I-3 - Taxation Act

Section 594 Disposition versions

2015-12-04

594. For the purposes of this chapter and Chapter VI.2, the following rules apply:

(a)  a person or partnership is deemed to have transferred, at any time, property to a trust if

i.  at that time the person or partnership transfers or loans property to another person or partnership and the transfer or loan is not an arm’s length transfer, and

ii.  because of that transfer or loan

(1)  the fair market value of one or more properties held by the trust increases at that time, or

(2)  a liability or potential liability of the trust decreases at that time;

(b)  the fair market value, at any time, of property deemed under paragraph a to be transferred at that time by a person or partnership is deemed to be equal to the amount of the absolute value of the increase or decrease referred to in subparagraph ii of paragraph a in respect of the property, and if that time is after 27 August 2010 and the property that the person or partnership transfers or loans at that time is restricted property of the person or partnership, the property deemed under paragraph a to be transferred at that time to a trust is deemed to be restricted property transferred at that time to the trust;

(c)  a person or partnership is deemed to have transferred, at any time, property to a trust if

i.  at that time the person or partnership transfers restricted property, or loans property other than by way of an arm’s length transfer, to another person (in this paragraph and paragraph d referred to as the “intermediary”),

ii.  at or after that time, the trust holds property (other than property described in subparagraph b of the first paragraph of section 597.0.12) the fair market value of which is derived in whole or in part, directly or indirectly, from property held by the intermediary, and

iii.  it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize a liability under this Act;

(d)  the fair market value, at any time, of property deemed under paragraph c to be transferred at that time by a person or partnership is deemed to be equal to the fair market value of the property referred to in subparagraph i of paragraph c, and if that time is after 24 October 2012 and the property that the person or partnership transfers or loans to the intermediary is restricted property of the intermediary, the property deemed under paragraph c to be transferred at that time by the person or partnership to a trust is deemed to be restricted property transferred at that time to the trust throughout the period in which the intermediary holds the restricted property;

(e)  where, at any time, a particular person or partnership is obligated, either absolutely or contingently, to effect any undertaking including any guarantee, covenant or agreement given to ensure the repayment, in whole or in part, of a loan or other indebtedness incurred by another person or partnership, or has provided any other financial assistance to another person or partnership,

i.  the particular person or partnership is deemed to have transferred, at that time, property to that other person or partnership, and

ii.  the property, if any, transferred to the particular person or partnership from the other person or partnership in exchange for the guarantee or other financial assistance is deemed to have been transferred to the particular person or partnership in exchange for the property deemed to have been transferred under subparagraph i;

(f)  the fair market value at any time of property deemed under subparagraph i of paragraph e to have been transferred at that time to another person or partnership is deemed to be equal to the amount at that time of the loan or indebtedness incurred by the other person or partnership to which the property relates;

(g)  where, at any time after 22 June 2000, a particular person or partnership renders any service (other than an exempt service) to, for or on behalf of another person or partnership,

i.  the particular person or partnership is deemed to have transferred, at that time, property to that other person or partnership, and

ii.  the property, if any, transferred to the particular person or partnership from the other person or partnership in exchange for the service is deemed to have been transferred to the particular person or partnership in exchange for the property deemed under subparagraph i to have been transferred;

(h)  each of the following acquisitions of property by a particular person or partnership is deemed to be a transfer of the property, at the time of the acquisition of the property, to the particular person or partnership from the person or partnership from which the property was acquired, namely, the acquisition by the particular person or partnership of

i.  a share of a corporation from the corporation,

ii.  an interest as a beneficiary under a trust (otherwise than from a beneficiary under the trust),

iii.  an interest in a partnership (otherwise than from a member of the partnership),

iv.  a debt owing by a person or partnership from the person or partnership, and

v.  a right (granted after 22 June 2000 by the person or partnership from which the right was acquired) to acquire or to be loaned property;

(i)  the fair market value at any time of property deemed under subparagraph i of paragraph g to have been transferred at that time is deemed to be equal to the fair market value at that time of the service to which the property relates;

(j)  where, at any time, a person or partnership that becomes obligated to do an act that would, if done, constitute the transfer or loan of property to another person or partnership, the person or partnership is deemed to have become obligated at that time to transfer or loan, as the case may be, property to that other person or partnership;

(k)  where a trust acquires property of an individual as a consequence of the death of the individual and the individual was immediately before death resident in Canada, the individual is deemed, in applying at any time the definition of “non-resident time” in the first paragraph of section 593, to have transferred the property to the trust immediately before the individual’s death;

(l)  a transfer or loan of property at any time is deemed to be made at that time jointly by a particular person or partnership and a second person or partnership (in this paragraph referred to as the “specified person”) if

i.  the particular person or partnership transfers or loans property at that time to another person or partnership,

ii.  the transfer or loan is made at the direction, or with the consent, of the specified person, and

iii.  it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize the liability, of any person or partnership, under this Act that arose, or that would otherwise have arisen, because of the application of this chapter;

