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

Regulations are current to 2015-02-04 and last amended on 2014-12-16. Previous Versions

Election in Respect of Capital Gains

  •  (1) If at any time a dividend (such time and each such dividend, respectively, referred to in this subsection and subsection (2) as the “dividend time” and an “elected dividend”) is, by virtue of an election made under subsection 93(1) of the Act by a corporation in respect of a disposition, deemed to have been received on a share (each such share referred to in this subsection as an “elected share”) of a class of the capital stock of a particular foreign affiliate of the corporation, the following rules apply:

    • (a) for the purposes of subsection 5900(1), in applying the provisions of subsection 5901(1),

      • (i) the particular affiliate’s exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, underlying foreign tax and net surplus, in respect of the corporation at the dividend time, are deemed to be those amounts that would otherwise be determined immediately before the dividend time if

        • (A) each other foreign affiliate of the corporation in which the affiliate had an equity percentage (within the meaning assigned by subsection 95(4) of the Act) at the dividend time had, immediately before the time that is immediately before the dividend time, paid a dividend equal to its net surplus in respect of the corporation, determined immediately before the time the dividend was paid, and

        • (B) any dividend referred to in clause (A) that any other foreign affiliate would have received had been received by it immediately before any such dividend that it would have paid, and

      • (ii) the particular affiliate is deemed to have paid a whole dividend at the dividend time on the shares of that class of its capital stock in an amount determined by the formula

        A × B

        where

        A 
        is the total of all amounts each of which is the amount of an elected dividend, and
        B 
        is the greater of
        • (A) one, and

        • (B) the quotient determined by the formula

          C/D

          where

          C 
          is the amount of the particular affiliate’s net surplus determined under subparagraph (a)(i), and
          D 
          is the greater of
          • (I) one unit of the currency in which the amount determined for C is expressed, and

          • (II) the amount that would have been received on the elected shares if the particular affiliate had at the dividend time paid dividends, on all shares of its capital stock, the total of which was equal to the amount of its net surplus referred to in subparagraph (a)(i); and

    • (b) subject to paragraph 5905(5)(c), there is to be included, at the dividend time,

      • (i) under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) in computing the particular affiliate’s exempt surplus or exempt deficit, as the case may be, in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the portion of any elected dividend that is prescribed by paragraph 5900(1)(a) to have been paid out of the exempt surplus of the particular affiliate,

      • (i.1) under subparagraph (vi) of the description of B in the definition “hybrid surplus” in subsection 5907(1) in computing the particular affiliate’s hybrid surplus or hybrid deficit, as the case may be, in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the portion of any elected dividend that is prescribed by paragraph 5900(1)(a.1) to have been paid out of the hybrid surplus of the particular affiliate,

      • (i.2) under subparagraph (iii) of the description of B in the definition “hybrid underlying tax” in subsection 5907(1) in computing the particular affiliate’s hybrid underlying tax in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the amount prescribed by paragraph 5900(1)(c.1) to be the foreign tax applicable to the portion of any elected dividend that is prescribed by paragraph 5900(1)(a.1) to have been paid out of the hybrid surplus of the particular affiliate,

      • (ii) under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1) in computing the particular affiliate’s taxable surplus or taxable deficit, as the case may be, in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the portion of any elected dividend that is prescribed by paragraph 5900(1)(b) to have been paid out of the taxable surplus of the particular affiliate, and

      • (iii) under subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1) in computing the particular affiliate’s underlying foreign tax in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the amount prescribed by paragraph 5900(1)(d) to be the foreign tax applicable to such portion of any elected dividend as is prescribed by paragraph 5900(1)(b) to have been paid out of the taxable surplus of the particular affiliate.

  • (2) In this section,

    • (a) for the purpose of paragraph (1)(a),

      • (i) if a particular foreign affiliate of a corporation has an equity percentage (within the meaning assigned by subsection 95(4) of the Act) in another foreign affiliate of the corporation that has an equity percentage in the particular affiliate, the exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, underlying foreign tax and net surplus of, and the amount of a dividend paid or received by, the particular affiliate are to be determined in a manner that is

        • (A) reasonable in the circumstances, and

        • (B) consistent with the results that would be obtained if a series of actual dividends had been paid and received by the foreign affiliates of the corporation that are relevant to the determination, and

      • (ii) if any foreign affiliate of a corporation resident in Canada has issued shares of more than one class of its capital stock, the amount that would be paid as a dividend on the shares of any class is the portion of its net surplus that, in the circumstances, it might reasonably be expected to have paid on all the shares of the class, and

    • (b) the specified adjustment factor in respect of a disposition is the percentage determined by the formula

      A/B

      where

      A 
      is
      • (i) if the elected dividend is received by the corporation, 100 per cent, and

      • (ii) if the elected dividend is received by another foreign affiliate of the corporation, the surplus entitlement percentage of the corporation in respect of the other affiliate immediately before the dividend time, and

      B 
      is the surplus entitlement percentage of the corporation in respect of the particular affiliate immediately before the dividend time.
  • (3) [Repealed, 2013, c. 34, s. 41]

  • (4) [Repealed, SOR/85-176, s. 1]

  • (5) Any election under subsection 93(1) of the Act by a corporation resident in Canada in respect of any share of the capital stock of a foreign affiliate of the corporation disposed of by it or by another foreign affiliate of the corporation shall be made by filing the prescribed form with the Minister on or before the day that is the later of

    • (a) December 31, 1989; and

    • (b) where the election is made

      • (i) in respect of a share disposed of by the corporation, the day on or before which the corporation’s return of income for its taxation year in which the disposition was made is required to be filed pursuant to subsection 150(1) of the Act, or

      • (ii) in respect of a share disposed of by another foreign affiliate of the corporation, the day on or before which the corporation’s return of income for its taxation year, in which the taxation year of the foreign affiliate in which the disposition was made ends, is required to be filed pursuant to subsection 150(1) of the Act,

      as the case may be.

  • (6) If at any time a corporation resident in Canada is deemed under subsection 93(1.11) of the Act to have made an election under subsection 93(1) of the Act in respect of a disposition of a share of the capital stock of a particular foreign affiliate of the corporation, the prescribed amount is the lesser of

    • (a) the capital gain, if any, otherwise determined in respect of the disposition of the share; and

    • (b) the amount that would reasonably be expected to have been received in respect of the share if the particular affiliate had at that time paid dividends, on all shares of its capital stock, the total of which was equal to the amount determined under subparagraph (1)(a)(i) to be its net surplus in respect of the corporation for the purposes of the election.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations. SOR/80-141, s. 1;
  • SOR/82-910, s. 1;
  • SOR/85-176, s. 1;
  • SOR/89-135, s. 1;
  • SOR/94-686, s. 79(F);
  • SOR/97-505, s. 4;
  • 2013, c. 34, ss. 41, 80.