Technical Tax Amendments Act, 2012 (S.C. 2013, c. 34)

Assented to 2013-06-26

Technical Tax Amendments Act, 2012

S.C. 2013, c. 34

Assented to 2013-06-26

An Act to amend the Income Tax Act, the Excise Tax Act, the Federal-Provincial Fiscal Arrangements Act, the First Nations Goods and Services Tax Act and related legislation

SUMMARY

Part 1 of this enactment implements, in accordance with proposals announced in the March 4, 2010 Budget and released for comment on August 27, 2010, amendments to the provisions of the Income Tax Act governing the taxation of non-resident trusts and their beneficiaries and of Canadian taxpayers who hold interests in offshore investment fund property.

Parts 2 and 3 implement various technical amendments in respect of the Income Tax Act and the Income Tax Regulations relating to the taxation of Canadian multinational corporations with foreign affiliates. The amendments in Part 2 are based on draft proposals released on December 18, 2009. Among other things, Part 2 includes the amendments to the foreign affiliate surplus rules in the Income Tax Regulations that are consequential to the foreign affiliate changes to the Income Tax Act announced in the March 19, 2007 Budget. The amendments in Part 3 are based on draft proposals released on August 19, 2011. Among other things, Part 3 includes revisions to the measures proposed in a package of draft legislation released on February 27, 2004 dealing primarily with reorganizations of, and distributions from, foreign affiliates.

Part 4 deals with provisions of the Income Tax Act that are not amended in Parts 1, 2, 3 or 5 in which the following private law concepts are used: right and interest, real and personal property, life estate and remainder interest, tangible and intangible property and joint and several liability. It enacts amendments, released for comments on July 16, 2010, to ensure that those provisions are bijural, in other words, that they reflect both the common law and the civil law in both linguistic versions. Similar amendments are made in Parts 1, 2, 3 and 5 to ensure that any provision of the Act enacted or amended by those Parts are also bijural.

Part 5 implements a number of income tax measures proposed in the March 4, 2010 Budget and released for comment on May 7, 2010 and August 27, 2010. Most notably, it enacts amendments

(a) relating to specified leasing property;

(b) to provide that conversions of specified investment flow-through (SIFT) trusts and partnerships into corporations are subject to the same loss utilization restrictions as are transactions between corporations;

(c) to prevent foreign tax credit generators; and

(d) implementing a regime for information reporting of tax avoidance transactions.

Part 5 also implements certain income tax measures that were previously announced. Most notably, it enacts amendments announced

(a) on January 27, 2009, relating to the Apprenticeship Completion Grant;

(b) on May 3, 2010, to clarify that computers continue to be eligible for the Atlantic investment tax credit;

(c) on July 16, 2010, relating to technical changes to the Income Tax Act which include amendments relating to the income tax treatment of restrictive covenants;

(d) on August 27, 2010, relating to the introduction of the Fairness for the Self-Employed Act;

(e) on November 5, 2010 and October 31, 2011, relating to technical changes to the Income Tax Act;

(f) on December 16, 2010, relating to changes to the income tax rules concerning real estate investment trusts; and

(g) on March 16, 2011, relating to the deductibility of contingent amounts, withholding tax applicable to certain interest payments made to non-residents, and certain life insurance corporation reserves.

Finally, Part 5 implements certain further technical income tax measures. Most notably, it enacts amendments relating to

(a) labour-sponsored venture capital corporations;

(b) the allocation of income of airline corporations; and

(c) the tax treatment of shares owned by short-term residents.

Part 6 amends the Excise Tax Act to implement technical and housekeeping amendments that include relieving the goods and services tax and the harmonized sales tax on the administrative service of collecting and distributing the levy on blank media imposed under the Copyright Act announced on October 31, 2011.

Part 7 amends the Federal-Provincial Fiscal Arrangements Act to clarify, for greater certainty, the authority of the Minister of Finance and of the Minister of National Revenue to amend administration agreements if the change in question is explicitly contemplated by the language of the agreement and to confirm any amendments that may have been made to those agreements. Part 7 also amends the Federal-Provincial Fiscal Arrangements Act and the First Nations Goods and Services Tax Act to enable the First Nations goods and services tax, imposed under a tax administration agreement between the federal government and an Aboriginal government, to be administered through a provincial administration system, if the province also administers the federal goods and services tax.

Part 8 contains coordinating amendments in respect of those provisions of the Income Tax Act that are amended by this Act and also by the Jobs and Growth Act, 2012 or that need coordination with the Pooled Registered Pension Plans Act.

Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

SHORT TITLE

Marginal note:Short title

 This Act may be cited as the Technical Tax Amendments Act, 2012.

PART 1AMENDMENTS IN RESPECT OF OFFSHORE INVESTMENT FUND PROPERTY AND NON-RESIDENT TRUSTS

R.S., c. 1 (5th Supp.)Income Tax Act

  •  (1) Paragraph 12(1)(k) of the Income Tax Act is replaced by the following:

    • Marginal note:Foreign corporations, trusts and investment entities

      (k) any amount required by subdivision i to be included in computing the taxpayer’s income for the year;

  • (2) Subsection (1) applies to taxation years that end after 2006.

  •  (1) Paragraph 51(1)(a) of the French version of the Act is replaced by the following:

    • a) sauf pour l’application des paragraphes 20(21) et 44.1(6) et (7) et de l’alinéa 94(2)m), l’échange est réputé ne pas constituer une disposition du bien convertible;

  • (2) Paragraph 51(1)(c) of the English version of the Act is replaced by the following:

    • (c) except for the purposes of subsections 20(21) and 44.1(6) and (7) and paragraph 94(2)(m), the exchange is deemed not to be a disposition of the convertible property,

  • (3) Subsections (1) and (2) apply to taxation years of a taxpayer that begin after 1999, except that, for any taxation year of the taxpayer that ends before 2007 in respect of which subsection 94(1) of the Act, as enacted by section 7, does not apply to the taxpayer,

    • (a) paragraph 51(1)(a) of the French version of the Act, as enacted by subsection (1), is to be read without reference to “et de l’alinéa 94(2)m)”; and

    • (b) paragraph 51(1)(c) of the English version of the Act, as enacted by subsection (2), is to be read without reference to “and paragraph 94(2)(m)”.

  •  (1) Paragraph 53(1)(d.1) of the Act is replaced by the following:

    • (d.1) if the property is a capital interest in a trust, any amount included under subsection 91(1) or (3) in computing the taxpayer’s income for a taxation year that ends at or before that time (or that would have been required to have been included under those subsections but for subsection 56(4.1) and sections 74.1 to 75 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952) in respect of that interest;

  • (2) Paragraph 53(2)(b.1) of the Act is replaced by the following:

    • (b.1) if the property is a capital interest in a trust, any amount deducted by the taxpayer by reason of subsection 91(2) or (4) in computing the taxpayer’s income for a taxation year that ends at or before that time (or that would have been so deductible by the taxpayer but for subsection 56(4.1) and sections 74.1 to 75 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952) in respect of that interest;

  • (3) Subsections (1) and (2) apply to taxation years that end after 2006. Subsections (1) and (2) also apply in computing the adjusted cost base to a taxpayer of a capital interest in a trust for an earlier taxation year if subsection 94(1) of the Act, as enacted by section 7, applies to the trust for a taxation year that ends in that earlier taxation year of the taxpayer.

  • (4) In computing the adjusted cost base of a capital interest in a trust disposed of on or before August 27, 2010, paragraph 53(1)(d.1) of the Act, as enacted by subsection (1), is to be read as follows:

    • (d.1) if the property is a capital interest in a trust, any amount required to be included under subsection 91(1) or (3) in computing the taxpayer’s income for a taxation year that ends before that time (or that would have been required to have been included under those subsections but for subsection 56(4.1) and sections 74.1 to 75 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952) in respect of that interest;

  •  (1) Subsection 75(3) of the Act is amended by striking out “or” at the end of paragraph (c.1) and by adding the following after paragraph (c.1):

    • (c.2) by a trust if the person from whom the trust acquired the property is, in respect of the trust, an electing contributor as defined in subsection 94(1);

    • (c.3) by a trust that is non-resident, but would be resident in Canada for the purpose of computing its income for the year if the definition “resident contributor” in subsection 94(1) were read without reference to its paragraph (a); or

  • (2) Paragraph 75(3)(c.2) of the Act, as enacted by subsection (1), applies to taxation years that end after March 4, 2010.

  • (3) Paragraph 75(3)(c.3) of the Act, as enacted by subsection (1), applies to taxation years that begin after 2000 except that, for taxation years that end before 2007, it is to be read as follows:

    • (c.3) by a trust that is non-resident, but would be resident in Canada for the purpose of computing its income for the year if section 94, as it reads in its application to the 2007 taxation year, had applied to the trust for the year and the definition “resident contributor” in that section were read without reference to its paragraph (a); or

  •  (1) Subsection 87(2) of the Act is amended by adding the following after paragraph (j.94):

    • Marginal note:Non-resident entities

      (j.95) for the purposes of sections 94 to 94.2, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

  • (2) Subsection (1) applies to taxation years that end after 2000.

  •  (1) Section 94 of the Act is replaced by the following:

    Marginal note:Definitions
    • 94. (1) The following definitions apply in this section and section 94.2.

      “arm’s length transfer”

      « transfert sans lien de dépendance »

      “arm’s length transfer”, at any time by a person or partnership (referred to in this definition as the “transferor”) means a transfer or loan (which transfer or loan is referred to in this definition as the “transfer”) of property (other than restricted property) that is made at that time (referred to in this definition as the “transfer time”) by the transferor to a particular person or partnership (referred to in this definition as the “recipient”) if

      • (a) it is reasonable to conclude that none of the reasons (determined by reference to all the circumstances including the terms of a trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) for the transfer is the acquisition at any time by any person or partnership of an interest as a beneficiary under a non-resident trust; and

      • (b) the transfer is

        • (i) a payment of interest, of a dividend, of rent, of a royalty or of any other return on investment, or any substitute for such a return on investment, in respect of a particular property held by the recipient, if the amount of the payment is not more than the amount that the transferor would have paid if the transferor dealt at arm’s length with the recipient,

        • (ii) a payment made by a corporation on a reduction of the paid-up capital in respect of shares of a class of its capital stock held by the recipient, if the amount of the payment is not more than the lesser of the amount of the reduction in the paid-up capital and the consideration for which the shares were issued,

        • (iii) a transfer in exchange for which the recipient transfers or loans property to the transferor, or becomes obligated to transfer or loan property to the transferor, and for which it is reasonable to conclude

          • (A) having regard only to the transfer and the exchange, that the transferor would have been willing to make the transfer if the transferor dealt at arm’s length with the recipient, and

          • (B) that the terms and conditions, and circumstances, under which the transfer was made would have been acceptable to the transferor if the transferor dealt at arm’s length with the recipient,

        • (iv) a transfer made in satisfaction of an obligation referred to in subparagraph (iii) and for which it is reasonable to conclude

          • (A) having regard only to the transfer and the obligation, that the transferor would have been willing to make the transfer if the transferor dealt at arm’s length with the recipient, and

          • (B) that the terms and conditions, and circumstances, under which the transfer was made would have been acceptable to the transferor if the transferor dealt at arm’s length with the recipient,

        • (v) a payment of an amount owing by the transferor under a written agreement the terms and conditions of which, when entered into, were terms and conditions that, having regard only to the amount owing and the agreement, would have been acceptable to the transferor if the transferor dealt at arm’s length with the recipient of the payment,

        • (vi) a payment made before 2002 to a trust, to a corporation controlled by a trust or to a partnership of which a trust is a majority interest partner in repayment of or otherwise in respect of a loan made by a trust, corporation or partnership to the transferor, or

        • (vii) a payment made after 2001 to a trust, to a corporation controlled by the trust or to a partnership of which the trust is a majority interest partner, in repayment of or otherwise in respect of a particular loan made by the trust, corporation or partnership to the transferor and either

          • (A) the payment is made before 2011 and they would have been willing to enter into the particular loan if they dealt at arm’s length with each other, or

          • (B) the payment is made before 2005 in accordance with fixed repayment terms agreed to before June 23, 2000.

      “beneficiary”

      « bénéficiaire »

      “beneficiary” under a trust includes

      • (a) a person or partnership that is beneficially interested in the trust; and

      • (b) a person or partnership that would be beneficially interested in the trust if the reference in subparagraph 248(25)(b)(ii) to

        • (i) “any arrangement in respect of the particular trust” were read as a reference to “any arrangement (including, for greater certainty, the terms or conditions of a share, or any arrangement in respect of a share, of the capital stock of a corporation that is beneficially interested in the particular trust) in respect of the particular trust”, and

        • (ii) “the particular person or partnership might” were read as a reference to “the particular person or partnership becomes (or could become on the exercise of any discretion by any person or partnership), directly or indirectly, entitled to any amount derived, directly or indirectly, from the income or capital of the particular trust or might”.

      “closely held corporation”

      « société à peu d’actionnaires »

      “closely held corporation” at any time means a corporation, other than a corporation in respect of which

      • (a) there is at least one class of shares of its capital stock that includes shares prescribed for the purpose of paragraph 110(1)(d);

      • (b) it is reasonable to conclude that at that time, in respect of each class of shares described in paragraph (a), shares of the class are held by at least 150 shareholders each of whom holds shares of the class that have a total fair market value of at least $500; and

      • (c) it is reasonable to conclude that at that time in no case does a particular shareholder (or particular shareholder together with any other shareholder with whom the particular shareholder does not deal at arm’s length) hold shares of the corporation

        • (i) that would give the particular shareholder (or the particular shareholder together with those other shareholders referred to in this paragraph) 10% or more of the votes that could be cast under any circumstance at an annual meeting of shareholders of the corporation if the meeting were held at that time, or

        • (ii) that have a fair market value of 10% or more of the fair market value of all of the issued and outstanding shares of the corporation.

      “connected contributor”

      « contribuant rattaché »

      “connected contributor” to a trust at a particular time means a contributor to the trust at the particular time, other than

      • (a) an individual (other than a trust) who was, at or before the particular time, resident in Canada for a period of, or periods the total of which is, not more than 60 months (but not including an individual who, before the particular time, was never non-resident); or

      • (b) a person all of whose contributions to the trust made at or before the particular time were made at a non-resident time of the person.

      “contribution”

      « apport »

      “contribution” to a trust by a particular person or partnership means

      • (a) a transfer or loan (other than an arm’s length transfer) of property to the trust by the particular person or partnership;

      • (b) if a particular transfer or loan (other than an arm’s length transfer) of property is made by the particular person or partnership as part of a series of transactions that includes another transfer or loan (other than an arm’s length transfer) of property to the trust by another person or partnership, that other transfer or loan to the extent that it can reasonably be considered to have been made in respect of the particular transfer or loan; and

      • (c) if the particular person or partnership becomes obligated to make a particular transfer or loan (other than a transfer or loan that would, if it were made, be an arm’s length transfer) of property as part of a series of transactions that includes another transfer or loan (other than an arm’s length transfer) of property to the trust by another person or partnership, that other transfer or loan to the extent that it can reasonably be considered to have been made in respect of the obligation.

      “contributor”

      « contribuant »

      “contributor” to a trust at any time means a person (other than an exempt person but including a person that has ceased to exist) that, at or before that time, has made a contribution to the trust.

      “electing contributor”

      « contribuant déterminé »

      “electing contributor” at any time in respect of a trust means a resident contributor, to the trust, who has elected to have subsection (16) apply in respect of the contributor and the trust for a taxation year of the contributor that includes that time or that ends before that time and for all subsequent taxation years, if

      • (a) the election was in writing filed with the Minister on or before the contributor’s filing-due date for the first taxation year of the contributor for which the election was to take effect (referred to in this definition as the “initial year”); and

      • (b) the election included both the trust’s account number as assigned by the Minister and evidence that the contributor notified, no later than 30 days after the end of the trust’s taxation year that ends in the initial year, the trust that the election would be made.

      “electing trust”

      « fiducie déterminée »

      “electing trust” in respect of a trust’s particular taxation year means the trust, if the trust

      • (a) holds at any time in the particular taxation year, or in a prior taxation year of the trust throughout which it was deemed by subsection (3) to be resident in Canada for the purpose of computing its income, property that is at that time part of its non-resident portion;

      • (b) elects to have paragraph (3)(f) apply to it for

        • (i) its first taxation year

          • (A) throughout which it is deemed by subsection (3) to be resident in Canada for the purpose of computing its income, and

          • (B) in which it holds property that is at a time in the year part of its non-resident portion, and

        • (ii) all of its taxation years that end after its taxation year described in subparagraph (i); and

      • (c) files the election described in paragraph (b) in writing filed with the Minister with the trust’s return of income for its taxation year described in subparagraph (b)(i).

      “exempt amount”

      « somme exclue »

      “exempt amount” in respect of a trust’s particular taxation year means an amount that is

      • (a) paid or credited (in this definition within the meaning assigned by Part XIII) by the trust before 2004;

      • (b) paid or credited by the trust and referred to in paragraph 104(7.01)(b) in respect of the trust for the particular taxation year; or

      • (c) paid in the particular taxation year (or within 60 days after the end of the particular taxation year) by the trust directly to a beneficiary (determined without reference to subsection 248(25)) under the trust if

        • (i) the beneficiary is a natural person none of whose interests as a beneficiary under the trust was ever acquired for consideration,

        • (ii) the amount is described in subparagraph 212(1)(c)(i) and is not included in computing an exempt amount in respect of any other taxation year of the trust,

        • (iii) the trust was created before October 30, 2003, and

        • (iv) no contribution has been made to the trust on or after July 18, 2005.

      “exempt foreign trust”

      « fiducie étrangère exempte »

      “exempt foreign trust” at a particular time means

      • (a) a non-resident trust if

        • (i) each beneficiary under the trust at the particular time is

          • (A) an individual who, at the time that the trust was created, was, because of mental or physical infirmity, dependent on an individual who is a contributor to the trust or on an individual related to such a contributor (which beneficiary is referred to in this paragraph as an “infirm beneficiary”), or

          • (B) a person who is entitled, only after the particular time, to receive or otherwise obtain the use of any of the trust’s income or capital,

        • (ii) at the particular time there is at least one infirm beneficiary who suffers from a mental or physical infirmity that causes the beneficiary to be dependent on a person,

        • (iii) each infirm beneficiary is, at all times that the infirm beneficiary is a beneficiary under the trust during the trust’s taxation year that includes the particular time, non-resident, and

        • (iv) each contribution to the trust made at or before the particular time can reasonably be considered to have been, at the time that the contribution was made, made to provide for the maintenance of an infirm beneficiary during the expected period of the beneficiary’s infirmity;

      • (b) a non-resident trust if

        • (i) the trust was created as a consequence of the breakdown of a marriage or common-law partnership of two particular individuals to provide for the maintenance of a beneficiary under the trust who was, during that marriage or common-law partnership,

          • (A) a child of both of those particular individuals (which beneficiary is referred to in this paragraph as a “child beneficiary”), or

          • (B) one of those particular individuals (which beneficiary is referred to in this paragraph as the “adult beneficiary”),

        • (ii) each beneficiary under the trust at the particular time is

          • (A) a child beneficiary under 21 years of age,

          • (B) a child beneficiary under 31 years of age who is enrolled at any time in the trust’s taxation year that includes the particular time at an educational institution that is described in subclause (iv)(B)(I) or (II),

          • (C) the adult beneficiary, or

          • (D) a person who is entitled, only after the particular time, to receive or otherwise obtain the use of any of the trust’s income or capital,

        • (iii) each beneficiary described in any of clauses (ii)(A) to (C) is, at all times that the beneficiary is a beneficiary under the trust during the trust’s taxation year that includes the particular time, non-resident, and

        • (iv) each contribution to the trust, at the time that the contribution was made, was

          • (A) an amount paid by the particular individual other than the adult beneficiary that would be a support amount as defined in subsection 56.1(4) if it had been paid by that particular individual directly to the adult beneficiary, or

          • (B) made by one of those particular individuals or a person related to one of those particular individuals to provide for the maintenance of a child beneficiary while the child was either under 21 years of age or was under 31 years of age and enrolled at an educational institution located outside Canada that is

            • (I) a university, college or other educational institution that provides courses at a post-secondary school level, or

            • (II) an educational institution that provides courses designed to furnish a person with skills for, or improve a person’s skills in, an occupation;

      • (c) a non-resident trust if

        • (i) at the particular time the trust is an agency of the United Nations,

        • (ii) at the particular time the trust owns and administers a university described in subparagraph (a)(iv) of the definition “qualified donee” in subsection 149.1(1),

        • (iii) at any time in the trust’s taxation year that includes the particular time or at any time in the preceding calendar year Her Majesty in right of Canada has made a gift to the trust, or

        • (iv) the trust is established under the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992, or any protocol to it that has been ratified by the Government of Canada;

      • (d) a non-resident trust

        • (i) that throughout the particular period that began at the time it was created and ends at the particular time would be non-resident if this Act were read without reference to subsection (1) as that subsection read in its application to taxation years that include December 31, 2000,

        • (ii) that was created exclusively for charitable purposes and has been operated throughout the particular period exclusively for charitable purposes,

        • (iii) if the particular time is more than 24 months after the day on which the trust was created, in respect of which, there are at the particular time at least 20 persons (other than trusts) each of whom at the particular time

          • (A) is a contributor to the trust,

          • (B) exists, and

          • (C) deals at arm’s length with at least 19 other contributors to the trust,

        • (iv) the income of which (determined in accordance with the laws described in subparagraph (v)) for each of its taxation years that ends at or before the particular time would, if the income were not distributed and the laws described in subparagraph (v) did not apply, be subject to an income or profits tax in the country in which it was resident in each of those taxation years, and

        • (v) that was, for each of its taxation years that ends at or before the particular time, exempt under the laws of the country in which it was resident from the payment of income or profits tax to the government of that country in recognition of the charitable purposes for which the trust is operated;

      • (e) a non-resident trust that throughout the trust’s taxation year that includes the particular time is a trust governed by an employees profit sharing plan, a retirement compensation arrangement or a foreign retirement arrangement;

      • (f) a non-resident trust if

        • (i) throughout the particular period that began when it was created and ends at the particular time it has been operated exclusively for the purpose of administering or providing employee benefits in respect of employees or former employees, and

        • (ii) throughout the trust’s taxation year that includes the particular time

          • (A) the trust is a trust governed by an employee benefit plan or is a trust described in paragraph (a.1) of the definition “trust” in subsection 108(1),

          • (B) the trust is maintained for the benefit of natural persons the majority of whom are non-resident, and

          • (C) no benefits are provided under the trust other than benefits in respect of qualifying services;

      • (g) a non-resident trust (other than a prescribed trust or a trust described in paragraph (a.1) of the definition “trust” in subsection 108(1)) that throughout the particular period that began when it was created and ends at the particular time

        • (i) has been resident in a particular country (other than Canada) the laws of which have, throughout the particular period,

          • (A) imposed an income or profits tax, and

          • (B) exempted the trust from the payment of all income tax, and all profits tax, to the government of that particular country in recognition of the purposes for which the trust is operated, and

        • (ii) has been operated exclusively for the purpose of administering or providing superannuation or pension benefits that are primarily in respect of services rendered in the particular country by natural persons who were non-resident at the time those services were rendered;

      • (h) a non-resident trust (other than a trust that elects, in writing filed with the Minister on or before the trust’s filing-due date for the trust’s taxation year that includes the particular time, not to be an exempt foreign trust under this paragraph for the taxation year in which the election is made and for each subsequent taxation year), if at the particular time

        • (i) the only beneficiaries who may for any reason receive, at or after the particular time and directly from the trust, any of the income or capital of the trust are beneficiaries that hold fixed interests in the trust, and

        • (ii) any of the following applies:

          • (A) there are at least 150 beneficiaries described in subparagraph (i) under the trust each of whose fixed interests in the trust have at the particular time a total fair market value of at least $500,

          • (B) all fixed interests in the trust are listed on a designated stock exchange and in the 30 days immediately preceding the particular time fixed interests in the trust were traded on a designated stock exchange on at least 10 days,

          • (C) each outstanding fixed interest in the trust

            • (I) was issued by the trust in exchange for consideration that was not less than 90% of the interest’s proportionate share of the net asset value of the trust’s property at the time of its issuance, or

            • (II) was acquired in exchange for consideration equal to the fair market value of the interest at the time of its acquisition, or

          • (D) the trust is governed by

            • (I) a Roth IRA, within the meaning of section 408A of the Internal Revenue Code of the United States, or

            • (II) a plan or arrangement that was created after September 21, 2007, that is subject to that Code and that the Minister agrees is substantially similar to a Roth IRA; or

      • (i) a trust that is at the particular time a prescribed trust.

      “exempt person”

      « personne exemptée »

      “exempt person” at any time means

      • (a) Her Majesty in right of Canada or a province;

      • (b) a person whose taxable income for the taxation year that includes that time is exempt from tax under this Part because of subsection 149(1);

      • (c) a trust resident in Canada or a Canadian corporation

        • (i) that was established by or arises under an Act of Parliament or of the legislature of a province, and

        • (ii) the principal activities of which at that time are to administer, manage or invest the monies of one or more pension funds or plans established under an Act of Parliament or of the legislature of a province;

      • (d) a trust or corporation established by or arising by reason of an Act of Parliament or the legislature of a province in connection with a scheme or program for the compensation of workers injured in an accident arising out of or in the course of their employment;

      • (e) a trust resident in Canada all the beneficiaries under which are at that time exempt persons;

      • (f) a Canadian corporation all the shares, or rights to shares, of which are held at that time by exempt persons;

      • (g) a Canadian corporation without share capital all the property of which is held at that time exclusively for the benefit of exempt persons;

      • (h) a partnership all the members of which are at that time exempt persons; and

      • (i) a trust or corporation that is at that time a mutual fund.

      “exempt service”

      « service exempté »

      “exempt service” means a service rendered at any time by a person or partnership (referred to in this definition as the “service provider”) to, for or on behalf of, another person or partnership (referred to in this definition as the “recipient”) if

      • (a) the recipient is a trust and the service relates to the administration of the trust; or

      • (b) the following conditions apply in respect of the service, namely,

        • (i) the service is rendered in the service provider’s capacity at that time as an employee or agent of the recipient,

        • (ii) in exchange for the service, the recipient transfers or loans property or becomes obligated to transfer or loan property, and

        • (iii) it is reasonable to conclude

          • (A) having regard only to the service and the exchange, that the service provider would be willing to carry out the service if the service provider were dealing at arm’s length with the recipient, and

          • (B) that the terms, conditions and circumstances under which the service is provided would be acceptable to the service provider if the service provider were dealing at arm’s length with the recipient.

      “fixed interest”

      « participation fixe »

      “fixed interest” at any time of a person or partnership in a trust means an interest of the person or partnership as a beneficiary (in this definition, determined without reference to subsection 248(25)) under the trust provided that no amount of the income or capital of the trust to be distributed at any time in respect of any interest in the trust depends on the exercise by any person or partnership of, or the failure by any person or partnership to exercise, any discretionary power, other than a power in respect of which it is reasonable to conclude that

      • (a) the power is consistent with normal commercial practice;

      • (b) the power is consistent with terms that would be acceptable to the beneficiaries under the trust if the beneficiaries were dealing with each other at arm’s length; and

      • (c) the exercise of, or failure to exercise, the power will not materially affect the value of an interest as a beneficiary under the trust relative to the value of other such interests under the trust.

      “joint contributor”

      « contribuant conjoint »

      “joint contributor” at any time in respect of a contribution to a trust means, if more than one contributor has made the contribution, each of those contributors that is at that time a resident contributor to the trust.

      “mutual fund”

      « fonds commun de placement »

      “mutual fund” at a particular time means a mutual fund trust or mutual fund corporation (referred to in this definition as the “fund”), but does not include a fund in respect of which statements or representations have been made at or before the particular time — by the fund, or by a promoter or other representative of the fund, in respect of the acquisition or offering of an interest in the fund — that the taxes, if any, under this Part on the income, profit or gains for any particular year — in respect of property that is held by the fund and that is, or derives its value from, an interest in a trust — are less than, or are expected to be less than, the tax that would have been applicable under this Part if the income, profits or gains from the property had been earned directly by a person who acquires an interest in the fund.

      “non-resident portion”

      « partie non-résidente »

      “non-resident portion” of a trust at any time means all property held by the trust to the extent that it is not at that time part of the resident portion of the trust.

      “non-resident time”

      « moment de non-résidence »

      “non-resident time” of a person in respect of a contribution to a trust and a particular time means a time (referred to in this definition as the “contribution time”) at which the person made a contribution to a trust that is before the particular time and at which the person was non-resident (or, if the person is not in existence at the contribution time, the person was non-resident throughout the 18 months before ceasing to exist), if the person was non-resident or not in existence throughout the period that began 60 months before the contribution time (or, if the person is an individual and the trust arose on and as a consequence of the death of the individual, 18 months before the contribution time) and ends at the earlier of

      • (a) the time that is 60 months after the contribution time, and

      • (b) the particular time.

      “promoter”

      « promoteur »

      “promoter” of a trust or corporation at any time means

      • (a) a person or partnership that at or before that time establishes, organizes or substantially reorganizes the undertakings of the trust or corporation, as the case may be; and

      • (b) for the purposes of the definition “mutual fund” in this subsection, a person or partnership described by paragraph (a) and a person or partnership who in the course of a business

        • (i) sells or issues, or promotes the sale, issuance or acquisition of, an interest in a mutual fund corporation or mutual fund trust,

        • (ii) acts as an agent or advisor in respect of the sale or issuance, or the promotion of the sale, issuance or acquisition of, an interest in a mutual fund corporation or mutual fund trust, or

        • (iii) accepts, whether as a principal or agent, consideration in respect of an interest in a mutual fund corporation or mutual fund trust.

      “qualifying services”

      « services admissibles »

      “qualifying services” means services that are

      • (a) rendered to an employer by an employee of the employer, which employee was non-resident throughout the period during which the services were rendered;

      • (b) rendered to an employer by an employee of the employer, other than services that were

        • (i) rendered primarily in Canada,

        • (ii) rendered primarily in connection with a business carried on by the employer in Canada, or

        • (iii) a combination of services described in subparagraphs (i) and (ii);

      • (c) rendered in a particular calendar month to an employer by an employee of the employer, which employee

        • (i) was resident in Canada throughout no more than 60 months during the 72-month period that ends at the end of the particular month, and

        • (ii) became a member of, or a beneficiary under, the plan or trust under which benefits in respect of the services may be provided (or a similar plan or trust for which the plan or the trust was substituted) before the end of the calendar month following the month in which the employee became resident in Canada; or

      • (d) any combination of services that are qualifying services determined without reference to this paragraph.

      “resident beneficiary”

      « bénéficiaire résident »

      “resident beneficiary” under a trust at any time means a person (other than a person that is at that time a successor beneficiary under the trust or an exempt person) that is, at that time, a beneficiary under the trust if, at that time,

      • (a) the person is resident in Canada; and

      • (b) there is a connected contributor to the trust.

      “resident contributor”

      « contribuant résident »

      “resident contributor” to a trust at any time means a person that is, at that time, resident in Canada and a contributor to the trust, but does not include

      • (a) an individual (other than a trust) who has not, at that time, been resident in Canada for a period of, or periods the total of which is, more than 60 months (other than an individual who, before that time, was never non-resident); or

      • (b) an individual (other than a trust) if

        • (i) the trust is an inter vivos trust that was created before 1960 by a person who was non-resident when the trust was created, and

        • (ii) the individual has not, after 1959, made a contribution to the trust.

      “resident portion”

      « partie résidente »

      “resident portion” of a trust at a particular time means all of the trust’s property that is

      • (a) property in respect of which a contribution has been made at or before the particular time to the trust by a contributor that is at the particular time a resident contributor, or if there is at the particular time a resident beneficiary under the trust a connected contributor, to the trust and, for the purposes of this paragraph,

        • (i) if a property is held by a contributor in common or in partnership immediately before the property is contributed to the trust, it is contributed by the contributor only to the extent that the contributor so held the property, and

        • (ii) if the contribution is a transfer described by any of paragraphs (2)(a), (c), (d) or (f), the property in respect of which the contribution has been made is deemed to be

          • (A) in respect of a transfer under paragraph (2)(a), property

            • (I) if clause (2)(a)(ii)(A) applies, the fair market value of which has increased because of a transfer or loan described by subparagraph (2)(a)(i), or

            • (II) if clause (2)(a)(ii)(B) applies, that would not otherwise be included in the resident portion of the trust, that is selected by the trust (or, failing which, is selected by the Minister) and that has a fair market value at least equal to the absolute value of a decrease in a liability or potential liability of the trust that arose because of a transfer or loan described by subparagraph (2)(a)(i),

          • (B) in respect of a transfer under paragraph (2)(c), property described by subparagraph (2)(c)(ii),

          • (C) in respect of a transfer under paragraph (2)(d), property acquired as a result of any undertaking including a guarantee, covenant or agreement given by a person or partnership other than the trust to ensure the repayment, in whole or in part, of a loan or other indebtedness incurred by the trust as described by paragraph (2)(d), and

          • (D) in respect of a transfer under paragraph (2)(f), property selected by the trust (or, failing which, is selected by the Minister) that has a fair market value at least equal to the fair market value of property deemed to be transferred to the trust as described by paragraph (2)(f);

      • (b) property that is acquired, at or before the particular time, by way of indebtedness incurred by the trust (referred to in this paragraph as the “subject property”), if

        • (i) all or part of the indebtedness is secured on property (other than the subject property) that is held in the trust’s resident portion,

        • (ii) it was reasonable to conclude, at the time that the indebtedness was incurred, that the indebtedness would be repaid with recourse to any property (other than the subject property) held at any time in the trust’s resident portion, or

        • (iii) a person resident in Canada or partnership of which a person resident in Canada is a member has become obligated, either absolutely or contingently, to effect any undertaking including a guarantee, covenant or agreement given to ensure the repayment, in whole or in part, of the indebtedness, or provided any other financial assistance in respect of the indebtedness;

      • (c) property to the extent that it is derived, directly or indirectly, in any manner whatever, from property described by any of paragraphs (a), (b) and (d), and, without limiting the generality of the foregoing, including property derived from the income (computed without reference to paragraph (16)(f) and subsections 104(6) and (12)) of the trust for a taxation year of the trust that ends at or before the particular time and property in respect of which an amount would be described at the particular time in respect of the trust by the definition “capital dividend account” in subsection 89(1) if the trust were at the particular time a corporation; and

      • (d) property to the extent that it is at the particular time substituted for a property described by any of paragraphs (a) to (c).

      “restricted property”

      « bien d’exception »

      “restricted property” of a person or partnership means property that the person or partnership holds and that is

      • (a) a share (or a right to acquire a share) of the capital stock of a closely held corporation if the share or right, or a property for which the share or right was substituted, was at any time acquired by the person or partnership as part of a transaction or series of transactions under which

        • (i) a specified share of the capital stock of a closely held corporation was acquired by any person or partnership in exchange for, as consideration for or upon the conversion of any property and the cost of the specified share to the person who acquired it was less than the fair market value of the specified share at the time of the acquisition, or

        • (ii) a share (other than a specified share) of the capital stock of a closely held corporation becomes a specified share of the capital stock of the corporation;

      • (b) an indebtedness or other obligation, or a right to acquire an indebtedness or other obligation, of a closely held corporation if

        • (i) the indebtedness, obligation or right, or property for which the indebtedness, obligation or right was substituted, became property of the person or partnership as part of a transaction or series of transactions under which

          • (A) a specified share of the capital stock of a closely held corporation was acquired by any person or partnership in exchange for, as consideration for or upon the conversion of any property and the cost of the specified share to the person who acquired it was less than the fair market value of the specified share at the time of the acquisition, or

          • (B) a share (other than a specified share) of a closely held corporation becomes a specified share of the capital stock of the corporation, and

        • (ii) the amount of any payment under the indebtedness, obligation or right (whether the right to the amount is immediate or future, absolute or contingent or conditional on or subject to the exercise of any discretion by any person or partnership) is, directly or indirectly, determined primarily by one or more of the following criteria:

          • (A) the fair market value of, production from or use of any of the property of the closely held corporation,

          • (B) gains or profits from the disposition of any of the property of the closely held corporation,

          • (C) income, profits, revenue or cash flow of the closely held corporation, or

          • (D) any other criterion similar to a criterion referred to in any of clauses (A) to (C); and

      • (c) property

        • (i) that the person or partnership acquired as part of a series of transactions described in paragraph (a) or (b) in respect of another property, and

        • (ii) the fair market value of which is derived in whole or in part, directly or indirectly, from that other property.

      “specified party”

      « tiers déterminé »

      “specified party” in respect of a particular person at any time means

      • (a) the particular person’s spouse or common-law partner at that time;

      • (b) a corporation that at that time

        • (i) is a controlled foreign affiliate of the particular person or their spouse or common-law partner, or

        • (ii) would be a controlled foreign affiliate of a partnership, of which the particular person is a majority interest partner, if the partnership were a person resident in Canada at that time;

      • (c) a person, or a partnership of which the particular person is a majority interest partner, for which it is reasonable to conclude that the benefit referred to in subparagraph (8)(a)(iv) was conferred

        • (i) in contemplation of the person becoming after that time a corporation described by paragraph (b), or

        • (ii) to avoid or minimize a liability that arose, or that would otherwise have arisen, under this Part with respect to the particular person; or

      • (d) a corporation in which the particular person, or partnership of which the particular person is a majority interest partner, is a shareholder if

        • (i) the corporation is at or before that time a beneficiary under a trust, and

        • (ii) the particular person or the partnership is a beneficiary under the trust solely because of the application of paragraph (b) of the definition “beneficiary” in this subsection to the particular person or the partnership in respect of the corporation.

      “specified share”

      « action déterminée »

      “specified share” means a share of the capital stock of a corporation other than a share that is a prescribed share for the purpose of paragraph 110(1)(d).

      “specified time”

      « moment déterminé »

      “specified time” in respect of a trust for a taxation year of the trust means

      • (a) if the trust exists at the end of the taxation year, the time that is the end of that taxation year; and

      • (b) in any other case, the time in that taxation year that is immediately before the time at which the trust ceases to exist.

      “successor beneficiary”

      « bénéficiaire remplaçant »

      “successor beneficiary” at any time under a trust means a person that is a beneficiary under the trust solely because of a right of the person to receive any of the trust’s income or capital, if under that right the person may so receive that income or capital only on or after the death after that time of an individual who, at that time, is alive and

      • (a) is a contributor to the trust;

      • (b) is related to (in this definition including an uncle, aunt, niece or nephew of) a contributor to the trust; or

      • (c) would have been related to a contributor to the trust if every individual who was alive before that time were alive at that time.

      “transaction”

      « opération »

      “transaction” includes an arrangement or event.

      “trust”

      « fiducie »

      “trust” includes, for greater certainty, an estate.

