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Corporations Tax Act
Loi sur l’imposition des sociétés

R.R.O. 1990, REGULATION 183

GENERAL

Historical version for the period July 4, 2007 to May 15, 2008.

Disclaimer: This consolidation is not an official copy of the law because it is affected by one or more retroactive provisions which have not been incorporated into it. For information about the retroactive provisions, see O. Reg. 150/08, subsections 3 (2) and (3).

Last amendment:  O. Reg. 307/07.

This Regulation is made in English only.

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CONTENTS

 

 

Sections

PART I

DEDUCTIONS IN RESPECT OF OIL OR GAS WELLS AND MINERAL RESOURCES

 

 

Interpretation

101-104

 

Additional Allowance in Respect of Certain Mines

105

 

Frontier Exploration Allowances

106

 

Additional Allowance in Respect of Foreign Oil and Gas Wells

107

 

Resource Allowance

108

 

Amounts Prescribed for the Purposes of Section 11.0.1 of the Act

108.1-108.3

 

Rules Prescribed for the Purposes of Subsection 26 (4.1) of the Act

108.4

 

Supplementary Depletion Allowances

109-111

PART II

ALLOWANCES IN RESPECT OF CAPITAL COST

 

 

Deductions

201

 

Eligible Assets for Current Cost Adjustment

202

 

Ontario New Technology Tax Incentive

203

 

Electricity Generation and Conservation

204

PART III

ALLOCATION OF TAXABLE INCOME

 

 

Determination of Taxable Income

301

 

Rules

302-302.1

 

Insurance Corporations

303

 

Banks

304

 

Trust and Loan Corporations

305

 

Railway Corporations

306

 

Airline Corporations

307

 

Grain Elevator Operators

308

 

Bus and Truck Operators

309

 

Pipeline Operators

310

 

Navigation Corporations

311

 

Divided Businesses

312

 

Allocation of Taxable Income Earned in Canada of Non-Residents

313-314

 

Rules

315-318

 

Allocation of Taxable Paid-Up Capital

319

 

Rules

320

 

Banks

321

 

Trust and Loan Corporations

322

 

Railway Corporations

323

 

Grain Elevator Operators

324

 

Bus and Truck Operators

325

 

Pipeline Operators

326

 

Navigation Corporations

327

 

Airline Corporations

328

 

Allocation of Taxable Paid-Up Capital Employed in Canada of Non-Resident

329-330

 

Allocation of Taxable Paid-up Capital of Life Insurance Corporations

331

PART IV

PRESCRIBED CORPORATIONS

 

 

Corporations

401

PART V

MISCELLANEOUS

 

 

Profits Tax

501-502

 

Rate of Interest on Unpaid Taxes and Overpayments

503

 

Taxable Canadian Property Deemed Situated in Ontario

504

 

Eligible Canadian Profits

505

 

Instalment Base

506-604

PART VII

CAPITAL TAX

701-704

PART VIII

PRESCRIBED TAX CONVENTIONS

801-802

PART IX

REFUNDABLE TAX CREDITS

901-906

PART X

ROLLOVERS AND ELECTIONS

1001-1003

PART XI

ONTARIO BUSINESS — RESEARCH INSTITUTE TAX CREDIT

1101

PART XII

ONTARIO COMPUTER ANIMATION AND SPECIAL EFFECTS TAX CREDIT

1201

PART I
DEDUCTIONS IN RESPECT OF OIL OR GAS WELLS AND MINERAL RESOURCES

Interpretation

101. (1) In this Part,

“Canadian exploration and development expense” has the meaning given to that expression by subsection 18 (15) of the Act;

“Canadian exploration and development expenses incurred in oil or gas operations” means that part of the corporation’s Canadian exploration and development expenses that is,

(a) a drilling or exploration expense, including any general geological or geophysical expense incurred on or in respect of exploring or drilling for petroleum or natural gas in Canada,

(b) an expenditure incurred for the purpose of,

(i) exploration in respect of, or

(ii) development of,

a petroleum deposit for the purpose of gaining or producing income from the extraction of material from such deposit, or

(c) the cost of a Canadian oil or gas resource property;

“Canadian exploration and development overhead expense” means an expense described in subsections 1206 (1), (5), (6) and (7) of the regulations made under the Income Tax Act (Canada);

“Canadian fossil fuel source” means,

(a) a natural accumulation of petroleum or natural gas in Canada that is not a mineral resource in Canada,

(b) an oil or gas well in Canada, or

(c) a bituminous sands deposit or oil shale deposit that is a mineral resource in Canada;

“Canadian oil and gas exploration expense” means an expense so described in subsection 1206 (1) of the regulations made under the Income Tax Act (Canada);

“Canadian oil or gas resource property” means a Canadian resource property,

(a) that is described in paragraph (a), subparagraph (b) (i) or paragraph (c) or (d) of the definition of “Canadian resource property” in subsection 66 (15) of the Income Tax Act (Canada),

(b) that would be property described in subparagraph (b) (ii) or paragraph (e) or (f) of that definition if the only mineral resource referred to in that subparagraph or paragraph were a petroleum deposit, or

(c) that is a right to or interest in any property described in clause (a) or (b);

“Canadian resource property” has the meaning given to that expression by subsection 66 (15) of the Income Tax Act (Canada);

“Crown entity” means a person referred to in subclause 11.0.1 (3) (a) (i), (ii) or (iii) of the Act;

“earned depletion base” of a corporation as of a particular time means the amount by which 331/3 per cent of the aggregate of,

(a) three times its earned depletion base as at the end of its last taxation year ending before the 20th day of April, 1977, as determined under subsection (2),

(b) all amounts, in respect of expenditures (other than expenditures to acquire property in circumstances that entitled the corporation to a deduction under section 1202 of the regulations made under the Income Tax Act (Canada), as that section applies for the purposes of subsection 104 (2), or would entitle the corporation to such a deduction if the amounts referred to in paragraphs 1202 (2) (a) and (b) of those regulations were sufficient for the purpose) each of which was,

(i) a Canadian exploration and development expense incurred in oil or gas operations other than,

(A) a cost of borrowing capital, including any cost incurred prior to the commencement of carrying on a business, that was a Canadian exploration and development expense or an exploration, prospecting and development expense, as the case may be, of the corporation,

(B) the cost to it of any Canadian oil or gas resource property acquired by it,

(C) a Canadian exploration and development expense that was incurred after a petroleum deposit had come into production in reasonable commercial quantities and may reasonably be considered to be related to the petroleum deposit or to a potential or actual extension thereof,

(D) a Canadian exploration and development expense which has been renounced by the corporation under subsection 18 (5) of the Act,

(E) an amount that, by virtue of clause (d) of the definition of “Canadian exploration and development expenses” in subsection 18 (15) of the Act was a Canadian exploration and development expense, if such amount was a cost or expense referred to in sub-subclause (A), (B), (C) or (D) that was incurred by an association, partnership or syndicate referred to in the said clause (d), or

(F) an amount that by virtue of clause (e) of the definition of “Canadian exploration and development expenses” in subsection 18 (15) of the Act was a Canadian exploration and development expense, if such amount was a cost or expense referred to in sub-subclause (A), (B), (C) or (D) that the corporation incurred pursuant to an agreement referred to in the said clause (e),

(ii) the stated percentage of a Canadian exploration expense incurred after May 19, 1981 which qualifies for the purposes of subparagraph 1205 (1) (a) (ii) of the regulations made under the Income Tax Act (Canada) and was incurred in connection with oil or gas exploration,

(iii) the specified percentage of a Canadian oil and gas exploration expense incurred after 1980 and before 1984 which qualifies for the purposes of subparagraph 1205 (1) (a) (v) of the regulations made under the Income Tax Act (Canada),

(iv) the stated percentage of an expenditure incurred by the corporation that qualifies for the purposes of subparagraph 1205 (1) (a) (vi) of the regulations made under the Income Tax Act (Canada) other than clause (A) thereof or that portion of an expenditure incurred by the corporation that qualifies for the purposes of clause 1205 (1) (a) (vi) (A) of the regulations made under the Income Tax Act (Canada),

Note:  Clause (b), as amended by O. Reg. 355/98, s. 10 (1-3), applies to corporations for taxation years ending after February 17, 1987.  See:  O. Reg. 355/98, s. 10 (8).

(c) the stated percentage of all expenditures that qualify for the purposes of paragraphs 1205 (1) (b) and (c) of the regulations made under the Income Tax Act (Canada) that were incurred by the corporation in connection with a petroleum deposit,

Note:  Clause (c), as amended by O. Reg. 355/98, s. 10 (4, 5), applies to corporations for taxation years ending after February 17, 1987, except that paragraph 1205 (1) (c) of the regulations made under the Income Tax Act (Canada), as it applies for the purpose of clause (c) of the definition of “earned depletion base” shall, in its application to a taxation year ending before 1988, be read without reference to the words “or paragraph (a) of Class 41”.  See:  O. Reg. 355/98, s. 10 (8).

(d) three times the total of all amounts each of which is an amount equal to the lesser of,

(i) the amount that would be determined under subsection 108 (1) in computing the corporation’s income for a taxation year that ends before the particular time, determined on the basis that the corporation had no profits from mining operations and that the amount determined to be “C” in the formula in subsection 108 (1) were nil, and

(ii) the amount determined to be “C” in the formula in subsection 108 (1) in respect of the corporation for that year, and

Note:  Clause (d), as remade by O. Reg. 355/98, s. 24 (1), applies to corporations for taxation years ending after December 20, 1991.  See:  O. Reg. 355/98, s. 24 (5).

(d.1) three times the aggregate of all amounts each of which is the specified amount determined under subsection 1202 (4) of the regulations made under the Income Tax Act (Canada), as made applicable by subsection 104 (2), in respect of the corporation for a taxation year ending after February 17, 1987 and before the particular time,

Note:  Clause (d.1), as made by O. Reg. 355/98, s. 10 (5), applies to corporations for taxation years ending after February 17, 1987.  See:  O. Reg. 355/98, s. 10 (8).

exceeds the aggregate of,

(e) all amounts deducted by the corporation under subsection 103 (1) in computing its income for all taxation years ending after April 19, 1977 and before the particular time,

Note:  Clause (e), as remade by O. Reg. 355/98, s. 10 (6), applies to corporations for taxation years ending after February 17, 1987.  See:  O. Reg. 355/98, s. 10 (8).

(f) 331/3 per cent of the aggregate of all amounts each of which is the stated percentage of a cost of borrowing capital, including any cost incurred prior to the commencement of carrying on a business, that was included in the capital cost to it of depreciable property described in subclause (b) (iv) or clause (c),

Note:  Clause (f), as remade by O. Reg. 355/98, s. 10 (6), applies to corporations for taxation years ending after February 17, 1987.  See:  O. Reg. 355/98, s. 10 (8).

(g) 33 1/3 per cent of the aggregate of all amounts, each of which is an amount that became receivable by the corporation after April 28, 1978 and before the earlier of May 20, 1981 and the particular time and in respect of which the consideration given by the corporation therefor was a property (other than a share, or a property that would have been a Canadian resource property if it had been acquired by the corporation at the time the consideration was given) or services the cost of which may reasonably be regarded as having been primarily an expenditure that was added in computing,

(i) the corporation’s earned depletion base by virtue of subclause (b) (i) or (ii), or

(ii) the earned depletion base of an original owner of a property by virtue of subclause (b) (i) or (ii) as it applied to the original owner, where the corporation acquired the property in circumstances in which subsection 1202 (2) of the regulations made under the Income Tax Act (Canada) applies,

Note:  Clause (g), as remade by O. Reg. 355/98, s. 10 (6), applies to corporations for taxation years ending after February 17, 1987.  See:  O. Reg. 355/98, s. 10 (8).

(h) 331/3 per cent of the aggregate of all amounts, each of which is an amount,

(i) in respect of the disposition of property of the corporation, other than a disposition of property that had been used by the corporation or any person with whom the corporation was not dealing at arm’s length, that occurred after April 28, 1978 and before the earlier of May 20, 1981 and the particular time, if the capital cost of the property was included in computing the corporation’s earned depletion base by virtue of clause (c) or in computing the earned depletion base of an original owner of the property by virtue of clause (c) as it applied to the original owner if the corporation acquired the property in circumstances in which subsection 1202 (2) of the regulations made under the Income Tax Act (Canada) applies, and

(ii) equal to the lesser of the proceeds of disposition of the property and the amount that would be the capital cost of the property to the corporation or the original owner, as the case may be, if all costs of borrowing capital were excluded from the capital cost of the property including those costs of borrowing capital that were incurred prior to the commencement of carrying on a business,

Note:  Clause (h), as remade by O. Reg. 355/98, s. 10 (6), applies to corporations for taxation years ending after February 17, 1987.  See:  O. Reg. 355/98, s. 10 (8).

(i) an amount that would be described in paragraph 1205 (1) (j) of the regulations made under the Income Tax Act (Canada) if,

(i) that paragraph applied only to assistance related to expenditures incurred in connection with oil or gas operations of the corporation that are included in the corporation’s earned depletion base by virtue of paragraphs (a) to (d.1), and

(ii) the reference in subparagraph 1205 (1) (j) (iv) to subparagraph 1205 (1) (a) (v) and clause 1205 (1) (a) (vi) (A) of those regulations were read as a reference to subparagraph 1205 (1) (a) (v) only,

Note:  Clause (i), as remade by O. Reg. 355/98, s. 10 (6), applies to corporations for taxation years ending after February 17, 1987.  See:  O. Reg. 355/98, s. 10 (8).

(j) any amount required to be deducted at or before the particular time in computing the corporation’s earned depletion base by paragraph 1202 (2) (b) of the regulations made under the Income Tax Act (Canada), as it read in its application to taxation years ending before February 18, 1987, or by paragraph 1202 (3) (a) of those regulations, as those paragraphs are made applicable by subsection 104 (2), and

Note:  Clause (j), as remade by O. Reg. 355/98, s. 10 (6), applies to corporations for taxation years ending after February 17, 1987.  See:  O. Reg. 355/98, s. 10 (8).

(k) the amount, if any, by which the sum of all amounts that would be determined at the particular time under clauses 109 (2) (b) and (c), as those clauses read on May 6, 1997, exceeds the sum of all amounts that would be determined at the particular time under clause 109 (2) (a), as that clause read on May 6, 1997;

“fossil fuel” means petroleum, natural gas or a related hydrocarbon;

“gross resource profits from oil or gas operations” means, in respect of a corporation for a taxation year, the amount determined for the corporation for the taxation year under subsection (1.1);

 “joint exploration corporation” has the meaning given to that expression by subsection 18 (15) of the Act;

“oil or gas resource activity” means,

(a) the production of fossil fuel or sulphur from,

(i) oil or gas wells in Canada,

(ii) a natural accumulation of petroleum or natural gas in Canada, or

(iii) petroleum deposits in Canada,

(b) the processing in Canada of heavy crude oil recovered from an oil or gas well in Canada to any stage that is not beyond the crude oil stage or its equivalent,

(c) ownership of a right to a rental or royalty computed by reference to the amount or value of production from a property in Canada that is a natural accumulation of petroleum or natural gas, an oil or gas well or a petroleum deposit, or

(d) Canadian field processing;

“oil or gas well” has the meaning given to that expression by subsection 18 (15) of the Act;

“petroleum deposit” means a mine that is a location in a bituminous sands deposit, oil sands deposit or oil shale deposit from which material is extracted;

“proceeds of disposition” of property has the meaning given to that expression by paragraph 13 (21) (d) of the Income Tax Act (Canada);

“production royalty” means, in respect of a corporation, an amount in respect of a particular Canadian resource property that is included in computing the corporation’s income as a rental or royalty computed by reference to the amount or value of fossil fuel produced from a Canadian fossil fuel source if,

(a) the corporation has a Crown royalty in respect of,

(i) the production of fossil fuel from the Canadian fossil fuel source, or

(ii) the ownership of property to which the production relates and the Crown royalty is computed by reference to an amount of production from the Canadian fossil fuel source, and it is reasonable to consider that the corporation would have had the Crown royalty if the corporation’s only source of income had been the rental or royalty in respect of the particular property, or

(b) the corporation would have a Crown royalty described in clause (a) but for an exemption or allowance, other than a rate of nil, that is provided under a statute by a Crown entity;

“resource profits from oil or gas operations” means, in respect of a corporation for a taxation year, the amount determined for the corporation for the taxation year under subsection (1.3);

“shareholder corporation” has the meaning given to that expression by subsection 18 (15) of the Act;

“specified percentage” has the meaning given to that expression by subsection 1206 (1) of the regulations made under the Income Tax Act (Canada);

“specified royalty” means a royalty,

(a) the cost of which is a Canadian development expense for the purposes of the Act, and

(b) that was created after December 5, 1996, otherwise than pursuant to an agreement in writing made on or before that date, as part of a transaction or event or series of transactions or events as a consequence of which depreciable property was acquired at a capital cost that was less than the amount that would have been the fair market value of the depreciable property determined without regard to the royalty;

“stated percentage” means,

(a) in respect of an expenditure incurred or a cost incurred in borrowing capital,

(i) 100 per cent in respect of an expenditure or cost incurred before July 1, 1988,

(ii) 50 per cent in respect of an expenditure or cost incurred after June 30, 1988 and before 1990, and

(iii) 0 per cent in respect of an expenditure or cost incurred after 1989,

(b) in respect of assistance or benefits,

(i) 100 per cent in respect of any assistance or benefit that relates to expenditures incurred before July 1, 1988,

(ii) 50 per cent in respect of any assistance or benefit that relates to expenditures incurred after June 30, 1988 and before 1990, and

(iii) 0 per cent in respect of any assistance or benefit that relates to expenditures incurred after 1989;

“tar sands ore” has the meaning given to that term under subsection 1206 (1) of the regulations made under the Income Tax Act (Canada).  R.R.O. 1990, Reg. 183, s. 101 (1); O. Reg. 355/98, ss. 1, 2, 4 (1, 2), 9 (1, 2), 10 (1-7), 15 (1, 2), 17 (1, 2), 24 (1-3), 29 (1); O. Reg. 60/06, s. 1 (1-10).

(1.1) A corporation’s gross resource profits from oil or gas operations for a taxation year for the purposes of this Part is calculated using the formula,

A + B

where,

  “A” is the amount, if any, by which the sum of “C” and “D” exceeds “E”,

  “B”   is the amount, if any, by which the sum of “F”, “G” and “H” exceeds “I”,

  “C” is the sum of all amounts, if any, that are included in computing the corporation’s income for the year from the disposition of a Canadian oil or gas resource property by reason of,

(a) subsection 59 (2) of the Income Tax Act (Canada), as it would apply for the purposes of the Act if it were read without reference to subsection 64 (1) of the Income Tax Act, Revised Statutes of Canada, 1952, chapter 148, or

(b) paragraph 59 (3.2) (b) or 59.1 (b) of the Income Tax Act (Canada), as made applicable by section 15 of the Act,

  “D” is the amount, if any, by which the amount included in computing the corporation’s income for the year from the disposition of a Canadian oil or gas resource property by reason of paragraph 59 (3.2) (c) of the Income Tax Act (Canada), as made applicable by section 15 of the Act, exceeds the proceeds of disposition of properties described in subparagraph (b) (i) of the definition of “Canadian resource property” in subsection 66 (15) of the Income Tax Act (Canada) that became receivable by the corporation after December 31, 1982 and before the end of the year, to the extent that the proceeds have not been deducted for a prior taxation year in determining the amount of “D” or the amount under subclause (a) (ii) of the definition of “gross resource profits from oil or gas operations” in subsection (1), as that definition read before May 7, 1997,

“E” is the sum of all amounts, if any, deducted in computing the corporation’s income for the year by reason of paragraph 59.1 (a) of the Income Tax Act (Canada), as made applicable by subsection 15 (1) of the Act, in respect of a disposition of a Canadian oil or gas resource property,

“F” is its total income for the taxation year from,

(a) the production in Canada of fossil fuel or sulphur from,

(i) oil or gas wells in Canada operated by it,

(ii) natural accumulations of petroleum or natural gas in Canada operated by it, or

(iii) petroleum deposits in Canada operated by it,

(b) the processing in Canada of heavy crude oil recovered from an oil or gas well in Canada to any stage that is not beyond the crude oil stage or its equivalent, and

(c) Canadian field processing,

  “G” is the sum of all amounts, if any, each of which is included in computing the corporation’s income for the year in respect of a rental or royalty that is computed by reference to the amount or value of production from a property in Canada that is a natural accumulation of petroleum or natural gas, an oil or gas well or a petroleum deposit and from which a person had a right to take or remove fossil fuel,

  “H” is, if the corporation owns all the issued and outstanding shares of the capital stock of a railway company throughout the year, the amount that may reasonably be considered to be the railway company’s income for its taxation year ending in the year from the transportation of the corporation’s fossil fuel or sulphur from petroleum deposits in Canada operated by the corporation,

“I” is the sum of the corporation’s losses, if any, for the year from sources described in “F”.  O. Reg. 60/06, s. 1 (11).

(1.2) For the purposes of subsection (1.1), a corporation’s incomes and losses for a taxation year from sources described in “F” and “G” in that subsection shall be computed in accordance with the Act on the assumption that the corporation had no income or loss for the year except from those sources and was allowed no deductions in computing its income for the year other than,

(a) amounts deducted or deductible for the year under section 18, 19 or 21 of the Act that are not in respect of property described in subparagraph (b) (i) of the definition of “Canadian resource property” in subsection 66 (15) of the Income Tax Act (Canada);

(b) amounts deducted or deductible for the year under subsection 17 (2) or (6) or section 29 of The Corporations Tax Application Rules, 1972; and

(c) any other deductions for the year, except a deduction under section 103, subsection 104 (2) or section 106, that may reasonably be regarded as applicable to those sources.  O. Reg. 60/06, s. 1 (11).

(1.3) A corporation’s resource profits from oil or gas operations for a taxation year for the purposes of this Part is the amount, if any, calculated using the formula,

J – (K + L + P)

where,

“J” is the amount of the corporation’s gross resource profits from oil or gas operations for the year as determined under subsection (1.1),

  “K” is the sum of all amounts deducted in computing the corporation’s income for the year other than,

(a) an amount already deducted in computing the corporation’s gross resource profits from oil or gas operations for the year,

(b) an amount deducted for the year under,

(i) paragraph 20 (1) (ss) or (tt) of the Income Tax Act (Canada), as made applicable by subsection 11 (1) of the Act,

(ii) section 60 of the Income Tax Act (Canada), as made applicable by section 16 of the Act,

(iii) section 103 of this Regulation,

(iv) subsection 1202 (2) of the regulations made under the Income Tax Act (Canada), as made applicable by subsection 104 (2) of this Regulation, or

(v) subsection 106 (1) of this Regulation,

(c) an amount deducted under section 66.2 of the Income Tax Act (Canada), as made applicable by section 19 of the Act, in computing the corporation’s income for the year to the extent the amount is attributable to a right, licence or privilege to store fossil fuel underground in Canada,

(d) an amount deducted in computing income for the year from a business or other source that does not include any oil or gas resource activity of the corporation, and

(e) an amount deducted in computing the corporation’s income for the year to the extent that the amount,

(i) relates to an activity, other than an oil or gas resource activity of the corporation, that is,

(A) the production, processing, manufacturing, distribution, marketing, transportation or sale of any property,

(B) the rendering of a service by the corporation to another person for the purpose of earning income of the corporation, or

(C) another activity carried out for the purpose of earning income from property, and

(ii) does not relate to an oil or gas resource activity of the corporation,

“L” is the sum of all amounts each of which is the amount, if any, by which “M” exceeds “N”,

“M” is the amount that would have been charged to the corporation by a person or partnership with whom the corporation was not dealing at arm’s length, if the corporation and that person or partnership had been dealing at arm’s length,

(a) for the use in the year of a property, other than money, owned by that person or partnership, or

(b) for the provision in the year by that person or partnership of a service to the corporation,

  “N” is the sum of,

(a) the amount charged to the corporation for the use in that period of the property referred to in the definition of “M” or for the provision in that period of the service referred to in the definition of “M”, and

(b) the portion of the amount described in the definition of “M” that, if it had been charged, would not have been deductible in computing the corporation’s resource profits from oil or gas operations, and

“P” is the sum of all amounts added under subsection 80 (13) of the Income Tax Act (Canada), as made applicable by subsection 26 (1) of the Act, in computing the corporation’s gross resource profits from oil or gas operations for the year.  O. Reg. 60/06, s. 1 (11).

(2) For the purpose of the definition of “earned depletion base” in subsection (1), a corporation’s “earned depletion base as at the end of its last taxation year ending before the 20th day of April, 1977” is that proportion of its earned depletion base as of the end of its last taxation year ending before the 20th day of April, 1977 determined in accordance with section 1205 of the regulations made under the Income Tax Act (Canada) that,

(a) the amount by which the aggregate of,

(i) expenditures described in clause (b) of the definition of “earned depletion base”, and any amount that would have been such an expenditure if it had been incurred after 1971, and

(ii) expenditures described in clause (c) of the definition of “earned depletion base”,

that were incurred by the corporation after the 7th day of November, 1969 and before the end of that taxation year, and that are included in clause (b) of this subsection, exceeds three times the amounts referred to in clause (f) of the definition of “earned depletion base” that were incurred by the corporation after the 7th day of November, 1969 and before the end of that taxation year,

is of,

(b) the amount by which the aggregate of expenditures included under paragraphs 1205 (1) (a), (b), (c) and (d) of the regulations made under the Income Tax Act (Canada), incurred before the end of that taxation year exceeds three times any amount deducted under paragraph 1205 (1) (f) before the end of that taxation year.  R.R.O. 1990, Reg. 183, s. 101 (2).

(3) For the purposes of clause (e) of the definition of “earned depletion base” in subsection (1), where a corporation has a taxation year that ends after the 19th day of April, 1977 and that includes that day, the amount deductible under clause 103 (1) (a) for that taxation year shall be deemed to be the proportion of the amount deductible under clause 103 (1) (a) determined on the assumption that this Regulation applied to the whole of the taxation year, that the number of days in the taxation year that follow the 19th day of April, 1977, bears to the total number of days in that taxation year.  R.R.O. 1990, Reg. 183, s. 101 (3).

(4) The following rules apply for the purposes of calculating the amount of a corporation’s gross resource profits from oil or gas operations for a taxation year under subsection (1.1):

1. The corporation’s income or loss from a source described in the definition of “F” in that subsection does not include any of the following:

i. Any income or loss derived from transporting, transmitting or processing fossil fuel or sulphur, other than the income or loss, if any, from processing described in clause (b) of the definition of “F” in subsection (1.1).

ii. If the taxation year ends after December 31, 2002, any income or loss arising because of the application of paragraph 12 (1) (z.1) or (z.2) of the Income Tax Act (Canada), as made applicable by subsection 11 (1) of the Act, section 107.3 of the Income Tax Act (Canada), as made applicable by subsection 32 (1) of the Act, or subsection 11.0.1 (4) of the Act.

iii. Any income or loss that can reasonably be attributable to a service rendered by the corporation, other than processing described in clause (b) or (c) of the definition of “F” in subsection (1.1).

2. If the corporation has income from a source described in the definition of “C”, “D”, “E” or “F” in subsection (1.1) and also has income from another source, the amounts referred to in clauses (1.2) (a) and (b) shall not include any amount that is not in respect of expenses incurred in oil or gas operations.  O. Reg. 60/06, s. 1 (12, 13).

(5) The following rules apply for the purposes of the definition of “oil or gas resource activity” in subsection (1):

1. The production of a substance by a corporation includes exploration and development activities of the corporation with respect to the substance, whether or not extraction of the substance has begun or will ever begin.

2. The production or processing of a substance by a corporation, or both, include activities performed by the corporation that are ancillary to or in support of the production or processing of that substance by the corporation.

3. The production or processing of a substance by a corporation, or both, includes an activity, including the ownership of property, that is undertaken before the extraction of the substance and that is undertaken for the purpose of extracting or processing the substance.

4. The production or processing of a substance by a corporation, or both, includes activities that the corporation undertakes as a consequence of producing or processing that substance, whether or not the production or processing of the substance has ceased.

5. Despite clauses (a), (b), (c) and (d) of the definition of “oil or gas resource activity” in subsection (1) and paragraphs 1 to 4, neither production nor processing of a substance includes any activity included in production or processing described in the definition of “F” in subsection (1.1) if,

i. the activity,

A. is the transporting, transmitting or processing of fossil fuel or sulphur, other than processing described in clause (b) of the definition of “oil or gas resource activity” in subsection (1), or

B. can reasonably be attributed to a service rendered by the corporation, and

ii. revenue from the activity is not taken into account in determining the amount of the corporation’s gross resource profits from oil or gas operations under subsection (1.1).  O. Reg. 60/06, s. 1 (14).

(5.1) Revoked:  O. Reg. 355/98, s. 29 (2).

(6) For the purposes of this Part, other than sections 108 and 108.4, if a corporation is a member of a partnership at the end of a fiscal period of the partnership,

(a) the corporation’s share of the partnership’s resource profits from oil or gas operations for the fiscal period shall be included in computing the corporation’s resource profits from oil or gas operations for the taxation year of the corporation in which the fiscal period ended;

(b) any property acquired or disposed of by the partnership shall be deemed to have been acquired or disposed of by the corporation to the extent of its share thereof;

(c) any property deemed by clause (b) to have been acquired or disposed of by the corporation shall be deemed to have been acquired or disposed of by it on the day the property was acquired or disposed of by the partnership;

(d) any amount that has become receivable by the partnership and in respect of which the consideration given by the partnership therefor was property (other than property referred to in paragraph 59 (2) (a), (c) or (d) of the Income Tax Act (Canada) as made applicable by section 15 of the Act, as those paragraphs read on the 31st day of December, 1984, or a share or interest therein or right thereto) or services, all or part of the original cost of which to the partnership may reasonably be regarded as primarily an exploration or development expense of the corporation, shall be deemed to be an amount receivable by the corporation to the extent of its share thereof, and the consideration so given by the partnership shall, to the extent of the corporation’s share thereof, be deemed to have been given by the corporation for the amount deemed to be receivable by it;

(e) any expenditure incurred or deemed to have been incurred by the partnership shall be deemed to have been incurred by the corporation to the extent of its share thereof; and

Note:  Clause (e), as amended by O. Reg. 355/98, s. 9 (3), applies in respect of expenditures incurred or deemed to have been incurred after February 28, 1986 and in respect of fiscal periods of partnerships ending after that date.  See:  O. Reg. 355/98, s. 9 (4).

