I-3 - Taxation Act

Section 851.22.41 Disposition versions

2006-03-01

851.22.41. For the purposes of the provisions of Title VII of Book IV for the purpose of computing the taxable income of an entrant bank for any taxation year that begins after the issue of the dissolution order described in subparagraph i of paragraph a of subsection 12 of section 142.7 of the Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th Supplement) or after the commencement of the winding-up of a Canadian affiliate of the entrant bank, as the case may be, the rules in the second paragraph apply where

(a)  the affiliate has been wound up or the dissolution order has been issued, within the period referred to in paragraph c of subsection 11 of section 142.7 of the Income Tax Act in relation to the entrant bank;

(b)  the entrant bank carries on all or part of the business in Canada that was formerly carried on by the Canadian affiliate; and

(c)  the Canadian affiliate and the entrant bank make a valid election for the purposes of subsection 12 of section 142.7 of the Income Tax Act.

The rules to which the first paragraph refers are as follows:

(a)  subject to subparagraphs b and e, the portion of a non-capital loss of the Canadian affiliate for a taxation year, in this subparagraph referred to as the “Canadian affiliate’s non-capital loss year”, that can reasonably be regarded as being its loss from carrying on a business in Canada, in this subparagraph referred to as the “loss business”, is deemed, for the taxation year of the entrant bank in which the Canadian affiliate’s non-capital loss year ended, to be a non-capital loss of the entrant bank from carrying on the loss business that was not deductible by the entrant bank in computing its taxable income for any taxation year that began before the date of the dissolution order or the commencement of the winding-up, as the case may be, to the extent that

i.  the portion of the non-capital loss of the Canadian affiliate was not deducted in computing the taxable income of the Canadian affiliate or any other entrant bank for any taxation year, and

ii.  the portion of the non-capital loss of the Canadian affiliate would have been deductible in computing the taxable income of the Canadian affiliate for any taxation year that begins after the date of the dissolution order or the commencement of the winding-up, as the case may be, if it had such a taxation year and if it had sufficient income for that year;

(b)  if at any time control of the Canadian affiliate or entrant bank has been acquired by a person or group of persons, no amount in respect of the Canadian affiliate’s non-capital loss for a taxation year that ends before that time is deductible in computing the taxable income of the entrant bank for a particular taxation year that ends after that time, except that the portion of the loss that can reasonably be regarded as the Canadian affiliate’s loss from carrying on a business in Canada and, where a business was carried on by the Canadian affiliate in Canada in the preceding year, the portion of the loss that can reasonably be regarded as being attributable to an amount deductible under section 725.1.1 in computing its taxable income for the year are deductible only if that business is carried on by the Canadian affiliate or the entrant bank for profit or with a reasonable expectation of profit throughout the particular year, and to the extent of the aggregate of the entrant bank’s income for the particular year from that business, and where properties were sold, leased, rented or developed or services rendered in the course of carrying on that business before that time, from any other business substantially all the income of which was derived from the sale, leasing, rental or development, as the case may be, of similar properties or the rendering of similar services;

(c)  subject to subparagraphs d and e, a net capital loss of the Canadian affiliate for a taxation year, in this subparagraph referred to as the “Canadian affiliate’s loss year”, is deemed to be a net capital loss of the entrant bank for its taxation year in which the Canadian affiliate’s loss year ended to the extent that the loss

i.  was not deducted in computing the taxable income of the Canadian affiliate or any other entrant bank for any taxation year, and

ii.  would have been deductible in computing the taxable income of the Canadian affiliate for any taxation year beginning after the date of the dissolution order or the commencement of the winding-up, as the case may be, if the Canadian affiliate had such a taxation year and if it had sufficient income and taxable capital gains for the year;

(d)  if at any time control of the Canadian affiliate or the entrant bank has been acquired by a person or group of persons, no amount in respect of the Canadian affiliate’s net capital loss for a taxation year that ended before that time is deductible in computing the entrant bank’s taxable income for a taxation year that ends after that time; and

(e)  any loss of the Canadian affiliate that would otherwise be deemed by subparagraph a or c to be a loss of the entrant bank for a particular taxation year that begins after the date of the dissolution order or the commencement of the winding-up, as the case may be, is deemed, for the purpose of computing the entrant bank’s taxable income for taxation years that begin after that date, to be such a loss of the entrant bank for its preceding taxation year and not for the particular year, if the entrant bank makes the election under paragraph h of subsection 12 of section 142.7 of the Income Tax Act for the particular year.

For the purposes of subparagraph b of the second paragraph, where sections 564.2 to 564.4.4 applied to the winding-up of another corporation in respect of which the Canadian affiliate was the parent and sections 564.4.1 to 564.4.3 applied in respect of losses of that other corporation, the Canadian affiliate is deemed to be the same corporation as, and a continuation of, that other corporation with respect to those losses.

2004, c. 8, s. 170.