I-3 - Taxation Act

Section 485.3 Disposition versions

2019-06-19

485.3. For the purposes of this subdivision and subdivision 2,

(a)  an obligation issued by a debtor is settled at a particular time where the obligation is settled or extinguished at that time, otherwise than by way of a succession or will or as consideration for the issue of a share described in paragraph b of the definition of “excluded security” in section 485;

(b)  an amount of interest payable by a debtor in respect of an obligation issued by the debtor is deemed to be an obligation that was issued by the debtor for an amount, and that has a principal amount, equal to the portion of the amount of such interest that was deductible or would, but for sections 135.4, 164 and 180 to 182, have been deductible in computing the debtor’s income for a taxation year;

(c)  sections 485.4 to 485.6 and 485.8 to 485.13 apply in numerical order to the forgiven amount in respect of a commercial obligation;

(d)  the applicable fraction of the unapplied portion of a forgiven amount at any time in respect of an obligation issued by a debtor is in respect of a loss for a taxation year, the fraction required to be used under the first paragraph of section 231 for that year;

(e)  where an applicable fraction, as determined under subparagraph d, of the unapplied portion of a forgiven amount is at any time applied under section 485.5 to reduce a loss for a taxation year, the portion of the forgiven amount so applied is, except for the purpose of reducing the loss, deemed to be the quotient obtained when the amount of the reduction under that section 485.5 is divided by the applicable fraction;

(f)  (paragraph repealed);

(g)  where a share, other than an excluded security, is issued by a corporation to a person as consideration for the settlement of a debt issued by the corporation and payable to the person, the amount paid in satisfaction of the debt as a consequence of the issue of the share is deemed to be equal to the fair market value of the share at the time it was issued;

(h)  where a debt issued by a corporation and payable to a person is settled at any time, the amount that can reasonably be considered to be the increase, as a consequence of the settlement of the debt, in the fair market value of the shares of the capital stock of the corporation owned by the person, other than shares acquired by the person as consideration for the settlement of the debt, is deemed to be paid at that time in satisfaction of the debt;

(i)  where the consideration given by a debtor to another person for the settlement at any time of a particular commercial debt obligation issued by the debtor and payable to the other person includes a new commercial debt obligation issued by the debtor to the other person

i.  an amount equal to the principal amount of the new obligation is deemed to have been paid by the debtor at that time, because of the issue of the new obligation, in satisfaction of the principal amount of the particular obligation, and

ii.  the new obligation is deemed to have been issued for an amount equal to the amount by which the principal amount of the new obligation exceeds the amount by which the principal amount of the new obligation exceeds the amount for which the particular obligation was issued;

(j)  where two or more commercial obligations issued by a debtor are settled at the same time, those obligations shall be treated as if they were settled at different times in the order designated by the debtor in a prescribed form filed with the debtor’s fiscal return under this Part for the debtor’s taxation year that includes the time of the settlement or, if the debtor does not so designate any such order, in the order designated by the Minister;

(k)  for the purpose of determining, at any time, whether two persons are related to each other or whether any person is controlled by any other person, the following rules apply:

i.  each partnership and each trust is deemed to be a corporation having a capital stock of a single class of voting shares divided into 100 issued shares,

ii.  each member of a partnership and each beneficiary under a trust is deemed to own at that time the number of issued shares of that class that is equal to the proportion of 100 that the fair market value at that time of the member’s interest in the partnership or the beneficiary’s interest in the trust, as the case may be, is of the fair market value at that time of all members’ interests in the partnership or all beneficiaries’ interests in the trust, as the case may be, and

iii.  where a beneficiary’s share of the income or capital of a trust depends on the exercise by any person of, or the failure by any person to exercise, a power to appoint, the fair market value at any time of the beneficiary’s interest in the trust is equal to

(1)  where the beneficiary is not entitled to receive or otherwise obtain the use of all or part of the income or capital of the trust before the death after that time of one or more other beneficiaries under the trust, nil, and

(2)  in any other case, the fair market value at that time of all beneficiaries’ interests in the trust;

(l)  where an obligation is denominated in a foreign currency, the forgiven amount at any time in respect of the obligation shall be determined with reference to the relative value of that currency and Canadian currency at the time the obligation was issued;

(m)  where an amount is paid in satisfaction of the principal amount of a particular commercial obligation issued by a debtor and, as a consequence of the payment, the debtor is legally obliged to pay that amount to another person, the obligation to pay that amount to the other person is deemed to be a commercial obligation that was issued by the debtor at the same time and in the same circumstances as the particular obligation;

(n)  the amount that can be applied because of sections 485 to 485.18 to reduce another amount may not exceed that other amount;

