Income Tax Act

Version of section 88 from 2017-01-01 to 2017-11-20:

Marginal note:Winding-up
  •  (1) Where a taxable Canadian corporation (in this subsection referred to as the “subsidiary”) has been wound up after May 6, 1974 and not less than 90% of the issued shares of each class of the capital stock of the subsidiary were, immediately before the winding-up, owned by another taxable Canadian corporation (in this subsection referred to as the “parent”) and all of the shares of the subsidiary that were not owned by the parent immediately before the winding-up were owned at that time by persons with whom the parent was dealing at arm’s length, notwithstanding any other provision of this Act other than subsection 69(11), the following rules apply:

    • (a) subject to paragraphs 88(1)(a.1) and 88(1)(a.3), each property (other than an interest in a partnership) of the subsidiary that was distributed to the parent on the winding-up shall be deemed to have been disposed of by the subsidiary for proceeds equal to

      • (i) in the case of a Canadian resource property, a foreign resource property or a right to receive production (as defined in subsection 18.1(1)) to which a matchable expenditure (as defined in subsection 18.1(1)) relates, nil, and

      • (ii) [Repealed, 1994, c. 7, Sch. VIII, s. 38]

      • (iii) in the case of any other property, the cost amount to the subsidiary of the property immediately before the winding-up;

    • (a.1) each property of the subsidiary that was distributed to the parent on the winding-up shall, for the purpose of paragraph 88(2.1)(b) or 88(2.1)(e), be deemed not to have been disposed of;

    • (a.2) each interest of the subsidiary in a partnership that was distributed to the parent on the winding-up shall, except for the purpose of paragraph 98(5)(g), be deemed not to have been disposed of by the subsidiary;

    • (a.3) where

      • (i) the subsidiary was a financial institution in its taxation year in which its assets were distributed to the parent on the winding up, and

      • (ii) the parent was a financial institution in its taxation year in which it received the assets of the subsidiary on the winding up,

      each specified debt obligation (other than a mark-to-market property) of the subsidiary that was distributed to the parent on the winding-up shall, except for the purpose of subsection 69(11), be deemed not to have been disposed of, and for the purpose of this paragraph, financial institution, mark-to-market property and specified debt obligation have the meanings assigned by subsection 142.2(1);

    • (b) the shares of the capital stock of the subsidiary owned by the parent immediately before the winding-up shall be deemed to have been disposed of by the parent on the winding-up for proceeds equal to the greater of

      • (i) the lesser of the paid-up capital in respect of those shares immediately before the winding-up and the amount determined under subparagraph 88(1)(d)(i), and

      • (ii) the total of all amounts each of which is an amount in respect of any share of the capital stock of the subsidiary so disposed of by the parent on the winding-up, equal to the adjusted cost base to the parent of the share immediately before the winding-up;

    • (c) subject to paragraph 87(2)(e.3) (as modified by paragraph 88(1)(e.2)), and notwithstanding paragraph 87(2)(e.1) (as modified by paragraph 88(1)(e.2)), the cost to the parent of each property of the subsidiary distributed to the parent on the winding-up shall be deemed to be

      • (i) in the case of a property that is an interest in a partnership, the amount that but for this paragraph would be the cost to the parent of the property, and

      • (ii) in any other case, the amount, if any, by which

        • (A) the amount that would, but for subsection 69(11), be deemed by paragraph 88(1)(a) to be the proceeds of disposition of the property

        exceeds

        • (B) any reduction of the cost amount to the subsidiary of the property made because of section 80 on the winding-up,

      plus where the property was a capital property (other than an ineligible property) of the subsidiary at the time that the parent last acquired control of the subsidiary and was owned by the subsidiary thereafter without interruption until such time as it was distributed to the parent on the winding-up, the amount determined under paragraph 88(1)(d) in respect of the property and, for the purposes of this paragraph, ineligible property means

      • (iii) depreciable property,

      • (iv) property transferred to the parent on the winding-up where the transfer is part of a distribution (within the meaning assigned by subsection 55(1)) made in the course of a reorganization in which a dividend was received to which subsection 55(2) would, but for paragraph 55(3)(b), apply,

      • (v) property acquired by the subsidiary from the parent or from any person or partnership that was not (otherwise than because of a right referred to in paragraph 251(5)(b)) dealing at arm’s length with the parent, or any other property acquired by the subsidiary in substitution for it, where the acquisition was part of the series of transactions or events in which the parent last acquired control of the subsidiary, and

      • (vi) property distributed to the parent on the winding-up where, as part of the series of transactions or events that includes the winding-up,

        • (A) the parent acquired control of the subsidiary, and

        • (B) any property distributed to the parent on the winding-up or any other property acquired by any person in substitution therefor is acquired by

          • (I) a particular person (other than a specified person) that, at any time during the course of the series and before control of the subsidiary was last acquired by the parent, was a specified shareholder of the subsidiary,

          • (II) 2 or more persons (other than specified persons), if a particular person would have been, at any time during the course of the series and before control of the subsidiary was last acquired by the parent, a specified shareholder of the subsidiary if all the shares that were then owned by those 2 or more persons were owned at that time by the particular person, or

          • (III) a corporation (other than a specified person or the subsidiary)

            1 of which a particular person referred to in subclause 88(1)(c)(vi)(B)(I) is, at any time during the course of the series and after control of the subsidiary was last acquired by the parent, a specified shareholder, or

            2 of which a particular person would be, at any time during the course of the series and after control of the subsidiary was last acquired by the parent, a specified shareholder if all the shares then owned by persons (other than specified persons) referred to in subclause 88(1)(c)(vi)(B)(II) and acquired by those persons as part of the series were owned at that time by the particular person;

    • (c.1) [Repealed, 2016, c. 12, s. 28]

    • (c.2) for the purposes of this paragraph and subparagraph 88(1)(c)(vi),

      • (i) specified person, at any time, means

        • (A) the parent,

        • (B) each person who would be related to the parent at that time if

          • (I) this Act were read without reference to paragraph 251(5)(b), and

          • (II) each person who is the child of a deceased individual were related to each brother or sister of the individual and to each child of a deceased brother or sister of the individual, and

        • (C) if the time is before the incorporation of the parent, each person who is described in clause (B) throughout the period that begins at the time the parent is incorporated and ends at the time that is immediately before the beginning of the winding-up,

      • (i.1) a person described in clause (i)(B) or (C) is deemed not to be a specified person if it can reasonably be considered that one of the main purposes of one or more transactions or events is to cause the person to be a specified person so as to prevent a property that is distributed to the parent on the winding-up from being an ineligible property for the purposes of paragraph (c),

      • (ii) where at any time a property is owned or acquired by a partnership or a trust,

        • (A) the partnership or the trust, as the case may be, shall be deemed to be a person that is a corporation having one class of issued shares, which shares have full voting rights under all circumstances,

        • (B) each member of the partnership or beneficiary under the trust, as the case may be, shall be deemed to own at that time the proportion of the number of issued shares of the capital stock of the corporation that

          • (I) the fair market value at that time of that member’s interest in the partnership or that beneficiary’s interest in the trust, as the case may be,

          is of

          • (II) the fair market value at that time of all the members’ interests in the partnership or beneficiaries’ interests in the trust, as the case may be, and

        • (C) the property shall be deemed to have been owned or acquired at that time by the corporation,

      • (iii) in determining whether a person is a specified shareholder of a corporation,

        • (A) the reference in the definition specified shareholder in subsection 248(1) to “the issued shares of any class of the capital stock of the corporation or of any other corporation that is related to the corporation” shall be read as “the issued shares of any class (other than a specified class) of the capital stock of the corporation or of any other corporation that is related to the corporation and that has a significant direct or indirect interest in any issued shares of the capital stock of the corporation”,

        • (A.1) a corporation controlled by another corporation is, at any time, deemed not to own any shares of the capital stock of the other corporation if, at that time, the corporation does not have a direct or an indirect interest in any of the shares of the capital stock of the other corporation,

