DMTT regime on behalf of other group entities; and, in the case of subsections (1.16), (1.17) and (1.191), where there is a split, for surplus purposes, between the entity that pays the tax and the entity whose income or profits generates the tax liability).
• Subsections (1.15), (1.18) and (1.19) support the functioning of these new rules.
• Subsection (1.192) is a rule of interpretation that clarifies how to determine whether tax under a DMTT regime is payable in respect of any particular foreign affiliate.
• Subsection (1.193) sets out circumstances where tax paid under a DMTT regime is excluded from an affiliate's hybrid underlying tax or underlying foreign tax.

The new definitions "domestic minimum top-up amount", "domestic minimum top-up tax regime", "fiscal year" and "DMTT group" are added to accommodate the foregoing amendments. Finally, subsection 5907(1.3) is amended to prescribe certain compensation payments made under new subsection (1.14) to be foreign accrual tax.

These amendments are deemed to come into force on Announcement Date.

"DMTT group"

The definition "DMTT group" is primarily relevant for new subsections 5907(1.14), (1.15) and (1.192). It is also referred to in subsection 126(7) of the Act. A DMTT group consists of the one or more entities that are members of a particular MNE group (as defined in subsection 10(1) of the Global Minimum Tax Act) and are subject to a particular jurisdiction's DMTT regime.

A foreign affiliate may be a member of more than one DMTT group where it is resident in one country and has a permanent establishment in another country, if each country enacts a DMTT regime. In that case, the foreign affiliate is a member of the DMTT group of its residence country with respect to its income or profits determined under that country's DMTT regime, and a member of the DMTT group of the country of its permanent establishment with respect to the income or profits of the permanent establishment determined under that other DMTT regime.

This definition is deemed to come into force on Announcement Date.

"domestic minimum top-up amount"

The new definition "domestic minimum top-up amount" is relevant for purposes of the rules in new subsections 5907(1.14) to (1.192) which, in general terms, deal with situations where one foreign affiliate pays the tax liability on behalf of one or more other affiliates under a jurisdiction's DMTT regime. This situation may arise either because that jurisdiction's laws allow one affiliate to pay another affiliate's tax liabilities, or as a consequence of one affiliate being a shareholder of another affiliate that is fiscally transparent.

This definition is similar to new subparagraph (vii) of variable B in each of the definitions "exempt surplus" and "taxable surplus", and new subparagraph (viii) of variable B of the definition "hybrid surplus". As in each of those new subparagraphs, this definition contains a two-part test. The difference in the case of this definition is that the activities component of the test applies by reference to all three of the surplus pools, whereas the test in those other subparagraphs applies by reference to only a single surplus pool. For more information, see the commentary to the definitions "exempt surplus", "hybrid surplus" and "taxable surplus" in this subsection.

This definition is deemed to come into force on Announcement Date.

"domestic minimum top-up tax regime"

The new definition "domestic minimum top-up tax regime" is added to subsection 5907(1) in connection with the amendments to the foreign affiliate surplus rules addressing the treatment of income or profits tax paid under such a regime. Those amendments are to the definitions "exempt surplus", "hybrid surplus" and "taxable surplus" in this subsection and to new subsections 5907(1.011) and (1.14) to (1.193).

By testing whether a set of provisions have been brought into effect with the intention of implementing a qualified domestic minimum top-up tax, this definition does not preclude taxes paid by a foreign affiliate under a jurisdiction's tax laws that fail to obtain "qualified" status from being considered taxes paid under a DMTT regime. Rather, the definition requires an objective assessment of whether the provisions in question can reasonably be viewed as being intended to implement a qualified domestic minimum top-up tax.

This definition is deemed to come into force on Announcement Date.

"fiscal year"

The new definition "fiscal year" is added to subsection 5907(1). This definition is primarily relevant to new subsections 5907(1.14) and (1.16) to (1.192) and the definition "domestic minimum top-up amount" in this subsection. The term generally refers to the accounting period for which income or profits that are subject to tax under a DMTT regime are determined.

This definition is deemed to come into force on Announcement Date.

"exempt deficit"

Consequential on the introduction of subparagraph (vii) to the description of B in the definition "exempt surplus", the definition "exempt deficit" is amended to add a reference to that subparagraph. For more information, see the commentary to the definition "exempt surplus".

This amendment is deemed to come into force on Announcement Date.

"exempt surplus"

The definition "exempt surplus" is primarily relevant for the purpose of determining the deductibility of dividends received from a foreign affiliate, pursuant to paragraph 113(1)(a) of the Act.

Subparagraph (vi) of the description of A, and subparagraph (vi) of the description of B, of the definition are both amended to add references to new subsections 5907(1.14) and (1.17). For more information, see the commentary on those subsections.

A new subparagraph (vii) is also added to the description of B, in order to cause reductions to a subject affiliate's exempt surplus for certain amounts of foreign taxes paid under a DMTT regime. Specifically, the subject affiliate's exempt surplus is reduced by a portion of foreign taxes paid by the subject affiliate under such a regime if the portion can reasonably be considered to be in respect of income or profits – as determined under that regime, rather than under the Act or the domestic corporate income tax regime of the relevant foreign jurisdiction – of the subject affiliate that are derived from an activity the income, profit or gains from which would be included in the subject affiliate's exempt earnings. This is a two-part test: the portion of income or profits tax must reasonably be considered to be in respect of the subject affiliate's income or profits (the "income or profits" component of the test), and those income or profits must reasonably be considered to be derived from an activity that would generate exempt earnings of the subject affiliate (the "activities" component of the test).