(o)  except for the purposes of this paragraph, where a commercial debt obligation issued by a debtor is settled at any time, the debtor is at that time a member of a partnership, and the obligation was, under the agreement governing the obligation, considered immediately before that time as a debt owed by the partnership, the obligation is deemed to have been issued by the partnership and not by the debtor;

(p)  notwithstanding subparagraph o, where a commercial debt obligation for which a particular person is solidarily liable with one or more other persons is settled at any time in respect of the particular person but not in respect of all of the other persons, the portion of the obligation that can reasonably be considered to be the particular person’s share of the obligation is deemed to have been issued by the particular person and settled at that time and not at any subsequent time;

(q)  a commercial debt obligation issued by an individual that is outstanding at the time of the individual’s death and settled at a time subsequent to the death is, if the succession of the individual was liable for the obligation immediately before the subsequent time, deemed to have been issued by the succession at the same time at which, and in the same circumstances in which, the obligation was issued by the individual; and

(r)  where a commercial debt obligation issued by an individual would, but for this paragraph, be settled at any time in the period ending six months after the death of an individual, or within such longer period as is acceptable to the Minister and the succession of the individual, and the succession of the individual was liable immediately before that time for the obligation, the following rules apply, subject to the second paragraph:

i.  the obligation is deemed to have been settled at the beginning of the day on which the individual died and not at that time,

ii.  any amount paid at that time by the succession in satisfaction of the principal amount of the obligation is deemed to have been paid at the beginning of the day on which the individual died,

iii.  any amount given by the succession at or before that time to another person as consideration for assumption by the other person of the obligation is deemed to have been given at the beginning of the day on which the individual died, and

iv.  subparagraph b shall not apply in respect of the settlement to interest that accrues within that period.

Subparagraph r of the first paragraph does not apply in circumstances in which any amount is, because of the settlement of the commercial debt obligation referred to in that subparagraph, included under section 37 or 111 in computing the income of any person, or in which sections 484 to 484.6 apply in respect of that obligation.

1986, c. 19, s. 111; 1993, c. 16, s. 196; 1996, c. 39, s. 141; 1997, c. 3, s. 71; 1998, c. 16, s. 251; 2003, c. 2, s. 129; 2005, c. 1, s. 113; 2019, c. 14, s. 135.

2006-03-01

485.3. For the purposes of this subdivision and subdivision 2,

(a)  an obligation issued by a debtor is settled at a particular time where the obligation is settled or extinguished at that time, otherwise than by way of a succession or will or as consideration for the issue of a share described in paragraph b of the definition of “excluded security” in section 485;

(b)  an amount of interest payable by a debtor in respect of an obligation issued by the debtor is deemed to be an obligation that was issued by the debtor for an amount, and that has a principal amount, equal to the portion of the amount of such interest that was deductible or would, but for sections 135.4, 164 and 180 to 182, have been deductible in computing the debtor’s income for a taxation year;

(c)  sections 485.4 to 485.13 apply in numerical order to the forgiven amount in respect of a commercial obligation;

(d)  the applicable fraction of the unapplied portion of a forgiven amount at any time in respect of an obligation issued by a debtor is in respect of a loss for a taxation year, the fraction required to be used under the first paragraph of section 231 for that year;

(e)  where an applicable fraction, as determined under subparagraph d, of the unapplied portion of a forgiven amount is at any time applied under section 485.5 to reduce a loss for a taxation year, the portion of the forgiven amount so applied is, except for the purpose of reducing the loss, deemed to be the quotient obtained when the amount of the reduction under that section 485.5 is divided by the applicable fraction;

(f)  where 3/4 of the unapplied portion of a forgiven amount is applied under section 485.7 to reduce the eligible incorporeal capital amount, except for the purpose of reducing the eligible incorporeal capital amount, the portion of the forgiven amount so applied is deemed to be 4/3 of the amount of the reduction under that section 485.7;

(g)  where a share, other than an excluded security, is issued by a corporation to a person as consideration for the settlement of a debt issued by the corporation and payable to the person, the amount paid in satisfaction of the debt as a consequence of the issue of the share is deemed to be equal to the fair market value of the share at the time it was issued;

(h)  where a debt issued by a corporation and payable to a person is settled at any time, the amount that can reasonably be considered to be the increase, as a consequence of the settlement of the debt, in the fair market value of the shares of the capital stock of the corporation owned by the person, other than shares acquired by the person as consideration for the settlement of the debt, is deemed to be paid at that time in satisfaction of the debt;