    • Marginal note:Rules of application

      (2) In this section and section 94.2,

      • (a) a person or partnership is deemed to have transferred, at any time, a property to a trust if

        • (i) at that time the person or partnership transfers or loans property (other than by way of an arm’s length transfer) to another person or partnership, and

        • (ii) because of that transfer or loan

          • (A) the fair market value of one or more properties held by the trust increases at that time, or

          • (B) a liability or potential liability of the trust decreases at that time;

      • (b) the fair market value, at any time, of a property deemed by paragraph (a) to be transferred at that time by a person or partnership is deemed to be the amount of the absolute value of the increase or decrease, as the case may be, referred to in subparagraph (a)(ii) in respect of the property, and if that time is after August 27, 2010, and the property that the person or partnership transfers or loans at that time is restricted property of the person or partnership, the property deemed by paragraph (a) to be transferred at that time to a trust is deemed to be restricted property transferred at that time to the trust;

      • (c) a person or partnership is deemed to have transferred, at any time, property to a trust if

        • (i) at that time the person or partnership transfers restricted property, or loans property other than by way of an arm’s length transfer, to another person (referred to in this paragraph and paragraph (c.1) as the “intermediary”),

        • (ii) at or after that time, the trust holds property (other than property described by paragraph (14)(b)) the fair market value of which is derived in whole or in part, directly or indirectly, from property held by the intermediary, and

        • (iii) it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize a liability under this Part;

      • (c.1) the fair market value, at any time, of a property deemed by paragraph (c) to be transferred at that time by a person or partnership is deemed to be the fair market value of the property referred to in subparagraph (c)(i), and if that time is after October 24, 2012 and the property that the person or partnership transfers or loans to the intermediary is restricted property of the intermediary, the property deemed by paragraph (c) to be transferred at that time by the person or partnership to a trust is deemed to be restricted property transferred at that time to the trust throughout the period in which the intermediary holds the restricted property;

      • (d) if, at any time, a particular person or partnership becomes obligated, either absolutely or contingently, to effect any undertaking including a guarantee, covenant or agreement given to ensure the repayment, in whole or in part, of a loan or other indebtedness incurred by another person or partnership, or has provided any other financial assistance to another person or partnership,

        • (i) the particular person or partnership is deemed to have transferred, at that time, property to that other person or partnership, and

        • (ii) the property, if any, transferred to the particular person or partnership from the other person or partnership in exchange for the guarantee or other financial assistance is deemed to have been transferred to the particular person or partnership in exchange for the property deemed by subparagraph (i) to have been transferred;

      • (e) the fair market value at any time of a property deemed by subparagraph (d)(i) to have been transferred at that time to another person or partnership is deemed to be the amount at that time of the loan or indebtedness incurred by the other person or partnership to which the property relates;

      • (f) if, at any time after June 22, 2000, a particular person or partnership renders any service (other than an exempt service) to, for or on behalf of another person or partnership,

        • (i) the particular person or partnership is deemed to have transferred, at that time, property to that other person or partnership, and

        • (ii) the property, if any, transferred to the particular person or partnership from the other person or partnership in exchange for the service is deemed to have been transferred to the particular person or partnership in exchange for the property deemed by subparagraph (i) to have been transferred;

      • (g) each of the following acquisitions of property by a particular person or partnership is deemed to be a transfer of the property, at the time of the acquisition of the property, to the particular person or partnership from the person or partnership from which the property was acquired, namely, the acquisition by the particular person or partnership of

        • (i) a share of a corporation from the corporation,

        • (ii) an interest as a beneficiary under a trust (otherwise than from a beneficiary under the trust),

        • (iii) an interest in a partnership (otherwise than from a member of the partnership),

        • (iv) a debt owing by a person or partnership from the person or partnership, and

        • (v) a right (granted after June 22, 2000, by the person or partnership from which the right was acquired) to acquire or to be loaned property;

      • (h) the fair market value at any time of a property deemed by subparagraph (f)(i) to have been transferred at that time is deemed to be the fair market value at that time of the service to which the property relates;

      • (i) a person or partnership that at any time becomes obligated to do an act that would, if done, constitute the transfer or loan of a property to another person or partnership is deemed to have become obligated at that time to transfer or loan, as the case may be, property to that other person or partnership;

      • (j) in applying at any time the definition “non-resident time” in subsection (1), if a trust acquires property of an individual as a consequence of the death of the individual and the individual was immediately before death resident in Canada, the individual is deemed to have transferred the property to the trust immediately before the individual’s death;

      • (k) a transfer or loan of property at any time is deemed to be made at that time jointly by a particular person or partnership and a second person or partnership (referred to in this paragraph as the “specified person”) if

        • (i) the particular person or partnership transfers or loans property at that time to another person or partnership,

        • (ii) the transfer or loan is made at the direction, or with the acquiescence, of the specified person, and

        • (iii) it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize the liability, of any person or partnership, under this Part that arose, or that would otherwise have arisen, because of the application of this section;

      • (k.1) a transfer or loan of property made at any time on or after November 9, 2006, is deemed to be made at that time jointly by a particular person or partnership and a second person or partnership (referred to in this paragraph as the “specified person”) if

        • (i) the particular person or partnership transfers or loans property at that time to another person or partnership, and

        • (ii) a purpose or effect of the transfer or loan may reasonably be considered to be to provide benefits in respect of services rendered by a person as an employee of the specified person (whether the provision of the benefits is because of a right that is immediate or future, absolute or contingent, or conditional on or subject to the exercise of any discretion by any person or partnership);

      • (l) a transfer or loan of property at any time is deemed to be made at that time jointly by a corporation and a person or partnership (referred to in this paragraph as the “specified person”) if

        • (i) the corporation transfers or loans property at that time to another person or partnership,

        • (ii) the transfer or loan is made at the direction, or with the acquiescence, of the specified person,

        • (iii) that time is not, or would not be if the transfer or loan were a contribution of the specified person,

          • (A) a non-resident time of the specified person, or

          • (B) if the specified person is a partnership, a non-resident time of one or more members of the partnership, and

        • (iv) either

          • (A) the corporation is, at that time, a controlled foreign affiliate of the specified person, or would at that time be a controlled foreign affiliate of the specified person if the specified person were at that time resident in Canada, or

          • (B) it is reasonable to conclude that the transfer or loan was made in contemplation of the corporation becoming after that time a corporation described in clause (A);

      • (m) a particular person or partnership is deemed to have transferred, at a particular time, a particular property or particular part of it, as the case may be, to a corporation described in subparagraph (i) or a second person or partnership described in subparagraph (ii) if

        • (i) the particular property is a share of the capital stock of a corporation held at the particular time by the particular person or partnership, and as consideration for the disposition at or before the particular time of the share, the particular person or partnership received at the particular time (or became entitled at the particular time to receive) from the corporation a share of the capital stock of the corporation, or

        • (ii) the particular property (or property for which the particular property is substituted) was acquired, before the particular time, from the second person or partnership by any person or partnership, in circumstances that are described by any of subparagraphs (g)(i) to (v) (or would be so described if it applied at the time of that acquisition) and at the particular time,

          • (A) the terms or conditions of the particular property change,

          • (B) the second person or partnership redeems, acquires or cancels the particular property or the particular part of it,

          • (C) if the particular property is a debt owing by the second person or partnership, the debt or the particular part of it is settled or cancelled, or

          • (D) if the particular property is a right to acquire or to be loaned property, the particular person or partnership exercises the right;

      • (n) a contribution made at any time by a particular trust to another trust is deemed to have been made at that time jointly by the particular trust and by each person or partnership that is at that time a contributor to the particular trust;

      • (o) a contribution made at any time by a particular partnership to a trust is deemed to have been made at that time jointly by the particular partnership and by each person or partnership that is at that time a member of the particular partnership;

      • (p) subject to paragraph (q) and subsection (9), the amount of a contribution to a trust at the time it was made is deemed to be the fair market value, at that time, of the property that was the subject of the contribution;

      • (q) a person or partnership that at any time acquires a fixed interest in a trust (or a right, issued by the trust, to acquire a fixed interest in the trust) from another person or partnership (other than from the trust that issued the interest or the right) is deemed to have made at that time a contribution to the trust and the amount of the contribution is deemed to be equal to the fair market value at that time of the interest or right, as the case may be;

      • (r) a particular person or partnership that has acquired a fixed interest in a trust as a consequence of making a contribution to the trust — or that has made a contribution to the trust as a consequence of having acquired a fixed interest in the trust or a right described in paragraph (q) — is, for the purpose of applying this section at any time after the time that the particular person or partnership transfers the fixed interest or the right, as the case may be, to another person or partnership (which transfer is referred to in this paragraph as the “sale”), deemed not to have made the contribution in respect of the fixed interest, or right, that is the subject of the sale if

        • (i) in exchange for the sale, the other person or partnership transfers or loans, or becomes obligated to transfer or loan, property (which property is referred to in subparagraph (ii) as the “consideration”) to the particular person or partnership, and

        • (ii) it is reasonable to conclude

          • (A) having regard only to the sale and the consideration that the particular person or partnership would be willing to make the sale if the particular person or partnership were dealing at arm’s length with the other person or partnership, and

          • (B) that the terms and conditions made or imposed in respect of the exchange would be acceptable to the particular person or partnership if the particular person or partnership were dealing at arm’s length with the other person or partnership;

      • (s) a transfer to a trust by a particular person or partnership is deemed not to be, at a particular time, a contribution to the trust if

        • (i) the particular person or partnership has transferred, at or before the particular time and in the ordinary course of business of the particular person or partnership, property to the trust,

        • (ii) the transfer is not an arm’s length transfer, but would be an arm’s length transfer if the definition “arm’s length transfer” in subsection (1) were read without reference to paragraph (a) and subparagraphs (b)(i), (ii) and (iv) to (vii) of that definition,

        • (iii) it is reasonable to conclude that the particular person or partnership was the only person or partnership that acquired, in respect of the transfer, an interest as a beneficiary under the trust,

        • (iv) the particular person or partnership was required, under the securities law of a country or of a political subdivision of the country in respect of the issuance by the trust of interests as a beneficiary under the trust, to acquire an interest because of the particular person or partnership’s status at the time of the transfer as a manager or promoter of the trust,

        • (v) at the particular time the trust is not an exempt foreign trust, but would be at that time an exempt foreign trust if it had not made an election under paragraph (h) of the definition “exempt foreign trust” in subsection (1), and

        • (vi) the particular time is before the earliest of

          • (A) the first time at which the trust becomes an exempt foreign trust,

          • (B) the first time at which the particular person or partnership ceases to be a manager or promoter of the trust, and

          • (C) the time that is 24 months after the first time at which the total fair market value of consideration received by the trust in exchange for interests as a beneficiary (other than the particular person or partnership’s interest referred to in subparagraph (iii)) under the trust is greater than $500,000;

      • (t) a transfer, by a Canadian corporation of particular property, that is at a particular time a contribution by the Canadian corporation to a trust, is deemed not to be, after the particular time, a contribution by the Canadian corporation to the trust if

        • (i) the trust acquired the property before the particular time from the Canadian corporation in circumstances described in subparagraph (g)(i) or (iv),

        • (ii) as a result of a transfer (which transfer is referred to in this paragraph as the “sale”) at the particular time by any person or partnership (referred to in this paragraph as the “seller”) to another person or partnership (referred to in this paragraph as the “buyer”) the trust

          • (A) no longer holds any property that is shares of the capital stock of, or debt issued by, the Canadian corporation, and

          • (B) no longer holds any property that is property the fair market value of which is derived in whole or in part, directly or indirectly, from shares of the capital stock of, or debt issued by, the Canadian corporation,

        • (iii) the buyer deals at arm’s length immediately before the particular time with the Canadian corporation, the trust and the seller,

        • (iv) in exchange for the sale, the buyer transfers or becomes obligated to transfer property (which property is referred to in this paragraph as the “consideration”) to the seller, and

        • (v) it is reasonable to conclude

          • (A) having regard only to the sale and the consideration that the seller would be willing to make the sale if the seller were dealing at arm’s length with the buyer,

          • (B) that the terms and conditions made or imposed in respect of the exchange would be acceptable to the seller if the seller were dealing at arm’s length with the buyer, and

          • (C) that the value of the consideration is not, at or after the particular time, determined in whole or in part, directly or indirectly, by reference to shares of the capital stock of, or debt issued by, the Canadian corporation;

      • (u) a transfer, before October 11, 2002, to a personal trust by an individual (other than a trust) of particular property is deemed not to be a contribution of the particular property by the individual to the trust if

        • (i) the individual identifies the trust in prescribed form filed with the Minister on or before the individual’s filing-due date for the individual’s 2003 taxation year (or a later date that is acceptable to the Minister), and

        • (ii) the Minister is satisfied that

          • (A) the individual (and any person or partnership not dealing at any time at arm’s length with the individual) has never loaned or transferred, directly or indirectly, restricted property to the trust,

          • (B) in respect of each contribution (determined without reference to this paragraph) made before October 11, 2002, by the individual to the trust, none of the reasons (determined by reference to all the circumstances including the terms of the trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) for the contribution was to permit or facilitate, directly or indirectly, the conferral at any time of a benefit (for greater certainty, including an interest as a beneficiary under the trust) on

            • (I) the individual,

            • (II) a descendant of the individual, or

            • (III) any person or partnership with whom the individual or descendant does not, at any time, deal at arm’s length, and

          • (C) the total of all amounts each of which is the amount of a contribution (determined without reference to this paragraph) made before October 11, 2002, by the individual to the trust does not exceed the greater of

            • (I) 1% of the total of all amounts each of which is the amount of a contribution (determined without reference to this paragraph) made to the trust before October 11, 2002, and

            • (II) $500; and

      • (v) a loan made by a particular specified financial institution to a trust is deemed not to be a contribution to the trust if

        • (i) the loan is made on terms and conditions that would have been agreed to by persons dealing at arm’s length, and

        • (ii) the loan is made by the specified financial institution in the ordinary course of the business carried on by it.

    • Marginal note:Liabilities of non-resident trusts and others

      (3) If at a specified time in a trust’s particular taxation year (other than a trust that is, at that time, an exempt foreign trust) the trust is non-resident (determined without reference to this subsection) and, at that time, there is a resident contributor to the trust or a resident beneficiary under the trust,

      • (a) the trust is deemed to be resident in Canada throughout the particular taxation year for the purposes of

        • (i) section 2,

        • (ii) computing the trust’s income for the particular taxation year,

        • (iii) applying subsections 104(13.1) to (28) and 107(2.1), in respect of the trust and a beneficiary under the trust,

        • (iv) applying clause 53(2)(h)(i.1)(B), the definition “non-resident entity” in subsection 94.1(2), subsection 107(2.002) and section 115, in respect of a beneficiary under the trust,

        • (v) paragraph (c) and subsection 111(9),

        • (vi) determining an obligation of the trust to file a return under section 233.3 or 233.4,

        • (vii) determining the rights and obligations of the trust under Divisions I and J,

        • (viii) determining the liability of the trust for tax under Part I, and under Part XIII on amounts paid or credited (in this paragraph having the meaning assigned by Part XIII) to the trust,

        • (ix) applying Part XIII in respect of an amount (other than an exempt amount) paid or credited by the trust to any person, and

        • (x) determining whether a foreign affiliate of a taxpayer (other than the trust) is a controlled foreign affiliate of the taxpayer;

      • (b) no deduction shall be made under subsection 20(11) by the trust in computing its income for the particular taxation year, and for the purposes of applying subsection 20(12) and section 126 to the trust for the particular taxation year

        • (i) in determining the non-business-income tax (in this paragraph as defined by subsection 126(7)) paid by the trust for the particular taxation year, paragraph (b) of the definition “non-business-income tax” does not apply, and

        • (ii) if, at that specified time, the trust is resident in a country other than Canada,

          • (A) the trust’s income for the particular taxation year is deemed to be from sources in that country and not to be from any other source, and

          • (B) the business-income tax (in this paragraph as defined by subsection 126(7)), and the non-business-income tax, paid by the trust for the particular taxation year are deemed to have been paid by the trust to the government of that country and not to any other government;

      • (c) if the trust was non-resident throughout its taxation year (referred to in this paragraph as the “preceding year”) immediately preceding the particular taxation year, the trust is deemed to have

        • (i) immediately before the end of the preceding year, disposed of each property (other than property described in any of subparagraphs 128.1(1)(b)(i) to (iv)) held by the trust at that time for proceeds of disposition equal to its fair market value at that time, and

        • (ii) at the beginning of the particular taxation year, acquired each of those properties so disposed of at a cost equal to its proceeds of disposition;

      • (d) each person that at any time in the particular taxation year is a resident contributor to the trust (other than an electing contributor in respect of the trust at the specified time) or a resident beneficiary under the trust

        • (i) has jointly and severally, or solidarily, with the trust and with each other such person, the rights and obligations of the trust in respect of the particular taxation year under Divisions I and J, and

        • (ii) is subject to Part XV in respect of those rights and obligations;

      • (e) each person that at any time in the particular taxation year is a beneficiary under the trust and was a person from whom an amount would be recoverable at the end of the trust’s 2006 taxation year under subsection (2) (as it read in its application to taxation years that end before 2007) in respect of the trust if the person had received before the trust’s 2007 taxation year amounts described under paragraph (2)(a) or (b) in respect of the trust (as those paragraphs read in their application to taxation years that end before 2007)

        • (i) has, to the extent of the person’s recovery limit for the year, jointly and severally, or solidarily, with the trust and with each other such person, the rights and obligations of the trust in respect of the taxation years, of the trust, that end before 2007 under Divisions I and J, and

        • (ii) is, to the extent of the person’s recovery limit for the year, subject to Part XV in respect of those rights and obligations;

      • (f) if the trust (referred to in this paragraph as the “particular trust”) is an electing trust in respect of the particular taxation year,

        • (i) an inter vivos trust (in this paragraph referred to as the “non-resident portion trust”) is deemed for the purposes of this Act (other than for the purposes of subsection 104(2))

          • (A) to be created at the first time at which the particular trust exists in its first taxation year in respect of which the particular trust is an electing trust, and

          • (B) to continue in existence until the earliest of

            • (I) the time at which the particular trust ceases to be resident in Canada because of subsection (5) or (5.1),

            • (II) the time at which the particular trust ceases to exist, and

            • (III) the time at which the particular trust becomes resident in Canada otherwise than because of this subsection,

        • (ii) all of the particular trust’s property that is part of the particular trust’s non-resident portion is deemed to be the property of the non-resident portion trust and not to be, except for the purposes of this paragraph and the definition “electing trust” in subsection (1), the particular trust’s property,

        • (iii) the terms and conditions of, and rights and obligations of beneficiaries under, the particular trust (determined by reference to all the circumstances including the terms of a trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) are deemed to be the terms and conditions of, and rights and obligations of beneficiaries under, the non-resident portion trust,

        • (iv) for greater certainty

          • (A) the trustees of the particular trust are deemed to be the trustees of the non-resident portion trust,

          • (B) the beneficiaries under the particular trust are deemed to be the beneficiaries under the non-resident portion trust, and

          • (C) the non-resident portion trust is deemed not to have a resident contributor or connected contributor to it,

        • (v) the non-resident portion trust is deemed to be, without affecting the liability of its trustees for their own income tax, in respect of its property an individual,

        • (vi) if all or part of a property becomes at a particular time part of the particular trust’s non-resident portion and immediately before that time the property or that part, as the case may be, was part of its resident portion, the particular trust is deemed to have transferred at the particular time the property or that part, as the case may be, to the non-resident portion trust,

        • (vii) if all or part of a property becomes at a particular time part of the particular trust’s resident portion and immediately before that time the property or that part, as the case may be, was part of its non-resident portion, the non-resident portion trust is deemed to have transferred at the particular time the property or that part, as the case may be, to the particular trust,

        • (viii) the particular trust and the non-resident portion trust are deemed at all times to be affiliated with each other and to not deal with each other at arm’s length,

        • (ix) the particular trust

          • (A) has jointly and severally, or solidarily, with the non-resident portion trust, the rights and obligations of the non-resident portion trust in respect of any taxation year under Divisions I and J, and

          • (B) is subject to Part XV in respect of those rights and obligations, and

        • (x) if the non-resident portion trust ceases to exist at a particular time (for greater certainty, as determined by clause (i)(B))

          • (A) the non-resident portion trust is deemed, at the time (referred to in this subparagraph as the “disposition time”) that is immediately before the time that is immediately before the particular time, to have

            • (I) in the case of each property of the non-resident portion trust that is property described in any of subparagraphs 128.1(1)(b)(i) to (iv), disposed of the property for proceeds of disposition equal to the cost amount to it of the property at the disposition time, and

            • (II) in the case of each other property of the non-resident portion trust, disposed of the property for proceeds of disposition equal to its fair market value of the property at the disposition time,

          • (B) the particular trust is deemed to have acquired, at the time that is immediately before the particular time, each property described in subclause (A)(I) or (II) at a cost equal to the proceeds determined under that subclause in respect of the property, and

          • (C) each person or partnership that is at the time immediately before the particular time a beneficiary under the non-resident portion trust is deemed

            • (I) at the disposition time to have disposed of the beneficiary’s interest as a beneficiary under the non-resident portion trust for proceeds equal to the beneficiary’s cost amount in the interest at the disposition time, and

            • (II) at the disposition time, to have ceased to be, other than for purposes of this clause, a beneficiary under the non-resident portion trust; and

      • (g) if a person deducts or withholds any amount (referred to in this paragraph as the “withholding amount”) as required by section 215 from a particular amount paid or credited or deemed to have been paid or credited to the trust, and the particular amount has been included in the trust’s income for the particular taxation year, the withholding amount is deemed to have been paid on account of the trust’s tax under this Part for the particular taxation year.

    • Marginal note:Excluded provisions

      (4) For greater certainty, paragraph (3)(a) does not deem a trust to be resident in Canada for the purposes of

      • (a) the definitions “arm’s length transfer” and “exempt foreign trust” in subsection (1);

      • (b) paragraph (14)(a), subsections 70(6) and 73(1), the definition “Canadian partnership” in subsection 102(1), paragraph 107.4(1)(c) and paragraph (a) of the definition “mutual fund trust” in subsection 132(6);

      • (c) determining the liability of a person (other than the trust) that would arise under section 215;

      • (d) determining whether, in applying subsection 128.1(1), the trust becomes resident in Canada at a particular time;

      • (e) determining whether, in applying subsection 128.1(4), the trust ceases to be resident in Canada at a particular time;

      • (f) subparagraph (f)(i) of the definition “disposition” in subsection 248(1);

      • (g) determining whether subsection 107(5) applies to a distribution on or after July 18, 2005, of property to the trust; and

      • (h) determining whether subsection 75(2) applies to deem an amount to be an income, loss, taxable capital gain or allowable capital loss of the trust.

    • Marginal note:Deemed cessation of residence — loss of resident contributor or resident beneficiary

      (5) A trust is deemed to cease to be resident in Canada at the earliest time at which there is neither a resident contributor to the trust nor a resident beneficiary under the trust in a taxation year (determined without reference to subsection 128.1(4)) of the trust

      • (a) that immediately follows a taxation year of the trust throughout which it was deemed by subsection (3) to be resident in Canada for the purpose of computing its income; and

      • (b) at a specified time in which the trust

        • (i) is non-resident,

        • (ii) is not an exempt foreign trust, and

        • (iii) has no resident contributor to it or resident beneficiary under it.

    • Marginal note:Deemed cessation of residence — becoming an exempt foreign trust

      (5.1) A trust is deemed to cease to be resident in Canada at the earliest time at which the trust becomes an exempt foreign trust in a taxation year (determined without reference to subsection 128.1(4)) of the trust

      • (a) that immediately follows a taxation year of the trust throughout which it was deemed by subsection (3) to be resident in Canada for the purpose of computing its income; and

      • (b) at a specified time in which

        • (i) there is a resident contributor to the trust or a resident beneficiary under the trust, and

        • (ii) the trust is an exempt foreign trust.

    • Marginal note:Administrative relief — changes in status

      (5.2) If a trust is deemed by subsection (5) or (5.1) to cease to be resident in Canada at a particular time, the following rules apply to the trust in respect of the particular taxation year that is, as a result of that cessation of residence, deemed by subparagraph 128.1(4)(a)(i) to end immediately before the particular time:

      • (a) the trust’s return of income for the particular taxation year is deemed to be filed with the Minister on a timely basis if it is filed with the Minister within 90 days from the end of the trust’s taxation year that is deemed by subparagraph 128.1(4)(a)(i) to start at the particular time; and

      • (b) an amount that is included in the trust’s income (determined without reference to subsections 104(6) and (12)) for the particular taxation year but that became payable (determined without regard to this paragraph) by the trust in the period after the particular taxation year and before the end of the trust’s taxation year that is deemed by subparagraph 128.1(4)(a)(i) to start at the particular time, is deemed to have become payable by the trust immediately before the end of the particular taxation year and not at any other time.

    • Marginal note:Ceasing to be an exempt foreign trust

      (6) If at a specified time in a trust’s taxation year it is an exempt foreign trust, at a particular time in the immediately following taxation year (determined without reference to this subsection) the trust ceases to be an exempt foreign trust (otherwise than because of becoming resident in Canada), and at the particular time there is a resident contributor to, or resident beneficiary under, the trust,

      • (a) the trust’s taxation year (determined without reference to this subsection) that includes the particular time is deemed to have ended immediately before the particular time and a new taxation year of the trust is deemed to begin at the particular time; and

      • (b) for the purpose of determining the trust’s fiscal period after the particular time, the trust is deemed not to have established a fiscal period before the particular time.

    • Marginal note:Limit to amount recoverable

      (7) The maximum amount recoverable under the provisions referred to in paragraph (3)(d) at any particular time from a person in respect of a trust (other than a person that is deemed, under subsection (12) or (13), to be a contributor or a resident contributor to the trust) and a particular taxation year of the trust is the person’s recovery limit at the particular time in respect of the trust and the particular year if

      • (a) either

        • (i) the person is liable under a provision referred to in paragraph (3)(d) in respect of the trust and the particular year solely because the person was a resident beneficiary under the trust at a specified time in respect of the trust in the particular year, or

        • (ii) at a specified time in respect of the trust in the particular year, the total of all amounts each of which is the amount, at the time it was made, of a contribution to the trust made before the specified time by the person or by another person or partnership not dealing at arm’s length with the person, is not more than the greater of

          • (A) $10,000, and

          • (B) 10% of the total of all amounts each of which was the amount, at the time it was made, of a contribution made to the trust before the specified time;

      • (b) except if the total determined in subparagraph (a)(ii) in respect of the person and all persons or partnerships not dealing at arm’s length with the person is $10,000 or less, the person has filed on a timely basis under section 233.2 all information returns required to be filed by the person before the particular time in respect of the trust (or on any later day that is acceptable to the Minister); and

      • (c) it is reasonable to conclude that for each transaction that occurred before the end of the particular year at the direction of, or with the acquiescence of, the person

        • (i) none of the purposes of the transaction was to enable the person to avoid or minimize any liability under a provision referred to in paragraph (3)(d) in respect of the trust, and

        • (ii) the transaction was not part of a series of transactions any of the purposes of which was to enable the person to avoid or minimize any liability under a provision referred to in paragraph (3)(d) in respect of the trust.

    • Marginal note:Recovery limit

      (8) The recovery limit referred to in paragraph (3)(e) and subsection (7) at a particular time of a particular person in respect of a trust and a particular taxation year of the trust is the amount, if any, by which the greater of

      • (a) the total of all amounts each of which is

        • (i) an amount received or receivable after 2000 and before the particular time

          • (A) by the particular person on the disposition of all or part of the person’s interest as a beneficiary under the trust, or

          • (B) by a person or partnership (that was, when the amount became receivable, a specified party in respect of the particular person) on the disposition of all or part of the specified party’s interest as a beneficiary under the trust,

        • (ii) an amount (other than an amount described in subparagraph (i)) made payable by the trust after 2000 and before the particular time to

          • (A) the particular person because of the interest of the particular person as a beneficiary under the trust, or

          • (B) a person or partnership (that was, when the amount became payable, a specified party in respect of the particular person) because of the interest of the specified party as a beneficiary under the trust,

        • (iii) an amount received after August 27, 2010, by the particular person, or a person or partnership (that was, when the amount was received, a specified party in respect of the particular person), as a loan from the trust to the extent that the amount has not been repaid,

        • (iv) an amount (other than an amount described in any of subparagraphs (i) to (iii)) that is the fair market value of a benefit received or enjoyed, after 2000 and before the particular time, from or under the trust by

          • (A) the particular person, or

          • (B) a person or partnership that was, when the benefit was received or enjoyed, a specified party in respect of the particular person, or

        • (v) the maximum amount that would be recoverable from the particular person at the end of the trust’s 2006 taxation year under subsection (2) (as it read in its application to taxation years that end before 2007) if the trust had tax payable under this Part at the end of the trust’s 2006 taxation year and that tax payable exceeded the total of the amounts described in respect of the particular person under paragraphs (2)(a) and (b) (as they read in their application to taxation years that end before 2007), except to the extent that the amount so recoverable is in respect of an amount that is included in the particular person’s recovery limit because of subparagraph (i) or (ii), and

      • (b) the total of all amounts each of which is the amount, when made, of a contribution to the trust before the particular time by the particular person,

      exceeds the total of all amounts each of which is

      • (c) an amount recovered before the particular time from the particular person in connection with a liability of the particular person (in respect of the trust and the particular year or a preceding taxation year of the trust) that arose because of the application of subsection (3) (or the application of this section as it read in its application to taxation years that end before 2007),

      • (d) an amount (other than an amount in respect of which this paragraph has applied in respect of any other person) recovered before the particular time from a specified party in respect of the particular person in connection with a liability of the particular person (in respect of the trust and the particular year or a preceding taxation year of the trust) that arose because of the application of subsection (3) (or the application of this section as it read in its application to taxation years that end before 2007), or

      • (e) the amount, if any, by which the particular person’s tax payable under this Part for any taxation year in which an amount described in any of subparagraphs (a)(i) to (iv) was paid, became payable, was received, became receivable or was enjoyed by the particular person exceeds the amount that would have been the particular person’s tax payable under this Part for that taxation year if no such amount were paid, became payable, were received, became receivable or were enjoyed by the particular person in that taxation year.

    • Marginal note:Determination of contribution amount — restricted property

      (9) If a person or partnership contributes at any time restricted property to a trust, the amount of the contribution at that time is deemed, for the purposes of this section, to be the greater of

      • (a) the amount, determined without reference to this subsection, of the contribution at that time, and

      • (b) the amount that is the greatest fair market value of the restricted property, or property substituted for it, in the period that begins immediately after that time and ends at the end of the third calendar year that ends after that time.

    • Marginal note:Contributor — resident in Canada within 60 months after contribution

      (10) In applying this section at each specified time, in respect of a trust’s taxation year, that is before the particular time at which a contributor to the trust becomes resident in Canada within 60 months after making a contribution to the trust, the contribution is deemed to have been made at a time other than a non-resident time of the contributor if

      • (a) in applying the definition “non-resident time” in subsection (1) at each of those specified times, the contribution was made at a non-resident time of the contributor; and

      • (b) in applying the definition “non-resident time” in subsection (1) immediately after the particular time, the contribution is made at a time other than a non-resident time of the contributor.

    • Marginal note:Application of subsections (12) and (13)

      (11) Subsections (12) and (13) apply to a trust or a person in respect of a trust if

      • (a) at any time property of a trust (referred to in this subsection and subsections (12) and (13) as the “original trust”) is transferred or loaned, directly or indirectly, in any manner, to another trust (referred to in this subsection and subsections (12) and (13) as the “transferee trust”);

      • (b) the original trust

        • (i) is deemed to be resident in Canada immediately before that time because of paragraph (3)(a),

        • (ii) would be deemed to be resident in Canada immediately before that time because of paragraph (3)(a) if this section were read without reference to paragraph (a) of the definition “connected contributor” in subsection (1) and paragraph (a) of the definition “resident contributor” in that subsection,

        • (iii) was deemed to be resident in Canada immediately before that time because of subsection (1) as it read in its application to taxation years that end before 2007, or

        • (iv) would have been deemed to be resident in Canada immediately before that time because of subsection (1) as it read in its application to taxation years that end before 2007 if that subsection were read in that application without reference to subclause (b)(i)(A)(III) of that subsection; and

      • (c) it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize a liability under this Part that arose, or that would otherwise have arisen, because of the application of this section (or the application of this section as it read in its application to taxation years that end before 2007).

    • Marginal note:Deemed resident contributor

      (12) The original trust described in subsection (11) (including a trust that has ceased to exist) is deemed to be, at and after the time of the transfer or loan referred to in that subsection, a resident contributor to the transferee trust for the purpose of applying this section in respect of the transferee trust.

    • Marginal note:Deemed contributor

      (13) A person (including any person that has ceased to exist) that is, at the time of the transfer or loan referred to in subsection (11), a contributor to the original trust, is deemed to be at and after that time

      • (a) a contributor to the transferee trust; and

      • (b) a connected contributor to the transferee trust, if at that time the person is a connected contributor to the original trust.

    • Marginal note:Restricted property — exception

      (14) A particular property that is, or will be, at any time held, loaned or transferred, as the case may be, by a particular person or partnership is not restricted property held, loaned or transferred, as the case may be, at that time by the particular person or partnership if

      • (a) the following conditions are met:

        • (i) the particular property (and property, if any, for which it is, or is to be, substituted) was not, and will not be, at any time acquired, held, loaned or transferred by the particular person or partnership (or any person or partnership with whom the particular person or partnership does not at any time deal at arm’s length) in whole or in part for the purpose of permitting any change in the value of the property of a corporation (that is, at any time, a closely held corporation) to accrue directly or indirectly in any manner whatever to the value of property held by a non-resident trust,

        • (ii) the Minister is satisfied that the particular property (and property, if any, for which it is, or is to be, substituted) is described by subparagraph (i), and

        • (iii) the particular property is identified in prescribed form, containing prescribed information, filed, by or on behalf of the particular person or partnership, with the Minister on or before

          • (A) in the case of a person, the particular person’s filing-due date for the particular person’s taxation year that includes that time,

          • (B) in the case of a partnership, the day on or before which a return is required by section 229 of the Income Tax Regulations to be filed in respect of the fiscal period of the particular partnership or would be required to be so filed if that section applied to the partnership, or

          • (C) another date that is acceptable to the Minister; or

      • (b) at that time

        • (i) the particular property is

          • (A) a share of the capital stock of a corporation,

          • (B) a fixed interest in a trust, or

          • (C) an interest, as a member of a partnership, under which, by operation of any law governing the arrangement in respect of the partnership, the liability of the member as a member of the partnership is limited,

        • (ii) there are at least 150 persons each of whom holds at that time property that at that time

          • (A) is identical to the particular property, and

          • (B) has a total fair market value of at least $500,

        • (iii) the total of all amounts each of which is the fair market value, at that time, of the particular property (or of identical property that is held, at that time, by the particular person or partnership or a person or partnership with whom the particular person or partnership does not deal at arm’s length) does not exceed 10% of the total of all amounts each of which is the fair market value, at that time, of the particular property or of identical property held by any person or partnership,

        • (iv) property that is identical to the particular property can normally be acquired by and sold by members of the public in the open market, and

        • (v) the particular property, or identical property, is listed on a designated stock exchange.

    • Marginal note:Anti-avoidance

      (15) In applying this section,

      • (a) if it can reasonably be considered that one of the main reasons that a person or partnership

        • (i) is at any time a shareholder of a corporation is to cause the condition in paragraph (b) of the definition “closely held corporation” in subsection (1) to be satisfied in respect of the corporation, the condition is deemed not to have been satisfied at that time in respect of the corporation,

        • (ii) holds at any time an interest in a trust is to cause the condition in clause (h)(ii)(A) of the definition “exempt foreign trust” in subsection (1) to be satisfied in respect of the trust, the condition is deemed not to have been satisfied at that time in respect of the trust, and

        • (iii) holds at any time a property is to cause the condition described in subparagraph (14)(b)(ii) to be satisfied in respect of the property or an identical property held by any person, the condition is deemed not to have been satisfied at that time in respect of the property or the identical property;

      • (b) if at any time at or before a specified time in a trust’s taxation year, a resident contributor to the trust contributes to the trust property that is restricted property of the trust, or property for which restricted property of the trust is substituted, and the trust is at that specified time an exempt foreign trust by reason of paragraph (f) of the definition “exempt foreign trust” in subsection (1), the amount of the trust’s income for the taxation year from the restricted property, and the amount of any taxable capital gain from the disposition in the taxation year by the trust of the restricted property, shall be included in computing the income of the resident contributor for its taxation year in which that taxation year of the trust ends and not in computing the income of the trust for that taxation year of the trust; and

      • (c) if at a specified time in a trust’s taxation year it is an exempt foreign trust by reason of paragraph (h) of the definition “exempt foreign trust” in subsection (1), at a time immediately before a particular time in the immediately following taxation year (determined without reference to subsection (6)) there is a resident contributor to, or resident beneficiary under, the trust, at the time that is immediately before the particular time a beneficiary holds a fixed interest in the trust, and at the particular time the interest ceases to be a fixed interest in the trust,

        • (i) the trust is deemed, other than for purposes of subsection (6), not to be an exempt foreign trust at any time in the trust’s taxation year (referred to in this paragraph as its “assessment year”) that ends (for greater certainty as determined under paragraph (6)(a)) at the time that is immediately before the particular time,

        • (ii) the trust shall include in computing its income for its assessment year an amount equal to the amount determined by the formula

          A – B – C

          where

          A 
          is the amount by which the total of all amounts each of which is the fair market value of a property held by the trust at the end of its assessment year exceeds the total of all amounts each of which is the principal amount outstanding at the end of its assessment year of a liability of the trust,
          B 
          is the amount by which the total of all amounts each of which is the fair market value of a property held by the trust at the earliest time at which there is a resident contributor to, or resident beneficiary under, the trust and at which the trust is an exempt foreign trust (referred to in this paragraph as the “initial time”) exceeds the total of all amounts each of which is the principal amount outstanding at the initial time of a liability of the trust, and
          C 
          is the total of all amounts each of which is the amount of a contribution made to the trust in the period that begins at the initial time and ends at the end of its assessment year (in this paragraph referred to as the “interest gross-up period”), and
        • (iii) if the trust is liable for tax for its assessment year, then throughout the period that begins at the trust’s balance-due day for each taxation year that ends in the interest gross-up period and ends at the balance-due day for its assessment year, the trust is (in addition to any excess otherwise determined in respect of the trust under that subsection) deemed to have an excess for the purposes of subsection 161(1) equal to the amount determined by the formula

          A/B × 42.92%

          where

          A 
          is the amount determined under subparagraph (ii) in respect of the trust for the particular taxation year, and
          B 
          is the number of the trust’s taxation years that end in the interest gross-up period.
    • Marginal note:Attribution to electing contributors

      (16) If at a specified time in respect of a trust for a taxation year of the trust (referred to in this subsection as the “trust’s year”), there is an electing contributor in respect of the trust, the following rules apply:

      • (a) the electing contributor is required to include in computing their income for their taxation year (referred to in this subsection as the “contributor’s year”) in which the trust’s year ends, the amount determined by the formula

        A/B × (C – D)

        where

        A 
        is the total of all amounts each of which is
        • (i) if at or before the specified time the electing contributor has made a contribution to the trust and is not a joint contributor in respect of the trust and the contribution, the amount of the contribution, or

        • (ii) if at or before the specified time the electing contributor has made a contribution to the trust and is a joint contributor in respect of the trust and the contribution, the amount obtained when the amount of the contribution is divided by the number of joint contributors in respect of the contribution,

        B 
        is the total of all amounts each of which is the amount that would be determined under A for each resident contributor, or connected contributor, to the trust at the specified time if all of those contributors were electing contributors in respect of the trust,
        C 
        is the trust’s income, computed without reference to paragraph (f), for the trust’s year, and
        D 
        is the amount deducted by the trust under section 111 in computing its taxable income for the trust’s year;
      • (b) subject to paragraph (c), the amount, if any, required by paragraph (a) to be included in the electing contributor’s income for the contributor’s year is deemed to be income from property from a source in Canada;

      • (c) for the purposes of this paragraph, paragraph (d) and section 126, an amount in respect of the trust’s income for the trust’s year from a source in a country other than Canada is deemed to be income of the electing contributor for the contributor’s year from that source if

        • (i) the amount is designated by the trust, in respect of the electing contributor, in the trust’s return of income under this Part for the trust’s year,

        • (ii) the amount may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that because of paragraph (a) was included in computing the income of the electing contributor for the contributor’s year, and

        • (iii) the total of all amounts designated by the trust, under this paragraph or subsection 104(22) in respect of that source, in the trust’s return of income under this Part for the trust’s year is not greater than the trust’s income for the trust’s year from that source;

      • (d) for the purposes of this paragraph and section 126, the electing contributor is deemed to have paid as business-income tax (in this subsection as defined by subsection 126(7)) or non-business-income tax (in this subsection as defined by subsection 126(7)), as the case may be, for the contributor’s year in respect of a source the amount determined by the formula

        A × B/C

        where

        A 
        is the amount that, in the absence of subparagraph (e)(i), would be the business-income tax or non-business-income tax, as the case may be, paid by the trust in respect of that source for the trust’s year,
        B 
        is the total of all amounts each of which is an amount designated under paragraph (c) in respect of that source by the trust in respect of the electing contributor in the trust’s return of income under this Part for the trust’s year, and
        C 
        is the trust’s income for the trust’s year from that source;
      • (e) in applying subsection 20(12) and section 126 in respect of the trust’s year there shall be deducted

        • (i) in computing the trust’s income from a source for the trust’s year the total of all amounts each of which is an amount deemed by paragraph (c) to be income from that source of the electing contributor for the contributor’s year, and

        • (ii) in computing the business-income tax or non-business-income tax paid by the trust for the trust’s year in respect of a source the total of all amounts in respect of that source each of which is an amount deemed by paragraph (d) to be paid by the electing contributor as business-income tax or non-business-income tax, as the case may be, in respect of that source;

      • (f) in computing the trust’s income for the trust’s year there may be deducted the amount that does not exceed the amount included by reason of paragraph (a) in the electing contributor’s income for the contributor’s year; and

      • (g) if before the specified time the electing contributor made a contribution to the trust as part of a series of transactions in which another person made the same contribution, in applying paragraphs (a) to (f) in respect of the electing contributor and the other person, the other person is deemed not to be a joint contributor in respect of the contribution if it can reasonably be considered that one of the main purposes of the series was to obtain the benefit of any deduction in computing income, taxable income or tax payable under this Act or any balance of undeducted outlays, expenses or other amounts available to the other person or any exemption available to the other person from tax payable under this Act.

    • Marginal note:Liability for joint contribution

      (17) If, at or before a specified time in a trust’s taxation year (referred to in this subsection as the “trust’s year”), there is an electing contributor in respect of the trust who is a joint contributor in respect of a contribution to the trust,

      • (a) each person who is a joint contributor in respect of the contribution

        • (i) has, in respect of the contribution, jointly and severally, or solidarily, the rights and obligations under Divisions I and J of each other person (referred to in this subsection as the “specified person”) who is, at or before the specified time, a joint contributor in respect of that contribution, for the specified person’s taxation year in which the trust’s year ends, and

        • (ii) is subject to Part XV in respect of those rights and obligations; and

      • (b) the maximum amount recoverable under the provisions referred to in paragraph (a) at a particular time from the person in respect of the contribution and a taxation year, of another person who is the specified person, in which the trust’s year ends is the amount determined by the formula

        A – B – C

        where

        A 
        is the total of the amounts payable by the specified person under this Part for the specified person’s taxation year in which the trust’s year ends,
        B 
        is the amount that would be determined for A if the total of the amounts payable by the specified person under this Part for the particular specified person’s taxation year in which the trust’s year ends were computed without reference to the contribution, and
        C 
        is the amount recovered before the particular time from the specified person, and any other joint contributor in respect of the trust and the contribution, in connection with the liability of the specified person in respect of the contribution.
  • (2) Subsection (1) applies to taxation years that end after 2006, except that

    • (a) subsections 94(1) to (15) of the Act, as enacted by subsection (1), also apply to the particular taxation year of a trust that ends after 2000 and before 2007, and to each subsequent taxation year of the trust that ends before 2007, and to each taxation year of the beneficiaries under, and contributors to, the trust in which such a trust taxation year ends, if the trust elects to have section 94 of the Act, as enacted by subsection (1), apply to the particular taxation year by filing the election in writing with the Minister of National Revenue on or before the trust’s filing-due date for the trust’s taxation year in which this Act receives royal assent;

    • (b) subsections 94(16) and (17) of the Act, as enacted by subsection (1), apply only to taxation years that end after March 4, 2010;

    • (c) if

      • (i) an election or form referred to in section 94 of the Act, as enacted by subsection (1), would otherwise be required to be filed before 120 days after the day on which this Act receives royal assent, it is deemed to have been filed with the Minister of National Revenue on a timely basis if it is filed with the Minister of National Revenue within 365 days after the day on which this Act receives royal assent, and

      • (ii) a trust’s return of income for a taxation year throughout which it was deemed by subsection 94(3) of the Act, as enacted by subsection (1), to be resident in Canada for the purpose of computing its income (or was deemed by paragraph 94(3)(f) of the Act, as enacted by subsection (1), to exist) would otherwise be required to be filed before 120 days after the day on which this Act receives royal assent, it is deemed to have been filed, for the purposes of section 162 of the Act, with the Minister of National Revenue on a timely basis if it is filed with the Minister of National Revenue within 365 days after the day on which this Act receives royal assent (however, this subparagraph does not apply in respect of a return of income for a taxation year that ends before the day on which this Act receives royal assent and for which the trust was deemed resident in Canada by section 94 of the Act as it read without reference to this Act);

    • (d) if a trust elects, by notifying the Minister of National Revenue in writing on or before its filing-due date for its taxation year that includes the day on which this Act receives royal assent, that this paragraph applies, in applying section 94 of the Act, as enacted by subsection (1), in respect of the trust, the definition “arm’s length transfer” in subsection 94(1) of the Act, as enacted by subsection (1), does not include a loan or other transfer of property that is identified in the election and that is made in a taxation year that begins before 2003;

    • (e) clause (f)(ii)(C) of the definition “exempt foreign trust” in subsection 94(1) of the Act, as enacted by subsection (1), is, in respect of a trust for its taxation years that end before 2009, to be read as follows:

      • (C) no benefits are provided under the trust, other than benefits in respect of

        • (I) qualifying services,

        • (II) particular services rendered before November 9, 2006, to an employer by an employee of the employer if the employee had on November 8, 2006, a right (whether immediate or future or whether absolute or contingent) to receive the benefits in respect of the particular services under an agreement in writing

          1. that was entered into before November 9, 2006, and

          2. if the employee was resident in Canada on November 9, 2006, a copy of which was filed with a prescribed form with the Minister by or on behalf of the employer no later than April 30 of the first calendar year that begins after November 9, 2006, or

        • (III) any combination of services that are described in subclause (I) or (II);

    • (f) the expression “if the person is an individual and the trust arose on and as a consequence of the death of the individual, 18 months before the contribution time” in the definition “non-resident time” in subsection 94(1) of the Act, as enacted by subsection (1), is, in respect of contributions made before June 23, 2000, to be read as the expression “if the contribution time is before June 23, 2000, 18 months before the end of the trust’s taxation year that includes the contribution time”;

    • (g) subparagraph 94(3)(a)(x) of the Act, as enacted by subsection (1), does not apply in determining, on or before July 18, 2005, whether a foreign affiliate is a controlled foreign affiliate of a taxpayer;

    • (h) the reference to “(28)” in subparagraph 94(3)(a)(iii) of the Act, as enacted by subsection (1), is, for taxation years that begin before 2007, to be read as a reference to “(29)”;

    • (i) paragraph 94(4)(b) of the Act, as enacted by subsection (1), is

      • (i) subject to subparagraph (ii), for taxation years that begin on or before July 18, 2005, to be read without reference to “the definition “Canadian partnership” in subsection 102(1),”, and

      • (ii) to be read as follows in its application to a transfer, by a trust, that occurred before February 28, 2004:

        • (b) subsections 70(6) and 73(1), paragraph 107.4(1)(c) other than subparagraph (i) of that paragraph and paragraph (a) of the definition “mutual fund trust” in subsection 132(6);

    • (j) paragraph 94(4)(f) of the Act, as enacted by subsection (1), is, in its application to a transfer by a trust that occurred before February 28, 2004, to be read as follows:

      • (f) determining the residency of the transferee in applying subparagraph (f)(ii) of the definition “disposition” in subsection 248(1);

    • (k) paragraph 94(2)(o) of the Act, as enacted by subsection (1), is, in its application to a transfer that occurred before August 27, 2010, to be read as follows:

      • (o) a contribution made at any time by a particular partnership to a trust is deemed to have been made at that time jointly by the particular partnership and by each person or partnership that is at that time a member of the particular partnership (other than a member of the particular partnership if the liability of the member as a member of the particular partnership is limited by operation of any law governing the partnership arrangement);

    • (l) if a trust was, for its last taxation year that ends before 2007, deemed by paragraph 94(1)(c) of the Act (as it read in its application to that taxation year) to be resident in Canada, paragraphs 94(4)(d) and (e) of the Act, as enacted by subsection (1), do not apply to the trust for the period that starts immediately before the end of that last taxation year and that ends immediately after the beginning of its first taxation year that ends after 2006, unless during that period a change in the trustees of the trust occurred;

    • (m) the reference to “designated stock exchange” in subparagraph 94(14)(b)(v) of the Act, as enacted by subsection (1), is, before December 14, 2007, to be read as a reference to “prescribed stock exchange”;

    • (n) subparagraph (c)(ii) of the definition “exempt foreign trust” in subsection 94(1) of the Act, as enacted by subsection (1), is, before January 1, 2012, to be read as follows:

      • (ii) at the particular time the trust owns and administers a university described in paragraph (f) of the definition “total charitable gifts” in subsection 118.1(1),

    • (o) if a trust elects, by notifying the Minister of National Revenue in writing on or before its filing-due date for its taxation year that includes the day on which this Act receives royal assent, that this paragraph applies, subsections 94(5) to (6) of the Act, as enacted by subsection (1), are, for the trust’s taxation years that end on or before October 24, 2012, to be read as follows:

      • (5) A trust is deemed to cease to be resident in Canada at the earliest time at which there is neither a resident contributor to the trust nor a resident beneficiary under the trust in a period that would, if this Act were read without reference to subsection 128.1(4), be a taxation year of the trust

        • (a) that immediately follows a taxation year of the trust throughout which it was resident in Canada;

        • (b) at the beginning of which there was a resident contributor to the trust or a resident beneficiary under the trust; and

        • (c) at the end of which the trust is non-resident.