(m)  a transfer or loan of property made at any time after 8 November 2006 is deemed to be made at that time jointly by a particular person or partnership and a second person or partnership (in this paragraph referred to as the “specified person”) if

i.  the particular person or partnership transfers or loans property at that time to another person or partnership, and

ii.  a purpose or effect of the transfer or loan may reasonably be considered to be to provide benefits in respect of services rendered by a person as an employee of the specified person (whether or not such a benefit may be received under a right that is immediate or future, absolute or contingent, or conditional on or subject to the exercise of any discretionary power by any person or partnership);

(n)  a transfer or loan of property at a particular time is deemed to be made at the particular time jointly by a corporation and a person or partnership (in this paragraph referred to as the “specified person”) if

i.  the corporation transfers or loans property at the particular time to another person or partnership,

ii.  the transfer or loan is made at the direction, or with the consent, of the specified person,

iii.  the particular time is not, or would not be if the transfer or loan were a contribution of the specified person,

(1)  a non-resident time of the specified person, or

(2)  if the specified person is a partnership, a non-resident time of one or more members of the partnership, and

iv.  the corporation is, at the particular time, a controlled foreign affiliate of the specified person, or would at that time be a controlled foreign affiliate of the specified person if the specified person were at the particular time resident in Canada, or it is reasonable to conclude that the transfer or loan was made in contemplation of the corporation becoming after the particular time such a controlled foreign affiliate of the specified person;

(o)  a particular person or partnership is deemed to have transferred, at a particular time, particular property or a particular part of it, as the case may be, to a corporation described in subparagraph i or a second person or partnership described in subparagraph ii if

i.  the particular property is a share of the capital stock of a corporation held at the particular time by the particular person or partnership, and as consideration for the disposition at or before the particular time of the share, the particular person or partnership received at the particular time (or became entitled at the particular time to receive) from the corporation a share of the capital stock of the corporation, or

ii.  the particular property (or property for which the particular property is substituted) was acquired, before the particular time, from the second person or partnership by any person or partnership, in circumstances that are described in any of subparagraphs i to v of paragraph h (or would be so described if it applied at the time of that acquisition) and at the particular time,

(1)  the terms or conditions of the particular property change,

(2)  the second person or partnership redeems, acquires or cancels the particular property or the particular part of it,

(3)  if the particular property is a debt owing by the second person or partnership, the debt or the particular part of it is settled or cancelled, or

(4)  if the particular property is a right to acquire or to be loaned property, the particular person or partnership exercises the right;

(p)  a contribution made at any time by a particular trust to another trust is deemed to be made at that time jointly by the particular trust and by each person or partnership that is at that time a contributor to the particular trust;

(q)  a contribution made at any time by a particular partnership to a trust is deemed to be made at that time jointly by the particular partnership and by each person or partnership that is at that time a member of the particular partnership;

(r)  subject to paragraph s and section 597.0.7, the amount of a contribution to a trust at the time it was made is deemed to be equal to the fair market value, at that time, of the property that was the subject of the contribution;

(s)  a person or partnership that at any time acquires a fixed interest in a trust (or a right, issued by the trust, to acquire a fixed interest in the trust) from another person or partnership (other than from the trust that issued the interest or the right) is deemed to have made at that time a contribution to the trust and the amount of the contribution is deemed to be equal to the fair market value at that time of the interest or right, as the case may be;

(t)  a particular person or partnership that has acquired a fixed interest in a trust because of making a contribution to the trust–or that has made a contribution to the trust because of having acquired a fixed interest in the trust or a right described in paragraph s–is, for the purpose of applying this chapter from the time after the time that the particular person or partnership transfers the fixed interest or the right, as the case may be, to another person or partnership (which transfer is referred to in this paragraph as the “sale”), deemed not to have made the contribution in respect of the fixed interest, or right, that is the subject of the sale if

i.  in exchange for the sale, the other person or partnership transfers or loans, or undertakes to transfer or loan, property (in subparagraph ii referred to as the “consideration”) to the particular person or partnership, and

ii.  it is reasonable to conclude

(1)  having regard only to the sale and the consideration that the particular person or partnership would be willing to make the sale if the particular person or partnership were dealing at arm’s length with the other person or partnership, and

(2)  that the terms and conditions made or imposed in respect of the exchange would be acceptable to the particular person or partnership if the particular person or partnership were dealing at arm’s length with the other person or partnership;