        • (A.2) the definition specified shareholder in subsection 248(1) is to be read without reference to its paragraph (a) in respect of any share of the capital stock of the subsidiary that the person would, but for this clause, be deemed to own solely because the person has a right described in paragraph 251(5)(b) to acquire shares of the capital stock of a corporation that

          • (I) is controlled by the subsidiary, and

          • (II) does not have a direct or an indirect interest in any of the shares of the capital stock of the subsidiary, and

        • (B) a corporation is deemed not to be a specified shareholder of itself, and

      • (iv) property that is distributed to the parent on the winding-up is deemed not to be acquired by a person if the person acquired the property before the acquisition of control referred to in clause (c)(vi)(A) and the property is not owned by the person at any time after that acquisition of control;

    • (c.3) for the purpose of clause 88(1)(c)(vi)(B), property acquired by any person in substitution for particular property or properties distributed to the parent on the winding-up includes

      • (i) property (other than a specified property) owned by the person at any time after the acquisition of control referred to in clause (c)(vi)(A) more than 10% of the fair market value of which is, at that time, attributable to the particular property or properties, and

      • (ii) property owned by the person at any time after the acquisition of control referred to in clause 88(1)(c)(vi)(A) the fair market value of which is, at that time, determinable primarily by reference to the fair market value of, or to any proceeds from a disposition of, the particular property or properties

      but does not include

      • (iii) money,

      • (iv) property that was not owned by the person at any time after the acquisition of control referred to in clause 88(1)(c)(vi)(A),

      • (v) property described in subparagraph 88(1)(c.3)(i) if the only reason the property is described in that subparagraph is because a specified property described in any of subparagraphs 88(1)(c.4)(i) to 88(1)(c.4)(iv) was received as consideration for the acquisition of a share of the capital stock of the subsidiary in the circumstances described in subparagraphs 88(1)(c.4)(i) to 88(1)(c.4)(iv),

      • (vi) a share of the capital stock of the subsidiary or a debt owing by it, if the share or debt, as the case may be, was owned by the parent immediately before the winding-up, or

      • (vii) a share of the capital stock of a corporation or a debt owing by a corporation, if the fair market value of the share or debt, as the case may be, was not, at any time after the beginning of the winding-up, wholly or partly attributable to property distributed to the parent on the winding-up;

    • (c.4) for the purposes of subparagraphs 88(1)(c.3)(i) and 88(1)(c.3)(v), a specified property is

      • (i) a share of the capital stock of the parent that was

        • (A) received as consideration for the acquisition of a share of the capital stock of the subsidiary by the parent or by a corporation that was a specified subsidiary corporation of the parent immediately before the acquisition, or

        • (B) issued for consideration that consists solely of money,

      • (ii) an indebtedness that was issued

        • (A) by the parent as consideration for the acquisition of a share of the capital stock of the subsidiary by the parent, or

        • (B) for consideration that consists solely of money,

      • (iii) a share of the capital stock of a taxable Canadian corporation that was received as consideration for the acquisition of a share of the capital stock of the subsidiary by the taxable Canadian corporation or by the parent where the parent was a specified subsidiary corporation of the taxable Canadian corporation immediately before the acquisition,

      • (iv) an indebtedness of a taxable Canadian corporation that was issued by it as consideration for the acquisition of a share of the capital stock of the subsidiary by the taxable Canadian corporation or by the parent where the parent was a specified subsidiary corporation of the taxable Canadian corporation immediately before the acquisition, and

      • (v) if the subsidiary was formed on the amalgamation of two or more predecessor corporations at least one of which was a subsidiary wholly-owned corporation of the parent,

        • (A) a share of the capital stock of the subsidiary that was issued on the amalgamation and that is, before the beginning of the winding-up,

          • (I) redeemed, acquired or cancelled by the subsidiary for consideration that consists solely of money or shares of the capital stock of the parent, or of any combination of the two, or

          • (II) exchanged for shares of the capital stock of the parent, or

        • (B) a share of the capital stock of the parent issued on the amalgamation in exchange for a share of the capital stock of a predecessor corporation;

      • (vi) [Repealed, 2013, c. 40, s. 40]

    • (c.5) for the purpose of paragraph 88(1)(c.4), a corporation is a specified subsidiary corporation of another corporation, at any time, where the other corporation holds, at that time, shares of the corporation

      • (i) that give the shareholder 90% or more of the votes that could be cast under all circumstances at an annual meeting of shareholders of the corporation, and

      • (ii) having a fair market value of 90% or more of the fair market value of all the issued shares of the capital stock of the corporation;

    • (c.6) for the purpose of paragraph 88(1)(c.3) and notwithstanding subsection 256(9), where control of a corporation is acquired by way of articles of arrangement, that control is deemed to have been acquired at the end of the day on which the arrangement becomes effective;

    • (c.7) for the purpose of subparagraph 88(1)(c)(iii), a leasehold interest in a depreciable property and an option to acquire a depreciable property are depreciable properties;

    • (c.8) for the purpose of clause (c.2)(iii)(A), a specified class of the capital stock of a corporation is a class of shares of the capital stock of the corporation where

      • (i) the paid-up capital in respect of the class was not, at any time, less than the fair market value of the consideration for which the shares of that class then outstanding were issued,

      • (ii) the shares are non-voting in respect of the election of the board of directors of the corporation, except in the event of a failure or default under the terms or conditions of the shares,

      • (iii) under neither the terms and conditions of the shares nor any agreement in respect of the shares are the shares convertible into or exchangeable for shares other than shares of a specified class of the capital stock of the corporation, and

      • (iv) under neither the terms and conditions of the shares nor any agreement in respect of the shares is any holder of the shares entitled to receive on the redemption, cancellation or acquisition of the shares by the corporation or by any person with whom the corporation does not deal at arm’s length an amount (excluding any premium for early redemption) greater than the total of the fair market value of the consideration for which the shares were issued and the amount of any unpaid dividends on the shares;

    • (c.9) for the purposes of paragraph (c.4), a reference to a share of the capital stock of a corporation includes a right to acquire a share of the capital stock of the corporation;

    • (d) the amount determined under this paragraph in respect of each property of the subsidiary distributed to the parent on the winding-up is such portion of the amount, if any, by which the total determined under subparagraph 88(1)(b)(ii) exceeds the total of

      • (i) the amount, if any, by which

        • (A) the total of all amounts each of which is an amount in respect of any property owned by the subsidiary immediately before the winding-up, equal to the cost amount to the subsidiary of the property immediately before the winding-up, plus the amount of any money of the subsidiary on hand immediately before the winding-up,

        exceeds the total of

        • (B) all amounts each of which is the amount of any debt owing by the subsidiary, or of any other obligation of the subsidiary to pay any amount, that was outstanding immediately before the winding-up, and

        • (C) the amount of any reserve (other than a reserve referred to in paragraph 20(1)(n), subparagraph 40(1)(a)(iii) or 44(1)(e)(iii) of this Act or in subsection 64(1) or (1.1) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as those two provisions read immediately before November 3, 1981) deducted in computing the subsidiary’s income for its taxation year during which its assets were distributed to the parent on the winding-up, and

      • (i.1) the total of all amounts each of which is an amount in respect of any share of the capital stock of the subsidiary disposed of by the parent on the winding-up or in contemplation of the winding-up, equal to the total of all amounts received by the parent or by a corporation with which the parent was not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) in respect of the subsidiary) in respect of

        • (A) taxable dividends on the share or on any share (in this subparagraph referred to as a “replaced share”) for which the share or a replaced share was substituted or exchanged to the extent that the amounts thereof were deductible from the recipient’s income for any taxation year by virtue of section 112 or subsection 138(6) and were not amounts on which the recipient was required to pay tax under Part VII of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read on March 31, 1977, or

        • (B) capital dividends and life insurance capital dividends on the share or on any share (in this subparagraph referred to as a “replaced share”) for which a share or a replaced share was substituted or exchanged,

      as is designated by the parent in respect of that capital property in its return of income under this Part for its taxation year in which the subsidiary was so wound up, except that