      • (6) If at any time a trust becomes or ceases to be an exempt foreign trust (otherwise than because of becoming resident in Canada),

        • (a) its taxation year that would otherwise include that time is deemed to have ended immediately before that time and a new taxation year of the trust is deemed to begin at that time; and

        • (b) for the purpose of determining the trust’s fiscal period after that time, the trust is deemed not to have established a fiscal period before that time.

  • (3) Notwithstanding subsection 152(4) of the Act, the Minister of National Revenue may reassess a trust for its particular taxation year in respect of which it elects under subsection (2) and in respect of each of its subsequent taxation years that ends before 2007, tax, interest or penalties payable under Part I of the Act by the trust if

    • (a) the trust is deemed by subsection 94(3) of the Act, as enacted by subsection (1), to be resident in Canada for the purpose of computing its income for the particular taxation year; and

    • (b) on or before the day that is 365 days after the day on which this Act receives royal assent, the trust files with the Minister of National Revenue a prescribed form amending, as necessary, each of its returns for taxation years to which that election applies.

  •  (1) The portion of subsection 94.1(1) of the Act before paragraph (a) is replaced by the following:

    Marginal note:Offshore investment fund property
    • 94.1 (1) If in a taxation year a taxpayer holds or has an interest in property (referred to in this section as an “offshore investment fund property”)

  • (2) Subparagraph 94.1(1)(f)(ii) of the Act is replaced by the following:

    • (ii) 1/12 of the total of

      • (A) the prescribed rate of interest for the period that includes that month, and

      • (B) two per cent

  • (3) The definition “non-resident entity” in subsection 94.1(2) of the Act is replaced by the following:

    “non-resident entity”

    « entité non-résidente »

    “non-resident entity” at any time means

    • (a) a corporation that is at that time non-resident,

    • (b) a partnership, organization, fund or entity that is at that time non-resident or is not at that time situated in Canada, or

    • (c) an exempt foreign trust (other than a trust described in any of paragraphs (a) to (g) of the definition “exempt foreign trust” in subsection 94(1)).

  • (4) Subsections (1) to (3) apply to taxation years that end after March 4, 2010. Subsections (1) and (3) also apply to each taxation year of a beneficiary under a trust that ends before March 5, 2010 if subsection 94(1) of the Act, as enacted by section 7, applies to the trust for a taxation year of the trust that ends in that earlier taxation year of the beneficiary.

  • (5) Subsection (6) applies to a taxpayer for each taxation year that ends in the period that begins on January 1, 2001 and ends on March 4, 2010 (referred to in this subsection and subsections (7), (8) and (10) as the “relevant period”), if

    • (a) in the return of income for the year the taxpayer has, in respect of one or more participating interests held by the taxpayer during the relevant period, in this subsection and subsections (6) to (10) having the meaning of “participating interest” as set out in the provisions of sections 94.1 to 94.4 of the Act contained in section 18 of Bill C-10 of the second session of the 39th Parliament as passed by the House of Commons on October 29, 2007, included or deducted an amount (referred to in this subsection and subsections (6) to (8) and (10) as the “reported inclusion” or “reported deduction” as the case may be) under those provisions in computing income for the year; and

    • (b) the taxpayer files a prescribed form on or before the taxpayer’s filing-due date for the taxpayer’s taxation year in which this Act receives royal assent

      • (i) identifying each participating interest of the taxpayer for which a reported inclusion or reported deduction described in paragraph (a) has been included, or deducted, in computing the taxpayer’s income for a taxation year ending in the relevant period, and

      • (ii) providing sufficient detail of each of those participating interests, including any reported inclusions, reported deductions, and any taxable capital gains or allowable capital losses realized on the participating interests described in subparagraph (i).

  • (6) If this subsection applies to a taxpayer for a taxation year,

    • (a) the taxpayer’s reported inclusion and any taxable capital gains for the year in respect of a participating interest is deemed to be the amount required to be included under the Act in computing the taxpayer’s income for that year in respect of that participating interest; and

    • (b) the taxpayer’s reported deduction and any allowable capital loss for the year in respect of a participating interest is deemed to be the amount deductible under the Act in computing the taxpayer’s income, or the allowable capital loss, respectively, for that year in respect of that participating interest.

  • (7) If subsection (6) applies to a taxpayer for one or more taxation years, in computing the taxpayer’s income for the first taxation year that ends after the relevant period, there may be deducted the amount that does not exceed the amount, if any, determined by the formula

    (A – B) – (C – D)

    where

    A 
    is the total of all amounts each of which is a reported inclusion for a year in respect of a participating interest, or a taxable capital gain for a taxation year that ends in the relevant period from the disposition of a participating interest of the taxpayer described in paragraph (5)(a);
    B 
    is the total of all amounts each of which is a reported deduction for a year in respect of a participating interest, or an allowable capital loss for a taxation year that ends in the relevant period from the disposition of a participating interest of the taxpayer described in paragraph (5)(a);
    C 
    is the total of all amounts each of which is
    • (a) an amount that would be required to be included under the provisions of the Act, read without reference to this Act, in the taxpayer’s income for a taxation year that ends in the relevant period in respect of a property that is a participating interest of the taxpayer described in paragraph (5)(a), or

    • (b) a taxable capital gain computed without reference to this Act for a taxation year that ends in the relevant period from the disposition of a participating interest of the taxpayer described in paragraph (5)(a); and

    D 
    is the total of all amounts each of which is an allowable capital loss computed without reference to this Act for a taxation year that ends in the relevant period from the disposition of a participating interest of the taxpayer described in paragraph (5)(a).
  • (8) Subsection (9) applies to a taxpayer in respect of a participating interest described in paragraph (5)(a) for the first taxation year that ends after the relevant period if

    • (a) at the start of the year the taxpayer holds the participating interest;

    • (b) the total of all amounts each of which is a reported deduction for a year in respect of the participating interest exceeds the total of all amounts each of which is a reported inclusion for a year in respect of the participating interest; and

    • (c) the amount determined for B in applying the formula in subsection (7) in computing the taxpayer’s income for that year exceeds the amount, if any, that is the amount determined for A in so applying that formula.

  • (9) If this subsection applies to a taxpayer in respect of a participating interest for a taxation year, in computing the adjusted cost base to the taxpayer of the participating interest at any time after the start of the taxation year, there is to be deducted an amount equal to the excess determined in respect of the participating interest under paragraph (8)(b).

  • (10) Notwithstanding subsection 152(4) of the Act, the Minister of National Revenue may reassess tax, interest or penalties payable under Part I of the Act by the taxpayer, in respect of each of the taxpayer’s participating interests for each of the taxpayer’s taxation years that ends in the relevant period to give effect to the application of the Act as read in respect of each of those years without regard to this Part if

    • (a) subsection (6) does not apply to the taxpayer;

    • (b) the taxpayer has a reported inclusion or a reported deduction in respect of those participating interests for one or more of those years; and

    • (c) at any time that is on or before the day that is 365 days after the day on which this Act receives royal assent, the taxpayer files with the Minister of National Revenue a prescribed form amending, as necessary, each of the returns for those taxation years.

  •  (1) The Act is amended by adding the following after section 94.1:

    Marginal note:Investments in non-resident commercial trusts
    • 94.2 (1) Subsection (2) applies to a beneficiary under a trust, and to any particular person (other than an individual described in paragraph (a) of the definition “connected contributor” in subsection 94(1)) of which any such beneficiary is a controlled foreign affiliate, at any time if

      • (a) the trust is at that time an exempt foreign trust (other than a trust described in any of paragraphs (a) to (g) of the definition “exempt foreign trust” in subsection 94(1));

      • (b) either

        • (i) the total fair market value at that time of all fixed interests of a particular class in the trust held by the beneficiary, persons or partnerships not dealing at arm’s length with the beneficiary, or persons or partnerships that acquired their interests in the trust in exchange for consideration given to the trust by the beneficiary, is at least 10% of the total fair market value at that time of all fixed interests of the particular class, or

        • (ii) the beneficiary or the particular person has at or before that time contributed restricted property to the trust; and

      • (c) the beneficiary is at that time a

        • (i) resident beneficiary,

        • (ii) mutual fund,

        • (iii) controlled foreign affiliate of the particular person, or

        • (iv) partnership of which a person described in any of subparagraphs (i) to (iii) is a member.

    • Marginal note:Deemed corporation

      (2) If this subsection applies at any time to a beneficiary under, or a particular person in respect of, a trust, then for the purposes of applying this section, subsections 91(1) to (4), paragraph 94.1(1)(a) and sections 95 and 233.4 to the beneficiary under, and, if applicable, to the particular person in respect of, the trust

      • (a) the trust is deemed to be at that time a non-resident corporation

        • (i) controlled by each of the beneficiary and the particular person, and

        • (ii) having, for each particular class of fixed interests in the trust, a separate class of capital stock of 100 issued shares that have the same attributes as the interests of the particular class; and

      • (b) each beneficiary under the trust is deemed to hold at that time the number of shares of each separate class described in subparagraph (a)(ii) equal to the proportion of 100 that the fair market value at that time of that beneficiary’s fixed interests in the corresponding particular class of fixed interests in the trust is of the fair market value at that time of all fixed interests in the particular class.

    • Marginal note:Relief from double tax

      (3) For the purposes of applying subsection 91(1) to the beneficiary, and, if applicable, to the particular person, to whom subsection (2) applies

      • (a) there may be deducted in computing the foreign accrual property income of the trust referred to in paragraph (2)(a) (in this subsection referred to as the “entity”) for a particular taxation year of the entity the amount that would, in the absence of this paragraph, be the portion of the entity’s foreign accrual property income that would reasonably be considered to have been if this Part were applicable to all beneficiaries of the entity, included under subsection 104(13) in computing the income of any beneficiary of the entity for the taxation year in which the particular taxation year of the entity ends; and

      • (b) subsection 5904(2) of the Income Tax Regulations is to be read without reference to its paragraph (a) in determining the distribution entitlement of all the shares of a class of the capital stock of the entity at the end of the particular taxation year.

    • Marginal note:Request for information

      (4) If the Minister sends a written request, served personally or by registered mail, to a taxpayer requesting additional information for the purpose of enabling the Minister to determine the fair market value of interests in a trust for the purpose of determining the application of subsections (1) to (3) for a taxation year to the taxpayer, and information that may reasonably be considered to be sufficient to make the determination is not received by the Minister within 120 days (or within any longer period that is acceptable to the Minister) after the Minister sends the request, then in applying this section for the taxation year to the taxpayer the fair market value of those interests is deemed to be the fair market value as reasonably determined by the Minister based on the information received by the Minister within 120 days (or within any longer period that is acceptable to the Minister) after the Minister sends the request and any other information the Minister considers reasonable.

  • (2) Subsection (1) applies to taxation years that end after March 4, 2010, except that

    • (a) for taxation years that end before October 24, 2012, paragraph 94.2(1)(c) of the Act, as enacted by subsection (1), is to be read as follows:

      • (c) the beneficiary is at that time a resident beneficiary or a mutual fund.

    • (b) if subsection 94(1) of the Act, as enacted by section 7, applies to a trust for a taxation year that ends before March 5, 2010, then section 94.2 of the Act, as enacted by subsection (1), applies to each beneficiary under the trust, and to each person of which a beneficiary under the trust is a controlled foreign affiliate, for a taxation year of the beneficiary or person in which the earlier taxation year of the trust ends and, for those earlier taxation years, that section is to be read as follows:

      94.2 Where,

      • (a) at any time in a taxation year of a trust that is an exempt foreign trust (other than a trust described in any of paragraphs (a) to (g) of the definition “exempt foreign trust” in subsection 94(1)), a person beneficially interested in the trust (referred to in this section as a “beneficiary”) was

        • (i) a person resident in Canada,

        • (ii) a corporation or trust with which a person resident in Canada was not dealing at arm’s length, or

        • (iii) a controlled foreign affiliate of a person resident in Canada, and

      • (b) at any time in or before the trust’s taxation year,

        • (i) the trust, or a non-resident corporation that would, if the trust were resident in Canada, be a controlled foreign affiliate of the trust, has, other than by virtue of the repayment of a loan, acquired property, directly or indirectly in any manner whatever, from

          • (A) a particular person who

            • (I) was the beneficiary referred to in paragraph (a), was related to that beneficiary or was the uncle, aunt, nephew or niece of that beneficiary,

            • (II) was resident in Canada at any time in the 18-month period before the end of that year or, in the case of a person who has ceased to exist, was resident in Canada at any time in the 18-month period before the person ceased to exist, and

            • (III) in the case of an individual, had before the end of that year been resident in Canada for a period of, or periods the total of which is, more than 60 months, or

          • (B) a trust or corporation that acquired the property, directly or indirectly in any manner whatever, from a particular person described in clause (A) with whom it was not dealing at arm’s length

          and the trust was not

          • (C) an inter vivos trust created at any time before 1960 by a person who at that time was a non-resident person,

          • (D) a testamentary trust that arose as a consequence of the death of an individual before 1976, or

          • (E) governed by a foreign retirement arrangement, or

        • (ii) all or any part of the interest of the beneficiary in the trust was acquired directly or indirectly by the beneficiary by way of

          • (A) purchase,

          • (B) gift, bequest or inheritance from a person referred to in clause (i)(A) or (B), or

          • (C) the exercise of a power of appointment by a person referred to in clause (i)(A) or (B),

      the following rules apply for that taxation year of the trust:

      • (c) for the purposes of subsections 91(1) to (4) and sections 95 and 233.4,

        • (i) the trust shall, with respect to any beneficiary under the trust whose beneficial interest in the trust has a fair market value that is not less than 10% of the aggregate fair market value of all beneficial interests in the trust, be deemed to be a non-resident corporation that is controlled by the beneficiary,

        • (ii) the trust shall be deemed to be a non-resident corporation having a capital stock of a single class divided into 100 issued shares, and

        • (iii) each beneficiary under the trust shall be deemed to own at any time the number of the issued shares that is equal to the proportion of 100 that

          • (A) the fair market value at that time of the beneficiary’s beneficial interest in the trust

          is of

          • (B) the fair market value at that time of all beneficial interests in the trust, and

      • (d) in computing the foreign accrual property income of the trust for that taxation year, there may be deducted such portion of the amount that would, but for this paragraph, be the foreign accrual property income of the trust as may reasonably be considered as having been included in computing a beneficiary’s income under subsection 104(13) for a taxation year in which that taxation year of the trust ends.

  •  (1) The portion of subsection 104(6) of the Act before paragraph (a) is replaced by the following:

    • Marginal note:Deduction in computing income of trust

      (6) Subject to subsections (7) to (7.1), for the purposes of this Part, there may be deducted in computing the income of a trust for a taxation year

  • (2) Section 104 of the Act is amended by adding the following after subsection (7):

    • Marginal note:Trusts deemed to be resident in Canada

      (7.01) If a trust is deemed by subsection 94(3) to be resident in Canada for a taxation year for the purpose of computing the trust’s income for the year, the maximum amount deductible under subsection (6) in computing its income for the year is the amount, if any, by which

      • (a) the maximum amount that, if this Act were read without reference to this subsection, would be deductible under subsection (6) in computing its income for the year,

      exceeds

      • (b) the total of

        • (i) the portion of the trust’s designated income for the year (within the meaning assigned by section 210) that became payable in the year to a non-resident beneficiary under the trust in respect of an interest of the non-resident as a beneficiary under the trust, and

        • (ii) all amounts each of which is determined by the formula

          A × B

          where

          A 
          is an amount (other than an amount described in subparagraph (i)) that
          • (A) is paid or credited (having the meaning assigned by Part XIII) in the year to the trust,

          • (B) would, if this Act were read without reference to subparagraph 94(3)(a)(viii), paragraph 212(2)(b) and sections 216 and 217, be an amount as a consequence of the payment or crediting of which the trust would have been liable to tax under Part XIII, and

          • (C) becomes payable in the year by the trust to a non-resident beneficiary under the trust in respect of an interest of the non-resident as a beneficiary under the trust, and

          B 
          is
          • (A) 0.35, if the trust can establish to the satisfaction of the Minister that the non-resident beneficiary to whom the amount described in the description of A is payable is resident in a country with which Canada has a tax treaty under which the income tax that Canada may impose on the beneficiary in respect of the amount is limited, and

          • (B) 0.6, in any other case.

  • (3) Subsection 104(24) of the Act is replaced by the following:

    • Marginal note:Amount payable

      (24) For the purposes of subsections (6), (7), (7.01), (13), (16) and (20), subparagraph 53(2)(h)(i.1) and subsections 94(5.2) and (8), an amount is deemed not to have become payable to a beneficiary in a taxation year unless it was paid in the year to the beneficiary or the beneficiary was entitled in the year to enforce payment of it.

  • (4) Subsections (1) to (3) apply to taxation years that end after 2006. Those subsections also apply to each earlier taxation year of a trust to which subsection 94(1) of the Act, as enacted by section 7, applies and each taxation year of a beneficiary under the trust in which one of those earlier taxation years of the trust ends, except that subsection 104(24) of the Act, as enacted by subsection (3), is to be read as follows in its application before October 31, 2006:

    • (24) For the purposes of subsections (6), (7), (7.01), (13) and (20), subparagraph 53(2)(h)(i.1) and subsections 94(5.2) and (8), an amount is deemed not to have become payable to a beneficiary in a taxation year unless it was paid in the year to the beneficiary or the beneficiary was entitled in the year to enforce payment of it.

  •  (1) The portion of paragraph 107(4.1)(b) of the Act before subparagraph (i) is replaced by the following:

    • (b) subsection 75(2) was applicable, or would have been applicable if subsection 75(3) were read without reference to its paragraph (c.2), at a particular time in respect of any property of

  • (2) Subsection (1) applies to distributions made after August 27, 2010.

  •  (1) The portion of subsection 108(3) of the Act before paragraph (a) is replaced by the following:

    • Marginal note:Income of a trust in certain provisions

      (3) For the purposes of the definitions “income interest” in subsection (1), “lifetime benefit trust” in subsection 60.011(1) and “exempt foreign trust” in subsection 94(1), the income of a trust is its income computed without reference to the provisions of this Act and, for the purposes of the definition “pre-1972 spousal trust” in subsection (1) and paragraphs 70(6)(b) and (6.1)(b), 73(1.01)(c) and 104(4)(a), the income of a trust is its income computed without reference to the provisions of this Act, minus any dividends included in that income

  • (2) The portion of subsection 108(7) of the Act before paragraph (a) is replaced by the following:

    • Marginal note:Interests acquired for consideration

      (7) For the purposes of paragraph 53(2)(h), subparagraph (c)(i) of the definition “exempt amount” in subsection 94(1), subsection 107(1), paragraph (j) of the definition “excluded right or interest” in subsection 128.1(10) and paragraph (b) of the definition “personal trust” in subsection 248(1),

  • (3) Subsection (1) applies to trust taxation years that begin after 2000.

  • (4) Subsection (2) applies to taxation years that end after 2006. That subsection also applies to each earlier taxation year of a trust to which subsection 94(1) of the Act, as enacted by section 7, applies and each taxation year of a beneficiary under the trust in which one of those earlier taxation years of the trust ends.

  •  (1) Subsection 122(2) of the Act is amended by adding the following after paragraph (d):

    • (d.1) was not a trust to which a contribution (as defined by section 94 as it reads for taxation years that end after 2006) was made after June 22, 2000;

  • (2) Subsection (1) applies to trust taxation years that begin after 2002.

  •  (1) Section 128.1 of the Act is amended by adding the following after subsection (1):

    • Marginal note:Trusts subject to subsection 94(3)

      (1.1) Paragraph (1)(b) does not apply, at a time in a trust’s particular taxation year, to the trust if the trust is resident in Canada for the particular taxation year for the purpose of computing its income.

  • (2) Subsection (1) applies to trust taxation years that end after 2006. Subsection (1) also applies to each earlier taxation year of a trust to which subsection 94(1) of the Act, as enacted by section 7, applies.

  •  (1) Paragraph 152(4)(b) of the Act is amended by striking out “or” at the end of subparagraph (v), by adding “or” at the end of subparagraph (vi) and by adding the following after subparagraph (vi):

    • (vii) is made to give effect to the application of any of sections 94, 94.1 and 94.2;

  • (2) Subsection (1) applies to taxation years that end after March 4, 2010.

  •  (1) Section 160 of the Act is amended by adding the following after subsection (2):

    • Marginal note:Assessment

      (2.1) The Minister may at any time assess a taxpayer in respect of any amount payable because of paragraph 94(3)(d) or (e) or subsection 94(17) and the provisions of this Division (including, for greater certainty, the provisions in respect of interest payable) apply, with any modifications that the circumstances require, in respect of an assessment made under this section as though it had been made under section 152 in respect of taxes payable under this Part.

  • (2) The portion of subsection 160(3) of the Act before paragraph (b) is replaced by the following:

    • Marginal note:Discharge of liability

      (3) If a particular taxpayer has become jointly and severally liable with another taxpayer under this section or because of paragraph 94(3)(d) or (e) or subsection 94(17) in respect of part or all of a liability under this Act of the other taxpayer,

      • (a) a payment by the particular taxpayer on account of that taxpayer’s liability shall to the extent of the payment discharge their liability; but

  • (3) Subsections (1) and (2) apply to assessments made after 2006, except that

    • (a) subsection 160(2.1) of the Act, as enacted by subsection (1), and the portion of subsection 160(3) of the Act before its paragraph (a), as enacted by subsection (2), are to be read without reference to “or subsection 94(17)” in their application to taxation years that end before March 5, 2010; and

    • (b) if subsection 94(1) of the Act, as enacted by section 7, applies to a taxation year of a taxpayer that ends before 2007, subsection (1) applies to assessments made on or after the first day of the first such taxation year of the taxpayer to which that subsection 94(1) applies.

  •  (1) Paragraph (c) of the description of A in subsection 162(10.1) of the French version of the Act is replaced by the following:

    • c) si la déclaration est à produire en application de l’article 233.2 à l’égard d’une fiducie, 5% du total des montants représentant chacun la juste valeur marchande, au moment où il a été fait, d’un apport que la personne ou la société de personnes a fait à la fiducie avant la fin de la dernière année d’imposition de celle-ci pour laquelle la déclaration doit être produite,

  • (2) Paragraph (d) of the description of A in subsection 162(10.1) of the English version of the Act is replaced by the following:

    • (d) if the return is required to be filed under section 233.2 in respect of a trust, 5% of the total of all amounts each of which is the fair market value, at the time it was made, of a contribution of the person or partnership made to the trust before the end of the last taxation year of the trust in respect of which the return is required,

  • (3) Section 162 of the Act is amended by adding the following after subsection (10.1):

    • Marginal note:Application to trust contributions

      (10.11) In paragraph (d) of the description of A in subsection (10.1), subsections 94(1), (2) and (9) apply.

  • (4) Subsections (1) to (3) apply to returns in respect of taxation years that end after 2006. Those subsections also apply to returns in respect of an earlier taxation year of a taxpayer if subsection 94(1) of the Act, as enacted by section 7, applies to that earlier taxation year of the taxpayer.

  •  (1) Paragraph 163(2.4)(b) of the Act is replaced by the following:

    • (b) if the return is required to be filed under section 233.2 in respect of a trust, the greater of

      • (i) $24,000, and

      • (ii) 5% of the total of all amounts each of which is the fair market value, at the time it was made, of a contribution of the person or partnership made to the trust before the end of the last taxation year of the trust in respect of which the return is required;

  • (2) Section 163 of the Act is amended by adding the following after subsection (2.4):

    • Marginal note:Application to trust contributions

      (2.41) In subparagraph (2.4)(b)(ii), subsections 94(1), (2) and (9) apply.

  • (3) Subsections (1) and (2) apply to taxation years that end after 2006. Those subsections also apply to returns in respect of an earlier taxation year of a taxpayer if subsection 94(1) of the Act, as enacted by section 7, applies to that earlier taxation year of the taxpayer.

  •  (1) Subsection 215(1) of the Act is replaced by the following:

    Marginal note:Withholding and remittance of tax
    • 215. (1) When a person pays, credits or provides, or is deemed to have paid, credited or provided, an amount on which an income tax is payable under this Part, or would be so payable if this Act were read without reference to subparagraph 94(3)(a)(viii) and to subsection 216.1(1), the person shall, notwithstanding any agreement or law to the contrary, deduct or withhold from it the amount of the tax and forthwith remit that amount to the Receiver General on behalf of the non-resident person on account of the tax and shall submit with the remittance a statement in prescribed form.

  • (2) Subsection (1) applies to trust taxation years that end after 2006. Subsection (1) also applies to each earlier taxation year of a trust to which subsection 94(1) of the Act, as enacted by section 7, applies.

  •  (1) Section 216 of the Act is amended by adding the following after subsection (4):

    • Marginal note:Optional method of payment

      (4.1) If a trust is deemed by subsection 94(3) to be resident in Canada for a taxation year for the purpose of computing the trust’s income for the year, a person who is otherwise required by subsection 215(3) to remit in the year, in respect of the trust, an amount to the Receiver General in payment of tax on rent on real or immovable property or on a timber royalty may elect in prescribed form filed with the Minister under this subsection not to remit under subsection 215(3) in respect of amounts received after the election is made, and if that election is made, the elector shall,

      • (a) when any amount is available out of the rent or royalty received for remittance to the trust, deduct 25% of the amount available and remit the amount deducted to the Receiver General on behalf of the trust on account of the trust’s tax under Part I; and

      • (b) if the trust does not file a return for the year as required by section 150, or does not pay the tax that the trust is liable to pay under Part I for the year within the time required by that Part, on the expiration of the time for filing or payment, as the case may be, pay to the Receiver General, on account of the trust’s tax under Part I, the amount by which the full amount that the elector would otherwise have been required to remit in the year in respect of the rent or royalty exceeds the amounts that the elector has remitted in the year under paragraph (a) in respect of the rent or royalty.

  • (2) Subsection (1) applies to trust taxation years that end after 2006, except that

    • (a) it also applies to each earlier taxation year of a trust to which subsection 94(1) of the Act, as enacted by section 7, applies; and

    • (b) an election referred to in subsection 216(4.1) of the Act, as enacted by subsection (1), is deemed to have been filed with the Minister of National Revenue on a timely basis if it is filed with the Minister of National Revenue on or before the trust’s filing-due date for the trust’s taxation year that includes the day on which this Act receives royal assent.

  •  (1) The definitions “specified beneficiary” and “specified foreign trust” in subsection 233.2(1) of the Act are repealed.

  • (2) Subsections 233.2(2) and (3) of the Act are replaced by the following:

    • Marginal note:Rule of application

      (2) In this section and paragraph 233.5(c.1), subsections 94(1), (2) and (10) to (13) apply, except that the reference to the expression “(other than restricted property)” in the definition “arm’s length transfer” in subsection 94(1) is to be read as a reference to the expression “(other than property to which paragraph 94(2)(g) applies but not including a unit of a mutual fund trust or of a trust that would be a mutual fund trust if section 4801 of the Income Tax Regulations were read without reference to paragraph 4801(b), a share of the capital stock of a mutual fund corporation, or a particular share of the capital stock of a corporation (other than a closely held corporation) which particular share is identical to a share that is, at the transfer time, of a class that is listed on a designated stock exchange)”.

  • (3) Subsection 233.2(4) of the Act is replaced by the following:

    • Marginal note:Filing information on foreign trusts

      (4) A person shall file an information return in prescribed form, in respect of a taxation year of a particular trust (other than an exempt trust or a trust described in any of paragraphs (c) to (h) of the definition “exempt foreign trust” in subsection 94(1)) with the Minister on or before the person’s filing-due date for the person’s taxation year in which the particular trust’s taxation year ends if

      • (a) the particular trust is non-resident at a specified time in that taxation year of the particular trust;

      • (b) the person is a contributor, a connected contributor or a resident contributor to the particular trust; and

      • (c) the person

        • (i) is resident in Canada at that specified time, and

        • (ii) is not, at that specified time,

          • (A) a mutual fund corporation,

          • (B) an exempt person,

          • (C) a mutual fund trust,

          • (D) a trust described in any of paragraphs (a) to (e.1) of the definition “trust” in subsection 108(1),

          • (E) a registered investment,

          • (F) a trust in which all persons beneficially interested are persons described in clauses (A) to (E), or

          • (G) a contributor to the particular trust by reason only of being a contributor to another trust that is resident in Canada and is described in any of clauses (B) to (F).

    • Marginal note:Similar arrangements

      (4.1) In this section and sections 162, 163 and 233.5, a person’s obligations under subsection (4) (except to the extent that they are waived in writing by the Minister) are to be determined as if a contributor described in paragraph (4)(b) were any person who had transferred or loaned property, an arrangement or entity were a non-resident trust throughout the calendar year that includes the time referred to in paragraph (a) and that calendar year were a taxation year of the arrangement or entity, if

      • (a) the person at any time, directly or indirectly, transferred or loaned the property to be held

        • (i) under the arrangement and the arrangement is governed by the laws of a country or a political subdivision of a country other than Canada or exists, was formed or organized, or was last continued under the laws of a country or a political subdivision of a country other than Canada, or

        • (ii) by the entity and the entity is a non-resident entity (as defined by subsection 94.1(2));

      • (b) the transfer or loan is not an arm’s length transfer;

      • (c) the transfer or loan is not solely in exchange for property that would be described in paragraphs (a) to (i) of the definition “specified foreign property” in subsection 233.3(1) if that definition were read without reference to paragraphs (j) to (q);

      • (d) the arrangement or entity is not a trust in respect of which the person would, if this Act were read without reference to this subsection, be required to file an information return for a taxation year that includes that time; and

      • (e) the arrangement or entity is, for a taxation year or fiscal period of the arrangement or entity that includes that time, not

        • (i) an exempt foreign trust (as defined in subsection 94(1)),

        • (ii) a foreign affiliate in respect of which the person is a reporting entity (within the meaning assigned by subsection 233.4(1)), or

        • (iii) an exempt trust.

  • (4) Subsections (1) to (3) apply to returns in respect of trust taxation years that end after 2006. Those subsections also apply to returns in respect of an earlier taxation year of a trust if subsection 94(1) of the Act, as enacted by section 7, applies to the trust for that earlier taxation year. However, the reference to “designated stock exchange” in subsection 233.2(2) of the Act, as enacted by subsection (2), is in its application to a time that is before December 14, 2007 to be read as a reference to “prescribed stock exchange”.

  • (5) A return required to be filed by a person because of subsection 233.2(4) of the Act, as enacted by subsection (3), is deemed to have been filed with the Minister of National Revenue on a timely basis if it is filed with the Minister of National Revenue on or before the person’s filing-due date for the person’s taxation year that includes the day on which this Act receives royal assent.

  •  (1) Subparagraph (a)(iv) of the definition bien étranger déterminé in subsection 233.3(1) of the French version of the Act is replaced by the following:

    • (iv) la participation dans une fiducie non-résidente,

  • (2) Paragraph (d) of the definition “specified foreign property” in subsection 233.3(1) of the English version of the Act is replaced by the following:

    • (d) an interest in a non-resident trust,

  • (3) Subsections (1) and (2) apply to returns in respect of trust taxation years that end after 2006. Those subsections also apply to returns in respect of an earlier taxation year of a trust if subsection 94(1) of the Act, as enacted by section 7, applies to the trust for that earlier taxation year.

  •  (1) Paragraph 233.5(c) of the Act is replaced by the following:

    • (c) if the return is required to be filed under section 233.2 in respect of a trust, at the time of each transaction, if any, entered into by the person or partnership after March 5, 1996 and before June 23, 2000 that gave rise to the requirement to file a return for a taxation year of the trust that ended before 2007 or that affects the information to be reported in the return, it was reasonable to expect that sufficient information would be available to the person or partnership to comply with section 233.2 in respect of each taxation year of the trust that ended before 2007;

    • (c.1) if the return is required to be filed under section 233.2, at the time of each contribution (determined with reference to subsection 233.2(2)) made by the person or partnership after June 22, 2000 that gives rise to the requirement to file the return or that affects the information to be reported in the return, it was reasonable to expect that sufficient information would be available to the person or partnership to comply with section 233.2;

    • (c.2) if the return is required to be filed under section 233.4 by a person or partnership in respect of a corporation that is a controlled foreign affiliate for the purpose of that section of the person or partnership, at the time of each transaction, if any, entered into by the person or partnership after March 5, 1996 that gives rise to the requirement to file the return or that affects the information to be reported in the return, it was reasonable to expect that sufficient information would be available to the person or partnership to comply with section 233.4; and

  • (2) Subsection (1) applies to returns in respect of trust taxation years that end after 2006. Subsection (1) also applies to returns in respect of an earlier taxation year of a trust if subsection 94(1) of the Act, as enacted by section 7, applies to that earlier taxation year of the trust.

2001, c. 17Income Tax Amendments Act, 2000

  •  (1) Paragraph 53(2)(a) of the Income Tax Amendments Act, 2000 is replaced by the following:

    • (a) in respect of transfers that occur after 1999 and before 2007, for the purpose of subsection 73(1) of the Act, as enacted by subsection (1), the residence of a transferee trust shall be determined without reference to section 94 of the Act, as it reads in its application to taxation years that end before 2007;

  • (2) Subsection (1) is deemed to have come into force on June 14, 2001.

  •  (1) Subsection 80(19) of the Act is replaced by the following:

    • (19) Subsections (1) to (4) apply to the 2000 and subsequent taxation years except that, in respect of transfers after 1999 and before 2007, for the purposes of subsection 107(1) of the Act, as amended by this section, the residence of a transferee trust shall be determined without reference to section 94 of the Act, as it read in its application to taxation years that end before 2007.

  • (2) Subsection (1) is deemed to have come into force on June 14, 2001.

R.S., c. I-4Income Tax Conventions Interpretation Act

  •  (1) The Income Tax Conventions Interpretation Act is amended by adding the following after section 4.2:

    Marginal note:Application of section 94 of the Income Tax Act

    4.3 Notwithstanding the provisions of a convention or the Act giving the convention the force of law in Canada, if a trust is deemed by subsection 94(3) of the Income Tax Act to be resident in Canada for a taxation year for the purposes of computing its income, the trust is deemed to be a resident of Canada, and not a resident of the other contracting state, for the purposes of applying the convention

    • (a) in respect of the trust for that taxation year; and

    • (b) in respect of any other person for any period that includes all or part of that taxation year.

  • (2) Subsection (1) is deemed to have come into force on March 5, 2010.

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

  •  (1) Section 202 of the Income Tax Regulations is amended by adding the following after subsection (6):

    • (6.1) A trust that is deemed by subsection 94(3) of the Act to be resident in Canada for a taxation year for the purposes of computing its income, is deemed, in respect of amounts (other than an exempt amount as defined in subsection 94(1) of the Act) paid or credited by it, to be a person resident in Canada for the taxation year for the purposes of subsections (1) and (2).

  • (2) Subsection (1) applies to amounts paid or credited after August 27, 2010.

  •  (1) Section 5909 of the Regulations and the heading before it are repealed.

  • (2) Subsection (1) applies to trust taxation years that end after 2006.

PART 2AMENDMENTS IN RESPECT OF FOREIGN AFFILIATES: SURPLUS RULES AND OTHER TECHNICAL AMENDMENTS

R.S., c. 1 (5th Supp.)Income Tax Act

  •  (1) Paragraph 53(1)(d) of the Income Tax Act is replaced by the following:

    • (d) if the property is a share of the capital stock of a foreign affiliate of the taxpayer, any amount required by section 92 to be added in computing the adjusted cost base to the taxpayer of the share;

  • (2) Subsection (1) is deemed to have come into force on December 21, 2002.

  •  (1) Subparagraph 88(1)(d)(ii) of the Act is replaced by the following:

    • (ii) in no case shall the amount so designated in respect of any such capital property exceed the amount, if any, by which the fair market value of the property at the time the parent last acquired control of the subsidiary exceeds the total of

      • (A) the cost amount to the subsidiary of the property immediately before the winding-up, and

      • (B) the prescribed amount, and

  • (2) Subparagraph 88(1)(d)(iii) of the French version of the Act is replaced by the following:

    • (iii) le total des sommes ainsi désignées, relativement à toute immobilisation semblable, ne peut en aucun cas dépasser l’excédent du total déterminé selon le sous-alinéa b)(ii) sur le total des sommes déterminées selon les sous-alinéas (i) et (i.1);

  • (3) Section 88 of the Act is amended by adding the following after subsection (1.7):

    • 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.

  • (4) Subsections (1) and (2) apply in respect of windings-up that begin, and amalgamations that occur, after February 27, 2004.

  • (5) Subsection (3) is deemed to have come into force on December 19, 2009.

  •  (1) Section 92 of the Act is amended by adding the following after subsection (1):

    • Marginal note:Adjustment for prescribed amount

      (1.1) The prescribed amount shall be added in computing the adjusted cost base of a share of the capital stock of a foreign affiliate of a corporation resident in Canada to

      • (a) another foreign affiliate of the corporation; or

      • (b) a partnership of which another foreign affiliate of the corporation is a member.

  • (2) Subsection (1) is deemed to have come into force on December 19, 2009.

  •  (1) Paragraph 93(1)(b) of the Act is replaced by the following:

    • (b) if subsection 40(3) applies to the disposing corporation or disposing affiliate, as the case may be, in respect of the share, the amount deemed by that subsection to be the gain of the disposing corporation or disposing affiliate, as the case may be, from the disposition of the share is, except for the purposes of paragraph 53(1)(a), deemed to be equal to the amount, if any, by which

      • (i) the amount deemed by that subsection to be the gain from the disposition of the share determined without reference to this paragraph

      exceeds

      • (ii) the elected amount.

  • (2) Subparagraph 93(1.2)(a)(ii) of the Act is replaced by the following:

    • (ii) if subsection (1.3) applies, the prescribed amount

  • (3) Subsection 93(3) of the Act is amended by striking out “and” at the end of paragraph (a), by adding “and” at the end of paragraph (b) and by adding the following after paragraph (b):

    • (c) the prescribed amount is deemed to be an amount that is received, at the adjustment time referred to in subsection 5905(7.7) of the Income Tax Regulations, by a particular foreign affiliate of a corporation resident in Canada from another foreign affiliate of the corporation and that is in respect of an exempt dividend on a share of the capital stock of the other affiliate.

  • (4) Section 93 of the Act is amended by adding the following after subsection (5.1):

    • Marginal note:Amended election

      (5.2) An election (referred to in this subsection as the “amended election”) by a taxpayer under subsection (1) in respect of a disposition of shares of the capital stock of a foreign affiliate of the taxpayer is deemed to have been made on the day on or before which the election was required to be made and any previous election (referred to in this subsection as the “old election”) under subsection (1) in respect of that disposition is deemed not to have been made if

      • (a) the taxpayer has not elected under section 51 of the Technical Tax Amendments Act, 2012;

      • (b) the taxpayer made the old election on or before December 18, 2009;

      • (c) in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the old election to be amended; and

      • (d) the amended election is made in prescribed form on or before December 31, 2013.