(f) any amount or expenditure deemed by clause (d) or (e) to have been receivable or incurred, as the case may be, by the corporation shall be deemed to have become receivable or been incurred, as the case may be, by it on the day the amount became receivable or the expenditure was incurred by the partnership.  R.R.O. 1990, Reg. 183, s. 101 (6); O. Reg. 355/98, ss. 9 (3), 26 (1); O. Reg. 60/06, s. 1 (15, 16).

(7) For the purposes of sections 103 and 104 and the definition of “earned depletion base” in subsection (1), where a corporation was a member of a partnership at the end of a fiscal period of the partnership, the corporation shall be deemed to receive or to become entitled to receive any amount of assistance or benefit, whether such amount is by way of a grant, subsidy, rebate, forgiveable loan, deduction from royalty or tax, rebate of royalty or tax, investment allowance or any other form of assistance or benefit, that the partnership at any time receives or becomes entitled to receive in respect of expenses incurred in the fiscal period of the partnership, to the extent of,

(a) where the partnership in the fiscal period receives or becomes entitled to receive the amount, the corporation’s share thereof; or

(b) where the partnership after the fiscal period becomes entitled to receive the amount, what would have been the corporation’s share thereof if the partnership had in the fiscal period received or become entitled to receive the amount,

and the time at which the corporation is deemed to receive or become entitled to receive such share of the amount shall be the time that the partnership receives or becomes entitled to receive the amount.  R.R.O. 1990, Reg. 183, s. 101 (7); O. Reg. 355/98, s. 26 (2).

(8) For the purposes of this Part, where an expense incurred after the end of the corporation’s last taxation year ending before the 20th day of April, 1977, that was,

(a) a Canadian exploration and development expense, other than the cost of a Canadian resource property acquired by a joint exploration corporation;

(b) a Canadian exploration expense; or

(c) a Canadian development expense, other than an amount referred to in subparagraph 66.2 (5) (a) (iii) of the Income Tax Act (Canada),

has been renounced before 1982 in favour of the corporation and was deemed to be an expense of the corporation for the purposes of subsection 18 (5) or (6) of the Act, that expense, if it is not an amount referred to in paragraph 21 (2) (b) or subsection 21 (4) of the Income Tax Act (Canada), shall be deemed to have been a Canadian exploration and development expense, a Canadian exploration expense or a Canadian development expense, as the case may be, incurred by the corporation.  R.R.O. 1990, Reg. 183, s. 101 (8).

(9) If an expense of a type prescribed by subsection (9.1) was incurred by an entity after the end of a corporation’s last taxation year ending before April 20, 1977 was renounced after 1981 in favour of the corporation and was deemed to be an expense of the corporation for the purposes of subsection 18 (5) or (6) of the Act, the expense, if it is not an amount in respect of financing,

(a) shall be deemed for the purposes of the definition of “earned depletion base” in subsection (1) to have been the same type of expense and to have been incurred by the corporation at the time the expense was incurred by the joint exploration corporation; and

(b) shall be deemed for the purposes of section 108 and for the purposes of determining the amount of the corporation’s resource profits from oil or gas operations to have been the same type of expense and to have been incurred by the corporation at the time it was deemed to have been incurred for the purposes of subsection 18 (5) or (6) of the Act.  O. Reg. 60/06, s. 1 (17).

(9.1) The following types of expenses are prescribed for the purposes of subsection (9):

1. A Canadian exploration and development expense, other than the cost of a Canadian resource property acquired by a joint exploration corporation.

2. A Canadian exploration expense.

3. A Canadian development expense, other than an amount referred to in paragraph (e) of the definition of “Canadian development expense” in subsection 66.2 (5) of the Income Tax Act (Canada).  O. Reg. 60/06, s. 1 (17).

(10) An expense that is a Canadian exploration and development overhead expense of a joint exploration corporation that may reasonably be considered to be included in a Canadian exploration expense or Canadian development expense deemed by subsection (9) to be an expense of a shareholder corporation of the joint exploration corporation, shall be deemed,

(a) to be a Canadian exploration and development overhead expense of the shareholder corporation, incurred at the time the Canadian exploration expense or Canadian development expense is deemed by subsection (9) to have been incurred by the shareholder corporation; and

(b) at and after that time, not to be a Canadian exploration and development overhead expense incurred by the joint exploration corporation.  R.R.O. 1990, Reg. 183, s. 101 (10).

(11) For the purposes of subsection (10), a Canadian exploration and development overhead expense of a joint exploration corporation shall include any expense that would be a Canadian exploration and development overhead expense of the joint exploration corporation if the references to “connected with the taxpayer” in paragraph (d) of the definition of “Canadian exploration and development overhead expense” in subsection 1206 (1) of the regulations made under the Income Tax Act (Canada), as made applicable by the definition of “Canadian exploration and development overhead expense” in subsection (1), were read as “connected with the shareholder corporation in favour of whom the expense was renounced by the joint exploration corporation for the purposes of subsection 18 (6) of the Act”.  R.R.O. 1990, Reg. 183, s. 101 (11).

(12) For the purposes of this Part, a person who has an interest in the proceeds of production from a property in Canada that is an oil or gas well, a natural accumulation of petroleum or natural gas or a mineral resource in Canada under an agreement providing that the person is to share in the profits remaining after deducting the operating costs of the property shall be deemed to be a person who operates the property.  O. Reg. 355/98, s. 4 (3).

Note:  Subsection (12), as remade by O. Reg. 355/98, s. 4 (3), applies to corporations for taxation years ending after March 31, 1985.  See:  O. Reg. 355/98, s. 4 (5).

(13) A reference to “the Act” in this Part and elsewhere in this Regulation is a reference to the Corporations Tax Act.  R.R.O. 1990, Reg. 183, s. 101 (13).

(14) Revoked:  O. Reg. 60/06, s. 1 (18).

(15) The following rules apply in determining the amount of a corporation’s resource profits from oil or gas operations for a taxation year under subsection (1.3):

1. A corporation is considered not to deal at arm’s length with a partnership if the corporation does not deal at arm’s length with any member of the partnership.

2. A partnership is considered not to deal at arm’s length with another partnership if any member of the first partnership does not deal at arm’s length with any member of the second partnership.

3. If a corporation is a member, or is deemed by this paragraph to be a member, of a partnership that is a member of another partnership, the corporation is deemed to be a member of the other partnership.

4. The provision of a service to a corporation does not include the provision of a service by an individual in the individual’s capacity as an employee of the corporation.  O. Reg. 60/06, s. 1 (19).

(16) For the purposes of the definition of “production royalty” in subsection (1), each of the following amounts is a Crown royalty of a corporation in respect of the production of fossil fuel from a Canadian fossil fuel source or in respect of the ownership of property to which the production relates:

1. An amount included in computing the corporation’s income for a taxation year under subsection 11.0.1 (3) of the Act in respect of the production or ownership less all reimbursements, contributions and allowances referred to in subsection 26 (6) of the Act that are received or receivable by the corporation in respect of that amount.

2. An amount in respect of the production or ownership that is prescribed in section 108.2 for the purposes of subsection 11.0.1 (3) of the Act less all reimbursements, contributions and allowances referred to in subsection 26 (6) of the Act that are received or receivable by the corporation in respect of that amount.

3. An amount that is not deductible in respect of the production or ownership in computing the corporation’s income for a taxation year by reason of subsection 11.0.1 (5) of the Act less all reimbursements, contributions and allowances referred to in subsection 26 (6) of the Act that are received or receivable by the corporation in respect of that amount.

4. An amount in respect of the production or ownership that is prescribed by section 108.2 for the purposes of subsection 11.0.1 (5) of the Act less all reimbursements, contributions and allowances referred to in subsection 26 (6) of the Act that are received or receivable by the corporation in respect of that amount.

5. An amount by which the corporation’s proceeds of disposition of the fossil fuel are increased under subsection 108.4 (1).

6. An amount by which the corporation’s cost of acquisition of the fossil fuel is reduced under subsection 108.4 (4).  O. Reg. 60/06, s. 1 (20, 21).

102. For the purposes of section 17 of the Act, there may be deducted in computing a corporation’s income for a taxation year such of the amounts determined in accordance with sections 103 to 107 and section 109 as are applicable.  R.R.O. 1990, Reg. 183, s. 102.

103. (1) In computing a corporation’s income for a taxation year from oil or gas operations, there may be deducted such amount as it may claim not exceeding the lesser of,

(a) 25 per cent of the amount, if any, by which the corporation’s resource profits from oil or gas operations for the taxation year, if the year ends after December 31, 1998, exceed four times the sum of the amounts, if any, deducted in computing the corporation’s income for that year under subsection 1202 (2) of the regulations made under the Income Tax Act (Canada), as made applicable by subsection 104 (2); and

(b) the aggregate of the corporation’s earned depletion base as of the end of the year and the amount, if any, by which,

(i) the aggregate determined under paragraph 1202 (4) (a) of the regulations made under the Income Tax Act (Canada), as made applicable by subsection 104 (2), in respect of the corporation for the year,

exceeds,

(ii) the amount, if any, by which the aggregate of all amounts that would be determined under clauses (e) to (k) of the definition of “earned depletion base” in subsection 101 (1) in computing the corporation’s earned depletion base as of the end of the year exceeds 33 1/3 per cent of the aggregate of all amounts that would be determined under clauses (a) to (d.1) of the definition of “earned depletion base” in subsection 101 (1) in computing the corporation’s earned depletion base as of the end of the year.  O. Reg. 355/98, s. 11 (1); O. Reg. 60/06, s. 2 (1).

(2), (3) Revoked:  O. Reg. 60/06, s. 2 (2).

104. (1) For the purposes of computing the earned depletion base of a corporation, where, after the 19th day of April, 1977 and before the 13th day of November, 1981, control of the corporation is considered to have been acquired for the purposes of subsection 66 (11) of the Income Tax Act (Canada) by a person or persons who did not control the corporation at the time when it last ceased to carry on active business, the amount by which the earned depletion base of the corporation at that time exceeds the aggregate of amounts otherwise deducted under section 103 in computing its income for taxation years ending after that time and before control was so acquired, shall be deemed to have been deducted under section 103 by the corporation in computing its income for taxation years ending before such acquisition of control.  R.R.O. 1990, Reg. 183, s. 104 (1).

(2) The rules set out in subsections 1202 (2) to (11) of the regulations made under the Income Tax Act (Canada) apply for the purposes of this section in so far as they apply to income from the production of oil or gas from a natural accumulation of petroleum or natural gas in Canada, an oil or gas well or a petroleum deposit, except that,

(a) the reference to Part I of the Income Tax Act (Canada) in paragraph 1202 (7) (b) shall be read as a reference to Part II of the Act; and

(b) the portion of subparagraph 1202 (2) (b) (i) after clause (D) shall be read without reference to the words “and as if that income did not include any portion thereof designated under clause 66.7 (2) (b) (ii) (A) of the Act”.  O. Reg. 355/98, s. 12 (1).

Note:  Subsection 104 (2), as remade by O. Reg. 355/98, s. 12 (1), applies to corporations for taxation years ending after February 17, 1987, except that,

(a) any notification required to be given under paragraph 1202 (7) (g) or (h) of the regulations made under the Income Tax Act (Canada) shall be deemed to have been given within the required time if the Minister of Finance is notified in writing of the agreement referred to in that paragraph within one year after Ontario Regulation 355/98 is filed;

(b) in respect of property acquired before January 15, 1987, or acquired before 1988 where the person acquiring the property is considered for the purposes of section 66.7 of the Income Tax Act (Canada), as adopted by section 21 of the Act, to have been under the obligation on January 15, 1987 to acquire the property under the terms of an agreement in writing entered into on or before January 15, 1987,

(i) clause 1202 (2) (b) (i) (C) of the regulations made under the Income Tax Act (Canada) shall be read as follows:

“(C) where the particular property was an interest in or a right to take or remove petroleum or natural gas or a right to take or remove minerals from a property, the production from that property,”, and

(ii) the rules in subsection 1202 (9) of the regulations made under the Income Tax Act (Canada) shall not apply.  See:  O. Reg. 355/98, s. 12 (2).

Additional Allowance in Respect of Certain Mines

105. (1) Subject to subsection (2), a corporation that operates in Canada a mine for the production of materials from a resource may deduct in computing its income for a taxation year such amounts as it may claim not exceeding 33 per cent of the amount determined under subsection 1209 (2) of the regulations made under the Income Tax Act (Canada).

(2) The amount that may be claimed under subsection (1) shall not exceed the amount by which,

(a) the amount determined under subsection 1209 (2) of the regulations made under the Income Tax Act (Canada),

exceeds,

(b) the amount that is the aggregate of,

(i) the amounts, in respect of the amount determined under subsection 1209 (2), deducted pursuant to section 17 of the Act or subsection 62 (1) of the Corporations Tax Act, 1972, as that subsection read in its application to taxation years ending before the 20th day of April, 1977 in computing the income of the corporation in previous taxation years, and

(ii) the amounts, in respect of the amount determined under the said subsection 1209 (2), deducted in computing the income of the corporation under any predecessor Act.  R.R.O. 1990, Reg. 183, s. 105.

Frontier Exploration Allowances

106. (1) A corporation may deduct in computing its income for a taxation year such amount as it may claim not exceeding the lesser of,

(a) its income for the year, computed in accordance with Part II of the Act, if no deduction were allowed under this subsection; and

(b) its frontier exploration base as of the end of the year (before making any deduction under this subsection for the year).

(2) For the purposes of this section,

“frontier exploration base”, of a corporation as of a particular time, means the amount by which,

(a) the amount in respect of a particular oil or gas well in Canada determined under paragraphs 1207 (2) (a) and (a.1) of the regulations made under the Income Tax Act (Canada),

exceeds the aggregate of,

(b) all amounts deducted by the corporation under subsection (1) in computing its income for taxation years ending before the particular time, and

(c) all amounts deducted under paragraphs 1207 (2) (c) and (d) of the regulations made under the Income Tax Act (Canada) in computing the corporation’s frontier depletion base at that particular time for the purposes of that Act.  R.R.O. 1990, Reg. 183, s. 106 (1, 2).

(3) For the purposes of this section, the term “oil or gas well” has the meaning given to that term by subsection 1207 (6) of the regulations made under the Income Tax Act (Canada).  O. Reg. 355/98, s. 6 (1).

Note: Subsection 106 (3), as remade by O. Reg. 355/98, s. 6 (1), applies to corporations for taxation years ending after March 31, 1985. See:  O. Reg. 355/98, s. 6 (2).

Additional Allowance in Respect of Foreign Oil and Gas Wells

107. (1) Where a corporation has income for a taxation year from an oil or gas well that is outside Canada, in computing its income for the taxation year, it may deduct the lesser of,

(a) the aggregate of drilling costs incurred by it in that taxation year and previous taxation years in respect of the well (not including the cost of land, leases or other rights and not including indirect expenses such as general exploration, geological and geophysical expenses) minus the aggregate of all amounts deductible in respect thereof in computing its income for previous taxation years; and

(b) that part of its income for the taxation year that may reasonably be regarded as income from the well.

(2) Where a corporation has more than one oil or gas well to which subsection (1) applies, the allowance in respect of the drilling costs of each well shall be computed separately.  R.R.O. 1990, Reg. 183, s. 107.

Resource Allowance

108. (1) For the purposes of clause 11 (10) (b) of the Act, in computing its income for a taxation year, a corporation may deduct,

(a) if the taxation year commences after May 6, 1997 and ends before January 1, 2003, the amount, if any, that would be determined in respect of the corporation for the year under subsection 1210 (1) of the regulations made under the Income Tax Act (Canada) if the corporation’s adjusted resource profits for the year were determined under subsection 1210 (2) of those regulations and paragraph (c) of the definition of “A” in that subsection were applied on the basis that,

(i) an amount that is deducted in computing income under any provision of the Income Tax Act (Canada) that applies with or without modifications for the purposes of the Corporations Tax Act is calculated as the amount deducted in computing income for the purposes of the Corporations Tax Act under the provision as it applies for the purposes of that Act, if the deduction under the provision of the Income Tax Act (Canada) is not prohibited under paragraph (c) of the definition of “A” in subsection 1210 (2) of those regulations,

(ii) an amount that is deducted in computing income under a provision of the Act that applies instead of a comparable provision of the Income Tax Act (Canada) is deducted instead of the amount determined under the comparable provision of the Income Tax Act (Canada), if the deduction under the comparable provision of the Income Tax Act (Canada) is not prohibited under paragraph (c) of the definition of “A” in subsection 1210 (2) of those regulations, and

(iii) an amount that is deducted in computing income under a provision of the Act where there is no comparable provision in the Income Tax Act (Canada) is deducted under that Act;

(a.1) if the taxation year ends after December 31, 2002, the amount, if any, determined in respect of the corporation for the year under subsection (2); and

(b) the amount, if any, that would be determined in respect of the corporation for that year under paragraph 1212 (1) (a) of the regulations made under the Income Tax Act (Canada) if,

(i) the reference in that paragraph to Part I of the Income Tax Act (Canada) were a reference to Part II of the Act,

(ii) references in that paragraph to provisions in the Income Tax Act (Canada) were to those provisions as they apply for the purposes of the Act, and

(iii) the reference to the corporation’s supplementary depletion base as of the end of the year were a reference to the amount of the corporation’s supplementary depletion base for the year that would be determined under section 109 of this Regulation, as it read before May 7, 1997, and this clause, before making any deduction under this clause for the year.  O. Reg. 355/98, s. 30 (1); O. Reg. 60/06, s. 3 (1, 2).

(2) The amount determined under this subsection in respect of a corporation for a taxation year ending after December 31, 2002 is the amount, if any, calculated using the formula,

[0.25 × (Q – R)] – S

where,

  “Q” is the corporation’s adjusted resource profits for the year, as determined under this section,

  “R”   is the total of all amounts each of which is a Canadian exploration and development overhead expense made or incurred by the corporation in the year, other than an amount that is a Canadian exploration and development overhead expense because it is deemed to be a Canadian exploration expense or a Canadian development expense under subsection 21 (2) or (4) of the Income Tax Act (Canada), and

“S”   is the amount, if any, determined under subsection (3) in respect of the corporation for the year.  O. Reg. 60/06, s. 3 (3).

(3) The amount determined under this subsection in respect of a corporation for a taxation year is the amount, if any, by which “T” exceeds “U” where,

“T” is the total of all amounts determined under paragraphs 1205 (1) (e) to (k) of the regulations made under the Income Tax Act (Canada) in computing the corporation’s earned depletion base at the end of the year, as determined under section 1205 of those regulations, other than any portion of that total determined under paragraph 1205 (1) (i) of those regulations as a consequence of a disposition in the year of property in circumstances in which subsection 1202 (2) of those regulations applies, and

  “U” is the amount equal to 33 1/3 per cent of the total of all amounts determined under paragraphs 1205 (1) (a) to (d.2) of the regulations made under the Income Tax Act (Canada) in computing the corporation’s earned depletion base at the end of the year, as determined under section 1205 of those regulations.  O. Reg. 60/06, s. 3 (3).

(4) A corporation’s adjusted resource profits for a taxation year for the purposes of this section is the amount, which may be a positive or negative amount, calculated using the formula,

V + W – X

where,

  “V” is the amount of the corporation’s resource profits for the year, as determined under subsection (5),

“W” is the total of all amounts each of which is the designated percentage, as determined under subsection (7), of the corporation’s share for the year of the adjusted resource profits of a partnership, as determined under subsection (6), for a fiscal period of the partnership ending in the year, and

  “X” is the amount, if any, by which the sum of “Y” and “Z” exceeds the amount of “AA” where,

“Y” is the total of all amounts each of which is an amount, other than a production royalty or a specified royalty, that is included in the corporation’s gross resource profits for the year under subsection 1204 (1) of the regulations made under the Income Tax Act (Canada) as a rental or royalty computed by reference to the amount or value of fossil fuel produced from a Canadian fossil fuel source,

“Z” is 50 per cent of all amounts in respect of specified royalties that are included in the corporation’s gross resource profits for the year under subsection 1204 (1) of the regulations made under the Income Tax Act (Canada), and

“AA” is the total of all outlays and expenses that were made or incurred in respect of the amounts included in the calculation of “Y”, to the extent the outlays and expenses were deducted in computing the corporation’s gross resource profits for the year under subsection 1204 (1) of the regulations made under the Income Tax Act (Canada).  O. Reg. 60/06, s. 3 (3).

(5) The amount of a corporation’s resource profits for a taxation year for the purposes of this section is the amount that would be determined in respect of the corporation for the year under subsection 1204 (1.1) of the regulations made under the Income Tax Act (Canada) if the following rules applied:

1. In determining the corporation’s gross resource profits for the year under subsection 1204 (1) of those regulations,

i. no amount shall be included under paragraph 1204 (1) (a) of those regulations, and

ii. no amount shall be included in the corporation’s income for the year from the processing in Canada of ore described in clause 1204 (1) (b) (iv) (A), (B) or (C) of those regulations.

2. References to a resource activity in subparagraph 1204 (1.1) (a) (iv), subclause 1204 (1.1) (a) (v) (A) (I) and clause 1204 (1.1) (a) (v) (B) of those regulations shall be read as references to a resource activity other than an activity described in paragraph (d) of the definition of “resource activity” in subsection 1206 (1) of those regulations.

3. The corporation’s gross resource profits for the year under subsection 1204 (1) of those regulations and its resource profits for the year under subsection 1204 (1.1) of those regulations shall be determined on the basis that,

i. no amount is deductible in computing the corporation’s income for the year in respect of a rental or royalty that is paid or payable by the corporation and computed by reference to the amount or value of fossil fuel produced from a Canadian fossil fuel source, other than an amount in respect of a rental or royalty described in paragraph 1, 2, 3 or 4 of section 108.2, an amount that is a production royalty or an amount paid or payable in respect of a specified royalty,

ii. no amount is deductible in computing the corporation’s income for the year under paragraph 20 (1) (e), (e.1), (e.2) or (f) of the Income Tax Act (Canada) or as, on account of or in lieu of, interest in respect of a debt owed by the corporation,

iii. no amount is deductible in computing the corporation’s income under paragraph 20 (1) (v.1) of the Income Tax Act (Canada), any of sections 65 to 66.7 of that Act, subsection 17 (2) or (6) of the Income Tax Application Rules or section 29 of those Rules,

iv. section 11.0.1 and subsection 31 (1.2) of the Act apply in computing the corporation’s income for the year,

iv.1 subsections 26 (4.1), (6) and (7) of the Act apply in computing the corporation’s income for the year, if the year begins after December 31, 2006,

v. an amount that is deducted in computing income under any provision of the Income Tax Act (Canada) that applies with or without modifications for the purposes of the Corporations Tax Act shall be calculated as the amount deducted in computing income for the purposes of the Corporations Tax Act under the provision as it applies for the purposes of that Act, if the deduction under the provision of the Income Tax Act (Canada) is not prohibited under subparagraph i, ii or iii,

vi. an amount that is deducted in computing income under a provision of the Act that applies instead of a comparable provision of the Income Tax Act (Canada) shall be deducted instead of the amount determined under the comparable provision of the Income Tax Act (Canada), if the deduction under the comparable provision of the Income Tax Act (Canada) is not prohibited under subparagraph i, ii or iii, and

vii. an amount that is deducted in computing income under a provision of the Act where there is no comparable provision in the Income Tax Act (Canada) shall be considered to have been deducted under the Income Tax Act (Canada).

4. The corporation’s share of the income or loss of a partnership from any source shall be deemed to be nil.

5. Each of subsections 1204 (1) and (1.1) of the regulations made under the Income Tax Act (Canada) shall be deemed to allow the computation of a negative amount if the sum of the amounts deducted under the subsection exceeds the sum of the amounts added under that subsection.  O. Reg. 60/06, s. 3 (3, 4).

(6) For the purposes of the definition of “W” in subsection (4), a corporation’s share for a taxation year ending after December 31, 2002 of a particular partnership’s adjusted resource profits for a fiscal period ending in the year is determined as follows:

1. If the corporation does not hold a direct interest in the particular partnership at the end of the fiscal period, the corporation’s share of the partnership’s adjusted resource profits is deemed to be nil.

2. If the corporation holds a direct interest in the particular partnership at the end of the fiscal period, the corporation’s share of the partnership’s adjusted resource profits is the amount that may reasonably be considered to represent the corporation’s share of the partnership’s adjusted resource profits for the fiscal period, determined under subsection (4) as if,

i. the particular partnership and every other partnership in which the corporation has an indirect interest through the particular partnership were corporations, each having a taxation year that is the same as its fiscal period,

ii. subparagraphs 3 iv and iv.1 of subsection (5) apply to the particular partnership, but only if the corporation is a majority interest partner in that partnership at the end of the fiscal period,

iii. subparagraphs 3 iv and iv.1 of subsection (5) apply to another partnership in which the corporation held an indirect interest through the particular partnership, but only if the corporation is a majority interest partner in the particular partnership at the end of the fiscal period and is a majority interest partner in the other partnership at any time in the fiscal period,

iv. subparagraphs 3 v, vi and vii of subsection (5) do not apply, and

v. the designated percentage for the purposes of subsection (4) in respect of each partnership’s interest in another partnership were 100 per cent.  O. Reg. 60/06, s. 3 (5, 6).

(7) For the purposes of the definition of “W” in subsection (4), the designated percentage of a corporation’s share for a taxation year of the adjusted resource profits of a partnership for a fiscal period ending in the year is determined as follows:

1. The corporation’s designated percentage is 100 per cent if the corporation holds a direct interest in and is a majority interest partner of the partnership at the end of the fiscal period and does not have, through that partnership, an indirect interest in another partnership, other than,

i. a partnership of which the corporation is a majority interest partner at any time in the fiscal period, or

ii. a partnership that carries on no resource activity as defined in subsection 1204 (6) of the regulations made under the Income Tax Act (Canada).

2. If the fiscal period begins before January 1, 2007 and the corporation holds a direct interest in the partnership at the end of the fiscal period but is not a majority interest partner at that time, the corporation’s designated percentage is the sum of the following percentages:

i. 100 per cent multiplied by the ratio of the number of days in the fiscal period that are before January 1, 2003 to the total number of days in the fiscal period.

ii. 90 per cent multiplied by the ratio of the number of days in the fiscal period that are after December 31, 2002 and before January 1, 2004 to the total number of days in the fiscal period.

iii. 75 per cent multiplied by the ratio of the number of days in the fiscal period that are after December 31, 2003 and before January 1, 2005 to the total number of days in the fiscal period.

iv. 65 per cent multiplied by the ratio of the number of days in the fiscal period that are after December 31, 2004 and before January 1, 2006 to the total number of days in the fiscal period.

v. 35 per cent multiplied by the ratio of the number of days in the fiscal period that are after December 31, 2005 and before January 1, 2007 to the total number of days in the fiscal period.  O. Reg. 60/06, s. 3 (7).

(8) For greater certainty, nothing in subparagraph 2 i of subsection (6) affects the nature or extent of any partner’s interest in any partnership for the purposes of,

(a) the definition of “W” in subsection (4); or

(b) paragraph 4 of subsection (5).  O. Reg. 60/06, s. 3 (7).

Amounts Prescribed for the Purposes of Section 11.0.1 of the Act

108.1 (1) In this section,

“eligible tax” means, in respect of a corporation for a taxation year, a tax levied under the laws of a province for the taxation year,

(a) that is imposed only on persons engaged in mining operations in the province or who hold non-Crown royalties in respect of a mine in the province, or both, and

(b) that is paid or payable to,

(i) the province,

(ii) an agent of Her Majesty in right of the province, or

(iii) a municipality in the province, in lieu of taxes on property that is not residential property or in lieu of taxes on any interest or right in property that is not residential property;

“industrial mine” means any work or undertaking in which industrial mineral ore is extracted or produced;

“industrial mineral” means a mineral, other than,

(a) a mineral obtained from a mineral resource, and

(b) a  fossil fuel;

“industrial mineral ore” includes an unprocessed industrial mineral or a substance bearing an industrial mineral;

“industrial mining operations” means,

(a) the extraction or production of industrial mineral ore from or in an industrial mine,

(b) the transportation of industrial mineral ore to the point of egress from the industrial mine, and

(c) the processing of industrial mineral ore,

(i) before or in the course of its transportation to the point of egress from the industrial mine, and

(ii) before its removal from the industrial mine; 

“industrial non-Crown royalty” means a royalty contingent upon production of an industrial mine or computed by reference to the amount or value of production from industrial mining operations in a province, but does not include a royalty that is payable to the Crown in right of Canada or a province;

“mine” includes any work or undertaking in which a mineral ore is extracted or produced and includes a quarry;

“mineral ore” includes an unprocessed mineral or mineral-bearing substance;

“mining operations” means,

(a) the extraction or production of mineral ore from or in a mine,

(b) the transportation of mineral ore to the point of egress from the mine, and

(c) the processing of mineral ore,

(i) to the prime metal stage or its equivalent if the mineral ore is not iron ore, or

(ii) to a stage that is not beyond the pellet stage or its equivalent if the mineral ore is iron ore;

“non-Crown royalty” means a royalty contingent upon production of a mine or computed by reference to the amount or value of production from mining operations in a province, but does not include a royalty that is payable to the Crown in right of Canada or a province;

“processing” includes all forms of beneficiation, smelting and refining;

“specified income” means, in respect of a corporation for a taxation year, the corporation’s income from industrial mining operations in a province for the taxation year that is derived from industrial mining operations in the province, as computed under the laws of the province that impose an eligible tax.  O. Reg. 60/06, s. 4.

