Income Tax Regulations (C.R.C., c. 945)

Regulations are current to 2014-09-29 and last amended on 2014-06-19. Previous Versions

Order of Surplus Distributions

  •  (1) Subject to subsection (1.1), if at any time in its taxation year a foreign affiliate of a corporation resident in Canada has paid a whole dividend on the shares of any class of its capital stock, for the purposes of this Part

    • (a) the portion of the whole dividend deemed to have been paid out of the affiliate’s exempt surplus in respect of the corporation at that time is an amount equal to the lesser of

      • (i) the amount of the whole dividend, and

      • (ii) the amount, if any, by which the exempt surplus exceeds the total of

        • (A) the affiliate’s hybrid deficit, if any, in respect of the corporation at that time, and

        • (B) the affiliate’s taxable deficit, if any, in respect of the corporation at that time;

    • (a.1) the portion of the whole dividend deemed to have been paid out of the affiliate’s hybrid surplus in respect of the corporation at that time is an amount equal to the lesser of

      • (i) the amount, if any, by which the amount of the whole dividend exceeds the portion determined under paragraph (a), and

      • (ii) the amount, if any, by which the hybrid surplus exceeds

        • (A) if the affiliate has an exempt deficit and a taxable deficit, in respect of the corporation at that time, the total of the exempt deficit and the taxable deficit,

        • (B) if the affiliate has an exempt deficit and no taxable deficit, in respect of the corporation at that time, the amount of the exempt deficit, and

        • (C) if the affiliate has a taxable deficit and no exempt deficit, in respect of the corporation at that time, the amount, if any, by which the taxable deficit exceeds the affiliate’s exempt surplus in respect of the corporation at that time;

    • (b) the portion of the whole dividend deemed to have been paid out of the affiliate’s taxable surplus in respect of the corporation at that time is an amount equal to the lesser of

      • (i) the amount, if any, by which the amount of the whole dividend exceeds the total of the portions determined under paragraphs (a) and (a.1), and

      • (ii) the amount, if any, by which the taxable surplus exceeds

        • (A) if the affiliate has an exempt deficit and a hybrid deficit, in respect of the corporation at that time, the total of the exempt deficit and the hybrid deficit,

        • (B) if the affiliate has an exempt deficit and no hybrid deficit, in respect of the corporation at that time, the amount, if any, by which the exempt deficit exceeds the affiliate’s hybrid surplus in respect of the corporation at that time, and

        • (C) if the affiliate has a hybrid deficit and no exempt deficit, in respect of the corporation at that time, the amount, if any, by which the hybrid deficit exceeds the affiliate’s exempt surplus in respect of the corporation at that time; and

    • (c) the portion of the whole dividend deemed to have been paid out of the affiliate’s pre-acquisition surplus in respect of the corporation at that time is the amount, if any, by which the whole dividend exceeds the total of the portions determined under paragraphs (a) to (b).

  • (1.1) If the corporation resident in Canada that is referred to in subsection (1) elects in writing under this subsection in respect of the whole dividend referred to in subsection (1) and files the election with the Minister on or before the corporation’s filing-due date for its taxation year that includes the day the whole dividend was paid, subsection (1) applies in respect of the whole dividend as if its paragraphs (a.1) and (b) read as follows:

    • (a.1) the portion of the whole dividend deemed to have been paid out of the affiliate’s taxable surplus in respect of the corporation at that time is an amount equal to the lesser of

      • (i) the amount, if any, by which the amount of the whole dividend exceeds the portion determined under paragraph (a), and

      • (ii) the amount, if any, by which the taxable surplus exceeds

        • (A) if the affiliate has an exempt deficit and a hybrid deficit, in respect of the corporation at that time, the total of the exempt deficit and the hybrid deficit,

        • (B) if the affiliate has an exempt deficit and no hybrid deficit, in respect of the corporation at that time, the amount of the exempt deficit, and

        • (C) if the affiliate has a hybrid deficit and no exempt deficit, in respect of the corporation at that time, the amount, if any, by which the hybrid deficit exceeds the affiliate’s exempt surplus in respect of the corporation at that time;

    • (b) the portion of the whole dividend deemed to have been paid out of the affiliate’s hybrid surplus in respect of the corporation at that time is an amount equal to the lesser of

      • (i) the amount, if any, by which the amount of the whole dividend exceeds the total of the portions determined under paragraphs (a) and (a.1),

      • (ii) the amount, if any, by which the hybrid surplus exceeds

        • (A) if the affiliate has an exempt deficit and a taxable deficit, in respect of the corporation at that time, the total of the exempt deficit and the taxable deficit,

        • (B) if the affiliate has an exempt deficit and no taxable deficit, in respect of the corporation at that time, the amount, if any, by which the exempt deficit exceeds the affiliate’s taxable surplus in respect of the corporation at that time, and