  • (5) Subsection (1) applies in respect of elections made in respect of dispositions that occur after December 18, 2009.

  • (6) Subsection (2) applies in respect of elections made under subsection 93(1.2) of the Act in respect of dispositions that occur after November 1999.

  • (7) Subsections (3) and (4) are deemed to have come into force on December 19, 2009.

  •  (1) The description of F in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:

    F 
    is the prescribed amount for the year,
  • (2) Clause (a)(i)(A) of the definition “investment business” in subsection 95(1) of the Act is replaced by the following:

    • (A) of each country in which the business is carried on through a permanent establishment in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,

  • (3) Subsection 95(1) of the Act is amended by adding the following in alphabetical order:

    “permanent establishment”

    « établissement stable »

    “permanent establishment” has the meaning assigned by regulation;

  • (4) Clause 95(2)(l)(iii)(A) of the Act is replaced by the following:

    • (A) of each country in which the business is carried on through a permanent establishment in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,

  • (5) Clause 95(2.3)(b)(ii)(A) of the Act is replaced by the following:

    • (A) under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment in that country,

  • (6) Subparagraph 95(2.4)(a)(i) of the Act is replaced by the following:

    • (i) of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued and of each country in which the business is carried on through a permanent establishment in that country,

  • (7) Subclause (c)(ii)(B)(I) of the definition “indebtedness” in subsection 95(2.5) of the Act is replaced by the following:

    • (I) under the laws of the country under whose laws the non-resident corporation is governed and any of exists, was (unless the non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued and under the laws of each country in which the business is carried on through a permanent establishment in that country,

  • (8) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after November 1999.

  • (9) Subsections (2) to (7) apply to taxation years of a foreign affiliate of a taxpayer that begin after 1999.

  •  (1) Subparagraph 152(4)(b)(i) of the Act is replaced by the following:

    • (i) is required under subsection (6) or (6.1), or would be so required if the taxpayer had claimed an amount by filing the prescribed form referred to in the subsection on or before the day referred to in the subsection,

  • (2) Subsection 152(6.1) of the Act is replaced by the following:

    • Marginal note:Reassessment if amount under subsection 91(1) is reduced

      (6.1) If

      • (a) a taxpayer has filed for a particular taxation year the return of income required by section 150,

      • (b) the amount included in computing the taxpayer’s income for the particular year under subsection 91(1) is subsequently reduced because of a reduction in the foreign accrual property income of a foreign affiliate of the taxpayer for a taxation year (referred to in this paragraph as the “claim year”) of the affiliate that ends in the particular year, if the reduction in that foreign accrual property income is

        • (i) attributable to a foreign accrual property loss (within the meaning assigned by subsection 5903(3) of the Income Tax Regulations) of the affiliate for a taxation year of the affiliate that ends in a subsequent taxation year of the taxpayer, and

        • (ii) included in the description of F in the definition “foreign accrual property income” in subsection 95(1) in respect of the affiliate for the claim year, and

      • (c) the taxpayer has filed with the Minister, on or before the filing-due date for that subsequent taxation year, a prescribed form amending the return,

      the Minister shall reassess the taxpayer’s tax for any relevant taxation year (other than a taxation year preceding the particular year) in order to take into account the reduction in the amount included under subsection 91(1) in computing the income of the taxpayer for the particular year.

  • (3) Subsections (1) and (2) apply to taxation years that begin after November 1999.

  •  (1) The portion of paragraph 161(7)(a) of the Act before subparagraph (i) is replaced by the following:

    • (a) the tax payable under this Part and Parts I.3, VI and VI.1 by the taxpayer for the year is deemed to be the amount that it would be if the consequences of the deduction, reduction or exclusion of the following amounts were not taken into consideration:

  • (2) Paragraph 161(7)(a) of the Act is amended by striking out “and” at the end of subparagraph (x) and by adding the following after subparagraph (xi):

    • (xii) any amount by which the amount included under subsection 91(1) for the year is reduced because of a reduction referred to in paragraph 152(6.1)(b) in the foreign accrual property income of a foreign affiliate of the taxpayer for a taxation year of the affiliate that ends in the year; and

  • (3) Subparagraph 161(7)(b)(iii) of the Act is replaced by the following:

    • (iii) if an amended return of the taxpayer’s income for the year or a prescribed form amending the taxpayer’s return of income for the year was filed under subsection 49(4) or 152(6) or (6.1) or paragraph 164(6)(e), the day on which the amended return or prescribed form was filed, and

  • (4) Subsections (1) to (3) apply to taxation years that begin after December 18, 2009.

  •  (1) Subsection 164(5) of the Act is amended by striking out “or” at the end of paragraph (h.2), by adding “or” at the end of paragraph (h.3), and by adding the following after paragraph (h.3):

    • (h.4) the reduction of the amount included under subsection 91(1) for the year because of a reduction referred to in paragraph 152(6.1)(b) in the foreign accrual property income of a foreign affiliate of the taxpayer for a taxation year of the affiliate that ends in the year,

  • (2) Paragraph 164(5)(k) of the Act is replaced by the following:

    • (k) if an amended return of a taxpayer’s income for the year or a prescribed form amending the taxpayer’s return of income for the year was filed under paragraph (6)(e) or subsection 49(4) or 152(6) or (6.1), the day on which the amended return or prescribed form was filed, and

  • (3) Subsections (1) and (2) apply to taxation years that begin after December 18, 2009.

  •  (1) The portion of subsection 256(7) of the Act before paragraph (a) is replaced by the following:

    • Marginal note:Acquiring control

      (7) For the purposes of this subsection, of subsections 10(10), 13(21.2) and (24), 14(12) and 18(15), sections 18.1 and 37, subsection 40(3.4), the definition “superficial loss” in section 54, section 55, subsections 66(11), (11.4) and (11.5), 66.5(3) and 66.7(10) and (11), section 80, paragraph 80.04(4)(h), subsections 85(1.2), 88(1.1) and (1.2) and 110.1(1.2), sections 111 and 127 and subsection 249(4) and of subsection 5905(5.2) of the Income Tax Regulations,

  • (2) Subsection (1) is deemed to have come into force on December 19, 2009.

  •  (1) The portion of subparagraph 261(5)(h)(i) of the Act before clause (A) is replaced by the following:

    • (i) the references in section 95 (other than paragraph 95(2)(f.15)) and the references in regulations made for the purposes of section 95 or 113 to

  • (2) The portion of subsection 261(15) of the Act before paragraph (a) is replaced by the following:

    • Marginal note:Amounts carried back

      (15) For the purposes of determining the amount that may be deducted, in respect of a particular amount that arises in a taxation year (referred to in this subsection as the “later year”) of a taxpayer, under section 111 or subsection 126(2), 127(5), 181.1(4) or 190.1(3) in computing the taxpayer’s Canadian tax results for a taxation year (referred to in this subsection as the “current year”) that ended before the later year, and for the purposes of determining the amount by which the amount included under subsection 91(1) for the current year is reduced because of a reduction referred to in paragraph 152(6.1)(b) in respect of the later year,

  • (3) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after December 18, 2009.

  • (4) Subsection (2) is deemed to have come into force on December 14, 2007.

2007, c. 35Budget and Economic Statement Implementation Act, 2007

  •  (1) The read-as text in paragraph 26(27)(b) of the Budget and Economic Statement Implementation Act, 2007 is replaced by the following:

    “controlled foreign affiliate”

    “controlled foreign affiliate”, at any time of a taxpayer resident in Canada, means a foreign affiliate of the taxpayer that

    • (a) is, at that time, controlled

      • (i) by the taxpayer,

      • (ii) by the taxpayer and not more than four other persons resident in Canada, or

      • (iii) by not more than four persons resident in Canada, other than the taxpayer, or

    • (b) would, at that time, be controlled by the taxpayer if the taxpayer owned

      • (i) each share of the capital stock of a corporation that is owned at that time by the taxpayer and each share of the capital stock of a corporation that is owned at that time by any of not more than four other persons resident in Canada,

      • (ii) each share of the capital stock of a corporation that is owned at that time by any of not more than four persons resident in Canada (other than the taxpayer), or

      • (iii) each share of the capital stock of a corporation that is owned at that time by the taxpayer and each share of the capital stock of a corporation that is owned at that time by any person with whom the taxpayer does not deal at arm’s length;

  • (2) The portion of paragraph 26(35)(b) of the Act before subparagraph (i) is replaced by the following:

    • (b) if a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007,

  • (3) The portion of subsection 26(37) of the English version of the Act before the read-as text is replaced by the following:

    • (37) Subject to subsection (46), paragraphs 95(2)(g) to (g.03) of the Act, as enacted by subsection (13), apply to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002, except that, for taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002 and before 2009, paragraph 95(2)(g.03) of the Act, as enacted by subsection (13), is to be read as if the references in that paragraph to “qualified foreign affiliate” were references to “qualified foreign corporation” and paragraph 95(2)(g) of the Act, as enacted by subsection (13), is to be read as follows:

  • (4) Subsection 26(38) of the Act is replaced by the following:

    • (38) Subject to subsection (46), paragraphs 95(2)(n), (p), (r) to (t), (v) and (y) of the Act, as enacted by subsection (16), apply to taxation years, of a foreign affiliate of a taxpayer, that end after 1999. However, if a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007, paragraph 95(2)(n) of the Act, as enacted by subsection (16), applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994.

  • (5) Subsection 26(40) of the Act is replaced by the following:

    • (40) Paragraph 95(2)(u) of the Act, as enacted by subsection (16), applies to taxation years, of foreign affiliates of a taxpayer, that end after 1999. However, if a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007, paragraph 95(2)(u) of the Act, as enacted by subsection (16), applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994.

  • (6) The portion of paragraph 26(42)(b) of the Act before the read-as text is replaced by the following:

    • (b) if a taxpayer elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007, subsection 95(2.2) of the Act, as enacted by subsection (19), also applies to taxation years, of all its foreign affiliates, that begin after 1994 and end before 2000, as though subsection 95(2.2) of the Act, as enacted by subsection (19), read as follows:

  • (7) Subsections 26(44) and (45) of the Act are replaced by the following:

    • (44) Subject to subsection (46), subsection (24) applies to the 2001 and subsequent taxation years of a foreign affiliate of a taxpayer. However, if a taxpayer elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007, subsection (24) applies to taxation years, of all its foreign affiliates, that begin after 1994.

    • (45) Subsection (25) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002. However, if a taxpayer elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007, subsections (11) and (25) apply to taxation years, of all its foreign affiliates, that begin after 1994.

  • (8) The portion of subsection 26(46) of the Act before paragraph (a) is replaced by the following:

    • (46) If a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007,

  • (9) Subsection 26(47) of the Act is replaced by the following:

    • (47) If a taxpayer has made what would, but for this subsection, be a valid election under any of paragraph (35)(b), subsections (38) and (40), paragraph (42)(b) and subsections (44) to (46) and the taxpayer has, on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2010, filed with the Minister of National Revenue a notice in writing to revoke the election, the election is deemed, otherwise than for the purpose of this subsection, never to have been made.

  • (10) Subsection 26(48) of the Act is replaced by the following:

    • (48) Any assessment of a taxpayer’s tax, interest and penalties payable under the Act for any taxation year that ends before December 14, 2007 and would, in the absence of this subsection, be precluded because of subsections 152(4) to (5) of the Act shall be made to the extent necessary to take into account any of the following:

      • (a) an election made by the taxpayer under any of subsections (35), (38), (40), (42) and (44) to (46), a revocation referred to in subsection (47) or any provision of this section in respect of which an election is made under any of those subsections by the taxpayer; or

      • (b) subsection 10(3) or any provision of this section (other than any provision referred to in paragraph (a) in respect of which the taxpayer has made an election referred to in paragraph (a)), if the taxpayer

        • (i) elects in writing in respect of all of its foreign affiliates that this subsection apply in respect of that provision, and

        • (ii) files that election with the Minister of National Revenue on or before the day that is six months after the day on which the Technical Tax Amendments Act, 2012 receives royal assent.

  • (11) Subsections (1) to (10) are deemed to have come into force on December 14, 2007.

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

  •  (1) Subsection 5900(3) of the Income Tax Regulations is replaced by the following:

    • (3) For the purposes of subsection 91(5) of the Act, if a person resident in Canada (other than a corporation) receives a dividend on a share of any class of the capital stock of a foreign affiliate of the person, the dividend is prescribed to have been paid out of the affiliate’s taxable surplus.

  • (2) Subsection (1) applies in respect of dividends received after November 1999.

  •  (1) Subsections 5902(1) to (3) of the Regulations are replaced by the following:

    • 5902. (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, 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,

        • (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) in determining the exempt surplus or exempt deficit, the taxable surplus or taxable deficit, the underlying foreign tax and the net surplus of a particular foreign affiliate of a taxpayer resident in Canada in which any other foreign affiliate of the taxpayer has an equity percentage (within the meaning assigned by subsection 95(4) of the Act), no amount shall be included in respect of any distribution that would be received by the particular affiliate from that other affiliate, 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 exempt surplus or exempt deficit and its taxable surplus (including underlying foreign tax applicable) or taxable deficit (and thus net surplus) that, in the circumstances, would reasonably be expected to have been paid on all the shares of that 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.
  • (2) Paragraph 5902(6)(b) of the Regulations is replaced by the following:

    • (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.

  • (3) Subsections (1) and (2) apply in respect of elections made in respect of dispositions that occur after December 18, 2009. However, in applying subsection 5905(5.6) of the Regulations, as enacted by subsection 44(6), the portion of subsection 5902(1) of the Regulations before its subparagraph (a)(ii), as enacted by subsection (1), applies after December 18, 2009.

  •  (1) Section 5903 of the Regulations is replaced by the following:

    • 5903. (1) For the purposes of the description of F in the definition “foreign accrual property income” in subsection 95(1) of the Act, subject to subsection (2), the prescribed amount for the year (referred to in this subsection and subsection (2) as the “particular year”) is the total of all amounts each of which is a portion designated for the particular year by the taxpayer of the foreign accrual property loss of the affiliate for a taxation year of the affiliate that is

      • (a) one of the 20 taxation years of the affiliate that immediately precede the particular year; or

      • (b) one of the three taxation years of the affiliate that immediately follow the particular year.

    • (2) For the purposes of this subsection and subsection (1),

      • (a) a portion of a foreign accrual property loss of the affiliate for any taxation year of the affiliate may be designated for the particular year only to the extent that the foreign accrual property loss exceeds the total of all amounts each of which is a portion, of the foreign accrual property loss, designated by the taxpayer for a taxation year of the affiliate that precedes the particular year;

      • (b) no portion of the affiliate’s foreign accrual property loss for a taxation year of the affiliate is to be designated for the particular year until the affiliate’s foreign accrual property losses for the preceding taxation years referred to in paragraph (1)(a) have been fully designated; and

      • (c) if any person or partnership that was, at the end of a taxation year (referred to in this paragraph as the “relevant loss year”) of the affiliate, a relevant person or partnership in respect of the taxpayer designates for a taxation year (referred to in this paragraph as the “relevant claim year”) of the affiliate a particular portion of the affiliate’s foreign accrual property loss for the relevant loss year, there is deemed to have been designated for the relevant claim year by the taxpayer the portion of that loss that is the greater of

        • (i) the particular portion, and

        • (ii) the greatest of the portions of that loss that are so designated by any other relevant persons or partnerships in respect of the taxpayer.

    • (3) For the purposes of this section, and subject to subsection (4), “foreign accrual property loss” of the affiliate for a taxation year of the affiliate means

      • (a) if, at the end of the year, the affiliate is a controlled foreign affiliate of a person or partnership that is, at the end of the year, a relevant person or partnership in respect of the taxpayer, the amount, if any, by which

        • (i) the total of the amounts determined for D, E, G and H in the formula in the definition “foreign accrual property income” in subsection 95(1) of the Act in respect of the affiliate for the year

        exceeds

        • (ii) the total of the amounts determined for A to C in that formula in that definition in respect of the affiliate for the year; and

      • (b) in any other case, nil.

    • (4) In computing under subsection (3) the affiliate’s foreign accrual property loss for a taxation year, if the affiliate or another corporation receives a payment described in subsection 5907(1.3) from a non-resident corporation that is, at the time of the payment, a foreign affiliate of a relevant person or partnership in respect of the taxpayer and any portion of the payment can reasonably be considered to relate to a loss or portion of a loss of the affiliate for the year described in the description of D or E in the definition “foreign accrual property income” in subsection 95(1) of the Act, the amount of the loss or portion of the loss is deemed to be nil.

    • (5) For the purpose of this section,

      • (a) if there is a foreign merger (within the meaning assigned by subsection 87(8.1) of the Act) of two or more foreign affiliates of a taxpayer resident in Canada in respect of each of which the taxpayer’s surplus entitlement percentage immediately before the merger is not less than 90 per cent to form one corporate entity in respect of which the taxpayer’s surplus entitlement percentage immediately after the merger is not less than 90 per cent, the corporate entity is deemed to be the same corporation as, and a continuation of, each of those predecessor affiliates; and

      • (b) if there is a liquidation and dissolution of a foreign affiliate of a taxpayer resident in Canada in respect of which the taxpayer’s surplus entitlement percentage immediately before the liquidation and dissolution is not less than 90 per cent into another foreign affiliate of the taxpayer in respect of which the taxpayer’s surplus entitlement percentage immediately before and immediately after the liquidation and dissolution is not less than 90 per cent, the other affiliate is deemed to be the same corporation as, and a continuation of, that predecessor affiliate.

    • (6) In this section, a “relevant person or partnership” in respect of the taxpayer, at any time, means the taxpayer or a person (other than a designated acquired corporation of the taxpayer), or a partnership, that is at that time

      • (a) a person (other than a partnership) that is resident in Canada and does not, at that time, deal at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act) with the taxpayer;

      • (b) an antecedent corporation of a relevant person or partnership in respect of the taxpayer;

      • (c) a partnership a member of which is at that time a relevant person or partnership in respect of the taxpayer under this subsection; or

      • (d) where paragraph (1)(b) is being applied, a corporation of which the taxpayer is an antecedent corporation.

    • (7) For the purposes of paragraphs (6)(a) to (d),

      • (a) if a person or partnership (referred to in this paragraph as the “relevant person”) is not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act) with another person or partnership (referred to in this paragraph as the “particular person”) at a particular time, the relevant person is deemed to have existed and not to have dealt at arm’s length with the particular person, nor with each antecedent corporation (other than a designated acquired corporation of the particular person) of the particular person, throughout the period that began when the particular person or the antecedent corporation, as the case may be, came into existence and that ends at the particular time; and

      • (b) where paragraph (1)(b) is being applied, if a corporation of which a particular person (other than a designated acquired corporation of the corporation) is an antecedent corporation is not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act) with another person or partnership at any time, the particular person is deemed to exist and not to be dealing at arm’s length with the other person or the partnership, as the case may be, at that time.

  • (2) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after November 1999, except that

    • (a) the reference to “20 taxation years” in paragraph 5903(1)(a) of the Regulations, as enacted by subsection (1), is, in respect of foreign accrual property losses for the foreign affiliate’s taxation years that end in taxation years of the taxpayer that end

      • (i) before March 23, 2004, to be read as “seven taxation years”, and

      • (ii) after March 22, 2004 and before 2006, to be read as “10 taxation years”;

    • (b) subsection 5903(2) of the Regulations, as enacted by subsection (1), is, in its application to taxation years that begin before 2001, to be read without reference to its paragraph (b);

    • (c) paragraph 5903(3)(a) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

      • (a) where, at the end of the year, the affiliate is a controlled foreign affiliate of a person or partnership that is, at the end of the year, a relevant person or partnership in respect of the taxpayer, the amount, if any, by which

        • (i) the total of the amounts determined for D and E in the formula in the definition “foreign accrual property income” in subsection 95(1) of the Act in respect of the affiliate for the year

        exceeds

        • (ii) the total of the amounts determined for A, B and C in that formula in that definition in respect of the affiliate for the year; and

    • (d) subsection 5903(4) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

      • (4) In computing under subsection (3) the affiliate’s foreign accrual property loss for a taxation year, if the affiliate or another corporation has received a payment described in subsection 5907(1.3) from another foreign affiliate of the taxpayer and any portion of the payment can reasonably be considered to relate to a loss or portion of a loss of the affiliate for the year described in the description of D or E in the definition “foreign accrual property income” in subsection 95(1) of the Act, the amount of the loss or portion of the loss is deemed to be nil.

    • (e) subsection 5903(6) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

      • (6) In this section, a “relevant person or partnership”, in respect of a taxpayer, at any time means

        • (a) the taxpayer;

        • (b) any person with whom the taxpayer was not dealing at arm’s length;

        • (c) any person with whom the taxpayer would not have been dealing at arm’s length if the person had been in existence after the taxpayer came into existence;

        • (d) any predecessor corporation (within the meaning assigned by subsection 87(1) of the Act) of a person described in any of paragraphs (a) to (c); or

        • (e) any predecessor corporation (within the meaning assigned by paragraph 87(2)(l.2) of the Act) of a person described in any of paragraphs (a) to (c).

    • (f) section 5903 of the Regulations, as enacted by subsection (1), is, in its application to taxation years that begin on or before December 18, 2009, to be read without reference to its subsection (7).

  •  (1) Paragraph 5904(3)(a) of the Regulations is replaced by the following:

    • (a) the net surplus of a foreign affiliate of a person resident in Canada is, in respect of that person, to be computed as if that person were a corporation resident in Canada;

  • (2) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after November 1999.

  •  (1) Subsection 5905(1) of the Regulations is replaced by the following:

    • 5905. (1) If, at any time, there is an acquisition or a disposition of shares of the capital stock of a particular foreign affiliate of a corporation resident in Canada and the surplus entitlement percentage of the corporation in respect of the particular foreign affiliate or any other foreign affiliate (the particular affiliate and those other affiliates being referred to individually in this subsection as a “relevant affiliate”) of the corporation in which the particular affiliate has an equity percentage (within the meaning assigned by subsection 95(4) of the Act) changes, for the purposes of the definitions “exempt surplus”, “taxable surplus” and “underlying foreign tax” in subsection 5907(1), each of the opening exempt surplus or opening exempt deficit, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, as the case may be, of the relevant affiliate in respect of the corporation is, except where the acquisition or disposition occurs in a transaction to which paragraph (3)(a) or subsection (5) or (5.1) applies, the amount determined at that time by the formula

      A × B/C

      where

      A 
      is the amount of that surplus, deficit or tax, as the case may be, as otherwise determined at that time;
      B 
      is the corporation’s surplus entitlement percentage immediately before that time in respect of the relevant affiliate; and
      C 
      is the corporation’s surplus entitlement percentage immediately after that time in respect of the relevant affiliate.
  • (2) Subsection 5905(2) of the Regulations is repealed.

  • (3) Subsections 5905(3) and (4) of the Regulations are replaced by the following:

    • (3) If at any time (referred to in this subsection as the “merger time”) a foreign affiliate (referred to in this subsection as the “merged affiliate”) of a corporation resident in Canada has been formed as a result of a foreign merger (within the meaning assigned by subsection 87(8.1) of the Act) of two or more corporations (referred to individually in this subsection as a “predecessor corporation”), the following rules apply:

      • (a) for the purposes of the definitions “exempt surplus”, “taxable surplus” and “underlying foreign tax” in subsection 5907(1), as they apply in respect of the merged affiliate,

        • (i) the merged affiliate’s opening exempt surplus, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the exempt surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the exempt deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time,

        • (ii) the merged affiliate’s opening exempt deficit, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the exempt deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the exempt surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time,

        • (iii) the merged affiliate’s opening taxable surplus, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the taxable surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the taxable deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time,

        • (iv) the merged affiliate’s opening taxable deficit, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the taxable deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the taxable surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time, and

        • (v) the merged affiliate’s opening underlying foreign tax in respect of the corporation shall be the total of all amounts each of which is the underlying foreign tax of a predecessor corporation, in respect of the corporation, immediately before the merger time;

      • (b) for the purposes of paragraph (a),

        • (i) each of the exempt surplus or exempt deficit, taxable surplus or taxable deficit and underlying foreign tax, in respect of the corporation, of each predecessor corporation immediately before the merger time is deemed to be the amount determined by the formula

          A × B/C

          where

          A 
          is the amount of that surplus, deficit or tax, as the case may be, as otherwise determined,
          B 
          is the surplus entitlement percentage of the corporation immediately before the merger time in respect of the predecessor corporation, and
          C 
          is the percentage that would be the surplus entitlement percentage of the corporation immediately after the merger time in respect of the merged affiliate if the merged affiliate’s net surplus were the total of all amounts each of which is the net surplus of a predecessor corporation immediately before the merger time, but
        • (ii) the values for A, B and C in the formula in subparagraph (i) shall take into account the application of paragraph 5902(1)(b) and subsection 5907(8) in respect of the merger; and

      • (c) in respect of any foreign affiliate (other than a predecessor corporation) of the corporation in which a predecessor corporation had an equity percentage (within the meaning assigned by subsection 95(4) of the Act) immediately before the merger time, for the purposes of subsection (1), there is deemed to be an acquisition or a disposition of shares of the capital stock of that affiliate at the merger time.

  • (4) Subsection 5905(5) of the Regulations is replaced by the following:

    • (5) If there is, at any time, a disposition by a corporation (referred to in this subsection as the “disposing corporation”) resident in Canada of any of the shares (referred to in this subsection as the “disposed shares”) of the capital stock of a particular foreign affiliate of the disposing corporation to a taxable Canadian corporation (referred to in this subsection as the “acquiring corporation”) with which the disposing corporation is not dealing at arm’s length,

      • (a) each of the opening exempt surplus or opening exempt deficit, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, in respect of the acquiring corporation, of the particular affiliate and of each foreign affiliate of the disposing corporation in which the particular affiliate has, immediately before that time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be the amount, if any,

        • (i) in the case of its opening exempt surplus, by which the total of its exempt surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its exempt deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,

        • (ii) in the case of its opening exempt deficit, by which the total of its exempt deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its exempt surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,

        • (iii) in the case of its opening taxable surplus, by which the total of its taxable surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its taxable deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,

        • (iv) in the case of its opening taxable deficit, by which the total of its taxable deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its taxable surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, and

        • (v) in the case of its opening underlying foreign tax, that is the total of its underlying foreign tax in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time;

      • (b) for the purpose of paragraph (a), each of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of the disposing corporation and the acquiring corporation, determined immediately before that time, is deemed to be the amount determined by the formula

        A × B/C

        where

        A 
        is the amount of that surplus, deficit or tax, as the case may be, as determined without reference to this subsection but taking into account the application of subparagraph (c)(i), if applicable,
        B 
        is the surplus entitlement percentage immediately before that time of the disposing corporation or the acquiring corporation, as the case may be, in respect of the affiliate, determined as if the disposed shares were the only shares owned by the disposing corporation immediately before that time, and
        C 
        is the surplus entitlement percentage immediately after that time of the acquiring corporation in respect of the affiliate;
      • (c) if the disposing corporation makes an election under subsection 93(1) of the Act in respect of the disposed shares,

        • (i) for the purposes of paragraph (b), the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of the disposing corporation, as determined without reference to this subsection, immediately before that time, shall be adjusted in accordance with paragraph 5902(1)(b) as if the disposing corporation’s surplus entitlement percentage that is referred to in the description of B in paragraph 5902(2)(b) were determined as if the disposed shares were the only shares owned by the disposing corporation immediately before that time, and

        • (ii) no adjustment shall be made to the amount of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, or underlying foreign tax of an affiliate in respect of the disposing corporation under paragraph 5902(1)(b) other than for the purpose of paragraph (b); and

      • (d) for greater certainty, no adjustment shall be made under subsection (1) to the exempt surplus or exempt deficit, taxable surplus or taxable deficit, or underlying foreign tax of an affiliate in respect of the disposing corporation.

    • (5.1) If there is, at any time, an amalgamation within the meaning of subsection 87(1) of the Act and, as a result of the amalgamation, shares of the capital stock of a particular foreign affiliate of a predecessor corporation become property of the new corporation,

      • (a) each of the opening exempt surplus or opening exempt deficit, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, in respect of the new corporation, of the particular affiliate and of each foreign affiliate of the predecessor corporation in which the particular affiliate has, immediately before that time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be the amount, if any,

        • (i) in the case of its opening exempt surplus, by which the total of its exempt surplus in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its exempt deficit in respect of each predecessor corporation, determined immediately before that time,

        • (ii) in the case of its opening exempt deficit, by which the total of its exempt deficit in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its exempt surplus in respect of each predecessor corporation, determined immediately before that time,

        • (iii) in the case of its opening taxable surplus, by which the total of its taxable surplus in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its taxable deficit in respect of each predecessor corporation, determined immediately before that time,

        • (iv) in the case of its opening taxable deficit, by which the total of its taxable deficit in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its taxable surplus in respect of each predecessor corporation, determined immediately before that time, and

        • (v) in the case of its opening underlying foreign tax, that is the total of its underlying foreign tax in respect of each predecessor corporation, determined immediately before that time; and

      • (b) for the purpose of paragraph (a), each of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of a predecessor corporation, determined immediately before that time, is deemed to be the amount determined by the formula

        A × B/C

        where

        A 
        is the amount of that surplus, deficit or tax, as the case may be, as determined without reference to this subsection,
        B 
        is the predecessor corporation’s surplus entitlement percentage immediately before that time in respect of the affiliate, and
        C 
        is the new corporation’s surplus entitlement percentage immediately after that time in respect of the affiliate.
    • (5.11) Subsection (5.12) applies if

      • (a) in the case of a winding-up, an amount has been designated, under paragraph 88(1)(d) of the Act by the corporation (referred to in this subsection and subsection (5.12) as the “parent corporation”) described in subsection 88(1) of the Act as the parent, in respect of

        • (i) shares of the capital stock of a corporation (referred to in this subsection and subsection (5.12) as the “particular affiliate”) that is, immediately before the winding-up, a foreign affiliate of the corporation (referred to in this subsection and subsection (5.12) as the “subsidiary corporation”) resident in Canada that is described in that subsection 88(1) as the subsidiary, or

        • (ii) an interest in a partnership that holds shares described in subparagraph (i); or

      • (b) in the case of an amalgamation, an amount has been designated, under paragraph 88(1)(d) of the Act by the corporation (referred to in this subsection and subsection (5.12) as the “parent corporation”) described in subsection 87(11) of the Act as the parent, in respect of

        • (i) shares of the capital stock of a corporation (referred to in this subsection and subsection (5.12) as the “particular affiliate”) that is, immediately before the amalgamation, a foreign affiliate of the corporation (referred to in this subsection and subsection (5.12) as the “subsidiary corporation”) resident in Canada that is described in that subsection 87(11) as the subsidiary, or

        • (ii) an interest in a partnership that holds shares described in subparagraph (i).

    • (5.12) If this subsection applies, the following rules apply for the purposes of subsections (5) and (5.1):

      • (a) each amount of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax, in respect of the subsidiary corporation, of the particular affiliate and of all foreign affiliates of the subsidiary corporation in which the particular affiliate has, immediately before the winding-up or the amalgamation, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be, immediately before the winding-up or the amalgamation, nil; and

      • (b) each amount (referred to individually in this paragraph as a “relevant balance”) of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax, in respect of the parent corporation, of the particular affiliate and of all foreign affiliates (referred to individually in this paragraph as a “lower-tier affiliate”) of the parent corporation in which the particular affiliate has, immediately before the winding-up or the amalgamation, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be, immediately before the winding-up or the amalgamation, the amount that would be determined to be the relevant balance if

        • (i) in addition to shares or partnership interests, if any, held by the parent corporation that are relevant in computing any relevant balance of the particular affiliate or of any lower-tier affiliate of the parent corporation, in respect of the parent corporation, any shares of the particular affiliate’s capital stock, and any interests in partnerships that hold such shares, that were held by the subsidiary corporation at any time in the period (referred to in this paragraph as the “control period”) that begins at the first time referred to in subparagraph 88(1)(d)(ii) of the Act and ends immediately before the winding-up or the amalgamation, that are relevant in computing any relevant balance of the particular affiliate or any lower-tier affiliate of the subsidiary corporation, in respect of the subsidiary corporation, were held by the parent corporation at the same time in the control period that they were held by the subsidiary corporation,

        • (ii) the parent corporation had acquired, at that first time, all the shares and partnership interests held, at that first time, by the subsidiary corporation that are relevant in computing any relevant balance of the particular affiliate or any lower-tier affiliate of the subsidiary corporation, in respect of the subsidiary corporation, and

        • (iii) where the subsidiary corporation acquired or disposed of any shares or partnership interests in the control period that are relevant in computing any relevant balance of the particular affiliate or of any lower-tier affiliate of the subsidiary corporation, in respect of the subsidiary corporation, the parent corporation is deemed to have acquired or disposed of, as the case may be, the shares or partnership interests at the same time they were acquired or disposed of by the subsidiary corporation.

    • (5.13) For the purposes of clause (B) of subparagraph 88(1)(d)(ii) of the Act, the prescribed amount is

      • (a) if the property described in that subparagraph is a share of the capital stock of a foreign affiliate of the subsidiary or if that property is an interest in a partnership that holds one or more such shares, the amount determined by the formula

        A × B/C

        where

        A 
        is the total of all amounts each of which is the amount, if any, by which
        • (i) the amount of a dividend received, after the particular time at which the parent last acquired control of the subsidiary, on any share of the capital stock of the foreign affiliate (or any share of the capital stock of the foreign affiliate for which that share was substituted) held by the subsidiary or the partnership, as the case may be, immediately before the winding-up, that was deductible under paragraph 113(1)(a) or (b) of the Act in computing the taxable income of the subsidiary or of a corporation with which the subsidiary was not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act in respect of the foreign affiliate)

        exceeds

        • (ii) the portion of that dividend that may reasonably be considered to have reduced the foreign affiliate’s exempt surplus or taxable surplus in respect of the subsidiary that arose after the particular time (determined as if a dividend were paid out of the foreign affiliate’s exempt surplus or taxable surplus, as the case may be, in respect of the subsidiary, in the reverse order to that in which that surplus of the foreign affiliate in respect of the subsidiary arose),

        B 
        is the fair market value of the property immediately before the winding-up, and
        C 
        is
        • (i) if the property is a share, the fair market value, immediately before the winding-up, of all of the shares of the capital stock of the foreign affiliate held by the subsidiary immediately before the winding-up, and

        • (ii) if the property is an interest in a partnership, the fair market value of the interest in the partnership immediately before the winding-up; and

      • (b) in any other case, nil.

  • (5) Subsections 5905(5.11) to (5.13) of the Regulations, as enacted by subsection (4), are repealed.

  • (6) Section 5905 of the Regulations is amended by adding the following in numerical order:

    • (5.2) If, at a particular time, control of a corporation resident in Canada has been acquired by a person or a group of persons and, at the particular time, the corporation owns shares of the capital stock of a foreign affiliate of the corporation, there shall be included — under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) in computing the affiliate’s exempt surplus or exempt deficit, as the case may be, in respect of the corporation at the time that is immediately before the particular time — the amount, if any, determined by the formula

      (A + B – C)/D

      where

      A 
      is the amount determined by the formula

      E × F

      where

      E 
      is the affiliate’s tax-free surplus balance in respect of the corporation, determined at the time (referred to in this subsection as the “relevant time”) that is immediately before the time that is immediately before the particular time, and
      F 
      is the corporation’s surplus entitlement percentage in respect of the affiliate determined at the relevant time;
      B 
      is the total of all amounts each of which is the corporation’s cost amount, determined at the particular time, of a share of the capital stock of the affiliate that is owned by the corporation at the particular time;
      C 
      is the total of
      • (a) the fair market value, determined at the particular time, of all of the shares of the capital stock of the affiliate that are owned by the corporation at the particular time, and

      • (b) the amount, if any, determined under paragraph 5908(6)(b); and

      D 
      is the corporation’s surplus entitlement percentage in respect of the affiliate determined at the relevant time.
    • (5.3) The cost amount of a share that is referred to in the description of B in subsection (5.2) shall be determined after taking into account the application of subsection 111(4) of the Act.

    • (5.4) For the purposes of clause (B) of subparagraph 88(1)(d)(ii) of the Act, the prescribed amount is

      • (a) if the property described in that subparagraph is a share of the capital stock of a foreign affiliate of the subsidiary, the amount determined by the formula

        A × B

        where

        A 
        is the affiliate’s tax-free surplus balance, in respect of the subsidiary, determined at the time at which the parent last acquired control of the subsidiary, and
        B 
        is the percentage that would be the subsidiary’s surplus entitlement percentage, determined at that time, in respect of the affiliate if at that time the subsidiary had owned no shares of the affiliate’s capital stock other than the share;
      • (b) if the property described in that subparagraph is an interest in a partnership, the amount determined by subsection 5908(7); and

      • (c) in any other case, nil.

    • (5.5) For the purposes of subsections (5.2), (5.4), (7.2) and (7.3), the “tax-free surplus balance” of a foreign affiliate of a corporation resident in Canada, in respect of the corporation, at any time, is the total of

      • (a) the amount, if any, by which the affiliate’s exempt surplus in respect of the corporation at that time exceeds the affiliate’s taxable deficit in respect of the corporation at that time; and

      • (b) the lesser of

        • (i) the amount, if any, determined by the formula

           A × B

          where

          A 
          is the affiliate’s underlying foreign tax in respect of the corporation at that time, and
          B 
          is the amount by which the corporation’s relevant tax factor (within the meaning assigned by subsection 95(1) of the Act), for the corporation’s taxation year that includes that time, exceeds one, and
        • (ii) the amount, if any, by which the affiliate’s taxable surplus in respect of the corporation at that time exceeds the affiliate’s exempt deficit in respect of the corporation at that time.

    • (5.6) For the purposes of subsection (5.5), the amounts of exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of a foreign affiliate of a corporation resident in Canada, in respect of the corporation, at a particular time are those amounts that would be determined, at the particular time, under subparagraph 5902(1)(a)(i) if that subparagraph were applicable at the particular time and the references in that subparagraph to “the dividend time” were references to the particular time.

  • (7) Subsection 5905(6) of the Regulations is repealed.

  • (8) Section 5905 of the Regulations is amended by adding the following after subsection (7):

    • (7.1) Subsection (7.2) applies if

      • (a) a foreign affiliate (referred to in this subsection and subsections (7.2) to (7.6) as the “deficit affiliate”) of a corporation resident in Canada has an exempt deficit, in respect of the corporation, at a particular time; and

      • (b) at the time (referred to in this paragraph and subsections (7.2) to (7.6) as the “acquisition time”) that is immediately after the particular time, shares of the capital stock of a foreign affiliate (referred to in this subsection and subsections (7.2) to (7.6) as an “acquired affiliate”) of the corporation in which the deficit affiliate has, at the particular time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) are acquired by, or otherwise become property of,

        • (i) the corporation, or

        • (ii) another foreign affiliate of the corporation, in the case where the percentage that would, if the deficit affiliate were resident in Canada, be the deficit affiliate’s surplus entitlement percentage in respect of the acquired affiliate immediately after the acquisition time is less than the percentage that would, if the deficit affiliate were so resident, be its surplus entitlement percentage in respect of the acquired affiliate at the particular time.

    • (7.2) If this subsection applies, there is to be included,

      • (a) at the time (referred to in this subsection and subsections (7.6) and (7.7) and 5908(11) and (12) as the “adjustment time”) that is immediately before the time that is immediately before the time that is immediately before the acquisition time, under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) in computing an acquired affiliate’s exempt surplus or exempt deficit in respect of the corporation, the amount, if any, equal to the lesser of

        • (i) the amount determined by the formula

           A/B

          where

          A 
          is the deficit affiliate’s exempt deficit in respect of the corporation immediately before the acquisition time, and
          B 
          is the percentage that would, if the deficit affiliate were resident in Canada, be the deficit affiliate’s surplus entitlement percentage in respect of the acquired affiliate immediately before the acquisition time, and
        • (ii) the lesser of

          • (A) the acquired affiliate’s tax-free surplus balance in respect of the corporation immediately before the adjustment time, and

          • (B) either

            • (I) if there is more than one acquired affiliate, the amount designated by the corporation, in its return of income for the taxation year in which the taxation year of the acquired affiliate that includes the acquisition time ends, in respect of the acquired affiliate, or

            • (II) in any other case, the amount determined under clause (A);

      • (b) at the time that is immediately after the acquisition time, under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1) in computing the deficit affiliate’s exempt deficit in respect of the corporation, the total of all amounts each of which is the amount determined in respect of an acquired affiliate by the formula

        C × D

        where

        C 
        is the amount determined under paragraph (a) in respect of the acquired affiliate, and
        D 
        is the percentage that would, if the deficit affiliate were resident in Canada, be the deficit affiliate’s surplus entitlement percentage immediately before the acquisition time in respect of the acquired affiliate; and
      • (c) at the time that is immediately after the acquisition time, under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1) in computing the exempt surplus or exempt deficit of any other foreign affiliate (referred to in this paragraph and paragraph (7.6)(b) as a “subordinate affiliate”) of the corporation, in respect of the corporation, that has immediately before the acquisition time a direct equity percentage (within the meaning assigned by subsection 95(4) of the Act) in the acquired affiliate and in which, immediately before the acquisition time, the deficit affiliate does not have an equity percentage (within the meaning assigned by subsection 95(4) of the Act), the amount determined by the formula

        E × F

        where

        E 
        is the amount determined under paragraph (a) in respect of the acquired affiliate, and
        F 
        is the percentage that would, if the subordinate affiliate were resident in Canada, be the subordinate affiliate’s surplus entitlement percentage immediately before the acquisition time in respect of the acquired affiliate if the subordinate affiliate owned no shares of the capital stock of any corporation other than its shares of the capital stock of the acquired affiliate.
    • (7.3) Subsection (7.4) applies if

      • (a) the lesser of

        • (i) the deficit affiliate’s exempt deficit in respect of the corporation immediately before the acquisition time, and

        • (ii) the total of all amounts each of which is the amount, if any, that is the product obtained by multiplying

          • (A) the tax-free surplus balance immediately before the acquisition time in respect of the corporation of an acquired affiliate, and

          • (B) the surplus entitlement percentage of the corporation in respect of that acquired affiliate immediately before the acquisition time

      exceeds

      • (b) the total of all amounts each of which is the amount, if any, that is the product obtained by multiplying

        • (i) the amount, if any, actually designated under subclause (7.2)(a)(ii)(B)(I) in respect of an acquired affiliate, and

        • (ii) the surplus entitlement percentage of the corporation in respect of that acquired affiliate immediately before the acquisition time.

    • (7.4) If this subsection applies, the amount designated by the corporation in respect of a particular acquired affiliate is deemed, for the purposes of subclause (7.2)(a)(ii)(B)(I),

      • (a) to be the amount determined by the Minister in respect of the particular acquired affiliate; and

      • (b) not to be the amount, if any, actually designated under subclause (7.2)(a)(ii)(B)(I).