      • (ii) the amount designated in respect of any such capital property may not exceed the amount determined by the formula

        A – (B + C)

        where

        A
        is the fair market value of the property at the time the parent last acquired control of the subsidiary,
        B
        is the greater of the cost amount to the subsidiary of the property at the time the parent last acquired control of the subsidiary and the cost amount to the subsidiary of the property immediately before the winding-up, and
        C
        is the prescribed amount, and
      • (ii.1) for the purpose of calculating the amount in subparagraph (ii) in respect of an interest of the subsidiary in a partnership, the fair market value of the interest at the time the parent last acquired control of the subsidiary is deemed to be the amount determined by the formula

        A – B

        where

        A
        is the fair market value (determined without reference to this subparagraph) of the interest at that time, and
        B
        is the portion of the amount by which the fair market value (determined without reference to this subparagraph) of the interest at that time exceeds its cost amount at that time as may reasonably be regarded as being attributable at that time to the total of all amounts each of which is
        • (A) in the case of a depreciable property held directly by the partnership or held indirectly by the partnership through one or more other partnerships, the amount by which the fair market value (determined without reference to liabilities) of the property exceeds its cost amount,

        • (B) in the case of a Canadian resource property or a foreign resource property held directly by the partnership or held indirectly by the partnership through one or more other partnerships, the fair market value (determined without reference to liabilities) of the property, or

        • (C) in the case of a property that is not a capital property, a Canadian resource property or a foreign resource property and that is held directly by the partnership or held indirectly through one or more other partnerships, the amount by which the fair market value (determined without reference to liabilities) of the property exceeds its cost amount, and

      • (iii) in no case shall the total of amounts so designated in respect of all such capital properties exceed the amount, if any, by which the total determined under subparagraph 88(1)(b)(ii) exceeds the total of the amounts determined under subparagraphs 88(1)(d)(i) and 88(1)(d)(i.1),

    • (d.1) subsection 84(2) and section 21 of the Income Tax Application Rules do not apply to the winding-up of the subsidiary, and subsection 13(21.2) does not apply to the winding-up of the subsidiary with respect to property acquired by the parent on the winding-up;

    • (d.2) in determining, for the purposes of this paragraph and paragraphs 88(1)(c) and 88(1)(d), the time at which a person or group of persons (in this paragraph and paragraph 88(1)(d.3) referred to as the “acquirer”) last acquired control of the subsidiary, where control of the subsidiary was acquired from another person or group of persons (in this paragraph referred to as the “vendor”) with whom the acquirer was not (otherwise than solely because of a right referred to in paragraph 251(5)(b)) dealing at arm’s length, the acquirer is deemed to have last acquired control of the subsidiary at the earlier of

      • (i) the time at which the vendor last acquired control (within the meaning that would be assigned by subsection 186(2) if the reference in that subsection to “another corporation” were read as “a person” and the references in that subsection to “the other corporation” were read as “the person”) of the subsidiary, and

      • (ii) the time at which the vendor was deemed for the purpose of this paragraph to have last acquired control of the subsidiary;

    • (d.3) for the purposes of paragraphs 88(1)(c), 88(1)(d) and 88(1)(d.2), where at any time control of a corporation is last acquired by an acquirer because of an acquisition of shares of the capital stock of the corporation as a consequence of the death of an individual, the acquirer is deemed to have last acquired control of the corporation immediately after the death from a person who dealt at arm’s length with the acquirer;

    • (e) for the purposes of the description of A in subparagraph (d)(ii.1), the fair market value of an interest in a particular partnership held by the subsidiary at the time the parent last acquired control of the subsidiary is deemed not to include the amount that is the total of each amount that is the fair market value of a property that would otherwise be included in the fair market value of the interest, if

      • (i) as part of the transaction or event or series of transactions or events in which control of the subsidiary is last acquired by the parent and on or before the acquisition of control,

        • (A) the subsidiary disposes of the property to the particular partnership or any other partnership and subsection 97(2) applies to the disposition, or

        • (B) where the property is an interest in a partnership, the subsidiary acquires the interest in the particular partnership or any other partnership from a person or partnership with whom the subsidiary does not deal at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b)) and section 85 applies in respect of the acquisition of the interest, and

      • (ii) at the time of the acquisition of control, the particular partnership holds directly, or indirectly through one or more other partnerships, property described in clauses (A) to (C) of the description of B in subparagraph (d)(ii.1);

    • (e.1) the subsidiary may, for the purposes of computing its income for its taxation year during which its assets were transferred to, and its obligations were assumed by, the parent on the winding-up, claim any reserve that would have been allowed under this Part if its assets had not been transferred to, or its obligations had not been assumed by, the parent on the winding-up and notwithstanding any other provision of this Part, no amount shall be included in respect of any reserve so claimed in computing the income of the subsidiary for its taxation year, if any, following the year in which its assets were transferred to or its obligations were assumed by the parent;

    • (e.2) paragraphs 87(2)(c), (d.1), (e.1), (e.3), (g) to (l), (l.3) to (u), (x), (z.1), (z.2), (aa), (cc), (ll), (nn), (pp), (rr) and (tt) to (ww), subsection 87(6) and, subject to section 78, subsection 87(7) apply to the winding-up as if the references in those provisions to

      • (i) “amalgamation” were read as “winding-up”,

      • (ii) “predecessor corporation” were read as “subsidiary”,

      • (iii) “new corporation” were read as “parent”,

      • (iv) “its first taxation year” were read as “its taxation year during which it received the assets of the subsidiary on the winding-up”,

      • (v) “its last taxation year” were read as “its taxation year during which its assets were distributed to the parent on the winding-up”,

      • (vi) “predecessor corporation’s gain” were read as “subsidiary’s gain”,

      • (vii) “predecessor corporation’s income” were read as “subsidiary’s income”,

      • (viii) “new corporation’s income” were read as “parent’s income”,

      • (ix) “subsection 89(5)” and “subsection 89(9)” were read as “subsection 89(6)” and “subsection 89(10)”, respectively,

      • (x) “any predecessor private corporation” were read as “the subsidiary (if it was a private corporation at the time of the winding-up)”,

      • (xi) and (xii) [Repealed, 1994, c. 7, Sch. II, s. 66]

      • (xiii) “two or more corporations” were read as “a subsidiary”,

      • (xiv) and (xv) [Repealed, 1998, c. 19, s. 118]

      • (xvi) “the life insurance capital dividend account of any predecessor corporation immediately before the amalgamation” were read as “the life insurance capital dividend account of the subsidiary at the time the subsidiary was wound-up”,

      • (xvii) “predecessor corporation’s refundable Part VII tax on hand” were read as “subsidiary’s refundable Part VII tax on hand”,

      • (xviii) “predecessor corporation’s Part VII refund” were read as “subsidiary’s Part VII refund”,

      • (xix) “predecessor corporation’s refundable Part VIII tax on hand” were read as “subsidiary’s refundable Part VIII tax on hand”,

      • (xx) “predecessor corporation’s Part VIII refund” were read as “subsidiary’s Part VIII refund”, and

      • (xxi) “predecessor corporation’s cumulative offset account” were read as “subsidiary’s cumulative offset account”;

    • (e.3) for the purpose of computing the parent’s investment tax credit at the end of any particular taxation year ending after the subsidiary was wound up,

      • (i) property acquired or expenditures made by the subsidiary or an amount included in the investment tax credit of the subsidiary by virtue of paragraph (b) of the definition investment tax credit in subsection 127(9) in a taxation year (in this paragraph referred to as the “expenditure year”) shall be deemed to have been acquired, made or included, as the case may be, by the parent in its taxation year in which the expenditure year of the subsidiary ended, and

      • (ii) there shall be added to the amounts otherwise determined for the purposes of paragraphs (f) to (k) of the definition investment tax credit in subsection 127(9) in respect of the parent for the particular year

        • (A) the amounts that would have been determined in respect of the subsidiary for the purposes of paragraph (f) of the definition investment tax credit in subsection 127(9) for its taxation year in which it was wound up if the reference therein to “a preceding taxation year” were read as a reference to “the year or a preceding taxation year”,