For the purpose of applying the income or profits component of the two-part test, new subsection 5907(1.192) contains an interpretation rule that determines whether foreign taxes paid by the subject affiliate under the DMTT regime can reasonably be considered to be in respect of the affiliate's income or profits (as determined under that regime). For more information, see the commentary to subsection 5907(1.192).

In applying the activities component of the two-part test, if the subject affiliate has income or profits (as determined under a DMTT regime) that are derived from multiple different activities, the reasonable allocation of the top-up tax among those activities is in proportion to the income or profits generated from each activity. This allocation methodology treats each dollar of income or profits as having contributed equally to the top-up tax liability, reflecting that the top-up tax computation occurs at the jurisdictional level based on an aggregation (or "blending") of all the income and taxes of all the members of the DMTT group. For example, assume a foreign affiliate has paid $50 of top-up tax under a DMTT regime and has $400 of income and profits subject to tax under that regime – $100 of which is derived from an activity the income, profit or gains from which would be included in exempt earnings, and $300 of which is derived from another activity the income, profit or gains from which would be included in taxable earnings. In this case, the reasonable allocation results in a $12.50 reduction of the affiliate's exempt surplus and a $37.50 reduction to the affiliate's taxable surplus (with a corresponding increase to its underlying foreign tax).

In some cases, income or profits from an activity may be recognized for purposes of the DMTT regime in a year prior to the year in which income, profit or gains from that activity are included in a subject affiliate's exempt earnings. In these cases, the subject affiliate's exempt surplus is reduced by the domestic minimum top-up tax paid even though income, profit or gains in respect of the activity have not yet been included in its exempt earnings, provided there is a reasonable expectation at the surplus computation time that any income, profit or gains that would be generated by the activity would be included in the subject affiliate's exempt earnings. Likewise, if the subject affiliate has an exempt loss from a particular activity, but has income or profits from that activity as computed under the DMTT regime, the subject affiliate's exempt surplus is reduced (or its exempt deficit is increased) by the amount of top-up tax it pays in respect of that income or profits – provided it is the case that, if the subject affiliate had income, profit or gains from that activity, they would be included in computing its exempt earnings.

These amendments are deemed to come into force on Announcement Date.

"hybrid deficit"

This definition is amended similarly to the definition "exempt deficit". For more information, see the commentary on the definition "exempt deficit".

This amendment is deemed to come into force on Announcement Date.

"hybrid surplus"

This definition is amended similarly to the definition "exempt surplus", except that hybrid surplus takes into account only income or profits tax paid on the subject affiliate's income or profits (as determined under a DMTT regime) that are derived from activities any capital gains or capital losses from which would be included in the subject affiliate's hybrid surplus. For more information, see the commentary on the definition "exempt surplus".

These amendments are deemed to come into force on Announcement Date.

"hybrid underlying tax"

The definition "hybrid underlying tax" is relevant in accounting for income or profits taxes paid in respect of hybrid surplus. It is similar to the concept of underlying foreign tax, which applies in the context of taxable surplus.

Consequential on the introduction of new subsection 5907(1.17), subparagraph (iv) in each of variables A and B of the definition is amended to add a reference to that new subsection. A new subparagraph (v) is also added to variable A consequential on the amendments to the definition "hybrid surplus".

For more information, see the commentary on the definition "exempt surplus" and new subsections 5907(1.16) and (1.17).

These amendments are deemed to come into force on Announcement Date.

"taxable deficit"

This definition is amended similarly to the definition "exempt deficit". For more information, see the commentary on the definition "exempt deficit".

This amendment is deemed to come into force on Announcement Date.

"taxable surplus"

This definition is amended similarly to the amendments to the definition "exempt surplus", except that taxable surplus takes into account only income or profits tax paid on the subject affiliate's income or profits (as determined under a DMTT regime) that are derived from activities any income, profits or gains from which would be included in the subject affiliate's taxable earnings. For more information, see the commentary on the definition "exempt surplus".

These amendments are deemed to come into force on Announcement Date.

"underlying foreign tax"

The definition "underlying foreign tax" is primarily relevant for the purposes of determining the deductibility of dividends received from a foreign affiliate of a corporation, pursuant to subsection 113(1) of the Act.

Subparagraph (v) in variable A and subparagraph (iv) in variable B of this definition are amended, on a similar basis to the amendments made to the definition "hybrid underlying tax", to include a reference to new subsection 5907(1.17). A new subparagraph (vi) is added to variable A of the definition consequential on the amendments to the definition "taxable surplus".

For more information, see the commentary on the definition "taxable surplus" and new subsections 5907(1.16) and (1.17).

These amendments are deemed to come into force on Announcement Date.

ITR
5907(1.011)

Consequential on the amendments to the definitions "exempt surplus", "hybrid surplus", "hybrid underlying tax", "taxable surplus" and "underlying foreign tax" in subsection 5907(1), new subsection 5907(1.011) is introduced to ensure that the income or profits tax paid under a domestic minimum top-up tax regime (as newly defined in subsection (1)) is only taken into account in determining a foreign affiliate's surplus and tax accounts where expressly provided by those definitions. This rule is aimed at preventing double counting of tax where income or profits tax paid might otherwise be required to be factored into the computations under those definitions even in the absence of the new provisions that expressly require such tax to be taken into account.