    • (7.5) Subsection (7.6) applies if

      • (a) subsection (7.2) applies;

      • (b) the deficit affiliate, or any other foreign affiliate of the corporation in which the deficit affiliate has, immediately before the acquisition time, an equity percentage (which percentage has, for the purposes of this subsection, the meaning assigned by subsection 95(4) of the Act and which deficit affiliate or other affiliate is referred to in subsection (7.6) as the “direct holder”), has, immediately before the acquisition time, a direct equity percentage (within the meaning assigned by that subsection 95(4)) in any other foreign affiliate (referred to in paragraph (c) and subsection (7.6) as the “subject affiliate”) of the corporation; and

      • (c) the subject affiliate is the acquired affiliate or has, immediately before the acquisition time, an equity percentage in the acquired affiliate.

    • (7.6) Subject to paragraph 5908(11)(c), for the purposes of paragraph 92(1.1)(a) of the Act, if this subsection applies, there shall be added, in computing on and after the adjustment time

      • (a) the direct holder’s adjusted cost base of a share of the capital stock of the subject affiliate, the amount determined by the formula

         A × B

        where

        A 
        is the amount determined under paragraph (7.2)(a) in respect of the acquired affiliate, and
        B 
        is the percentage that would, if the direct holder were resident in Canada, be the direct holder’s surplus entitlement percentage in respect of the acquired affiliate immediately before the acquisition time if the direct holder owned only the share; and
      • (b) the subordinate affiliate’s adjusted cost base of a share of the capital stock of the acquired affiliate, the amount determined by the formula

        C × D

        where

        C 
        is the amount determined under paragraph (7.2)(a) in respect of the acquired affiliate, and
        D 
        is the percentage that would, if the subordinate affiliate were resident in Canada, be the subordinate affiliate’s surplus entitlement percentage in respect of the acquired affiliate immediately before the acquisition time if the subordinate affiliate owned only the share.
    • (7.7) For the purposes of paragraph 93(3)(c) of the Act, if an amount (referred to in this subsection and subsection 5908(12) as the “adjustment amount”) is required by subsection 92(1.1) of the Act to be added in computing, on or after the adjustment time, the adjusted cost base of a share of the capital stock of a foreign affiliate of a corporation resident in Canada,

      • (a) where paragraph 92(1.1)(a) of the Act applies, the prescribed amount is the adjustment amount; and

      • (b) where paragraph 92(1.1)(b) of the Act applies, the prescribed amount is the amount determined under subsection 5908(12).

  • (9) Subsection 5905(8) of the Regulations is repealed.

  • (10) Subsection 5905(9) of the Regulations is repealed.

  • (11) Subsection (1) applies in respect of acquisitions and dispositions that occur after December 18, 2009.

  • (12) Subsection (2) applies in respect of redemptions, acquisitions and cancellations that occur after December 18, 2009.

  • (13) Subsection (3) applies in respect of mergers or combinations that occur after December 18, 2009.

  • (14) Subsections 5905(5) and (5.1) of the Regulations, as enacted by subsection (4), and subsection (7) apply in respect of dispositions and amalgamations that occur, and windings-up that begin, after December 18, 2009.

  • (15) Subsections 5905(5.11) and (5.12) of the Regulations, as enacted by subsection (4), apply in respect of an amalgamation that occurs, or a winding-up that begins, after February 27, 2004, except that, if subsection 5905(6) of the Regulations applies in respect of the amalgamation or winding-up, then the portion of subsection 5905(5.12) of the Regulations, as so enacted, before its paragraph (a) is to be read as follows:

    • (5.12) If this subsection applies, the following rules apply for the purposes of subsections (5) and (6):

  • (16) Subsection 5905(5.13) of the Regulations, as enacted by subsection (4), applies in respect of windings-up that begin, and amalgamations that occur, after February 27, 2004.

  • (17) Subsection (5) applies in respect of acquisitions of control that occur after December 18, 2009, except if the acquisition of control results from an acquisition of shares made under an agreement in writing entered into before December 18, 2009.

  • (18) Subsections 5905(5.2) to (5.4) of the Regulations, as enacted by subsection (6), apply in respect of acquisitions of control that occur after December 18, 2009, except if the acquisition of control results from an acquisition of shares made under an agreement in writing entered into before December 18, 2009.

  • (19) Subsections 5905(5.5) and (5.6) of the Regulations, as enacted by subsection (6), are deemed to have come into force on December 19, 2009.

  • (20) Subsection (8) applies where a share of the capital stock of a foreign affiliate of a corporation is acquired by, or otherwise becomes property of, a person after December 18, 2009.

  • (21) Subsection (9) applies in respect of dispositions that occur after December 18, 2009.

  • (22) Subsection (10) applies in respect of issuances that occur after December 18, 2009.

  •  (1) Subsection 5906(2) of the Regulations is replaced by the following:

    • (2) The expression “permanent establishment” means

      • (a) for the purposes of paragraph (1)(a) and the definition “earnings” in subsection 5907(1) (which paragraph or definition is referred to in this paragraph as a “provision”),

        • (i) if the expression is given a particular meaning in a tax treaty with a country, a permanent establishment within the meaning assigned by that tax treaty with respect to the business carried on in that country by the foreign affiliate referred to in the provision, and

        • (ii) in any other case, a fixed place of business of the affiliate, including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse, or if the affiliate does not have any fixed place of business, the principal place at which the affiliate’s business is conducted; and

      • (b) for the purposes of subdivision i of Division B of Part I of the Act,

        • (i) if the expression is given a particular meaning in a tax treaty with a country, a permanent establishment within the meaning assigned by that tax treaty if the person or partnership referred to in the relevant portion of that subdivision (which person or partnership is referred to in this paragraph and subsection (3) as the “person”) is a resident of that country for the purpose of that tax treaty, and

        • (ii) in any other case, a fixed place of business of the person, including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse, or if the person does not have any fixed place of business, the principal place at which the person’s business is conducted.

    • (3) For the purposes of subparagraphs (2)(a)(ii) and (b)(ii),

      • (a) if the affiliate or the person, as the case may be, carries on business through an employee or agent, established in a particular place, who has general authority to contract for the affiliate or the person or who has a stock of merchandise owned by the affiliate or the person from which the employee or agent regularly fills orders, the affiliate or the person is deemed to have a fixed place of business at that place;

      • (b) if the affiliate or the person, as the case may be, is an insurance corporation, the affiliate or the person is deemed to have a fixed place of business in each country in which the affiliate or the person is registered or licensed to do business;

      • (c) if the affiliate or the person, as the case may be, uses substantial machinery or equipment at a particular place at any time in a taxation year, the affiliate or the person is deemed to have a fixed place of business at that place;

      • (d) the fact that the affiliate or the person, as the case may be, has business dealings through a commission agent, broker or other independent agent or maintains an office solely for the purchase of merchandise at a particular place does not of itself mean that the affiliate or the person has a fixed place of business at that place; and

      • (e) the fact that the affiliate or the person, as the case may be, has a subsidiary controlled corporation at a place or a subsidiary controlled corporation engaged in trade or business at a place does not of itself mean that the affiliate or person has a fixed place of business at that place.

  • (2) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999 except that, for taxation years of the affiliate that end on or before December 18, 2009, the portion of paragraph 5906(2)(b) of the Regulations, as enacted by subsection (1), before its subparagraph (i) is to be read as follows:

    • (b) for the purposes of subdivision i of Division B of Part I (other than the definitions “excluded income” and “excluded revenue” in subsection 95(2.5)) of the Act,

  •  (1) The definition “loss” in subsection 5907(1) of the Regulations is replaced by the following:

    “loss”

    “loss”, of a foreign affiliate of a taxpayer resident in Canada for a taxation year of the affiliate from an active business, means

    • (a) in the case of an active business carried on by it in a country, the amount of its loss for the year from the active business carried on in the country computed by applying the provisions of paragraph (a) of the definition “earnings” respecting the computation of earnings from that active business carried on in that country, with any modifications that the circumstances require, and

    • (b) in any other case, the total of all amounts each of which is an amount of a loss that is required under paragraph 95(2)(a) of the Act to be included in computing the affiliate’s income or loss from an active business for the year; (perte)

  • (2) Paragraph (b) of the definition “earnings” in subsection 5907(1) of the Regulations is replaced by the following:

    • (b) in any other case, the total of all amounts each of which is an amount of income that is required under paragraph 95(2)(a) of the Act to be included in computing the affiliate’s income or loss from an active business for the year; (gains)

  • (3) Subparagraph (a)(ii) of the definition “exempt earnings” in subsection 5907(1) of the Regulations is replaced by the following:

    • (ii) the amount of the taxable capital gains for the year referred to in subparagraphs (c)(i), (d)(iii), (e)(i) and (f)(iv) of the definition “net earnings”, and

  • (4) The definition “exempt earnings” in subsection 5907(1) of the Regulations is amended by adding the following after paragraph (a):

    • (a.1) the amount determined by the formula

      A – B

      where

      A 
      is the total of all amounts each of which is a particular amount that would be included, in respect of a particular business of the particular affiliate, by paragraph (c), (c.1) or (c.2) of the definition “capital dividend account” in subsection 89(1) of the Act in determining the particular affiliate’s capital dividend account at the end of the year if
      • (i) the particular affiliate were the corporation referred to in that definition,

      • (ii) the references in paragraphs (c.1) and (c.2) of that definition, and in paragraph (c) of that definition as that paragraph (c) read in its application to taxation years that ended before February 28, 2000, to “a business” were read as references to a business that

        • (A) is not an active business (as defined in subsection 95(1) of the Act), or

        • (B) is an active business (as defined in that subsection 95(1)) the particular affiliate’s earnings from which for the year are determined under subparagraph (a)(iii) of the definition “earnings”, and

      • (iii) the particular amount did not include any amount that can reasonably be considered to have accrued while no person or partnership that carried on the particular business was a specified person or partnership (within the meaning of section 95 of the Act) in respect of the particular corporation, and

      B 
      is the amount determined for A at the end of the particular affiliate’s taxation year that immediately precedes the year,
  • (5) Paragraph (d) of the definition “exempt earnings” in subsection 5907(1) of the Regulations is replaced by the following:

    • (d) where the year is the 1976 or any subsequent taxation year of the particular affiliate and the particular affiliate is, throughout the year, resident in a designated treaty country,

      • (i) the particular affiliate’s net earnings for the year from an active business carried on by it in Canada or a designated treaty country, or

      • (ii) the particular affiliate’s earnings for the year from an active business to the extent that they derive from

        • (A) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(i) of the Act and that would

          • (I) if earned by the other foreign affiliate referred to in subclause 95(2)(a)(i)(A)(I) of the Act, be included in computing the exempt earnings or exempt loss of the other foreign affiliate for a taxation year, or

          • (II) if earned by the life insurance corporation referred to in subclause 95(2)(a)(i)(A)(II) of the Act and based on the assumptions contained in subclause 95(2)(a)(i)(B)(II) of the Act, be included in computing the exempt earnings or exempt loss of the life insurance corporation for a taxation year,

        • (B) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(A) of the Act where the income is derived from amounts that are paid or payable by the life insurance corporation referred to in that clause and are for expenditures that would, if that life insurance corporation were a foreign affiliate of the particular corporation, be deductible in computing its exempt earnings or exempt loss for a taxation year,

        • (C) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(B) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that are deductible in computing the exempt earnings or exempt loss, for a taxation year, of the other foreign affiliate referred to in that clause,

        • (D) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(C) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that are deductible in computing its exempt earnings or exempt loss for a taxation year,

        • (E) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(D) of the Act if

          • (I) the country referred to in subclause 95(2)(a)(ii)(D)(IV) of the Act is a designated treaty country, and

          • (II) that income would be required to be so included if

            1. paragraph (a) of the definition “excluded property” in subsection 95(1) of the Act were read as follows:

            • (a) used or held by the foreign affiliate principally for the purpose of gaining or producing income from an active business carried on by it in a designated treaty country (within the meaning assigned by subsection 5907(11) of the Income Tax Regulations),

            2. paragraph (c) of that definition “excluded property” were read as follows:

            • (c) property all or substantially all of the income from which is, or would be, if there were income from the property, income from an active business (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph (2)(a) if that paragraph were read without reference to subparagraph (v)) that is included in computing the foreign affiliate’s exempt earnings, or exempt loss, as defined in subsection 5907(1) of the Income Tax Regulations, for a taxation year,

        • (F) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(iii) of the Act to the extent that the trade accounts receivable referred to in that subparagraph arose in the course of an active business carried on by the other foreign affiliate referred to in that subparagraph the income or loss from which is included in computing its exempt earnings or exempt loss for a taxation year,

        • (G) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(iv) of the Act to the extent that the loans or lending assets referred to in that subparagraph arose in the course of an active business carried on by the other foreign affiliate referred to in that subparagraph the income or loss from which is included in computing its exempt earnings or exempt loss for a taxation year,

        • (H) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(v) of the Act, where all or substantially all of its income, from the property described in that subparagraph, is, or would be if there were income from the property, income from an active business (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph 95(2)(a) of the Act if that paragraph were read without reference to its subparagraph (v) and, for greater certainty, excludes income arising as a result of the disposition of the property) that is included in computing its exempt earnings or exempt loss for a taxation year, or

        • (I) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(vi) of the Act, where the agreement for the purchase, sale or exchange of currency referred to in that subparagraph can reasonably be considered to have been made by the particular affiliate to reduce its risk with respect to an amount of income or loss that is included in computing its exempt earnings or exempt loss for a taxation year, or

  • (6) Subparagraph (a)(ii) of the definition “exempt loss” in subsection 5907(1) of the Regulations is replaced by the following:

    • (ii) the amount of the allowable capital losses for the year referred to in subparagraphs (c)(i), (d)(iii), (e)(i) and (f)(iv) of the definition “net loss”, and

  • (7) The definition “exempt loss” in subsection 5907(1) of the Regulations is amended by adding the following after paragraph (a):

    • (a.1) the total of all amounts each of which is the portion of an eligible capital expenditure of the affiliate, in respect of a business of the affiliate, that was not included at any time in the affiliate’s cumulative eligible capital in respect of the business, if

      • (i) the business

        • (A) is not an active business (as defined in subsection 95(1) of the Act), or

        • (B) is an active business (as defined in subsection 95(1) of the Act) the affiliate’s earnings from which for the year are determined under subparagraph (a)(iii) of the definition “earnings”, and

      • (ii) in computing its income for the year, the affiliate has deducted an amount described in paragraph 24(1)(a) of the Act for the year in respect of the business,

  • (8) Paragraph (c) of the definition “exempt loss” in subsection 5907(1) of the Regulations is replaced by the following:

    • (c) where the year is the 1976 or any subsequent taxation year of the affiliate and the affiliate is, throughout the year, resident in a designated treaty country,

      • (i) the affiliate’s net loss for the year from an active business carried on by it in Canada or a designated treaty country, or

      • (ii) the amount by which

        • (A) the affiliate’s loss for the year from an active business to the extent determined under subparagraph (d)(ii) of the definition “exempt earnings” in respect of the year with any modifications that the circumstances require

        exceeds

        • (B) the portion of any income or profits tax refunded by the government of a country for the year to the affiliate that can reasonably be regarded as tax that was refunded in respect of the amount determined under clause (A), or

  • (9) Paragraphs (b) and (c) of the definition “exempt surplus” in subsection 5907(1) of the Regulations are replaced by the following:

    • (b) the last time for which the opening exempt surplus of the subject affiliate in respect of the corporation was required to be determined under section 5905, and

    • (c) the last time for which the opening exempt deficit of the subject affiliate in respect of the corporation was required to be determined under section 5905

  • (10) Subparagraph (i) of the description of A in the definition “exempt surplus” in subsection 5907(1) of the Regulations is replaced by the following:

    • (i) the opening exempt surplus, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),

  • (11) The description of A in the definition “exempt surplus” in subsection 5907(1) of the Regulations is amended by striking out “or” at the end of subparagraph (vi) and by adding the following after that subparagraph:

    • (vi.1) each amount that is required, under section 5905, to be included under this subparagraph in the period and before the particular time, or

  • (12) Subparagraph (i) of the description of B in the definition “exempt surplus” in subsection 5907(1) of the Regulations is replaced by the following:

    • (i) the opening exempt deficit, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (c),

  • (13) Subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) of the Regulations is replaced by the following:

    • (v) each amount that is required under section 5902 or 5905 to be included under this subparagraph, or subparagraph (1)(d)(xii) as it applies to taxation years that end before February 22, 1994, in the period and before the particular time, or

  • (14) The definition “net earnings” in subsection 5907(1) of the Regulations is amended by striking out “and” at the end of paragraph (c) and by adding the following after paragraph (d):

    • (e) from the disposition of a property that is an excluded property of the affiliate that is described in paragraph (c) of the definition “excluded property” in subsection 95(1) of the Act but that would not be an excluded property of the affiliate if that paragraph were read in the manner described in sub-subclause (d)(ii)(E)(II)2 of the definition “exempt earnings” is the amount, if any, by which

      • (i) the portion of the affiliate’s taxable capital gain for the year from the disposition of the property that accrued after its 1975 taxation year

      exceeds

      • (ii) the portion of any income or profits tax paid to the government of a country for the year by the affiliate that can reasonably be regarded as tax that was paid in respect of the amount determined under subparagraph (i), and

    • (f) from a particular disposition of a property, that is an excluded property of the affiliate because of paragraph (c.1) of the definition “excluded property” in subsection 95(1) of the Act, that related to

      • (i) an amount that was receivable under an agreement that relates to the sale of a particular property the taxable capital gain or allowable capital loss from the sale of which is included under any of paragraphs (c) to (e) of this definition or of the definition “net loss”, as the case may be,

      • (ii) an amount that was receivable and was a property that was described in paragraph (c) of that definition “excluded property” but that would not have been an excluded property of the affiliate if that paragraph were read in the manner described in sub-subclause (d)(ii)(E)(II)2 of the definition “exempt earnings”, or

      • (iii) an amount payable, or an amount of indebtedness, described in clause (c.1)(ii)(B) of that definition “excluded property” arising in respect of the acquisition of an excluded property of the affiliate any taxable capital gain or allowable capital loss from the disposition of which would, if that excluded property were disposed of, be included under any of paragraphs (c) to (e) of this definition or of the definition “net loss”, as the case may be,

      is the amount, if any, by which

      • (iv) the portion of the affiliate’s taxable capital gain for the year from the particular disposition that accrued after its 1975 taxation year

      exceeds

      • (v) the portion of any income or profits tax paid to the government of a country for the year by the affiliate that can reasonably be regarded as tax that was paid for the year in respect of the amount determined under subparagraph (iv); (gains nets)

  • (15) The definition “net loss” in subsection 5907(1) of the Regulations is amended by striking out “and” at the end of paragraph (c) and by adding the following after paragraph (d):

    • (e) from the disposition of a property, that is an excluded property of the affiliate that is described in paragraph (c) of the definition “excluded property” in subsection 95(1) of the Act but that would not be an excluded property of the affiliate if that paragraph were read in the manner described in sub-subclause (d)(ii)(E)(II)2 of the definition “exempt earnings” is the amount, if any, by which

      • (i) the portion of the affiliate’s allowable capital loss for the year from the disposition of the property that accrued after its 1975 taxation year

      exceeds

      • (ii) the portion of any income or profits tax refunded by the government of a country for the year to the affiliate that can reasonably be regarded as tax that was refunded in respect of the amount determined under subparagraph (i), and

    • (f) from a particular disposition of a property, that is an excluded property of the affiliate because of paragraph (c.1) of the definition “excluded property” in subsection 95(1) of the Act, that related to

      • (i) an amount that was receivable under an agreement that relates to the sale of a particular property the taxable capital gain or allowable capital loss from the sale of which is included under any of paragraphs (c) to (e) of this definition or of the definition “net earnings”, as the case may be,

      • (ii) an amount that was receivable and was a property that was described in paragraph (c) of that definition “excluded property” but that would not have been an excluded property of the affiliate if that paragraph were read in the manner described in sub-subclause (d)(ii)(E)(II)2 of the definition “exempt earnings”, or

      • (iii) an amount payable, or an amount of indebtedness, described in clause (c.1)(ii)(B) of that definition “excluded property” arising in respect of the acquisition of an excluded property of the affiliate any taxable capital gain or allowable capital loss from the disposition of which would, if that excluded property were disposed of, be included under any of paragraphs (c) to (e) of this definition or of the definition “net earnings”, as the case may be,

      is the amount, if any, by which

      • (iv) the portion of the affiliate’s allowable capital loss for the year from the particular disposition that accrued after its 1975 taxation year

      exceeds

      • (v) the portion of any income or profits tax refunded by the government of a country for the year to the affiliate that can reasonably be regarded as tax that was refunded in respect of the amount determined under subparagraph (iv); (perte nette)

  • (16) Subparagraphs (b)(iii) to (v) of the definition “taxable earnings” in subsection 5907(1) of the Regulations are replaced by the following:

    • (iii) the affiliate’s earnings for the year as determined under paragraph (b) of the definition “earnings” minus the portion of any income or profits tax paid to the government of a country for a year by the affiliate that can reasonably be regarded as tax in respect of those earnings, or

    • (iv) to the extent not included under subparagraph (ii), the affiliate’s net earnings for the year determined under paragraphs (c) to (f) of the definition “net earnings”,

  • (17) Subparagraphs (b)(iii) and (iv) of the definition “taxable loss” in subsection 5907(1) of the Regulations are replaced by the following:

    • (iii) the affiliate’s loss for the year as determined under paragraph (b) of the definition “loss” minus the portion of any income or profits tax refunded by the government of a country for a year to the affiliate that can reasonably be regarded as tax refunded in respect of that loss, or

    • (iv) to the extent not included under subparagraph (ii), the affiliate’s net loss for the year determined under paragraphs (c) to (f) of the definition “net loss”,

  • (18) Paragraphs (b) and (c) of the definition “taxable surplus” in subsection 5907(1) of the Regulations are replaced by the following:

    • (b) the last time for which the opening taxable surplus of the subject affiliate in respect of the corporation was required to be determined under section 5905, and

    • (c) the last time for which the opening taxable deficit of the subject affiliate in respect of the corporation was required to be determined under section 5905

  • (19) Subparagraph (i) of the description of A in the definition “taxable surplus” in subsection 5907(1) of the Regulations is replaced by the following:

    • (i) the opening taxable surplus, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),

  • (20) The description of A in the definition “taxable surplus” in subsection 5907(1) of the Regulations is amended by adding the following after subparagraph (iv):

    • (iv.1) each amount that is required under section 5905 to be included under this subparagraph in the period and before the particular time, or

  • (21) Subparagraph (i) of the description of B in the definition “taxable surplus” in subsection 5907(1) of the Regulations is replaced by the following:

    • (i) the opening taxable deficit, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (c),

  • (22) Subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1) of the Regulations is replaced by the following:

    • (v) each amount that is required under section 5902 or 5905 to be included under this subparagraph, or subparagraph (1)(k)(xi) as it applies to taxation years that end before February 22, 1994, in the period and before the particular time, or

  • (23) The definition “underlying foreign tax” in subsection 5907(1) of the Regulations is amended by adding “and” at the end of paragraph (a) and by replacing paragraphs (b) and (c) with the following:

    • (b) the last time for which the opening underlying foreign tax of the subject affiliate in respect of the corporation was required to be determined under section 5905

  • (24) Subparagraph (i) of the description of A in the definition “underlying foreign tax” in subsection 5907(1) of the Regulations is replaced by the following:

    • (i) the opening underlying foreign tax, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),

  • (25) Subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1) of the Regulations is replaced by the following:

    • (iii) each amount that is required under section 5902 or 5905 to be included under this subparagraph, or subparagraph (1)(l)(x) as it applies to taxation years that end before February 22, 1994, in the period and before the particular time, or

  • (26) Paragraph (b) of the definition “underlying foreign tax applicable” in subsection 5907(1) of the Regulations is replaced by the following:

    • (b) any additional amount in respect of the whole dividend that the corporation claims in its return of income under Part I of the Act in respect of the whole dividend, not exceeding the amount that is the lesser of

      • (i) the amount by which the portion of the whole dividend deemed to have been paid out of the affiliate’s taxable surplus in respect of the corporation exceeds the amount determined under paragraph (a), and

      • (ii) the amount by which the affiliate’s underlying foreign tax in respect of the corporation immediately before the whole dividend was paid exceeds the amount determined under paragraph (a); (montant intrinsèque d’impôt étranger applicable)

  • (27) Paragraph (b) of the definition “whole dividend” in subsection 5907(1) of the Regulations is replaced by the following:

    • (b) where a whole dividend is deemed by subparagraph 5902(1)(a)(ii) to have been paid at the same time on shares of more than one class of an affiliate’s capital stock, for the purpose only of that subparagraph, the whole dividend deemed to have been paid at that time on the shares of a class of the affiliate’s capital stock is deemed to be the total of all amounts each of which is a whole dividend deemed to have been paid at that time on the shares of a class of the affiliate’s capital stock, and

  • (28) The portion of the definition gains exonérés in subsection 5907(1) of the French version of the Regulations before paragraph (a) is replaced by the following:

    gains exonérés En ce qui concerne une société étrangère affiliée d’une société donnée pour une année d’imposition de la société affiliée, le total des sommes représentant chacune l’une des sommes ci-après, moins la partie de l’impôt sur le revenu ou sur les bénéfices payé par la société affiliée pour l’année au gouvernement d’un pays qu’il est raisonnable de considérer comme un impôt sur les gains visés à l’alinéa c) ou au sous-alinéa d)(ii) :

  • (29) The portion of paragraph (a) of the definition gains exonérés in subsection 5907(1) of the French version of the Regulations after subparagraph (iii) is replaced by the following:

    pour l’application du présent alinéa, lorsque la société affiliée a disposé d’immobilisations qui étaient des actions du capital-actions d’une autre société étrangère affiliée de la société donnée en faveur d’une autre société qui était, immédiatement après la disposition, une société étrangère affiliée de la société donnée, est exclue des gains en capital de la société affiliée pour l’année la partie de ces gains qui correspond au total des sommes représentant chacune l’excédent de la juste valeur marchande, à la fin de l’année d’imposition 1975 de la société affiliée, de l’une des actions dont il a été disposé sur son prix de base rajusté;

  • (30) Subsection 5907(1.02) of the Regulations is repealed.

  • (31) Section 5907 of the Regulations is amended by adding the following after subsection (1.01):

    • (1.02) For the purposes of paragraph (d) of the definition “exempt earnings” and paragraph (c) of the definition “exempt loss” in subsection (1), if a foreign affiliate of a corporation becomes a foreign affiliate of the corporation in a taxation year of the affiliate, otherwise than as a result of a transaction between persons that do not deal with each other at arm’s length, and the affiliate is resident in a designated treaty country at the end of the year, the affiliate is deemed to be so resident throughout the year.

  • (32) Subparagraph 5907(1.1)(b)(ii) of the Regulations is replaced by the following:

    • (ii) an amount is paid by the primary affiliate to a secondary affiliate in respect of a reduction or refund, because of a loss or a tax credit of the secondary affiliate for a taxation year, of the income or profits tax that would otherwise have been payable by the primary affiliate for the year on behalf of the consolidated group

      • (A) in respect of the primary affiliate,

        • (I) the portion of the amount so paid that can reasonably be regarded as relating to an amount deducted from the exempt surplus or included in the exempt deficit, as the case may be, of the secondary affiliate shall, at the end of the year to which the loss or the tax credit relates, be deducted from the exempt surplus or added to the exempt deficit, as the case may be, of the primary affiliate, and

        • (II) the portion of the amount so paid that can reasonably be regarded as relating to an amount deducted from the taxable surplus or included in the taxable deficit, as the case may be, of the secondary affiliate shall, at the end of the year to which the loss or the tax credit relates, be deducted from the taxable surplus or added to the taxable deficit, as the case may be, of the primary affiliate and be added to the underlying foreign tax of the primary affiliate, and

      • (B) in respect of the secondary affiliate, the amount is deemed to be a refund to the secondary affiliate, for the year to which the loss or the tax credit relates, of income or profits tax in respect of the loss or the tax credit,

  • (33) The portion of subsection 5907(1.3) of the Regulations before paragraph (a) is replaced by the following:

    • (1.3) For the purpose of paragraph (b) of the definition “foreign accrual tax” in subsection 95(1) of the Act and subject to subsection (1.4),

  • (34) Section 5907 of the Regulations is amended by adding the following after subsection (1.3):

    • (1.4) If the amount prescribed under paragraph (1.3)(a) or (b), or any portion of the amount, can reasonably be considered to be in respect of a loss of another corporation for a taxation year of the other corporation, then the amount so prescribed is to be reduced to the extent that it can reasonably be considered to be in respect of the portion of that loss that would, if section 5903 were read without reference to its subsection (4), not be a foreign accrual property loss (within the meaning assigned by subsection 5903(3)) of a controlled foreign affiliate of a person or partnership that is, at the end of that taxation year, a relevant person or partnership (within the meaning assigned by subsection 5903(6)) in respect of the taxpayer.

    • (1.5) If subsection (1.4) applied to reduce an amount that would, in the absence of subsection (1.4), be prescribed by paragraph (1.3)(a) to be foreign accrual tax applicable to an amount (referred to in this subsection as the “FAPI amount”) included in the taxpayer’s income under subsection 91(1) of the Act for a taxation year (referred to in subsection (1.6) as the “FAPI year”) of the taxpayer, an amount equal to that reduction is, for the purpose of paragraph (b) of the definition “foreign accrual tax” in subsection 95(1) of the Act, prescribed to be foreign accrual tax applicable to the FAPI amount in the taxpayer’s taxation year that includes the last day of the designated taxation year, if any, of the particular affiliate referred to in paragraph (1.3)(a).

    • (1.6) For the purposes of subsection (1.5), the designated taxation year of the particular affiliate is a particular taxation year of the particular affiliate if

      • (a) in the particular year, or in the particular affiliate’s taxation year (referred to in this paragraph as the “PATY”) ending in the FAPI year and one or more taxation years of the particular affiliate each of which follows the PATY and the latest of which is the particular year, all losses of the particular affiliate and the other corporations referred to in paragraph (1.3)(a) for their taxation years ending in the FAPI year would, on the assumption that the particular affiliate and each of those other corporations had no foreign accrual property income for any taxation year, reasonably be considered to have been fully deducted (under the tax law referred to in paragraph (1.3)(a)) against income (as determined under that tax law) of the particular affiliate or those other corporations;

      • (b) the taxpayer demonstrates that no other losses of the particular affiliate or those other corporations for any taxation year were, or could reasonably have been, deducted under that tax law against that income; and

      • (c) the last day of the particular year occurs in one of the five taxation years of the taxpayer that immediately follow the FAPI year.

  • (35) Subsections 5907(2.7) and (2.8) of the Regulations are replaced by the following:

    • (2.7) Notwithstanding any other provision of this Part, if an amount (referred to in this subsection as the “inclusion amount”) is included in computing the income or loss from an active business of a foreign affiliate of a taxpayer for a taxation year under subparagraph 95(2)(a)(i) or (ii) of the Act and the inclusion amount is in respect of a particular amount paid or payable,

      • (a) if clause 95(2)(a)(ii)(D) of the Act is applicable, by the second affiliate referred to in that clause,

        • (i) the particular amount is to be deducted in computing the second affiliate’s income or loss from an active business carried on by it in the country in which it is resident for its earliest taxation year in which that amount was paid or payable,

        • (ii) the second affiliate is deemed to have carried on an active business in that country for that earliest taxation year, and

        • (iii) in computing the second affiliate’s income or loss for a taxation year from any source, no amount is to be deducted in respect of the particular amount except as required under subparagraph (i); and

      • (b) in any other case, by the other foreign affiliate referred to in subparagraph 95(2)(a)(i) or (ii) of the Act, as the case may be, or by a partnership of which the other foreign affiliate is a member, the particular amount is, except where it has been deducted under paragraph (2)(j) in computing the other foreign affiliate’s earnings or loss from an active business,

        • (i) to be deducted in computing the earnings or loss of the other foreign affiliate or the partnership, as the case may be, from the active business for its earliest taxation year in which the particular amount was paid or payable, and

        • (ii) not to be deducted in computing its earnings or loss from the active business for any other taxation year.

  • (36) Subsection 5907(5) of the Regulations is replaced by the following:

    • (5) For the purposes of this section, each capital gain, capital loss, taxable capital gain or allowable capital loss of a foreign affiliate of a taxpayer from the disposition of property shall be computed in accordance with the rules set out in subsection 95(2) of the Act and, for the purposes of subsection (6), if any such gain or loss is required to be computed in Canadian currency, the amount of such gain or loss shall be converted from Canadian currency into the currency referred to in subsection (6) at the rate of exchange prevailing on the date of disposition of the property.

  • (37) Subsection 5907(6) of the Regulations is replaced by the following:

    • (6) All amounts referred to in subsections (1) and (2) shall be maintained on a consistent basis from year to year in the currency of the country in which the foreign affiliate of the corporation resident in Canada is resident or any currency that the corporation resident in Canada demonstrates to be reasonable in the circumstances.

  • (38) Subsection 5907(12) of the Regulations is repealed.

  • (39) Subject to section 50, subsections (1) and (2) apply to taxation years of a foreign affiliate of a taxpayer that end after 1999.

  • (40) Subsections (3), (6) and (14) to (16) apply in respect of dispositions of property that occur after December 18, 2009.

  • (41) Subject to section 50, subsection (4) applies to taxation years of a foreign affiliate of a taxpayer that begin after December 20, 2002, except that the description of A in paragraph (a.1) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection (4), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read without reference to its subparagraph (iii).

  • (42) Subject to section 50, subsection (5) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999, except that

    • (a) the portion of paragraph (d) of the definition “exempt earnings” in subsection 5907(1) of the Regulations before its subparagraph (i), as enacted by subsection (5), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

      • (d) where the year is the 1976 or any subsequent taxation year of the particular affiliate and the particular affiliate is resident in a designated treaty country,

    • (b) subclause (d)(ii)(E)(II) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection (5), is, in its application to taxation years of the foreign affiliate that begin after 2008 and on or before June 18, 2010, to be read as follows:

      • (II) that income would be required to be so included if paragraph (c) of the definition “excluded property” in subsection 95(1) of the Act were read as follows:

      • (c) property all or substantially all of the income from which is deemed, or would be deemed, if there were income from the property, to be income from an active business by paragraph (2)(a) (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph (2)(a) if that paragraph were read without reference to its subparagraph (v)) that is derived from amounts payable by payers who are, or would be, if they were foreign affiliates of the taxpayer, entitled to deduct the amounts in computing their exempt earnings or exempt loss, as defined in subsection 5907(1) of the Income Tax Regulations, for a taxation year,

    • (c) subject to paragraph (d), subparagraph (d)(ii) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection (5), is, in its application to taxation years of the foreign affiliate that end after 1999 and begin before 2009, to be read as follows:

      • (ii) the particular affiliate’s earnings for the year from an active business to the extent that they derive from

        • (A) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(i) of the Act and that would,

          • (I) if earned by the non-resident corporation referred to in sub-subclause 95(2)(a)(i)(A)(I)1 of the Act and based on the assumptions contained in subclause 95(2)(a)(i)(B)(I) of the Act, be included in computing the exempt earnings or exempt loss of the non-resident corporation for a taxation year,

          • (II) if earned by the foreign affiliate referred to in sub-subclause 95(2)(a)(i)(A)(I)2 of the Act, be included in computing the exempt earnings or exempt loss of that foreign affiliate for a taxation year, or

          • (III) if earned by the life insurance corporation referred to in subclause 95(2)(a)(i)(A)(II) of the Act and based on the assumptions contained in subclause 95(2)(a)(i)(B)(I) of the Act, be included in computing the exempt earnings or exempt loss of the life insurance corporation for a taxation year,

        • (B) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(A) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that would be deductible in computing the exempt earnings or exempt loss for a taxation year of the non-resident corporation or the partnership, as the case may be, referred to in that clause if it were a foreign affiliate of the particular corporation,

        • (C) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(B) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that

          • (I) are deductible in computing the exempt earnings or exempt loss, for a taxation year, of the other foreign affiliate referred to in that clause, or

          • (II) would be deductible in computing the exempt earnings or exempt loss, for a taxation year, of the partnership referred to in that clause if the partnership were a foreign affiliate of the particular corporation,

        • (D) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(C) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that would be deductible in computing the exempt earnings or exempt loss, for a taxation year, of the partnership referred to in that clause if the partnership were a foreign affiliate of the particular corporation,

        • (E) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(D) of the Act if

          • (I) the country referred to in subclause 95(2)(a)(ii)(D)(IV) of the Act is a designated treaty country, and

          • (II) that income would be required to be so included if paragraph (c) of the definition “excluded property” in subsection 95(1) of the Act were read as follows:

            • (c) property all or substantially all of the income from which is deemed, or would be deemed if there were income from the property, to be income from an active business by paragraph (2)(a) (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph (2)(a) if that paragraph were read without reference to its subparagraph (v)) that is derived from amounts payable by payers who are, or would be, if they were foreign affiliates of the taxpayer, entitled to deduct the amounts in computing their exempt earnings or exempt loss, as defined in subsection 5907(1) of the Income Tax Regulations, for a taxation year,

        • (F) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(E) of the Act where the income is derived from amounts that are paid or payable by the life insurance corporation referred to in that clause and are for expenditures that would, if that life insurance corporation were a foreign affiliate of the particular corporation, be deductible in computing its exempt earnings or exempt loss for a taxation year,

        • (G) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(iii) of the Act to the extent that the trade accounts receivable referred to in that subparagraph arose in the course of an active business carried on by the non-resident corporation referred to in that subparagraph the income or loss from which would be included in computing its exempt earnings or exempt loss for a taxation year if it were a foreign affiliate of the particular corporation,

        • (H) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(iv) of the Act to the extent that the loans or lending assets referred to in that subparagraph arose in the course of an active business carried on by the non-resident corporation referred to in that subparagraph the income or loss from which would be included in computing its exempt earnings or exempt loss for a taxation year if it were a foreign affiliate of the particular corporation,

        • (I) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(v) of the Act, where all or substantially all of its income, from the property described in that subparagraph, is, or would be if there were income from the property, income from an active business (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph 95(2)(a) of the Act if that paragraph were read without reference to its subparagraph (v) and, for greater certainty, excludes income arising as a result of the disposition of the property) that is included in computing its exempt earnings or exempt loss for a taxation year, or

        • (J) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(vi) of the Act, where the agreement for the purchase, sale or exchange of currency referred to in that subparagraph can reasonably be considered to have been made by the particular affiliate to reduce its risk with respect to an amount of income or loss that is included in computing its exempt earnings or exempt loss for a taxation year, or

    • (d) subclause (d)(ii)(E)(II) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as set out in the read-as text contained in paragraph (c), is, in its application to taxation years of the foreign affiliate that end after 1999 and begin before December 21, 2002, to be read as follows:

      • (II) that income would be required to be so included if paragraph (c) of the definition “excluded property” in subsection 95(1) of the Act were read without reference to amounts receivable referred to in that paragraph (c), where the interest on the amounts is not, or would not be if interest were payable on the amounts, deductible in computing the debtor’s exempt earnings or exempt loss for a taxation year,

  • (43) Subsections (7), (31), (36) and (37) apply to taxation years of a foreign affiliate of a taxpayer that begin after December 18, 2009.

  • (44) Subject to section 50, subsection (8) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999, except that the portion of paragraph (c) of the definition “exempt loss” in subsection 5907(1) of the Regulations before subparagraph (i), as enacted by subsection (8), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

    • (c) where the year is the 1976 or any subsequent taxation year of the affiliate and the affiliate is resident in a designated treaty country,

  • (45) Subsections (9), (10), (12), (13), (18), (19) and (21) to (25) are deemed to have come into force on December 1, 1999.

  • (46) Subsections (11) and (20) apply where a share of the capital stock of a foreign affiliate of a corporation is acquired by, otherwise becomes property of, or is disposed of by, a person after December 20, 2002.

  • (47) Subject to section 50, subsection (17) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999, except that, in respect of dispositions of property that occur before December 18, 2009, subparagraph (b)(iv) of the definition “taxable loss” in subsection 5907(1) of the Regulations, as enacted by subsection (17), is to be read as follows:

    • (iv) to the extent not included under subparagraph (ii), the affiliate’s net loss for the year determined under paragraphs (c) and (d) of the definition “net loss”,

  • (48) Subsection (26) applies in respect of whole dividends paid on the shares of a class of the capital stock of a foreign affiliate of a corporation after December 18, 2009.

  • (49) Subsection (27) applies to elections made in respect of dispositions that occur after December 18, 2009.

  • (50) Subsections (28) and (29) apply to taxation years of a foreign affiliate of a taxpayer that begin after December 20, 2002.

  • (51) Subsections (30) and (35) apply to taxation years of a foreign affiliate of a taxpayer that begin after 2008.

  • (52) Subsection (32) applies in respect of payments made after December 20, 2002.

  • (53) Subsections (33) and (34) apply to taxation years of a foreign affiliate of a taxpayer that begin after November 1999.

  • (54) Subsection (38) is deemed to have come into force on December 19, 2009.

  •  (1) The Regulations are amended by adding the following after section 5907:

    • 5908. (1) For the purposes of this subsection, subsections (2) to (7), paragraph 5902(2)(b) and section 5905, if at any time shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada are, based on the assumptions contained in paragraph 96(1)(c) of the Act, owned by a partnership, or are deemed under this subsection to be owned by a partnership, each member of the partnership is deemed to own at that time the number of shares of that class that is determined by the formula

      A × B/C

      where

      A 
      is the number of shares of that class that are so owned or so deemed owned by the partnership;
      B 
      is the fair market value of the member’s interest in the partnership at that time; and
      C 
      is the fair market value of all members’ interests in the partnership at that time.
    • (2) For the purposes of subsections (4) and 5905(1), (5) and (7.1), if a person is deemed by subsection (1) to own at a particular time a different number of shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada (which shares so deemed owned are referred to in this subsection as “affiliate shares”) than the person was deemed by that subsection to have owned immediately before the particular time, the number of affiliate shares equal to that difference is deemed to be

      • (a) disposed of, at the particular time, by the person, when that person is deemed to own fewer affiliate shares at the particular time than immediately before it; and

      • (b) acquired by, at the particular time, the person, when that person is deemed to own more affiliate shares at the particular time than immediately before it.