(2) The sum of the following amounts is prescribed as a deduction from a corporation’s income from a business or property for a taxation year for the purposes of subsection 11.0.1 (2) of the Act:

1. The amount of all eligible taxes paid or payable by the corporation for the taxation year on the corporation’s specified income for the taxation year.

2. The amount of all eligible taxes paid or payable by the corporation for the taxation year on the amount of any industrial non-Crown royalty included in computing the income of the corporation for the taxation year.  O. Reg. 60/06, s. 4.

108.2 The following amounts are prescribed for the purposes of subsections 11.0.1 (3) and (5) of the Act:

1. An amount paid or payable to or received or receivable by the Crown in right of Canada for the use and benefit of a band or bands as defined in the Indian Act (Canada).

2. An amount paid or payable to or received or receivable by a Crown entity if the amount,

i. may reasonably be regarded to be in respect of a rental for any property described in subparagraph (b) (ii) of the definition of “Canadian resource property” in subsection 66 (15) of the Income Tax Act (Canada), and

ii. was paid or payable or received or receivable before the commencement of production of minerals in reasonable commercial quantities from the property referred to in subparagraph i.

3. An amount paid or payable to or received or receivable by a Crown entity if the amount may reasonably be regarded to be in respect of a rental for a right, licence or privilege to store fossil fuel underground in Canada.

4. An amount equal to the lesser of,

i. an amount,

A. that was paid or payable to or received or receivable by a Crown entity as a rental for property or a portion of a property described in paragraph (a) of the definition “Canadian resource property” in subsection 66 (15) of the Income Tax Act (Canada), and

B. that was payable or receivable in a taxation year in which there was no taking of fossil fuel from the property or portion of the property to which the rental relates, and

ii. an amount equal to $2.50 times the number of hectares of the property or portion of the property to which the amount referred to in subparagraph i relates.  O. Reg. 60/06, s. 4.

108.3 For the purposes of subsection 11.0.1 (4) of the Act, a corporation’s prescribed resource loss, if any, for a taxation year is the amount determined using the formula,

BB – CC

where,

“BB” is the total of all amounts each of which is a Canadian exploration and development overhead expense made or incurred by the corporation in the year, other than an amount that is a Canadian exploration and development overhead expense because it is deemed to be a Canadian exploration expense or a Canadian development expense under subsection 21 (2) or (4) of the Income Tax Act (Canada), and

“CC” is the corporation’s adjusted resource profits for the year as determined under section 108.  O. Reg. 60/06, s. 4.

Rules Prescribed for the Purposes of Subsection 26 (4.1) of the Act

108.4 (1) If, after December 31, 2006, a corporation described in subsection 26 (4.1) of the Act disposes of property described in that subsection for no proceeds of disposition or for proceeds of disposition less than the property’s fair market value at the time of the disposition, the corporation is deemed to receive proceeds of disposition on the disposition of the property equal to the fair market value of the property at the time of the disposition.  O. Reg. 60/06, s. 5.

(2) For the purposes of subsection (1), the fair market value at the time of disposition of a property described in subsection 26 (4.1) of the Act is equal to the amount by which “DD” exceeds “EE” where,

“DD”  is the average proceeds of disposition per unit of the property received or receivable by the corporation from persons other than Crown entities on dispositions of the same type of property in the month that included the time of disposition, and

“EE” is the sum of,

(a) the total of all expenses per unit of the property, including depreciation, incurred by the corporation in respect of that month that may reasonably be attributed to transmitting, transporting, marketing or processing the property, to the extent that those expenses are reasonable and necessary and do not include any cost of acquisition by the corporation of the property, and

(b) the amount in respect of the unit disposed of by the corporation that may reasonably be considered to be paid or payable to or received or receivable by the Crown in right of Canada for the use and benefit of a band or bands as defined in the Indian Act (Canada).  O. Reg. 60/06, s. 5.

(3) For the purposes of subsection (2), if a Crown entity disposes of the property or part of it to another Crown entity, both Crown entities shall be deemed to be the same Crown entity.  O. Reg. 60/06, s. 5.

(4) If, after December 31, 2006, a corporation described in subsection 26 (4.1) of the Act acquires property described in that subsection that was produced in the operation described in that subsection for an amount in excess of the property’s fair market value at the time of the acquisition, the corporation shall be deemed to have acquired the property at the fair market value of the property at the time of the acquisition.  O. Reg. 60/06, s. 5.

(5) For the purposes of subsection (4), the fair market value of a unit of property acquired by the corporation from a Crown entity is equal to the sum of,

(a) the amount per unit, if any, paid or payable to the corporation by the Crown entity; and

(b) the amount per unit, if any, paid or payable to the Crown in right of Canada by the Crown entity for the use and benefit of a band or bands as defined in the Indian Act (Canada).  O. Reg. 60/06, s. 5.

Supplementary Depletion Allowances

109. Revoked:  O. Reg. 355/98, s. 31 (1).

Note:  Despite its revocation by O. Reg. 355/98, s. 31 (1), section 109 continues to apply to corporations for taxation years commencing before May 7, 1997.  See:  O. Reg. 355/98, s. 30 (2).

110. For the purposes of subparagraph 66.1 (2) (a) (ii) of the Income Tax Act (Canada) as made applicable by section 19 of the Act,

“prescribed deduction”, in respect of a corporation for a taxation year, means an amount deducted under subsection 1202 (2) of the regulations made under the Income Tax Act (Canada), as made applicable by subsection 104 (2), by the corporation in computing its income for the year.  O. Reg. 355/98, s. 14 (1).

Note:  Section 110, as remade by O. Reg. 355/98, s. 14 (1), applies to corporations for taxation years ending after February 17, 1987.  See:  O. Reg. 355/98, s. 14 (2).

111. The rules set out in section 1214 of the regulations made under the Income Tax Act (Canada) apply for the purposes of this Part.  R.R.O. 1990, Reg. 183, s. 111.

PART II
ALLOWANCES IN RESPECT OF CAPITAL COST

Deductions

201. (1) Except as otherwise provided in this section, for the purposes of clause 11 (10) (a) of the Act there is hereby allowed to a corporation as deductions for each taxation year in computing its income from a business or property, as the case may be, such amounts as it may claim in respect of the capital cost to it of property calculated in accordance with sections 1100, 1101, 1102, 1103, 1104, 1105, 1106, 1700, 1701, 1702, 1703, 1704 and 4302 and Schedules II, III, IV, V and VI of the regulations made under the Income Tax Act (Canada) as such regulations are in force and amended from time to time for the purposes of that Act.  R.R.O. 1990, Reg. 183, s. 201 (1); O. Reg. 453/92, s. 1 (1).

(2) In the application of section 1100 of the regulations made under the Income Tax Act (Canada) for the purposes of this section,

(a) references to “November 12, 1981” in paragraphs 1100 (1) (b), (t), (ta) and (v) and in subsections 1100 (2.1) and (2.2) shall be read as “the 24th day of October, 1985”;

(b) references to “November 13, 1981” in paragraph 1100 (1) (ta) and subsection 1100 (2.1) shall be read as “the 25th day of October, 1985”;

(c) the reference to “1983” in subsection 1100 (2.1) shall be read as “1987”;

(d) references to “June 1, 1982” in subsection 1100 (2.1) shall be read as “the 1st day of June, 1986”;

(e) references in subparagraph 1100 (1.1) (b) (i) to paragraph 20 (1) (a) of the Income Tax Act (Canada) shall be read as references to clause 11 (10) (a) of the Corporations Tax Act;

(f) the reference in clause 1100 (1.13) (a) (vi) (A) to section 149 of the Income Tax Act (Canada) shall be read as a reference to section 57 of the Corporations Tax Act; and

(g) the reference in clause 1100 (1.13) (a) (vi) (B) to Part I of the Income Tax Act (Canada) shall be read as a reference to Part II of the Corporations Tax Act.  R.R.O. 1990, Reg. 183, s. 201 (2); O. Reg. 453/92, s. 1 (2).

(3) For the purposes of this section, the provisions of subsection 13 (10) of the Income Tax Act (Canada) shall not apply to increase the capital cost of property described in subsection 1102 (15) of the regulations made under that Act.

(4) Subject to subsection (5), where a corporation has, for the purposes of the Income Tax Act (Canada), included property in class 28 of Schedule II to the regulations made under that Act, such property shall, for the purposes of the Act, be deemed to be property included in class 10 of Schedule II to those regulations.

(5) Where a corporation has, for purposes of the Income Tax Act (Canada),

(a) included property acquired before the 1st day of January, 1974 in class 28 of Schedule II to the regulations made under that Act, such property shall be deemed to be property included in that class as of the 1st day of January, 1974 for the purposes of the Act, and the provisions of subsection 13 (5) of the Income Tax Act (Canada) shall apply for the purposes of the Act and this section;

(b) included property that was acquired after the 31st day of December, 1973 in class 28 of Schedule II to the regulations made under that Act, such property shall, for the purposes of the Act, be included in class 28 of Schedule II to those regulations.  R.R.O. 1990, Reg. 183, s. 201 (3-5).

(6) In lieu of the additional allowances otherwise allowed under paragraphs 1100 (1) (w), (x), (y) and (ya) of the regulations made under the Income Tax Act (Canada), a corporation may claim a deduction in computing its income for a taxation year equal to,

(a) any additional amount it may claim in respect of property described in class 28 or 41 of Schedule II to those regulations acquired for the purpose of gaining or producing income from a mine, or in respect of property acquired for the purpose of gaining or producing income from a mine and for which a separate class is or would be prescribed by subsection 1101 (4a) or (4c) of those regulations, not exceeding the lesser of,

(i) the amount that would be its income for the year from the mine if its income for the year from the mine were determined without reference to paragraph 12 (1) (z.5) of the Income Tax Act (Canada) and without any deduction under this clause, clause (b), clause 11 (10) (b) of the Act or section 17, 18, 19 or 21 of the Act or any deduction in respect of exploration and development expenses permitted under The Corporations Tax Application Rules, 1972, and

(ii) the undepreciated capital cost to it of the property of that class as of the end of the taxation year, before making any deduction under this clause for the taxation year; and

(b) any additional amount it may claim in respect of property described in class 28 or 41 of Schedule II to those regulations acquired for the purpose of gaining or producing income from more than one mine and for which a separate class is or would be prescribed by subsection 1101 (4b) or (4d) of those regulations, not exceeding the lesser of,

(i) the amount that would be its income for the year from the mines if its income for the year from the mines were determined without reference to paragraph 12 (1) (z.5) of the Income Tax Act (Canada) and without any deduction under this clause, clause 11 (10) (b) of the Act or section 17, 18, 19 or 21 of the Act or any deduction in respect of exploration and development expenses permitted under The Corporations Tax Application Rules, 1972, and

(ii) the undepreciated capital cost to it of the property of that class as of the end of the taxation year, before making any deduction under this clause for the taxation year.  R.R.O. 1990, Reg. 183, s. 201 (6); O. Reg. 453/92, s. 1 (3-9); O. Reg. 355/98, s. 20 (1, 2); O. Reg. 60/06, s. 6 (1, 2).

(6.1) For the purposes of computing the income of a corporation for a taxation year ending after December 31, 2002, the references in subclauses (6) (a) (i) and (b) (i) to paragraph 12 (1) (z.5) of the Income Tax Act (Canada) shall be read as references to subsection 11.0.1 (4) of the Corporations Tax Act.  O. Reg. 60/06, s. 6 (3).

(7) Revoked:  O. Reg. 355/98, s. 20 (3).

Note: Despite its revocation by O. Reg. 355/98, s. 20 (3), subsection (7) continues to apply to taxation years commencing before January 1, 1989.  See:  O. Reg. 355/98, s. 20 (5).

(8) In lieu of the deduction otherwise allowed by subsection (1), there is hereby allowed to a corporation in computing its income from a business or a property, as the case may be, deductions for each taxation year equal to such amounts as it may claim in respect of property included in class 3, 6 or 8 of Schedule II to the regulations made under the Income Tax Act (Canada),

(a) that is,

(i) a grain elevator situated in that part of Canada that is defined in section 2 of the Canada Grain Act as the “Eastern Division” the principal use of which,

(A) is the receiving of grain directly from producers for storage or forwarding or both,

(B) is the receiving and storing of grain for direct manufacture or processing into other products, or

(C) has been certified by the Minister of Agriculture (Canada) to be the receiving of grain that has not been officially inspected or weighed,

(ii) an addition to a grain elevator described in subclause (i),

(iii) fixed machinery installed in a grain elevator or in an addition to a grain elevator in respect of which an additional amount has been or may be claimed under clause (e),

(iv) fixed machinery, designed for the purpose of drying grain, installed in a grain elevator described in subclause (i),

(v) machinery designed for the purpose of drying grain on a farm, or

(vi) a building or other structure designed for the purpose of storing grain on a farm;

(b) that was acquired by the corporation after the 31st day of July, 1974 and before 1977; and

(c) that was not used for any purpose whatever before it was acquired by the corporation,

not exceeding the aggregate of,

(d) an amount equal to,

(i) in respect of such property that is included in class 3 of Schedule II to the regulations made under the Income Tax Act (Canada), 5 per cent,

(ii) in respect of such property that is included in class 6 of the said Schedule II, 10 per cent, or

(iii) in respect of such property that is included in class 8 of the said Schedule II, 20 per cent,

of the undepreciated capital cost to it as of the end of the taxation year, before making any reduction under this clause for the taxation year, of the property of the class; and

(e) an additional amount that is the lesser of,

(i) where the property is included in class 3, 22 per cent of the capital cost thereof, where the property is included in class 6, 20 per cent of the capital cost thereof, or where the property is included in class 8,

(A) 14 per cent of the capital cost thereof in the case of property referred to in subclause (a) (iii), (iv) or (vi), and

(B) 14 per cent of the lesser of $15,000 and the capital cost thereof in the case of property described in subclause (a) (v), and

(ii) the undepreciated capital cost to it as of the end of the taxation year (before making any deduction under this clause for the taxation year) of property of the class.  R.R.O. 1990, Reg. 183, s. 201 (8).

(9) In addition to the deduction otherwise allowed by subsection (1), there is hereby allowed to a corporation in computing its income from a business or property, as the case may be, a deduction for each taxation year in respect of property included in class 1, 3, 6 or 8 of Schedule II to the regulations made under the Income Tax Act (Canada),

(a) that is,

(i) a grain elevator situated in Ontario the principal use of which,

(A) is the receiving of grain directly from producers for storage or forwarding or both,

(B) is the receiving and storing of grain for direct manufacture or processing into other products, or

(C) has been certified by the Minister of Agriculture (Canada) to be the receiving of grain that has not been officially inspected or weighed,

(ii) an addition to a grain elevator described in subclause (i),

(iii) fixed machinery installed in a grain elevator or in an addition to a grain elevator in respect of which an additional amount has been or may be claimed under this subsection,

(iv) fixed machinery, designed for the purpose of drying grain, installed in a grain elevator described in subclause (i),

(v) machinery designed for the purpose of drying grain on a farm in Ontario, or

(vi) a building or other structure designed for the purpose of storing grain on a farm in Ontario;

(b) that was acquired by the corporation after 1976; and

(c) that was not used for any purpose before it was acquired by the corporation,

an amount not exceeding the lesser of,

(d) where the property is included in class 1 or 3, 22 per cent of the capital cost thereof, where the property is included in class 6, 20 per cent of the capital cost thereof, or where the property is included in class 8,

(i) 14 per cent of the capital cost thereof in the case of property referred to in subclause (a) (iii), (iv) or (vi), and

(ii) 14 per cent of the lesser of $15,000 and the capital cost thereof in the case of property described in subclause (a) (v); and

(e) the undepreciated capital cost to it as of the end of the taxation year, before making any deduction under this subsection for the taxation year, of property of the class.  R.R.O. 1990, Reg. 183, s. 201 (9); O. Reg. 453/92, s. 1 (11).

(10) Where a taxation year is less than twelve months, the amount allowed as a deduction under subsections (6), (8) and (9) shall not exceed that proportion of the maximum amount otherwise allowable that the number of days in the taxation year is of 365.  R.R.O. 1990, Reg. 183, s. 201 (10).

Eligible Assets for Current Cost Adjustment

202. (1) For the purposes of the definition of “eligible asset” in subsection 13 (1) of the Act, manufacturing and processing machinery or equipment that is acquired by the corporation for use in Ontario and that is described in class 39 of Schedule II to the regulations made under the Income Tax Act (Canada) is prescribed.

(2) For the purposes of the definition of “eligible asset” in subsection 13 (1) of the Act, the following pollution control equipment is prescribed:

1. Property acquired by the corporation primarily for the purpose of preventing, reducing or eliminating pollution of any of the inland or boundary waters of Canada or of any lake, river, stream, watercourse, pond, swamp or well in Canada, that is caused by or would have been caused by,

i. operations carried on by the corporation at a site in Ontario,

ii. the operation in Ontario of a building or plant by the corporation, or

iii. the operation of transportation or other movable equipment that has been operated by the corporation in Ontario (including any inland or boundary waters of Ontario).

2. Property acquired by the corporation primarily for the purpose of preventing, reducing or eliminating air pollution that is discharged or would have been discharged into the atmosphere as a result of operations referred to in paragraph 1, by removing particulate, toxic or injurious materials from smoke or gas or by preventing the discharge of part or all of the smoke, gas or other air pollutant.

3. Property acquired by the corporation that would be property referred to in paragraph 1 or 2 except that,

i. it was acquired for the purpose of gaining or producing income from a business carried on by the corporation,

ii. the business of the corporation includes the prevention, reduction or elimination of pollution described in paragraph 1 or 2, whichever is applicable, that is caused or that otherwise would be caused primarily by operations referred to in paragraph 1 carried on by persons other than the corporation, but not including corporations referred to in subsection 57 (1) of the Act or persons referred to in subsection 149 (1) of the Income Tax Act (Canada), and

iii. the property is to be used by the corporation in the business described in subparagraph ii.

4. Property acquired by the corporation that would be property referred to in paragraph 1 or 2 except that,

i. it was acquired by the corporation for the purpose of gaining or producing income from a property,

ii. the corporation’s principal business is the purchasing of conditional sales contracts, accounts receivable, bills of sale, chattel mortgages, bills of exchange or other obligations representing part or all of the sale price of merchandise or services, the lending of money or the leasing of property, or any combination of those activities, and

iii. the property is to be leased to a person other than a corporation referred to in subsection 57 (1) of the Act or a person referred to in subsection 149 (1) of the Income Tax Act (Canada) to be used in an operation referred to in paragraph 1 to prevent, reduce or eliminate pollution described in paragraph 1 or 2.  O. Reg. 453/92, s. 2.

Ontario New Technology Tax Incentive

203. (1) In this section,

“Class 12” means Class 12 of Schedule II to the Federal Regulations;

“eligible cost” means, in respect of a qualifying intellectual property of a taxpayer, the total of all amounts included in the capital cost of the property that were incurred by the taxpayer after August 31, 1997 and,

(a) that are included in the amount of the undepreciated capital cost of the property, if the property is included by the taxpayer for the purposes of the Federal Act in Class 14 or 44 of Schedule II to the Federal Regulations, or

(b) that are included by the taxpayer in computing its eligible capital expenditures for the purposes of the Federal Act;

“Federal Act” means the Income Tax Act (Canada);

“Federal Regulations” means the regulations made under the Federal Act;

“intellectual property transfer” means a transaction in which a taxpayer acquires intellectual property that is knowledge in the form of know-how, techniques, processes or formulas from a person not related to the taxpayer, if the taxpayer acquires the property primarily for the purpose of implementing in Ontario an innovation or invention in a business of the taxpayer that is carried on in Ontario;

“qualifying intellectual property” means, in respect of a taxpayer, a Canadian or foreign patent, know-how, a commercial secret or other similar property constituting knowledge, including a licence or permit in respect of the property, but does not include,

(a) a trade mark, industrial design, copyright or other similar property constituting the expression of knowledge, or

(b) a property acquired or used primarily to earn rents, royalties or similar payments from the leasing or licensing of the property;

“taxpayer” means a corporation or a partnership other than a limited partnership.

(2) For the purposes of the Act, a taxpayer may include the eligible cost of a qualifying intellectual property in the capital cost of a depreciable property of Class 12, but not Class 14 or 44 of Schedule II to the Federal Regulations,

(a) if the property is acquired after August 31, 1997 by the taxpayer in an intellectual property transfer carried out under the terms of a contract that was entered into by the taxpayer after May 6, 1997;

(b) if the property is first used by the taxpayer in carrying on the taxpayer’s business within a reasonable time following acquisition and continues to be used during the entire period of time in which the innovation or invention for which the property was acquired is used in carrying on the taxpayer’s business; and

(c) if the cost of the property is included by the taxpayer, for the purposes of the Federal Act,

(i) in Class 14 or 44 of Schedule II to the Federal Regulations, or

(ii) in computing its eligible capital expenditures for purposes of that Act.

(3) A separate class is prescribed in respect of each qualifying intellectual property whose undepreciated capital cost is included in Class 12 under this section.

(4) Despite subsection (2), the total of all amounts included in a taxation year by a taxpayer in the capital cost of depreciable properties whose undepreciated capital cost is included in Class 12 under this section shall not exceed the taxpayer’s expenditure limit for that year.

(5) If a taxpayer’s expenditure limit for a year is less than the amount that would otherwise be added to the undepreciated capital cost in respect of a qualifying intellectual property whose undepreciated capital cost is included in Class 12 under this section, the amount of the difference may be included in the same Class to Schedule II to the Federal Regulations or in the taxpayer’s eligible capital expenditures for the purposes of the Act, as applicable, depending on the treatment by the taxpayer of the cost of the property for the purposes of the Federal Act.

(6) A taxpayer’s expenditure limit for a taxation year is $20 million if the taxpayer is not associated at any time in the year with any other taxpayer.

(7) If a taxpayer is associated in a taxation year with another taxpayer, the taxpayer’s expenditure limit is determined in accordance with the following rules:

1. If all of the taxpayers that are associated with each other in the taxation year have filed with the Minister an agreement in a form acceptable to the Minister under which, for the purposes of this section, they allocate an amount to one or more of them for the taxation year, and the total of all amounts allocated to one or more of them does not exceed $20 million, the expenditure limit for the year of each taxpayer shall be, subject to paragraph 4 and subsections (8) and (9), the amount allocated to it.

2. If the Minister notifies in writing any of the taxpayers that are associated with each other in a taxation year that an agreement referred to in paragraph 1 is required to be filed and no agreement is filed within 30 days after the notification is sent by the Minister,

i. the Minister may, for the purposes of this section, allocate an amount to each of the taxpayers, and the total of all amounts allocated by the Minister to the taxpayers shall not exceed $20 million, and

ii. except as otherwise provided in paragraph 4 or subsection (8) or (9), the expenditure limit for the year of each of the taxpayers is the amount allocated by the Minister to it.

3. If no agreement referred to in paragraph 1 is filed by the taxpayers with the Minister, and the Minister does not make an allocation under paragraph 2, the expenditure limit of each of the taxpayers for the taxation year shall be deemed to be nil.

4. If a taxpayer (in this paragraph referred to as the “first taxpayer”) has more than one taxation year ending in the same calendar year and it is associated in two or more of those taxation years with another taxpayer that has a taxation year ending in that calendar year, the expenditure limit of the first taxpayer for each taxation year that ends in the calendar year, that is a taxation year in which it is associated with the other taxpayer and that is a taxation year that ends after its first taxation year ending in that calendar year, shall not exceed an amount equal to the lesser of,

i. its expenditure limit as otherwise determined under paragraph 1, 2 or 3 for its first taxation year ending in the calendar year, multiplied by the ratio of the number of days in the taxation year to 365, and

ii. its expenditure limit as otherwise determined under paragraph 1, 2 or 3 for the particular taxation year ending in the calendar year, multiplied by the ratio of the number of days in the taxation year to 365.

(8) Despite subsections (6) and (7), if a taxpayer has a taxation year that is less than 51 weeks and paragraph 4 of subsection (7) does not apply, the taxpayer’s expenditure limit for the taxation year shall be the amount otherwise determined under this section, before the application of the rule in subsection (9) if it applies, multiplied by the ratio of the number of days in the taxation year to 365.

(9) Despite subsections (6) and (7), if a taxpayer’s taxation year commences before May 7 1997, its expenditure limit for the taxation year shall not exceed the amount otherwise determined under this section, multiplied by the ratio of the number of days in the year ending after May 6, 1997 to the total days in the taxation year. 

(10) Taxpayers shall be deemed to be associated with each other in a taxation year for the purposes of determining their expenditure limits for the year if on the application of the following rules they would be associated in the taxation year under section 256 of the Federal Act:

1. A partnership shall be deemed to be a corporation having only one class of issued shares which have full voting rights under all circumstances, and each member of the partnership shall be deemed to own the proportion of the number of issued shares of the capital stock of the corporation as that member’s proportionate share of the income or loss of the partnership.

2. Two partnerships shall be deemed to be associated if each member of one partnership is a member of the other partnership or is related to at least one member of the other partnership.

3. A taxpayer that is deemed to be associated with another taxpayer shall be deemed to be associated with every corporation and partnership that is deemed to be associated with the other taxpayer.

(11) The rules in subsection 13 (26) of the Federal Act and in subsection 1100 (2) of the Federal Regulations do not apply in respect of property whose undepreciated capital cost is included in Class 12 under this section.

(12) For the purposes of subsection 13.1 (1) of the Act, a prescribed depreciable property in respect of a taxpayer is a qualifying intellectual property of the taxpayer whose undepreciated capital cost is included in Class 12 under this section that is used by the taxpayer exclusively in Ontario to implement the innovation or invention for which the property was acquired.

(13) A property whose undepreciated capital cost is included in Class 12 under this section, or is included in Class 12 by operation of subsection 1102 (14) of the Federal Regulations and was included in Class 12 under this section by a prior taxpayer, is a depreciable property of a prescribed class for the purposes of section 11.1 of the Act.

(14) A property whose undepreciated capital cost was included in Class 12 under this section by a partnership and was transferred to a corporation that did not deal at arm’s length with the partnership at the time of the transfer shall be deemed to be depreciable property of a prescribed class of the corporation for the purposes of section 11.1 of the Act.

(15) Subject to section 80 of the Act, a property acquired by a taxpayer shall be deemed for the purposes of this section never to have been a qualifying intellectual property and the total of all amounts deductible for any taxation year by the taxpayer, by a partner of the taxpayer (if the taxpayer is a partnership) or by a person related to the taxpayer, as capital cost allowance or as a deduction under section 13.1 of the Act shall not exceed the maximum amount that would have been deductible if the property had never been qualifying intellectual property if,

(a) the property has not been used by the taxpayer or by the related person (if the property was transferred to the related person) to implement in Ontario the innovation or invention for which the property was acquired by the taxpayer; or

(b) the property has been used by the taxpayer or by the related person (if the property was transferred to the related person) primarily to earn rents, royalties or similar payments from the leasing or licensing of the property.  O. Reg. 298/98, s. 1.

Electricity Generation and Conservation

204. (1) In this section,

“alternative or renewable source of energy” means a source of energy that produces electricity from wind, water, a biomass resource, hydrogen, biogas, biofuel, landfill gas, an eligible fossil fuel, uranium, solar energy, geothermal energy, tidal forces or thermal waste;

“biofuel” means a liquid fuel or product made from a biomass resource and includes the liquid fuels ethanol, methanol and biodiesel;

“biogas” means a gaseous fuel or product derived from a biomass resource;

“biomass resource” means organic matter that is derived from a plant and available on a renewable basis, including organic matter derived from dedicated energy crops, dedicated  trees, agricultural food and feed crops, and waste organic material from harvesting or processing agricultural products, forestry products and sewage;

“consumer” means a person who,

(a) purchases electricity, steam, heated water or cooled water for the person’s own use,

(b) produces electricity, steam, heated water or cooled water for the person’s own use, or

(c) purchases electricity, steam, heated water or cooled water for distribution to a person in Ontario for that person’s own use;

“eligible fossil fuel” means natural gas, blast furnace gas, coke oven gas, basic oxygen furnace gas or peat;

“eligible partnership” means, in respect of a fiscal period, a partnership all of whose members throughout the fiscal period are,

(a) corporations, or

(b) persons exempt under subsection 149 (1) of the Income Tax Act (Canada) from the payment of tax under that Act;

“forestry products” include wood waste;

“IMO-controlled grid” has the same meaning as in section 2 of the Electricity Act, 1998;

“qualifying nuclear facility” means unit 1 of the Bruce nuclear generating station A, unit 2 of the Bruce nuclear generating station A, unit 1 of the Pickering nuclear generating station A, unit 2 of the Pickering nuclear generating station A or unit 3 of the Pickering nuclear generating station A;

“waste organic material” includes animal waste and rendered animal fat.  O. Reg. 283/03, s. 1.

(2) References in this section to a taxpayer shall be read as references to a corporation or an eligible partnership and references to a taxation year in respect of a taxpayer that is an eligible partnership shall be read as references to a fiscal period of the partnership.  O. Reg. 283/03, s. 1.

