Section 142.4 — Income Tax Act: Definitions

In this section, tax basis of a specified debt obligation at any time to a taxpayer means the amount, if any, by which the total of all amounts each of which is the cost of the obligation to the taxpayer, an amount included under subsection 12(3) or 16(2) or 16(3), paragraph 142.3(1)(a) or subsection 142.3(2) in respect of the obligation in computing the taxpayer’s income for a taxation year that began before that time, subject to subsection 138(13), where the taxpayer acquired the obligation in a taxation year ending before February 23, 1994, the part of the amount, if any, by which the principal amount of the obligation at the time it was acquired exceeds the cost to the taxpayer of the obligation that was included in computing the taxpayer’s income for a taxation year ending before February 23, 1994, subject to subsection 138(13), where the taxpayer is a life insurer, an amount in respect of the obligation that was deemed by paragraph 142(3)(a) of the Income Tax Act , chapter 148 of the Revised Statutes of Canada, 1952, as it read in its application to the 1977 taxation year, to be a gain for a taxation year ending before 1978, where the obligation is an indexed debt obligation, an amount determined under subparagraph 16(6)(a)(i) in respect of the obligation and included in computing the income of the taxpayer for a taxation year beginning before that time, an amount in respect of the obligation that was included in computing the taxpayer’s income for a taxation year ending at or before that time in respect of changes in the value of the obligation attributable to the fluctuation in the value of a currency of a country other than Canada relative to Canadian currency, other than an amount included under paragraph 142.3(1)(a), an amount in respect of the obligation that was included under paragraph 12(1)(i) in computing the taxpayer’s income for a taxation year beginning before that time, or where the obligation was a capital property of the taxpayer on February 22, 1994, an amount required by paragraph 53(1)(f) or 53(1)(f.1) to be added in computing the adjusted cost base of the obligation to the taxpayer on that day exceeds the total of all amounts each of which is an amount deducted under paragraph 142.3(1)(b) in respect of the obligation in computing the taxpayer’s income for a taxation year beginning before that time, the amount of a payment received by the taxpayer under the obligation at or before that time, other than a fee or similar payment, and proceeds of disposition of the obligation, subject to subsection 138(13), where the taxpayer acquired the obligation in a taxation year ending before February 23, 1994, the part of the amount, if any, by which the cost to the taxpayer of the obligation exceeds the principal amount of the obligation at the time it was acquired that was deducted in computing the taxpayer’s income for a taxation year ending before February 23, 1994, subject to subsection 138(13), where the taxpayer is a life insurer, an amount in respect of the obligation that was deemed by paragraph 142(3)(b) of the Income Tax Act , chapter 148 of the Revised Statutes of Canada, 1952, as it read in its application to the 1977 taxation year, to be a loss for a taxation year ending before 1978, an amount that was deducted under subsection 20(14) in respect of the obligation in computing the taxpayer’s income for a taxation year beginning before that time, where the obligation is an indexed debt obligation, an amount determined under subparagraph 16(6)(a)(ii) in respect of the obligation and deducted in computing the income of the taxpayer for a taxation year beginning before that time, an amount in respect of the obligation that was deducted in computing the taxpayer’s income for a taxation year ending at or before that time in respect of changes in the value of the obligation attributable to the fluctuation in the value of a currency of a country other than Canada relative to Canadian currency, other than an amount deducted under paragraph 142.3(1)(b), an amount in respect of the obligation that was deducted under paragraph 20(1)(p) in computing the taxpayer’s income for a taxation year ending at or before that time, or where the obligation was a capital property of the taxpayer on February 22, 1994, an amount required by paragraph 53(2)(b.2) or 53(2)(g) to be deducted in computing the adjusted cost base of the obligation to the taxpayer on that day; ( montant de base ) transition amount of a taxpayer in respect of the disposition of a specified debt obligation has the meaning assigned by regulation. ( montant de transition ) This section applies to the disposition of a specified debt obligation by a taxpayer that is a financial institution, except that this section does not apply to the disposition of a specified debt obligation that is a mark-to-market property for the taxation year in which the disposition occurs. Where a taxpayer has disposed of a specified debt obligation after February 22, 1994, except as provided by paragraph 79.1(7)(d) or this section, no amount shall be included or deducted in respect of the disposition in computing the taxpayer’s income; and except where the obligation is an indexed debt obligation (other than a prescribed obligation), paragraph 20(14)(a) shall not