Income Tax Act — I-3.3 112
Deduction of taxable dividends received by corporation resident in Canada 112 (1) Where a corporation in a taxation year has received a taxable dividend from (a) a taxable Canadian corporation, or (b) a corporation resident in Canada (other than a non-resident-owned investment corporation or a corporation exempt from tax under this Part) and controlled by it, an amount equal to the dividend may be deducted from the income of the receiving corporation for the year for the purpose of computing its taxable income. Dividends received from non-resident corporation (2) Where a taxpayer that is a corporation has, in a taxation year, received a dividend from a corporation (other than a foreign affiliate of the taxpayer) that was taxable under subsection 2(3) for the year and that has, throughout the period from June 18, 1971 to the time when the dividend was received, carried on a business in Canada through a permanent establishment as defined by regulation, an amount equal to that proportion of the dividend that the paying corporation’s taxable income earned in Canada for the immediately preceding year is of the whole of the amount that its taxable income for that year would have been if it had been resident in Canada throughout that year, may be deducted from the income of the receiving corporation for the taxation year for the purpose of computing its taxable income. Mark-to-market property (2.01) No deduction may be made under subsection (1) or (2) or 138(6) in computing the taxable income of a corporation for a taxation year in respect of a dividend received on a share if (a) the corporation is a financial institution at any time in the year; and (b) the share (i) is a mark-to-market property of the corporation for the year, or (ii) would be a mark-to-market property of the corporation for the year if the share was held at any time in the year by the corporation. Tracking property and preferred shares (2.02) For the purpose of paragraph (2.01)(b), (a) a share (other than a share of a financial institution) is deemed to be a mark-to-market property of the corporation for the year if the share (i) is a tracking property of the corporation at any time in the year, or (ii) would be a tracking property of the corporation if the share was held at any time in the year by the corporation; and (b) a taxable preferred share is deemed not to be a mark-to-market property of the corporation for the year unless the share would be described in subparagraph (a)(i) or (ii) if paragraph (a) were read without reference to “(other than a share of a financial institution)”. (2.03) Subsection (2.01) does not apply to a dividend received by an insurance corporation in a taxation year that is (a) either (i) received on a share (other than a share described in subparagraph (2.02)(a)(i)) held by the corporation in connection with an insurance contract entered into, issued or acquired in the ordinary course of an insurance business of the corporation, or (ii) deemed to be received by the corporation as a result of a designation by a mutual fund trust under subsection 104(19) in respect of a unit of the trust that is held by the corporation in connection with an insurance contract entered into, issued or acquired in the ordinary course of an insurance business of the corporation; and (b) identified in the corporation’s return of income under this Part for the year. No deduction permitted (2.1) No deduction may be made under subsection (1) or (2) in computing the taxable income of a specified financial institution in respect of a dividend received by it on a share that was, at the time the dividend was received, a term preferred share, other than a dividend on a share of the capital stock of a corporation that was not acquired in the ordinary course of the business carried on by the institution, and for the purposes of this subsection, if a restricted financial institution received the dividend on a share of the capital stock of a mutual fund corporation or