    • (3) For the purposes of subsection (2),

      • (a) if a partnership of which a person is a member at any time does not own, and (but for this subsection) is not deemed by subsection (1) to own, any shares of a class of the capital stock of the foreign affiliate at that time, subsection (1) is deemed to have applied in respect of the person and to have deemed the person to own, because of subsection (1) in respect of the partnership, no shares of that class at that time; and

      • (b) if a corporation resident in Canada or a foreign affiliate of such a corporation disposes of or acquires its entire interest in a partnership that, based on the assumptions contained in paragraph 96(1)(c) of the Act, owns shares of a class of the capital stock of a non-resident corporation, the corporation resident in Canada or the foreign affiliate, as the case may be, is deemed at the time that is immediately after the disposition or immediately before the acquisition, as the case may be, to own, because of subsection (1) in respect of the partnership, no shares of that class.

    • (4) For the purposes of subsection 5905(5), if at any time a corporation resident in Canada (referred to in this subsection as the “disposing corporation”) disposes of shares of a class of the capital stock of a foreign affiliate of the disposing corporation and, as a consequence of the same transaction or event (other than one to which neither paragraph (2)(a) nor paragraph (2)(b) applies) that caused the disposition, a taxable Canadian corporation with which the disposing corporation is not, at that time, dealing at arm’s length acquires shares of that class, the disposing corporation is, at that time, deemed to have disposed of, to the taxable Canadian corporation, the number of the shares of that class that is determined by the formula

      A × B

      where

      A 
      is the number of shares of that class disposed of by the disposing corporation; and
      B 
      is
      • (a) if the taxable Canadian corporation acquires, because of paragraph (2)(b), shares of that class, the fraction determined by the formula

        C/D

        where

        C 
        is the number of shares of that class that is deemed by that paragraph to be acquired by the taxable Canadian corporation as a result of the transaction or event, and
        D 
        is the total of all amounts each of which is the number of shares of that class that is deemed by that paragraph to be acquired by a person as a result of the transaction or event, and
      • (b) in any other case, one.

    • (5) For the purposes of subsection 5905(5.1), if a predecessor corporation described in that subsection is, at the time that is immediately before the amalgamation described in that subsection, a member of a particular partnership that, based on the assumptions contained in paragraph 96(1)(c) of the Act, owns, at that time, shares of the capital stock of a foreign affiliate of the predecessor corporation and the predecessor corporation’s interest in the particular partnership, or in another partnership that is a member of the particular partnership, becomes, upon the amalgamation, property of the new corporation described in that subsection, the shares of the capital stock of the affiliate that are deemed under subsection (1) to be owned by the predecessor corporation at that time are deemed to become property of the new corporation upon the amalgamation.

    • (6) In applying subsection 5905(5.2), if the corporation is a member of a partnership that, based on the assumptions contained in paragraph 96(1)(c) of the Act, owns shares (referred to individually in paragraph (a) as a “relevant share”) of the affiliate’s capital stock at the particular time,

      • (a) for the purposes of the description of B in subsection 5905(5.2), the corporation’s cost amount of each relevant share at the particular time is to be determined by the formula

        P × Q/R

        where

        P 
        is the partnership’s cost amount of that relevant share at the particular time,
        Q 
        is the number of shares of the capital stock of the affiliate that are deemed by subsection (1), in respect of the partnership, to be owned by the corporation at the particular time, and
        R 
        is the total number of relevant shares at the particular time; and
      • (b) for the purposes of paragraph (b) of the description of C in subsection 5905(5.2), the amount determined under this paragraph is the total of all amounts each of which is the amount that would be the corporation’s portion of a gain that would be deemed under subsection 92(5) of the Act to be a gain of the member of the partnership from the disposition of a share of the capital stock of the affiliate by the partnership if that share were disposed of immediately before the particular time.

    • (7) For the purposes of paragraph 5905(5.4)(b), the amount determined by this subsection is the amount determined by the following formula for shares of the capital stock of a foreign affiliate of the subsidiary that were deemed by subsection (1), in respect of the partnership, to be owned by the subsidiary at the time at which the parent last acquired control of the subsidiary:

      A × B

      where

      A 
      is the tax-free surplus balance of the affiliate, in respect of the subsidiary, at that time; and
      B 
      is the percentage that would be the subsidiary’s surplus entitlement percentage in respect of the affiliate at that time if the only shares of that capital stock that were owned at that time by the subsidiary were the shares of that capital stock that were deemed by subsection (1), in respect of the partnership, to be owned by the subsidiary at the time at which the parent last acquired control of the subsidiary.
    • (8) If a particular corporation resident in Canada or a particular foreign affiliate of a particular corporation resident in Canada is a member of a particular partnership, the particular partnership owns (based on the assumptions contained in paragraph 96(1)(c) of the Act) shares of a class of the capital stock of a foreign affiliate of the particular corporation and the particular partnership disposes of any of those shares,

      • (a) any reference in this Part (other than subsections 5902(5) and (6)) to subsection 93(1) of the Act is deemed to include a reference to subsection 93(1.2) of the Act;

      • (b) an election under subsection 93(1.2) of the Act by the particular corporation is to be made by filing the prescribed form with the Minister on or before

        • (i) where the particular corporation is the disposing corporation referred to in that subsection, the particular corporation’s filing-due date for its taxation year that includes the last day of the particular partnership’s fiscal period in which the disposition was made, and

        • (ii) where the particular affiliate is the disposing corporation referred to in that subsection, the particular corporation’s filing-due date for its taxation year that includes the last day of the particular affiliate’s taxation year that includes the last day of the disposing partnership’s fiscal period in which the disposition was made; and

      • (c) the prescribed amount for the purposes of subparagraph 93(1.2)(a)(ii) of the Act is the lesser of

        • (i) the taxable capital gain, if any, of the particular affiliate otherwise determined in respect of the disposition, and

        • (ii) the amount determined by the formula

          A × B × C/D

          where

          A 
          is the fraction referred to in paragraph 38(a) of the Act that applies to the particular affiliate’s taxation year that includes the last day of the particular partnership’s fiscal period that includes the time of the disposition,
          B 
          is the amount that could reasonably be expected to have been received in respect of all the shares of that class if the second foreign affiliate referred to in subsection 93(1.2) of the Act had, immediately before that time, paid dividends, on all shares of its capital stock, the total of which was equal to the amount determined under subparagraph 5902(1)(a)(i) to be its net surplus in respect of the particular corporation,
          C 
          is the number of shares of that class that is determined under subsection 93(1.3) of the Act, and
          D 
          is the total number of issued shares of that class immediately before that time.
    • (9) For the purposes of this Part, except to the extent that the context otherwise requires, if a person or partnership is (or is deemed by this subsection to be) a member of a particular partnership that is a member of another partnership, the person or partnership is deemed to be a member of the other partnership.

    • (10) For the purposes of paragraph 95(2)(j) of the Act, the adjusted cost base to a foreign affiliate of a taxpayer of an interest in a partnership at any time is prescribed to be the cost to the affiliate of the interest as otherwise determined at that time, and for those purposes

      • (a) there shall be added to that cost such of the following amounts as are applicable:

        • (i) any amount included in the affiliate’s earnings for a taxation year ending after 1971 and before that time that may reasonably be considered to relate to profits of the partnership,

        • (ii) the affiliate’s incomes as described by the description of A in the definition “foreign accrual property income” in subsection 95(1) of the Act for a taxation year ending after 1971 and before that time that can reasonably be considered to relate to profits of the partnership,

        • (iii) any amount included in computing the exempt earnings or taxable earnings, as the case may be, of the affiliate for a taxation year ending after 1971 and before that time that may reasonably be considered to relate to a capital gain of the partnership,

        • (iv) where the affiliate has, at any time before that time and in a taxation year ending after 1971, made a contribution of capital to the partnership otherwise than by way of a loan, such part of the amount of the contribution as cannot reasonably be regarded as a gift made to or for the benefit of any other member of the partnership who was related to the affiliate,

        • (v) such portion of any income or profits tax refunded before that time by the government of a country to the partnership as may reasonably be regarded as tax refunded in respect of an amount described in any of subparagraphs (b)(i) to (iii), and

        • (vi) the amount, if any, determined under paragraph (11)(b);

      • (b) there shall be deducted from that cost such of the following amounts as are applicable:

        • (i) any amount included in the affiliate’s loss for a taxation year ending after 1971 that may reasonably be considered to relate to a loss of the partnership,

        • (ii) the affiliate’s losses as described by the description of D in the definition “foreign accrual property income” in subsection 95(1) of the Act for a taxation year ending after 1971 and before that time that can reasonably be considered to relate to the losses of the partnership,

        • (iii) any amount included in computing the exempt loss or taxable loss, as the case may be, of the affiliate for a taxation year ending after 1971 and before that time that may reasonably be considered to relate to a capital loss of the partnership,

        • (iv) any amount received by the affiliate before that time and in a taxation year ending after 1971 as, on account or in lieu of payment of, or in satisfaction of, a distribution of the affiliate’s share of the partnership profits or partnership capital, and

        • (v) such portion of any income or profits tax paid before that time to the government of a country by the partnership as may reasonably be regarded as tax paid in respect of an amount described in any of subparagraphs (a)(i) to (iii); and

      • (c) for greater certainty, where any interest of a foreign affiliate in a partnership was reacquired by the affiliate after having been previously disposed of, no adjustment that was required to be made under this subsection before such reacquisition shall be made under this subsection to the cost to the affiliate of the interest as reacquired property of the affiliate.

    • (11) If at any time a partnership owns, based on the assumptions contained in paragraph 96(1)(c) of the Act, a share of the capital stock of a particular foreign affiliate of a corporation resident in Canada and one or more members of the partnership is at that time a direct holder referred to in paragraph 5905(7.6)(a) or a subordinate affiliate referred to in paragraph 5905(7.6)(b), the following rules apply:

      • (a) for the purposes of paragraph 92(1.1)(b) of the Act, there is to be added, in computing at or after that time the partnership’s adjusted cost base of the share, the total of all amounts each of which is the amount determined, in respect of an acquired affiliate referred to in subsection 5905(7.6), by the formula

        A × B

        where

        A 
        is the amount, if any, determined under paragraph 5905(7.2)(a) in respect of the acquired affiliate, and
        B 
        is the percentage that would, if the partnership were a corporation resident in Canada, be the partnership’s surplus entitlement percentage in respect of the acquired affiliate, at the adjustment time, if the partnership owned only the share;
      • (b) for the purposes of subparagraph (10)(a)(vi), the amount determined under this paragraph, in respect of the interest in the partnership of the direct holder or the subordinate affiliate, is the amount determined by the formula

        A × B/C

        where

        A 
        is the total of all amounts each of which is the amount, if any, determined under paragraph (a) in respect of a share of the capital stock of the particular affiliate,
        B 
        is the fair market value, at the adjustment time, of the interest in the partnership of the direct holder or the subordinate affiliate, as the case may be, and
        C 
        is the fair market value, at the adjustment time, of all members’ interests in the partnership; and
      • (c) no amount is to be added under subsection 5905(7.6) to the direct holder’s or the subordinate affiliate’s adjusted cost base of the share.

    • (12) For the purposes of paragraph 5905(7.7)(b), the amount determined under this subsection is the amount determined by the formula

      A × B/C

      where

      A 
      is the adjustment amount;
      B 
      is the fair market value, at the adjustment time, of the interest in the partnership that is referred to in paragraph 92(1.1)(b) of the Act of the particular foreign affiliate that is referred to in paragraph 93(3)(c) of the Act; and
      C 
      is the fair market value, at the adjustment time, of all members’ interests in the partnership.
  • (2) Subsections 5908(1) and (2) of the Regulations, as enacted by subsection (1), apply to taxation years of a foreign affiliate of a taxpayer that begin after November 1999, except that those subsections, as so enacted, are, in their application to acquisitions, dispositions, redemptions, cancellations, foreign mergers, amalgamations and issuances that occur, and windings-up that begin, on or before December 18, 2009, to be read as follows:

    • 5908. (1) In determining,

      • (a) for the purposes of this Part (other than section 5904), the equity percentage at any time of a person in a corporation,

      • (b) for the purposes of this section and section 5905, the surplus entitlement at any time of a share owned by a corporation resident in Canada of the capital stock of a foreign affiliate of the corporation in respect of a particular foreign affiliate of the corporation, and

      • (c) for the purposes of this Part and the definition “surplus entitlement percentage” in subsection 95(1) of the Act, the surplus entitlement percentage at any time of a corporation resident in Canada in respect of a particular foreign affiliate of the corporation,

      if at any time shares of a class of the capital stock of a corporation are owned by a partnership or are deemed under this subsection to be owned by a partnership, those shares are deemed to be owned at that time by each member of the partnership in a proportion equal to the proportion of all such shares that

      • (d) the fair market value of the member’s interest in the partnership at that time

      is of

      • (e) the fair market value of all members’ interests in the partnership at that time.

    • (2) For the purposes of this section and section 5905, if the number of shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada deemed by subsection 93.1(1) of the Act to be owned by a person at a particular time is different from the number so deemed immediately before the particular time,

      • (a) where the number of shares of that class deemed to be owned by the person has decreased, the person is deemed to have disposed of, at the particular time, the number of shares of that class equal to the amount of the decrease;

      • (b) where the number of shares of that class deemed to be owned by the person has increased, the person is deemed to have acquired, at the particular time, the number of shares of that class equal to the amount of the increase;

      • (c) a person (referred to in this paragraph as the “seller”) that is deemed by paragraph (a) to have disposed of, at a particular time, shares of a class of the foreign affiliate’s capital stock is deemed to have disposed of those shares to the persons (referred to in this paragraph as the “acquirers”) deemed in paragraph (b) to have acquired shares of that class at that time and the number of shares of that class deemed to have been acquired at that time by a particular acquirer from the seller shall be determined by the formula

        A × B/C

        where

        A 
        is the number of shares of that class acquired by the particular acquirer at that time,
        B 
        is the number of shares of that class disposed of by the seller at that time, and
        C 
        is the number of shares of that class acquired by all acquirers at that time; and
      • (d) persons (referred to in this paragraph as the “acquirers”) that are deemed by paragraph (b) to have acquired, at a particular time, shares of a class of the foreign affiliate’s capital stock are deemed to have acquired those shares from a person (referred to in this paragraph as the “seller”) deemed in paragraph (a) to have disposed of shares of that class at that time and the number of shares of that class deemed to have been disposed of by the seller to a particular acquirer at that time shall be determined by the formula

        A × B/C

        where

        A 
        is the number of shares of that class disposed of by the seller,
        B 
        is the number of shares of that class acquired by the particular acquirer at that time, and
        C 
        is the number of shares of that class disposed of by all sellers at that time.
  • (3) Subsections 5908(3) to (5) of the Regulations, as enacted by subsection (1), apply to taxation years of a foreign affiliate of a taxpayer that begin after December 18, 2009.

  • (4) Subsections 5908(6) and (7) of the Regulations, as enacted by subsection (1), apply in respect of acquisitions of control that occur after December 18, 2009, except if the acquisition of control results from an acquisition of shares made under an agreement in writing entered into before December 18, 2009.

  • (5) Subsection 5908(8) of the Regulations, as enacted by subsection (1), applies to elections made under subsection 93(1.2) of the Income Tax Act in respect of dispositions that occur after November 1999.

  • (6) Subsection 5908(9) of the Regulations, as enacted by subsection (1), applies for taxation years of a foreign affiliate of a taxpayer that begin after November 1999 except that, for the foreign affiliate’s taxation years that end on or before August 27, 2010, that subsection 5908(9) is to be read as follows:

    • (9) For the purposes of this section and paragraph 5907(2.7)(b), if any corporation is (or is deemed by this subsection to be) a member of a particular partnership that is a member of another partnership, the corporation is deemed to be a member of the other partnership.

  • (7) Subsection 5908(10) of the Regulations, as enacted by subsection (1), is deemed to have come into force on December 19, 2009.

  • (8) Subsections 5908(11) and (12) of the Regulations, as enacted by subsection (1), apply where a share of the capital stock of a foreign affiliate of a corporation is acquired by, or otherwise becomes property of, a person after December 18, 2009.

  •  (1) The Regulations are amended by adding the following in numerical order:

    • 5910. (1) If a foreign affiliate of a corporation resident in Canada carries on in a particular taxation year an active business that is a foreign oil and gas business in a taxing country, the affiliate is deemed for the purposes of this Part to have paid for the particular year, as an income or profits tax to the government of the taxing country in respect of its earnings from the business for the particular year, an amount equal to the lesser of

      • (a) the amount, if any, determined by the formula

        (A × B) – C

        where

        A 
        is the percentage determined under subsection (2) for the particular year,
        B 
        is the amount determined under subsection (3) in respect of the business for the particular year, and
        C 
        is the total of all amounts each of which is an amount that would, but for this subsection, be an income or profits tax paid to the government of the taxing country by the affiliate for the particular year in respect of its earnings from the business for the particular year; and
      • (b) the affiliate’s production tax amount for the business in the taxing country for the particular year.

    • (2) The percentage determined under this subsection for the particular year is the percentage determined by the formula

      P – Q

      where

      P 
      is the percentage set out in paragraph 123(1)(a) of the Act for the corporation’s taxation year that includes the last day of the particular year; and
      Q 
      is the corporation’s general rate reduction percentage (within the meaning assigned by subsection 123.4(1) of the Act) for that taxation year of the corporation.
    • (3) The amount determined under this subsection in respect of the business for the particular year is

      • (a) if the affiliate’s earnings from the business for the particular year are required to be determined under subparagraph (a)(iii) of the definition “earnings” in subsection 5907(1), the amount that would be determined to be the affiliate’s earnings for the particular year from the business if the affiliate

        • (i) had, in computing its income from the business for each taxation year (referred to in this subparagraph as an “earnings year”) that is the particular year or is any preceding taxation year that begins after December 18, 2009,

          • (A) claimed all deductions that it could have claimed under the Act, up to the maximum amount deductible in computing the income from the business for that earnings year, and

          • (B) made all claims and elections and taken all steps under applicable provisions of the Act, or of enactments implementing amendments to the Act or its regulations, to maximize the amount of any deduction referred to clause (A), and

        • (ii) had, in computing its income from the business for any preceding taxation year that began before December 19, 2009, claimed all deductions, if any, that it actually claimed under the Act, up to the maximum amount deductible, and made all claims and elections, if any, and taken all steps, if any, under applicable provisions of the Act, or of enactments implementing amendments to the Act or its regulations, that it actually made; and

      • (b) in any other case, the affiliate’s earnings from the business for the particular year.

    • (4) In this section, “foreign oil and gas business”, “production tax amount” and “taxing country” have the meanings assigned by subsection 126(7) of the Act.

  • (2) Subsection (1) applies in respect of production tax amounts that become receivable by the government of a taxing country in taxation years of a taxpayer’s foreign affiliate that begin after the date (referred to in this subsection as the “application date”) that is the earlier of December 31, 2002 and the designated date. The designated date is the later of

    • (a) December 31, 1994; and

    • (b) any date that the taxpayer designates in writing for the purpose of this subsection, if the designation is filed with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent.

    However, in their application to taxation years of the foreign affiliate that begin after the application date and on or before December 18, 2009, subsections 5910(2) and (3) of the Regulations, as enacted by subsection (1), are to be read as follows:

    • (2) The percentage determined under this subsection for the particular year is 40 per cent.

    • (3) The amount determined under this subsection in respect of the business for the particular year is the amount that would, if the definition “earnings” in subsection 5907(1) were read without reference to its subparagraphs (a)(i) and (ii), be the foreign affiliate’s earnings from the business in the taxing country for the particular year.

  •  (1) The portion of section 8201 of the Regulations before paragraph (a) is replaced by the following:

    8201. For the purposes of subsection 16.1(1), the definition “outstanding debts to specified non-residents” in subsection 18(5), subsection 112(2), the definition “qualified Canadian transit organization” in subsection 118.02(1), subsections 125.4(1) and 125.5(1), the definition “taxable supplier” in subsection 127(9), subparagraph 128.1(4)(b)(ii), paragraphs 181.3(5)(a) and 190.14(2)(b), the definition “Canadian banking business” in subsection 248(1) and paragraph 260(5)(a) of the Act, a “permanent establishment” of a person or partnership (either of whom is referred to in this section as the “person”) means a fixed place of business of the person, including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse if the person has a fixed place of business and, where the person does not have any fixed place of business, the principal place at which the person’s business is conducted, and

  • (2) Subsection (1) applies to taxation years that end after 2008, except that, for taxation years that end before December 19, 2009, the portion of section 8201 of the Regulations before paragraph (a), as enacted by subsection (1), is to be read as follows:

    8201. For the purposes of subsection 16.1(1), the definition “outstanding debts to specified non-residents” in subsection 18(5), the definitions “excluded income” and “excluded revenue” in subsection 95(2.5), subsection 112(2), the definition “qualified Canadian transit organization” in subsection 118.02(1), subsections 125.4(1) and 125.5(1), the definition “taxable supplier” in subsection 127(9), subparagraph 128.1(4)(b)(ii), paragraphs 181.3(5)(a) and 190.14(2)(b), the definition “Canadian banking business” in subsection 248(1) and paragraph 260(5)(a) of the Act, a “permanent establishment” of a person or partnership (either of whom referred to in this section as the “person”) means a fixed place of business of the person, including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse if the person has a fixed place of business and, where the person does not have any fixed place of business, the principal place at which the person’s business is conducted, and

  •  (1) If a taxpayer has elected under subsection 26(46) of the Budget and Economic Statement Implementation Act, 2007,

    • (a) subsections 46(1), (2) and (8) (with the portion of paragraph (c) of the definition “exempt loss” in subsection 5907(1) of the Regulations before subparagraph (i) being read in the manner described in subsection 46(44)) also apply to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000;

    • (b) subsection 46(4) (with paragraph (a.1) of the definition “exempt earnings” in subsection 5907(1) of the Regulations being read in the manner described in subsection 46(41)) also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and on or before December 20, 2002;

    • (c) subparagraph (d)(ii) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection 46(5) and being read in the manner described in paragraph 46(42)(c), but without reference to paragraph 46(42)(d), also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000, except that, for those taxation years,

      • (i) clause (A) of that subparagraph (d)(ii), as so read, is to be read without reference to its subclause (II),

      • (ii) if the taxpayer has not elected under paragraph 26(35)(b) of that Act, clause (E) of that subparagraph (d)(ii), as so read, is to be read as if it also contained a subclause (I.1) that read as follows:

        • (I.1) the shares of a foreign affiliate (referred to in this subclause as the “non-qualifying affiliate”) that is not resident and subject to income taxation in a designated treaty country are not considered relevant for the purpose of determining whether shares of the third affiliate that is referred to in clause 95(2)(a)(ii)(D) of the Act are excluded property unless the shares of the third affiliate would not have been excluded property if the shares of all such non-qualifying affiliates were not excluded property, and

      • (iii) each reference to “income or loss” in clauses (H) and (I) of that subparagraph (d)(ii), as so read, is to be replaced by a reference to “income”; and

    • (d) subsection 46(17) (with subparagraph (b)(iv) of the definition “taxable loss” in subsection 5907(1) of the Regulations being read in the manner described in subsection 46(47)) also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000.

  • (2) If a taxpayer has not elected under subsection 26(46) of the Budget and Economic Statement Implementation Act, 2007 but has elected under paragraph 26(35)(b) of that Act, subparagraph (d)(ii) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection 46(5) and being read in the manner described in paragraphs 46(42)(c) and (d), also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000.

 Subject to section 52, if a corporation resident in Canada elects in writing under this section in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the corporation’s filing-due date for the corporation’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, the following rules apply:

  • (a) if there is an election (referred to in this section as a “designated section 93 election”) made by the corporation under subsection 93(1) or (1.2) of the Income Tax Act in respect of a disposition of shares (referred to in this section as the “designated shares”) of the capital stock of a foreign affiliate of the corporation that occurs after December 20, 2002 and before December 19, 2009, other than a disposition that is required to be made under an agreement in writing made by the vendor before December 21, 2002,

    • (i) section 92 of that Act is, in respect of the designated shares, to be read as if it also contained the following subsections:

      • (1.2) Subsection (1.4) applies to a holder of a share (referred to in this subsection and subsections (1.3) and (1.4) as the “relevant share”) of a foreign affiliate (referred to in subsection (1.3) as the “relevant foreign affiliate”) of a particular corporation resident in Canada in computing at any time (referred to in this subsection and subsection (1.3) as the “computation time”) the adjusted cost base to the holder of the relevant share, if, at the computation time, there is a specified section 93 election related to the relevant share.

      • (1.3) An election made by the particular corporation resident in Canada under subsection 93(1) or (1.2), as the case may be, in respect of a share of a particular foreign affiliate of the particular corporation that is disposed of at a time (referred to in this subsection and subsection (1.4) as the “election time”) before the computation time is, at the computation time, a specified section 93 election related to the relevant share if

        • (a) the particular foreign affiliate has, at the election time, an equity percentage in the relevant foreign affiliate;

        • (b) the relevant foreign affiliate was, at the election time, a foreign affiliate of the particular corporation;

        • (c) throughout the period that begins at the election time and ends at the computation time,

          • (i) the holder held the relevant share, and

          • (ii) the holder was

            • (A) a foreign affiliate of the particular corporation,

            • (B) a foreign affiliate of a corporation resident in Canada that was related to the particular corporation,

            • (C) a partnership of which a foreign affiliate of the particular corporation was a member, or

            • (D) a partnership of which a foreign affiliate, of a corporation resident in Canada that was related to the particular corporation, was a member;

        • (d) the relevant share was, at the election time, excluded property of the holder (or would have been, at the election time, excluded property of the holder if the holder had been a foreign affiliate of the particular corporation); and

        • (e) the relevant share is, at the computation time, excluded property of the holder (or would have been, at the computation time, excluded property of the holder if the holder had been a foreign affiliate of the particular corporation or of a corporation resident in Canada that is related to the particular corporation).

      • (1.4) If this subsection applies, for the purposes of computing, at any time after the election time, the exempt surplus or deficit, the taxable surplus or deficit, and the underlying foreign tax, of the holder, in respect of the particular corporation resident in Canada or in respect of any other person that would, at the time after the election time, be a designated person in respect of the particular corporation, the following rules apply in determining the adjusted cost base to the holder of the relevant share:

        • (a) there shall be added, to the adjusted cost base to the holder of the relevant share, the amount prescribed in respect of the relevant share in respect of the specified section 93 election, and

        • (b) there shall be deducted, from the adjusted cost base to the holder of the relevant share, the amount prescribed in respect of the relevant share in respect of the specified section 93 election.

      • (1.5) For the purposes of subsection (1.4), a designated person, in respect of a particular corporation, at any time means

        • (a) any person with whom the particular corporation was not dealing at arm’s length;

        • (b) any person with whom the particular corporation would not have been dealing at arm’s length if the person had been in existence after the particular corporation came into existence;

        • (c) any predecessor corporation (within the meaning assigned by subsection 87(1)) of a person described in paragraph (a) or (b); or

        • (d) any predecessor corporation (within the meaning assigned by paragraph 87(2)(l.2)) of a person described in paragraph (a) or (b).

    • (ii) subsection 5902(1) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

      • 5902. (1) If, at a particular time, one or more shares (each of which is referred to in this subsection as a “disposed share”) of a class (referred to in this subsection as the “specified class”) of the capital stock of a particular foreign affiliate of a corporation resident in Canada are disposed of by a particular shareholder of the particular foreign affiliate and, because of an election made under subsection 93(1) of the Act in respect of that disposition, a dividend is deemed under subsection 93(1) of the Act to have been received on a disposed share at the time (referred to in this subsection and section 5905 as the “dividend time”) that is immediately before the particular time, the following rules apply:

        • (a) the amount of the particular foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, (in this subsection referred to as the “consolidated exempt surplus” in respect of the corporation resident in Canada) at the time (in this section and in section 5905 referred to as the “calculation time”) that is immediately before the dividend time, is deemed to be the amount that would be its exempt surplus, in respect of the corporation resident in Canada, at the calculation time if

          • (i) the particular foreign affiliate and each other foreign affiliate of the corporation resident in Canada in which the particular foreign affiliate had, at the calculation time, an equity percentage (each of which other foreign affiliates is referred to in this section as a “subsidiary affiliate”) had (except for the purpose of determining consolidated net surplus in respect of the corporation resident in Canada in subparagraph (iii)), at the calculation time, no amount of exempt deficit, taxable surplus or taxable deficit, in respect of the corporation resident in Canada,

          • (ii) the amount of the exempt surplus, in respect of the corporation resident in Canada, of the particular foreign affiliate were, immediately before the calculation time, increased by the total of all amounts each of which is an amount equal to the particular foreign affiliate’s proportionate share of the amount that would be the exempt surplus, in respect of the corporation resident in Canada, of a subsidiary affiliate in which it has, immediately before the calculation time, a direct equity percentage if that exempt surplus were, immediately before the calculation time, determined in the following manner:

            • (A) the exempt surplus, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate’s proportionate share of the exempt surplus of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate has, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

            • (B) the exempt surplus, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate’s exempt surplus in respect of the corporation resident in Canada,

          • (iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the “calculating foreign affiliate”) of the corporation resident in Canada, of the exempt surplus, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the “providing foreign affiliate”) of the corporation resident in Canada in which the calculating foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

            A/B

            where

            A 
            is the amount of dividends that would be received, at that time, by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such a consolidated net surplus, in respect of the corporation resident in Canada, its consolidated exempt surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and
            B 
            is the amount of the providing foreign affiliate’s consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated exempt surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and
          • (iv) in determining, under this paragraph, the particular foreign affiliate’s consolidated exempt surplus, in respect of the corporation resident in Canada,

            • (A) no amount were included, directly or indirectly, in respect of the exempt surplus, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

            • (B) no amount were included, directly or indirectly, in respect of the exempt surplus, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

        • (b) the amount of the particular foreign affiliate’s exempt deficit, in respect of the corporation resident in Canada, (in this subsection referred to as the “consolidated exempt deficit” in respect of the corporation resident in Canada) at the calculation time, is deemed to be the amount that would be its exempt deficit, in respect of the corporation resident in Canada, at that time, if

          • (i) the particular foreign affiliate and each subsidiary affiliate had (except for the purpose of determining consolidated net surplus, in respect of the corporation resident in Canada, in subparagraph (iii)), at the calculation time, no amount of exempt surplus, taxable surplus or taxable deficit, in respect of the corporation resident in Canada,

          • (ii) the amount of the exempt deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate, were, immediately before the calculation time, increased by the total of all amounts each of which is an amount equal to the particular foreign affiliate’s proportionate share of the exempt deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which the particular foreign affiliate has, immediately before the calculation time, a direct equity percentage if that exempt deficit were, immediately before the calculation time, determined in the following manner:

            • (A) the exempt deficit, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate’s proportionate share of the exempt deficit of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate has, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

            • (B) the exempt deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate’s exempt deficit in respect of the corporation resident in Canada,

          • (iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the “calculating foreign affiliate”) of the corporation resident in Canada, of the exempt deficit, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the “providing foreign affiliate”) of the corporation resident in Canada in which the calculating foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

            A/B

            where

            A 
            is the amount of dividends that would be received by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its exempt deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and
            B 
            is the amount of the providing foreign affiliate’s consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated exempt deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and
          • (iv) in determining, under this paragraph, the particular foreign affiliate’s consolidated exempt deficit, in respect of the corporation resident in Canada,

            • (A) no amount were included, directly or indirectly, in respect of the exempt deficit, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

            • (B) no amount were included, directly or indirectly, in respect of the exempt deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

        • (c) the amount of the particular foreign affiliate’s taxable surplus and underlying foreign tax, in respect of the corporation resident in Canada, (referred to, respectively, in this subsection as the “consolidated taxable surplus”, and “consolidated underlying foreign tax”, in respect of the corporation resident in Canada) at the calculation time, is deemed to be the amount that would be its taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, at that time, if

          • (i) the particular foreign affiliate and each subsidiary affiliate had (except for the purpose of determining consolidated net surplus, in respect of the corporation resident in Canada, in subparagraph (iii)), at the calculation time, no amount of exempt surplus, exempt deficit or taxable deficit, in respect of the corporation resident in Canada,

          • (ii) the amount of the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the particular foreign affiliate, were, immediately before the calculation time, increased by an amount equal to the total of all amounts each of which is the particular foreign affiliate’s proportionate share of the taxable surplus, or underlying foreign tax, as the case may be, in respect of the corporation resident in Canada, of a subsidiary affiliate in which the particular foreign affiliate has, immediately before the calculation time, a direct equity percentage if that taxable surplus and underlying foreign tax were, immediately before the calculation time, determined in the following manner:

            • (A) the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate’s proportionate share of the taxable surplus, or underlying foreign tax, respectively, of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate had, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

            • (B) the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate’s taxable surplus, and underlying foreign tax, respectively, in respect of the corporation resident in Canada,

          • (iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the “calculating foreign affiliate”) of the corporation resident in Canada, of the taxable surplus, or underlying foreign tax, as the case may be, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the “providing foreign affiliate”) of the corporation resident in Canada in which the particular foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

            A/B

            where

            A 
            is the amount of dividends that would be received, at that time, by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and
            B 
            is the amount of the providing foreign affiliate’s consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and
          • (iv) in determining, under this paragraph, the particular foreign affiliate’s consolidated taxable surplus, and consolidated underlying foreign tax, in respect of the corporation resident in Canada,

            • (A) no amount were included, directly or indirectly, in respect of the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

            • (B) no amount were included, directly or indirectly, in respect of the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

        • (d) the amount of the particular foreign affiliate’s taxable deficit, in respect of the corporation resident in Canada, (in this subsection referred to as the “consolidated taxable deficit” in respect of the corporation resident in Canada) at the calculation time is deemed to be the amount that would be its taxable deficit, in respect of the corporation resident in Canada, at that time if

          • (i) the particular foreign affiliate and each subsidiary affiliate had (except for the purpose of determining consolidated net surplus, in respect of the corporation resident in Canada, in subparagraph (iii)), at the calculation time, no amount of exempt surplus, exempt deficit or taxable surplus, in respect of the corporation resident in Canada,

          • (ii) the amount of the taxable deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate, were, immediately before the calculation time, increased by the total of all amounts each of which is an amount equal to the particular foreign affiliate’s proportionate share of the taxable deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which the particular foreign affiliate has, immediately before the calculation time, a direct equity percentage if that taxable deficit were, immediately before the calculation time, determined in the following manner:

            • (A) the taxable deficit, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate’s proportionate share of the taxable deficit of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate had, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

            • (B) the taxable deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate’s taxable deficit in respect of the corporation resident in Canada,

          • (iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the “calculating foreign affiliate”) of the corporation resident in Canada, of the taxable deficit, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the “providing foreign affiliate”) of the corporation resident in Canada in which the calculating foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

            A/B

            where

            A 
            is the amount of dividends that would be received, at that time, by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and
            B 
            is the amount of the providing foreign affiliate’s consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and
          • (iv) in determining, under this paragraph, the particular foreign affiliate’s consolidated taxable deficit, in respect of the corporation resident in Canada,

            • (A) no amount were included, directly or indirectly, in respect of taxable deficit, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

            • (B) no amount were included, directly or indirectly, in respect of the taxable deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

        • (e) for the purpose of applying subsection 5901(1) to subsection 5900(1), and for the purpose of paragraph (f),

          • (i) the particular foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate’s consolidated exempt surplus, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate’s consolidated exempt deficit, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

          • (ii) the particular foreign affiliate’s exempt deficit in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate’s consolidated exempt deficit, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate’s consolidated exempt surplus, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

          • (iii) the particular foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate’s consolidated taxable surplus, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate’s consolidated taxable deficit, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

          • (iv) the particular foreign affiliate’s taxable deficit, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate’s consolidated taxable deficit, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate’s consolidated taxable surplus, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

          • (v) the particular foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount of the particular foreign affiliate’s consolidated underlying foreign tax, in respect of the corporation resident in Canada, at that time, and

          • (vi) the particular foreign affiliate’s consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which

            • (A) the total of the particular foreign affiliate’s consolidated exempt surplus, in respect of the corporation resident in Canada, at that time, and the particular foreign affiliate’s consolidated taxable surplus, in respect of the corporation resident in Canada, at that time,

            exceeds

            • (B) the total of the particular foreign affiliate’s consolidated exempt deficit, in respect of the corporation resident in Canada, at that time, and the particular foreign affiliate’s consolidated taxable deficit, in respect of the corporation resident in Canada, at that time;

        • (f) the attributed net surplus in respect of a disposed share of the specified class in respect of the particular foreign affiliate’s consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount that would be received by the holder of the disposed share, in respect of the disposed share, at the dividend time, if the particular foreign affiliate paid a dividend, at that time, on all of its shares, the total of which was equal to the amount of its consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time;

        • (g) for the purpose of applying subsection 5901(1) to subsection 5900(1), the amount of the whole dividend paid by the particular foreign affiliate, at the dividend time, on the shares of the specified class is deemed to be equal to the amount obtained when the total of all amounts each of which is an amount deemed by subsection 93(1) of the Act to have been received as a dividend on a disposed share of the specified class is multiplied by the greater of

          • (i) one, and

          • (ii) the amount determined by the formula

            A/B

            where

            A 
            is the amount determined, under subparagraph (e)(vi), to be the amount of the particular foreign affiliate’s consolidated net surplus in respect of the corporation, immediately before the dividend time, and
            B 
            is the greater of
            • (A) one, and

            • (B) the total of all amounts each of which is the amount determined, under paragraph (f), to be the amount of the attributed net surplus, in respect of a disposed share of the specified class, in respect of the particular foreign affiliate’s consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time; and

        • (h) for the purposes of paragraphs (a) to (d), the consolidated net surplus, at any time, in respect of a corporation resident in Canada, of a particular foreign affiliate of the corporation resident in Canada, is the amount that would be determined in paragraph (e) in respect of the particular foreign affiliate if the reference in that paragraph to “immediately before the dividend time” were read as a reference to “at any time”.

    • (iii) section 5902 of the Regulations is, in respect of the designated section 93 election, to be read without reference to its subsection (2),

    • (iv) subsection 5902(3) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

      • (3) If a corporation resident in Canada elects, under subsection 93(1) of the Act, in respect of the disposition of a share of the capital stock of a foreign affiliate of the corporation, no adjustment, other than an adjustment referred to in subsection 5905(2), (4), (6) or (8), may be made to the foreign affiliate’s

        • (a) exempt surplus in respect of the corporation;

        • (b) exempt deficit in respect of the corporation;

        • (c) taxable surplus in respect of the corporation;

        • (d) taxable deficit in respect of the corporation; or

        • (e) underlying foreign tax in respect of the corporation.

    • (v) subsection 5902(6) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

      • (6) The amount designated in an election deemed by subsection 93(1.1) of the Act to have been made under subsection 93(1) of the Act is prescribed to be the amount that is the lesser of

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

        • (b) the amount of attributed net surplus (as determined under paragraph (1)(f)) in respect of the share.

  • (b) in respect of acquisitions that occur after February 27, 2004 and before December 19, 2009, subsection 5905(1) of the Regulations is to be read as follows:

    • 5905. (1) If, at any time, other than in the course of a transaction to which subsection (2) or (5) applies, a corporation resident in Canada or a foreign affiliate of such a corporation acquires in any manner whatever shares of the capital stock of another corporation that was, immediately after that time, a foreign affiliate of the corporation (in this subsection referred to as the “acquired affiliate”) and as a result of that acquisition the surplus entitlement percentage of the corporation in respect of the acquired affiliate and in respect of any other foreign affiliate of the corporation resident in Canada (the acquired affiliate and each such other foreign affiliate each being referred to in this subsection as the “particular relevant foreign affiliate”), increases, the following rules apply:

      • (a) for the purposes of this Part, the amount of the exempt surplus or exempt deficit, the taxable surplus or taxable deficit, and the underlying foreign tax, in respect of the corporation, of the particular relevant foreign affiliate is (unless subsection (8) applies to the particular relevant foreign affiliate because of the acquisition of the shares) to be, at that time, adjusted to become the proportion of that amount, determined without making this adjustment, that

        • (i) the surplus entitlement percentage, immediately before that time, of the corporation in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year of the particular relevant foreign affiliate that otherwise would have included that time had ended immediately before that time

        is of

        • (ii) the surplus entitlement percentage, immediately after that time, of the corporation in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year of the particular relevant foreign affiliate that otherwise would have included that time had ended immediately after that time; and

      • (b) for the purposes of applying the definitions “exempt deficit”, “exempt surplus”, “taxable deficit”, “taxable surplus” and “underlying foreign tax” in subsection 5907(1), the adjusted amounts determined under paragraph (a) are deemed to be the opening exempt deficit, opening exempt surplus, opening taxable deficit, opening taxable surplus and opening underlying foreign tax, as the case may be, of the particular relevant foreign affiliate, in respect of the corporation.

  • (c) in respect of dispositions in respect of which a designated section 93 election was made,

    • (i) subsection 5905(2) of the Regulations is to be read as follows:

      • (2) If at any time (referred to in this subsection as the “disposition time”) a particular foreign affiliate of a corporation resident in Canada redeems, acquires or cancels (other than a redemption, an acquisition or a cancellation in respect of which an adjustment has previously been made under this subsection or subsection (1) as it read prior to November 13, 1981) in any manner whatever (otherwise than by way of a winding-up) one or more shares (referred to in this subsection and subsections (16) to (23) as “disposed shares”) of any class of its capital stock, the following rules apply:

        • (a) if, because of an election made by the corporation under subsection 93(1) of the Act in respect of the disposition of the disposed shares, a dividend (referred to in this subsection and subsections (18) and (21) as the “disposition dividend”) is deemed to have been received on the disposed shares, by the corporation or by another foreign affiliate of the corporation, for the purpose of the adjustment required by paragraph (b),

          • (i) in computing the exempt surplus, in respect of the corporation resident in Canada, of the particular foreign affiliate or of another foreign affiliate (the particular foreign affiliate and each such other foreign affiliate being referred to in this subsection and subsections (16) to (23) as the “particular relevant foreign affiliate”) of the corporation resident in Canada in which the particular foreign affiliate has an equity percentage at the time (referred to in this subsection and subsections (16) to (22) as the “balance adjustment time”) that is immediately before the disposition time, there is to be included, under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1), the total of

            • (A) the amount of the exempt surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

            • (B) the amount of the exempt deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

            • (C) the amount of the taxable deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

          • (ii) in computing the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1), the total of

            • (A) an amount equal to the taxable surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

            • (B) an amount equal to the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

            • (C) an amount equal to the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

          • (iii) in computing the particular relevant foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1), the total of

            • (A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for B in the formula is nil)

               A/B × C × D

              where

              A 
              is the portion of the particular relevant foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, that may reasonably be considered to have been included in computing the particular foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,
              B 
              is the particular foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,
              C 
              is the portion, of the particular foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition), that is prescribed, by paragraph 5900(1)(d), to be applicable to the portion of the whole dividend (as determined, under paragraph 5902(1)(g), in respect of the disposition dividend in respect of the disposed shares) paid on shares of the specified class that is prescribed, by paragraph 5900(1)(c), to have been paid out of the particular foreign affiliate’s consolidated taxable surplus, in respect of the corporation resident in Canada, and
              D 
              is the specified adjustment factor in respect of the particular relevant foreign affiliate, and
            • (B) the amount of the underlying foreign tax reduction in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares,

          • (iv) in computing the particular relevant foreign affiliate’s exempt deficit, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1), an amount equal to the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time, and

          • (v) in computing the particular relevant foreign affiliate’s taxable deficit, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iv.1) of the description of A in the definition “taxable surplus” in subsection 5907(1), an amount equal to the taxable deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time;

        • (b) the amount, at the balance adjustment time, of exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate is to be adjusted to become the proportion of that amount, determined without making this adjustment, that

          • (i) the surplus entitlement percentage, at the balance adjustment time, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included that time, had ended immediately before that time

          is of

          • (ii) the surplus entitlement percentage, immediately after the time of the disposition, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included the balance adjustment time, had ended at the time of the disposition; and

        • (c) for the purposes of applying the definitions “exempt deficit”, “exempt surplus”, “taxable deficit”, “taxable surplus” and “underlying foreign tax”, in subsection 5907(1), the amounts determined under paragraph (b), in respect of the particular relevant foreign affiliate, in respect of the corporation resident in Canada, are deemed to be the opening exempt deficit, opening exempt surplus, opening taxable deficit, opening taxable surplus and opening underlying foreign tax, as the case may be, of the particular relevant foreign affiliate, in respect of the corporation resident in Canada.

