I-3 - Taxation Act

Section 1033.18 Disposition versions

2021-06-02

1033.18. Where, at a particular time in a taxation year (in this section and section 1033.20 referred to as the “year of disposition”), a trust is deemed under section 653 to have disposed of an eligible share of a particular class of the capital stock of a corporation and it elects, in the prescribed form containing prescribed information, on or before its balance-due day for the year of disposition, to have this chapter apply to the year of disposition, the following rules apply:

(a)  the Minister shall, until the balance-due day of a particular person that is either the trust or a beneficiary referred to in the fourth paragraph for a particular taxation year that begins after the particular time, accept security satisfactory to the Minister and furnished by or on behalf of the trust on or before the trust’s balance-due day for the year of disposition for the lesser of

i.  the amount determined by the formula

120% {A – B – [(A − B)/A × C]} × D, and

ii.  if the particular year is the year that follows the year of disposition, the amount determined under subparagraph i and, in any other case, the amount determined under this subparagraph a in respect of the particular person for the taxation year that precedes the particular year; and

(b)  except for the purposes of the first, second and third paragraphs of section 1038, the following interest and penalties shall be computed as if the particular amount for which security satisfactory to the Minister has been accepted under this section were, on the one hand, equal to the amount that would be determined in accordance with subparagraph a if the formula in subparagraph i of that subparagraph were read as if “120%” were replaced by “100%” and, on the other hand, an amount paid by the particular person on account of the particular amount:

i.  interest payable under this Part for any period that ends on the particular person’s balance-due day for the particular year and throughout which security is accepted by the Minister, and

ii.  penalties payable under this Part computed with reference to the particular person’s tax payable for the year that was, without reference to this subparagraph b, unpaid.

In the formula in subparagraph i of subparagraph a of the first paragraph,

(a)  A is the amount of tax that would be payable by the trust under this Part for the year of disposition if the exclusion from income or deduction of an amount referred to in the first paragraph of section 1044 were not taken into account;

(b)  B is the amount of tax that would have been so payable by the trust under this Part if all the shares, each of which is an eligible share of the particular class deemed under section 653 to have been disposed of at the particular time, other than a share in respect of which one of the conditions in the third paragraph is met, were not deemed under that section to have been disposed of by the trust at the particular time;

(c)  C is the aggregate of all amounts deemed under this or any other Act to have been paid on account of the trust’s tax payable under this Part for the year of disposition; and

(d)  D is

i.  where the share that is deemed under section 653 to have been disposed of at the particular time is an eligible share of a private corporation described in paragraph b of the definition of “eligible share” in the first paragraph of section 1033.14, the proportion, expressed as a percentage, that the fair market value of the assets of the private corporation that is attributable to a large block of shares or a portion of a large block of shares of the capital stock of a qualified public corporation is, at the particular time, of the fair market value of the assets of the private corporation, or

ii.  in any other case, 100%.

The conditions to which subparagraph b of the second paragraph refers in respect of a share are as follows:

(a)  it is subsequently disposed of before the beginning of the particular year;

(b)  it ceases, throughout a one-month period ending in the particular year, to be an eligible share of the particular person; and

(c)  the twentieth anniversary of its deemed disposition occurs in the particular year.

Where an eligible share of the capital stock of a corporation owned by a trust at the particular time is transferred as a consequence of a distribution by the trust to a beneficiary of the trust, where, immediately after the transfer, the share is an eligible share and where an agreement effecting novation is entered into between the Minister and the beneficiary under which the indebtedness represented by tax attributable to the deemed disposition of the share becomes the debt of the beneficiary, this chapter applies, with the necessary modifications, from the transfer, in respect of satisfactory security furnished by the beneficiary and accepted by the Minister, as if the beneficiary were the same person as and a continuation of the trust.

Where the proportion described in subparagraph i of subparagraph d of the second paragraph is greater than 95%, it is deemed to be equal to 100%.

2019, c. 14, s. 424; 2021, c. 14, s. 168.

2019-06-19

1033.18. Where, at a particular time in a taxation year (in this section and section 1033.20 referred to as the “year of disposition”), a trust is deemed under section 653 to have disposed of an eligible share of a particular class of the capital stock of a corporation and it elects, in the prescribed form containing prescribed information, on or before its balance-due day for the year of disposition, to have this chapter apply to the year of disposition, the following rules apply:

(a)  the Minister shall, until the balance-due day of a particular person that is either the trust or a beneficiary referred to in the fourth paragraph for a particular taxation year that begins after the particular time, accept security satisfactory to the Minister and furnished by or on behalf of the trust on or before the trust’s balance-due day for the year of disposition for the lesser of

i.  the amount determined by the formula

120% {A – B – [(A − B)/A × C]}, and

ii.  if the particular year is the year that follows the year of disposition, the amount determined under subparagraph i and, in any other case, the amount determined under this subparagraph a in respect of the particular person for the taxation year that precedes the particular year; and

(b)  except for the purposes of the first, second and third paragraphs of section 1038, the following interest and penalties shall be computed as if the particular amount for which security satisfactory to the Minister has been accepted under this section were, on the one hand, equal to the amount that would be determined in accordance with subparagraph a if the formula in subparagraph i of that subparagraph were read as if “120%” were replaced by “100%” and, on the other hand, an amount paid by the particular person on account of the particular amount:

i.  interest payable under this Part for any period that ends on the particular person’s balance-due day for the particular year and throughout which security is accepted by the Minister, and

ii.  penalties payable under this Part computed with reference to the particular person’s tax payable for the year that was, without reference to this subparagraph b, unpaid.

In the formula in subparagraph i of subparagraph a of the first paragraph,

(a)  A is the amount of tax that would be payable by the trust under this Part for the year of disposition if the exclusion from income or deduction of an amount referred to in the first paragraph of section 1044 were not taken into account;

(b)  B is the amount of tax that would have been so payable by the trust under this Part if all the shares, each of which is an eligible share of the particular class deemed under section 653 to have been disposed of at the particular time, other than a share in respect of which one of the conditions in the third paragraph is met, were not deemed under that section to have been disposed of by the trust at the particular time; and

(c)  C is the aggregate of all amounts deemed under this or any other Act to have been paid on account of the trust’s tax payable under this Part for the year of disposition.

The conditions to which subparagraph b of the second paragraph refers in respect of a share are as follows:

(a)  it is subsequently disposed of before the beginning of the particular year;

(b)  it ceases, throughout a one-month period ending in the particular year, to be an eligible share of the particular person; and

(c)  the twentieth anniversary of its deemed disposition occurs in the particular year.

Where an eligible share of the capital stock of a corporation owned by a trust at the particular time is transferred as a consequence of a distribution by the trust to a beneficiary of the trust, where, immediately after the transfer, the share is an eligible share and where an agreement effecting novation is entered into between the Minister and the beneficiary under which the indebtedness represented by tax attributable to the deemed disposition of the share becomes the debt of the beneficiary, this chapter applies, with the necessary modifications, from the transfer, in respect of satisfactory security furnished by the beneficiary and accepted by the Minister, as if the beneficiary were the same person as and a continuation of the trust.

2019, c. 14, s. 424.