New subsection 5907(1.011) is deemed to come into force on Announcement Date.

ITR
5907(1.14)

New subsection 5907(1.14) provides rules for the calculation of the surpluses and deficits of a foreign affiliate where the affiliate is a member of a DMTT group (as defined in subsection 5907(1)) and a foreign affiliate (referred to as the "primary affiliate") pays income or profits tax under a DMTT regime on behalf of itself and other members of the DMTT group (referred to as "secondary affiliates") for a fiscal year (as defined in subsection 5907(1)). This situation could arise because the regime requires the primary affiliate to pay the tax liability on behalf of some or all of the members of the DMTT group, or because the DMTT group exercises the option, which may be provided under the regime, of having one member pay on behalf of other members of the DMTT group. In these circumstances, subsection 5907(1.14) sets out the consequences to the primary and secondary affiliates under the surplus rules, including the consequences where a secondary affiliate compensates the primary affiliate for paying such tax on its behalf.

Subsection 5907(1.14) applies to foreign affiliates of a corporation resident in Canada that are members of the same DMTT group. The effect of new subsection 5907(1.15), which applies for the purposes of subsection (1.14), is that a non-resident corporation is deemed to be a foreign affiliate of the corporation resident in Canada if the non-resident corporation is both a member of the same MNE group (as defined in subsection 10(1) of the Global Minimum Tax Act) as the corporation resident in Canada and a member of the same DMTT group as another foreign affiliate of the corporation resident in Canada (other than a foreign affiliate that is a foreign affiliate because of subsection (1.15)). This is intended to ensure that all members of the DMTT group are within the scope of subsection (1.14), even if they are not actually foreign affiliates of any corporation resident in Canada, and ensures that foreign affiliates are not denied the benefit of this subsection because the entity paying the tax on behalf of the DMTT group is not otherwise a foreign affiliate. Likewise, a primary affiliate's surplus accounts are adjusted by the total amount of tax paid under a DMTT regime, even if some portion of that tax was paid on behalf of an entity that is not actually a foreign affiliate. For more information, see the commentary on subsection (1.15).

Subparagraph (a)(i) deems any tax paid under the DMTT regime by the primary affiliate that exceeds the primary affiliate's domestic minimum top-up amount for the fiscal year not to have been paid by the primary affiliate. This allows the primary affiliate's surplus and underlying tax accounts to be adjusted by an amount equal to the primary affiliate's domestic minimum top-up amount, while subjecting any of the tax paid by the primary affiliate in excess of that amount to the rules in the rest of the subsection. For more information, see the notes on the definition "domestic minimum top-up amount" in subsection 5907(1) and on subsection 5907(1.192).

Under subparagraph (a)(ii), the primary affiliate's surplus accounts are reduced (or its deficit accounts are increased) by the domestic minimum top-up amount of any secondary affiliate in the same manner that the secondary affiliate's surplus accounts would be reduced (or its deficit accounts increased) if that amount had instead been paid as tax directly by the secondary affiliate. For example, if a secondary affiliate's domestic minimum top-up amount is entirely attributable to activities that generate exempt earnings, the primary affiliate's exempt surplus (or, if the primary affiliate has an exempt deficit, its exempt deficit) is to be adjusted under clause (a)(ii)(A).

Paragraph 5907(1.14)(b) applies where a secondary affiliate compensates the primary affiliate for paying tax in respect of the secondary affiliate's domestic minimum top-up amount. In that case, subparagraph (b)(i) deems the compensation payment to be a payment of income or profits tax, under the DMTT regime, by the secondary affiliate. As a consequence, that amount is taken into account in computing the secondary affiliate's surplus (or deficit) accounts, in accordance with the new rules in the definitions "exempt surplus", "hybrid surplus" and "taxable surplus". For example, an affiliate's exempt surplus account is reduced by the portion of tax paid under a DMTT regime that can reasonably be considered to be in respect of income or profits (as determined under that regime) derived from an activity that would generate exempt surplus. To the extent any portion is taken into account in computing the secondary affiliate's hybrid or taxable surplus (or corresponding deficits), it will also be included in that affiliate's hybrid underlying tax or underlying foreign tax, respectively, under the amendments to those definitions.

As a corollary, under subparagraph (b)(ii), a compensation payment causes corresponding adjustments to be made to the primary affiliate's exempt, hybrid or taxable surplus (or corresponding deficits). These adjustments mirror the adjustments to the primary affiliate's surplus (or deficit) accounts under subparagraph (a)(ii).

Example

Facts

1. Canco is a corporation resident in Canada that holds all of the issued and outstanding shares of FA 1, FA 2 and FA 3.
2. Each of FA 1, FA 2 and FA 3 are members of the same MNE group (as defined in subsection 10(1) of the Global Minimum Tax Act) and are subject to tax under the DMTT regime of Country X.
3. The income or profits, and taxes payable, under Country X's DMTT regime in respect of each of FA 1, FA 2 and FA 3 for the fiscal year are as follows:

4. Under the laws of Country X's DMTT regime, while each entity is jointly and severally liable for the taxes payable by the group's members, the liability is assigned to the group's most economically significant entity, which for the year in question is FA 1.
5. The other entities in the group are required, under the laws of Country X's DMTT regime, to make compensatory payments for their respective shares of the tax to the entity that pays the tax on behalf of the group. To determine each entity's share of the tax payable for the fiscal year, the group's total tax payable is allocated among the group entities in the jurisdiction in proportion to their DMTT income for the fiscal year (i.e., using the formula in Article 5.2.4 of the Model Rules).
6. During the surplus computation period, FA 1 pays $225 in tax on behalf of itself, FA 2 and FA 3 to Country X, and FA 2 pays $75 in compensation to FA 1.