        • (B) the amounts determined in respect of the subsidiary for the purposes of paragraphs (g) to (i) and (k) of the definition investment tax credit in subsection 127(9) for its taxation year in which it was wound up, and

        • (C) the amount determined in respect of the subsidiary for the purposes of paragraph (j) of the definition investment tax credit in subsection 127(9) for its taxation year in which it was wound up except that, for the purpose of the calculation in this clause, where control of the subsidiary has been acquired by a person or group of persons (each of whom is referred to in this clause as the “purchaser”) at any time (in this clause referred to as “that time”) before the end of the taxation year in which the subsidiary was wound up, there may be added to the amount determined under subparagraph 127(9.1)(d)(i) in respect of the subsidiary the amount, if any, by which that proportion of the amount that, but for subsections 127(3) and 127(5) and sections 126, 127.2 and 127.3, would be the parent’s tax payable under this Part for the particular year, that,

          • (I) where the subsidiary carried on a particular business in the course of which a property was acquired, or an expenditure was made, before that time in respect of which an amount was included in computing the subsidiary’s investment tax credit for its taxation year in which it was wound up, and the parent carried on the particular business throughout the particular year, the amount, if any, by which the total of all amounts each of which is the parent’s income for the particular year from the particular business, or the parent’s income for the particular year from any other business substantially all the income of which was derived from the sale, leasing, rental or development of properties or the rendering of services similar to the properties sold, leased, rented or developed, or the services rendered, as the case may be, by the subsidiary in carrying on the particular business before that time, exceeds the total of the amounts, if any, deducted for the particular year under paragraph 111(1)(a) or 111(1)(d) by the parent in respect of a non-capital loss or a farm loss, as the case may be, for a taxation year in respect of the particular business

          is of the greater of

          • (II) the amount determined under subclause 88(1)(e.3)(ii)(C)(I), and

          • (III) the parent’s taxable income for the particular year

          exceeds the amount, if any, calculated under subparagraph 127(9.1)(d)(i) in respect of the particular business or the other business, as the case may be, in respect of the parent at the end of the particular year

        to the extent that those amounts determined in respect of the subsidiary may reasonably be considered to have been included in computing the parent’s investment tax credit at the end of the particular year by virtue of subparagraph 88(1)(e.3)(i);

    and, for the purposes of the definitions first term shared-use-equipment and second term shared-use-equipment in subsection 127(9), the parent shall be deemed to be the same corporation as, and a continuation of, the subsidiary;

    • (e.4) for the purpose of computing the parent’s employment tax credit at the end of any particular taxation year ending after the subsidiary was wound up,

      • (i) the subsidiary’s taxpayer employment credits for any taxation year (in this paragraph referred to as the “employment year”) and any amounts required to be added by virtue of subsection 127(15) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in computing the subsidiary’s employment tax credit at the end of the employment year shall be deemed to be taxpayer employment credits of the parent for, and amounts required to be added by virtue of that subsection in computing the parent’s employment tax credit at the end of, its taxation year in which the employment year of the subsidiary ended, and

      • (ii) there shall be added to the amounts otherwise determined under paragraphs 127(16)(c) and (d) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect of the parent for the particular taxation year, the amounts that would have been determined under those paragraphs in respect of the subsidiary for its taxation year in which it was wound-up if the reference in paragraph 127(16)(c) of that Act to “the five immediately preceding taxation years” were read as a reference to “that taxation year or the five immediately preceding taxation years” to the extent that those amounts determined in respect of the subsidiary may reasonably be considered to be in respect of a taxpayer employment credit or an amount required to be added by virtue of subsection 127(15) of that Act that is included in computing the parent’s employment tax credit at the end of the particular year by virtue of subparagraph 88(1)(e.4)(i);

    • (e.5) [Repealed, 1996, c. 21, s. 16]

    • (e.6) if a subsidiary has made a gift in a taxation year (in this section referred to as the “gift year”), for the purposes of computing the amount deductible under section 110.1 by the parent for its taxation years that end after the subsidiary was wound up, the parent is deemed to have made a gift, in each of its taxation years in which a gift year of the subsidiary ended, equal to the amount, if any, by which the total of all amounts, each of which is the amount of a gift or, in the case of a gift made after December 20, 2002, the eligible amount of the gift, made by the subsidiary in the gift year exceeds the total of all amounts deducted under section 110.1 by the subsidiary in respect of those gifts;

    • (e.61) the parent is deemed for the purpose of section 110.1 to have made any gift deemed by subsection 118.1(13) to have been made by the subsidiary after the subsidiary ceased to exist;

    • (e.7) for the purposes of

      • (i) determining the amount deductible by the parent under subsection 126(2) for any taxation year commencing after the commencement of the winding-up, and

      • (ii) determining the extent to which subsection 126(2.3) applies to reduce the amount that may be claimed by the parent under paragraph 126(2)(a),

      any unused foreign tax credit (within the meaning of subsection 126(7)) of the subsidiary in respect of a country for a particular taxation year (in this section referred to as the “foreign tax year”), to the extent that it exceeds the total of all amounts each of which is claimed in respect thereof under paragraph 126(2)(a) in computing the tax payable by the subsidiary under this Part for any taxation year, shall be deemed to be an unused foreign tax credit of the parent for its taxation year in which the subsidiary’s foreign tax year ended;

    • (e.8) for the purpose of applying subsection 127(10.2) to any corporation (other than the subsidiary)

      • (i) where the parent is associated with another corporation in a taxation year (in this paragraph referred to as the “current year”) of the parent that begins after the parent received an asset of the subsidiary on the winding-up and that ends in a calendar year,

        • (A) the parent’s taxable income for its last taxation year that ended in the preceding calendar year (determined before taking into consideration the specified future tax consequences for that last year) is deemed to be the total of

          • (I) its taxable income for that last year (determined before applying this paragraph to the winding-up and before taking into consideration the specified future tax consequences for that last year), and

          • (II) the total of the subsidiary’s taxable incomes for its taxation years that ended in that preceding calendar year (determined without reference to clause 88(1)(e.8)(i)(B) and before taking into consideration the specified future tax consequences for those years), and

        • (B) the subsidiary’s taxable income for each of its taxation years that ends after the first time that the parent receives an asset of the subsidiary on the winding-up of the subsidiary is deemed to be nil, and

      • (ii) where the parent received an asset of the subsidiary on the winding-up before the current year and is not associated with any corporation in the current year, the parent’s taxable income for its immediately preceding taxation year (determined before taking into consideration the specified future tax consequences for that preceding year) is deemed to be the total of

        • (A) its taxable income for that preceding taxation year (determined before applying this paragraph to the winding-up and before taking into consideration the specified future tax consequences for that preceding taxation year), and

        • (B) the total of the subsidiary’s taxable incomes for its taxation years that ended in the calendar year in which that preceding taxation year ended (determined before taking into consideration the specified future tax consequences for those years);

    • (e.9) for the purpose of applying the definition qualifying corporation in subsection 127.1(2), and subparagraph (d)(i) of the definition balance-due day in subsection 248(1), to any corporation (other than the subsidiary)

      • (i) where the parent is associated with another corporation in a taxation year (in this paragraph referred to as the “current year”) of the parent that begins after the parent received an asset of the subsidiary on the winding-up and ends in a calendar year,

        • (A) the parent’s taxable income for its last taxation year that ended in the preceding calendar year (determined before taking into consideration the specified future tax consequences for that last year) is deemed to be the total of

          • (I) its taxable income for that last year (determined before applying this paragraph to the winding-up and before taking into consideration the specified future tax consequences for that last year), and

          • (II) the total of the subsidiary’s taxable incomes for its taxation years that ended in that preceding calendar year (determined without reference to subparagraph 88(1)(e.9)(iii) and before taking into consideration the specified future tax consequences for those years),

        • (B) the parent’s business limit for that last year is deemed to be the total of

          • (I) its business limit (determined before applying this paragraph to the winding-up) for that last year, and