    • (ii) subsection 5905(4) of the Regulations is to be read as follows:

      • (4) For the purpose of subsection (3),

        • (a) if, at any time, a foreign affiliate of a corporation resident in Canada disposes of one or more shares (referred to in this subsection and subsections (16) to (23) as the “disposed shares”) of a class of the capital stock of a predecessor corporation and the foreign affiliate is, because of an election made under subsection 93(1) of the Act, deemed to have received a dividend (referred to in this subsection and subsections (18) and (21) as the “disposition dividend”) on the disposed shares, for the purposes of the adjustments required by paragraphs (b) and (3)(b),

          • (i) in computing the exempt surplus, in respect of the corporation resident in Canada, of each predecessor corporation and of each other foreign affiliate of the corporation resident in Canada in which a predecessor foreign affiliate has an equity percentage (the particular predecessor corporation and each such other foreign affiliate being referred to in this subsection and subsections (16) to (23) as the “particular relevant foreign affiliate”) at the time (referred to in this subsection and subsections (16) to (22) as the “balance adjustment time”) that is immediately before the foreign merger, there is to be included under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1), the total of

            • (A) an amount equal to the exempt surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

            • (B) an amount equal to the exempt deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

            • (C) an amount equal to the taxable deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

          • (ii) in computing the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1), the total of

            • (A) an amount equal to the taxable surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

            • (B) an amount equal to the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

            • (C) an amount equal to the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

          • (iii) in computing the particular relevant foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1), the total of

            • (A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for B in the formula is nil)

               A/B × C × D

              where

              A 
              is the portion of the amount of the particular relevant foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, of the particular predecessor corporation that issued the disposed shares, in respect of the disposition,
              B 
              is the amount of the consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, of the particular predecessor corporation that issued the disposed shares, in respect of the disposition,
              C 
              is the total of all amounts each of which is the amount, determined by paragraph 5900(1)(d), to be the amount of foreign tax applicable to the portion of the disposition dividend prescribed to have been paid out of the taxable surplus of the issuing foreign affiliate, that relates to a disposed share, in respect of the disposition, and
              D 
              is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate of the corporation resident in Canada, of the foreign affiliate of the corporation resident in Canada that disposed of the disposed shares, in respect of the disposition of the disposed shares, and
            • (B) the amount of the underlying foreign tax reduction in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares,

          • (iv) in computing the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included, under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1), an amount equal to the exempt deficit, in respect of the corporation resident in Canada, immediately before that time, of the particular relevant foreign affiliate, and

          • (v) in computing the particular relevant foreign affiliate’s taxable deficit, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iv.1) of the description of A in the definition “taxable surplus” in subsection 5907(1), an amount equal to the taxable deficit, in respect of the corporation resident in Canada, immediately before that time, of the particular relevant foreign affiliate; and

        • (b) the amount, at the balance adjustment time, of exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate is to be adjusted to become the proportion of that amount, determined without making that adjustment, that

          • (i) the surplus entitlement percentage, at the balance adjustment time, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate that otherwise would have included that time, had ended immediately before that time

          is of

          • (ii) the surplus entitlement percentage, immediately after the time of the disposition, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included the balance adjustment time, had ended at the time of the disposition.

    • (iii) the portion of subsection 5905(5) of the Regulations between paragraphs (c) and (d) is to be read as follows:

      the following rules apply for the purposes of this Part in respect of the particular affiliate and each other foreign affiliate of the predecessor corporation in which the particular affiliate has an equity percentage (the particular affiliate and each such other foreign affiliate each being referred to in subsections (16) to (23) as the “particular relevant foreign affiliate”):

    • (iv) subsection 5905(6) of the Regulations is to be read as follows:

      • (6) For the purpose of subsection (5), the following rules apply:

        • (a) if paragraph (5)(a) applies and the predecessor corporation is, because of an election made under subsection 93(1) of the Act, deemed to have received a dividend (referred to in this subsection and subsections (18) and (21) as the “disposition dividend”) on one or more of the shares (each of which is referred to in this subsection and subsections (16) to (23) as a “disposed share”) of the particular foreign affiliate (referred to in this subsection as the “issuing foreign affiliate”) disposed of, at that time, for the purpose of the adjustment required by paragraph (b),

          • (i) in computing the exempt surplus, in respect of the predecessor corporation, of a particular relevant foreign affiliate at the time (referred to in this subsection and subsections (16) to (22) as the “balance adjustment time”) that is immediately before the disposition time, the following rules apply:

            • (A) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and the issuing foreign affiliate has, at that time, an amount of consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed share that is equal to or greater than the amount of its consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, there is to be included under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) the amount determined by the formula

              A/B × C/D

              where

              A 
              is the portion of the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the predecessor corporation, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,
              B 
              is the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,
              C 
              is the portion, of the disposition dividend that is, because of an election made under subsection 93(1) of the Act in respect of the disposition of the disposed shares, deemed to be received on the disposed shares by the person that disposed of the disposed shares, that is prescribed by paragraph 5900(1)(a) to have been paid out of the issuing foreign affiliate’s exempt surplus, in respect of the predecessor corporation, and
              D 
              is the surplus entitlement percentage of the predecessor corporation in respect of the particular relevant foreign affiliate at the balance adjustment time, determined on the assumption that the disposed shares were the only shares owned by the predecessor corporation at that time,
            • (B) if the amount determined, in respect of the particular relevant foreign affiliate, for either B or D in the formula in clause (A) is nil, the amount determined, in respect of the particular relevant foreign affiliate, by that formula is deemed to be nil,

            • (C) there is to be included under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time if

              • (I) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and

              • (II) the issuing foreign affiliate has, at that time, an amount of consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed share that is equal to or greater than the amount of its consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

            • (D) there is to be included under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) an amount equal to the particular relevant foreign affiliate’s taxable deficit allocation in respect of the disposed shares,

          • (ii) in computing the taxable surplus, in respect of a predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, the following rules apply:

            • (A) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada, and the issuing foreign affiliate has, at that time, an amount of consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition that is equal to or greater than the amount of the issuing foreign affiliate’s consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, there is to be included under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1) the amount determined by the formula

              A/B × C/D

              where

              A 
              is the portion of the amount of the particular relevant foreign affiliate’s taxable surplus, in respect of the predecessor corporation, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,
              B 
              is the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,
              C 
              is the portion, of the disposition dividend that is, because of an election made under subsection 93(1) of the Act in respect of the disposition of the disposed shares, deemed to be received on the disposed shares by the person that disposed of the disposed shares, that is prescribed by paragraph 5900(1)(b) to have been paid out of the issuing foreign affiliate’s taxable surplus, in respect of the predecessor corporation, and
              D 
              is the surplus entitlement percentage of the predecessor corporation in respect of the particular relevant foreign affiliate at the balance adjustment time, determined on the assumption that the disposed shares were the only shares owned by the predecessor corporation at that time,
            • (B) if the amount determined, in respect of the particular relevant foreign affiliate for either B or D in the formula in clause (A) is nil, the amount determined, in respect of the particular relevant foreign affiliate, by that formula is deemed to be nil,

            • (C) there is to be included, under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1), the amount of particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, if

              • (I) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada, and

              • (II) the issuing foreign affiliate has, at that time, an amount of consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition that is equal to or greater than the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

            • (D) there is to be included in subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1) an amount equal to the particular relevant foreign affiliate’s exempt deficit allocation in respect of the disposed shares,

          • (iii) in computing the underlying foreign tax, in respect of the predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1) the total of

            • (A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for either B or D in the formula is nil)

              A/B × C/D

              where

              A 
              is the portion of the amount of the particular relevant foreign affiliate’s underlying foreign tax, in respect of the predecessor corporation, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition,
              B 
              is the amount of the issuing foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition,
              C 
              is the total of all amounts each of which is the amount, determined by paragraph 5900(1)(d), to be the amount of foreign tax applicable to the portion of the disposition dividend prescribed to have been paid out of the taxable surplus of the issuing foreign affiliate, that relates to a disposed share, in respect of the disposition, and
              D 
              is the surplus entitlement percentage of the predecessor corporation in respect of the particular relevant foreign affiliate at the balance adjustment time, determined on the assumption that the disposed shares were the only shares owned by the predecessor corporation at that time, and
            • (B) the amount determined by the formula

               A × (B + C)/D

              where

              A 
              is the underlying foreign tax, in respect of the particular predecessor corporation, at the balance adjustment time, of the particular relevant foreign affiliate in respect of the disposition of the disposed shares,
              B 
              is the amount determined under clause (ii)(C) in respect of the particular relevant foreign affiliate, in respect of the predecessor corporation, in respect of the disposition of the disposed shares,
              C 
              is the exempt deficit allocation, in respect of the predecessor corporation, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares, and
              D 
              is the taxable surplus in respect of the predecessor corporation, at the balance adjustment time, of the particular relevant foreign affiliate,
          • (iv) in computing the exempt deficit, in respect of the predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1) an amount equal to the exempt deficit, in respect of the predecessor corporation, of the particular relevant foreign affiliate, immediately before that time, and

          • (v) in computing the taxable deficit, in respect of the predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iv.1) of the description of A in the definition “taxable surplus” in subsection 5907(1) an amount equal to the taxable deficit, in respect of the predecessor corporation, of the particular relevant foreign affiliate, immediately before that time; and

        • (b) the exempt surplus or the exempt deficit, the taxable surplus or the taxable deficit and the underlying foreign tax in respect of a predecessor corporation (within the meaning assigned by subsection (5)) and in respect of the acquiring corporation (within the meaning assigned by subsection (5)) of a particular relevant foreign affiliate is, at the balance adjustment time, to be adjusted to become the proportion of the amount of the surplus, deficit or underlying foreign tax determined without reference to this paragraph that

          • (i) the surplus entitlement percentage, immediately before the time of the latest of the transactions referred to in paragraphs (5)(a), (b) and (c), of the predecessor corporation or the acquiring corporation, as the case may be, in respect of the particular relevant foreign affiliate, determined on the assumptions

            • (A) that the taxation year of the particular relevant foreign affiliate that otherwise would have included the balance adjustment time had ended immediately before that time, and

            • (B) if the transaction is a disposition referred to in paragraph (5)(a), that the shares referred to in that paragraph were the only shares owned by the predecessor corporation at the balance adjustment time

          is of

          • (ii) the surplus entitlement percentage, immediately after the time of the latest of the transactions referred to in paragraphs (5)(a), (b) and (c), of the predecessor corporation or the acquiring corporation, as the case may be, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year of the particular relevant foreign affiliate that otherwise would have included that time had ended immediately after that time.

    • (v) subsection 5905(8) of the Regulations is to be read as follows:

      • (8) If, at any time, a dividend (referred to in this subsection and subsections (18) and (21) as the “disposition dividend”) is, because of an election made by a corporation resident in Canada under subsection 93(1) of the Act, deemed to have been received on one or more shares (each of which is referred to in this subsection and subsections (16) to (23) as a “disposed share”) of a class of the capital stock of a particular foreign affiliate (referred to in this subsection as the “issuing foreign affiliate”) of the corporation resident in Canada that were disposed (which disposition is referred in this subsection and subsections (16) to (23) as the “disposition”) to the corporation resident in Canada or to another corporation that was, immediately after the disposition, a foreign affiliate of the corporation resident in Canada, the following rules apply:

        • (a) for the purpose of the adjustment required by paragraph (b),

          • (i) in computing the exempt surplus, in respect of the corporation resident in Canada, of the issuing foreign affiliate or another foreign affiliate of the corporation resident in Canada in which the issuing foreign affiliate has an equity percentage (the issuing foreign affiliate and each such other foreign affiliate each being referred to in this subsection and subsections (16) to (23) as the “particular relevant foreign affiliate”) at the time (referred to in this subsection and subsections (16) to (22) as the “balance adjustment time”) that is immediately before the time of the disposition, there is to be included under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1), the total of

            • (A) an amount equal to the exempt surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

            • (B) an amount equal to the exempt deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

            • (C) an amount equal to the taxable deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

          • (ii) in computing the taxable surplus, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1) the total of

            • (A) an amount equal to the taxable surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

            • (B) an amount equal to the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

            • (C) an amount equal to the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

          • (iii) in computing the underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1) the total of

            • (A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for B in the formula is nil)

               A/B × C × D

              where

              A 
              is the portion of the amount of the particular relevant foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,
              B 
              is the amount of the issuing foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,
              C 
              is the total of all amounts each of which is the amount, determined by paragraph 5900(1)(d), to be the amount of foreign tax applicable to the portion of the disposition dividend prescribed to have been paid out of the taxable surplus of the issuing foreign affiliate, that relates to a disposed share, in respect of the disposition, and
              D 
              is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate of the corporation resident in Canada, of the foreign affiliate of the corporation resident in Canada that disposed of the disposed shares, in respect of the disposition of the disposed shares, and
            • (B) the amount of the underlying foreign tax reduction in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares,

          • (iv) in computing the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1), an amount equal to the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time, and

          • (v) in computing the taxable deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iv.1) of the description of A in the definition “taxable surplus” in subsection 5907(1), an amount equal to the taxable deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time;

        • (b) the amount, at the balance adjustment time, of exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate is to be adjusted to become the proportion of that amount, determined without making this adjustment, that

          • (i) the surplus entitlement percentage, at the balance adjustment time, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate that otherwise would have included that time, had ended immediately before that time

          is of

          • (ii) the surplus entitlement percentage, immediately after the time of the disposition, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included the balance adjustment time, had ended at the time of the disposition; and

        • (c) for the purposes of applying the definitions “exempt deficit”, “exempt surplus”, “taxable deficit”, “taxable surplus” and “underlying foreign tax”, in subsection 5907(1), the amounts determined under paragraph (b) are deemed to be the opening exempt deficit, opening exempt surplus, opening taxable deficit, opening taxable surplus, and opening underlying foreign tax, as the case may be, of the particular relevant foreign affiliate, in respect of the corporation resident in Canada.

    • (vi) section 5905 of the Regulations is to be read as if it also contained the following subsections:

      • (16) The exempt deficit allocation, of a particular relevant foreign affiliate in respect of a corporation resident in Canada, in respect of disposed shares of the particular foreign affiliate of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the “issuing foreign affiliate”) is, if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada and the issuing foreign affiliate has, at that time, an amount of consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of its consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

        • (a) the amount determined by the formula

          1/E × [(A – B) × C/D]

          where

          A 
          is the amount of the issuing foreign affiliate’s consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
          B 
          is the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
          C 
          is the portion of the amount of the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, immediately before the disposition of the disposed shares, that can reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
          D 
          is the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and
          E 
          is
          • (i) subject to subparagraph (ii), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that would be determined under subsections 5905(10) to (13) at the balance adjustment time if the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

          • (ii) if the particular relevant foreign affiliate is the issuing foreign affiliate, 1; and

        • (b) if the amount determined, in respect of the particular relevant foreign affiliate, for the description of D or E in the formula in paragraph (a) is nil, nil.

      • (17) The exempt deficit reduction, in respect of a corporation resident in Canada, of a particular relevant foreign affiliate of the corporation resident in Canada, in respect of disposed shares, is

        • (a) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the “issuing foreign affiliate”) has, at the balance adjustment time, consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of its consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

          • (i) the amount determined by the formula

            A/B × C/D

            where

            A 
            is the portion of the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
            B 
            is the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
            C 
            is the amount of the issuing foreign affiliate’s consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and
            D 
            is
            • (A) subject to clause (B), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that, under subsections 5905(10) to (13), would be determined, at the balance adjustment time, where the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

            • (B) where the particular relevant foreign affiliate is the issuing foreign affiliate, 1, and

          • (ii) if the value determined, in respect of the particular relevant foreign affiliate, for the description of any of A, B or D in the formula in subparagraph (i) is nil, nil; and

        • (b) the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time, if

          • (i) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and

          • (ii) the issuing foreign affiliate has, at that time, an amount of consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares that is equal to or greater than the amount of its consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares.

      • (18) The exempt surplus reduction in respect of a corporation resident in Canada, of a particular relevant foreign affiliate in respect of disposed shares is

        • (a) the amount determined by the formula

           A/B × C × D

          where

          A 
          is the portion of the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the consolidated exempt surplus, in respect of the corporation resident in Canada, (as determined under paragraph 5902(1)(a)) of the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (referred to in this subsection as the “issuing foreign affiliate”), in respect of the disposition of the disposed shares,
          B 
          is the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
          C 
          is the portion of the disposition dividend that is, because of an election made under subsection 93(1) of the Act in respect of the disposition of the disposed shares, received on the disposed shares by the person that disposed of those shares and that is prescribed by paragraph 5900(1)(a) to have been paid out of the issuing foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, and
          D 
          is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, of the person that disposed of the disposed shares;
        • (b) if the amount determined, in respect of the particular relevant foreign affiliate, for either of A or B, in the formula in paragraph (a) is nil, nil; and

        • (c) if an amount is determined, in respect of the particular relevant foreign affiliate, under paragraph (17)(b), nil.

      • (19) The taxable deficit allocation, of a particular relevant foreign affiliate of a corporation resident in Canada, in respect of disposed shares of the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the “issuing foreign affiliate”) is, if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus in respect of the corporation resident in Canada and the issuing foreign affiliate has, at that time, an amount of consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

        • (a) the amount determined by the formula

          1/E × [(A – B) × C/D]

          where

          A 
          is the amount of the issuing foreign affiliate’s consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
          B 
          is the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
          C 
          is the portion of the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, immediately before the disposition of the disposed shares, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
          D 
          is the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and
          E 
          is
          • (i) subject to subparagraph (ii), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that would be determined under subsections 5905(10) to (13) at the balance adjustment time, where the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

          • (ii) where the particular relevant foreign affiliate is the issuing foreign affiliate, 1; and

        • (b) where the amount determined, in respect of the particular relevant foreign affiliate, for the description of D or E in the formula in paragraph (a) is nil, nil.

      • (20) The taxable deficit reduction, in respect of a corporation resident in Canada, of a particular relevant foreign affiliate of the corporation resident in Canada, in respect of disposed shares, is

        • (a) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus, in respect of the corporation resident in Canada, and the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the “issuing foreign affiliate”) has, at the balance adjustment time, consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of the issuing foreign affiliate’s consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

          • (i) the amount determined by the formula

            A/B × C/D

            where

            A 
            is the portion of the amount of the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
            B 
            is the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
            C 
            is the amount of the issuing foreign affiliate’s consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and
            D 
            is
            • (A) subject to clause (B), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that would be determined under subsections 5905(10) to (13) at the balance adjustment time where the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

            • (B) where the particular relevant foreign affiliate is the issuing foreign affiliate, 1, and

          • (ii) where the amount determined, in respect of the particular relevant foreign affiliate, for the description of A, B or D in the formula in subparagraph (i) is nil, nil; and

        • (b) the amount of the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, if

          • (i) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada, and

          • (ii) the issuing foreign affiliate has, at that time, an amount of consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition that is equal to or greater than the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares.

      • (21) The taxable surplus reduction, in respect of a corporation resident in Canada, of a particular relevant foreign affiliate, in respect of disposed shares, is

        • (a) the amount determined by the formula

          A/B × C × D

          where

          A 
          is the portion of the amount of the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, of the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the “issuing foreign affiliate”),
          B 
          is the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,
          C 
          is the portion, of the disposition dividend that is, because of an election made under subsection 93(1) of the Act, in respect of the disposition of the disposed shares, received on the disposed shares by the person that disposed of those shares and that is prescribed by paragraph 5900(1)(b) to have been paid out of the issuing foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, and
          D 
          is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, of the person that disposed of the disposed shares;
        • (b) if the amount determined, in respect of the particular relevant foreign affiliate, for the description of A or B in the formula in paragraph (a) is nil, nil; and

        • (c) if an amount is determined, in respect of the particular relevant foreign affiliate, under paragraph (20)(b), nil.

      • (22) The underlying foreign tax reduction in respect of the corporation resident in Canada, of a particular relevant foreign affiliate of the corporation resident in Canada, in respect of the disposition of the disposed shares, is the amount determined by the following formula:

         A × (B + C)/D

        where

        A 
        is the underlying foreign tax in respect of the corporation resident in Canada, at the balance adjustment time, of the particular relevant foreign affiliate;
        B 
        is the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate of the corporation resident in Canada, in respect of the disposition of the disposed shares;
        C 
        is the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate of the corporation resident in Canada, in respect of the disposition of the disposed shares; and
        D 
        is the taxable surplus in respect of the corporation resident in Canada of the particular relevant foreign affiliate, at the balance adjustment time.
      • (23) The specified adjustment factor, in respect of a corporation resident in Canada, in respect of a particular relevant foreign affiliate of the corporation resident in Canada, of the person that disposed of disposed shares, in respect of the disposition of the disposed shares, is the amount determined by the formula

        A/B

        where

        A 
        is
        • (a) where the corporation resident in Canada disposed of the disposed shares, 100 per cent, and

        • (b) where another foreign affiliate of the corporation resident in Canada disposed of the disposed shares, the surplus entitlement percentage of the corporation resident in Canada in respect of that other foreign affiliate, immediately before the disposition of the disposed shares; and

        B 
        is the surplus entitlement percentage of the corporation resident in Canada in respect of the particular relevant foreign affiliate, immediately before the disposition of the disposed shares.
  • (d) if there is a designated section 93 election,

    • (i) the Regulations are, in respect of the designated shares, to be read as if they also contained the following section:

      • 5905.1 (1) The amount prescribed for the purpose of paragraph 92(1.4)(a) of the Act, in respect of a relevant share referred to in that paragraph, in respect of a specified section 93 election related to the relevant share, is the lesser of

        • (a) the amount, if any, by which the fair market value of the relevant share, at the election time, exceeds the adjusted cost base, at the time of the disposition, of the relevant share to the holder, and

        • (b) the amount determined by the following formula:

          A/C × (C – B)

          where

          A 
          is the amount that would, if the relevant share was the disposed share and the relevant affiliate was the disposed affiliate in respect of the specified section 93 election, be determined under paragraph 5902(1)(f) to be the attributed net surplus in respect of the relevant share in respect of the specified section 93 election,
          B 
          is the amount that would be determined under subparagraph 5902(1)(e)(vi) to be the consolidated net surplus in respect of the relevant affiliate, if
          • (i) the relevant foreign affiliate was the disposed affiliate referred to in subsection 5902(1),

          • (ii) the relevant share was the disposed share referred to in subsection 5902(1) that was disposed of, immediately following the disposition of the disposed shares to which the specified section 93 election applied, and

          • (iii) before that determination, in respect of the relevant foreign affiliate and each foreign affiliate of the particular corporation resident in Canada in which the relevant foreign affiliate had an equity percentage, the adjustments that are required by section 5905 to be made, in respect of the whole dividend referred to in paragraph 5902(1)(g) in respect of the specified section 93 election were made, and

          C 
          is the amount that would be determined under subparagraph 5902(1)(e)(vi) to be the consolidated net surplus in respect of the relevant affiliate in respect of the specified section 93 election, if the relevant foreign affiliate was the disposed foreign affiliate referred to in subsection 5902(1) and the relevant share was the disposed share referred to in subsection 5902(1).
      • (2) The amount prescribed for the purpose of paragraph 92(1.4)(b) of the Act, in respect of a relevant share referred to in that paragraph, in respect of a relevant specified section 93 election related to the relevant share, is the lesser of

        • (a) the amount, if any, by which the adjusted cost base, at the time of the disposition, of the relevant share to the holder exceeds the fair market value of the relevant share, at the election time, and

        • (b) the amount determined by the following formula:

           A/C × (C – B)

          where

          A 
          is the amount that would be determined to be the attributed net surplus in respect of the relevant share under paragraph 5902(1)(f) in respect of the specified section 93 election, if
          • (i) the relevant share was the disposed share, and the relevant foreign affiliate was the disposed foreign affiliate, in respect of the specified section 93 election, and

          • (ii) the consolidated net surplus in respect of the relevant foreign affiliate was the amount, if any, determined, in respect of the relevant foreign affiliate, under the description of C,

          B 
          is the amount, if any, by which the total that would be determined under clause 5902(1)(e)(vi)(B) exceeds the total that would be determined under clause 5902(1)(e)(vi)(A), in respect of the relevant foreign affiliate, if
          • (i) the relevant foreign affiliate was the disposed affiliate referred to in subsection 5902(1),

          • (ii) the relevant share was the disposed share referred to in subsection 5902(1) that was disposed of immediately following the disposition of the disposed shares to which the specified section 93 election applied, and

          • (iii) before that determination, in respect of the relevant foreign affiliate and each foreign affiliate of the particular corporation resident in Canada in which the relevant foreign affiliate had an equity percentage, the adjustments that are required by section 5905 to be made, in respect of the whole dividend referred to in paragraph 5902(1)(g) in respect of the specified section 93 election, were made, and

          C 
          is the amount, if any, by which the total that would be determined under clause 5902(1)(e)(vi)(B) exceeds the total that would be determined under clause 5902(1)(e)(vi)(A), in respect of the relevant affiliate in respect of the specified section 93 election, if the relevant foreign affiliate was the disposed foreign affiliate referred to in subsection 5902(1) and the relevant share was the disposed share referred to in subsection 5902(1).
      • (3) If the amount determined in each of the formulae in paragraphs (1)(b) and (2)(b) in respect of the relevant share referred to in paragraph 92(1.4)(a) of the Act is nil, the amount determined for B in the formula in paragraph (1)(b) in respect of the relevant affiliate is greater than nil and the amount determined for C in the formula in paragraph (2)(b) in respect of the relevant affiliate is greater than nil, the amount prescribed for the purpose of paragraph 92(1.4)(a) of the Act, in respect of the relevant share referred to in that paragraph, in respect of a specified section 93 election related to the relevant share, is the lesser of

        • (a) the amount, if any, by which the fair market value of the relevant share, at the election time, exceeds the adjusted cost base, at the time of the disposition, of the relevant share to the holder, and

        • (b) the amount that would, if the relevant share was the disposed share and the relevant affiliate was the disposed affiliate in respect of the specified section 93 election, be determined under paragraph 5902(1)(f) to be the attributed net surplus in respect of the relevant share if the consolidated net surplus of the relevant foreign affiliate were the amount determined for B in the formula in paragraph (1)(b).

    • (ii) paragraph (b) of the definition “whole dividend” in subsection 5907(1) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

      • (b) where a whole dividend is deemed by paragraph 5902(1)(g) to have been paid at the same time on shares of more than one class of the capital stock of an affiliate, for the purpose only of that paragraph, the whole dividend deemed to have been paid at that time on the shares of a class of the capital stock of the affiliate is deemed to be the total of all amounts each of which is a whole dividend deemed to have been paid at that time on the shares of a class of the capital stock of the affiliate, and

    • (iii) paragraph 5908(8)(c) of the Regulations, as enacted by subsection 47(1), is, in respect of the designated section 93 election, to be read as follows:

      • (c) the prescribed amount for the purposes of subparagraph 93(1.2)(a)(ii) of the Act is the lesser of

        • (i) the taxable capital gain, if any, of the particular affiliate otherwise determined in respect of the disposition, and

        • (ii) the amount that is one-half of the amount referred to in paragraph 5902(6)(b).

  •  (1) Subsection (2) applies if

    • (a) a corporation has made an election under section 51;

    • (b) the corporation has made an election under subsection 93(1) or (1.2) of the Income Tax Act in respect of a disposition of a share of the capital stock of a foreign affiliate of the corporation that occurs after December 20, 2002 and on or before February 27, 2004 (other than a disposition required to be made under an agreement in writing made by a vendor on or before December 20, 2002), or in respect of a disposition that occurs after February 27, 2004 and that is required to be made under an agreement in writing made by a vendor after December 20, 2002 and before February 28, 2004; and

    • (c) the corporation elects in writing under this paragraph to apply subsection (2) in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the corporation’s filing-due date for the corporation’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent.

  • (2) If this subsection applies, section 51 does not apply in respect of dispositions referred to in paragraph (1)(b) and the Regulations are, in respect of the dispositions, to be read as if section 5902 of the Regulations also contained the following subsection:

    • (6.1) If an election under subsection 93(1) of the Act is made at any time by a particular corporation resident in Canada in respect of a share of the capital stock of a foreign affiliate (in this subsection referred to as the “particular affiliate”) of the particular corporation that is disposed of to the particular corporation, to another corporation resident in Canada with which the particular corporation does not deal at arm’s length or to another foreign affiliate of the particular corporation, the amount of the particular affiliate’s exempt surplus or exempt deficit, taxable surplus or taxable deficit, underlying foreign tax and net surplus in respect of the particular corporation at that time is to be determined under paragraph (1)(a) as if the amount of any dividend referred to in subparagraph (1)(a)(i) or (ii) were nil.

Assessments

 Any assessment of a taxpayer’s tax, interest and penalties payable under the Income Tax Act for any taxation year that ends before the day on which this Act receives royal assent that would, in the absence of this section, be precluded because of subsections 152(4) to (5) of the Income Tax Act is to be made to the extent necessary to take into account any of the following:

  • (a) sections 50 to 52 or any provision of section 46 in respect of which section 50 applies to the taxpayer; or

  • (b) any provision of sections 29 to 38 and 40 to 49 (other than a provision of section 46 that is described under paragraph (a)), if the taxpayer

    • (i) elects in writing in respect of all of its foreign affiliates that this section apply in respect of that provision, and

    • (ii) files that election with the Minister of National Revenue on or before the day that is six months after the day on which this Act receives royal assent.

PART 3AMENDMENTS IN RESPECT OF FOREIGN AFFILIATES: REORGANIZATIONS AND DISTRIBUTIONS AND OTHER TECHNICAL AMENDMENTS

R.S., c. 1 (5th Supp.)Income Tax Act

  •  (1) Paragraph 13(21.2)(a) of the Income Tax Act is replaced by the following:

    • (a) a person or partnership (in this subsection referred to as the “transferor”) disposes at a particular time (otherwise than in a disposition described in any of paragraphs (c) to (g) of the definition “superficial loss” in section 54) of a depreciable property — other than, for the purposes of computing the exempt surplus or exempt deficit and taxable surplus or taxable deficit of a foreign affiliate of a taxpayer, in respect of the taxpayer, where the transferor is the affiliate or is a partnership of which the affiliate is a member, depreciable property that is, or would be, if the transferor were a foreign affiliate of the taxpayer, excluded property (within the meaning assigned by subsection 95(1)) of the transferor — of a particular prescribed class of the transferor,

  • (2) Clause 13(21.2)(e)(iii)(E) of the Act is replaced by the following:

    • (E) if the transferor is a corporation,

      • (I) for the purposes of computing the transferor’s foreign accrual property income, exempt surplus or exempt deficit, and taxable surplus or taxable deficit, in respect of a taxpayer for a taxation year of the transferor where the transferor is a foreign affiliate of the taxpayer, at which the liquidation and dissolution of the transferor begins, unless the liquidation and dissolution is

        1. a qualifying liquidation and dissolution (within the meaning assigned by subsection 88(3.1)) of the transferor, or

        2. a designated liquidation and dissolution (within the meaning assigned by subsection 95(1)) of the transferor, and

      • (II) for any other purposes, at which the winding-up (other than a winding-up to which subsection 88(1) applies) of the transferor begins, and

  • (3) Subsection (1) applies to dispositions that occur after August 19, 2011.

  • (4) Subsection (2) applies to windings-up and liquidations and dissolutions that begin after August 19, 2011.

  •  (1) Paragraph 14(12)(a) of the Act is replaced by the following:

    • (a) a corporation, trust or partnership (in this subsection referred to as the “transferor”) disposes at any time in a taxation year of a particular eligible capital property — other than, for the purposes of computing the exempt surplus or exempt deficit and taxable surplus or taxable deficit of a foreign affiliate of a taxpayer, in respect of the taxpayer, where the transferor is the affiliate or is a partnership of which the affiliate is a member, eligible capital property that is, or would be, if the transferor were a foreign affiliate of the taxpayer, excluded property (within the meaning assigned by subsection 95(1)) of the transferor — in respect of a business of the transferor in respect of which it would, but for this subsection, be permitted a deduction under paragraph 24(1)(a) as a consequence of the disposition, and

  • (2) Paragraph 14(12)(g) of the Act is replaced by the following:

    • (g) if the transferor is a corporation,

      • (i) for the purposes of computing the transferor’s foreign accrual property income, exempt surplus or exempt deficit, and taxable surplus or taxable deficit, in respect of a taxpayer for a taxation year of the transferor where the transferor is a foreign affiliate of the taxpayer, at which the liquidation and dissolution of the transferor begins, unless the liquidation and dissolution is

        • (A) a qualifying liquidation and dissolution (within the meaning assigned by subsection 88(3.1)) of the transferor, or

        • (B) a designated liquidation and dissolution (within the meaning assigned by subsection 95(1)) of the transferor, and

      • (ii) for any other purposes, at which the winding-up (other than a winding-up to which subsection 88(1) applies) of the transferor begins.

  • (3) Subsection (1) applies to dispositions that occur after August 19, 2011.

  • (4) Subsection (2) applies to windings-up and liquidations and dissolutions that begin after August 19, 2011.

  •  (1) Paragraph 18(13)(a) of the Act is replaced by the following:

    • (a) a taxpayer (in this subsection and subsection (15) referred to as the “transferor”) disposes of a particular property (other than, for the purposes of computing the exempt surplus or exempt deficit and taxable surplus or taxable deficit of a foreign affiliate of a taxpayer, in respect of the taxpayer, where the transferor is the affiliate or is a partnership of which the affiliate is a member, property that is, or would be, if the transferor were a foreign affiliate of the taxpayer, excluded property (within the meaning assigned by subsection 95(1)) of the transferor);

  • (2) Subparagraph 18(15)(b)(iv) of the Act is replaced by the following:

    • (iv) if the transferor is a corporation,

      • (A) for the purposes of computing the transferor’s foreign accrual property income, exempt surplus or exempt deficit, and taxable surplus or taxable deficit, in respect of a taxpayer for a taxation year of the transferor where the transferor is a foreign affiliate of the taxpayer, at which the liquidation and dissolution of the transferor begins, unless the liquidation and dissolution is

        • (I) a qualifying liquidation and dissolution (within the meaning assigned by subsection 88(3.1)) of the transferor, or

        • (II) a designated liquidation and dissolution (within the meaning assigned by subsection 95(1)) of the transferor, and

      • (B) for any other purposes, at which the winding-up (other than a winding-up to which subsection 88(1) applies) of the transferor begins, and

  • (3) Subsection (1) applies to dispositions that occur after August 19, 2011.

  • (4) Subsection (2) applies to windings-up and liquidations and dissolutions that begin after August 19, 2011.

  •  (1) Subsection 20(13) of the Act is replaced by the following:

    • Marginal note:Deductions under subdivision i

      (13) In computing the income for a taxation year of a taxpayer resident in Canada, there may be deducted such amounts as are provided by subdivision i.

  • (2) Subsection (1) applies to taxation years that end after 1994.

  •  (1) Paragraph 34.2(8)(b) of the Act is replaced by the following:

    • (b) except to the extent that the context otherwise requires, the exempt surplus or exempt deficit, the hybrid surplus or hybrid deficit, and the taxable surplus or taxable deficit (as those terms are defined in subsection 5907(1) of the Income Tax Regulations) of the affiliate in respect of the corporation.

  • (2) Subsection (1) applies to taxation years that end after August 19, 2011.

  •  (1) Subsection 39(2) of the Act is replaced by the following:

    • Marginal note:Foreign currency dispositions by an individual

      (1.1) If, because of any fluctuation after 1971 in the value of one or more currencies other than Canadian currency relative to Canadian currency, an individual (other than a trust) has made one or more particular gains or sustained one or more particular losses in a taxation year from dispositions of currency other than Canadian currency and the particular gains or losses would, in the absence of this subsection, be capital gains or losses described under subsection (1)

      • (a) subsection (1) does not apply to any of the particular gains or losses;

      • (b) the amount determined by the following formula is deemed to be a capital gain of the individual for the year from the disposition of currency other than Canadian currency:

         A – (B + C)

        where

        A 
        is the total of all the particular gains made by the individual in the year,
        B 
        is the total of all the particular losses sustained by the individual in the year, and
        C 
        is $200; and
      • (c) the amount determined by the following formula is deemed to be a capital loss of the individual for the year from the disposition of currency other than Canadian currency:

         D – (E + F)

        where

        D 
        is the total of all the particular losses sustained by the individual in the year,
        E 
        is the total of all the particular gains made by the individual in the year, and
        F 
        is $200.
    • Marginal note:Foreign exchange capital gains and losses

      (2) If, because of any fluctuation after 1971 in the value of a currency other than Canadian currency relative to Canadian currency, a taxpayer has made a gain or sustained a loss in a taxation year (other than a gain or loss that would, in the absence of this subsection, be a capital gain or capital loss to which subsection (1) or (1.1) applies, or a gain or loss in respect of a transaction or event in respect of shares of the capital stock of the taxpayer)

      • (a) the amount of the gain (to the extent of the amount of that gain that would not, if section 3 were read in the manner described in paragraph (1)(a), be included in computing the taxpayer’s income for the year or any other taxation year), if any, is deemed to be a capital gain of the taxpayer for the year from the disposition of currency other than Canadian currency; and

      • (b) the amount of the loss (to the extent of the amount of that loss that would not, if section 3 were read in the manner described in paragraph (1)(a), be deductible in computing the taxpayer’s income for the year or any other taxation year), if any, is deemed to be a capital loss of the taxpayer for the year from the disposition of currency other than Canadian currency.

    • Marginal note:Upstream loans — transitional set-off

      (2.1) If at any time a corporation resident in Canada or a partnership of which such a corporation is a member (such corporation or partnership referred to in this subsection as the “borrowing party”) has received a loan from, or become indebted to, a creditor that is a foreign affiliate (referred to in this subsection as a “creditor affiliate”) of the borrowing party or that is a partnership (referred to in this subsection as a “creditor partnership”) of which such an affiliate is a member, the loan or indebtedness is at a later time repaid, in whole or in part, and the amount of the borrowing party’s capital gain or capital loss determined, in the absence of this subsection, under subsection (2) in respect of the repayment is equal to the amount of the creditor affiliate’s or creditor partnership’s capital loss or capital gain, as the case may be, determined, in the absence of paragraph 95(2)(g.04), in respect of the repayment, then the borrowing party’s capital gain or capital loss so determined is to be reduced

      • (a) in the case of a capital gain

        • (i) if the creditor is a creditor affiliate, by an amount, not exceeding that capital gain, that is equal to twice the amount that would — in the absence of paragraph 95(2)(g.04) and on the assumption that the creditor affiliate’s capital loss in respect of the repayment of the loan or indebtedness were a capital gain of the creditor affiliate, the creditor affiliate had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of the borrowing party had any income, loss, capital gain or capital loss for any taxation year — be included in computing the borrowing party’s income under subsection 91(1) for its taxation year that includes the last day of the taxation year of the creditor affiliate that includes the later time, or

        • (ii) if the creditor is a creditor partnership, by an amount, not exceeding that capital gain, that is equal to twice the amount that is the total of each amount, determined in respect of a particular member of the creditor partnership that is a foreign affiliate of the borrowing party, that would — in the absence of paragraph 95(2)(g.04) and on the assumption that the creditor partnership’s capital loss in respect of the repayment of the loan or indebtedness were a capital gain of the creditor partnership, the particular member had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of the borrowing party had any income, loss, capital gain or capital loss for any taxation year — be included in computing the borrowing party’s income under subsection 91(1) for its taxation year that includes the last day of the taxation year of the particular member that includes the last day of the creditor partnership’s fiscal period that includes the later time, and

      • (b) in the case of a capital loss

        • (i) if the creditor is a creditor affiliate, by an amount, not exceeding that capital loss, that is equal to twice the amount, in respect of the creditor affiliate’s capital gain in respect of the repayment of the loan or indebtedness, that would — in the absence of paragraph 95(2)(g.04) and on the assumption that the creditor affiliate had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of the borrowing party had any income, loss, capital gain or capital loss for any taxation year — be included in computing the borrowing party’s income under subsection 91(1) for its taxation year that includes the last day of the taxation year of the creditor affiliate that includes the later time, or

        • (ii) if the creditor is a creditor partnership, by an amount, not exceeding that capital loss, that is equal to twice the amount, in respect of the creditor partnership’s capital gain in respect of the repayment of the loan or indebtedness, that is the total of each amount, determined in respect of a particular member of the creditor partnership that is a foreign affiliate of the borrowing party, that would — in the absence of paragraph 95(2)(g.04) and on the assumption that the particular member had no other income, loss, capital gain or capital loss for any taxation year, and no other foreign affiliate of the borrowing party had any income, loss, capital gain or capital loss for any taxation year — be included in computing the borrowing party’s income under subsection 91(1) for its taxation year that includes the last day of the taxation year of the particular member that includes the last day of the creditor partnership’s fiscal period that includes the later time.

  • (2) Subsections 39(1.1) and (2) of the Act, as enacted by subsection (1), apply

    • (a) in determining the capital gain or capital loss of a foreign affiliate of a taxpayer, in respect of taxation years of the foreign affiliate that end after August 19, 2011, except that, if the taxpayer has elected under subsection 70(32), those subsections 39(1.1) and (2) apply in respect of taxation years of all foreign affiliates of the taxpayer that end after June 2011; and

    • (b) in any other case, in respect of gains made and losses sustained in taxation years that begin after August 19, 2011.