Analysis

1. FA 1, FA 2 and FA 3 are members of the same DMTT group.
2. The domestic minimum top-up amounts of FA 1, FA 2 and FA 3 are $150, $75 and nil, respectively. Subsection 5907(1.192) provides that the income or profits tax payable under a DMTT regime that can reasonably be considered to be in respect of income or profits of a particular FA under that regime is the income or profits tax determined under that regime to be in respect of the income or profits of that particular FA. In this case, the DMTT regime determines the tax payable in respect of each FA's income or profits according to the allocation under Article 5.2.4. of the Model Rules.
3. Under subparagraph 5907(1.14)(a)(i), FA 1 is deemed not to have paid any amount of income or profits tax that exceeds its domestic minimum top-up amount of $150. In this case, the excess is $75.
4. Under subparagraph 5907(1.14)(a)(ii), in conjunction with the amendments to subparagraph (vi) of the description of B in the definition "exempt surplus" in subsection 5907(1), FA 1's exempt surplus is reduced by FA 2's domestic minimum top-up amount of $75 because that amount would have reduced FA 2's exempt surplus by $75 if FA 2 had paid the tax amount to Country X. The reduction occurs at the end of the fiscal year.
5. The compensation payment that FA 2 pays to FA 1 is, under subparagraph 5907(1.14)(b)(i), deemed to be a payment by FA 2 of tax to Country X in respect of FA 2's domestic minimum top-up amount. As a result, FA 2's exempt surplus is reduced by $75 under new subparagraph (vii) of the description of B of the definition "exempt surplus" in subsection 5907(1). The reduction occurs at the end of the fiscal year.
6. Under subparagraph 5907(1.14)(b)(ii), in conjunction with the amendments to subparagraph (vi) of the description of A in the definition "exempt surplus" in subsection 5907(1), the compensation payment reverses the reduction to FA 1's exempt surplus at the end of the fiscal year, such that FA 2's exempt surplus, and not FA 1's exempt surplus, is now adjusted by FA 2's domestic minimum top-up amount.

New subsection 5907(1.14) is deemed to come into force on Announcement Date.

ITR
5907(1.15)

New subsection 5907(1.15) is a deeming rule that applies for purposes of the provisions in section 5907 concerning tax paid under a DMTT regime by one foreign affiliate in respect of another foreign affiliate or other entity. This subsection deems any non-resident corporation to be a foreign affiliate of a particular corporation resident in Canada if the non-resident corporation and the particular corporation are both members of the same MNE group (as defined in subsection 10(1) of the Global Minimum Tax Act) and the non-resident corporation is a member of a DMTT group of which another foreign affiliate of the particular corporation – other than a deemed foreign affiliate – is a member. This ensures that any provisions that reference a foreign affiliate within the context of a DMTT group – such as new subsection 5907(1.14), which adjusts one affiliate's surplus accounts in accordance with the domestic minimum top-up amount of another foreign affiliate – function appropriately when not all members of the DMTT group are foreign affiliates of the particular corporation resident in Canada.

Paragraph (b) provides a simplification in the case where a deemed affiliate of the particular corporation is not a foreign affiliate of any corporation resident in Canada and thus will not have computed any of its surplus accounts. In that case, any activities carried out by the deemed affiliate are deemed to be exempt earnings-generating activities, such that the affiliate has only exempt surplus. As a consequence, where the deemed affiliate is a secondary affiliate referenced in subsection 5907(1.14), only the primary affiliate's exempt surplus is adjusted in respect of the domestic minimum top-up amount of the secondary affiliate. For more information, see the commentary on that subsection.

New subsection 5907(1.15) is deemed to come into force on Announcement Date.

ITR
5907(1.16)

New subsection 5907(1.16) lays out the conditions of application of new subsection (1.17), which provides a rule to address tax paid under the DMTT regime of a country by a foreign affiliate (referred to as the "shareholder affiliate") that has an equity percentage in another foreign affiliate (referred to as the "transparent affiliate") whose "financial accounting income" (as defined in subsection 17(1) of the Global Minimum Tax Act) is taken into account in determining the shareholder affiliate's income or profits under the DMTT regime.

Subsection 5907(1.17) ensures that appropriate adjustments are made to the surplus accounts of both affiliates in a situation where, under Canadian tax laws, the transparent affiliate is considered to be a non-resident corporation, and therefore a foreign affiliate, but under the DMTT regime applicable in respect of the shareholder affiliate, the transparent affiliate is treated as a flow-through entity (such that the transparent affiliate's financial accounting income is taken into account in determining the shareholder affiliate's income or profits under that regime). In the absence of subsection 5907(1.17), the rules in Part LIX of the Regulations would not apply appropriately because, from a Canadian perspective, the entity paying the tax (i.e., the shareholder affiliate) is not the entity (i.e., the transparent affiliate) whose surplus accounts reflect the underlying income to which the tax relates. If such a situation occurs in the context of a payment of tax to which subsection 5907(1.14) applies (i.e., one group entity pays the top-up tax on behalf of other group entities), new subsections 5907(1.18) and (1.19) provide "helper" rules to integrate the surplus adjustments under subsection (1.14) with the adjustments under subsection (1.17). For more information, see the commentary on subsections 5907(1.14) and (1.17) to (1.19).

