I-3 - Taxation Act

Section 478 Disposition versions

2009-05-15

478. If the property described in section 476 is acquired as consideration for the settlement or extinction of a debt that is payable to the taxpayer by the taxpayer’s foreign affiliate and that is represented by a capital property, or for the settlement or extinction of any other obligation, so represented, of the affiliate to pay an amount to the taxpayer, and the taxpayer makes a valid election under subsection 5 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 such property, the following rules apply in respect of each such property:

(a)  subparagraph a of the first paragraph of section 477 applies by replacing “the amount of the dividend or benefit received by the taxpayer” by “the proceeds of disposition, for the taxpayer, of the debt or the settled or extinct obligation”;

(b)  if, in accordance with paragraph b of subsection 5 of section 80.1 of the Income Tax Act, the taxpayer has designated in that election a class of shares of the capital stock of the taxpayer’s foreign affiliate in respect of the property, the amount by which the cost to the taxpayer of the property, computed with reference to subparagraph a, exceeds the amount of the debt or obligation settled or extinct because of the acquisition of the property is deemed to have been received by the taxpayer as a dividend from the taxpayer’s affiliate in respect of that class of shares and the capital gain realized by the taxpayer from the disposition of the debt or of the obligation is deemed to be nil;

(c)  a capital loss of the taxpayer from the disposition of the debt or of the obligation is deemed to be nil; and

(d)  subparagraphs c to f of the first paragraph of section 477 apply to the property.

Chapter V.2 of Title II of Book I applies in relation to an election made under subsection 5 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; 2009, c. 5, s. 166.

2006-03-01

478. Where the property contemplated in section 476 is acquired as consideration for the settlement or extinction of a debt payable to the taxpayer by his foreign affiliate as capital property or for the settlement or extinction of any other obligation, so represented, of the affiliate to pay an amount to the taxpayer, he may elect, in the form and within the delay prescribed with respect of all such property, that the following rules apply to each such property:

(a)  paragraph a of section 477 applies by replacing the words “the amount of the dividend or benefit received by him” by the words “the proceeds of the disposition, for the taxpayer, of the debt or the settled or extinct obligation”;

(b)  where the taxpayer has designated in his election a class of shares of the capital stock of his foreign affiliate in respect of the property, the excess of the cost to the taxpayer of the property, computed having regard to paragraph a, on the amount of the debt or the obligation settled or extinct by the acquisition of the property is deemed to have been received by the taxpayer as a dividend from his affiliate in respect of such class of shares and the capital gain realized by the taxpayer from the disposition of the debt or of the obligation is deemed nil;

(c)  a capital loss of the taxpayer from the disposition of the debt or of the obligation is deemed nil; and

(d)  paragraphs c to f of section 477 apply to the property.

1973, c. 17, s. 53.