        • (C) if the affiliate has a taxable deficit and no exempt deficit, in respect of the corporation at that time, the amount, if any, by which the taxable deficit exceeds the affiliate’s exempt surplus in respect of the corporation at that time; and

  • (2) Notwithstanding subsection (1),

    • (a) if a foreign affiliate of a corporation resident in Canada pays a whole dividend (other than a whole dividend referred to in subsection 5902(1)) at any particular time in its taxation year that is more than 90 days after the commencement of that year or at any particular time in its 1972 taxation year that is before January 1, 1972, the portion of the whole dividend that would, in the absence of this paragraph, be deemed to have been paid out of the affiliate’s pre-acquisition surplus in respect of the corporation (otherwise than because of an election under paragraph (b)) is instead deemed to have been paid out of the exempt surplus, hybrid surplus and taxable surplus of the affiliate in respect of the corporation to the extent that it would have been deemed to have been so paid if, immediately after the end of that year, that portion were paid as a separate whole dividend before any whole dividend paid after the particular time and after any whole dividend paid before the particular time by the affiliate, and for the purposes of determining the exempt deficit, exempt surplus, hybrid deficit, hybrid surplus, hybrid underlying tax, taxable deficit, taxable surplus and underlying foreign tax of the affiliate in respect of the corporation at any time, that portion is deemed to have been paid as a separate whole dividend immediately following the end of the year and not to have been paid at the particular time; and

    • (b) a whole dividend referred to in subsection (1) that is paid at any time by a foreign affiliate of a corporation resident in Canada and that would, in the absence of this paragraph, be deemed under subsection (1) to have been, in whole or in part, paid out of the exempt surplus, hybrid surplus or taxable surplus of the affiliate in respect of the corporation is instead deemed to have been paid out of the pre-acquisition surplus of the affiliate in respect of the corporation if

      • (i) the corporation, and each other corporation, if any, of which the affiliate would, at that time, be a foreign affiliate if paragraph (b) of the definition “equity percentage” in subsection 95(4) of the Act were read as if the reference in that paragraph to “any corporation” were a reference to “any corporation other than a corporation resident in Canada” and that is, at that time, related to the corporation,

        • (A) where there is no such other corporation, elects in writing under this subparagraph and files the election with the Minister on or before the filing-due date for its taxation year in which the whole dividend is paid, and

        • (B) in any other case, jointly elect in writing under this subparagraph and file the election with the Minister on or before the earliest of the filing-due dates for their taxation years in which the whole dividend is paid,

      • (ii) no shareholder of the affiliate is, at that time, a partnership a member of which is

        • (A) a corporation that would, in the absence of this subparagraph, be eligible to elect under subparagraph (i), or

        • (B) a foreign affiliate of such a corporation, and

      • (iii) no particular person or particular partnership — in respect of which the affiliate would, at that time, be a foreign affiliate if paragraph (b) of the definition “equity percentage” in subsection 95(4) of the Act were read in the manner required by subparagraph (i) — has elected under subsection 90(3) of the Act in respect of the distribution that is the whole dividend where

        • (A) in the case of a particular person, the particular person is, or is at that time related to, the corporation, or

        • (B) in the case of a particular partnership, a member of the particular partnership is, or is at that time related to, the corporation.

  • (2.1) Subsection (2.2) applies if, in respect of a whole dividend paid by a foreign affiliate of a corporation resident in Canada,

    • (a) the corporation determined not to make an election under subparagraph (2)(b)(i) in respect of the whole dividend before the filing-due date specified in the relevant clause of that subparagraph;

    • (b) the corporation demonstrates that the determination was made using reasonable efforts; and

    • (c) the corporation, whether jointly with one or more other corporations or otherwise, files such an election on or before the day that is 10 years after that filing-due date.

  • (2.2) If this subsection applies and, in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit an election referred to in subsection (2.1) to be filed after the filing-due date specified in the relevant clause of subparagraph (2)(b)(i), that election is deemed to have been filed on that filing-due date.

  • (3) Notwithstanding subsections (1) and (2), for the purposes of the definitions “exempt deficit”, “exempt surplus”, “taxable deficit” and “taxable surplus” in subsection 5907(1), any amount designated pursuant to subsection 5900(2) in respect of a dividend paid by a foreign affiliate of a corporation resident in Canada increases the portion of the whole dividend deemed to have been paid out of the affiliate’s taxable surplus in respect of the corporation and decreases the portion of the whole dividend deemed to have been paid out of the affiliate’s exempt surplus in respect of the corporation.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations. SOR/94-686, s. 79(F);
  • SOR/97-505, s. 3;
  • 2013, c. 34, s. 79.