New subsection 5907(1.16) is deemed to come into force on Announcement Date.

ITR
5907(1.17)

New subsection 5907(1.17) applies when the conditions in new subsection (1.16) are met. If the shareholder affiliate pays tax under a DMTT regime in respect of its income or profits (as determined under that regime), where those income or profits are computed taking into account a portion of the transparent affiliate's "financial accounting income" (as defined in subsection 17(1) of the Global Minimum Tax Act), subsection (1.17) adjusts the surplus accounts of the shareholder affiliate and, if a compensation payment is made by the transparent affiliate to the shareholder affiliate, the transparent affiliate.

First, under subparagraph (a)(i), any portion of the income or profits tax paid under the DMTT regime that exceeds the shareholder affiliate's domestic minimum top-up amount is deemed not to have been paid by the shareholder affiliate. This excess is, in effect, the portion of the tax in respect of the shareholder affiliate's income or profits that derive from an activity the income, profit or gains from which would not be included in computing the shareholder affiliate's surplus accounts because they would be included in computing the transparent affiliate's surplus accounts.

The reason that subparagraph (a)(i) applies despite subparagraph 5907(1.14)(b)(i) is to ensure that the latter subparagraph does not result in the shareholder affiliate being deemed to have paid income or profits tax in an amount greater than its own domestic minimum top-up amount. That result could otherwise occur in cases where the shareholder affiliate has compensated a primary affiliate for paying tax on the shareholder affiliate's behalf, since a portion of the compensation payment could relate to the transparent affiliate's financial accounting income that is included in the shareholder affiliate's income or profits under the DMTT regime.

Under subparagraph (a)(ii), the portion of the tax deemed not to have been paid by the shareholder affiliate nonetheless reduces the shareholder affiliate's relevant surplus accounts (or increases its deficit accounts) to the extent that the portion can reasonably be considered to be in respect of income or profits (determined under the DMTT regime) that are derived from an activity the income, profit or gains from which would be included in those surplus accounts of the transparent affiliate. Where the portion relates to hybrid or taxable surplus, it is also added to the shareholder affiliate's hybrid underlying tax or underlying foreign tax, respectively.

Paragraph (b) applies if the transparent affiliate compensates the shareholder affiliate for the amount of tax deemed not to have been paid under subparagraph (a)(i) and is analogous to paragraph 5907(1.14)(b). In that case, the compensation payment is deemed to be a payment of income or profits tax by the transparent affiliate. This results in adjustments to the transparent affiliate's surplus and tax accounts. At the same time, subparagraph (b)(ii) effectively reverses the adjustments made to the shareholder affiliate's surplus and tax accounts under subparagraph (a)(ii).

As noted, this subsection may operate together with subsection 5907(1.14) in cases where one foreign affiliate pays tax under a DMTT regime on behalf of other affiliates. For more information, see the commentary on subsections 5907(1.18) and (1.19).

New subsection 5907(1.17) is deemed to come into force on Announcement Date.

ITR
5907(1.18)

New subsection 5907(1.18) lays out the conditions of application of new subsection (1.19), which provides "helper" rules to integrate subsection 5907(1.14) with the rules in subsection 5907(1.17) that apply where the income or profits of a foreign affiliate (referred to in that subsection as a "shareholder affiliate" and in this subsection and subsection (1.19) as the "particular affiliate") include any portion of the "financial accounting income" (as defined in subsection 17(1) of the Global Minimum Tax Act) of another foreign affiliate (referred to in subsection (1.17) as the "transparent affiliate"). New subsection 5907(1.19) applies where a particular affiliate is a "secondary affiliate" (within the meaning of subsection 5907(1.14)) that has an equity percentage in a transparent affiliate; the "primary affiliate" (within the meaning of subsection (1.14)) has paid tax under a DMTT regime on behalf of the particular affiliate; and the particular affiliate's income or profits (as determined under that regime) take into account the financial accounting income of the transparent affiliate.

New subsection 5907(1.18) is deemed to come into force on Announcement Date.

ITR
5907(1.19)

New subsection 5907(1.19) applies when the conditions in new subsection 5907(1.18) are met.

Paragraph (a) ensures that the primary affiliate's surplus accounts are appropriately adjusted under subparagraph 5907(1.14)(a)(ii) by the full amount of tax paid by the primary affiliate under a DMTT regime in respect of the particular affiliate's income or profits (as determined under the DMTT regime). Some portion of that amount is otherwise excluded from the particular affiliate's domestic minimum top-up amount because it derives from amounts that would not be included in the particular affiliate's surplus accounts.

Paragraphs (b) to (d) further assist the application of subparagraphs 5907(1.14)(a)(ii) and (b)(ii), by dictating how the surplus accounts of the primary affiliate are to be adjusted under those subparagraphs in respect of the relevant portion (which refers to the portion of the tax that relates to income or profits derived from the transparent affiliate's activities). These paragraphs essentially require that the primary affiliate's surplus accounts be adjusted to the extent the relevant portion is in respect of an activity the income, profit or gains from which would be included in computing the transparent affiliate's corresponding surplus accounts. In other words, the adjustments to the primary affiliate's surplus accounts trace to the activities of the transparent affiliate, and not the particular affiliate, in respect of the relevant portion.