(3) For the purposes of this section and subject to subsection (5), the following types of property of a taxpayer are qualifying Ontario electrical generation and conservation property of the taxpayer:

1. Property, other than transmission equipment or distribution equipment, that is substantially used, or that is part of a system that is substantially used, by the taxpayer, or by a person to whom the taxpayer leases the property, to generate electricity in Ontario all or substantially all of which is generated from one or more alternative or renewable sources of energy, if the property would be,

i. property described in Class 43.1 of Schedule II of the regulations made under the Income Tax Act (Canada) if,

A. the description of that Class were read without reference to clauses (c) (i) (B), (c) (ii) (B) and (d) (ii) (A), and

B. subparagraph (d) (iii) of the description of that Class were read without reference to the words “if the resulting annual average generating capacity of the hydro-electric installation does not exceed 15 megawatts”,

i.1 property that would be described in Class 43.2 of Schedule II of the regulations made under the Income Tax Act (Canada) if,

A. the description of Class 43.2 were read without reference to the words “and before 2012”,

B. the reference in the description of Class 43.2 to property that would otherwise be included in Class 43.1 were read as a reference to property that would otherwise be included in Class 43.1 if,

1. the description of Class 43.1 were read without clauses (c) (ii) (B) and (d) (ii) (A), and

2. subparagraph (d) (iii) of the description of Class 43.1 were read without reference to the words “if the resulting annual average generating capacity of the hydro-electric installation does not exceed 15 megawatts”, and

C. the reference to paragraph (d) of Class 43.1 of the Schedule in paragraph (b) of the description of Class 43.2 of the Schedule were read as a reference to paragraph (d) of Class 43.1 of the Schedule as that paragraph would read,

1. without clause (d) (ii) (A), and

2. without reference to the words “if the resulting annual average generating capacity of the hydro-electric installation does not exceed 15 megawatts” at the end of subparagraph (d) (iii), or

ii. equipment described in Class 1, 8 or 17 of Schedule II of the regulations made under the Income Tax Act (Canada).

2. Property used primarily to deliver to a consumer in Ontario or to the IMO-controlled grid electricity that is generated by,

i. the taxpayer using qualifying Ontario electrical generation and conservation property of the taxpayer described in paragraph 1, or

ii. a person to whom the taxpayer leased qualifying Ontario electrical generation and conservation property of the taxpayer described in paragraph 1.

3. Property that is piping, pumps, meters, control equipment, heat exchangers and other types of property used primarily in the delivery to a consumer in Ontario of steam, heated water or cooled water that is,

i. produced using qualifying Ontario electrical generation and conservation property of the taxpayer described in paragraph 1, and

ii. produced by the taxpayer or the person to whom the taxpayer leased the property referred to in subparagraph i.  O. Reg. 283/03, s. 1; O. Reg. 307/07, s. 1 (1).

(4) For the purposes of paragraph 1 of subsection (3),

(a) a taxpayer substantially uses property to generate electricity if the total useful energy output of the property is at least 20 per cent of the total energy input to the property and if the electrical energy output of the property is at least 25 per cent of the total useful energy output of the property; and

(b) a taxpayer substantially uses a system to generate electricity if the total useful energy output of the system is at least 20 per cent of the total energy input to the system and if the electrical energy output of the system is at least 25 per cent of the total useful energy output of the system.  O. Reg. 283/03, s. 1.

(5) Subject to subsection (6), a property is a qualifying Ontario electrical generation and conservation property of a taxpayer if the following criteria are satisfied:

1. For property that generates or is part of a system that generates electricity from uranium,

i. the property is used to generate electricity or is part of a system used to generate electricity at a qualifying nuclear facility, and

ii. the taxpayer acquired the property after June 1, 2003 and before January 1, 2008.

1.1 For property described in subparagraph 1 i.1 of subsection (3), the taxpayer acquired the property after February 22, 2005 and before January 1, 2008.

2. For any other property, the taxpayer acquired the property after November 25, 2002 and before January 1, 2008.  O. Reg. 283/03, s. 1; O. Reg. 307/07, s. 1 (2).

(6) Property referred to in subsection (5) that is used to generate electricity or is part of a system used to generate electricity at more than one nuclear facility is a qualifying Ontario electrical generation and conservation property only to the extent that the property or system is used to generate electricity at a qualifying nuclear facility and only if the criterion set out in subparagraph 1 ii of subsection (5) is also satisfied.  O. Reg. 283/03, s. 1.

(7) The Minister of Energy or his or her delegate may give opinions to taxpayers or to the Minister of Finance relating to engineering and scientific matters raised in the interpretation of the definitions in subsection (1) and in the interpretation of subsection (4), and any opinion given by the Minister of Energy or his or her delegate with respect to those matters is conclusive for the purposes of this section.  O. Reg. 283/03, s. 1.

(8) For the purposes of clause 11 (10) (a) of the Act, there is allowed to a taxpayer as a deduction in computing its income for a taxation year ending after November 25, 2002 the amount determined under subsection (9) in respect of the capital cost of the taxpayer’s qualifying Ontario electrical generation and conservation property, if the taxpayer does not claim a deduction for the year in respect of the property under section 201.  O. Reg. 283/03, s. 1.

(9) The amount of the deduction described in subsection (8) is an amount not exceeding the amount that would be the undepreciated capital cost of the qualifying Ontario electrical generation and conservation property as of the end of the taxation year before any deduction for the year under this section.  O. Reg. 283/03, s. 1.

(10) Subject to the following rules, Part XI of the regulations made under the Income Tax Act (Canada), including the definitions contained in subsection 1104 (13), apply for the purposes of this section:

1. All references to property described in Class 43.1 in Schedule II of those regulations shall be read as if they were references to qualifying Ontario electrical generation and conservation property as defined in this section.

2. Subsection 1100 (2) does not apply for the purposes of determining the amount of a deduction under this section in respect of qualifying Ontario electrical generation and conservation property.

3. All references to “fossil fuel” in Part XI of the regulations shall be read as if they were references to “eligible fossil fuel” as defined in this section.  O. Reg. 283/03, s. 1.

(11) Despite subsection (5), a corporation or, in the case of an eligible partnership, all of the members of the eligible partnership may elect to treat property that satisfies the following conditions, other than property described in subsection (12), as qualifying Ontario electrical generation and conservation property for the purposes of the deduction allowed under this section:

1. The property was acquired by the corporation or eligible partnership after October 30, 1998 and before November 26, 2002.

2. The property would be qualifying Ontario electrical generation and conservation property of the corporation or eligible partnership if it had been acquired after November 25, 2002 and before January 1, 2008.  O. Reg. 283/03, s. 1.

(12) The election described in subsection (11) does not apply to qualifying Ontario electrical generation and conservation property that is used to generate electricity from uranium.  O. Reg. 283/03, s. 1.

(13) The capital cost and undepreciated capital cost to a taxpayer of property that is the subject of an election under subsection (11) shall be deemed, immediately after the election is made, to be the same as the capital cost and undepreciated capital cost of the property to the taxpayer immediately before the election.  O. Reg. 283/03, s. 1.

(14) An election under subsection (11) shall be made by attaching a letter to the tax return delivered under the Act by the corporation or by each member of the eligible partnership, as the case may be, for the first taxation year ending after November 25, 2002 for which a deduction is claimed under this section by the corporation or by the eligible partnership in respect of the property.  O. Reg. 283/03, s. 1.

(15) Despite subsection (14), the Minister may accept a late election that is filed not later than the third anniversary of the date by which the tax return referred to in subsection (14) is required to be delivered under the Act.  O. Reg. 283/03, s. 1.

(16) For the purposes of this section, a reference to the regulations made under the Income Tax Act (Canada) shall be deemed to be a reference to those regulations as amended from time to time; and those regulations shall be read as if the following amendments had been made to them:

1. The draft amendments set out as Appendices A to I in Explanatory Notes Relating to Income Tax, dated March 2001, published by the Department of Finance (Canada).

2. The draft amendments set out in Appendices B and C in Explanatory Notes Relating to the Air Travellers Security Charge and to Income Tax, dated February 2002, published by the Department of Finance (Canada).  However, the proposed subparagraph (d) (iii.1) of Class 43.1 shall be read without reference to the words “if the resulting rated capacity at the hydro-electric installation site does not exceed 50 megawatts”.  O. Reg. 283/03, s. 1.

PART III
ALLOCATION OF TAXABLE INCOME

Determination of Taxable Income

301. For the purpose of section 39 of the Act, the amount of the taxable income of a corporation to which subsection 2 (1) of the Act applies, that shall be deemed to have been earned in a taxation year in each jurisdiction other than Ontario, shall be determined in accordance with the rules set out in sections 302 to 312.  R.R.O. 1990, Reg. 183, s. 301.

Rules

302. (1) Where in a taxation year a corporation had no permanent establishment outside Ontario, all of the corporation’s taxable income for the year shall be deemed to have been earned in Ontario.

(2) Where in a taxation year a corporation had no permanent establishment in Ontario, all of the corporation’s taxable income for the taxation year shall be deemed to have been earned in jurisdictions other than Ontario.

(3) Subject to subsection (5), where, in a taxation year, a corporation had a permanent establishment in Ontario and a permanent establishment in a jurisdiction other than Ontario, the amount of the corporation’s taxable income that shall be deemed to have been earned in the taxation year in that other jurisdiction is,

(a) in any case other than a case specified in clause (b) or (c), one-half the aggregate of,

(i) that proportion of the corporation’s taxable income for the taxation year that the gross revenue for the taxation year attributable to the permanent establishment in that other jurisdiction is of the corporation’s total gross revenue for the taxation year, and

(ii) that proportion of the corporation’s taxable income for the taxation year that the aggregate of the salaries and wages paid in the taxation year by the corporation to the employees of the permanent establishments in that other jurisdiction is of the aggregate of all salaries and wages paid in the taxation year by the corporation;

(b) in any case where the gross revenue for the taxation year of the corporation is nil, that proportion of the corporation’s taxable income for the taxation year that the aggregate of the salaries and wages paid in the taxation year by the corporation to employees of the permanent establishments in that other jurisdiction is of the aggregate of all salaries and wages paid in the taxation year by the corporation; and

(c) in any case where the aggregate of the salaries and wages paid in the taxation year by the corporation is nil, that proportion of the corporation’s taxable income for the taxation year that the gross revenue for the taxation year reasonably attributable to the permanent establishments in that other jurisdiction is of the corporation’s total gross revenue for the taxation year.

(4) For the purposes of subsection (3) and section 320 and subject to subsection (5),

(a) where the destination of a shipment of merchandise to a customer to whom the merchandise is sold is in a jurisdiction in which the corporation making the sale has a permanent establishment, the gross revenue derived from the sale is attributable to that permanent establishment;

(b) except as provided in clauses (c) and (d), where the destination of a shipment of merchandise to a customer to whom the merchandise is sold is in a jurisdiction in which the corporation making the sale has no permanent establishment, the gross revenue derived from the sale is attributable to the permanent establishment to which the person negotiating the sale may reasonably be regarded as being attached;

(c) except as provided in clause (e), where the destination of a shipment of merchandise to a customer to whom the merchandise is sold is in a jurisdiction outside Canada in which the corporation making the sale has no permanent establishment,

(i) where the merchandise was produced or manufactured, or produced and manufactured, entirely in one province or territory of Canada by the corporation, the gross revenue derived from the sale is attributable to the corporation’s permanent establishment in that province or territory, or

(ii) where the merchandise was produced or manufactured, or produced and manufactured, partly in a province or territory of Canada and partly in another place by the corporation, the gross revenue derived from the sale that is attributable to its permanent establishment in that province or territory is that proportion thereof that the salaries and wages paid in the taxation year to employees of the permanent establishment in that province or territory where the merchandise was partly produced or manufactured, or partly produced and manufactured, is of the aggregate of the salaries and wages paid in the taxation year to employees of the permanent establishments where the merchandise was produced or manufactured, or produced and manufactured;

(d) except as provided in clause (e), where a customer to whom merchandise is sold instructs that the shipment of the merchandise be made to another person, the destination of the shipment of the merchandise shall be deemed to be in the jurisdiction in which the permanent establishment of the customer negotiating the purchase of the merchandise is situated;

(e) where a customer to whom merchandise is sold instructs that the shipment of the merchandise be made to another person and the permanent establishment of the customer negotiating the purchase of the merchandise is situated in a jurisdiction outside Canada in which the corporation making the sale has no permanent establishment,

(i) where the merchandise was produced or manufactured, or produced and manufactured, entirely in one province or territory of Canada by the corporation, the gross revenue derived from the sale shall be attributable to its permanent establishment in that province or territory, or

(ii) where the merchandise was produced or manufactured, or produced and manufactured, partly in a province or territory of Canada and partly in another place by the corporation, the gross revenue derived from the sale that is attributable to its permanent establishment in that province or territory is that proportion thereof that the salaries and wages paid in the taxation year to employees of the permanent establishment in that province or territory where the merchandise was partly produced or manufactured, or partly produced and manufactured, is of the aggregate of the salaries and wages paid in the taxation year to employees of the permanent establishments where the merchandise was produced or manufactured, or produced and manufactured;

(f) where services are performed by a corporation in a jurisdiction in which the corporation has a permanent establishment, the gross revenue derived from the services is attributable to that permanent establishment;

(g) where services are performed by a corporation in a jurisdiction in which the corporation has no permanent establishment, the gross revenue derived from the services is attributable to the permanent establishment to which the person negotiating the contract for the corporation may reasonably be regarded as being attached;

(h) where standing timber or the right to cut standing timber is sold, the gross revenue derived from the sale is attributable to the permanent establishment that includes the timberlands on which the timber is standing;

(i) gross revenue that arises from leasing land owned by the corporation in a province or territory shall be attributable to the province or territory where that land is situated; and

(j) where land which constitutes a permanent establishment in a province under subsection 4 (7) of the Act is sold, and the income derived from the sale is included in determining the corporation’s income under paragraph 3 (a) of the Income Tax Act (Canada) as made applicable by section 9 of the Act, the gross revenue of the corporation derived from the sale for the taxation year shall be attributed to that permanent establishment.

(5) In the application of subsections (3) and (4) and subsection 320 (3) for the purposes of this section and section 320, where,

(a) the destination of a shipment of merchandise to a customer to whom the merchandise is sold by a corporation is in a country other than Canada or where the customer to whom the merchandise is sold instructs that the shipment of the merchandise be made by the corporation to another person and the permanent establishment of the customer negotiating the purchase of the merchandise is situated in a country other than Canada;

(b) the corporation has a permanent establishment in that other country; and

(c) the corporation is not subject to taxation on its income or profits under the laws of that other country or its gross revenue derived from the sale is not included in the profit or other base for income or profits taxation by that other country by reason of,

(i) the provisions of any taxing statute of that other country, or

(ii) the operation of any tax treaty or convention between Canada and that other country,

the following rules apply:

1. Clauses (4) (a), (b) and (d) do not apply.

2. That portion of clause (4) (c) immediately preceding subclause (i) shall be read as follows:

(c) except as provided in clause (e), where the destination of a shipment of merchandise to a customer to whom the merchandise is sold is in a jurisdiction outside Canada,

. . . . .

3. That portion of clause (4) (e) immediately preceding subclause (i) shall be read as follows:

(e) where a customer to whom merchandise is sold instructs that the shipment of the merchandise be made to another person and the permanent establishment of the customer negotiating the purchase of the merchandise is situated in a jurisdiction outside Canada,

. . . . .

4. In the application of subclause (3) (a) (ii), clause (3) (b), subclauses (4) (c) (ii), (4) (e) (ii) and 320 (3) (a) (ii) and clause 320 (3) (b), salaries and wages paid in the taxation year to employees of any permanent establishment of the corporation situated in that other country shall be deemed to be nil.

(6) For the purposes of this section, and sections 304, 307, 308, 309, 310, 311, 319, 320, 323, 324, 325, 326 and 327, where part of the operations of a corporation is conducted in partnership with one or more other persons,

(a) the gross revenue of the corporation for the taxation year; and

(b) the salaries and wages paid in the taxation year by the corporation,

shall include, in respect of those operations, only that proportion of,

(c) the total gross revenue of the partnership for its fiscal period ending in or coinciding with the taxation year; and

(d) the total salaries and wages paid by the partnership in its fiscal period ending in or coinciding with the taxation year,

respectively, that,

(e) the corporation’s share of the income or loss of the partnership for the fiscal period ending in or coinciding with the taxation year,

is of,

(f) the total income or loss of the partnership for the fiscal period ending in or coinciding with the taxation year.

(7) For the purposes of this section, and sections 304, 307, 308, 309, 310, 311, 320, 321, 324, 325, 326, 327 and 328, where a corporation pays a fee to a person under an agreement pursuant to which the person or employees of that person perform services for the corporation that would normally be performed by employees of the corporation, the fee so paid shall be deemed to be salary paid in the taxation year by the corporation and that part of the fee that may reasonably be regarded as payment in respect of services rendered at a particular permanent establishment of the corporation shall be deemed to be salary paid to an employee of that permanent establishment.

(8) For the purpose of subsection (7), a fee does not include a commission paid to a person who is not an employee of the corporation.

(9) For the purposes of subsection (3) and subsection 320 (3),

“gross revenue” does not include interest on bonds, debentures or mortgages, dividends on shares of capital stock, or rentals or royalties from property that is not used in connection with the principal business operations of the corporation.  R.R.O. 1990, Reg. 183, s. 302.

302.1 (1) An amount that may reasonably be regarded as equal to the amount of salary or wages earned by an employee of an employer for performing a service in Ontario for the benefit of or on behalf of a corporation that is not the employer of the employee shall be deemed for the purposes of this Part to be salary paid by the corporation to an employee of the corporation in the taxation year of the corporation in which the salary or wages are paid to the employee if,

(a) at the time the service is performed, the corporation and the employer do not deal at arm’s length;

(b) at the time the service is performed, the corporation has one or more permanent establishments in Ontario;

(c) the service performed by the employee,

(i) is carried out by the employee in the course of his or her employment by the employer,

(ii) is carried out for the benefit of or on behalf of the corporation as part of the regular and routine operations of a business carried on by the corporation, and

(iii) is of a type that could reasonably be expected to be performed by employees of entities carrying on the same type of business as the business referred to in subclause (ii); and

(d) the amount is not otherwise included in the aggregate of the salaries and wages paid by the corporation that is determined for the purposes of this Part.

(2) An amount that may reasonably be regarded as equal to the amount of salary or wages earned by an employee of an employer for performing a service in Ontario for the benefit of or on behalf of a partnership that is not the employer of the employee shall be deemed for the purposes of this Part to be salary paid by the partnership to an employee of the partnership in the fiscal year of the partnership in which the salary or wages are paid to the employee if,

(a) at the time the service is performed,

(i) the partnership or a member of the partnership does not deal at arm’s length with the employer, or

(ii) the employer is a member of the partnership;

(b) at the time the service is performed, the partnership would be considered to have one or more permanent establishments in Ontario if references in section 4 of the Act to “corporation” were read as references to “partnership”;

(c) the service performed by the employee,

(i) is carried out by the employee in the course of his or her employment by the employer,

(ii) is carried out for the benefit of or on behalf of the partnership as part of the regular and routine operations of a business carried on by the partnership, and

(iii) is of a type that could reasonably be expected to be performed by employees of entities carrying on the same type of business as the business referred to in subclause (ii); and

(d) the amount is not otherwise included in the aggregate of the salaries and wages paid by the partnership that is determined for the purposes of this Part.

(3) This section does not apply to a corporation for a taxation year if,

(a) the total of all amounts that would be included as a result of this section in a determination for the purposes of this Part of the aggregate of the salaries and wages paid by the corporation in the taxation year is less than 20 per cent of the aggregate of the salaries and wages paid by the corporation that would otherwise be determined for the purposes of this Part in the absence of this section; or

(b) the Minister is of the opinion that an undue reduction in the total amount of tax payable to Ontario by the corporation and the employer,

(i) was not one of the purposes or intended ancillary results of entering into or continuing the agreement or arrangement under which the service was performed by the employee for the benefit of or on behalf of the corporation, and

(ii) was not one of the purposes or intended ancillary results of entering into or continuing any other arrangement or agreement that affects the amount of salaries or wages paid by the corporation in the taxation year for the purposes of this Part, if in the Minister’s opinion the other arrangement or agreement can reasonably be linked to the agreement or arrangement referred to in subclause (i).

(4) If an amount is deemed under this section to be salary paid by a corporation to an employee of the corporation, the amount shall be deemed to have been paid to an employee employed at,

(a) the permanent establishment or establishments of the corporation in Ontario where the service was performed; or

(b) such other permanent establishment or establishments of the corporation in Ontario as are reasonable in the circumstances, if the service was not performed at a permanent establishment of the corporation in Ontario.

(5) If this section applies in respect of a year, the Minister may, on receipt of a joint request from the corporation and the employer in a form approved by the Minister, permit the employer, for the purpose of a determination under this Part of the employer’s salaries and wages or gross revenues for the year, to deduct an amount the Minister considers reasonable that does not exceed the lesser of,

(a) the amount included by the corporation for the year as a result of this section in its salaries and wages with respect to the services performed by employees of the employer for the benefit of or on behalf of the corporation; and

(b) the amount included by the employer for the year in its salaries and wages and gross revenues with respect to the services performed by employees of the employer for the benefit of or on behalf of the corporation.

(6) The references in subsections (3) and (4) to amounts included in a determination as a result of this section in respect of a corporation for a taxation year or deemed under this section to be salary paid by a corporation to an employee of the corporation for a taxation year include any amount that, in accordance with subsection 302 (6), is required to be included in the amount of salaries and wages paid in the taxation year by the corporation in respect of an amount that is deemed under subsection (2) to be salary paid by a partnership to an employee of the partnership in the partnership’s fiscal year ending in or coinciding with the corporation’s taxation year.

(7) This section does not apply in respect of a corporation’s taxation year that commenced on or before the date that Ontario Regulation 488/96 is filed with the Registrar of Regulations in accordance with the Regulations Act unless one of the following agreements or arrangements is entered into after that date:

1. An agreement or arrangement under which services are performed in Ontario for the benefit of or on behalf of the corporation by an employee of an employer that is not the corporation.

2. An agreement or arrangement that affects the amount of salaries or wages paid by the corporation in the taxation year for the purposes of this Part, if in the Minister’s opinion the arrangement or agreement can reasonably be linked to an agreement or arrangement referred to in paragraph 1.  O. Reg. 488/96, s. 1.

Insurance Corporations

303. (1) Despite subsections 302 (3) and (4), the amount of taxable income that shall be deemed to have been earned in a taxation year in a jurisdiction other than Ontario by an insurance corporation that is resident in Canada and that does not carry on a life insurance business is that proportion of the corporation’s taxable income for the year that the aggregate of,

(a) the corporation’s net premiums for the year in respect of insurance on property situated in that other jurisdiction; and

(b) the corporation’s net premiums for the year in respect of insurance, other than on property, from contracts with persons resident in that other jurisdiction,

is of the total of such of the corporation’s net premiums for the year as are included in computing the corporation’s income for the purposes of the Act.

(2) Despite subsections 302 (3) and (4), the amount of taxable income that shall be deemed to have been earned in a taxation year in a province or territory of Canada other than Ontario by an insurance corporation other than an insurance corporation to which subsection (1) applies, is that proportion of the corporation’s taxable income for the year that the aggregate of,

(a) the corporation’s net premiums for the year in respect of insurance on property situated in that other province or territory of Canada; and

(b) the corporation’s net premiums for the year in respect of insurance, other than on property, from contracts with persons resident in that other province or territory of Canada,

is of the total of such of the corporation’s net premiums for the year as are included in computing the corporation’s income for the purposes of the Act.

(3) In this section,

“net premiums” means the aggregate of the gross premiums received by a corporation in a taxation year, other than consideration received by the corporation for annuities, minus the aggregate for the year of,

(a) premiums paid by the corporation for reinsurance,

(b) dividends or rebates paid or credited by the corporation to policyholders, and

(c) rebates or returned premiums paid by the corporation in respect of the cancellation of policies.

(4) For the purpose of subsection (1) or (2), where an insurance corporation had no permanent establishment in a jurisdiction outside Ontario in a taxation year,

(a) a net premium for that year in respect of insurance on property situated in that jurisdiction shall be deemed to be a net premium in respect of insurance on property situated in the jurisdiction in which the permanent establishment of the corporation to which the net premium is reasonably attributable is situated; and

(b) a net premium for that year in respect of insurance, other than on property, from contracts with persons resident in that jurisdiction shall be deemed to be a net premium in respect of insurance, other than on property, from contracts with persons resident in the jurisdiction which the permanent establishment of the corporation to which the net premium is reasonably attributable is situated.  R.R.O. 1990, Reg. 183, s. 303.

Banks

304. (1) Despite subsections 302 (3) and (4), the amount of taxable income of a bank that shall be deemed to have been earned in a taxation year in a jurisdiction other than Ontario in which it had a permanent establishment is one-third of the aggregate of,

(a) that proportion of the bank’s taxable income for the taxation year that the aggregate of the salaries and wages paid in the year by the bank to employees of the bank’s permanent establishments in that other jurisdiction is of the aggregate of all salaries and wages paid in the taxation year by the bank; and

(b) twice that proportion of the bank’s taxable income for the taxation year that the aggregate amount of loans and deposits of the bank’s permanent establishments in that other jurisdiction for the taxation year is of the aggregate amount of all loans and deposits of the bank for the taxation year.

(2) For the purpose of subsection (1), the amount of loans for a taxation year is one-twelfth of the aggregate of the amounts outstanding on the loans made by the bank at the close of business on the last day of each month in the taxation year.

(3) For the purpose of subsection (1), the amount of deposits for a taxation year is one-twelfth of the aggregate of the amounts on deposit with the bank at the close of business on the last day of each month in the taxation year.

(4) For the purpose of subsections (2) and (3), loans and deposits do not include bonds, stocks, debentures, items in transit and deposits in favour of Her Majesty in Right of Canada.  R.R.O. 1990, Reg. 183, s. 304.

Trust and Loan Corporations

305. (1) Despite subsections 302 (3) and (4), the amount of taxable income that shall be deemed to have been earned in a taxation year by a bank mortgage subsidiary as defined in section 1 of the Loan and Trust Corporations Act, a trust and loan corporation, a trust corporation or a loan corporation in a jurisdiction other than Ontario in which it had a permanent establishment is that proportion of the corporation’s taxable income for the taxation year that the gross revenue for the taxation year of the corporation’s permanent establishments in that other jurisdiction is of the total gross revenue for the taxation year of the corporation.  O. Reg. 453/92, s. 3.

(2) For the purpose of subsection (1),

“gross revenue for the taxation year of the corporation’s permanent establishments in that other jurisdiction” means the aggregate of the gross revenue of a corporation for the taxation year arising from,

(a) loans secured by real property situated in that other jurisdiction,

(b) loans not secured by real property to persons residing in that other jurisdiction,

(c) loans administered by a permanent establishment of the corporation in that other jurisdiction made to persons residing in another jurisdiction in which the corporation has no permanent establishment but not including loans secured by real property situated in another jurisdiction in which the corporation has a permanent establishment, and

(d) business conducted at the permanent establishments of the corporation in that other jurisdiction, other than revenue in respect of loans.  R.R.O. 1990, Reg. 183, s. 305 (2).

Railway Corporations

306. (1) Subject to subsection (2) and despite subsections 302 (3) and (4), the amount of taxable income of a railway corporation that shall be deemed to have been earned in a taxation year in a province or territory of Canada other than Ontario in which it had a permanent establishment is one-half the aggregate of,

(a) that proportion of the corporation’s taxable income for the taxation year that the corporation’s equated track length in that province or territory of Canada is of the corporation’s equated track length in Canada; and

(b) that proportion of the corporation’s taxable income for the taxation year that the corporation’s gross ton miles for the taxation year in that province or territory of Canada is of the corporation’s gross ton miles for the taxation year in Canada.  R.R.O. 1990, Reg. 183, s. 306 (1); O. Reg. 453/93, s. 4 (1).

(2) Where a corporation to which subsection (1) would apply if this subsection did not apply thereto operates an airline service, ships or hotels or receives revenues that are petroleum or natural gas royalties or does a combination of two or more of those operations, the amount of the corporation’s taxable income that shall be deemed to have been earned in a taxation year in a province or territory of Canada other than Ontario in which it had a permanent establishment is the aggregate of the amounts computed,

(a) where the corporation operates an airline service, by applying the provisions of subsection 307 (1) to that part of the corporation’s taxable income for the taxation year that may reasonably be considered as having arisen from the operation of the airline service;

(b) where the corporation operates ships, by applying the provisions of subsection 311 (1) to that part of the corporation’s taxable income for the taxation year that may reasonably be considered as having arisen from the operation of the ships;

(c) where the corporation operates hotels, by applying the provisions of subsection 302 (3) to that part of the corporation’s taxable income for the taxation year that may reasonably be considered to have arisen from the operation of the hotels;

(d) where the corporation receives revenues that are petroleum or natural gas royalties, by applying the provisions of subsection 302 (3) to that part of the corporation’s taxable income for the taxation year that may reasonably be considered to have arisen from the ownership by the corporation of petroleum or natural gas rights or any interest therein; and

(e) by applying the provisions of subsection (1) to the remaining portion of the corporation’s taxable income for the taxation year.

(3) For the purpose of section 311 and for the purpose of making an allocation required by clause (2) (b),

“salaries and wages paid in the taxation year by the corporation to employees” means salaries and wages paid by the corporation to employees employed in the operation of permanent establishments, other than ships, maintained for the shipping business.

(4) For the purpose of subsection 302 (3) and for the purpose of making an allocation required by clause (2) (c),

“gross revenue for the taxation year attributable to the permanent establishment in that other jurisdiction” means the gross revenue of the corporation from operating hotels in a province or territory of Canada outside Ontario;

“salaries and wages paid in the taxation year by the corporation to the employees” means salaries and wages paid to employees engaged in the operations of its hotels;

“total gross revenue for the taxation year” means the total gross revenue of the corporation for the taxation year from operating hotels.

(5) Despite subsection 302 (9), for the purpose of subsection 302 (3) and for the purpose of making an allocation required by clause (2) (d),

“gross revenue for the taxation year attributable to the permanent establishment in that other jurisdiction” means the gross revenue of the corporation from the ownership by the corporation of petroleum and natural gas rights in lands in a province or territory of Canada outside Ontario and any interest therein;

“salaries and wages paid in the taxation year by the corporation to the employees” means salaries and wages paid to employees employed in connection with the corporation’s petroleum and natural gas rights and interests therein;

“total gross revenue for the taxation year” means the total gross revenue of the corporation from ownership by the corporation of petroleum and natural gas rights and any interest therein.  R.R.O. 1990, Reg. 183, s. 306 (2-5).