(u)  a transfer to a trust by a particular person or partnership is deemed not to be, at a particular time, a contribution to the trust if

i.  the particular person or partnership has transferred, at or before the particular time and in the ordinary course of business of the particular person or partnership, property to the trust,

ii.  the transfer is not an arm’s length transfer, but would be an arm’s length transfer if the definition of “arm’s length transfer” in the first paragraph of section 593 were read without reference to paragraph a and subparagraphs i, ii and iv to vii of paragraph b,

iii.  it is reasonable to conclude that the particular person or partnership was the only person or partnership that acquired, in respect of the transfer, an interest as a beneficiary under the trust,

iv.  the particular person or partnership was required, in accordance with the securities law of a country or of a political subdivision of such a country in respect of the issuance by the trust of interests as a beneficiary under the trust, to acquire an interest because of the particular person or partnership’s status at the time of the transfer as a manager or promoter of the trust,

v.  at the particular time the trust is not an exempt foreign trust, but would be at that time an exempt foreign trust if it had not made an election under paragraph h of the definition of “exempt foreign trust” in the first paragraph of section 593, and

vi.  the particular time is before the earliest of

(1)  the first time at which the trust becomes an exempt foreign trust,

(2)  the first time at which the particular person or partnership ceases to be a manager or promoter of the trust, and

(3)  the time that is 24 months after the first time at which the total fair market value of consideration received by the trust in exchange for interests as a beneficiary (other than the particular person or partnership’s interest referred to in subparagraph iii) under the trust is greater than $500,000;

(v)  a transfer, by a Canadian corporation of property, that is at a particular time a contribution by the Canadian corporation to a trust, is deemed not to be, after the particular time, such a contribution to the trust if

i.  the trust acquired the property before the particular time from the Canadian corporation in circumstances described in subparagraph i or iv of paragraph h,

ii.  as a result of a transfer (in this paragraph referred to as the “sale”) at the particular time by any person or partnership (in this paragraph referred to as the “seller”) to another person or partnership (in this paragraph referred to as the “buyer”) the trust no longer holds any property that is

(1)  shares of the capital stock of, or debt issued by, the Canadian corporation, or

(2)  property the fair market value of which is derived in whole or in part, directly or indirectly, from shares of the capital stock of, or debt issued by, the Canadian corporation,

iii.  the buyer deals at arm’s length immediately before the particular time with the Canadian corporation, the trust and the seller,

iv.  in exchange for the sale, the buyer transfers or becomes obligated to transfer property (in this paragraph referred to as the “consideration”) to the seller, and

v.  it is reasonable to conclude

(1)  having regard only to the sale and the consideration that the seller would be willing to make the sale if the seller were dealing at arm’s length with the buyer,

(2)  that the terms and conditions made or imposed in respect of the exchange would be acceptable to the seller if the seller were dealing at arm’s length with the buyer, and

(3)  that the value of the consideration is not, from the particular time, determined in whole or in part, directly or indirectly, by reference to shares of the capital stock of, or debt issued by, the Canadian corporation;

(w)  a transfer, before 11 October 2002, to a personal trust by an individual (other than a trust) of particular property is deemed not to be a contribution of the particular property by the individual to the trust if the transfer is deemed not to be a contribution of the particular property by the individual to the trust for the purposes of section 94 of the Income Tax Act (R.S.C. 1985, c. 1, (5th Suppl.)) in accordance with paragraph u of subsection 2 of that section 94; and

(x)  a loan made by a specified financial institution to a trust is deemed not to be a contribution to the trust if

i.  the loan is made on terms and conditions that would have been agreed to by persons dealing at arm’s length, and

ii.  the loan is made by the specified financial institution in the ordinary course of the business carried on by it.

1975, c. 22, s. 164; 1984, c. 15, s. 130; 1986, c. 19, s. 129; 1993, c. 16, s. 236; 1997, c. 3, s. 71; 2015, c. 36, s. 28.

2006-03-01

594. The rules provided in this chapter apply for a taxation year of a foreign trust, other than an inter vivos trust created before 1 January 1960 by a person who, at that time, was not resident in Canada, other than a testamentary trust that arose as a consequence of the death of an individual before 1 January 1976 and other than a trust governed by a foreign retirement arrangement, where before the end of the year that trust or a corporation not resident in Canada that would be a controlled foreign affiliate of the trust, if the trust were resident therein, has, other than in prescribed circumstances, acquired property, in any manner whatever, from

(a)  a person who

i.  was the beneficiary referred to in paragraph a of section 593, was related to that beneficiary or was the uncle, aunt, nephew or niece of that beneficiary;

ii.  was resident in Canada in the eighteen months before the end of the year or before that person ceased to exist, as the case may be; and

iii.  in the case of an individual, had before the end of that year been resident in Canada for a period of, or periods the aggregate of which is more than 60 months; or

(b)  a trust or corporation that acquired the property in any manner whatever from a person described in subparagraph a with whom it was not dealing at arm’s length.

The rules also apply for a taxation year of a foreign trust where, before the end of the year, all or any part of the interest of the beneficiary in the trust was acquired by the beneficiary by way of purchase, gift, succession or will from a person referred to in subparagraph a or b of the first paragraph or by way of the exercise of a power of appointment by a person referred to in either subparagraph.

1975, c. 22, s. 164; 1984, c. 15, s. 130; 1986, c. 19, s. 129; 1993, c. 16, s. 236; 1997, c. 3, s. 71.