Following the determination under subsection 5907(1.14) of the adjustments to the primary affiliate's surplus accounts, and taking into account the rules in subsection 5907(1.19), subsection 5907(1.17) then facilitates the appropriate adjustments to the surplus accounts of the particular affiliate and, where a compensation payment is made by the transparent affiliate to the particular affiliate, the transparent affiliate in respect of the portion of the tax that relates to the activities of the transparent affiliate. For more information, see the commentary on subsection 5907(1.17).

New subsection 5907(1.19) is deemed to come into force on Announcement Date.

ITR
5907(1.191)

New subsection 5907(1.191) addresses a situation that could arise where a foreign affiliate is an investor in an entity that is not recognized as having legal personality under Canadian law nor under the ordinary corporate law of another country with a DMTT regime, but that is treated as a taxable entity both for purposes of that other country's DMTT regime and under the laws of the foreign affiliate investor jurisdiction (i.e., the entity is a "reverse hybrid entity", within the meaning of the Model Rules). Absent this subsection, the investor foreign affiliate would not be considered to have "income or profits" under the DMTT regime because the entity (unlike a permanent establishment of the affiliate) would be recognized as a separate constituent entity from the affiliate with its own income or profits computed under that regime. However, to the extent that that entity's income, profit or gains from its activities would be included in computing the investor affiliate's exempt earnings, hybrid surplus or taxable earnings, it is appropriate to take into account, in computing the corresponding surplus accounts of the investor affiliate, any tax paid in respect of the income or profits (as determined under that regime) that derive from such activities. To that extent, subsection (1.191) treats that income or profits of the entity as income or profits of the affiliate.

ITR
5907(1.192)

New subsection 5907(1.192) is an interpretation rule for applying various provisions in the surplus rules (and, by virtue of the references to this subsection in the Act, certain provisions in the Act) when there has been a payment of income or profits tax under a DMTT regime.

There are inherent difficulties in identifying the income or profits (as determined under a DMTT regime) that give rise to a domestic minimum top-up tax liability under a DMTT regime, due to the fact that such regimes determine that liability on a jurisdictional basis (i.e., aggregating income, taxes and substance-based income exclusion amounts of all group entities in the jurisdiction), rather than on the entity-by-entity basis applied in traditional corporate income tax systems. It is therefore inconsistent with the design of DMTT regimes to attempt to attribute the tax liability under such a regime to income or profits of a particular entity using a hypothetical standalone top-up tax calculation for the entity. Subsection 5907(1.192) therefore provides that, for the purposes of the surplus rules and the foreign accrual tax rules in subsection 91(4.01) of the Act, the tax liability is to be allocated using the same basis as the DMTT regime uses to allocate the tax payable between entities (e.g., in proportion to the entities' income or profits as determined under that regime). More specifically, it provides that the income or profits tax payable under a DMTT regime for a fiscal year that can reasonably be considered to be in respect of the income or profits, as determined under that regime, of a foreign affiliate of a taxpayer is the amount of tax determined to be payable under that regime in respect of those income or profits. A parallel amendment is also made for the purpose of the foreign tax credit rules in subsection 126(4.8) of the Act.

The Commentary to the Model Rules provides flexibility to jurisdictions in designing their DMTT charging provisions and includes the following examples of how jurisdictions may allocate the tax payable to particular entities:

• The DMTT jurisdiction could charge the tax on an entity-by-entity basis and allocate it to low-taxed entities (i.e., those with an effective tax rate below the minimum rate) based on their share of the low-taxed entities' excess profits; or
• The DMTT jurisdiction could allocate the top-up tax liability to each entity either
  • in accordance with the formula in Article 5.2.4 of the Model Rules (which is the allocation methodology under the Global Minimum Tax Act), or
  • based on each entity's share of the excess profits in the jurisdiction.

This subsection simply treats the tax payable allocated to a given entity under a particular DMTT regime as being in respect of that entity's income or profits. In cases where a jurisdiction's DMTT regime determines that the amount of tax payable by a foreign affiliate is nil because, for example, the affiliate has nil income or profits (or nil excess profits) or a loss under that regime, the amount determined under this subsection for that foreign affiliate is nil.

New subsection 5907(1.192) is deemed to come into force on Announcement Date.

ITR
5907(1.193)

New subsection 5907(1.193) of the Regulations is a rule analogous to subsections 91(4.03) and 126(4.14) of the Act, which deny foreign tax credits and similar deductions with respect to an amount of foreign taxes paid if the foreign tax liability is determined taking into account any taxes imposed under the Act (other than any tax imposed under Part XIII of the Act).

The reference in subsection 5907(1.193) to an "amount paid in respect of that particular amount" ensures that the exclusion applies not only to income or profits tax paid by a foreign affiliate, but also to amounts deemed to be paid by the foreign affiliate (in the case of certain compensation payments that are deemed to be a payment of income or profits tax under paragraph 5907(1.14)(b) or (1.17)(b)).

New subsection 5907(1.193) is deemed to come into force on Announcement Date.