          • (II) the total of the subsidiary’s business limits (determined without reference to subparagraph 88(1)(e.9)(iii)) for its taxation years that ended in that preceding calendar year, and

        • (C) the parent’s qualifying income limit for that last year is deemed to be the total of

          • (I) its qualifying income limit (determined before applying this paragraph to the winding-up) for that last year, and

          • (II) the total of the subsidiary’s qualifying income limits (determined without reference to subparagraph (iii)) for its taxation years that ended in that preceding calendar year,

      • (ii) where the parent received an asset of the subsidiary on the winding-up before the current year and subparagraph 88(1)(e.9)(i) does not apply,

        • (A) the parent’s taxable income for its immediately preceding taxation year (determined before taking into consideration the specified future tax consequences for that preceding year) is deemed to be the total of

          • (I) its taxable income for that preceding taxation year (determined before applying this paragraph to the winding-up and before taking into consideration the specified future tax consequences for that preceding taxation year), and

          • (II) the total of the subsidiary’s taxable incomes for the subsidiary’s taxation years that end in the calendar year in which that preceding taxation year ended (determined before taking into consideration the specified future tax consequences for those years),

        • (B) the parent’s business limit for that preceding taxation year is deemed to be the total of

          • (I) its business limit (determined before applying this paragraph to the winding-up) for that preceding taxation year, and

          • (II) the total of the subsidiary’s business limits (determined without reference to subparagraph 88(1)(e.9)(iii)) for the subsidiary’s taxation years that end in the calendar year in which that preceding taxation year ended, and

        • (C) the parent’s qualifying income limit for that preceding taxation year is deemed to be the total of

          • (I) its qualifying income limit (determined before applying this paragraph to the winding-up) for that preceding taxation year, and

          • (II) the total of the subsidiary’s qualifying income limits (determined without reference to subparagraph (iii)) for the subsidiary’s taxation years that end in the calendar year in which that preceding taxation year ended, and

      • (iii) where the parent and the subsidiary are associated with each other in the current year, the subsidiary’s taxable income, the subsidiary’s business limit and the subsidiary’s qualifying income limit for each taxation year that ends after the first time that the parent receives an asset of the subsidiary on the winding-up are deemed to be nil;

    • (f) where property that was depreciable property of a prescribed class of the subsidiary has been distributed to the parent on the winding-up and the capital cost to the subsidiary of the property exceeds the amount deemed by paragraph 88(1)(a) to be the subsidiary’s proceeds of disposition of the property, for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a),

      • (i) notwithstanding paragraph 88(1)(c), the capital cost to the parent of the property shall be deemed to be the amount that was the capital cost of the property to the subsidiary, and

      • (ii) the excess shall be deemed to have been allowed to the parent in respect of the property under regulations made under paragraph 20(1)(a) in computing income for taxation years before the acquisition by the parent of the property;

    • (g) where the subsidiary was an insurance corporation,

      • (i) for the purposes of paragraphs 12(1)(d), (e), (e.1), (i) and (s), subsection 12.5(8), paragraphs 20(1)(l), (l.1), (p) and (jj) and 20(7)(c), subsections 20(22) and 20.4(4), sections 138, 138.1, 140, 142 and 148 and Part XII.3, the parent is deemed to be the same corporation as, and a continuation of, the subsidiary, and

      • (ii) for the purpose of determining the amount of the gross investment revenue required to be included under subsection 138(9) in the income of the subsidiary and the parent and the amount of gains and losses of the subsidiary and the parent from property used by them in the year or held by them in the year in the course of carrying on an insurance business in Canada

        • (A) the subsidiary and the parent shall, in addition to their normal taxation years, be deemed to have had a taxation year ending immediately before the time when the property of the subsidiary was transferred to, and the obligations of the subsidiary were assumed by, the parent on the winding-up, and

        • (B) for the taxation years of the subsidiary and the parent following the time referred to in clause 88(1)(g)(ii)(A), the property transferred to, and the obligations assumed by, the parent on the winding-up shall be deemed to have been transferred or assumed, as the case may be, on the last day of the taxation year ending immediately before that time and the parent shall be deemed to be the same corporation as and a continuation of the subsidiary with respect to that property, those obligations and the insurance businesses carried on by the subsidiary;

    • (h) for the purposes of subsections 112(5) to 112(5.2) and 112(5.4) and the definition mark-to-market property in subsection 142.2(1), the parent shall be deemed, in respect of each property distributed to it on the winding-up, to be the same corporation as, and a continuation of, the subsidiary; and

    • (i) for the purpose of subsection 142.5(2), the subsidiary’s taxation year in which its assets were distributed to the parent on the winding-up shall be deemed to have ended immediately before the time when the assets were distributed.

  • Marginal note:Non-capital losses, etc., of subsidiary

    (1.1) Where a Canadian corporation (in this subsection referred to as the “subsidiary”) has been wound up and not less than 90% of the issued shares of each class of the capital stock of the subsidiary were, immediately before the winding-up, owned by another Canadian corporation (in this subsection referred to as the “parent”) and all the shares of the subsidiary that were not owned by the parent immediately before the winding-up were owned at that time by a person or persons with whom the parent was dealing at arm’s length, for the purpose of computing the taxable income of the parent under this Part and the tax payable under Part IV by the parent for any taxation year commencing after the commencement of the winding-up, such portion of any non-capital loss, restricted farm loss, farm loss or limited partnership loss of the subsidiary as may reasonably be regarded as its loss from carrying on a particular business (in this subsection referred to as the “subsidiary’s loss business”) and any other portion of any non-capital loss or limited partnership loss of the subsidiary as may reasonably be regarded as being derived from any other source or being in respect of a claim made under section 110.5 for any particular taxation year of the subsidiary (in this subsection referred to as the “subsidiary’s loss year”), to the extent that it

    • (a) was not deducted in computing the taxable income of the subsidiary for any taxation year of the subsidiary, and

    • (b) would have been deductible in computing the taxable income of the subsidiary for any taxation year beginning after the commencement of the winding-up, on the assumption that it had such a taxation year and that it had sufficient income for that year,

    shall, for the purposes of this subsection, paragraphs 111(1)(a), 111(1)(c), 111(1)(d) and 111(1)(e), subsection 111(3) and Part IV,

    • (c) in the case of such portion of any non-capital loss, restricted farm loss, farm loss or limited partnership loss of the subsidiary as may reasonably be regarded as its loss from carrying on the subsidiary’s loss business, be deemed, for the taxation year of the parent in which the subsidiary’s loss year ended, to be a non-capital loss, restricted farm loss, farm loss or limited partnership loss, respectively, of the parent from carrying on the subsidiary’s loss business, that was not deductible by the parent in computing its taxable income for any taxation year that commenced before the commencement of the winding-up,

    • (d) in the case of any other portion of any non-capital loss or limited partnership loss of the subsidiary as may reasonably be regarded as being derived from any other source, be deemed, for the taxation year of the parent in which the subsidiary’s loss year ended, to be a non-capital loss or a limited partnership loss, respectively, of the parent that was derived from the source from which the subsidiary derived the loss and that was not deductible by the parent in computing its taxable income for any taxation year that commenced before the commencement of the winding-up, and

    • (d.1) in the case of any other portion of any non-capital loss of the subsidiary as may reasonably be regarded as being in respect of a claim made under section 110.5, be deemed, for the taxation year of the parent in which the subsidiary’s loss year ended, to be a non-capital loss of the parent in respect of a claim made under section 110.5 that was not deductible by the parent in computing its taxable income for any taxation year that commenced before the commencement of the winding-up,

    except that

    • (e) if control of the parent has been acquired by a person or group of persons at any time after the commencement of the winding-up, or control of the subsidiary has been acquired by a person or group of persons at any time whatever, no amount in respect of the subsidiary’s non-capital loss or farm loss for a taxation year ending before that time is deductible in computing the taxable income of the parent for a particular taxation year ending after that time, except that such portion of the subsidiary’s non-capital loss or farm loss as may reasonably be regarded as its loss from carrying on a business and, where a business was carried on by the subsidiary in that year, such portion of the non-capital loss as may reasonably be regarded as being in respect of an amount deductible under paragraph 110(1)(k) in computing its taxable income for the year is deductible only