apply in respect of the disposition. Subject to subsection 142.4(5), where after 1994 a taxpayer disposes of a specified debt obligation in a taxation year, where the transition amount in respect of the disposition of the obligation is positive, it shall be included in computing the income of the taxpayer for the year; where the transition amount in respect of the disposition of the obligation is negative, the absolute value of the transition amount shall be deducted in computing the income of the taxpayer for the year; where the taxpayer has a gain from the disposition of the obligation, the current amount of the gain shall be included in computing the income of the taxpayer for the year, and there shall be included in computing the taxpayer’s income for taxation years that end on or after the day of disposition the amount allocated, in accordance with prescribed rules, to the year in respect of the residual portion of the gain; and where the taxpayer has a loss from the disposition of the obligation, the current amount of the loss shall be deducted in computing the taxpayer’s income for the year, and there shall be deducted in computing the taxpayer’s income for taxation years that end on or after the day of disposition the amount allocated, in accordance with prescribed rules, to the year in respect of the residual portion of the loss. Where after February 22, 1994 a taxpayer disposes of a specified debt obligation in a taxation year, and the obligation is an indexed debt obligation (other than a prescribed obligation), or a debt obligation prescribed in respect of the taxpayer, the disposition occurred before 1995, after 1994 in connection with the transfer of all or part of a business of the taxpayer to a person or partnership, or because of paragraph 142.6(1)(c), or in the case of a taxpayer other than a life insurance corporation, the disposition occurred before 1996, and the taxpayer elects in writing, filed with the Minister before July 1997, to have this paragraph apply, the following rules apply: subsection 142.4(4) does not apply to the disposition, there shall be included in computing the taxpayer’s income for the year the amount, if any, by which the taxpayer’s proceeds of disposition exceed the tax basis of the obligation to the taxpayer immediately before the disposition, and there shall be deducted in computing the taxpayer’s income for the year the amount, if any, by which the tax basis of the obligation to the taxpayer immediately before the disposition exceeds the taxpayer’s proceeds of disposition. For the purposes of this section, where the amount determined under paragraph 142.4(6)(c) in respect of the disposition of a specified debt obligation by a taxpayer is positive, that amount is the taxpayer’s gain from the disposition of the obligation; where the amount determined under paragraph 142.4(6)(c) in respect of the disposition of a specified debt obligation by a taxpayer is negative, the absolute value of that amount is the taxpayer’s loss from the disposition of the obligation; and the amount determined under this paragraph in respect of the disposition of a specified debt obligation by a taxpayer is the positive or negative amount determined by the formula A - (B + C) where A is the taxpayer’s proceeds of disposition, B is the tax basis of the obligation to the taxpayer immediately before the time of disposition, and C is the taxpayer’s transition amount in respect of the disposition. For the purposes of subsections 142.4(4) and 142.4(8), the current amount of a taxpayer’s gain or loss from the disposition of a specified debt obligation is where the taxpayer has a gain from the disposition of the obligation, the part, if any, of the gain that is reasonably attributable to a material increase in the probability, or perceived probability, that the debtor will make all payments as required by the obligation; and where the taxpayer has a loss from the disposition of the obligation, the amount that the taxpayer claims not exceeding the part, if any, of the loss that is reasonably attributable to a default by the debtor or a material decrease in the probability, or perceived probability, that the debtor will make all payments as required by the obligation. For the purpose of subsection 142.4(4), the residual portion of a taxpayer’s gain or loss from the disposition of a specified debt obligation is the amount, if any, by which the gain or loss exceeds the current amount of the gain or loss. Where a taxpayer disposes of part of a specified debt obligation, section 142.3 and this section apply as if the part disposed of and the part retained were separate specified debt obligations. Notwithstanding subsection 18(9.1), where a taxpayer that holds a specified debt obligation receives a penalty or bonus because of the repayment before maturity of all or part of the principal amount of the debt obligation, the payment is deemed to be received by the taxpayer as proceeds of disposition of the specified debt obligation. For the purposes of this section, where at any time a taxpayer receives a payment (other than proceeds of disposition) under a specified debt obligation on or after the disposition of the obligation, the payment is deemed not to have been so received at that time but to have been so received immediately before the disposition.