42 (1) There may be deducted from the tax otherwise payable by a corporation under this Part for the corporation’s first, second or third taxation year ending after the date of its incorporation an amount equal to 15.5 per cent of the amount determined under subsection 41 (2), if, (a) the corporation was incorporated after the 13th day of May, 1982 and before the 21st day of April, 1988; (b) the corporation commenced carrying on an active business in Canada before the 21st day of April, 1988; and (c) the corporation is eligible to claim and has claimed a deduction under section 125 of the Income Tax Act (Canada) from the tax otherwise payable by the corporation under that Act for the taxation year.  R.S.O. 1990, c. C.40, s. 42 (1); 2004, c. 16, s. 2 (2). Incorporation before the 1st day of May, 1988 (2) For the purposes of subsection (1), a corporation incorporated after the 20th day of April, 1988 and before the 1st day of May, 1988 shall be deemed to have been incorporated before the 21st day of April, 1988 and to have commenced carrying on an active business in Canada before the 21st day of April, 1988 if, (a) arrangements for the incorporation of the corporation were substantially advanced and application for the incorporation of the corporation had been prepared and sent to the appropriate government authority prior to the 21st day of April, 1988; (b) one or more persons commenced carrying on an active business prior to the 21st day of April, 1988, in trust for the corporation to be incorporated; and (c) all agreements entered into before the date of incorporation of the corporation by the person or persons carrying on active business in trust for it were adopted by the corporation after its incorporation.  R.S.O. 1990, c. C.40, s. 42 (2); 2004, c. 16, s. 2 (2). Eligibility (3) Despite subsection (1), a corporation is not eligible for a deduction for the year under subsection (1) if it, or any predecessor corporation thereof within the meaning of section 87 of the Income Tax Act (Canada), at any time since the date of its incorporation, (a) was related to any other corporation; (b) carried on a non-qualifying business in Canada; (c) carried on an active business by reason of being a member of a partnership; (d) was a beneficiary of a trust; (e) carried on an active business by reason of being a co-venturer in a joint venture with any other corporation; (f) has carried on an active business by reason of having acquired (by purchase or otherwise) or leased property from another corporation (hereinafter referred to as the “vendor”) in respect of which, it, any of its shareholders, or any persons related to it or its shareholders, beneficially owned at any time, directly or indirectly, more than 10 per cent of the issued shares of any class of the capital stock of the vendor; or (g) has carried on an active business by reason of having acquired (by purchase or otherwise) or leased property in a manner prescribed by regulation or has engaged in any activities prescribed by regulation.  R.S.O. 1990, c. C.40, s. 42 (3); 2004, c. 16, s. 2 (2). Idem (4) A corporation shall not be entitled to a deduction under subsection (1) for the year if, as a result of a transaction or an event, or a series of transactions or events, property of a business has been transferred, or has been deemed to have been transferred, either directly or indirectly, to the corporation, and it is reasonable for the Minister to believe that one of the principal purposes of the transfer or deemed transfer is to enable a corporation to claim a deduction from tax under subsection (1) that would not otherwise be allowed.  R.S.O. 1990, c. C.40, s. 42 (4); 2004, c. 16, s. 2 (2). Idem (5) A corporation shall not be entitled to a deduction under subsection (1) for the year if, as a result of a disposition, a deemed disposition or a series of dispositions of shares of any corporation, it is reasonable for the Minister to believe that one of the principal purposes of the disposition or deemed disposition is to enable a corporation to claim a deduction from tax under subsection (1) to which it would not otherwise be entitled.  R.S.O. 1990, c. C.40, s. 42 (5); 2004, c. 16, s. 2 (2). Non-qualifying business (6) For the purposes of this section, “non-qualifying business” means a business, other than a personal services business, which is, (a) the professional practice of an accountant, dentist, lawyer, medical doctor, veterinarian or chiropractor, (b) a business of providing services if more than 66 2/3 per cent of the gross revenue for the year of that business derived from services, (i) is derived from services provided to, or performed for or on behalf of, one entity, and (ii) can reasonably be attributed to services performed by persons who are specified shareholders of the corporation or persons related thereto, unless the corporation employs in the business throughout the year more than five full-time employees who are not specified shareholders of the corporation or persons related thereto, or (c) a business the principal purpose of which is to provide managerial, administrative, financial, maintenance or other similar services, to lease property (other than real property), or to provide any such services and to lease property (other than real property), to one or more businesses connected at any time in the year with the corporation.  R.S.O. 1990, c. C.40, s. 42 (6); 2004, c. 16, s. 2 (2). Definitions (7) For the purposes of subsection (6), “business connected” has the meaning ascribed thereto by paragraph 125 (9) (a) of the Income Tax Act
(Canada) as that paragraph read on the 1st day of January, 1984; (“entreprise rattachée”) “entity” has the meaning ascribed thereto by paragraph 125 (9) (b) of the Income Tax Act
(Canada) as that paragraph read on the 1st day of January, 1984; (“entité”) “specified shareholder” has the meaning ascribed thereto by paragraph 125 (9) (c) of the Income Tax Act
(Canada) as that paragraph read on the 1st day of January, 1984. (“actionnaire désigné”)  R.S.O. 1990, c. C.40, s. 42 (7); 2004, c. 16, s. 2 (2). Deemed connected (8) For the purposes of this section, where a business is at any time a business connected with one or more corporations, that business shall be deemed to be a business connected with any other corporation that is controlled at that time by the one or more corporations.  R.S.O. 1990, c. C.40, s. 42 (8); 2004, c. 16, s. 2 (2). Section Amendments with date in force (d/m/y) 2004, c. 16, s. 2 (2)
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