(6) For the purposes of subsection (1),

“equated track length” means, in a specified place, the aggregate of,

(a) the length of first main track,

(b) 80 per cent of the length of other main tracks, and

(c) 50 per cent of the length of yard tracks and sidings,

in that place.  R.R.O. 1990, Reg. 183, s. 306 (6); O. Reg. 453/92, s. 4 (2).

Airline Corporations

307. (1) Despite subsections 302 (3) and (4), the amount of taxable income of an airline corporation that shall be deemed to have been earned in a taxation year in a province or territory of Canada other than Ontario in which it had a permanent establishment is an amount equal to one-quarter of the aggregate of,

(a) that proportion of the corporation’s taxable income for the taxation year that the capital cost of all fixed assets of the corporation, except for aircraft, in that province or territory of Canada at the end of the taxation year is of the capital cost of all the corporation’s fixed assets, except for aircraft, in Canada at the end of the taxation year; and

(b) that proportion of the corporation’s taxable income for the taxation year that three times the revenue plane distance flown by the corporation’s aircraft in that province or territory of Canada during the taxation year is of the total revenue plane distance flown by the corporation’s aircraft in Canada during the taxation year.

(2) For the purpose of clause (1) (b), “revenue plane distance flown” shall be weighted according to the take-off weight of the aircraft operated.

(3) For the purpose of subsection (2),

“take-off weight”, of an aircraft, means the take-off weight determined under subsection 407 (3) of the regulations made under the Income Tax Act (Canada).  R.R.O. 1990, Reg. 183, s. 307.

(4) For the purposes of clauses (1) (b) and 328 (1) (b), the total revenue plane distance flown by a corporation’s aircraft in Canada during a taxation year shall not include the revenue plane distance flown during the taxation year by the corporation’s aircraft in a province or territory of Canada in which the corporation had no permanent establishment.  O. Reg. 306/97, s. 2 (1).

Note:  Subsection 307 (4), as made by subsection 2 (1) of O. Reg. 306/97, applies to taxation years of corporations commencing after 1992.  See:  O. Reg. 306/97, s. 2 (2).

Grain Elevator Operators

308. Despite subsections 302 (3) and (4), the amount of taxable income of a corporation the chief business of which is the operation of grain elevators that shall be deemed to have been earned by that corporation in a taxation year in a jurisdiction other than Ontario in which it had a permanent establishment is one-half the aggregate of,

(a) that portion of the corporation’s taxable income for the taxation year that the quantity of grain received in the taxation year in the elevators operated by the corporation in that other jurisdiction is of the total quantity of grain received in the taxation year in all the elevators operated by the corporation; and

(b) that proportion of the corporation’s taxable income for the taxation year that the aggregate of salaries and wages paid in the taxation year by the corporation to employees of the permanent establishments in that other jurisdiction is of the aggregate of all salaries and wages paid in the taxation year by the corporation.  R.R.O. 1990, Reg. 183, s. 308.

Bus and Truck Operators

309. Despite subsections 302 (3) and (4), the amount of taxable income of a corporation the chief business of which is the transportation of goods, the transportation of passengers or the transportation of goods and passengers (other than by the operation of a railway, ship or airline service) that shall be deemed to have been earned by that corporation in a taxation year in a jurisdiction other than Ontario in which it had a permanent establishment is one-half the aggregate of,

(a) that proportion of the corporation’s taxable income for the taxation year that the distance driven by the corporation’s vehicles, whether owned or leased (hereinafter referred to as “its vehicles”), on roads in that other jurisdiction in the taxation year is of the total distance driven by its vehicles in the taxation year on roads (other than on roads in a jurisdiction in which the corporation had no permanent establishment); and

(b) that proportion of the corporation’s taxable income for the taxation year that the aggregate of salaries and wages paid in the taxation year by the corporation to employees of the permanent establishments in that other jurisdiction is of the aggregate of all salaries and wages paid in the taxation year by the corporation.  R.R.O. 1990, Reg. 183, s. 309.

Pipeline Operators

310. Despite subsections 302 (3) and (4), the amount of taxable income of a corporation the chief business of which is the operation of a pipeline for oil, gas or water that shall be deemed to have been earned by that corporation in a taxation year in a province or territory of Canada other than Ontario in which it had a permanent establishment is one-half of the aggregate of,

(a) that proportion of the corporation’s taxable income for the taxation year that the length of pipe of the corporation in that province or territory of Canada is of the length of pipe of the corporation in all provinces and territories of Canada in which it had a permanent establishment; and

(b) that proportion of the corporation’s taxable income for the taxation year that the aggregate of salaries and wages paid in the taxation year by the corporation to employees of the corporation’s permanent establishments in that province or territory of Canada is of the aggregate of all salaries and wages paid in all the corporation’s permanent establishments in Canada in the taxation year by the corporation.  R.R.O. 1990, Reg. 183, s. 310.

Navigation Corporations

311. (1) Despite subsections 302 (3) and (4), the amount of taxable income of a corporation the chief business of which is the operation of ships that shall be deemed to have been earned by the corporation in a taxation year in a province or territory of Canada other than Ontario in which it had a permanent establishment is the aggregate of,

(a) that proportion of the corporation’s allocable income for the taxation year that the corporation’s port-call-tonnage in that province or territory of Canada is of the corporation’s port-call tonnage in all provinces and territories of Canada in which it had a permanent establishment; and

(b) where the corporation’s taxable income for the taxation year exceeds the corporation’s allocable income for the taxation year, that proportion of the excess that the aggregate of the salaries and wages paid in the taxation year by the corporation to employees of the permanent establishments, other than a ship, in that province or territory of Canada, is of the aggregate of salaries and wages paid in the taxation year by the corporation to employees of permanent establishments, other than ships, in Canada.

(2) For the purpose of subsection (1),

“allocable income for the taxation year” means that proportion of the taxable income of the corporation for the taxation year that the corporation’s total port-call-tonnage in Canada is of the corporation’s total port-call-tonnage in all countries;

“port-call-tonnage”, in a province, territory or country, means the aggregate of the products obtained by multiplying, for each ship operated by the corporation, the number of calls made in the taxation year by that ship at ports in that province, territory or country by the number of tons of the registered net tonnage of that ship.  R.R.O. 1990, Reg. 183, s. 311.

Divided Businesses

312. Where part of the business of a corporation for a taxation year, other than a corporation described in section 303, 304, 305, 306, 307, 308, 309, 310 or 311 consisted of operations normally conducted by a corporation described in one of those sections, the corporation and the Minister may agree to determine the amount of taxable income deemed to have been earned in the taxation year in a jurisdiction other than Ontario as the aggregate of the amounts computed by,

(a) applying the provisions of such of those sections as would have been applicable had the corporation been a corporation described therein to the portion of the corporation’s taxable income for the taxation year that might reasonably be considered to have arisen from that part of the business; and

(b) applying the provisions of subsection 302 (3) to the remaining portion of the corporation’s taxable income for the taxation year.  R.R.O. 1990, Reg. 183, s. 312.

Allocation of Taxable Income Earned in Canada of Non-Residents

313. For the purpose of section 39 of the Act, the taxable income earned in Canada of a corporation to which subsection 2 (2) of the Act applies shall be allocated to the provinces and territories of Canada in accordance with the rules set out in sections 314 to 318.  R.R.O. 1990, Reg. 183, s. 313.

314. Where a non-resident corporation not otherwise having a permanent establishment in Canada becomes taxable under the Act by virtue of clause 2 (2) (b) of the Act and where section 317 is not applicable, the gross revenue that arises from the sale or rental of real property situated in Canada shall be attributable to the province or territory where the real property is situated.  R.R.O. 1990, Reg. 183, s. 314.

Rules

315. Where in a taxation year a corporation has no permanent establishment in Canada other than in Ontario, all of its taxable income earned in Canada for the year shall be deemed to have been earned in Ontario.  R.R.O. 1990, Reg. 183, s. 315.

316. Where in a taxation year a corporation had a permanent establishment in Ontario and a permanent establishment in one or more other provinces or territories of Canada, the corporation’s taxable income earned in Canada shall be allocated to the provinces and territories of Canada in accordance with sections 302, 303, 304, 305, 306, 308, 309, 310 and 312 or such of those sections as are applicable on the assumption that,

(a) the corporation’s taxable income earned in Canada was the corporation’s total taxable income;

(b) the permanent establishments of the corporation in the provinces and territories of Canada were the corporation’s only permanent establishments; and

(c) the amounts and proportions referred to in such of those sections as are applicable related exclusively to the activity of the corporation at those permanent establishments,

provided that, where a corporation to which this section applies ships merchandise to one or other of the corporation’s permanent establishments outside Canada,

(d) the shipment shall be deemed to be a shipment of merchandise to a customer to whom the merchandise is sold; and

(e) the corporation’s gross revenue in Canada is the gross revenue of the corporation’s permanent establishments in Canada including such amount from the shipment in determining the taxable income earned in Canada that is reasonably attributable to the business carried on by the corporation in Canada.  R.R.O. 1990, Reg. 183, s. 316.

317. Where in a taxation year the taxable income of a corporation earned in Canada was derived solely from the sale or rental of real property in Canada and the corporation owned real property that is situated in Ontario and real property that is situated in another province or territory of Canada, the corporation’s taxable income earned in Canada shall be allocated to the provinces and territories of Canada in accordance with section 302 on the assumption that,

(a) the real property was a permanent establishment of the corporation in the province or territory;

(b) the corporation’s taxable income earned in Canada was the corporation’s total taxable income;

(c) the real property was the only real property owned by the corporation; and

(d) the amounts and proportions allocated to the provinces and territories of Canada related exclusively to the activity of the corporation in the province or territory of Canada where the real property was situated.  R.R.O. 1990, Reg. 183, s. 317.

318. Where in a taxation year the taxable income of a corporation earned in Canada was derived,

(a) solely from the disposition of,

(i) taxable Canadian property,

(ii) a Canadian resource property, or

(iii) an income interest in a trust resident in Canada; or

(b) partly from sources referred to in clause (a) and partly from the sale or rental of real property in Canada,

the following rules apply:

1. That part of the income from sources referred to in clause (a) that is income from the disposition of property deemed to be situated in Ontario, under section 504, shall be attributed to Ontario and that part of the income from the disposition of property, other than property deemed situated in Ontario, shall be attributed to the province or territory in which the property is situated.

2. That part of the income that is income from the sale or rental of real property shall be allocated to the provinces and territories in Canada in accordance with section 302 under the assumptions set out in clauses 317 (a), (b), (c) and (d).  R.R.O. 1990, Reg. 183, s. 318.

Allocation of Taxable Paid-Up Capital

319. The amount of the taxable paid-up capital of a corporation to which subsection 2 (1) of the Act applies that shall be deemed to have been used in a taxation year in a jurisdiction other than Ontario shall be determined in accordance with the rules set out in sections 320 to 328.  R.R.O. 1990, Reg. 183, s. 319.

Rules

320. (1) Where in a taxation year a corporation had no permanent establishment outside Ontario, all of the corporation’s taxable paid-up capital for the taxation year shall be deemed to have been used in Ontario.

(2) Where in a taxation year a corporation had no permanent establishment in Ontario, all of the corporation’s taxable paid-up capital shall be deemed to have been used in a jurisdiction other than Ontario.

(3) Subject to subsection 302 (5), where, in a taxation year, a corporation had a permanent establishment in Ontario and a permanent establishment in a jurisdiction other than Ontario, the amount of the corporation’s taxable paid-up capital that shall be deemed to have been used in the taxation year in that other jurisdiction is,

(a) in any case other than a case specified in clause (b) or (c), one-half the aggregate of,

(i) that proportion of the corporation’s taxable paid-up capital that the gross revenue for the taxation year reasonably attributable to the permanent establishments in that other jurisdiction is of the corporation’s total gross revenue for the taxation year, and

(ii) that proportion of the corporation’s taxable paid-up capital that the aggregate of the salaries and wages paid in the taxation year by the corporation to the employees of the permanent establishments in that other jurisdiction is of the aggregate of all salaries and wages paid in the taxation year by the corporation;

(b) in any case where the gross revenue for the taxation year of the corporation is nil, that proportion of the corporation’s taxable paid-up capital that the aggregate of the salaries and wages paid in the taxation year by the corporation to employees of the permanent establishments in that other jurisdiction is of the aggregate of all salaries and wages paid in the taxation year by the corporation; and

(c) in any case where the aggregate of the salaries and wages paid in the taxation year by the corporation is nil, that proportion of the corporation’s taxable paid-up capital that the gross revenue for the taxation year reasonably attributable to the permanent establishments in that other jurisdiction is of the corporation’s total gross revenue for the taxation year.  R.R.O. 1990, Reg. 183, s. 320.

Banks

321. (1) Despite subsection 320 (3), the amount of taxable paid-up capital of a bank that shall be deemed to have been used in a taxation year in a jurisdiction other than Ontario in which it had a permanent establishment is one-third of the aggregate of,

(a) that proportion of the bank’s taxable paid-up capital for the taxation year that the aggregate of the salaries and wages paid in the year by the bank to the employees of the bank’s permanent establishments in that other jurisdiction is of the aggregate of all salaries and wages paid in the taxation year by the bank; and

(b) twice that proportion of the bank’s taxable paid-up capital for the taxation year that the aggregate amount of loans and deposits of the bank’s permanent establishments in that other jurisdiction for the taxation year is of the aggregate amount of all loans and deposits of the bank for the taxation year.

(2) For the purpose of subsection (1), the amount of loans for a taxation year is one-twelfth of the aggregate of the amounts outstanding on the loans made by the bank at the close of business on the last day of each month in the taxation year.

(3) For the purpose of subsection (1), the amount of deposits for a taxation year is one-twelfth of the aggregate of the amounts on deposit with the bank at the close of business on the last day of each month in the taxation year.

(4) For the purpose of subsections (2) and (3), loans and deposits do not include bonds, stocks, debentures, items in transit and deposits in favour of Her Majesty in Right of Canada.  R.R.O. 1990, Reg. 183, s. 321.

Trust and Loan Corporations

322. (1) Despite subsection 320 (3), the amount of taxable paid-up capital that shall be deemed to have been used in a taxation year by a bank mortgage subsidiary as defined in section 1 of the Loan and Trust Corporations Act, a trust and loan corporation, a trust corporation or a loan corporation in a jurisdiction other than Ontario in which it had a permanent establishment is that proportion of the corporation’s taxable paid-up capital for the taxation year that the gross revenue for the taxation year of the corporation’s permanent establishments in that other jurisdiction is of the total gross revenue for the taxation year of the corporation.  O. Reg. 453/92, s. 5.

(2) Subsection 305 (2) applies with necessary modifications to subsection (1).  R.R.O. 1990, Reg. 183, s. 322 (2).

Railway Corporations

323. (1) Despite subsection 320 (3), the amount of taxable paid-up capital of a railway corporation that shall be deemed to have been used in a taxation year in a province or territory of Canada other than Ontario in which it had a permanent establishment is one-half the aggregate of,

(a) that proportion of the corporation’s taxable paid-up capital for the taxation year that the corporation’s equated track length in that province or territory of Canada is of the corporation’s equated track length in Canada; and

(b) that proportion of the corporation’s taxable paid-up capital for the taxation year that the corporation’s gross ton miles for the taxation year in the province or territory of Canada is of the corporation’s gross ton miles for the taxation year in Canada.  R.R.O. 1990, Reg. 183, s. 323 (1); O. Reg. 453/92, s. 6 (1).

(2) For the purposes of subsection (1),

“equated track length” means, in a specified place, the aggregate of,

(a) the length of first main track,

(b) 80 per cent of the length of other main tracks, and

(c) 50 per cent of the length of yard tracks and sidings,

in that place.  R.R.O. 1990, Reg. 183, s. 323 (2); O. Reg. 453/92, s. 6 (2).

Grain Elevator Operators

324. Despite subsection 320 (3), the amount of taxable paid-up capital of a corporation the chief business of which is the operation of grain elevators that shall be deemed to have been used by that corporation in a taxation year in a jurisdiction other than Ontario in which it had a permanent establishment is one-half the aggregate of,

(a) that proportion of the corporation’s taxable paid-up capital that the quantity of grain received in the taxation year in the elevators operated by the corporation in that other jurisdiction is of the quantity of grain received in the taxation year in all the elevators operated by the corporation; and

(b) that proportion of the corporation’s taxable paid-up capital that the aggregate of salaries and wages paid in the taxation year by the corporation to employees of the permanent establishments in that other jurisdiction is of the aggregate of all salaries and wages paid in the taxation year by the corporation.  R.R.O. 1990, Reg. 183, s. 324.

Bus and Truck Operators

325. Despite subsection 320 (3), the amount of taxable paid-up capital of a corporation, the chief business of which is the transportation of goods, the transportation of passengers or the transportation of goods and passengers (other than by the operation of a railway, ship or airline service), that shall be deemed to have been used by that corporation in a taxation year in a jurisdiction other than Ontario in which it had a permanent establishment is one-half the aggregate of,

(a) that proportion of the corporation’s taxable paid-up capital that the distance driven by the corporation’s vehicles, whether owned or leased (hereinafter referred to as “its vehicles”), on roads in that other jurisdiction in the taxation year is of the total distance driven by its vehicles in the taxation year on roads (other than on roads in a jurisdiction in which the corporation had no permanent establishment); and

(b) that proportion of the corporation’s taxable paid-up capital that the aggregate of salaries and wages paid in the taxation year by the corporation to employees of the permanent establishments in that other jurisdiction is of the aggregate of all salaries and wages paid in the taxation year by the corporation.  R.R.O. 1990, Reg. 183, s. 325.

Pipeline Operators

326. Despite subsection 320 (3), the amount of taxable paid up capital of a corporation the chief business of which is the operation of a pipeline for oil, gas or water that shall be deemed to have been used by that corporation in a taxation year in a province or territory of Canada other than Ontario in which it had a permanent establishment is one-half the aggregate of,

(a) that proportion of the corporation’s taxable paid-up capital that the length of pipe of the corporation in that province or territory of Canada is of the length of pipe of the corporation in all provinces and territories of Canada in which it had a permanent establishment; and

(b) that proportion of the corporation’s taxable paid-up capital that the aggregate of the salaries and wages paid in the taxation year by the corporation to employees of the corporation’s permanent establishments in that province or territory of Canada is of the aggregate of all salaries and wages paid in all the corporation’s permanent establishments in Canada in the taxation year by the corporation.  R.R.O. 1990, Reg. 183, s. 326.

Navigation Corporations

327. (1) Despite subsection 320 (3), the amount of taxable paid-up capital of a corporation the chief business of which is operating ships that shall be deemed to have been used by the corporation in a taxation year in a province or territory of Canada other than Ontario in which it had a permanent establishment is the aggregate of,

(a) that proportion of the corporation’s allocable paid-up capital that the corporation’s port-call-tonnage in that province or territory of Canada is of the corporation’s port-call-tonnage in all provinces and territories of Canada in which it had a permanent establishment; and

(b) where the corporation’s taxable paid-up capital exceeds the corporation’s allocable paid-up capital, that proportion of the excess that the aggregate of the salaries and wages paid in the taxation year by the corporation to employees of the permanent establishments, other than a ship, in that province or territory of Canada is of the aggregate of salaries and wages paid in the taxation year by the corporation to employees of permanent establishments, other than ships, in Canada.

(2) For the purpose of subsection (1),

“allocable paid-up capital” means that portion of taxable paid-up capital of the corporation that the corporation’s port-call-tonnage in Canada is of the corporation’s total port-call-tonnage in all countries.

(3) The definition of “port-call-tonnage” in subsection 311 (2) applies with necessary modifications to this section.  R.R.O. 1990, Reg. 183, s. 327.

Airline Corporations

328. (1) Despite subsection 320 (3), the amount of taxable paid-up capital of an airline corporation that shall be deemed to have been used by that corporation in the taxation year in a province or territory of Canada other than Ontario in which it had a permanent establishment is an amount equal to one quarter of the aggregate of,

(a) that proportion of the corporation’s taxable paid-up capital for the taxation year that the capital cost of all fixed assets of the corporation, except for aircraft, in that province or territory of Canada at the end of the taxation year is of the capital cost of all the corporation’s fixed assets, except for aircraft, in Canada at the end of the taxation year; and

(b) that proportion of the corporation’s taxable paid-up capital for the taxation year that three times the revenue plane distance flown by the corporation’s aircraft in that province or territory of Canada during the taxation year is of the total revenue plane distance flown by the corporation’s aircraft in Canada during the taxation year.  R.R.O. 1990, Reg. 183, s. 328 (1).

(2) Subsections 307 (2) and (3) apply with necessary modifications to subsection (1).  O. Reg. 306/97, s. 1.

Allocation of Taxable Paid-Up Capital Employed in Canada of Non-Resident

329. For the purposes of clause 63 (1) (e) of the Act, the amount of the taxable paid-up capital employed in Canada of a corporation to which subsection 2 (2) of the Act applies shall be allocated to the provinces and territories of Canada in accordance with subsection 320 (3) and sections 321, 322, 323, 324, 325 and 326 or such of those subsections or sections as are applicable, on the assumption that the permanent establishments of the corporation in the provinces and territories of Canada were the corporation’s only permanent establishments and the amounts and proportions referred to in such of those subsections or sections as are applicable related exclusively to the activity of the corporation at those permanent establishments.  R.R.O. 1990, Reg. 183, s. 329.

330. Where in the calculation of any proportion under this Part, a particular unit of measurement is used, the same unit of measurement shall be used, where required, throughout the calculation.  R.R.O. 1990, Reg. 183, s. 330.

Allocation of Taxable Paid-up Capital of Life Insurance Corporations

331. (1) For the purpose of clauses 74.1 (2) (d) and 74.1 (3) (c) of the Act, the proportion of the amount referred to in those clauses for a taxation year ending after April 30, 1992 that is deemed to have been used by the life insurance corporation in Canada but not in Ontario is the same proportion as the proportion of the taxable income of the corporation for the taxation year that is deemed to have been earned in jurisdictions other than Ontario under the rules prescribed in subsection 303 (2).

(2) In the application of the rules prescribed in subsection 303 (2) for the purposes of subsection (1), if a life insurance corporation has no permanent establishment in a particular province or territory of Canada in a taxation year, a net premium that would otherwise be allocated to that province or territory shall be allocated to the province or territory in which the permanent establishment of the corporation to which the net premium is reasonably attributable is situated.  O. Reg. 298/98, s. 2.

PART IV
PRESCRIBED CORPORATIONS

Corporations

401. For the purpose of subsection 11 (15) of the Act, the following corporations are prescribed:

1. Air Canada.

2. Atlas Turner Incorporated.

3. Canada Deposit Insurance Corporation.

4. Canada Mortgage and Housing Corporation.

5. Canadian Broadcasting Corporation.

6. Canadian National Express Company.

7. Canadian National Railway Company.

8. Canadian National Realties, Limited.

9. Canadian National Telegraph Company.

10. Canadian National Transportation, Limited.

11. The Canadian Northern Quebec Railway Company.

12. Revoked:  O. Reg. 453/92, s. 7 (1).

13. Cape Breton Development Corporation.

14. Revoked:  O. Reg. 453/92, s. 7 (2).

15. Eldorado Aviation Limited.

16. Revoked:  O. Reg. 453/92, s. 7 (3).

17. Export Development Corporation.

18. Farm Credit Corporation.

19. Gray Coach Lines Limited.

20. The Great North Western Telegraph Company of Canada.

21. Hoar Transport Company Limited.

22. Husband Transport Limited.

23. A.E. McKenzie Company Limited.

24. Midland Superior Express Limited.

25. The Minnesota and Ontario Bridge Company.

26. The Northern Consolidated Holding Company Limited.

27. Pacific Petroleums Ltd.

28. Revoked:  O. Reg. 453/92, s. 7 (5).

29. Petro-Canada.

30. Petro-Canada Petroleum Inc.

31. Polysar Limited — Polysar Limitée.

32. Polysar Plastics Limited.

33. Potash Corporation of Saskatchewan Sales Ltd.

34. St. Clair River Broadcasting Limited.

35. The St. Lawrence Seaway Authority.

36. Scobie’s Transport Limited.

37. The Seaway International Bridge Corporation, Ltd.

38. Sidbec-Dosco Limitée — Sidbec-Dosco Limited.

39. Revoked:  O. Reg. 453/92, s. 7 (8).

40. The Toronto-Peterborough Transport Company, Limited.

41. Via Rail Canada Inc.

42. Canada Post Corporation, for taxation years ending after December 31, 2002.  R.R.O. 1990, Reg. 183, s. 401; O. Reg. 453/92, s. 7; O. Reg. 232/03, s. 1.

PART V
miscellaneous

Profits Tax

501. For the purposes of the definition of “corporation income tax” in subsection 16 (3) of the Act, a tax imposed under any of the following is declared to be a tax of general application on the profits of corporations:

1. The Income Tax Act (Canada).

2. Part II or II.1 of the Act.

3. The Income Tax Act (Newfoundland).

4. The Income Tax Act (Prince Edward Island).

5. The Income Tax Act (New Brunswick).

6. The Income Tax Act (Nova Scotia).

7. Part I of the Taxation Act (Quebec).

8. The Income Tax Act (Manitoba).

9. The Income Tax Act (Saskatchewan).

10. Part 1 of the Alberta Corporate Tax Act (Alberta).

11. The Income Tax Act (British Columbia).  O. Reg. 453/92, s. 8; O. Reg. 306/97, s. 3.

502. For the purposes of the definition of “corporation tax” in subsection 16 (3) of the Act, a tax imposed under any of the following is declared to be a tax on corporations:

1. Part III of the Act.

2. The Financial Corporations Capital Tax Act (Newfoundland).

3. The Financial Corporation Capital Tax Act (Prince Edward Island).

4. The Financial Corporation Capital Tax Act (New Brunswick).

5. The Corporation Capital Tax Act (Nova Scotia).

6. Part IV of the Taxation Act (Quebec).

7. The Corporation Capital Tax Act (Manitoba).

8. The Corporation Capital Tax Act (Saskatchewan).

9. Part 10 of the Alberta Corporate Tax Act (Alberta).

10. The Corporation Capital Tax Act (British Columbia).  O. Reg. 453/92, s. 9.

Rate of Interest on Unpaid Taxes and Overpayments

503. (1) In this section,

“adjustment date” means January 1, April 1, July 1 or October 1;

“average prime rate”, on a particular date, means the mean, rounded to the nearest whole percentage point, of the annual rates of interest announced by each of the Royal Bank of Canada, The Bank of Nova Scotia, the Canadian Imperial Bank of Commerce, the Bank of Montreal and The Toronto-Dominion Bank to be its prime or reference rate of interest in effect on that date for determining interest rates on Canadian dollar commercial loans by that bank in Canada.  O. Reg. 306/97, s. 8.

(2) For the purposes of the Act, the prescribed rates of interest shall be determined in accordance with the following rules:

1. A base rate of interest shall be determined for January 1, 1997 and for each adjustment date after January 1, 1997 and shall be equal to the average prime rate on,

i. October 15 of the previous year, if the adjustment date is January 1,

ii. January 15 of the same year, if the adjustment date is April 1,

iii. April 15 of the same year, if the adjustment date is July 1, and

iv. July 15 of the same year, if the adjustment date is October 1.

2. The base rate of interest in effect on a particular date shall be,

i. the base rate for the particular date, if the particular date is an adjustment date, and

ii. the base rate for the last adjustment date before the particular date, otherwise.

3. The prescribed rate of interest payable by a person under the Act in respect of a particular day shall be an annual interest rate that is three percentage points higher than the base rate of interest in effect on that day.

4. The prescribed rate of interest to be paid or allowed by the Minister to a person under the Act, in respect of a particular day before July 1, 2006, shall be an annual interest rate that is two percentage points lower than the base rate of interest in effect for that day.

4.1 The prescribed rate of interest to be paid or allowed by the Minister to a person under the Act, in respect of a particular day after June 30, 2006, shall be an annual interest rate that is three percentage points lower than the base rate of interest in effect for that day.

5. For the following matters, the prescribed rate of interest to be paid or allowed by the Minister in respect of a particular day is the base rate of interest in effect for that day:

i. The amount of surplus in the tax account for a taxation year ending after December 31, 1997, to the extent that the surplus is attributable to a decision referred to in subsection 82 (5) of the Act in respect of an objection or appeal for a taxation year ending after December 31, 1997.

ii. The amount of surplus in the instalment account for a taxation year ending after December 31, 1997, to the extent that the surplus is attributable to a decision described in subparagraph i.  O. Reg. 306/97, s. 8; O. Reg. 449/99, s. 1; O. Reg. 224/06, s. 1.

(3) Revoked:  O. Reg. 306/97, s. 8.

(4) Revoked:  O. Reg. 453/92, s. 10.

(5) For the purposes of clauses 75 (14) (a) and 79 (3) (a) of the Act, the day prescribed by the regulations is,

(a) the day of receipt by the Ministry of the return, the payment or the amount, as the case may be; or

(b) in the case of an amount paid or a payment made under the Act to a bank or other financial institution authorized by the Minister to act as agent to accept receipt of amounts payable under the Act, the day of receipt by the institution.  R.R.O. 1990, Reg. 183, s. 503 (5); O. Reg. 306/97, ss. 6, 7.

