Income Tax Act — I-3.3 16
 a right to demand payment of the principal amount of the obligation or the amount outstanding as or on account of the principal amount, as the case may be, before the maturity of the obligation, be calculated on the basis of the yield that produces the highest annual rate obtainable either on the maturity of the obligation or conditional on the exercise of any such right) exceeds 4/3 of the interest stipulated to be payable on the obligation, expressed in terms of an annual rate on (i) the principal amount of the obligation, if no amount is payable on account of the principal amount before the maturity of the obligation, or (ii) the amount outstanding from time to time as or on account of the principal amount thereof, in any other case, the amount by which the principal amount of the obligation exceeds the amount for which the obligation was issued shall be included in computing the income of the first owner of the obligation (c) who is resident in Canada, (d) who is not a government nor a person exempt, because of section 149, from tax under this Part on all or part of the person’s taxable income, and (e) of whom the obligation is a capital property, for the taxation year in which the owner acquired the obligation. Where s. (1) does not apply (4) Subsection 16(1) does not apply to any amount received by a taxpayer in a taxation year (a) as an annuity payment; or (b) in satisfaction of the taxpayer’s rights under an annuity contract. Idem (5) Subsection 16(1) does not apply in any case where subsection 16(2) or 16(3) applies. Indexed debt obligations (6) Subject to subsection 16(7) and for the purposes of this Act, where at any time in a taxpayer’s taxation year (a) an interest in an indexed debt obligation is held by the taxpayer, (i) an amount determined in prescribed manner shall be deemed to be received and receivable by the taxpayer in the year as interest in respect of the obligation, and (ii) an amount determined in prescribed manner shall be deemed to be paid and payable in respect of the year by the taxpayer as interest under a legal obligation of the taxpayer to pay interest on borrowed money used for the purpose of earning income from a business or property; (b) an indexed debt obligation is an obligation of the taxpayer, (i) an amount determined in prescribed manner shall be deemed to be payable in respect of the year by the taxpayer as interest in respect of the obligation, and (ii) an amount determined in prescribed manner shall be deemed to be received and receivable by the taxpayer in the year as interest in respect of the obligation; and (c) the taxpayer pays or credits an amount in respect of an amount determined under subparagraph 16(6)(b)(i) in respect of an indexed debt obligation, the payment or crediting shall be deemed to be a payment or crediting of interest on the obligation. Impaired indexed debt obligations (7) Paragraph 16(6)(a) does not apply to a taxpayer in respect of an indexed debt obligation for the part of a taxation year throughout which the obligation is impaired where an amount in respect of the obligation is deductible because of subparagraph 20(1)(l)(ii) in computing the taxpayer’s income for the year. [NOTE: Application provisions are not included in the consolidated text; see relevant amending Acts and regulations.] R.S., 1985, c. 1 (5th Supp.), s. 16; 1994, c. 7, Sch. VIII, s. 7, c. 21, s. 10; 1998, c. 19, s. 78; 2001, c. 17, s. 200