Section 143.4 — Income Tax Act: Definitions

The following definitions apply in this section. contingent amount , of a taxpayer at any time (other than a time at which the taxpayer is a bankrupt), includes an amount to the extent that the taxpayer, or another taxpayer that does not deal at arm’s length with the taxpayer, has a right to reduce the amount at that time. ( montant éventuel ) expenditure , of a taxpayer, means an expense, expenditure or outlay made or incurred by the taxpayer, or a cost or capital cost of property acquired by the taxpayer. ( dépense ) right to reduce means a right to reduce or eliminate an amount in respect of an expenditure at any time, including, for greater certainty, a right to reduce that is contingent upon the occurrence of an event, or in any other way contingent, if it is reasonable to conclude, having regard to all the circumstances, that the right will become exercisable. ( droit de réduire ) taxpayer includes a partnership. ( contribuable ) For the purposes of this Act, if in a taxation year of a taxpayer an expenditure of the taxpayer occurs, the amount of the expenditure at any time is the lesser of the amount of the expenditure at the time calculated under this Act without reference to this section, and the least amount of the expenditure calculated by reducing the amount of the expenditure determined under paragraph (a) by the amount that is the amount, if any, by which the total of all amounts each of which is a contingent amount of the taxpayer in the year in respect of the expenditure exceeds the total of all amounts each of which is an amount paid by the taxpayer to obtain a right to reduce an amount in respect of the expenditure, or a limited-recourse amount for the purposes of paragraph 143.2(6)(b) that reduces the expenditure under subsection 143.2(6) to the extent that the amount is also a contingent amount described in subparagraph (i) in respect of the expenditure. For the purposes of this Act, if in a particular taxation year, a taxpayer pays all or a portion of a contingent amount referred to in paragraph (2)(b) that reduces the amount of the taxpayer’s expenditure referred to in paragraph (2)(a), the portion of the contingent amount paid by the taxpayer in the particular year for the purpose of earning income, and to that extent only, is deemed to have been incurred by the taxpayer in the particular year; to have been incurred for the same purpose and to have the same character as the expenditure so reduced;

and to have become payable by the taxpayer in respect of the particular year. Subject to subsection (6), if at any time in a taxation year that is after a taxation year in which an expenditure of the taxpayer occurred, the taxpayer, or another taxpayer not dealing at arm’s length with the taxpayer, has a right to reduce an amount in respect of the expenditure (in this subsection and subsection (5) referred to as the “prior expenditure”) that would, if the taxpayer or the other taxpayer had had the right to reduce in a particular taxation year that ended before the time, have resulted in subsection (2) applying in the particular taxation year to reduce or eliminate the amount of the prior expenditure, the taxpayer’s subsequent contingent amount in respect of the prior expenditure, as determined under subsection (5), is deemed, to the extent subsection (2) and this subsection have not previously applied in respect of the expenditure, to be an amount received by the taxpayer at the time in the course of earning income from a business or property from a person described in subparagraph 12(1)(x)(i);

and to be an amount referred to in subparagraph 12(1)(x)(iv). For the purposes of subsection (4), a taxpayer’s subsequent contingent amount in respect of a prior expenditure of the taxpayer is the amount, if any, by which the maximum amount by which the amount (in this subsection referred to as the “particular amount”) in respect of the prior expenditure may be reduced pursuant to a right to reduce the particular amount exceeds the amount, if any, paid to obtain the right to reduce the particular amount. If a taxpayer, or another taxpayer that does not deal at arm’s length with the taxpayer, has a right to reduce an amount in respect of an expenditure of the taxpayer in a taxation year that is after the taxation year in which the expenditure otherwise occurred, determined without reference to subsection (3), the taxpayer is deemed to have the right to reduce in the taxation year in which that expenditure otherwise occurred if it is reasonable to conclude having regard to all the circumstances that one of the purposes for having the right to reduce after the end of the year in which the expenditure otherwise occurred was to avoid the application of subsection (2) to the amount of the expenditure. Notwithstanding subsections 152(4) to (5), such assessments, determinations and redeterminations may be made as are necessary to give effect to this section.