      • (i) if that business is carried on by the subsidiary or the parent for profit or with a reasonable expectation of profit throughout the particular year, and

      • (ii) to the extent of the total of the parent’s income for the particular year from that business and, where properties were sold, leased, rented or developed or services rendered in the course of carrying on that business before that time, from any other business substantially all of the income of which was derived from the sale, leasing, rental or development, as the case may be, of similar properties or the rendering of similar services

      and for the purpose of this paragraph, where this subsection applied to the winding-up of another corporation in respect of which the subsidiary was the parent and this paragraph applied in respect of losses of that other corporation, the subsidiary shall be deemed to be the same corporation as, and a continuation of, that other corporation with respect to those losses, and

    • (f) any portion of a loss of the subsidiary that would otherwise be deemed by paragraph 88(1.1)(c), 88(1.1)(d) or 88(1.1)(d.1) to be a loss of the parent for a particular taxation year beginning after the commencement of the winding-up shall be deemed, for the purpose of computing the parent’s taxable income for taxation years beginning after the commencement of the winding-up, to be such a loss of the parent for its immediately preceding taxation year and not for the particular year, where the parent so elects in its return of income under this Part for the particular year.

  • Marginal note:Net capital losses of subsidiary

    (1.2) Where the winding-up of a Canadian corporation (in this subsection referred to as the “subsidiary”) commenced after March 31, 1977 and not less than 90% of the issued shares of each class of the capital stock of the subsidiary were, immediately before the winding-up, owned by another Canadian corporation (in this subsection referred to as the “parent”) and all the shares of the subsidiary that were not owned by the parent immediately before the winding-up were owned at that time by persons with whom the parent was dealing at arm’s length, for the purposes of computing the taxable income of the parent for any taxation year commencing after the commencement of the winding-up, any net capital loss of the subsidiary for any particular taxation year of the subsidiary (in this subsection referred to as the “subsidiary’s loss year”), to the extent that it

    • (a) was not deducted in computing the taxable income of the subsidiary for any taxation year of the subsidiary, and

    • (b) would have been deductible in computing the taxable income of the subsidiary for any taxation year beginning after the commencement of the winding-up, on the assumption that it had such a taxation year and that it had sufficient income and taxable capital gains for that year,

    shall, for the purposes of this subsection, paragraph 111(1)(b) and subsection 111(3), be deemed to be a net capital loss of the parent for its taxation year in which the particular taxation year of the subsidiary ended, except that

    • (c) where at any time control of the parent or subsidiary has been acquired by a person or group of persons, no amount in respect of the subsidiary’s net capital loss for a taxation year ending before that time is deductible in computing the parent’s taxable income for a taxation year ending after that time, and

    • (d) any portion of a net capital loss of the subsidiary that would otherwise be deemed by this subsection to be a loss of the parent for a particular taxation year beginning after the commencement of the winding-up shall be deemed, for the purposes of computing its taxable income for taxation years beginning after the commencement of the winding-up, to be a net capital loss of the parent for its immediately preceding taxation year and not for the particular year, where the parent so elects in its return of income under this Part for the particular year.

  • Marginal note:Computation of income and tax of parent

    (1.3) For the purpose of paragraphs 88(1)(e.3), 88(1)(e.6) and 88(1)(e.7), subsections 88(1.1) and 88(1.2), section 110.1, subsections 111(1) and 111(3) and Part IV, where a parent corporation has been incorporated or otherwise formed after the end of an expenditure year, gift year, foreign tax year or loss year, as the case may be, of a subsidiary of the parent, for the purpose of computing the taxable income of, and the tax payable under this Part and Part IV by, the parent for any taxation year,

    • (a) it shall be deemed to have been in existence during the particular period beginning immediately before the end of the subsidiary’s first expenditure year, gift year, foreign tax year or loss year, as the case may be, and ending immediately after it was incorporated or otherwise formed;

    • (b) it shall be deemed to have had, throughout the particular period, fiscal periods ending on the day of the year on which its first fiscal period ended; and

    • (c) it shall be deemed to have been controlled, throughout the particular period, by the person or persons who controlled it immediately after it was incorporated or otherwise formed.

  • Marginal note:Qualified expenditure of subsidiary

    (1.4) For the purposes of this subsection and section 37.1, where the rules in subsection 88(1) applied to the winding-up of a subsidiary, for the purpose of computing the income of its parent for any taxation year commencing after the subsidiary has been wound up, the following rules apply:

    • (a) where the parent’s base period consists of fewer than three taxation years, its base period shall be determined on the assumption that it had taxation years in each of the calendar years preceding the year in which it was incorporated, each of which commenced on the same day of the year as the day of its incorporation;

    • (b) the qualified expenditure made by the parent in a particular taxation year in its base period shall be deemed to be the total of the amount thereof otherwise determined and the qualified expenditure made by the subsidiary in its taxation year ending in the same calendar year as the particular year;

    • (c) the total of the amounts paid to the parent by persons referred to in subparagraphs (b)(i) to (iii) of the definition expenditure base in subsection 37.1(5) in a particular taxation year in its base period shall be deemed to be the total otherwise determined and all those amounts paid to the subsidiary by a person referred to in those subparagraphs in the subsidiary’s taxation year ending in the same calendar year as the particular year; and

    • (d) there shall be added to the total of the amounts otherwise determined in respect of the parent under subparagraphs 37.1(3)(b)(i) and 37.1(3)(b)(iii) respectively, the total of the amounts determined under those subparagraphs in respect of the subsidiary.

  • Marginal note:Application of s. 37.1(5)

    (1.41) The definitions in subsection 37.1(5) apply to subsection 88(1.4).

  • Marginal note:Parent continuation of subsidiary

    (1.5) For the purposes of section 29 of the Income Tax Application Rules, subsection 59(3.3) and sections 66, 66.1, 66.2, 66.21, 66.4 and 66.7, where the rules in subsection (1) applied to the winding-up of a subsidiary, its parent is deemed to be the same corporation as, and a continuation of, the subsidiary.

  • Marginal note:Idem

    (1.6) Where a corporation that carries on a farming business and computes its income from that business in accordance with the cash method is wound up in circumstances to which subsection 88(1) applies and, at the time that is immediately before the winding-up of the corporation, owned inventory that was used in connection with that business,

    • (a) for the purposes of subparagraph 88(1)(a)(iii), the cost amount to the corporation at that time of property purchased by it that is included in that inventory shall be deemed to be the amount determined by the formula

      (A × B/C) + D

      where

      A
      is the amount, if any, that would be included under paragraph 28(1)(c) in computing the corporation’s income for its last taxation year beginning before that time if that year had ended at that time,
      B
      is the value (determined in accordance with subsection 28(1.2)) to the corporation at that time of the purchased inventory that is distributed to the parent on the winding-up,
      C
      is the value (determined in accordance with subsection 28(1.2)) of all of the inventory purchased by the corporation that was owned by it in connection with that business at that time, and
      D
      is the lesser of
      • (i) such additional amount as the corporation designates in respect of the property, and

      • (ii) the amount, if any, by which the fair market value of the property at that time exceeds the amount determined for A in respect of the property;

    • (b) for the purpose of subparagraph 28(1)(a)(i), the disposition of the inventory and the receipt of the proceeds of disposition therefor shall be deemed to have occurred at that time and in the course of carrying on the business; and

    • (c) where the parent carries on a farming business and computes its income therefrom in accordance with the cash method, for the purposes of section 28,

      • (i) an amount equal to the cost to the parent of the inventory shall be deemed to have been paid by it, and

      • (ii) the parent shall be deemed to have purchased the inventory for an amount equal to that cost,

      in the course of carrying on that business and at the time it acquired the inventory.

