I-3 - Taxation Act

Section 346.2 Disposition versions

2013-06-05

346.2. Subject to section 346.3, there shall be deducted in computing the income for a taxation year of a corporation that is not exempt from tax under this Part on its taxable income, the lesser of

(a)  the amount by which the aggregate of all amounts each of which is an amount that, because of the application of sections 485 to 485.18 to a commercial obligation, within the meaning assigned by section 485, issued by the corporation, or a partnership of which the corporation was a member, was included under section 485.13 in computing the income of the corporation for the year or the income of the partnership for a fiscal period that ends in the year, to the extent that the amount, where it was included in computing income of a partnership, relates to the corporation’s share of that income, exceeds the aggregate of all amounts deducted because of paragraph a of section 485.15, in computing the corporation’s income for the year; and

(b)  the amount determined by the formula

A − 2 (B − C − D − E).

For the purposes of the formula in subparagraph b of the first paragraph,

(a)  A is the amount determined under subparagraph a of the first paragraph in respect of the corporation for the year;

(b)  B is the aggregate of

i.  the fair market value of the assets of the corporation at the end of the year,

ii.  the amounts paid before the end of the year on account of the corporation’s tax payable under this Part or any of Parts III.11, IV, IV.1, VI, VI.1 and VII for the year or on account of a tax payable by the corporation for the year, under any of Parts I, I.3, II, VI and XIV of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) or under any similar part of an Act of a province other than Québec, and

iii.  all amounts paid by the corporation in the 12-month period preceding the end of the year to a person with whom the corporation does not deal at arm’s length

(1)  as a dividend, other than a stock dividend,

(2)  on a reduction of paid-up capital in respect of any class of shares of its capital stock,

(3)  on a redemption, acquisition or cancellation of its shares, or

(4)  as a distribution or appropriation in any manner whatever to or for the benefit of the shareholders, to the extent that the distribution or appropriation cannot reasonably be considered to have resulted in a reduction in the amount otherwise determined under subparagraph c in respect of the corporation for the year;

(c)  C is the total liabilities of the corporation at the end of the year determined in accordance with the rules set out in the third paragraph and without reference to any tax payable by the corporation for the year under this Part and Parts III.11, IV, IV.1, VI, VI.1 and VII or to a tax payable by the corporation for the year under any of Parts I, I.3, II, VI and XIV of the Income Tax Act or under any similar part of an Act of a province other than Québec,

(d)  D is the aggregate of all amounts each of which is the principal amount at the end of the year of a distress preferred share, within the meaning assigned by section 485, issued by the corporation; and

(e)  E is 50% of the amount by which the amount that would be the corporation’s income for the year if that amount were determined without reference to this section and sections 346.3 and 346.4 exceeds the amount determined under subparagraph a of the first paragraph in respect of the corporation for the year.

For the purposes of subparagraph c of the second paragraph, except as otherwise provided therein, the total liabilities of a corporation shall

(a)  where the corporation is not an insurance corporation, a federal credit union or a bank to which subparagraph b or c applies and the balance sheet as of the end of the year was prepared in accordance with generally accepted accounting principles and was presented to the shareholders of the corporation, be considered to be the total liabilities shown on that balance sheet;

(b)  where the corporation is a bank, a federal credit union or an insurance corporation that is required to report to the Superintendent of Financial Institutions of Canada and the balance sheet as of the end of the year was accepted by the Superintendent, be considered to be the total liabilities shown on that balance sheet;

(c)  where the corporation is an insurance corporation that is required to report to the superintendent of insurance or other similar officer or authority of the province under whose laws the corporation is incorporated, or the Autorité des marchés financiers, and the balance sheet as of the end of the year was accepted by that officer or authority, be considered to be the total liabilities shown on that balance sheet; and

(d)  in any other case, be considered to be the amount that would be shown as total liabilities of the corporation at the end of the year on a balance sheet prepared in accordance with generally accepted accounting principles.

Subparagraph c of the second paragraph and the third paragraph apply, subject to section 7.12.

1996, c. 39, s. 106; 1997, c. 3, s. 71; 1997, c. 14, s. 64; 2000, c. 5, s. 90; 2002, c. 45, s. 520; 2004, c. 37, s. 90; 2013, c. 10, s. 27.