Taxable Canadian Property Deemed Situated in Ontario

504. (1) For the purposes of clause 2 (2) (c) of the Act, taxable Canadian property shall be deemed to be property situated in Ontario where,

(a) in the case of property referred to in subparagraph 115 (1) (a) (iii.1) and subparagraphs 115 (1) (b) (i) and (ii) of the Income Tax Act (Canada), the property is situated in Ontario or the business is carried on in Ontario, as the case may be;

(b) in the case of property referred to in subparagraphs 115 (1) (b) (iii) and (iv) of the Income Tax Act (Canada), the property is a share or shares of a corporation that is resident in Ontario;

(c) in the case of property referred to in subparagraph 115 (1) (b) (v) of the Income Tax Act (Canada), the property is an interest in a partnership resident in Ontario;

(d) in the case of property referred to in subparagraph 115 (1) (a) (iv) and subparagraph 115 (1) (b) (vi) of the Income Tax Act (Canada), the property is an income interest in a trust resident in Ontario or the property is a capital interest in a trust resident in Ontario, as the case may be;

(e) in the case of property referred to in subparagraph 115 (1) (b) (vii) of the Income Tax Act (Canada), the property is a unit or units of a unit trust resident in Ontario;

(f) in the case of property referred to in subparagraph 115 (1) (b) (viii) of the Income Tax Act (Canada), the property is a unit or units of a mutual fund trust resident in Ontario; and

(g) in the case of property that is deemed to be taxable Canadian property under subparagraph 115 (1) (b) (ix) of the Income Tax Act (Canada), the property is property that is situated in Ontario by virtue of the Corporations Tax Act and the regulations made thereunder, or the law of Ontario as it relates to the situs of property.

(2) Where, for the purposes of the Income Tax Act (Canada) a tax treaty or convention between Canada and another country has determined that no tax is payable for a taxation year by the corporation in respect of the disposition by it of taxable Canadian property, such property that would otherwise be deemed by subsection (1) to be property situated in Ontario shall be deemed not to be property situated in Ontario.

(3) For the purposes of clause (1) (b), a corporation shall be deemed to be resident in Ontario where,

(a) in the case of a corporation incorporated after the 26th day of April, 1965 it was incorporated in Ontario;

(b) in the case of a corporation incorporated before the 27th day of April, 1965 it was incorporated in Ontario and at any time in the taxation year or at any time in any preceding taxation year of the corporation ending after the 26th day of April, 1965 it was resident in Ontario or carried on business in Ontario;

(c) in the case of a corporation incorporated under the laws of Canada, it had its central management and control located in Ontario at any time in the taxation year.

(4) For the purposes of clause (1) (c), a partnership is deemed to be resident in Ontario where it is resident in Canada for purposes of subparagraph 115 (1) (b) (v) of the Income Tax Act (Canada) and its principal business is carried on in Ontario.

(5) For the purposes of clauses (1) (d), (e) and (f), a trust, a unit trust or a mutual fund trust is deemed to be resident in Ontario where the trust, unit trust or mutual fund trust, as the case may be, is resident in Canada for purposes of subparagraph 115 (1) (a) (iv) and subparagraphs 115 (1) (b) (vi), (vii) or (viii) of the Income Tax Act (Canada) and the principal office from which its business is conducted is situated in Ontario.  R.R.O. 1990, Reg. 183, s. 504.

Eligible Canadian Profits

505. (1) For the purpose of subsection 43 (3) of the Act, the “eligible Canadian profits” of a corporation for a taxation year are the aggregate of,

(a) its manufacturing and processing income for the year;

(b) its mining income for the year, to the extent that such amount is not included by virtue of clause (a); and

(c) its active business incomes for the year from farming, fishing and logging, to the extent that such amounts are not included by virtue of clause (a) or (b).

(2) For the purpose of subsection (1), where a corporation has active business income from sources other than sources referred to in subsection (1) and active business income from the sources referred to in subsection (1), all of its active business income for a taxation year qualifies as eligible Canadian profits if,

(a) the active business income from sources other than the sources referred to in subsection (1) does not exceed 20 per cent of its total active business income for the taxation year; and

(b) its total active business income for the taxation year does not exceed $250,000.  R.R.O. 1990, Reg. 183, s. 505 (1, 2).

(3) In this section,

“farming” has the meaning given to that expression by section 1 of the Act, and the corporation’s active business income for the year from farming shall be determined in accordance with sections 5200 and 5202 of the regulations made under the Income Tax Act (Canada) applied as if the references therein to “manufacturing and processing” were references to “farming”, except that in computing the cost of capital of the corporation the cost of land owned by it or the annual rental cost incurred by the corporation for land leased by it and used by it in its farming business shall be included;

“fishing” has the meaning given to that expression by section 248 of the Income Tax Act (Canada) as made applicable by section 1 of the Act, and the corporation’s active business income from fishing shall be determined in accordance with sections 5200 and 5202 of the regulations made under the Income Tax Act (Canada) applied as if the references therein to “manufacturing and processing” were references to “fishing”;

“logging” includes the sale of standing timber, the sale of the right to cut standing timber, the sale of logs, the delivery of logs to a sawmill, pulp or paper plant or other place for processing or manufacturing, the delivery of logs to a carrier for export, the export of logs, the acquisition of standing timber, the cutting of logs from standing timber, or any combination of such operations, and the corporation’s active business income from logging shall be determined in accordance with sections 5200 and 5202 of the regulations made under the Income Tax Act (Canada) applied as if the references therein to “manufacturing and processing” were references to “logging”;

“manufacturing and processing income” means, in respect of a corporation, the portion of the corporation’s income for the year, determined in accordance with the Act, that would qualify as “Canadian manufacturing and processing profits” for the purposes of section 125.1 of the Income Tax Act (Canada);

“mining income”, of a corporation, means the aggregate of,

(a) the amount by which its mining profits exceeds the amount, if any, deducted for the year under clause 103 (1) (b) or section 108, and

(b) its active business income (other than income included by virtue of clause (a)) from the production of minerals from a mine that is an industrial mineral mine for the purpose of paragraph 1100 (1) (g) of the regulations made under the Income Tax Act (Canada), and such active business shall be determined in accordance with sections 5200 and 5202 of the regulations made under the Income Tax Act (Canada) applied as if the references therein to “manufacturing and processing” were references to “industrial mineral mine”;

“mining profits” means, in respect of a corporation for a taxation year, the amount, if any, by which the aggregate of,

(a) the total of the corporation’s income for the taxation year from,

(i) the production and processing in Canada of,

(A) ore, other than iron ore or tar sands ore, from a mineral resource in Canada operated by it to any stage that is not beyond the prime metal stage or its equivalent, and

(B) iron ore from a mineral resource in Canada operated by the corporation to any stage that is not beyond the pellet stage or its equivalent, and

(ii) the processing in Canada of,

(A) ore, other than iron ore or tar sands ore, from a mineral resource in Canada not operated by the corporation to any stage that is not beyond the prime metal stage or its equivalent, and

(B) iron ore from a mineral resource in Canada not operated by the corporation to any stage that is not beyond the pellet stage or its equivalent, and

(C), (D) Revoked:  O. Reg. 355/98, s. 22 (1).

Note:  Despite their revocation by O. Reg. 355/98, s. 22 (1), sub-subclauses (a) (ii) (C) and (D) continue to apply to corporations for taxation years ending before January 1, 1990.  See:  O. Reg. 355/98, s. 22 (2).

(b) if the corporation owns all the issued and outstanding shares of the capital stock of a railway company throughout the year, the amount that may reasonably be considered to be the railway company’s income for its taxation year ending in the year from the transportation of the portion of the corporation’s ore that is described in subclause (a) (i),

exceeds the aggregate of its losses for the year from the sources described in clause (a), where the corporation’s incomes and losses are computed in accordance with the Act on the assumption that the corporation had during the year no income or loss except from those sources and was allowed no deductions in computing its income for the year other than,

(c) amounts deducted or deductible under section 18, 19 or 21 of the Act or subsection 17 (2) or (6) or section 29 of The Corporations Tax Application Rules, 1972 for the year to the extent they have not been taken into account in computing the corporation’s gross resource profits from oil or gas operations for the year under subsection 101 (1.1), and

(d) any other deductions for the year that may reasonably be regarded as applicable to the sources of income described in clause (a), other than a deduction permitted under section 103 or 108.  R.R.O. 1990, Reg. 183, s. 505 (3); O. Reg. 355/98, ss. 21, 22; O. Reg. 60/06, s. 7.

Instalment Base

506. (0.1) This section applies only in respect of taxation years commencing before January 1, 2006.  O. Reg. 624/05, s. 1.

(1) For the purpose of subsection 78 (8) of the Act,

“first instalment base”, of a corporation for a particular taxation year, means the product obtained when the tax payable by the corporation under the Act for its taxation year immediately preceding that particular taxation year is multiplied by the ratio that 365 is of the number of days in that preceding taxation year.  R.R.O. 1990, Reg. 183, s. 506 (1).

(2) For the purpose of subsection 78 (8) of the Act,

“second instalment base”, of a corporation for a particular taxation year, means the first instalment base of the corporation for the taxation year immediately preceding the particular year.  R.R.O. 1990, Reg. 183, s. 506 (2).

(3) Despite subsections (1) and (2), for the purpose of subsection 78 (8) of the Act, where a particular taxation year of a new corporation that was formed as a result of an amalgamation (within the meaning of section 87 of the Income Tax Act (Canada) as made applicable by section 29 of the Act) is its first taxation year,

(a) its “first instalment base” for the particular taxation year means the aggregate of all amounts, each of which is the product obtained when the tax payable under the Act by a predecessor corporation (within the meaning assigned by section 87 of the Income Tax Act (Canada) as made applicable by section 29 of the Act) for its last taxation year is multiplied by the ratio that 365 is of the number of days in that year; and

(b) its “second instalment base” for the particular year means the aggregate of all amounts each of which is the first instalment base of a predecessor corporation for its last taxation year.  R.R.O. 1990, Reg. 183, s. 506 (3).

(4) For the purposes of this section, the tax payable by a corporation under the Act for a taxation year shall be considered to be the amount of tax that would be determined under the Act if the corporation were not entitled under subsection 111 (1) of the Income Tax Act (Canada), as made applicable by section 34 of the Act, to deduct an amount in determining its taxable income for that year in respect of a loss for a taxation year that is after that year.  O. Reg. 306/97, s. 4.

507. (1) For the purposes of subsection 78 (8) of the Act,

“first instalment base” means, in respect of a corporation for a particular taxation year commencing after December 31, 2005, the amount determined under this section;

“second instalment base” means, in respect of a corporation for a particular taxation year commencing after December 31, 2005, the amount determined under this section.  O. Reg. 624/05, s. 2.

(2) For the purposes of the definition of “first instalment base” in subsection (1) and except as otherwise provided in this section, the amount of a corporation’s first instalment base for a taxation year is the product obtained when the amount of tax payable by the corporation under the Act for its immediately preceding taxation year is multiplied by the ratio of 365 to the number of days in its immediately preceding taxation year.  O. Reg. 624/05, s. 2.

(3) For the purposes of the definition of “second instalment base” in subsection (1) and except as otherwise provided in this section, the amount of a corporation’s second instalment base for a taxation year is the amount of its first instalment base for its immediately preceding taxation year.  O. Reg. 624/05, s. 2.

(4) If the number of days in the taxation year immediately preceding the particular taxation year of a corporation is less than 183, the amount of the corporation’s first instalment base for the particular taxation year is the greater of,

(a) the amount that would be its first instalment base as otherwise determined under this section; and

(b) the amount determined by multiplying the amount of tax payable by the corporation under the Act for its last prior taxation year that had more than 182 days by the ratio of 365 to the number of days in that prior taxation year.  O. Reg. 624/05, s. 2.

(5) If the corporation is a new corporation formed as a result of an amalgamation within the meaning of section 87 of the Income Tax Act (Canada),

(a) the amount of its first instalment base for its first taxation year is the sum of all amounts, each of which is the product of the tax payable under the Act by a predecessor corporation, within the meaning of section 87 of the Income Tax Act (Canada), for the predecessor corporation’s last taxation year multiplied by the ratio of 365 to the number of days in the predecessor corporation’s last taxation year;

(b) the amount of its second instalment base for its first taxation year is the sum of all amounts each of which is the first instalment base of a predecessor corporation for its last taxation year;

(c) the amount of its first instalment base for its second taxation year is,

(i) the amount that would be determined under this section, without regard to this subsection, to be its first instalment base for that taxation year if the number of days in its first taxation year exceeds 182, or

(ii) the amount that would be determined under this section, without regard to this subsection, to be its first instalment base for the taxation year or the amount of its first instalment base for its first taxation year as determined under clause (a), whichever is greater, if the number of days in its first taxation year is less than 183; and

(d) the amount of its second instalment base for its second taxation year is the amount of its first instalment base for its first taxation year as determined under clause (a).  O. Reg. 624/05, s. 2.

(6) Despite clause (5) (a), if there are fewer than 183 days in the last taxation year of a predecessor corporation, the amount included under that clause in respect of the predecessor corporation in determining the amount of the new corporation’s first instalment base for its first taxation year shall be the greater of,

(a) the amount that would otherwise be determined in respect of the predecessor corporation for the purposes of clause (5) (a); and

(b) the amount of the predecessor corporation’s first instalment base for its last taxation year.  O. Reg. 624/05, s. 2.

(7) Subject to subsection (8), the following rules apply if a subsidiary, within the meaning of subsection 88 (1) of the Income Tax Act (Canada), is winding up and, at a particular time in the course of the winding up, all or substantially all of the property of the subsidiary has been distributed to the corporation that is its parent, within the meaning of that subsection:

1. The amount of the parent’s first instalment base, as otherwise determined under this section, for its taxation year that includes the particular time shall be increased by the amount of the subsidiary’s first instalment base for its taxation year that includes the particular time.

2. The amount of the parent’s second instalment base, as otherwise determined under this section, for its taxation year that includes the particular time shall be increased by the amount of the subsidiary’s second instalment base for its taxation year that includes the particular time.

3. The amount of the parent’s first instalment base, as otherwise determined under this section, for its first taxation year after the taxation year that includes the particular time shall be increased by the amount determined by multiplying the subsidiary’s first instalment base for its taxation year that includes the particular time by the number of complete months in the parent’s taxation year that includes the particular time that ended at or before the particular time and dividing the product by 12;

4. The amount of the parent’s second instalment base, as otherwise determined under this section, for its first taxation year after the taxation year that includes the particular time shall be increased by the amount of the subsidiary’s first instalment base for its taxation year that includes the particular time.  O. Reg. 624/05, s. 2.

(8) Subsection (7) does not apply at any time before the particular time referred to in that subsection in determining the amount of the parent’s first instalment base or second instalment base for the purposes of section 78 of the Act.  O. Reg. 624/05, s. 2.

(9) Subject to subsection (10), the following rules apply if, at a particular time, a corporation, referred to in this subsection as the “transferor”, has disposed of all or substantially all of its property to another corporation, referred to in this subsection as the “transferee”, with whom the transferor was not dealing at arm’s length and subsection 85 (1) or (2) of the Income Tax Act (Canada) applies in respect of the disposition of any of the property:

1. The amount of the transferee’s first instalment base, as otherwise determined under this section, for its taxation year that includes the particular time shall be increased by the amount of the transferor’s first instalment base for its taxation year that includes the particular time.

2. The amount of the transferee’s second instalment base, as otherwise determined under this section, for its taxation year that includes the particular time shall be increased by the amount of the transferor’s second instalment base for its taxation year that includes the particular time.

3. The amount of the transferee’s first instalment base, as otherwise determined under this section, for its first taxation year after the taxation year that includes the particular time shall be increased by the amount determined by multiplying the transferor’s first instalment base for its taxation year that includes the particular time by the number of complete months in the taxation year of the transferee that includes the particular time that ended at or before the particular time and dividing the product by 12.

4. The amount of the transferee’s second instalment base, as otherwise determined under this section, for its first taxation year after the taxation year that includes the particular time shall be increased by the amount of the transferor’s first instalment base for its taxation year that includes the particular time.  O. Reg. 624/05, s. 2.

(10) Subsection (9) does not apply at any time before the particular time referred to in that subsection in determining the amount of the transferee’s first instalment base or second instalment base for the purposes of section 78 of the Act.  O. Reg. 624/05, s. 2.

(11) The following rules apply if a particular taxation year of a corporation is the first or second taxation year in which section 83.1 of the Act applies to the corporation:

1. The amount of the corporation’s first instalment base, as otherwise determined under this section, for the first taxation year in which section 83.1 of the Act applies to it shall be increased by the sum of all amounts, if any, each of which is the product of an amount payable to the Financial Corporation under subsection 90 (1) or 93 (2) of the Electricity Act, 1998 by the corporation or by a predecessor corporation, within the meaning of section 83.1 of the Act, for the immediately preceding taxation year multiplied by the ratio of 365 to the number of days in the immediately preceding taxation year.

2. The amount of the corporation’s second instalment base, as otherwise determined under this section, for the first taxation year in which section 83.1 of the Act applies to it shall be increased by the amount, if any, by which the corporation’s first instalment base for its immediately preceding taxation year would have been increased under paragraph 1 if its immediately preceding taxation year had been the first taxation year in which section 83.1 of the Act applied to the corporation;

3. The amount of the corporation’s second instalment base, as otherwise determined under this section, for the taxation year immediately after the first taxation year in which section 83.1 of the Act applies to it is the amount of the corporation’s first instalment base for the first taxation year in which section 83.1 of the Act applies to it.

4. If the taxation year of the corporation or of a predecessor corporation that immediately precedes the first taxation year of the corporation in which section 83.1 of the Act applies to the corporation is less than 183 days, the corporation’s first instalment base for its first taxation year in which section 83.1 of the Act applies shall be increased by the greater of,

i. the amount by which its first instalment base would otherwise be increased under paragraph 1 for that taxation year, and

ii. the amount that would be determined under paragraph 1 if the reference to the immediately preceding taxation year were read as a reference to the last prior taxation year of the corporation or predecessor corporation that had more than 182 days.  O. Reg. 624/05, s. 2.

(12) In this section, a reference to the amount of tax payable under the Act by a corporation for a taxation year is a reference to the amount of tax that would have been payable under the Act if no amount in respect of any loss for a later taxation year were deductible in determining the corporation’s taxable income for the taxation year.  O. Reg. 624/05, s. 2.

Part VI (ss. 601-604) Revoked:  O. Reg. 485/00, s. 1.

PART VII
CAPITAL TAX

701. (1) The following amounts are prescribed as amounts that are not included in the paid-up capital of a corporation for a taxation year for the purposes of clause 61 (1) (d) of the Act, if the taxation year ends after May 19, 1993 and before May 19, 2004, or for the purposes of clause 61 (1) (e) of the Act, if the taxation year ends after May 18, 2004:

1. Interest owing by the corporation that has accrued for a period of 365 days or less but is not payable at the end of the taxation year, other than interest payable on a loan that has been capitalized and included by the corporation in the principal amount of the loan under the terms of the loan agreement.

2. Interest that is due and payable by the corporation to a related person that has been due and payable for less than 120 days at the end of the taxation year.

3. Interest that is due and payable by the corporation to a person who is not related to the corporation that has been due and payable for less than 365 days at the end of the taxation year.

4. An amount of indebtedness of the corporation in respect of a lease that would not be required to be included in the capital of the corporation under subsection 181.2 (3) of the Income Tax Act (Canada) if the corporation were subject to tax under Part I.3 of that Act.

5. An amount that is recorded in the corporation’s books and records of account as a deferred revenue item, or as a deferred credit item, that would not be required to be included in the capital of the corporation under subsection 181.2 (3) of the Income Tax Act (Canada) if the corporation were subject to tax under Part I.3 of that Act.

6. RevokedO. Reg. 76/99, s. 1 (1).

7. The amount of dividends declared by the corporation during the taxation year that remain unpaid and owing at the end of the year.  O. Reg. 298/98, s. 3; O. Reg. 76/99, s. 1 (1); O. Reg. 307/07, s. 2 (1).

Note: Subsection 701 (1), as amended by O. Reg. 76/99, s. 1 (1), applies in respect of taxation years ending after October 30, 1998. See: O. Reg. 76/99, s. 1 (3).

(2) Subsection (1) does not require the inclusion in a corporation’s paid-up capital for a taxation year under clause 61 (1) (d) or (e) of the Act of any amount required to be included and included in its paid-up capital under another provision of the Act.  O. Reg. 298/98, s. 3; O. Reg. 307/07, s. 2 (2).

(3) Subsection (1) does not permit the exclusion of an amount from a corporation’s paid-up capital that is otherwise required to be included in its paid-up capital or “any other surplus” for a taxation year under a provision of the Act other than clause 61 (1) (d) or (e).  O. Reg. 298/98, s. 3; O. Reg. 307/07, s. 2 (2).

(4) The amounts prescribed by subsection (1) that relate to a permanent establishment in Canada of a corporation that is liable to the taxes imposed under the Act by virtue of clause 2 (2) (a) or (b) of the Act are prescribed for the purposes of subclause 63 (1) (b) (i) of the Act in determining the amount of the corporation’s paid-up capital employed in Canada for taxation years ending after May 19, 1993 and before May 19, 2004.  O. Reg. 307/07, s. 2 (3).

702. For the purposes of Part III of the Act, a corporation’s taxation year ending on the same day as the taxation year of another corporation shall be considered to be the last taxation year of the corporation ending before the end of the other corporation’s taxation year, if the other corporation’s taxation year commences after May 6, 1997.  O. Reg. 298/98, s. 4.

703. (1) Revoked:  O. Reg. 558/99, s. 1 (1).

(2) The following corporations are prescribed as financial institutions for a taxation year for the purposes of clause 58 (2) (g) of the Act:

1. A corporation all or substantially all of whose assets consist of shares or indebtedness of one or more financial institutions that are related to the corporation in the corporation’s taxation year.

2. A corporation all or substantially all of whose assets consist of shares or indebtedness of one or more insurance corporations that are related to the corporation if,

i. each of the insurance corporations carries on business in Canada at any time in the corporation’s taxation year, and

ii. the corporation elects in its return of income for the taxation year to be a financial institution for the purposes of Part III of the Act.

3. A corporation, other than a corporation referred to in paragraph 1 or 2, all or substantially all of whose assets consist of shares or indebtedness of one or more financial institutions that are related to the corporation in the taxation year and shares or indebtedness of one or more insurance corporations that are related to the corporation in the taxation year if,

i. each of the insurance corporations carries on business in Canada at any time in the corporation’s taxation year, and

ii. the corporation elects in its return of income for the taxation year to be a financial institution for the purposes of Part III of the Act.

4. Avco Financial Services Canada Limited.

5. Avco Financial Services Realty Limited.

6. Avco Financial Services Quebec Limited.

6.1 Associates Capital Corporation of Canada,

i. for the purposes of third party investors, for taxation years ending after December 31, 2001, and

ii. for the purposes of the Corporation and related corporations, for taxation years ending after December 31, 1997.

7. Associates Financial Services of Canada Ltd., for taxation years ending after March 1, 1998 and before May 1, 2001.

8. Associates Mortgage Corporation, for taxation years ending after March 1, 1998 and before May 1, 2001.

8.1 Citibank Canada Investment Funds Limited,

i. for the purposes of third party investors, for taxation years ending after December 31, 2000, and

ii. for the purposes of the Corporation and related corporations, for taxation years ending after December 31, 1999.

8.2 CitiCapital Commercial Corporation, for taxation years ending after December 31, 1999.

8.3 CitiFinancial Canada, Inc., for taxation years ending after May 31, 1999.

8.4 CitiFinancial Services of Canada Ltd., for taxation years ending after April 30, 2001.

8.5 CitiFinancial Mortgage Corporation, for taxation years ending after April 30, 2001.

8.6 Commercial Credit Corporation CCC Limited, for taxation years ending after December 31, 1997 and before June 1, 1999.

9. GE Capital Canada Limited, for taxation years ending before August 2, 2000.

10. GE Capital Canada Retailer Financial Services Company, for taxation years ending before August 2, 2000.

10.1 GE Card Services Canada Inc., for taxation years ending after August 1, 2000.

11. John Deere Credit Inc.

12. Trans Canada Credit Corporation.

12.1 Trans Canada Retail Services Company, for taxation years ending after January 14, 2002.

12.2 National Retail Credit Services Company, for taxation years ending after December 31, 1998 and before January 15, 2002.

12.3 Northwest Financial Canada Company, for taxation years ending after December 31, 1998 and before September 7, 2001.

13. Norwest Financial Capital Canada, Inc., for taxation years ending after May 7, 1997 and before January 1, 1999.

14. Norwest Financial Canada, Inc., for taxation years ending after May 7, 1997 and before January 1, 1999.

15. Household Financial Corporation Limited.

16. Household Finance Corporation of Canada.

17. Household Realty Corporation Limited.

18. Household Commercial Canada Inc.

19. Merchant Retail Services Limited.

20. Revoked:  O. Reg. 232/03, s. 2 (4).

21. General Motors Acceptance Corporation of Canada, Limited.

22. Superior Acceptance Corporation Limited.  This applies for taxation years ending before January 1, 1999.

23. Superior Credit Corporation Limited.  This applies for taxation years ending before January 1, 1999.

24. Ford Credit Canada Limited, for a taxation year ending after December 31, 1999.

25., 26. Revoked:  O. Reg. 232/03, s. 2 (4).

27. PACCAR Financial Limited, for taxation years ending on or after December 31, 2000.

28. AmeriCredit Financial Services of Canada Limited, for taxation years ending on or after June 30, 2001.

29. State Farm Finance Corporation of Canada, for taxation years ending after December 31, 2001.

30. Wells Fargo Financial Canada Corporation, for taxation years ending after September 6, 2001.

30.1 VFC Inc., for taxation years ending after April 19, 2006.

30.2 Accredited Home Lenders Canada Inc., for taxation years ending after December 31, 2005.

31. Every corporation that is a financial institution for the purposes of Part I.3 of the Income Tax Act (Canada) by virtue of paragraph (g) of the definition of “financial institution” in subsection 181 (1) of that Act, other than,

i. a corporation described in paragraph 1 to 30,

ii. a corporation that has notified the Minister in writing that the corporation does not wish to be prescribed for the purposes of Part III of the Corporations Tax Act, or

iii. a corporation that is a financial institution for the purposes of Part I.3 of the Income Tax Act (Canada), as of a date before December 21, 2002.  O. Reg. 76/99, s. 2; O. Reg. 558/99, s. 1 (2); O. Reg. 194/00, s. 1; O. Reg. 499/00, s. 1; O. Reg. 160/01, s. 1; O. Reg. 232/03, s. 2; O. Reg. 307/07, s. 3.

(3) Despite subsection (2), a corporation prescribed as a financial institution under subsection (2) as of a date before July 1, 1999 shall not be considered to be a financial institution until its first taxation year ending after June 30, 1999 for the purposes of determining the amount of a deduction under clause 62 (1) (c) of the Act by another corporation that is not related to the financial institution.  O. Reg. 76/99, s. 2.

(4) For the purposes of paragraphs 2 and 3 of subsection (2), a corporation is deemed to elect in its return of income for a taxation year to be a financial institution for the purposes of Part III of the Act if the corporation calculates its tax under Part III of the Act for the year on the basis that it is a financial institution.  O. Reg. 76/99, s. 2.

(5) Despite subsection (4), a corporation is not deemed to make the election referred to in that subsection for a taxation year ending before February 25, 1999 if,

(a) the corporation delivers an amended return for the taxation year before the end of the normal assessment period in respect of the taxation year; and

(b) the corporation determines the amount of its tax under Part III of the Act in the amended return on the basis that the corporation is not a financial institution for the year for the purposes of that Part.  O. Reg. 76/99, s. 2.

704. For purposes of subsection 62.1 (8) of the Act, the percentage of a financial institution’s taxable paid-up capital that is not deemed to be used by it in a taxation year in a jurisdiction other than Canada shall be determined under sections 319 to 322 and, in the application of those sections, the references to “Ontario” shall be read as “Canada.”  O. Reg. 298/98, s. 4.

PART VIII
PRESCRIBED TAX CONVENTIONS

801. For the purposes of subsection 37 (3) of the Act, the following Tax Treaties or Conventions are prescribed:

1. Canada-United States Income Tax Convention, 1980.  R.R.O. 1990, Reg. 183, s. 801.

802. In the application of section 40 of the Act and subsection 20 (12) of the Income Tax Act (Canada), as made applicable by section 11 of the Act, the income or profits tax paid by a corporation to a jurisdiction outside Canada for a taxation year, referred to in section 40 of the Act, and the non-business income tax for the year paid by a corporation to the government of a country other than Canada, referred to in subsection 20 (12) of the Income Tax Act (Canada), shall include an amount of tax that would have been payable by the corporation to that jurisdiction or government but for an exemption from, or reduction of, tax granted for that taxation year if the amount is deemed under one of the following income tax agreements or conventions to have been tax payable or paid for the taxation year by the corporation to that jurisdiction or government:

1. Canada-Bangladesh Income Tax Convention (1982).

2. Canada-Barbados Income Tax Agreement (1980).

3. Canada-Cameroon Income Tax Convention (1982).

4. Canada-Cyprus Income Tax Convention (1984).

5. Canada-Dominican Republic Income Tax Convention (1976).

6. Canada-Egypt Income Tax Convention (1983).

7. Canada-Guyana Income Tax Convention (1985).

8. Canada-India Income Tax Agreement (1985).

9. Canada-Indonesia Income Tax Convention (1979).

10. Canada-Israel Income Tax Convention (1975).

11. Canada-Jamaica Income Tax Agreement (1978).

12. Canada-Korea Income Tax Convention (1978).

13. Canada-Malaysia Income Tax Agreement (1976).

14. Canada-Malta Income Tax Agreement (1986).

15. Canada-Morocco Income Tax Convention (1975).

16. Canada-Pakistan Income Tax Convention (1976).

17. Canada-Romania Income Tax Convention (1978).

18. Canada-Singapore Income Tax Convention (1976).

19. Canada-Spain Income Tax Convention (1976).

20. Canada-Thailand Income Tax Convention (1984).

21. Canada-Tunisia Income Tax Convention (1982).

22. Canada-Zambia Income Tax Convention (1984).  O. Reg. 453/92, s. 11.

PART IX
REFUNDABLE TAX CREDITS

901. (1) For the purposes of section 43.6 of the Act, a prescribed program of study is an educational program or course of study that meets the requirements of subsection (2) or an apprentice training program that meets the requirements of subsection (3).  O. Reg. 298/98, s. 5.