ITR
5907(1.3)

New paragraph 5907(1.3)(c) is enacted to prescribe an amount to be "foreign accrual tax" (as defined in subsection 95(1) of the Act) for purposes of the foreign accrual tax deduction under subsection 91(4) of the Act, which is applicable where a taxpayer has an income inclusion under subsection 91(1) of the Act in respect of foreign accrual property income of a foreign affiliate. This new paragraph prescribes certain compensation payments that are made by a foreign affiliate (or a shareholder affiliate) to a primary affiliate (within the meaning of subsection 5907(1.14)) and that meet the requirements of paragraph 5907(1.14)(b) to be foreign accrual tax, subject to the exception in subsection 91(4.03) of the Act. A compensation payment is prescribed to be foreign accrual tax to the extent that it can reasonably be considered to be in respect of income or profits (determined under the DMTT regime) that are derived from an activity the income, profit or gains from which are included in the foreign affiliate's foreign accrual property income that is included in the taxpayer's income under subsection 91(1) of the Act. For more information, see the commentary on subsection 91(4.03) of the Act and subsection 5907(1.14).

New paragraph 5907(1.3)(c) is deemed to come into force on Announcement Date.

Clause 43

Amount included in income

ITR
6803

A "foreign retirement arrangement" is defined as a prescribed plan or arrangement. This definition is relevant to paragraph 56(1)(a) under which amounts received in respect of a foreign retirement arrangement are included in income. The definition is also relevant for the purposes of subsection 12(11) "investment contract", paragraphs 60(j), 81(1)(r), 94(1)(b), subsection 108(1) "trust", paragraph 127.52(1)(a) and subsection 104(27).

Section 6803 currently prescribes Individual Retirement Accounts established pursuant to the U.S. Internal Revenue Code of 1986 for this purpose. Section 6803 is amended to add subsection 401(k) plans described in the U.S. Internal Revenue Code of 1986 to the list of prescribed plan or arrangements.

This amendment is intended to ensure that 401(k) accounts receive treatment consistent with other U.S. pension plans such as individual retirement accounts (IRAs).  Canadian residents who renounce U.S. citizenship have the equivalent of a deemed distribution due to the operation of the Internal Revenue Code. Foreign retirement accounts, including IRAs, are included in Canadian income by the operation of subsection 56(12) when the account is considered to be distributed by the foreign law under clause 56(1)(a)(i)(C.1).

Foreign taxes paid on foreign retirement accounts are eligible for the foreign tax credit to offset any foreign taxes paid under section 126. Without this amendment, 401(k) accounts would not be subject to Canadian taxation and may have been entitled to a foreign tax credit in certain circumstances despite the lack of a corresponding Canadian tax obligation.

This amendment applies in respect of transactions and events that occur on or after Announcement Date.

Clause 44

Qualifying transfers

ITR
8303(6)(a)(i)

Subsection 8303(6) defines, for the purposes of calculating provisional PSPAs under subsections 8303(3) and 8304(5), the amount of an individual's qualifying transfers made in connection with a past service event to offset the provisional PSPA associated with the crediting of the past service benefits.

Subsection 8303(6) is amended, consequential to the changes to RRIF transfer rules in subsections 146.3(14) and (14.1), to take into account amounts transferred under those subsections to a registered pension plan for the purpose of calculating provisional PSPAs.

This amendment is deemed to come into force on January 1, 2025.

Clause 45

Amount included in income

ITR
8304(11)

Subsection 8304(11) limits the application of subsection 8304(10) to those past service events that are the result of an employer establishing an individual pension plan or amending an individual pension plan to provide additional benefits to one or more members.

Subsection 8304(10) generally requires that the cost of new or additional past service benefits under an individual pension plan be funded first out of a plan member's existing registered retirement savings before new deductible RPP contributions may be made to the individual pension plan.

Subsection 8304(11) is amended to remove the reference to a past service event that results from the establishment of the plan or from an amendment to the plan to provide additional retirement benefits. This amendment is intended to have the effect that subsection 8304(10) does not apply to plan splits and mergers funded with asset transfers under subsection 147.3(3) that result in nil PSPAs pursuant to subsection 8304(5). 

This amendment is deemed to come into force on January 1, 2024.

Clause 46

Evidence of disability

ITR
8503(4)(f)

Paragraph 8503(4)(f) is amended to provide that medical information taken into account by plan administrators in determining periods of disability may now be obtained from a psychologist in addition to the already available option to have reports written by doctors and nurse practitioners.

Clause 47

Capital guarantee

ITR
8506(1)(j)

Section 8506 of the Regulations describes the benefits that may be provided under a money purchase provision of a registered pension plan (RPP).

Subsection 8506(1) is amended to add a new type of survivor benefit. New paragraph 8506(1)(j) will permit an RPP annuity to provide a last lump sum payment after the death of the annuitant (often referred to as a return-of-capital guarantee). The amount of the death benefit is determined by the formula A + B – C. Variable A is the total amount paid (from the member's money purchase account) to purchase the annuity contract. Variable B effectively represents an amount of interest calculated on the purchase price from the date of the annuity purchase to the date of the payment of the lump sum death benefit. Variable C is the amount of any annuity payments made from the contract. In short, if the purchase price plus interest exceeds the total annuity payments to the annuitant, the contract may pay the residual amount to a survivor of the annuitant.

This amendment is deemed to have come into force on August 12, 2024.

VPLA fund

ITR
8506(13)(a)

Subsection 8506(13) sets out three conditions that must be satisfied for an arrangement to qualify as a "VPLA fund" under a money purchase provision of a pension plan for the purposes of providing VPLA benefits described in paragraph 8506(1)(e.2).