(i)  where the consideration given by a debtor to another person for the settlement at any time of a particular commercial debt obligation issued by the debtor and payable to the other person includes a new commercial debt obligation issued by the debtor to the other person

i.  an amount equal to the principal amount of the new obligation is deemed to have been paid by the debtor at that time, because of the issue of the new obligation, in satisfaction of the principal amount of the particular obligation, and

ii.  the new obligation is deemed to have been issued for an amount equal to the amount by which the principal amount of the new obligation exceeds the amount by which the principal amount of the new obligation exceeds the amount for which the particular obligation was issued;

(j)  where two or more commercial obligations issued by a debtor are settled at the same time, those obligations shall be treated as if they were settled at different times in the order designated by the debtor in a prescribed form filed with the debtor’s fiscal return under this Part for the debtor’s taxation year that includes the time of the settlement or, if the debtor does not so designate any such order, in the order designated by the Minister;

(k)  for the purpose of determining, at any time, whether two persons are related to each other or whether any person is controlled by any other person, the following rules apply:

i.  each partnership and each trust is deemed to be a corporation having a capital stock of a single class of voting shares divided into 100 issued shares,

ii.  each member of a partnership and each beneficiary under a trust is deemed to own at that time the number of issued shares of that class that is equal to the proportion of 100 that the fair market value at that time of the member’s interest in the partnership or the beneficiary’s interest in the trust, as the case may be, is of the fair market value at that time of all members’ interests in the partnership or all beneficiaries’ interests in the trust, as the case may be, and

iii.  where a beneficiary’s share of the income or capital of a trust depends on the exercise by any person of, or the failure by any person to exercise, a power to appoint, the fair market value at any time of the beneficiary’s interest in the trust is equal to

(1)  where the beneficiary is not entitled to receive or otherwise obtain the use of all or part of the income or capital of the trust before the death after that time of one or more other beneficiaries under the trust, nil, and

(2)  in any other case, the fair market value at that time of all beneficiaries’ interests in the trust;

(l)  where an obligation is denominated in a foreign currency, the forgiven amount at any time in respect of the obligation shall be determined with reference to the relative value of that currency and Canadian currency at the time the obligation was issued;

(m)  where an amount is paid in satisfaction of the principal amount of a particular commercial obligation issued by a debtor and, as a consequence of the payment, the debtor is legally obliged to pay that amount to another person, the obligation to pay that amount to the other person is deemed to be a commercial obligation that was issued by the debtor at the same time and in the same circumstances as the particular obligation;

(n)  the amount that can be applied because of sections 485 to 485.18 to reduce another amount may not exceed that other amount;

(o)  except for the purposes of this paragraph, where a commercial debt obligation issued by a debtor is settled at any time, the debtor is at that time a member of a partnership, and the obligation was, under the agreement governing the obligation, considered immediately before that time as a debt owed by the partnership, the obligation is deemed to have been issued by the partnership and not by the debtor;

(p)  notwithstanding subparagraph o, where a commercial debt obligation for which a particular person is solidarily liable with one or more other persons is settled at any time in respect of the particular person but not in respect of all of the other persons, the portion of the obligation that can reasonably be considered to be the particular person’s share of the obligation is deemed to have been issued by the particular person and settled at that time and not at any subsequent time;

(q)  a commercial debt obligation issued by an individual that is outstanding at the time of the individual’s death and settled at a time subsequent to the death is, if the succession of the individual was liable for the obligation immediately before the subsequent time, deemed to have been issued by the succession at the same time at which, and in the same circumstances in which, the obligation was issued by the individual; and

(r)  where a commercial debt obligation issued by an individual would, but for this paragraph, be settled at any time in the period ending six months after the death of an individual, or within such longer period as is acceptable to the Minister and the succession of the individual, and the succession of the individual was liable immediately before that time for the obligation, the following rules apply, subject to the second paragraph:

i.  the obligation is deemed to have been settled at the beginning of the day on which the individual died and not at that time,

ii.  any amount paid at that time by the succession in satisfaction of the principal amount of the obligation is deemed to have been paid at the beginning of the day on which the individual died,

iii.  any amount given by the succession at or before that time to another person as consideration for assumption by the other person of the obligation is deemed to have been given at the beginning of the day on which the individual died, and

iv.  subparagraph b shall not apply in respect of the settlement to interest that accrues within that period.

Subparagraph r of the first paragraph does not apply in circumstances in which any amount is, because of the settlement of the commercial debt obligation referred to in that subparagraph, included under section 37 or 111 in computing the income of any person, or in which sections 484 to 484.6 apply in respect of that obligation.

1986, c. 19, s. 111; 1993, c. 16, s. 196; 1996, c. 39, s. 141; 1997, c. 3, s. 71; 1998, c. 16, s. 251; 2003, c. 2, s. 129; 2005, c. 1, s. 113.