2006-03-01

346.2. Subject to section 346.3, there shall be deducted in computing the income for a taxation year of a corporation that is not exempt from tax under this Part on its taxable income, the lesser of

(a)  the amount by which the aggregate of all amounts each of which is an amount that, because of the application of sections 485 to 485.18 to a commercial obligation, within the meaning assigned by section 485, issued by the corporation, or a partnership of which the corporation was a member, was included under section 485.13 in computing the income of the corporation for the year or the income of the partnership for a fiscal period that ends in the year, to the extent that the amount, where it was included in computing income of a partnership, relates to the corporation’s share of that income, exceeds the aggregate of all amounts deducted because of paragraph a of section 485.15, in computing the corporation’s income for the year; and

(b)  the amount determined by the formula

A − 2 (B − C − D − E).

For the purposes of the formula in subparagraph b of the first paragraph,

(a)  A is the amount determined under subparagraph a of the first paragraph in respect of the corporation for the year;

(b)  B is the aggregate of

i.  the fair market value of the assets of the corporation at the end of the year,

ii.  the amounts paid before the end of the year on account of the corporation’s tax payable under this Part or any of Parts III.11, IV, IV.1, VI, VI.1 and VII for the year or on account of a tax payable by the corporation for the year, under any of Parts I, I.3, II, VI and XIV of the Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th Supplement) or under any similar part of an Act of a province other than Québec, and

iii.  all amounts paid by the corporation in the 12-month period preceding the end of the year to a person with whom the corporation does not deal at arm’s length

(1)  as a dividend, other than a stock dividend,

(2)  on a reduction of paid-up capital in respect of any class of shares of its capital stock,

(3)  on a redemption, acquisition or cancellation of its shares, or

(4)  as a distribution or appropriation in any manner whatever to or for the benefit of the shareholders, to the extent that the distribution or appropriation cannot reasonably be considered to have resulted in a reduction in the amount otherwise determined under subparagraph c in respect of the corporation for the year;

(c)  C is the total liabilities of the corporation at the end of the year determined in accordance with the rules set out in the second paragraph and without reference to any tax payable by the corporation for the year under this Part and Parts III.11, IV, IV.1, VI, VI.1 and VII or to a tax payable by the corporation for the year under any of Parts I, I.3, II, VI and XIV of the Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th Supplement) or under any similar part of an Act of a province other than Québec,

(d)  D is the aggregate of all amounts each of which is the principal amount at the end of the year of a distress preferred share, within the meaning assigned by section 485, issued by the corporation; and

(e)  E is 50% of the amount by which the amount that would be the corporation’s income for the year if that amount were determined without reference to this section and sections 346.3 and 346.4 exceeds the amount determined under subparagraph a of the first paragraph in respect of the corporation for the year.

For the purposes of subparagraph c of the second paragraph, except as otherwise provided therein, the total liabilities of a corporation shall

(a)  where the corporation is not an insurance corporation or a bank to which subparagraph b or c applies and the balance sheet as of the end of the year was prepared in accordance with generally accepted accounting principles and was presented to the shareholders of the corporation, be considered to be the total liabilities shown on that balance sheet;

(b)  where the corporation is a bank or an insurance corporation that is required to report to the Superintendent of Financial Institutions of Canada and the balance sheet as of the end of the year was accepted by the Superintendent, be considered to be the total liabilities shown on that balance sheet;

(c)  where the corporation is an insurance corporation that is required to report to the superintendent of insurance or other similar officer or authority of the province under whose laws the corporation is incorporated, or the Autorité des marchés financiers, and the balance sheet as of the end of the year was accepted by that officer or authority, be considered to be the total liabilities shown on that balance sheet; and

(d)  in any other case, be considered to be the amount that would be shown as total liabilities of the corporation at the end of the year on a balance sheet prepared in accordance with generally accepted accounting principles.

Subparagraph c of the second paragraph and the third paragraph apply, subject to section 7.12.

1996, c. 39, s. 106; 1997, c. 3, s. 71; 1997, c. 14, s. 64; 2000, c. 5, s. 90; 2002, c. 45, s. 520; 2004, c. 37, s. 90.