Paragraph 8506(13)(a) prohibits contributions to the fund other than amounts transferred from accounts of members of the plan or another VPLA fund subject to the conditions described in subparagraph (ii). New subparagraph 8506(13)(a)(iii) is added to permit contributions to a VPLA fund that is transferred from a VPLA fund under another registered pension plan at the discretion of the administrator of the transferor fund. The transfer must be made to replace the VPLA benefits of one or more participants of the transferor fund by benefits provided under the VPLA fund. This could occur, for example, in cases where Company A (which sponsors RPP A) acquires Company B (which sponsors RPP B) and wishes to transfer VPLA participants under RPP B to its VPLA fund under RPP A (i.e., replace the VPLA benefits provided under B's VPLA fund with VPLA benefits provided under A's VPLA fund).

This amendment is deemed to have come into force on January 1, 2024.

Clause 48

Prohibited Investments

ITR
8514(2)

Subsection 8514(2) sets out a number of exceptions to the list of prohibited investments for registered pension plans (RPPs).

New subparagraph 8514(2)(g) provides an exception for RPPs that are not individual pension plans (as defined in subsection 8300(1)). The RPP will generally not be prohibited from investing in the shares or debt of a person or a partnership that is non-arm's length to a participating employer, if the investment complies with the conditions in subparagraphs 8514(g)(i) and (ii).

Subparagraph (i) narrows the exception by requiring the non-arm's length relationship exists solely in the context of a person described in paragraphs (a) to (d) of the definition "restricted financial institution" (for example, a bank) that is a participating employer under the RPP.

Subparagraph (i) is meant to limit the exception to the financial industry, including banks, trustees, credit unions and insurance corporations and their corporate groups (affiliated corporations).

Subparagraph (ii) broadly prohibits any person from benefiting from the RPP holding the investment if holding that investment would not have occurred in a normal commercial relationship and was intended to take advantage of the RPP's exemption from tax under Part I of the Act.

Subparagraph (ii) is intended to guard against transactions designed to artificially shift taxable income into the shelter of a RPP or to circumvent the RPP contribution limits. It is not intended to prevent fees from being paid to the investment manager or favorable rates provided to the RPP provided these transactions are not intended to abuse the tax exemption afforded RPPs.

For example, where the participating employer of the RPP is a bank which deals with (often controls) an investment management company and where that investment manager does not legally deal at arm's-length from pooled funds or partnerships that it has created, new paragraph 8514(2)(g) will not prohibit the bank's RPP from investing in those funds and partnerships.

This amendment comes into force on Announcement Date.

Clause 49

Prescribed contribution

ITR
8516(1)

Subsection 8516(1) is amended consequential to the introduction of subsection 8516(4). The preamble is updated to add a reference to subsection (4).

See the additional commentary on the introduction of new subsection 8516(4).

This amendment comes into force on Announcement Date.

Transfer deficiency — designated plan

ITR
8516(4)

Subsection 147.2(2) of the Act defines "eligible contribution" to be a contribution made by an employer to a defined benefit provision of a registered pension plan (RPP), where the contribution either satisfies the conditions in that subsection or is prescribed under section 8516 of the Regulations.

New subsection 8516(4) provides a new prescribed contribution that applies when an RPP benefit entitlement is settled via a transfer or payment at a time when the plan is not fully funded. It is intended to permit a top-up contribution to the plan such that the transfer ratio would not be impaired by the payment or transfer of the full benefit entitlement. Broadly, subsection 8516(4) provides that a contribution may be made to an underfunded plan if the plan is not an individual pension plan (as defined in subsection 8300(1)) and if the contribution:

• is made in connection with a payment or transfer of the full present value of a member's benefit entitlement at a time when the plan's transfer ratio is less than 1.0;
• is made pursuant to a recommendation of an actuary; and
• does not exceed an amount determined by the formula A × (1 – B).

The formula multiplies the present value of the member's benefit entitlement by 1 minus the plan's transfer ratio determined in the most recent actuarial valuation report.  For example, if a member requests to transfer a $100,000 present value of benefits to a pension plan of a new employer at a time when the exporting plan has a 0.8 transfer ratio, the employer would be permitted to make a $20,000 contribution to the plan (determined as $100,000 × (1 – 0.8)).

This amendment comes into force on Announcement Date.

Clause 50

Transfer—defined benefit to money purchase

ITR
8517(8)

Subsection 147.3(4) of the Act permits the tax-free transfer on behalf of an individual of a single amount from a defined benefit provision of a registered pension plan (RPP) to an RRSP, RRIF or money purchase provision of an RPP. Paragraph 147.3(4)(c) requires that the amount not exceed a prescribed amount. Section 8517 contains rules for determining the prescribed amount for this purpose.

Consequential on the introduction of subsections 147.4(4) and (5) of the Act, new subsection 8517(8) is added to the Regulations.  In the case where subsections 147.4(4) and (5) apply to a commuted annuity contract, subsection 8517(8) will work in conjunction with paragraph 147.3(4)(c) of the Act. Together, they will ensure that the transfer limit in section 8517 will apply as if the commuted amount was transferred from the original defined benefit provision of the RPP (and not from the annuity) to a registered plan of the annuitant.

This amendment is deemed to come into force on January 1, 2018.