  • Marginal note:Interpretation

    (1.7) For the purposes of paragraphs 88(1)(c) and 88(1)(d), where a parent of a subsidiary did not deal at arm’s length with another person (other than a corporation the control of which was acquired by the parent from a person with whom the parent dealt at arm’s length) at any time before the winding-up of the subsidiary, the parent and the other person are deemed never to have dealt with each other at arm’s length, whether or not the parent and the other person coexisted.

  • Marginal note:Application of subsection (1.9)

    (1.8) Subsection (1.9) applies if

    • (a) a corporation has made a designation (referred to in this subsection and subsection (1.9) as the “initial designation”) under paragraph (1)(d) in respect of a share of the capital stock of a foreign affiliate of the corporation, or an interest in a partnership that, based on the assumptions contained in paragraph 96(1)(c), owns a share of the capital stock of a foreign affiliate of the corporation, on or before the filing-due date for its return of income under this Part for the taxation year in which a disposition of the share or the partnership interest, as the case may be, occurred in the course of a winding-up referred to in subsection (1) or an amalgamation referred to in subsection 87(11);

    • (b) the corporation made reasonable efforts to determine the foreign affiliate’s tax-free surplus balance (within the meaning assigned by subsection 5905(5.5) of the Income Tax Regulations), in respect of the corporation, that was relevant in the computation of the maximum amount available under subparagraph (1)(d)(ii) to be designated in respect of that disposition; and

    • (c) the corporation amends the initial designation on or before the day that is 10 years after the filing-due date referred to in paragraph (a).

  • Marginal note:Amended designation

    (1.9) If this subsection applies and, in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the initial designation to be amended, the amended designation under paragraph (1.8)(c) is deemed to have been made on the day on which the initial designation was made and the initial designation is deemed not to have been made.

  • Marginal note:Winding-up of Canadian corporation

    (2) Where a Canadian corporation (other than a subsidiary to the winding-up of which the rules in subsection 88(1) applied) has been wound up after 1978 and, at a particular time in the course of the winding-up, all or substantially all of the property owned by the corporation immediately before that time was distributed to the shareholders of the corporation,

    • (a) for the purposes of computing the corporation’s

      • (i) capital dividend account,

      • (i.1) capital gains dividend account (within the meaning assigned by subsection 131(6), where the corporation is an investment corporation,

      • (ii) capital gains dividend account (within the meaning assigned by section 133), and

      • (iii) pre-1972 capital surplus on hand,

      at the time (in this paragraph referred to as the “time of computation”) immediately before the particular time,

      • (iv) the taxation year of the corporation that otherwise would have included the particular time shall be deemed to have ended immediately before the time of computation, and a new taxation year shall be deemed to have commenced at that time, and

      • (v) each property of the corporation that was so distributed at the particular time shall be deemed to have been disposed of by the corporation immediately before the end of the taxation year so deemed to have ended for proceeds equal to the fair market value of the property immediately before the particular time,

      • (vi) [Repealed, 1994, c. 7, Sch. II, s. 66]

    • (b) where the corporation is, by virtue of subsection 84(2), deemed to have paid at the particular time a dividend (in this paragraph referred to as the “winding-up dividend”) on shares of any class of its capital stock, the following rules apply:

      • (i) such portion of the winding-up dividend as does not exceed the corporation’s capital dividend account immediately before that time or capital gains dividend account immediately before that time, as the case may be, shall be deemed, for the purposes of an election in respect thereof under subsection 83(2), 131(1) (as that subsection applies for the purposes of section 130) or 133(7.1), as the case may be, and where the corporation has so elected, for all other purposes, to be the full amount of a separate dividend,

      • (ii) the portion of the winding-up dividend equal to the lesser of the corporation’s pre-1972 capital surplus on hand immediately before that time and the amount by which the winding-up dividend exceeds

        • (A) the portion thereof in respect of which the corporation has made an election under subsection 83(2), or

        • (B) the portion thereof in respect of which the corporation has made an election under subsection 133(7.1),

        as the case may be, shall be deemed not to be a dividend,

      • (iii) notwithstanding the definition taxable dividend in subsection 89(1), the winding-up dividend, to the extent that it exceeds the total of the portion thereof deemed by subparagraph 88(2)(b)(i) to be a separate dividend for all purposes and the portion deemed by subparagraph 88(2)(b)(ii) not to be a dividend, shall be deemed to be a separate dividend that is a taxable dividend, and

      • (iv) each person who held any of the issued shares of that class at the particular time shall be deemed to have received that proportion of any separate dividend determined under subparagraph 88(2)(b)(i) or 88(2)(b)(iii) that the number of shares of that class held by the person immediately before the particular time is of the number of issued shares of that class outstanding immediately before that time, and

    • (c) for the purpose of computing the income of the corporation for its taxation year that includes the particular time, paragraph 12(1)(t) shall be read as follows:

      • “12(1)(t) the amount deducted under subsection 127(5) or 127(6) in computing the taxpayer’s tax payable for the year or a preceding taxation year to the extent that it was not included under this paragraph in computing the taxpayer’s income for a preceding taxation year or is not included in an amount determined under paragraph 13(7.1)(e) or 37(1)(e) or subparagraph 53(2)(c)(vi) or 53(2)(h)(ii) or the amount determined for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.1(6);”.

  • Definition of pre-1972 capital surplus on hand

    (2.1) For the purposes of subsection 88(2), pre-1972 capital surplus on hand of a particular corporation at a particular time means the amount, if any, by which the total of

    • (a) the corporation’s 1971 capital surplus on hand on December 31, 1978 within the meaning of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read on that date,

    • (b) the total of all amounts each of which is an amount in respect of a capital property of the corporation owned by it on December 31, 1971 and disposed of by it after 1978 and before the particular time, equal to the amount, if any, by which the lesser of its fair market value on valuation day (within the meaning assigned by section 24 of the Income Tax Application Rules) and the corporation’s proceeds of disposition of that capital property exceeds its actual cost to the corporation determined without reference to the Income Tax Application Rules other than subsections 26(15), (17) and (21) to (27) of that Act,

    • (c) where before the particular time a subsidiary (to the winding-up of which the rules in subsection 88(1) applied) of the particular corporation has been wound up after 1978, an amount equal to the pre-1972 capital surplus on hand of the subsidiary immediately before the commencement of the winding-up, and

    • (d) where the particular corporation is a new corporation formed as a result of an amalgamation (within the meaning of section 87) after 1978 and before the particular time, the total of all amounts each of which is an amount in respect of a predecessor corporation, equal to the predecessor corporation’s pre-1972 capital surplus on hand immediately before the amalgamation

    exceeds

    • (e) the total of all amounts each of which is an amount in respect of a capital property (other than depreciable property) of the corporation owned by it on December 31, 1971 and disposed of by it after 1978 and before the particular time equal to the amount, if any, by which its actual cost to the corporation determined without reference to the Income Tax Application Rules, other than subsections 26(15), (17) and (21) to (27) of that Act, exceeds the greater of the fair market value of the property on valuation day (within the meaning assigned by section 24 of that Act) and the corporation’s proceeds of disposition of the property.

  • Marginal note:Determination of pre-1972 capital surplus on hand

    (2.2) For the purposes of determining the pre-1972 capital surplus on hand of any corporation at a particular time after 1978, the following rules apply:

    • (a) an amount referred to in paragraphs 88(2.1)(b) and 88(2.1)(e) in respect of the corporation shall be deemed to be nil, where the property disposed of is

      • (i) a share of the capital stock of a subsidiary, within the meaning of subsection 88(1), that was disposed of on the winding-up of the subsidiary where that winding-up commenced after 1978,

      • (ii) a share of the capital stock of another Canadian corporation that was controlled, within the meaning assigned by subsection 186(2), by the corporation immediately before the disposition and that was disposed of by the corporation after 1978 to a person with whom the corporation was not dealing at arm’s length immediately after the disposition, other than by a disposition referred to in paragraph 88(2.2)(b), or

      • (iii) subject to subsection 26(21) of the Income Tax Application Rules, a share of the capital stock of a particular corporation that was disposed of by the corporation after 1978, on an amalgamation, within the meaning assigned by subsection 87(1), where the corporation controlled, within the meaning assigned by subsection 186(2), both the particular corporation immediately before the amalgamation and the new corporation immediately after the amalgamation; and

    • (b) where another corporation that is a Canadian corporation owned a capital property on December 31, 1971 and subsequently disposed of it to the corporation in a transaction to which section 85 applied, the other corporation shall be deemed not to have disposed of that property in the transaction and the corporation shall be deemed to have owned that property on December 31, 1971 and to have acquired it at an actual cost equal to the actual cost of that property to the other corporation.

