Income Tax Act — I-3.3 18.2
Definitions 18.2 (1) The following definitions apply in this section and section 18.21. absorbed capacity of a taxpayer for a taxation year means the lesser of (a) the taxpayer’s cumulative unused excess capacity for the year, determined as if the taxpayer’s absorbed capacity for the year were nil, and (b) the amount determined by the formula A − (B + C) where A is the taxpayer’s interest and financing expenses for the year, B is (i) if subsection 18.21(2) applies in respect of the taxpayer for the year, the amount determined in respect of the taxpayer for the year under that subsection, and (ii) in any other case, the amount determined by the formula D × E where D is the taxpayer’s ratio of permissible expenses for the year, and E is the taxpayer’s adjusted taxable income for the year, and C is the taxpayer’s interest and financing revenues for the year. ( capacité absorbée ) adjusted taxable income of a taxpayer for a taxation year means the amount determined by the formula A + B − C where A is the positive or negative amount determined by the formula D − E where D is (a) if the taxpayer is non-resident, the taxpayer’s taxable income earned in Canada for the year (determined without regard to subsection (2) and paragraphs 12(1)(l.2) and 111(1)(a.1)), and (b) in any other case, the taxpayer’s taxable income for the year (determined without regard to subsection (2), paragraphs 12(1)(l.2) and 111(1)(a.1) and clause 95(2)(f.11)(ii)(D)), and E is the total of (a) the taxpayer’s non-capital loss for the year (determined without regard to subsection (2), paragraphs 12(1)(l.2) and 111(1)(a.1) and clause 95(2)(f.11)(ii)(D)), (a.1) the amount claimed by the taxpayer for the year under paragraph 111(1)(a), to the extent that amount does not reduce the taxpayer’s taxable income for the year, as determined for the purpose of paragraph (b) in the description of D, and (b) the total of all amounts each of which is, in respect of a corporation that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the year — or a controlled foreign affiliate of a partnership, of which the taxpayer or a controlled foreign affiliate of the taxpayer is a member, at the end of an affiliate taxation year ending in a fiscal period of the partnership — an amount determined by the formula T × U ÷ V where T is the lesser of (i) the affiliate’s foreign accrual property loss (determined without regard to clause 95(2)(f.11)(ii)(D)) for the affiliate taxation year, and (ii) the amount by which the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year exceeds the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year, U is the amount that is included in the taxpayer’s interest and financing expenses for the year in respect of the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and V is the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year; B is the total of all amounts (subject to paragraph (k), other than an amount that can reasonably be considered to be in respect of exempt interest and financing expenses) each of which is (a) the taxpayer’s interest and financing expenses for the year, (b) an amount deducted by the taxpayer in computing its income for the year under paragraph 20(1)(a) or 59.1(a) or subsection 66(4), 66.1(2) or (3), 66.2(2), 66.21(4), 66.4(2) or 66.7(1), (2), (2.3), (3), (4) or (5), other than any portion of that amount that is described in subparagraph (c)(ii) of the description of A in the definition interest and financing expenses , (c) an amount deducted by the taxpayer in computing its income for the year under subsection 20(16), other than any portion of that amount that is described in paragraph (d) of the description of A in the definition interest and financing expenses , (d) in respect of the income or loss of a partnersh