(2) An educational program or course of study meets the requirements of this subsection if,

(a) the program or course of study qualifies the student to receive a post-secondary degree, diploma or certificate, other than a certificate of completion issued for individual courses, studies in continuing education or personal interest or leisure activity courses; and

(b) the program or course of study is provided by,

(i) a university or college of applied arts and technology in Ontario, whose enrollment is counted for the purposes of calculating annual operating grants entitlements from the Government of Ontario,

(ii) the Michener Institute of Applied Health Sciences,

(iii) the Ontario College of Art and Design, or

(iv) a vocational school registered under the Private Vocational Schools Act.  O. Reg. 298/98, s. 5.

(3) An apprentice training program meets the requirements of this subsection if it is approved by the Director of Apprenticeship under the Apprenticeship and Certification Act, 1998 or the Trades Qualification and Apprenticeship Act.  O. Reg. 298/98, s. 5; O. Reg. 266/00, s. 1 (1).

(4) For the purposes of subsection 43.6 (10), an employee is considered to have completed all requirements to qualify for graduation from an apprentice training program when he or she receives the appropriate certificate under the Apprenticeship and Certification Act, 1998 or the Trades Qualification and Apprenticeship Act.  O. Reg. 298/98, s. 5; O. Reg. 266/00, s. 1 (2).

(5) The amount of salaries and wages deemed to have been paid by a corporation in a previous taxation year for the purposes of subsection 43.6 (4) of the Act is the amount that would otherwise be determined for that year on the basis that,

(a) the rules set out in subsection 87 (1.2) of the Income Tax Act (Canada) and subsection 87 (1.4) of that Act applied; and

(b) no amount is included in respect of salaries and wages paid by any partnership of which the corporation was a member.  O. Reg. 298/98, s. 5.

(6) For the purposes of subclause 43.6 (10) (b) (ii) of the Act, an employee is considered to be employed by a person more than 15 hours in a week if,

(a) the employee is a student enrolled in a prescribed program of study and would be considered by the educational institution offering the program to be a full-time student of the institution during a period that includes the week; or

(b) the employee accepted an offer of employment before or during the week and the terms of the offer require the employee to start work during or after the end of the week and to work an average of more than 24 hours a week, irrespective of whether the employee works for the person who makes the offer of employment.  O. Reg. 298/98, s. 5.

902. For the purposes of paragraph 6 of subsection 43.7 (12) of the Act, a literary work is an ineligible publication if it is one of the following:

1. A publication that is a translation of a previously published literary work.

2. A publication that is a calendar, agenda, almanac, colouring book or comic.

3. A publication that is an instructional book or other printed material that forms part of a children’s product which is primarily a toy or play kit.

4. A publication that is a university or college dissertation, a conference paper or report, a government report or a catalogue of exhibitions. 

5. A publication that is an instruction book or manual (such as a computer manual, guidebook, arts and crafts book, recipe book or musical performance method book).

6. A publication containing primarily maps.

7. A publication that is used primarily as learning material (such as a workbook, kit, activity manual or educational game).

8. A publication that is primarily a reference book (such as a directory, index compilation, compilation of statutes, rule book or bibliography).

9. A publication that is primarily musical notation.

10. A publication that is a combination of any of the publications described in paragraphs 1 to 9. 

11. A publication the identity of whose author or authors is unknown to the publisher of the publication.

12. A publication whose pages are typewritten, individually photocopied, mimeographed or handwritten.

13. Revoked:  O. Reg. 160/01, s. 2.

14. A publication in respect of which the publisher is not eligible to claim a tax credit by reason of subsection 43.7 (13) of the Act.  O. Reg. 298/98, s. 5; O. Reg. 160/01, s. 2.

903. Despite subsection 43.7 (12) of the Act and section 902, a publication that would otherwise be an eligible publication for the purposes of section 43.7 of the Act is an ineligible publication for the purposes of paragraph 6 of subsection 43.7 (12) of the Act if,

(a) the publication is capable of inciting hatred against an identifiable group, including a section of the public distinguished by colour, race, religion, sex, sexual orientation or ethnic origin;

(b) the dominant characteristic of the publication is the undue exploitation of sex or of sex and one or more of crime, horror, cruelty or violence; or

(c) public financial support for the publication would be contrary to public policy.  O. Reg. 298/98, s. 5.

904. (1) A film or television production is an eligible production for the purposes of section 43.10 of the Act for a taxation year if the following conditions are satisfied:

1. The principal photography for the production commences before the end of the taxation year.

2. If the production is a television series production or is a pilot episode for a television series production, the total expenditures included in the cost of each episode or, if the production is a depreciable property, in the capital cost of each episode, during the 24 months after principal photography for the production commences, exceed,

i. $100,000 if the episode has a running time that is less than 30 minutes, or

ii. $200,000 in any other case.

3. If the production is not the type of production referred to in paragraph 2, the total expenditures included in the cost of the production or, if the production is a depreciable property, in the capital cost of the production, during the 24 months after principal photography for the production commences, exceed $1 million.

4. The production is not,

i. news, current events or public affairs programming, or a programme that includes weather or market reports,

ii. a talk show,

iii. a production in respect of a game, questionnaire or contest,

iv. a sports event or activity,

v. a gala presentation or awards show,

vi. a production that solicits funds,

vii. reality television,

viii. pornography,

ix. advertising,

x. a production produced primarily for industrial, corporate or institutional purposes, or

xi. a production for which public financial support would be contrary to public policy.  O. Reg. 76/99, s. 3; O. Reg. 558/99, s. 2 (1).

(2) A corporation is a qualifying corporation in respect of an eligible production for the purposes of section 43.10 of the Act for a taxation year if the corporation would be an “eligible production corporation” throughout the taxation year, within the meaning of the definition of that term in subsection 125.5 (1) of the Federal Act if that definition were read with the following changes:

1. The references to “accredited production” and “in Canada” shall be read as “eligible production” and “in Ontario”, respectively.

2. The reference to “(as defined by regulation)” shall be struck out.

3. The reference to “eligible production corporation” in paragraph (b) of the definition shall be read as “qualifying corporation”.

(3) A qualifying corporation’s qualifying Ontario labour expenditure for a taxation year in respect of an eligible production for the purposes of section 43.10 of the Act is the amount, if any, by which “A” exceeds “B”,

where,

“A” is the total of all amounts each of which is the corporation’s Ontario labour expenditure for the year or a preceding taxation year, and

“B” is the total of the amounts that would be determined for the taxation year under paragraphs (b), (c) and (d) of the definition of “qualified Canadian labour expenditure” in subsection 125.5 (1) of the Federal Act, if that definition were read with the changes required by subsection (4).

(4) Paragraphs (b), (c) and (d) of the definition of “qualified Canadian labour expenditure” in subsection 125.5 (1) of the Federal Act shall be read with the following changes for the purposes of subsection (3):

1. Each reference to “accredited production” shall be read as “eligible production”.

2. The reference in paragraph (b) to “the total determined under paragraph (a)” shall be read as a reference to the total of all amounts each of which is the corporation’s Ontario labour expenditure in respect of the production for the year or a preceding taxation year.

3. The amount of assistance referred to in paragraph (b) shall be deemed to be the amount determined in subsection (5).

4. The reference in paragraph (c) to “qualified Canadian labour expenditure” shall be read as “qualifying Ontario labour expenditure”.

5. The reference to “principal filming or taping” in paragraph (c) shall be read as “principal photography”.

(5) For the purposes of paragraph 3 of subsection (4), the amount of assistance referred to in paragraph (b) of the definition of “qualified Canadian labour expenditure” in subsection 125.5 (1) of the Federal Act shall be deemed to be the amount by which “A” exceeds “B”,

where,

“A” is the amount otherwise determined in respect of the production under the definition of “assistance” in subsection 125.5 (1) of the Federal Act, and

“B” is the amount, if any, that is deemed to be,

(a) paid under subsection 125.4 (3) of the Federal Act in respect of the production, or

(b) received under subsection 44.1 (5) of the Act in respect of the production, if that subsection were read without reference to sections 43.4 and 43.6 of the Act.

(6) For the purposes of subsection (3), a qualifying corporation’s Ontario labour expenditure for a taxation year in respect of an eligible production is the amount that would be determined in respect of the production for the taxation year under the definition of “Canadian labour expenditure” in subsection 125.5 (1) of the Federal Act, if paragraph 125.5 (2) (b) did not apply and if that definition were read as follows:

1. Each reference to “accredited production” shall be read as “eligible production”.

2. The reference to “eligible production corporation” shall be read as “qualifying corporation”.

3. The reference to “subject to subsection (2)” shall be read as “subject to subsection (2), other than paragraph (2) (b)”.

4. Each reference to “services rendered in Canada” shall be read as “services rendered in Ontario”.

5. The reference in paragraph (a) to “who were resident in Canada” shall be read as “who were Ontario-based individuals”.

6. The reference in paragraph (b) to “in Canada through a permanent establishment (as defined by regulation)” shall be read as “in Ontario through a permanent establishment”.

7. The reference in subparagraph (b) (i) to “an individual resident in Canada” shall be read as “an Ontario-based individual”.

8. The reference in clause (b) (i) (A) to “in Canada” shall be read as “in Ontario”.

9. The references in clause (b) (i) (B) and subparagraph (b) (ii) to “resident in Canada” and “services in Canada” shall be read as “Ontario-based individuals” and “services in Ontario”, respectively.

10. The references in subparagraph (b) (iii) to “individual who was resident in Canada” and “personally in Canada” shall be read as “Ontario-based individual” and “personally in Ontario”, respectively.

11. The reference in clause (b) (iv) (A) to “individual who is resident in Canada” shall be read as “Ontario-based individual”.

12. The references in clause (b) (iv) (B) to “resident in Canada” and “services in Canada” shall be read as “Ontario-based individuals” and “services in Ontario”, respectively.

13. The reference to “Canadian labour expenditure” in paragraph (c) shall be read as “Ontario labour expenditure”.

14. If the qualifying corporation files an agreement referred to in subparagraph (c) (ii) with the Minister of National Revenue for the purposes of section 125.5 of the Federal Act, or has agreed that paragraph (c) of the definition of “labour expenditure” in subsection 125.4 (1) of the Federal Act applies in respect of the production, the agreement required to be filed with the Minister under subparagraph (c) (ii) as it applies for the purposes of this section shall be a copy of the agreement filed under section 125.5 of the Federal Act or a copy of the agreement under section 125.4 of the Federal Act.  O. Reg. 76/99, s. 3.

(7) For the purposes of this section,

“Federal Act” means the Income Tax Act (Canada);

“Ontario-based individual” means, in relation to an eligible production, an individual who was subject to tax under section 2 of the Income Tax Act for the year preceding the year in which principal photography for the production commences, by reason that the individual was resident in Ontario on the last day of that year;

“principal photography” includes key animation if the film or television production is an animated production or contains animated segments; 

“television series production” means one or more episodes of a cycle of a television series that are specified to be a production for the purposes of section 43.10 of the Act in the application for certification that the production is an eligible Ontario production for the purposes of that section.  O. Reg. 76/99, s. 3; O. Reg. 558/99, s. 2 (2).

905. (1) For the purposes of this section,

“Canadian-controlled corporation” means a corporation that is determined to be Canadian-controlled under sections 26 to 28 of the Investment Canada Act (Canada) for the purposes of that Act, and, in the application of those sections for the purposes of this definition, a reference to the Minister shall be read as a reference to the Minister of Finance;

“Canadian group” means a group of musicians, vocalists or both, at least 75 per cent of whom are qualified Canadians;

“government assistance” means assistance from a government or municipality or other public authority in any form, including a grant, subsidy, forgivable loan, deduction from tax and investment allowance, but not including an Ontario sound recording tax credit under section 43.12 of the Act;

“master recording” means, in respect of a sound recording, the initial sound recording that is created and fully completed and from which all copies of the sound recording are made;

“qualified Canadian” means an individual who is ordinarily resident in Canada and who is either a Canadian citizen as defined in the Citizenship Act (Canada) or a permanent resident within the meaning of the Immigration Act (Canada);

“sound recording” means a recording of music, with or without lyrics, that is produced by analogue, digital or similar technology and that is,

(a) on a vinyl record, compact disc, digital versatile disc or audio tape, if the recording is made before May 12, 2005, or

(b) on a vinyl record, compact disc, digital versatile disc, audio tape or any other fixed medium from which a recording is capable of being played, if the recording is made after May 11, 2005.  O. Reg. 419/99, s. 1; O. Reg. 58/06, s. 1 (1, 2).

(2) For the purposes of subsection 43.12 (3) of the Act, the amount of the variable “B” for a taxation year in respect of an eligible Canadian sound recording is calculated by adding one dollar to the amount of “A” for the taxation year in respect of the recording. O. Reg. 419/99, s. 1.

(3) A corporation is an “eligible sound recording company” within the meaning of subsection 43.12 (12) of the Act for a taxation year in respect of an eligible Canadian sound recording if the following conditions are met:

1. The corporation carries on a sound recording business, primarily.  A sound recording business is a business in which the principal activities are managing artists, publishing music, producing sound recordings, marketing and distributing sound recordings or a combination of those activities, carried out under contract with musicians, vocalists or copyright holders.

2. The corporation has carried on its sound recording business,

i. throughout the period of 24 months that ends immediately before the beginning of the taxation year, if the taxation year ends before May 12, 2005, or

ii. throughout the period of 12 months that ends immediately before the beginning of the taxation year, if the taxation year ends after May 11, 2005.

3. The corporation carries on the sound recording business primarily in Ontario at a permanent establishment in Ontario.

4. For a taxation year that commences before May 2, 2000, less than 50 per cent of the corporation’s taxable income for either the taxation year or the preceding taxation year is earned for the purposes of Part II of the Act in a jurisdiction other than Ontario.

4.1 For a taxation year that commences after May 1, 2000, less than 50 per cent of the corporation’s taxable income for the preceding taxation year is earned for the purposes of Part II of the Act in a jurisdiction other than Ontario.

5. The corporation is a Canadian-controlled corporation.

6. Revoked:  O. Reg. 499/00, s. 2 (3).

7. The corporation bears the financial risks associated with its sound recording business or is related to a Canadian-controlled corporation that bears the financial risks.

8. Within 12 months before the start of the first taxation year for which the corporation claims a tax credit under section 43.12 of the Act in respect of the recording, the corporation has implemented a plan for the distribution of at least one sound recording.  The plan is considered by a person designated by the Minister of Citizenship, Culture and Recreation, to be appropriate for the commercial exploitation of the recording to which it relates.  O. Reg. 419/99, s. 1; O. Reg. 499/00, s. 2 (1-3); O. Reg. 58/06, s. 1 (3).

(3.1) If a corporation (the “new corporation”) has been formed as a result of an amalgamation or merger of two or more corporations (the “predecessor corporations”), the new corporation shall be deemed,

(a) to meet the condition described in paragraph 2 of subsection (3) for a taxation year,

(i) if one of the predecessor corporations has carried on its sound recording business,

(A) throughout the period of 24 months that ends immediately before the beginning of the taxation year, if the taxation year ends before May 12, 2005, or

(B) throughout the period of 12 months that ends immediately before the beginning of the taxation year, if the taxation year ends after May 11, 2005, or

(ii) if the new corporation plus one of the predecessor corporations have, in total, carried on a sound recording business,

(A) throughout the period of 24 months that ends immediately before the beginning of the taxation year, if the taxation year ends before May 12, 2005, or

(B) throughout the period of 12 months that ends immediately before the beginning of the taxation year, if the taxation year ends after May 11, 2005.

(b) to meet the condition described in paragraph 4 or 4.1, as the case may be, of subsection (3) for the first taxation year of the new corporation if the predecessor corporations would be considered together to earn less than 50 per cent of their taxable income for the preceding taxation year in a jurisdiction other than Ontario; and

(c) to meet the condition described in paragraph 8 of subsection (3) if the plan for the distribution of a sound recording is implemented within the period specified in that paragraph by at least one of the predecessor corporations.  O. Reg. 499/00, s. 2 (4); O. Reg. 58/06, s. 1 (4).

(3.2) If a subsidiary controlled corporation is wound up into a corporation (the “parent corporation”), the parent corporation shall be deemed,

(a) to meet the condition described in paragraph 2 of subsection (3) for a taxation year,

(i) if the subsidiary controlled corporation has carried on its sound recording business,

(A) throughout the period of 24 months that ends immediately before the beginning of the taxation year, if the taxation year ends before May 12, 2005, or

(B) throughout the period of 12 months that ends immediately before the beginning of the taxation year, if the taxation year ends after May 11, 2005, or

(ii) if the parent corporation and the subsidiary controlled corporation have, in total, carried on a sound recording business,

(A) throughout the period of 24 months that ends immediately before the beginning of the taxation year, if the taxation year ends before May 12, 2005, or

(B) throughout the period of 12 months that ends immediately before the beginning of the taxation year, if the taxation year ends after May 11, 2005.

(b) if the winding-up occurred in the taxation year, to meet the condition described in paragraph 4 or 4.1, as the case may be, of subsection (3) for the taxation year if the parent corporation and the subsidiary controlled corporation would be considered together to earn less than 50 per cent of their taxable income for the preceding taxation year in a jurisdiction other than Ontario; and

(c) to meet the condition described in paragraph 8 of subsection (3) if the plan for the distribution of a sound recording is implemented within the period specified in that paragraph by the subsidiary controlled corporation.  O. Reg. 499/00, s. 2 (4); O. Reg. 58/06, s. 1 (5).

(3.3) The following rules apply for the purposes of paragraphs 2, 4, 4.1 and 8 of subsection (3):

1. If a sound recording business carried on by a corporation was previously carried on by a sole proprietor or by a partnership, the sole proprietor or partnership shall be deemed to be a

 

 
corporation for the period of time that he, she or it carried on the business before its incorporation and the corporation shall be deemed to be the same corporation as, and a continuation of, the deemed corporation.

2. If all or substantially all of the assets used in a sound recording business are transferred by a corporation (the “transferor”) to another corporation (the “transferee”) and if section 85 of the Income Tax Act (Canada) applies to the transfer, the transferee shall be deemed to be the same corporation as, and a continuation of, the transferor with respect to the operation of the business.  O. Reg. 499/00, s. 2 (4).

(4) An individual or group, as the case may be, is an “emerging Canadian artist or group” within the meaning of subsection 43.12 (12) of the Act in the following circumstances:

1. An individual is an emerging Canadian artist,

i. if he or she is a musician or a vocalist,

ii. if he or she is a qualified Canadian, and

iii. if neither the individual nor any musical group in which the individual is or has been a member has had a gold sound recording (as determined by the Canadian Recording Industry Association, the Recording Industry Association of America, the International Federation of the Phonographic Industry or a successor of any of them) in the United States of America and in one of Canada, the United Kingdom, France, Germany, Asia or Latin America.

2. A group is an emerging Canadian group if at least 75 per cent of its members are emerging Canadian artists.  O. Reg. 419/99, s. 1.

(5) A sound recording is an “eligible Canadian sound recording” within the meaning of subsection 43.12 (12) of the Act if the music or the lyrics, if any, on the recording are performed by an emerging Canadian artist or group and if the following conditions are met:

1. The sound recording is not a recording described in subsection (6).

2. The recording has been produced by an eligible sound recording company.

3. The artist or group is an emerging Canadian artist or group when he, she or it entered into a contract with the eligible sound recording company for the production of the recording.

4. At least one of the following conditions is met:

i. The music was composed primarily by one or more individuals or groups that, at the time it was composed, were qualified Canadians or Canadian groups.

ii. The lyrics were written primarily by one or more individuals or groups that, at the time they were written, were qualified Canadians or Canadian groups.

iii. Substantially all the activities carried out to produce the recording were performed in Ontario.

5. The eligible sound recording company has exclusive contractual control of the master tape of the recording for at least five years after the master tape is completed.

6. The eligible sound recording company meets the applicable condition described in subsection (7) or (7.1), whichever applies, with respect to the distribution of the recording.  O. Reg. 419/99, s. 1; O. Reg. 58/06, s. 1 (6).

(6) A sound recording that meets any of the following conditions is not an eligible Canadian sound recording:

1. The recording is primarily of the spoken word or of wildlife or nature sounds.

2. The total playing time of the recording is,

i. less than 40 minutes, if the master recording in respect of the recording is completed before May 12, 2005, or

ii. less than 15 minutes, if the master recording in respect of the recording is completed after May 11, 2005.

3. The recording is produced for use as an instructional tool or for advertising or promotional purposes.

4. The recording is capable of inciting hatred against an identifiable group, including a section of the public distinguished by colour, race, religion, sex, sexual orientation or ethnic origin.

5. The dominant characteristic of any lyrics on the recording is the undue exploitation of sex or of sex and one or more of crime, horror, cruelty or violence.

6. Public financial support for the recording is contrary to public policy.  O. Reg. 419/99, s. 1; O. Reg. 58/06, s. 1 (7).

(7) For the purposes of paragraph 6 of subsection (5), an eligible sound recording company that claims a tax credit under section 43.12 of the Act in respect of a sound recording must meet the following conditions with respect to the distribution of the sound recording if the master recording for the sound recording is completed before May 12, 2005:

1. If the company is a small recording company (as described in subsection (8)) for the taxation year in which the credit is claimed, the company must have a plan for the distribution of the recording that a person designated by the Minister of Culture considers to be appropriate for the commercial exploitation of the recording.

2. If the company is not a small recording company for the first taxation year in which credit is claimed for the recording, the company must enter into an arrangement no later than three months after the end of that taxation year to market copies of the recording through a person who has an established business of distributing sound recordings on a nation-wide basis.  O. Reg. 419/99, s. 1; O. Reg. 58/06, s. 1 (8, 9).

(7.1) For the purposes of paragraph 6 of subsection (5), if the master recording for a sound recording is completed after May 11, 2005, the eligible sound recording company that claims a tax credit under section 43.12 of the Act in respect of the sound recording must have a plan for the distribution of the recording that a person designated by the Minister of Culture considers to be appropriate for the commercial exploitation of the recording.  O. Reg. 58/06, s. 1 (10).

(8) An eligible sound recording company is a small recording company for a taxation year,

(a) if the company’s gross revenue during the 12-month period before the beginning of the taxation year does not exceed $500,000; and

(b) if the company has not claimed a tax credit under section 43.12 of the Act for a previous taxation year.  O. Reg. 419/99, s. 1.

(9) Subject to subsection (10), each of the following expenditures is a “qualifying expenditure” within the meaning of subsection 43.12 (12) of the Act of an eligible sound recording company with respect to an eligible Canadian sound recording:

1. Expenditures incurred on account of property that is used primarily in Ontario and services that are provided primarily in Ontario for the production of the recording.  These expenditures include artists’ royalties and musicians’ session fees, graphics (including artwork, photography, layout and colour separations), software, digital scanning, programming and beta testing.

2. Expenditures incurred on account of property that is used primarily in Ontario and services that are provided primarily in Ontario for the production of a qualifying music video (as described in subsection (12)) for the recording.  These expenditures include rehearsal costs.

3. Expenditures incurred on account of property used primarily in Ontario and services performed primarily in Ontario for direct marketing of the recording.  These expenditures include fees for consultants and salaries and wages for employees whose primary function is public relations or marketing.  However, only the following launch costs for the recording are included:

i. Rental costs for sound and light equipment and for facilities.

ii. The amount of expenses for food, beverages and entertainment that is determined under section 67.1 of the Income Tax Act (Canada).

iii. Event planning services.

iv. The design, printing and mailing of invitations.

v. Security.

vi. Business location permits and licences.

vii. Photography.

viii. Promotional gifts and souvenirs.

4. 50 per cent of the expenditures that are not qualifying expenditures under paragraphs 2 and 3 solely because they are expenditures on account of property used outside Ontario or services provided outside Ontario.

5. Expenditures for the repayment of government assistance to the extent that the assistance reduced the amount of the tax credit for the recording that would otherwise have been available to the recording company for a prior taxation year.  O. Reg. 419/99, s. 1.

(10) The following expenditures are not qualifying expenditures in respect of an eligible Canadian sound recording:

1. An expenditure described in paragraphs 1 to 4 of subsection (9) that is incurred more than 24 months after the recording company incurs its first qualifying expenditure in respect of the recording.

2. An expenditure on account of touring costs incurred in connection with a concert or live performance.  O. Reg. 419/99, s. 1.

(11) The total of all qualifying expenditures which may be claimed by an eligible sound recording company in a taxation year is determined using the formula,

A – B

in which,

“A” is the sum of the qualifying expenditures of the company in the taxation year, and

“B” is the amount of all government assistance in respect of the qualifying expenditures described by “A” that, when the company’s return is required to be delivered under section 75 of the Act for the taxation year, the company has received, is entitled to receive or may reasonably be expected to be entitled to receive.

O. Reg. 419/99, s. 1.

(12) A music video is a qualifying music video for the purposes of subsection (9) if the following conditions are met:

1. The music video is not one that is described in subsection (13).

2. The music video is produced by an eligible sound recording company in connection with an eligible Canadian sound recording produced by the company.

3. The primary purpose for producing and distributing the music video is to promote and sell the sound recording.

4. The principal performer in the audio component of the music video is the same emerging Canadian artist or group that recorded the sound recording.

5. The director of the video component of the music video is a qualified Canadian, or the production facility at which the video component is filmed and produced is located in Ontario.

6. The company has exclusive contractual control of the copyright of the original video for the music video for at least five years after the original video is completed.  O. Reg. 419/99, s. 1.

(13) A music video that meets any of the following conditions is not a qualifying music video for the purposes of subsection (9):

1. The music video is capable of inciting hatred against an identifiable group, including a section of the public distinguished by colour, race, religion, sex, sexual orientation or ethnic origin.

2. The dominant characteristic of the material in the music video is the undue exploitation of sex or of sex and one or more of crime, horror, cruelty or violence.

3. Public financial support for the music video is contrary to public policy.  O. Reg. 419/99, s. 1.

906. (1) This section applies with respect to the Ontario interactive digital media tax credit established by section 43.11 of the Act of a qualifying corporation for a taxation year.  O. Reg. 194/00, s. 2.

(2) For the purposes of this section and section 43.11 of the Act,

“interactive digital media product” means a combination of one or more application files and one or more data files, all in a digital format, that are integrated and are intended to be operated together and that have the following characteristics when they are being operated:

1. Their primary purpose is to educate, inform or entertain the user.

2. They achieve their primary purpose by presenting information in at least two of the following forms:

i. text,

ii. sound,

iii. images.

3. They are intended to be used by individuals.

4. By interacting with them, the user can choose what information is to be presented and the form and sequence in which it is to be presented.  O. Reg. 194/00, s. 2.

(2.1) For the purposes of this section,

“qualifying predecessor corporation” has the meaning assigned by subsection 43.11 (15) of the Act.  O. Reg. 232/03, s. 3 (1).

(3) A combination of application files and data files that is developed primarily for use as system software does not constitute an interactive digital media product.  O. Reg. 194/00, s. 2.

(4) The following are the conditions referred to in clause (a) of the definition of “eligible product” in subsection 43.11 (15) of the Act that must be satisfied for a product other than a specified product to be an eligible product for the purposes of section 43.11 of the Act:

1. The product is an interactive digital media product.

2. If the product was completed before May 12, 2005,

i. all or substantially all of the product was developed in Ontario by the qualifying corporation or by the qualifying corporation and a qualifying predecessor corporation, and

ii. the product was developed for commercial exploitation by the qualifying corporation or by the qualifying corporation and a qualifying predecessor corporation.

3. If the product was completed after May 11, 2005,

i. all or substantially all of the product was developed in Ontario by the qualifying corporation or by the qualifying corporation and a qualifying predecessor corporation, and

ii. the product was developed for sale or licensing by the qualifying corporation to one or more persons dealing at arm’s length with the qualifying corporation who have not previously entered into an arrangement with the qualifying corporation or a qualifying predecessor corporation for the development of the product.

4. The product is not used primarily for interpersonal communication.

5. The product is not used primarily to present or promote the qualifying corporation or a qualifying predecessor corporation.

6. The product is not used primarily to present, promote or sell the products or services of the qualifying corporation or of a qualifying predecessor corporation.  O. Reg. 194/00, s. 2; O. Reg. 232/03, s. 3 (2); O. Reg. 57/06, s. 1; O. Reg. 52/07, s. 1 (1, 2).

(4.1) The following are the conditions referred to in paragraph 1 of subsection 43.11 (15.1) of the Act that must be satisfied for a product to be a specified product for the purposes of section 43.11 of the Act:

1. The product is an interactive digital media product.

2. The product is not used primarily for interpersonal communication.

3. Development of the product was started by the qualifying corporation or a qualifying predecessor corporation and completed by the qualifying corporation in Ontario.

4. The product is not used primarily to present or promote the qualifying corporation, a qualifying predecessor corporation or the purchaser referred to in paragraphs 2 and 3 of subsection 43.11 (15.1) of the Act.

5. The product is not used primarily to present, promote or sell the products or services of the qualifying corporation, a qualifying predecessor corporation or the purchaser referred to in paragraphs 2 and 3 of subsection 43.11 (15.1) of the Act.  O. Reg. 52/07, s. 1 (3).

(5) For the purposes of the definition of “Ontario labour expenditure” in subsection 43.11 (15) of the Act, the amount of the Ontario labour expenditure of the qualifying corporation or of the qualifying predecessor corporation, as the case may be, incurred in a taxation year with respect to an eligible product is the sum of,

(a) the qualifying wage amount described in subsection (6) of the qualifying corporation or qualifying predecessor corporation for the taxation year with respect to the eligible product; and

(b) if the eligible product is not a specified product, 50 per cent of the qualifying remuneration amount as described in subsection (7) of the qualifying corporation or qualifying predecessor corporation for the taxation year with respect to the eligible product.  O. Reg. 232/03, s. 3 (3); O. Reg. 52/07, s. 1 (4).

(6) Subject to subsection (8), the qualifying wage amount of the qualifying corporation or qualifying predecessor corporation for a taxation year with respect to the eligible product is the amount incurred during the taxation year and after June 30, 1998 on account of salaries or wages of its employees.  O. Reg. 232/03, s. 3 (4).

(7) Subject to subsection (8), the qualifying remuneration amount of the qualifying corporation or qualifying predecessor corporation for a taxation year with respect to the eligible product is the amount incurred during the taxation year and after May 4, 1999 by the qualifying corporation or qualifying predecessor corporation on account of remuneration, which is paid to any of the following persons or entities in the circumstances that are described:

1. An individual who is not an employee of the qualifying corporation or qualifying predecessor corporation, as the case may be, and who deals at arm’s length with that corporation, if the expenditure is attributable to services personally rendered by the individual.

2. An individual described in paragraph 1 for services rendered by the individual’s employees, if the expenditure does not exceed the salaries or wages of those employees for personally rendering those services.

3. A taxable Canadian corporation for services rendered person-ally by an individual,

i. if all of the issued and outstanding shares of the capital stock of the taxable Canadian corporation (other than directors’ qualifying shares) are owned by the individual,

ii. if the individual deals at arm’s length with the qualifying corporation or qualifying predecessor corporation, as the case may be, and

iii. if the activities of the taxable Canadian corporation consist principally of the provision of the individual’s services.

4. A taxable Canadian corporation that deals at arm’s length with the qualifying corporation or qualifying predecessor corporation for services rendered by employees of the taxable Canadian corporation, if the expenditure does not exceed the salaries or wages of those employees for personally rendering those services.

5. An eligible partnership described in subsection (9),

i. for services rendered personally by a member of the eligible partnership, or

ii. for services rendered personally by employees of the eligible partnership, if the expenditure does not exceed the salaries or wages of those employees for personally rendering those services.  O. Reg. 194/00, s. 2; O. Reg. 232/03, s. 3 (5-8).

(8) An expenditure is not to be included in the qualifying wage amount or qualifying remuneration amount of the qualifying corporation or qualifying predecessor corporation, as the case may be, for a taxation year with respect to the eligible product unless it meets all of the following conditions:

1. The expenditure is directly attributable to the development of the eligible product.

2. The expenditure is included in the cost or, in the case of depreciable property, the capital cost of the eligible product.

3. The expenditure is paid no later than 60 days after the end of the taxation year.

4. The expenditure was incurred for services personally rendered by an individual who was subject to tax under section 2 of the Income Tax Act (by virtue of being an individual described in clause 2 (a) of that Act) for the calendar year before the calendar year in which he or she rendered the services.

5. In the case of the qualifying wage amount, the expenditure is paid to an employee of the qualifying corporation or qualifying predecessor corporation, as the case may be, who reported to a permanent establishment of that corporation in Ontario at which the eligible product was being developed.

6. In the case of the qualifying remuneration amount, the expenditure is paid for services rendered at a permanent establishment in Ontario of the qualifying corporation, of a qualifying predecessor corporation or of a person or entity described in one of the paragraphs of subsection (7).

7. The expenditure is not an amount,

i. for which the qualifying corporation or qualifying predecessor corporation makes a claim under section 43.5, 43.8 or 43.10 of the Act, or

ii. incurred by the qualifying corporation or a qualifying predecessor corporation in carrying out activities that constitute scientific research and experimental development for the purposes of paragraph 37 (1) (a) of the Income Tax Act (Canada) or subparagraph 37 (1) (b) (i) of that Act.  O. Reg. 194/00, s. 2; O. Reg. 232/03, s. 3 (9, 10).

(8.1) If an expenditure is not included in the qualifying wage amount or qualifying remuneration amount of the qualifying corporation or qualifying predecessor corporation, as the case may be, for a taxation year because of paragraph 3 of subsection (8), the expenditure may be included in the qualifying wage amount or qualifying remuneration amount for a subsequent taxation year if the expenditure is paid no later than 60 days after the end of that subsequent taxation year.  O. Reg. 232/03, s. 3 (11).

(9) For the purposes of paragraph 5 of subsection (7), an eligible partnership is a partnership carrying on business in Canada whose members are all individuals.  However, a partnership is not an eligible partnership in relation to a qualifying corporation or in relation to a qualifying predecessor corporation, as the case may be, if more than 50 per cent of the income of the partnership is allocable (or would be allocable if it had income) to one or more members,

(a) who directly or indirectly control the qualifying corporation or qualifying predecessor corporation; or

(b) who are related to one or more persons who directly or indirectly control the qualifying corporation or qualifying predecessor corporation.  O. Reg. 232/03, s. 3 (11).

(10) For the purposes of the definition of “marketing and distribution expenditure” in subsection 43.11 (15) of the Act and subject to subsection (11), the marketing and distribution expenditure incurred by a qualifying corporation or qualifying predecessor corporation in respect of an eligible product is the amount of any expenditure incurred by the qualifying corporation or qualifying predecessor corporation in the taxation year that meets all of the following conditions:

1. The expenditure is directly attributable to advertising or promoting the eligible product or distributing the eligible product to customers or potential customers.

2. The expenditure is incurred after May 2, 2000.

3. The expenditure is paid no later than 60 days after the end of the taxation year.

4. The expenditure is not an amount,

i. for which the qualifying corporation or qualifying predecessor corporation, as the case may be, makes a claim under section 43.5, 43.8 or 43.10 of the Act, or

ii. incurred by the qualifying corporation or qualifying predecessor corporation in carrying out activities that constitute scientific research and experimental development for the purposes of paragraph 37 (1) (a) of the Income Tax Act (Canada) or subparagraph 37 (1) (b) (i) of that Act.

5. If the qualifying corporation sells the eligible product directly to a consumer of the eligible product, the expenditure is not directly related to processing an order by a consumer or shipping an eligible product to a consumer.

6. If the expenditure relates to an amount paid or payable for meals or entertainment, only 50 per cent of the amount is included in the marketing and distribution expenditure incurred by the qualifying corporation or qualifying predecessor corporation, as the case may be, in a taxation year.  O. Reg. 160/01, s. 3 (2); O. Reg. 232/03, s. 3 (12, 13).

(11) If an expenditure is not included in the marketing and distribution expenditure incurred by the qualifying corporation or qualifying predecessor corporation, as the case may be, in a taxation year because of paragraph 3 of subsection (10), the expenditure may be included in the marketing and distribution expenditure incurred by the corporation in a subsequent taxation year if the expenditure is paid no later than 60 days after the end of that subsequent taxation year.  O. Reg. 160/01, s. 3 (2); O. Reg. 232/03, s. 3 (14).

PART X
ROLLOVERS AND ELECTIONS

1001. (1) In this Part,

“Federal Act” means the Income Tax Act (Canada);

“Ontario allocation percentage” means,

(a) in the case of a corporation for a taxation year, the ratio, expressed as a percentage, that the portion of the corporation’s taxable income for the taxation year that is not deemed (or would not be deemed if it had income for that year) to have been earned in jurisdictions outside of Ontario for the purposes of section 39 of the Act is to the corporation’s taxable income for the year, and

(b) in the case of a partnership for a fiscal period, the ratio, expressed as a percentage, that the portion of the partnership’s income for the fiscal period that would not be deemed to have been earned in a jurisdiction other than Ontario for the purposes of section 39 of the Act is to the partnership’s income, determined as if the partnership were a corporation, and had income for the fiscal period.

(2) For the purposes of this Part, a partnership shall be considered to have a permanent establishment in each province in which it would have a permanent establishment under the Act if it were a corporation.  O. Reg. 76/99, s. 4.

1002. (1) In this section,

“transferor” means a corporation or a partnership one of whose members is a corporation.

(2) For the purposes of clause 29.1 (3) (b) of the Act, the rules in paragraph 2 of subsection 29.1 (2) of the Act do not apply to a disposition of property by a transferor to a taxable Canadian corporation if,

(a) the transferor and the corporation each have permanent establishments in Ontario in the taxation year or fiscal period to which the election in respect of the disposition relates;

(b) section 5.1 of the Act does not apply to the disposition;

(c) one of the conditions set out in subsection (3) is satisfied; and

(d) the transferor and the corporation agree on an amount in respect of the property in their election for the purposes of the Act that is within the range of amounts prescribed by subsection (4).

(3) The following are the conditions referred to in clause (2) (c):

1. The Ontario allocation percentage of the corporation for the taxation year to which the election relates in respect of the disposition is not more than 10 percentage points greater or less than the Ontario allocation percentage of the transferor for the taxation year or fiscal period, as the case may be, to which the election in respect of the disposition relates.

2. The disposition is from a transferor that is a corporation to one or more other corporations as part of a reorganization in the course of which a dividend is received by a corporation to which subsection 55 (2) of the Federal Act would have applied, except that paragraph 55 (3) (b) of that Act applies, and, in the case where the property is a qualifying intellectual property under section 203,

i. the corporation acquires the property primarily for the purpose of implementing in Ontario the same innovation or invention for which the property was acquired by the transferor, and

ii. if the property was used exclusively in Ontario by the transferor to implement the innovation or invention for which the transferor acquired the property, the property will be used exclusively in Ontario by the corporation for the same purpose.

3. The property is a qualifying intellectual property under section 203 which is acquired by the corporation primarily for the purpose of implementing in Ontario the same innovation or invention for which the property was acquired by the transferor, and, if the property was used exclusively in Ontario by the transferor to implement the innovation or invention for which the transferor acquired the property, the property will be used exclusively in Ontario by the corporation for the same purpose.

4. The property is not a qualifying intellectual property under section 203, and the cost amount of the property to the transferor for the purposes of the Act immediately before the disposition is different than the cost amount of the property to the transferor for the purposes of the Federal Act by reason that different amounts were deducted from income or from tax under the Act and under the Federal Act on account of scientific research and experimental development activities carried on in Ontario.

(4) For the purposes of clause (2) (d), an amount is within the range of amounts prescribed by this subsection if it is not greater than the greater of the following two amounts and not less than the lesser of the following two amounts:

1. The amount that the transferor and corporation agree upon or are deemed to agree upon in respect of the property under the Federal Act.

2. The amount referred to in paragraph 1 less the cost amount of the property immediately before the disposition for the purposes of the Federal Act, plus the cost amount of the property for the purposes of the Act immediately before the disposition.  O. Reg. 76/99, s. 4.

1003. (1) For the purposes of clause 31.1 (3) (b) of the Act, the rules in paragraph 2 of subsection 31.1 (2) of the Act do not apply to a disposition of property by a corporation to a Canadian partnership if,

(a) the corporation has a permanent establishment in Ontario in the taxation year to which the election in respect of the disposition relates and the partnership has a permanent establishment in Ontario in the fiscal period to which the election in respect of the disposition relates;

(b) section 5.1 of the Act does not apply to the disposition;

(c) one of the conditions set out in subsection (2) is satisfied; and

(d) the corporation and the other members of the partnership agree on an amount in respect of the property in their election for the purposes of the Act that is within the range of amounts prescribed by subsection (3).

(2) The following are the conditions referred to in clause (1) (c):

1. The Ontario allocation percentage of the partnership for the fiscal period to which the election in respect of the disposition relates is not more than 10 percentage points greater or less than the Ontario allocation percentage of the corporation for the taxation year to which the election in respect of the disposition relates.

2. The property is a qualifying intellectual property under section 203 which is acquired by the partnership primarily for the purpose of implementing in Ontario the same innovation or invention for which the property was acquired by the corporation and, if the property was used exclusively in Ontario by the corporation to implement the innovation or invention for which the corporation acquired the property, the property will be used exclusively in Ontario by the partnership for the same purpose.

3. The property is not a qualifying intellectual property under section 203, and the cost amount of the property to the corporation for the purposes of the Act immediately before the disposition is different than the cost amount of the property to the corporation for the purposes of the Federal Act by reason that different amounts were deducted from income or from tax under the Act and under the Federal Act on account of scientific research and experimental development activities carried on in Ontario.

(3) For the purposes of clause (1) (d), an amount is within the range of amounts prescribed by this subsection if it is not greater than the greater of the following two amounts and not less than the lesser of the following two amounts:

1. The amount the corporation and the other partners agree on or are deemed to agree on in respect of the property under the Federal Act.

2. The amount referred to in paragraph 1 less the cost amount of the property immediately before the disposition for the purposes of the Federal Act, plus the cost amount of the property for the purposes of the Act immediately before the disposition.  O. Reg. 76/99, s. 4.

PART XI
ONTARIO BUSINESS — RESEARCH INSTITUTE TAX CREDIT

1101. (1) For the purposes of clause 43.9 (5) (d) of the Act, an eligible research institute and a corporation that have entered into an eligible contract are connected if the corporation is controlled directly or indirectly in any manner whatever by the institute and one or more other eligible research institutes or would be controlled directly or indirectly if the institutes were to act in concert.

(2) For the purposes of clause 43.9 (9) (a) of the Act, a payment that is a contract payment within the meaning of subsection 127 (9) of the Income Tax Act (Canada) made by a person other than a qualifying corporation is considered to be a payment made by a qualifying corporation to an eligible research institute under the terms of an eligible contract if,

(a) the contract payment is made to the eligible research institute by the person in consideration for the eligible research institute performing in Ontario scientific research and experimental development for or on behalf of the qualifying corporation; and

(b) the qualifying corporation, the eligible research institute and the person are all parties to the eligible contract.

(3) For the purposes of subclause 43.9 (9) (c) (ii) of the Act, the following expenditures are prescribed:

1. Subject to subsection (4), an expenditure made under the eligible contract after the contract is amended, unless, before the expenditure is made, the Minister gives a favourable ruling under subsection 43.9 (10) of the Act with respect to the contract and the expenditure.

2. An expenditure made to an entity that ceases to be an eligible research institute before the expenditure is incurred.

3. An expenditure made under the contract,

i. if information provided to the Minister or any representation made to the Minister for the purpose of or in connection with obtaining a favourable ruling under subsection 43.9 (10) of the Act in respect of the contract or the expenditure is not correct, and it is reasonable to believe that the Minister would not have given the favourable ruling if the correct information had been provided or if the representation had not been made,

ii. if any undertaking given in connection with the application for the ruling is not fulfilled, or

iii. if information is not disclosed to the Minister and it is reasonable to believe that, if the information had been disclosed, the Minister would not have given a favourable ruling with respect to the contract or the expenditure.

4. An expenditure under an eligible contract that is made to an eligible research institute that is prescribed by subsection (11) and that is not a hospital research institute referred to in clause (12) (a), unless teaching staff, students or research fellows of an eligible research institute referred to in clause (a) of the definition of “eligible research institute” in subsection 43.9 (29) of the Act or a hospital research institute described in clause (12) (a) are significantly involved in carrying out the scientific research and experimental development activities required under the contract.

5. An expenditure under an eligible contract with an eligible research institute for work described in paragraph (d) of the definition of “scientific research and experimental development” in subsection 248 (1) of the Income Tax Act (Canada) that is clinical research in Phase IV, as described in Application Policy 96-09 dated September 4, 1996, issued by the Tax Incentive Audit Section and Scientific Research Section of Revenue Canada, unless the work is directly in support of work described in paragraph (a), (b) or (c) of that definition that is carried out,

i. by the eligible research institute,

ii. by a wholly-owned and controlled non-profit subsidiary of the eligible research institute, or

iii. by another eligible research institute under a contract referred to in subsection 43.9 (23) of the Act with the eligible research institute.

(4) Subsection 43.9 (12) of the Act applies with necessary modifications to an expenditure referred to in paragraph 1 of subsection (3).

(5) For the purposes of subsection 43.9 (21) of the Act, a corporation’s qualified expenditure limit for a taxation year is $20 million if the corporation is not associated at any time in the year with any other corporation.

(6) If a corporation is associated in a taxation year with another corporation, the corporation’s qualified expenditure limit for the purposes of section 43.9 of the Act is determined in accordance with the following rules:

1. If all of the corporations that are associated with each other in the taxation year have filed with the Minister an agreement in a form acceptable to the Minister under which, for the purposes of section 43.9 of the Act, they allocate an amount to one or more of them for the taxation year, and the total of all amounts allocated to one or more of them does not exceed $20 million, the qualified expenditure limit for the year of each corporation shall be, subject to paragraph 4 and subsections (7) and (8), the amount allocated to it.

2. If the Minister notifies in writing any of the corporations that are associated with each other in a taxation year that an agreement referred to in paragraph 1 is required to be filed and no agreement is filed within 30 days after the notification is sent by the Minister,

i. the Minister may, for the purposes of section 43.9 of the Act, allocate an amount to each of the corporations, and the total of all amounts allocated by the Minister to the corporations shall not exceed $20 million, and

ii. except as otherwise provided in paragraph 4 or subsection (7) or (8), the qualified expenditure limit for the year of each of the corporations is the amount allocated by the Minister to it.

3. If no agreement referred to in paragraph 1 is filed by the corporations with the Minister, and the Minister does not make an allocation under paragraph 2, the qualified expenditure limit of each of the corporations for the taxation year shall be deemed to be nil.

4. If a corporation (the “first corporation”) has more than one taxation year ending in the same calendar year and it is associated in two or more of those taxation years with another corporation that has a taxation year ending in that calendar year, the qualified expenditure limit of the first corporation for each taxation year that ends in the calendar year, that is a taxation year in which it is associated with the other corporation and that is a taxation year that ends after its first taxation year ending in that calendar year, shall not exceed an amount equal to the lesser of,

i. its qualified expenditure limit as otherwise determined under paragraph 1, 2 or 3 for its first taxation year ending in the calendar year, multiplied by the ratio of the number of days in the taxation year to 365, and

ii. its qualified expenditure limit as otherwise determined under paragraph 1, 2 or 3 for the particular taxation year ending in the calendar year, multiplied by the ratio of the number of days in the taxation year to 365.

(7) Despite subsections (5) and (6), if a corporation has a taxation year that is less than 51 weeks and paragraph 4 of subsection (6) does not apply, the corporation’s qualified expenditure limit for the taxation year for the purposes of section 43.9 of the Act shall be the amount otherwise determined under this section, before the application of the rule in subsection (8) if it applies, multiplied by the ratio of the number of days in the taxation year to 365.

(8) Despite subsections (5) and (6), if a corporation’s taxation year commences before May 7, 1997, its qualified expenditure limit for the taxation year for the purposes of section 43.9 of the Act shall not exceed the amount otherwise determined under this section, multiplied by the ratio of the number of days in the year ending after May 6, 1997 to the total days in the taxation year.

(9) For the purposes of clause 43.9 (26) (b) of the Act, an employee of an eligible research institute that has entered into an eligible contract with a corporation is connected to that corporation if,

(a) the employee and one or more persons each of whom is an employee of the same or another eligible research institute, or is related to the employee or to another employee of the same or another eligible research institute, control the corporation directly or indirectly in any manner whatever, or would control the corporation directly or indirectly if they acted in concert; or

(b) the employee was an employee of the corporation or of a corporation related to the corporation and there is an arrangement under which the employee will be employed by the corporation or a corporation related to the corporation after the completion of the contract.

(10) For the purposes of the definition of “eligible research institute” in subsection 43.9 (29) of the Act, a university referred to in clause (a) of that definition shall be deemed to include all non-profit organizations that are affiliated or federated colleges or universities of the university.  O. Reg. 76/99, s. 5

(11) For the purposes of clause (c) of the definition of “eligible research institute” in subsection 43.9 (29) of the Act, a non-profit organization that meets the conditions in one of the following paragraphs is an eligible research institute:

1. A non-profit organization,

i. that is exempt from tax under the Act and the Income Tax Act (Canada) by reason of paragraph 149 (1) (f), (j) or (l) of that Act,

ii. that is affiliated with an eligible research institute referred to in clause (a) of the definition of that term in subsection 43.9 (29) of the Act and has entered into an exchange of information agreement with the institution under which teaching staff, students and research fellows of the institute may actively participate in and receive educational benefits from the scientific research and experimental development activities carried out by the non-profit organization,

iii. that is capable of supporting and conducting scientific research and experimental development at its premises or the premises of the eligible research institute with which it is affiliated, through qualified employees who have sufficient expertise and experience, and who have appropriate facilities and services located at those premises,

iv. that is not primarily funded by businesses or industries operating in the private sector, and

v. of which no single member who is not exempt from tax under Division H of Part I of the Income Tax Act (Canada), if the organization is constituted without share capital, has more than 10 per cent of the votes that may be cast by members, or, if the organization is incorporated with share capital, no single shareholder of the organization who is not exempt from tax under Division H of Part I of the Income Tax Act (Canada) holds, directly or indirectly, shares that carry more than 10 per cent of the voting rights attached to voting securities, within the meaning of the Securities Act, of the non-profit organization.

2. A non-profit organization,

i. that is exempt from tax under the Act and the Income Tax Act (Canada) by reason of paragraph 149 (1) (j) of that Act,

ii. that makes all of its expenditures on account of scientific research and experimental development by way of payments to one or more eligible research institutes, each of which is an eligible research institute referred to in clause (a) or (b) of the definition of “eligible research institute” in subsection 43.9 (29) of the Act or a hospital research institute described in clause (12) (a),

iii. the board of directors of which may be appointed or elected only by the eligible research institutes referred to in subparagraph ii to which the non-profit organization makes all of its expenditures on account of scientific research and experimental development, and

iv. all of the shares of which, if the non-profit organization is incorporated with share capital, are held by the eligible research institutes referred to in subparagraph ii.  O. Reg. 76/99, s. 5; O. Reg. 558/99, s. 3 (1).

(12) For the purposes of clause (d) of the definition of “eligible research institute” in subsection 43.9 (29) of the Act, a hospital research institute is an eligible research institute in respect of a qualifying corporation if,

(a) it is a hospital listed in Group A, D, H or L in the Schedule to Regulation 964 of the Revised Regulations of Ontario, 1990, (“Classification of Hospitals”) made under the Public Hospitals Act or in Group A, D, H or L in the list of public hospitals maintained under section 32.1 of that Act; or

(b) it is a corporation,

(i) that is exempt from tax under the Act and the Income Tax Act (Canada) by reason of paragraph 149 (1) (f), (j) or (l) of that Act,

(ii) that is affiliated with a hospital referred to in clause (a) and has entered into an agreement with the hospital under which teaching staff from the hospital and students in the health professions may actively participate in and receive educational benefits from the scientific research and experimental development activities carried out by the corporation,

(iii) that is capable of supporting and conducting scientific research and experimental development at its premises or the premises of the hospital with which it is affiliated, through qualified employees who have sufficient expertise and experience, and who have appropriate facilities and services at those premises, and

(iv) that is not primarily funded by businesses or industries operating in the private sector.  O. Reg. 76/99, s. 5; O. Reg. 558/99, s. 3 (2).

(13) For the purposes of subsections (11) and (12), the following types of payments made to a non-profit organization or corporation shall not be considered to be funding of the organization or corporation:

1. An unconditional donation or gift.

2. An amount that is an expenditure to the payer that is described in paragraph 37 (1) (a) of the Income Tax Act (Canada) or subparagraph 37 (1) (b) (i) of that Act.

3. An amount advanced as a loan if, under all arrangements that reasonably relate to the loan, the lender has the right to receive only payments on account of principal and interest at a commercially reasonable rate.

(14) Despite subsections (11) and (12), a non-profit organization or hospital research institute is not an eligible research institute until it is designated an eligible research institute by the Minister.

(15) A non-profit organization or hospital research institute may apply to the Minister to be designated and shall be designated by the Minister to be an eligible research institute if,

(a) in the case of a non-profit organization, it is an eligible research institute under subsection (11); or

(b) in the case of a hospital research institute, it is an eligible research institute under subsection (12).

(16) The Minister may designate a non-profit organization or hospital research institute to be an eligible research institute under subsection (15) effective as of a date that is before or after the day on which the Minister authorizes the designation.

(17) The Minister may revoke the designation of a non-profit organization or hospital research institute under subsection (15) if the organization or institute no longer qualifies as an eligible research institute under subsection (11) or (12).

(18) Despite subsections (11) and (12), a non-profit organization or hospital research institute that has been designated an eligible research institute under subsection (15) shall be deemed to continue to be an eligible research institute for the purposes of section 43.9 of the Act until the Minister revokes its designation.

(19) The Minister may revoke a designation under subsection (17) effective as of a date that is before or after the day on which the Minister authorizes the revocation of the designation except that the effective date may not be before the date on which the non-profit organization or hospital research institute ceased to qualify as an eligible research institute under subsection (11) or (12). 

(20) The Minister shall publicize designations under subsection (15), revocations of designations under subsection (17) and the effective date of each designation and revocation by bulletin or by any other means of communication that, in the opinion of the Minister, will bring these matters to the attention of those affected.  O. Reg. 76/99, s. 5.

PART XII
ONTARIO COMPUTER ANIMATION AND SPECIAL EFFECTS TAX CREDIT

1201. (1) For the purposes of subsection 43.8 (17) of the Act,

“eligible computer animation and special effects activities” means activities undertaken to produce eligible animation or visual effects and includes designing, modelling, rendering, lighting, painting, animating and compositing, but does not include activities that are scientific research and experimental development for the purposes of paragraph 37 (1) (a) of the Income Tax Act (Canada) or subparagraph 37 (1) (b) (i) of that Act;

“prescribed cost”, incurred by a qualifying corporation in a taxation year in respect of an eligible production, means the total of all costs incurred by the corporation after June 30, 1997 and in the taxation year in respect of the production, where each cost satisfies the following conditions:

1. The cost is incurred by the corporation in carrying on eligible computer animation and special effects activities for the eligible production.

2. The amount of the cost is reasonable in the circumstances.

3. The cost,

i. is included in the amount of the corporation’s cost or, in the case of a depreciable property, its capital cost of the eligible production that incorporates the results of the eligible computer animation and special effects activities, or

ii. is incurred by the corporation in performing eligible computer animation and special effects activities under a contract entered into,

A. with the producer of the eligible production, or

B. with another qualifying corporation that is carrying on eligible computer animation and special effects activities for the eligible production.  O. Reg. 76/99, s. 6; O. Reg. 194/00, s. 3 (1).

(2) For the purposes of the definition of “eligible computer animation and special effects activities” in subsection (1),

“eligible animation or visual effects” means, in respect of an eligible production, animation or visual effects created primarily with digital technologies, but does not include,

(a) audio effects,

(b) in camera effects,

(c) credit rolls,

(d) subtitles,

(e) animation or visual effects all or substantially all of which are created by editing activities, or

(f) animation or visual effects for use in promotional material for the eligible production.  O. Reg. 76/99, s. 6.

(3) For the purposes of the definition of “Ontario labour expenditure” in subsection 43.8 (17) of the Act, the amount of the Ontario labour expenditure of the qualifying corporation for a taxation year with respect to an eligible production is the sum of,

(a) the qualifying wage amount as described in subsection (4) of the qualifying corporation for the taxation year with respect to the eligible production; and

(b) 50 per cent of the qualifying remuneration amount of the corporation as described in subsection (5) of the qualifying corporation for the taxation year with respect to the eligible production.  O. Reg. 194/00, s. 3 (2).

(4) Subject to subsection (6), the qualifying wage amount of the qualifying corporation for a taxation year with respect to the eligible production is the amount incurred by it during the taxation year and after June 30, 1997 on account of salaries or wages that are directly attributable to eligible computer animation and special effects activities carried out by the qualifying corporation in Ontario for the eligible production.  O. Reg. 194/00, s. 3 (2).

(5) Subject to subsection (6), the qualifying remuneration amount of the qualifying corporation for a taxation year with respect to the eligible production is the amount incurred during the taxation year and after May 4, 1999 that is directly attributable to eligible computer animation and special effects activities undertaken for the eligible production on behalf of the qualifying corporation, which is paid to any of the following persons or entities in the circumstances that are described:

1. An individual who is not an employee of the corporation and who deals at arm’s length with the qualifying corporation, if the expenditure is attributable to activities personally undertaken by the individual.

2. An individual described in paragraph 1 for activities undertaken by the individual’s employees, if the expenditure does not exceed the salaries and wages of those employees for personally undertaking those activities.

3. An eligible partnership described in subsection (7),

i. for activities personally undertaken by a member of the eligible partnership, or

ii. for activities personally undertaken by employees of the eligible partnership, if the expenditure does not exceed the salaries and wages of those employees for personally undertaking those activities.  O. Reg. 194/00, s. 3 (2).

(6) An expenditure is not to be included in the qualifying wage amount or qualifying remuneration amount of the qualifying corporation for a taxation year with respect to the eligible production unless it meets all of the following conditions:

1. The expenditure is paid by the qualifying corporation no later than 60 days after the end of the taxation year.

2. The expenditure was incurred for activities personally undertaken by an individual who was subject to tax under section 2 of the Income Tax Act (by virtue of being an individual described in clause 2 (a) of that Act) for the calendar year before the calendar year in which he or she undertook the activities.

3. In the case of the qualifying wage amount, the expenditure is paid to an employee of the qualifying corporation who reported to a permanent establishment of the qualifying corporation in Ontario where the eligible computer animation and special effects activities were undertaken for the eligible production.

4. In the case of the qualifying remuneration amount, the expenditure is paid for activities undertaken at a permanent establishment in Ontario of the qualifying corporation or of a person or entity described in subsection (5).  O. Reg. 194/00, s. 3 (2).

(6.1) Despite paragraph 1 of subsection (6), an expenditure that is excluded from the qualifying wage amount or qualifying remuneration amount of the qualifying corporation for a taxation year because it was not paid within 60 days after the end of the taxation year may be included in the corporation’s qualifying wage amount or qualifying remuneration amount for a subsequent taxation year if it is paid within 60 days after the end of that subsequent taxation year.  O. Reg. 160/01, s. 4.

(7) For the purposes of paragraph 3 of subsection (5), an eligible partnership is a partnership carrying on business in Canada whose members are all individuals.  However, a partnership is not an eligible partnership in relation to a qualifying corporation if more than 50 per cent of the income of the partnership is allocable (or would be allocable, if it had income) to one or more members,

(a) who directly or indirectly control the qualifying corporation; or

(b) who are related to one or more persons who directly or indirectly control the qualifying corporation.  O. Reg. 194/00, s. 3 (2).

Forms 1-4 Revoked:  O. Reg. 485/00, s. 2.