I-3 - Taxation Act

Section 471 Disposition versions

2009-05-15

471. If a taxpayer makes a valid election under subsection 2 of section 80.1 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) after 19 December 2006 in respect of all amounts received or to be received by the taxpayer as interest on the indemnities the taxpayer acquires, the following rules apply in respect of each indemnity:

(a)  in computing the taxpayer’s income for the year from the indemnity, in respect of each interest amount that the taxpayer receives in the year, the taxpayer may deduct the lesser of that amount and the aggregate of the amount to be added under subparagraph b in computing the adjusted cost base to the taxpayer of the indemnity and the greater, immediately before the interest amount was received, of the adjusted cost base to the taxpayer of the indemnity and its adjusted principal amount to the taxpayer, and the taxpayer shall include, in respect of each amount the taxpayer receives in the year as the principal amount of the indemnity or as proceeds of disposition of the indemnity, the amount by which the amount the taxpayer so receives exceeds the greater, immediately before receiving that amount, of the adjusted cost base to the taxpayer of the indemnity and its adjusted principal amount to the taxpayer;

(b)  in computing, at a particular time, the adjusted cost base to the taxpayer of the indemnity, in respect of each interest amount received by the taxpayer before that time, the taxpayer shall add an amount equal to the lesser of the income or profit tax paid by the taxpayer in that respect to the government of a foreign country and the proportion of that tax that the adjusted cost base to the taxpayer of the indemnity, immediately before the taxpayer received the amount, is of the amount by which the amount exceeds that tax, and shall deduct each interest amount the taxpayer received before that time in respect of that indemnity and each amount the taxpayer received before that time as the principal amount of that indemnity;

(c)  the amount received by the taxpayer as the principal amount of the indemnity is deemed not to be the proceeds of a partial disposition of the indemnity; and

(d)  for the purposes of sections 772.2 to 772.13, despite the definition assigned to “non-business-income tax” in section 772.2, the non-business-income tax paid by the taxpayer does not include the amount that is required under subparagraph b to be added in computing the adjusted cost base to the taxpayer of the indemnity.

Chapter V.2 of Title II of Book I applies in relation to an election made under subsection 2 of section 80.1 of the Income Tax Act or in relation to an election made under this section before 20 December 2006.

1973, c. 17, s. 53; 1995, c. 63, s. 38; 2009, c. 5, s. 159.

2006-03-01

471. A taxpayer may elect, in prescribed form and within prescribed delay, in respect of all amounts received or to be received by him as interest on the indemnities he acquires, that the following rules apply in respect of each indemnity:

(a)  in computing his income for the taxation year from the indemnity, with respect to each interest amount that he receives during the year, he may deduct the lesser of that amount and the aggregate of the amount to be included under paragraph b in the adjusted cost base of the indemnity and the greater, immediately before the interest amount was received, of the adjusted cost base of the indemnity and its adjusted principal amount, and he must include, with respect to each amount he receives during the year as the principal amount of the indemnity or as proceeds from the disposition of the indemnity, the excess of the amount he so receives over the greater, immediately before receiving that amount, of the adjusted cost base of the indemnity and its adjusted principal amount;

(b)  in computing, at any particular time, the adjusted cost base of the indemnity, with respect to each interest amount received by him before such time, he must include an amount equal to the lesser of the income or profit tax paid by him in that respect to the government of a foreign country and that proportion of the said tax represented by the proportion between the adjusted cost base of the indemnity, immediately before such amount was received, and the excess of the said amount over such tax, and must deduct each interest amount he received before that time with respect to that indemnity and each amount he received before such time as the principal amount of that indemnity;

(c)  the amount received by the taxpayer as principal amount of the indemnity is deemed not to be the proceeds of a partial disposition thereof; and

(d)  for the purposes of sections 772.2 to 772.13, notwithstanding the definition assigned to “non-business-income tax” in section 772.2, the non-business-income tax paid by a taxpayer does not include the amount that is required by paragraph b to be included in computing the adjusted cost base to the taxpayer of the indemnity.

1973, c. 17, s. 53; 1995, c. 63, s. 38.