  • Marginal note:Actual cost of certain depreciable property

    (2.3) For the purpose of subsection 88(2.1), the actual cost of the depreciable property that was acquired by a corporation before the commencement of its 1949 taxation year that is capital property referred to in that subsection shall be deemed to be the capital cost of that property to the corporation (within the meaning assigned by section 144 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read in its application to the 1971 taxation year).

  • Marginal note:Liquidation and dissolution of foreign affiliate

    (3) Notwithstanding subsection 69(5), if at any time a taxpayer receives a property (referred to in this subsection as the “distributed property”) from a foreign affiliate (referred to in this subsection as the “disposing affiliate”) of the taxpayer on a liquidation and dissolution of the disposing affiliate and the distributed property is received in respect of shares of the capital stock of the disposing affiliate that are disposed of on the liquidation and dissolution,

    • (a) subject to subsections (3.3) and (3.5), the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the taxpayer for proceeds of disposition equal to the relevant cost base (within the meaning assigned by subsection 95(4)) to the disposing affiliate of the distributed property in respect of the taxpayer, immediately before that time, if

      • (i) the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate, or

      • (ii) the distributed property is a share of the capital stock of another foreign affiliate of the taxpayer that was, immediately before that time, excluded property (within the meaning assigned by subsection 95(1)) of the disposing affiliate;

    • (b) if paragraph (a) does not apply to the distributed property, the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the taxpayer for proceeds of disposition equal to the distributed property’s fair market value at that time;

    • (c) the distributed property is deemed to have been acquired, at that time, by the taxpayer at a cost equal to the amount determined under paragraph (a) or (b) to be the disposing affiliate’s proceeds of disposition of the distributed property;

    • (d) each share (referred to in paragraph (e) and subsections (3.3) and (3.4) as a “disposed share”) of a class of the capital stock of the disposing affiliate that is disposed of by the taxpayer on the liquidation and dissolution is deemed to be disposed of for proceeds of disposition equal to the amount determined by the formula

      A/B

      where

      A
      is the total of all amounts each of which is the net distribution amount in respect of a distribution of distributed property made, at any time, in respect of the class, and
      B
      is the total number of issued and outstanding shares of the class that are owned by the taxpayer during the liquidation and dissolution; and
    • (e) if the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate, any loss of the taxpayer in respect of the disposition of a disposed share is deemed to be nil.

  • Marginal note:Qualifying liquidation and dissolution

    (3.1) For the purposes of subsections (3), (3.3) and (3.5), a qualifying liquidation and dissolution of a foreign affiliate (referred to in this subsection as the “disposing affiliate”) of a taxpayer means a liquidation and dissolution of the disposing affiliate in respect of which the taxpayer elects in accordance with prescribed rules and

    • (a) the taxpayer owns not less than 90% of the issued and outstanding shares of each class of the capital stock of the disposing affiliate throughout the liquidation and dissolution; or

    • (b) both

      • (i) the percentage determined by the following formula is greater than or equal to 90%:

        A/B

        where

        A
        is the amount, if any, by which
        • (A) the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate to the taxpayer in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate

        exceeds

        • (B) the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the taxpayer in consideration for a property referred to in clause (A), and

        B
        is the amount, if any, by which
        • (A) the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate to a shareholder of the disposing affiliate in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate

        exceeds

        • (B) the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by a shareholder of the disposing affiliate in consideration for a property referred to in clause (A), and

      • (ii) at the time of each distribution of property by the disposing affiliate in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate, the taxpayer holds shares of that capital stock that would, if an annual general meeting of the shareholders of the disposing affiliate were held at that time, entitle it to 90% or more of the votes that could be cast under all circumstances at the meeting.

  • Marginal note:Net distribution amount

    (3.2) For the purposes of the description of A in paragraph (3)(d), net distribution amount in respect of a distribution of distributed property means the amount determined by the formula

    A – B

    where

    A
    is the cost to the taxpayer of the distributed property as determined under paragraph (3)(c), and
    B
    is the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the taxpayer in consideration for the distribution of the distributed property.
  • Marginal note:Suppression election

    (3.3) For the purposes of paragraph (3)(a), if the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate and the taxpayer would, in the absence of this subsection and, for greater certainty, after taking into account any election under subsection 93(1), realize a capital gain (the amount of which is referred to in subsection (3.4) as the “capital gain amount”) from the disposition of a disposed share, the taxpayer may elect, in accordance with prescribed rules, that distributed property that was, immediately before the disposition, capital property of the disposing affiliate be deemed to have been disposed of by the disposing affiliate to the taxpayer for proceeds of disposition equal to the amount claimed (referred to in subsection (3.4) as the “claimed amount”) by the taxpayer in the election.

  • Marginal note:Conditions for subsection (3.3) election

    (3.4) An election under subsection (3.3) in respect of distributed property disposed of in the course of the liquidation and dissolution is not valid unless

    • (a) the claimed amount in respect of each distributed property does not exceed the amount that would, in the absence of subsection (3.3), be determined under paragraph (3)(a) in respect of the distributed property; and

    • (b) the amount determined by the following formula does not exceed the total of all amounts each of which is the capital gain amount in respect of a disposed share:

      A – B

      where

      A
      is the total of all amounts that would, in the absence of subsection (3.3), be determined under paragraph (3)(a) to be the proceeds of disposition of a distributed property in respect of which an election under subsection (3.3) is made by the taxpayer, and
      B
      is the total of all amounts each of which is the claimed amount in respect of a distributed property referred to in the description of A.
  • Marginal note:Taxable Canadian property

    (3.5) For the purposes of paragraph (3)(a), the distributed property is deemed to have been disposed of by the disposing affiliate to the taxpayer for proceeds of disposition equal to the adjusted cost base of the distributed property to the disposing affiliate immediately before the time of its disposition, if

    • (a) the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate;

    • (b) the distributed property is, at the time of its disposition, taxable Canadian property (other than treaty-protected property) of the disposing affiliate that is a share of the capital stock of a corporation resident in Canada; and

    • (c) the taxpayer and the disposing affiliate have jointly elected in accordance with prescribed rules.

  • Marginal note:Amalgamation deemed not to be acquisition of control

    (4) For the purposes of paragraphs (1)(c), (c.2), (d) and (d.2) and, for greater certainty, paragraphs (c.3) to (c.8) and (d.3),

    • (a) subject to paragraph 88(4)(c), control of any corporation shall be deemed not to have been acquired because of an amalgamation;

    • (b) any corporation formed as a result of an amalgamation shall be deemed to be the same corporation as, and a continuation of, each predecessor corporation; and

    • (c) in the case of an amalgamation described in subsection 87(9), control of a predecessor corporation that was not controlled by the parent before the amalgamation shall be deemed to have been acquired by the parent immediately before the amalgamation.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 88;
  • 1994, c. 7, Sch. II, s. 66, Sch. VI, s. 4, Sch. VIII, s. 38, c. 8, s. 10, c. 21, s. 40;
  • 1995, c. 3, s. 24, c. 21, ss. 31, 55;
  • 1996, c. 21, s. 16;
  • 1997, c. 25, s. 19;
  • 1998, c. 19, ss. 16, 118;
  • 2001, c. 17, s. 66;
  • 2002, c. 9, s. 31;
  • 2007, c. 2, s. 46;
  • 2009, c. 2, s. 20;
  • 2012, c. 31, s. 18;
  • 2013, c. 34, ss. 30, 65, 224, c. 40, s. 40;
  • 2016, c. 12, s. 28.
Date modified: