Income Tax Act — I-3.3 15
res are held by the shareholder immediately before the division, new shares are received at the particular time by shareholders of that class on a pro rata basis in respect of all the shares (referred to in this subsection as the “original shares”) of that class (A) at the particular time, the original corporation is deemed to have distributed, and the shareholder is deemed to have received, as a dividend in kind in respect of the original shares, the new shares acquired by the shareholder at the particular time, and (B) the amount of the dividend in kind received by the shareholder in respect of an original share is deemed to be equal to the fair market value, immediately after the particular time, of the new shares acquired by the shareholder at the particular time in respect of the original share, and (ii) in any case where subparagraph (i) does not apply, the original corporation is deemed, at the particular time, to have conferred a benefit on the shareholder equal to the total fair market value, at that time, of the new shares acquired by the shareholder as a consequence of the division; (b) any gain or loss of the original corporation from a distribution of the new shares as a consequence of the division is deemed to be nil; and (c) each property of the original corporation that becomes at any time (referred to in this paragraph as the “disposition time”) property of the new corporation as a consequence of the division is deemed to be (i) disposed of by the original corporation immediately before the disposition time for proceeds of disposition equal to the property’s fair market value, and (ii) acquired by the new corporation at the disposition time at a cost equal to the amount determined under subparagraph (i) to be the original corporation’s proceeds of disposition. Shareholder debt (2) Where a person (other than a corporation resident in Canada) or a partnership (other than a partnership each member of which is a corporation resident in Canada) is (a) a shareholder of a particular corporation, (b) connected with a shareholder of a particular corporation, or (c) a member of a partnership, or a beneficiary of a trust, that is a shareholder of a particular corporation and the person or partnership has in a taxation year received a loan from or become indebted to (otherwise than by way of a pertinent loan or indebtedness) the particular corporation, any other corporation related to the particular corporation or a partnership of which the particular corporation or a corporation related to the particular corporation is a member, the amount of the loan or indebtedness is included in computing the income for the year of the person or partnership. Meaning of connected (2.1) For the purposes of subsection (2), a person or partnership is connected with a shareholder of a particular corporation if that person or partnership does not deal at arm’s length with, or is affiliated with, the shareholder, unless, in the case of a person, that person is (a) a foreign affiliate of the particular corporation; or (b) a foreign affiliate of a person resident in Canada with which the particular corporation does not deal at arm’s length. Pertinent loan or indebtedness (2.11) For the purposes of subsection (2) and subject to subsection 17.1(3), pertinent loan or indebtedness means a loan received, or an indebtedness incurred, at any time, by a non-resident corporation (in this subsection referred to as the “subject corporation”), or by a partnership of which the subject corporation is, at that time, a member, that is an amount owing to a corporation resident in Canada (in this subsection and subsections (2.12) and (2.14) referred to as the “CRIC”) or to a qualifying Canadian partnership in respect of the CRIC and in respect of which amount owing all of the following apply: (a) subsection (2) would, in the absence of this subsection, apply to the amount owing; (b) the amount becomes owing after March 28, 2012; (c) at that time, the CRIC is co