  • (3) Subsection 39(2.1) of the Act, as enacted by subsection (1), applies in respect of the portions of loans received and indebtedness incurred on or before August 19, 2011 that remain outstanding on that date and that are repaid, in whole or in part, on or before August 19, 2016.

  •  (1) Paragraph 40(2)(e.1) of the Act is replaced by the following:

    • (e.1) a particular taxpayer’s loss, if any, from the disposition at any time to a particular person or partnership of an obligation — other than, for the purposes of computing the exempt surplus or exempt deficit and taxable surplus or taxable deficit of the particular taxpayer in respect of another taxpayer, where the particular taxpayer or, if the particular taxpayer is a partnership, a member of the particular taxpayer is a foreign affiliate of the other taxpayer, an obligation that is, or would be, if the particular taxpayer were a foreign affiliate of the other taxpayer, excluded property (within the meaning assigned by subsection 95(1)) of the particular taxpayer — that was, immediately after that time, payable by another person or partnership to the particular person or partnership is nil if the particular taxpayer, the particular person or partnership and the other person or partnership are related to each other at that time or would be related to each other at that time if paragraph 80(2)(j) applied for the purpose of this paragraph;

  • (2) The portion of paragraph 40(2)(e.2) of the Act before the formula is replaced by the following:

    • (e.2) subject to paragraph (e.3), a taxpayer’s loss on the settlement or extinguishment of a particular commercial obligation (in this paragraph having the meaning assigned by subsection 80(1)) issued by a person or partnership and payable to the taxpayer is deemed to be the amount determined by the following formula if any part of the consideration given by the person or partnership for the settlement or extinguishment of the particular obligation consists of one or more other commercial obligations issued by the person or partnership to the taxpayer:

  • (3) Subsection 40(2) of the Act is amended by adding the following after paragraph (e.2):

    • (e.3) paragraph (e.2) does not apply, for the purposes of computing the exempt surplus or exempt deficit and taxable surplus or taxable deficit of the taxpayer in respect of another taxpayer, where the taxpayer or, if the taxpayer is a partnership, a member of the taxpayer is a foreign affiliate of the other taxpayer, to the particular commercial obligation if the particular commercial obligation is, or would be, if the taxpayer were a foreign affiliate of the other taxpayer, excluded property (within the meaning assigned by subsection 95(1)) of the taxpayer;

  • (4) The portion of paragraph 40(2)(g) of the Act before subparagraph (i) is replaced by the following:

    • (g) a taxpayer’s loss, if any, from the disposition of a property (other than, for the purposes of computing the exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, and taxable surplus or taxable deficit of the taxpayer in respect of another taxpayer, where the taxpayer or, if the taxpayer is a partnership, a member of the taxpayer is a foreign affiliate of the other taxpayer, a property that is, or would be, if the taxpayer were a foreign affiliate of the other taxpayer, excluded property (within the meaning assigned by subsection 95(1)) of the taxpayer), to the extent that it is

  • (5) Paragraphs 40(3)(c) to (e) of the Act are replaced by the following:

    • (c) subject to paragraph 93(1)(b), the amount of the excess is deemed to be a gain of the taxpayer for the year from a disposition at that time of the property,

    • (d) for the purposes of section 93, the property is deemed to have been disposed of by the taxpayer at that time, and

    • (e) for the purposes of section 110.6, the property is deemed to have been disposed of by the taxpayer in the year.

  • (6) Paragraph 40(3.3)(a) of the Act is replaced by the following:

    • (a) a corporation, trust or partnership (in this subsection and subsection (3.4) referred to as the “transferor”) disposes of a particular capital property — other than depreciable property of a prescribed class and other than, for the purposes of computing the exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, and taxable surplus or taxable deficit of a foreign affiliate of a taxpayer, in respect of the taxpayer, where the transferor is the affiliate or is a partnership of which the affiliate is a member, property that is, or would be, if the transferor were a foreign affiliate of the taxpayer, excluded property (within the meaning assigned by subsection 95(1)) of the transferor — otherwise than in a disposition described in any of paragraphs (c) to (g) of the definition “superficial loss” in section 54;

  • (7) Subparagraph 40(3.4)(b)(v) of the Act is replaced by the following:

    • (v) if the transferor is a corporation,

      • (A) for the purposes of computing the transferor’s foreign accrual property income, exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, and taxable surplus or taxable deficit, in respect of a taxpayer for a taxation year of the transferor where the transferor is a foreign affiliate of the taxpayer, at which the liquidation and dissolution of the transferor begins, unless the liquidation and dissolution is

        • (I) a qualifying liquidation and dissolution (within the meaning assigned by subsection 88(3.1)) of the transferor, or

        • (II) a designated liquidation and dissolution (within the meaning assigned by subsection 95(1)) of the transferor, and

      • (B) for any other purposes, at which the winding-up (other than a winding-up to which subsection 88(1) applies) of the transferor begins,

  • (8) Paragraph 40(3.5)(c) of the Act is replaced by the following:

    • (c) if subsections (3.3) and (3.4) apply to the disposition by a transferor of a share of the capital stock of a particular corporation and after the disposition

      • (i) the particular corporation is merged or combined with one or more other corporations, otherwise than in a transaction in respect of which paragraph (b) applies to the share, then the corporation formed on the merger or combination is deemed to own the share while the corporation so formed is affiliated with the transferor,

      • (ii) the particular corporation is wound up in a winding-up to which subsection 88(1) applies, then the parent (within the meaning assigned by subsection 88(1)) is deemed to own the share while the parent is affiliated with the transferor, or

      • (iii) the particular corporation is liquidated and dissolved, the liquidation and dissolution is a qualifying liquidation and dissolution (within the meaning assigned by subsection 88(3.1)) of the corporation or a designated liquidation and dissolution (within the meaning assigned by subsection 95(1)) of the corporation, and the transferor is a foreign affiliate of a taxpayer, then for the purposes of computing the transferor’s foreign accrual property income, exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, and taxable surplus or taxable deficit, in respect of the taxpayer for a taxation year of the transferor, the taxpayer referred to in subsection 88(3.1) or the particular shareholder referred to in the definition “designated liquidation and dissolution” in subsection 95(1), as the case may be, is deemed to own the share while the taxpayer or particular shareholder is affiliated with the transferor; and

  • (9) The portion of subsection 40(3.6) of the Act before paragraph (a) is replaced by the following:

    • Marginal note:Loss on shares

      (3.6) If at any time a taxpayer disposes, to a corporation that is affiliated with the taxpayer immediately after the disposition, of a share of a class of the capital stock of the corporation (other than a share that is a distress preferred share (within the meaning assigned by subsection 80(1)) and other than, for the purposes of computing the exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, and taxable surplus or taxable deficit of the taxpayer in respect of another taxpayer, where the taxpayer or, if the taxpayer is a partnership, a member of the taxpayer is a foreign affiliate of the other taxpayer, a property that is, or would be, if the taxpayer were a foreign affiliate of the other taxpayer, excluded property (within the meaning assigned by subsection 95(1)) of the taxpayer),

  • (10) Subsections (1), (4), (6) and (9) apply in respect of dispositions that occur after August 19, 2011.

  • (11) Subsections (2) and (3) apply in respect of settlements and extinguishments that occur after August 19, 2011.

  • (12) Subsection (5) is deemed to have come into force on August 20, 2011.

  • (13) Subsection (7) applies in respect of windings-up and liquidations and dissolutions that begin after August 19, 2011.

  • (14) Subsection (8) applies in respect of mergers or combinations that occur, and windings-up and liquidations and dissolutions that begin, after August 19, 2011.

  •  (1) Paragraph 53(2)(b) of the Act is replaced by the following:

    • (b) where the property is a share of the capital stock of a non-resident corporation,

      • (i) if the corporation is a foreign affiliate of the taxpayer,

        • (A) any amount required under paragraph 80.1(4)(d) or section 92 to be deducted in computing the adjusted cost base to the taxpayer of the share, and

        • (B) any amount received by the taxpayer before that time, on a reduction of the paid-up capital of the corporation in respect of the share, that is so received

          • (I) after 1971 and on or before August 19, 2011, or

          • (II) after August 19, 2011, where the reduction is a qualifying return of capital (within the meaning assigned by subsection 90(3)) in respect of the share, or

      • (ii) in any other case, any amount received by the taxpayer after 1971 and before that time on a reduction of the paid-up capital of the corporation in respect of the share;

  • (2) Subsection (1) is deemed to have come into force on August 20, 2011.

  •  (1) Paragraph 55(5)(d) of the Act is replaced by the following:

    • (d) the income earned or realized by a corporation (referred to in this paragraph as the “affiliate”) for a period ending at a time when the affiliate was a foreign affiliate of another corporation is deemed to be the lesser of

      • (i) the amount that would, if the Income Tax Regulations were read without reference to their subsection 5905(5.6), be the tax-free surplus balance (within the meaning of their subsection 5905(5.5)) of the affiliate in respect of the other corporation at that time, and

      • (ii) the fair market value at that time of all the issued and outstanding shares of the capital stock of the affiliate;

  • (2) Subsection (1) applies in respect of a dividend received after August 19, 2011 by a corporation resident in Canada, except where the dividend is received as part of a series of transactions or events that includes a disposition of the shares in respect of which the dividend is received that

    • (a) is made to a person or partnership that, at the time of the disposition, deals at arm’s length with the corporation; and

    • (b) occurs under an agreement in writing entered into before August 19, 2011.

  •  (1) Subsection 85.1(4) of the Act is replaced by the following:

    • Marginal note:Exception

      (4) Subsection (3) does not apply in respect of a disposition at any time by a taxpayer of a share of the capital stock of a particular foreign affiliate of the taxpayer to another foreign affiliate of the taxpayer if

      • (a) both

        • (i) all or substantially all of the property of the particular affiliate was, immediately before that time, excluded property (within the meaning assigned by subsection 95(1)) of the particular affiliate, and

        • (ii) the disposition is part of a transaction or event or a series of transactions or events for the purpose of disposing of the share to a person or partnership that, immediately after the transaction, event or series, was a person or partnership (other than a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)) at the time of the transaction or event or throughout the series, as the case may be) with whom the taxpayer was dealing at arm’s length; or

      • (b) the adjusted cost base to the taxpayer of the share at that time is greater than the amount that would, in the absence of subsection (3), be the taxpayer’s proceeds of disposition of the share in respect of the disposition.

  • (2) Subsection (1) applies in respect of dispositions that occur after August 19, 2011.

  •  (1) Subparagraph 87(2)(u)(ii) of the Act is replaced by the following:

    • (ii) for the purposes of subsections 93(2.01), (2.11), (2.21) and (2.31), any exempt dividend received by the predecessor corporation on any such share is deemed to be an exempt dividend received by the new corporation on the share;

  • (2) Section 87 of the Act is amended by adding the following after subsection (8.1):

    • Marginal note:Absorptive mergers

      (8.2) For the purposes of the definition “foreign merger” in subsection (8.1), if there is a merger or combination, otherwise than as a result of the distribution of property to one corporation on the winding-up of another corporation, of two or more non-resident corporations (each of which is referred to in this subsection as a “predecessor foreign corporation”), as a result of which one or more predecessor foreign corporations ceases to exist and, immediately after the merger or combination, another predecessor foreign corporation (referred to in this subsection as the “survivor corporation”) owns properties (except amounts receivable from, or shares of the capital stock of, any predecessor foreign corporation) representing all or substantially all of the fair market value of all such properties owned by each predecessor foreign corporation immediately before the merger or combination, then

      • (a) the merger or combination is deemed to be a merger or combination of the predecessor foreign corporations to form one non-resident corporation;

      • (b) the survivor corporation is deemed to be the non-resident corporation so formed;

      • (c) all of the properties of the survivor corporation immediately before the merger or combination that are properties of the survivor corporation immediately after the merger or combination are deemed to become properties of the survivor corporation as a consequence of the merger or combination;

      • (d) all of the liabilities of the survivor corporation immediately before the merger or combination that are liabilities of the survivor corporation immediately after the merger or combination are deemed to become liabilities of the survivor corporation as a consequence of the merger or combination;

      • (e) all of the shares of the capital stock of the survivor corporation that were outstanding immediately before the merger or combination that are shares of the capital stock of the survivor corporation immediately after the merger or combination are deemed to become shares of the capital stock of the survivor corporation as a consequence of the merger or combination; and

      • (f) all of the shares of the capital stock of each predecessor foreign corporation (other than the survivor corporation) that were outstanding immediately before the merger or combination and that cease to exist as a consequence of the merger or combination are deemed to be exchanged by the shareholders of each such predecessor corporation for shares of the survivor corporation as a consequence of the merger or combination.

  • (3) Subsection (1) applies if subsection 93(2.01) of the Act, as enacted by subsection 68(4), applies, except that, if that subsection 93(2.01) applies but subsection 93(2.11) of the Act, as enacted by subsection 68(4), does not apply, subparagraph 87(2)(u)(ii) of the Act, as enacted by subsection (1), is to be read as follows:

    • (ii) for the purposes of subsection 93(2.01), any exempt dividend received by the predecessor corporation on any such share is deemed to be an exempt dividend received by the new corporation on the share;

  • (4) Subsection (2) applies in respect of mergers or combinations in respect of a taxpayer that occur after 1994. However, subsection (2) does not apply in respect of all mergers or combinations in respect of the taxpayer that occur on or before August 19, 2011 if the taxpayer elects in writing under this subsection and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent.

  •  (1) Subsection 88(3) of the Act is replaced by the following:

    • 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.

  • (2) Subsection (1) applies in respect of liquidations and dissolutions of foreign affiliates of a taxpayer that begin after February 27, 2004. However, if the taxpayer elects in writing under this subsection in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent,

    • (a) subsection 88(3) of the Act, as enacted by subsection (1), also applies to property received by the taxpayer after February 27, 2004 and before August 19, 2011 on a redemption, acquisition or cancellation of shares of the capital stock of, on a payment of a dividend by, or on a reduction of the paid-up capital of, a foreign affiliate of the taxpayer; and

    • (b) in respect of property described in paragraph (a) and property received by the taxpayer on a liquidation and dissolution of a foreign affiliate of the taxpayer that began after February 27, 2004 and before August 19, 2011,

      • (i) subsection 88(3) of the Act, as enacted by subsection (1), is to be read as follows:

        • (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, on a redemption, acquisition or cancellation of shares of the capital stock of the disposing affiliate, on a payment of a dividend by the disposing affiliate, or on a reduction of the paid-up capital of the disposing affiliate,

          • (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 the distributed property

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

            • (ii) was 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) if the taxpayer disposed of shares of the capital stock of the disposing affiliate on a liquidation and dissolution of the disposing affiliate (each such share being referred to in paragraph (f) and subsections (3.3) and (3.4) as a “disposed share”) or on a redemption, acquisition or cancellation of shares of the capital stock of the disposing affiliate, the taxpayer’s proceeds of disposition of the shares are deemed to be the amount determined by the formula

            A – B

            where

            A 
            is the total of all amounts each of which is the cost to the taxpayer of a distributed property, as determined under paragraph (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 because of the liquidation and dissolution or the redemption, acquisition or cancellation;
          • (e) if the taxpayer received the distributed property as a dividend or a reduction of paid-up capital, the amount of the dividend paid by the disposing affiliate or the amount of the reduction of the paid-up capital of the disposing affiliate, as the case may be, is deemed to be the amount determined by the formula

            C – D

            where

            C 
            is the total of all amounts each of which is the cost to the taxpayer of a distributed property, as determined under paragraph (c), and
            D 
            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 because of the payment of the dividend or the reduction of paid-up capital; and
          • (f) if the distributed property was received on a liquidation and dissolution of the disposing affiliate that 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.

      • (ii) section 88 of the Act is to be read without reference to its subsection (3.2), as enacted by subsection (1).

  •  (1) Section 90 of the Act is replaced by the following:

    Marginal note:Dividend from non-resident corporation
    • 90. (1) In computing the income for a taxation year of a taxpayer resident in Canada, there is to be included any amount received by the taxpayer at any time in the year as, on account or in lieu of payment of, or in satisfaction of, a dividend on a share owned by the taxpayer of the capital stock of a non-resident corporation.

    • Marginal note:Dividend from foreign affiliate

      (2) For the purposes of this Act, an amount is deemed to be a dividend paid or received, as the case may be, at any time on a share of a class of the capital stock of a non-resident corporation that is a foreign affiliate of a taxpayer if the amount is the share’s portion of a pro rata distribution (other than a distribution made in the course of a liquidation and dissolution of the corporation, on a redemption, acquisition or cancellation of the share by the corporation, or on a qualifying return of capital in respect of the share) made at that time by the corporation in respect of all the shares of that class.

    • Marginal note:Qualifying return of capital

      (3) For the purposes of subsection (2), a distribution made at any time by a foreign affiliate of a taxpayer in respect of a share of the capital stock of the affiliate that is a reduction of the paid-up capital of the affiliate in respect of the share and that would, in the absence of this subsection, be deemed under subsection (2) to be a dividend paid or received, at that time, on the share is a qualifying return of capital, at that time, in respect of the share if an election is made under this subsection, in respect of the distribution and in accordance with prescribed rules,

      • (a) by the taxpayer, where there is no person or partnership that meets the conditions in subparagraphs (b)(i) and (ii); or

      • (b) jointly by the taxpayer and each person or partnership that is, at that time,

        • (i) a connected person or partnership in respect of the taxpayer, and

        • (ii) a person or partnership of which the affiliate would, at that time, be a foreign affiliate if paragraph (b) of the definition “equity percentage” in subsection 95(4) 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”.

    • Marginal note:Connected person or partnership

      (4) For the purposes of subsection (3), a “connected person or partnership” in respect of a taxpayer, at any time, is

      • (a) a person that is, at that time, related to the taxpayer, and

      • (b) a partnership a member of which is, at that time,

        • (i) the taxpayer, or

        • (ii) a person that is related to the taxpayer.

    • Marginal note:Exclusion

      (5) No amount paid or received at any time is, for the purposes of this Act, a dividend paid or received on a share of the capital stock of a non-resident corporation that is a foreign affiliate of a taxpayer unless it is so deemed under this Part.

    • Marginal note:Loan from foreign affiliate

      (6) Except where subsection 15(2) applies, if a person or partnership receives at any time a loan from, or becomes at that time indebted to, a creditor that is at that time a foreign affiliate (referred to in subsections (9), (11) and (15) as the “creditor affiliate”) of a taxpayer resident in Canada or that is at that time a partnership (referred to in subsections (9), (11) and (15) as the “creditor partnership”) of which such an affiliate is a member and the person or partnership is at that time a specified debtor in respect of the taxpayer, then the specified amount in respect of the loan or indebtedness is to be included in computing the income of the taxpayer for the taxpayer’s taxation year that includes that time.

    • Marginal note:Back-to-back loans

      (7) For the purposes of this subsection and subsections (6) and (8) to (15), if at any time a person or partnership (referred to in this subsection as the “intermediate lender”) makes a loan to another person or partnership (in this subsection referred to as the “intended borrower”) because the intermediate lender received a loan from another person or partnership (in this subsection referred to as the “initial lender”)

      • (a) the loan made by the intermediate lender to the intended borrower is deemed, at that time, to have been made by the initial lender to the intended borrower (to the extent of the lesser of the amount of the loan made by the initial lender to the intermediate lender and the amount of the loan made by the intermediate lender to the intended borrower) under the same terms and conditions and at the same time as it was made by the intermediate lender; and

      • (b) the loan made by the initial lender to the intermediate lender and the loan made by the intermediate lender to the intended borrower are deemed not to have been made to the extent of the amount of the loan deemed to have been made under paragraph (a).

    • Marginal note:Exceptions to subsection (6)

      (8) Subsection (6) does not apply to

      • (a) a loan or indebtedness that is repaid, other than as part of a series of loans or other transactions and repayments, within two years of the day the loan was made or the indebtedness arose;

      • (b) indebtedness that arose in the ordinary course of the business of the creditor or a loan made in the ordinary course of the creditor’s ordinary business of lending money if, at the time the indebtedness arose or the loan was made, bona fide arrangements were made for repayment of the indebtedness or loan within a reasonable time; and

      • (c) a loan that was made, or indebtedness that arose, in the ordinary course of carrying on a life insurance business outside Canada if

        • (i) the loan or indebtedness is owed by the taxpayer or by a subsidiary wholly-owned corporation of the taxpayer,

        • (ii) the taxpayer, or the subsidiary wholly-owned corporation, as the case may be, is a life insurance corporation resident in Canada,

        • (iii) the loan or indebtedness directly relates to a business of the taxpayer, or of the subsidiary wholly-owned corporation, that is carried on outside Canada, and

        • (iv) the interest on the loan or indebtedness is, or would be if it were otherwise income from property, included in the active business income of the creditor, or if the creditor is a partnership, a member of the partnership, under clause 95(2)(a)(ii)(A).

    • Marginal note:Corporations: deduction for amounts included under subsection (6) or (12)

      (9) There may be deducted in computing the income for a taxation year of a corporation resident in Canada a particular amount, in respect of a specified amount included under subsection (6), or an amount included under subsection (12), in computing the corporation’s income for the taxation year in respect of a particular loan or indebtedness, if

      • (a) the corporation demonstrates that the particular amount is the total of all amounts (not to exceed the amount so included) each of which would — if the specified amount in respect of the particular loan or indebtedness were, at the time (referred to in subparagraph (i) and subsection (11) as the “lending time”) the particular loan was made or the particular indebtedness was incurred, instead paid by the creditor affiliate, or the creditor partnership, as the case may be, to the corporation directly as part of one dividend, or indirectly as part of one or more dividends and, if applicable, partnership distributions — reasonably be considered to have been deductible, in respect of the payment, for the corporation’s taxation year in which the specified amount was included in its income under subsection (6), in computing

        • (i) the taxable income of the corporation under any of

          • (A) paragraph 113(1)(a), in respect of the exempt surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation,

          • (B) paragraph 113(1)(a.1), in respect of the hybrid surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation, if the amount of that hybrid surplus is less than or equal to the amount determined by the formula

            [A × (B – 0.5)] + (C × 0.5)

            where

            A 
            is the affiliate’s hybrid underlying tax in respect of the corporation at the lending time,
            B 
            is the corporation’s relevant tax factor (within the meaning assigned by subsection 95(1)) for the corporation’s taxation year that includes the lending time, and
            C 
            is the affiliate’s hybrid surplus in respect of the corporation at the lending time,
          • (C) paragraph 113(1)(b), in respect of the taxable surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation, and

          • (D) paragraph 113(1)(d), in respect of the pre-acquisition surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation to the extent of the adjusted cost base to the corporation, at the lending time, of the shares of the capital stock of the affiliate, and except if the specified debtor is

            • (I) a non-resident person with which the corporation does not deal at arm’s length, or

            • (II) a partnership any member of which is a person described in subclause (I), or

        • (ii) the income of the corporation under subsection 91(5), in respect of the taxable surplus of a foreign affiliate of the corporation, if the specified debtor is a person or partnership described in subclause (i)(D)(I) or (II);

      • (b) that exempt surplus, hybrid surplus, taxable surplus, or adjusted cost base is not relevant in applying this subsection in respect of any other loan made or indebtedness incurred, or in respect of any deduction claimed under subsection 91(5) or 113(1) in respect of a dividend paid, during the period in which the particular loan or indebtedness is outstanding; and

      • (c) that adjusted cost base is not relevant in determining the taxability of any other distribution made during the period in which the particular loan or indebtedness is outstanding.

    • Marginal note:Corporate partners: application of subsection (9)

      (10) In applying subsection (9) to a corporation resident in Canada that is a member of a partnership at the end of a fiscal period of the partnership,

      • (a) each amount that may reasonably be considered to be the corporation’s share (determined in a manner consistent with the determination of the corporation’s share of the income of the partnership under subsection 96(1)) of each specified amount that is required to be included in computing the income of the partnership for that fiscal period under subsection (6), in respect of a particular loan or indebtedness, is deemed to be a specified amount in respect of the particular loan or indebtedness that was included in the corporation’s income, for its taxation year that includes the last day of that fiscal period, under subsection (6);

      • (b) subparagraph (9)(a)(i) is to be read without reference to its clause (D);

      • (c) subparagraph (9)(a)(ii) is to be read as follows:

        • (ii) the income of the partnership, referred to in subsection (10), under subsection 91(5), in respect of the taxable surplus of a foreign affiliate of the partnership, to the extent of the amount that may reasonably be considered to be the corporation’s share of that deduction (determined in a manner consistent with the determination of the corporation’s share of the income of the partnership under subsection 96(1));

      • (d) paragraph (9)(b) is to be read as follows:

        • (b) that exempt surplus, hybrid surplus, or taxable surplus is not relevant in applying this subsection in respect of any other loan made or indebtedness incurred, or in respect of any deduction claimed under subsection 91(5) or 113(1) in respect of a dividend paid, during the period in which the particular loan or indebtedness is outstanding; and

      • (e) subsection (9) is to be read without reference to its paragraph (c).

    • Marginal note:Downstream surplus

      (11) For the purposes of subparagraph (9)(a)(i), the amounts of exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, and underlying foreign tax of the creditor affiliate, or of each foreign affiliate of the corporation that is a member of the creditor partnership, as the case may be, in respect of the corporation, at the lending time are deemed to be the amounts that would be determined, at the lending time, under subparagraph 5902(1)(a)(i) of the Income Tax Regulations if that subparagraph were applicable at the lending time and the references in that subparagraph to “the dividend time” were references to the lending time.

    • Marginal note:Add-back for subsection (9) deduction

      (12) There is to be included in computing the income of a corporation resident in Canada for a particular taxation year any amount deducted by the corporation under subsection (9) in computing the corporation’s income for the taxation year that immediately precedes the particular year.

    • Marginal note:No double deduction

      (13) A corporation may not claim a deduction for a taxation year under subsection (9) in respect of the same portion of the specified amount in respect of a loan or indebtedness for which a deduction is claimed for that year or a preceding year by the corporation, or by a partnership of which the corporation is a member, under subsection (14).

    • Marginal note:Repayment of loan

      (14) There may be deducted in computing the income of a taxpayer for a particular taxation year the amount determined by the formula

      A × B/C

      where

      A 
      is the specified amount, in respect of a loan or indebtedness, that is included under subsection (6) in computing the taxpayer’s income for a preceding taxation year,
      B 
      is the portion of the loan or indebtedness that was repaid in the particular year, to the extent it is established, by subsequent events or otherwise, that the repayment was not part of a series of loans or other transactions and repayments, and
      C 
      is the amount, in respect of the loan or indebtedness, that is referred to in the description of A in the definition “specified amount” in subsection (15).
    • Marginal note:Definitions

      (15) The following definitions apply in this section.

      “specified amount”

      « montant déterminé »

      “specified amount”, in respect of a loan or indebtedness that is required by subsection (6) to be included in computing the income of a taxpayer for a taxation year, means the amount determined by the formula

      A × (B – C)

      where

      A 
      is the amount of the loan or indebtedness, and
      B 
      is, in the case of
      • (a) a creditor affiliate of the taxpayer, the percentage that is or would be, if the taxpayer referred to in subsection (6) were a corporation resident in Canada, the taxpayer’s surplus entitlement percentage (in this definition determined without reference to subsection 5908(1) of the Income Tax Regulations) in respect of the creditor affiliate at the time (referred to in this definition as the “determination time”) referred to in subsection (6), or

      • (b) a creditor partnership of which a foreign affiliate of the taxpayer is a member, the total of each percentage determined, in respect of a member (referred to in this paragraph as a “member affiliate”) of the creditor partnership that is a foreign affiliate of the taxpayer, by the formula

        D × E/F

        where

        D 
        is the percentage that is or would be, if the taxpayer were a corporation resident in Canada, the taxpayer’s surplus entitlement percentage in respect of a particular member affiliate at the determination time,
        E 
        is the fair market value, at the determination time, of the particular member affiliate’s direct or indirect interest in the creditor partnership, and
        F 
        is the fair market value, at the determination time, of all interests in the creditor partnership, and
      C 
      is,
      • (a) if the debtor under the loan or indebtedness is

        • (i) another foreign affiliate of the taxpayer, the percentage that is or would be, if the taxpayer were a corporation resident in Canada, the taxpayer’s surplus entitlement percentage in respect of the other affiliate at the determination time, or

        • (ii) a partnership (referred to in this paragraph as the “borrower partnership”) of which one or more other foreign affiliates of the taxpayer are members, the total of each percentage that is determined by the following formula in respect of each such member

          G × H/I

          where

          G 
          is the percentage that is or would be, if the taxpayer were a corporation resident in Canada, the taxpayer’s surplus entitlement percentage in respect of a particular member of the borrower partnership at the determination time,
          H 
          is the fair market value, at the determination time, of the particular member’s direct or indirect interest in the borrower partnership, and
          I 
          is the fair market value, at the determination time, of all interests in the borrower partnership, and
      • (b) in any other case, nil.

      “specified debtor”

      « débiteur déterminé »

      “specified debtor”, in respect of a taxpayer resident in Canada, at any time, means

      • (a) the taxpayer;

      • (b) a person with which the taxpayer does not, at that time, deal at arm’s length, other than a non-resident corporation that is at that time a controlled foreign affiliate, within the meaning assigned by section 17, of the taxpayer;

      • (c) a partnership a member of which is at that time a person or partnership that is a specified debtor in respect of the taxpayer because of paragraph (a) or (b); and

      • (d) if the taxpayer is a partnership,

        • (i) any member of the partnership that is a corporation resident in Canada if the creditor affiliate, or member of the creditor partnership, as the case may be, is, at that time, a foreign affiliate of the corporation,

        • (ii) a person with which a corporation referred to in subparagraph (i) does not, at that time, deal at arm’s length, other than a controlled foreign affiliate, within the meaning assigned by section 17, of the partnership or of a member of the partnership that owns, directly or indirectly, an interest in the partnership representing at least 90% of the fair market value of all such interests, or

        • (iii) a partnership a member of which is at that time a person that is a specified debtor in respect of the taxpayer because of subparagraph (i) or (ii).

  • (2) Subsections 90(1) to (5) of the Act, as enacted by subsection (1), apply after August 19, 2011. However, if a taxpayer has elected under paragraph 79(2)(a), those subsections 90(1) to (5) also apply after December 20, 2002 and on or before August 19, 2011 in respect of the taxpayer, except that, on or before August 19, 2011

    • (a) subsection 90(2) of the Act, as enacted by subsection (1), is, in respect of the taxpayer, to be read as follows:

      • (2) For the purposes of this Act, an amount is deemed to be a dividend paid or received, as the case may be, at any time on a share of a class of the capital stock of a non-resident corporation that is a foreign affiliate of a taxpayer if the amount is the share’s portion of a pro rata distribution (other than a distribution made in the course of a liquidation and dissolution of the corporation, on a redemption, acquisition or cancellation of the share by the corporation, or on a reduction of the paid-up capital of the corporation in respect of the share) made at that time by the corporation in respect of all the shares of that class.

    • (b) section 90 of the Act, as enacted by subsection (1), is to be read without reference to its subsections (3) and (4).

  • (3) Subsections 90(6) to (15) of the Act, as enacted by subsection (1), apply in respect of loans received and indebtedness incurred after August 19, 2011. However,

    • (a) subsections 90(6) to (15) of the Act, as enacted by subsection (1), also apply in respect of any portion of a particular loan received or a particular indebtedness incurred on or before August 19, 2011 that remains outstanding on August 19, 2014 as if that portion were a separate loan or indebtedness that was received or incurred, as the case may be, on August 20, 2014 in the same manner and on the same terms as the particular loan or indebtedness; and

    • (b) if the taxpayer so elects in writing under this paragraph and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, section 90 of the Act, as enacted by subsection (1), is, in respect of the taxpayer, to be read without reference to its subsection (7) in respect of all loans received and indebtedness incurred on or before October 24, 2012.

  •  (1) Section 92 of the Act is amended by adding the following after subsection (1.1):

    • Marginal note:Adjustment re adjusted cost base

      (1.2) There is to be added in computing the adjusted cost base to a taxpayer of a share of the capital stock of a foreign affiliate of the taxpayer any amount required by paragraph 93(4)(b) to be so added.

  • (2) Subsection (1) is deemed to have come into force on February 28, 2004.

  •  (1) The portion of subsection 93(1) of the Act before paragraph (b) is replaced by the following:

    Marginal note:Election re disposition of share of foreign affiliate
    • 93. (1) For the purposes of this Act, if a corporation resident in Canada elects, in accordance with prescribed rules, in respect of any share of the capital stock of a particular foreign affiliate of the corporation that is disposed of, at any time, by the corporation (referred to in this subsection as the “disposing corporation”) or by another foreign affiliate (referred to in this subsection as the “disposing affiliate”) of the corporation,

      • (a) the amount (referred to in this subsection as the “elected amount”) designated by the corporation in its election not exceeding the amount that would, in the absence of this subsection, be the gain of the disposing corporation or disposing affiliate, as the case may be, from the disposition of the share, is deemed

        • (i) to have been a dividend received on the share from the particular affiliate by the disposing corporation or disposing affiliate, as the case may be, immediately before that time, and

        • (ii) not to have been received by the disposing corporation or disposing affiliate, as the case may be, as proceeds of disposition in respect of the disposition of the share; and

  • (2) The portion of paragraph 93(1)(b) of the French version of the Act before subparagraph (i), as enacted by Part 2, is replaced by the following:

    • b) en cas d’application du paragraphe 40(3) à la société cédante ou la société affiliée cédante, selon le cas, relativement à l’action, le montant réputé en vertu de ce paragraphe être le gain de cette société tiré de la disposition de l’action est réputé, sauf pour l’application de l’alinéa 53(1)a), être égal à l’excédent du montant visé au sous-alinéa (i) sur celui visé au sous-alinéa (ii) :

  • (3) Subsection 93(1.1) of the Act is replaced by the following:

    • Marginal note:Application of subsection (1.11)

      (1.1) Subsection (1.11) applies if

      • (a) a particular foreign affiliate of a corporation resident in Canada disposes at any time of a share (referred to in this paragraph and subsection (1.11) as the “disposed share”) of the capital stock of another foreign affiliate of the corporation and the particular affiliate would, in the absence of subsections (1) and (1.11), have a capital gain from the disposition of the disposed share; or

      • (b) a corporation resident in Canada would, in the absence of subsections (1) and (1.11), be deemed under subsection 40(3), because of an election under subsection 90(3) or subparagraph 5901(2)(b)(i) of the Income Tax Regulations, to have realized a gain from a disposition at any time of a share (referred to in subsection (1.11) as the “disposed share”) of the capital stock of a foreign affiliate of the corporation.

    • Marginal note:Deemed election

      (1.11) If this subsection applies, the corporation resident in Canada referred to in subsection (1.1) is deemed

      • (a) to have made an election, at the time referred to in subsection (1.1), under subsection (1) in respect of the disposition of the disposed share; and

      • (b) to have designated, in the election, the prescribed amount in respect of the disposition of the disposed share.

  • (4) Subsections 93(2) to (2.3) of the Act are replaced by the following:

    • Marginal note:Application of subsection (2.01)

      (2) Subsection (2.01) applies if

      • (a) a particular corporation (referred to in subparagraph (2.01)(b)(ii) as the “vendor”, as the context requires) resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.01) as the “disposition time”) of a share (referred to in subsection (2.01) as the “affiliate share”) of the capital stock of a foreign affiliate of the particular corporation; or

      • (b) a foreign affiliate (referred to in subparagraph (2.01)(b)(ii) as the “vendor”) of a particular corporation resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.01) as the “disposition time”) of a share (referred to in subsection (2.01) as the “affiliate share”) of the capital stock of another foreign affiliate of the particular corporation that is not excluded property.

    • Marginal note:Loss limitation on disposition of share of foreign affiliate

      (2.01) If this subsection applies, the amount of the particular loss referred to in paragraph (2)(a) or (b) is deemed to be the greater of

      • (a) the amount determined by the formula

        A – (B – C)

        where

        A 
        is the amount of the particular loss determined without reference to this section,
        B 
        is the total of all amounts each of which is an amount received before the disposition time, in respect of an exempt dividend on the affiliate share or on a share for which the affiliate share was substituted, by
        • (i) the particular corporation referred to in subsection (2),

        • (ii) another corporation that is related to the particular corporation,

        • (iii) a foreign affiliate of the particular corporation, or

        • (iv) a foreign affiliate of another corporation that is related to the particular corporation, and

        C 
        is the total of
        • (i) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate share or a share for which the affiliate share was substituted, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B,

        • (ii) the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under paragraph (2.11)(a) in respect of the exempt dividends referred to in the description of B,

        • (iii) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under paragraph (2.21)(a) in respect of the exempt dividends referred to in the description of B, and

        • (iv) the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under paragraph (2.31)(a) in respect of the exempt dividends referred to in the description of B, and

      • (b) the lesser of

        • (i) the portion of the particular loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and

        • (ii) the amount determined in respect of the vendor that is

          • (A) if the particular loss is a capital loss, the amount of a gain (other than a specified gain) that

            • (I) was made within 30 days before or after the disposition time by the vendor and that

              1. is deemed under subsection 39(2) to be a capital gain of the vendor for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and

              2. is in respect of the settlement or extinguishment of a foreign currency debt that was issued or incurred by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor and that was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation and can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share, or

            • (II) is a capital gain realized within 30 days before or after the disposition time by the vendor under an agreement that

              1. was entered into by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

              2. provides for the purchase, sale or exchange of currency, and

              3. can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share, or

          • (B) in any other case, the amount of a gain (other than a specified gain or a capital gain) that was realized within 30 days before or after the disposition time by the vendor that is included in computing the income of the vendor for the taxation year that includes the time the gain was realized and

            • (I) that is in respect of the settlement or extinguishment of a foreign currency debt that

              1. was issued or incurred by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor,

              2. was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and

              3. can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share, or

            • (II) under an agreement that

              1. was entered into by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

              2. provides for the purchase, sale or exchange of currency, and

              3. can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share.

    • Marginal note:Specified gain

      (2.02) For the purposes of clauses (2.01)(b)(ii)(A) and (B), a “specified gain” means a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in sub-subclause (2.01)(b)(ii)(A)(I)2 or subclause (2.01)(b)(ii)(B)(I), as the case may be, or that arises under a particular agreement referred to in subclause (2.01)(b)(ii)(A)(II) or (B)(II), if the particular corporation, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.

    • Marginal note:Application of subsection (2.11)

      (2.1) Subsection (2.11) applies if

      • (a) a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.11) as the “disposition time”) by a partnership (referred to in subsections (2.11) and (2.12) as the “disposing partnership”) of a share (referred to in subsection (2.11) as the “affiliate share”) of the capital stock of a foreign affiliate of the particular corporation; or

      • (b) a foreign affiliate of a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.11) as the “disposition time”) by a partnership (referred to in subsections (2.11) and (2.12) as the “disposing partnership”) of a share (referred to in subsection (2.11) as the “affiliate share”) of the capital stock of another foreign affiliate of the particular corporation that would not be excluded property of the affiliate if the affiliate had owned the share immediately before the disposition time.

    • Marginal note:Loss limitation on disposition of foreign affiliate share by a partnership

      (2.11) If this subsection applies, the amount of the particular allowable capital loss referred to in paragraph (2.1)(a) or (b) is deemed to be the greater of

      • (a) the amount determined by the formula

        A – (B – C)

        where

        A 
        is the amount of the particular allowable capital loss determined without reference to this section,
        B 
        is ½ of the total of all amounts each of which is an amount received before the disposition time, in respect of an exempt dividend on the affiliate share or on a share for which the affiliate share was substituted, by
        • (i) the particular corporation referred to in subsection (2.1),

        • (ii) another corporation that is related to the particular corporation,

        • (iii) a foreign affiliate of the particular corporation, or

        • (iv) a foreign affiliate of another corporation that is related to the particular corporation, and

        C 
        is the total of
        • (i) the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate share or a share for which the affiliate share was substituted, was reduced under paragraph (2.01)(a) in respect of the exempt dividends referred to in the description of B,

        • (ii) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B,

        • (iii) the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under paragraph (2.21)(a) in respect of the exempt dividends referred to in the description of B, and

        • (iv) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under paragraph (2.31)(a) in respect of the exempt dividends referred to in the description of B, and

      • (b) the lesser of

        • (i) the portion of the particular allowable capital loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and

        • (ii) ½ of the amount determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.1)(b)) of the particular corporation, that is the amount of a gain (other than a specified gain) that

          • (A) was made within 30 days before or after the disposition time by the disposing partnership to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be, and that

            • (I) is deemed under subsection 39(2) to be a capital gain of the disposing partnership for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and

            • (II) is in respect of the settlement or extinguishment of a foreign currency debt that

              1. was issued or incurred by the disposing partnership within 30 days before or after the acquisition of the affiliate share by the disposing partnership,

              2. was, at all times at which it was a debt obligation of the disposing partnership, owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and

              3. can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share, or

          • (B) is a capital gain (to the extent that the capital gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) realized within 30 days before or after the disposition time by the disposing partnership under an agreement that

            • (I) was entered into by the disposing partnership, within 30 days before or after the acquisition of the affiliate share by the disposing partnership, with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

            • (II) provides for the purchase, sale or exchange of currency, and

            • (III) can reasonably be considered to have been entered into by the disposing partnership for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share.

    • Marginal note:Specified gain

      (2.12) For the purposes of subparagraph (2.11)(b)(ii), a “specified gain” means a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in subclause (2.11)(b)(ii)(A)(II), or that arises under a particular agreement referred to in clause (2.11)(b)(ii)(B), if the disposing partnership, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.

    • Marginal note:Application of subsection (2.21)

      (2.2) Subsection (2.21) applies if

      • (a) a particular corporation (referred to in subparagraph (2.21)(b)(ii) as the “vendor”, as the context requires) resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.21) as the “disposition time”) of an interest (referred to in subsection (2.21) as the “partnership interest”) in a partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.21) as the “affiliate shares”) of the capital stock of a foreign affiliate of the particular corporation; or

      • (b) a foreign affiliate (referred to in subparagraph (2.21)(b)(ii) as the “vendor”) of a particular corporation resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.21) as the “disposition time”) of an interest (referred to in subsection (2.21) as the “partnership interest”) in a partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.21) as the “affiliate shares”) of the capital stock of another foreign affiliate of the particular corporation that would not be excluded property of the affiliate if the affiliate had owned the shares immediately before the disposition time.

    • Marginal note:Loss limitation on disposition of partnership that has foreign affiliate shares

      (2.21) If this subsection applies, the amount of the particular loss referred to in paragraph (2.2)(a) or (b) is deemed to be the greater of

      • (a) the amount determined by the formula

        A – (B – C)

        where

        A 
        is the amount of the particular loss determined without reference to this section,
        B 
        is the total of all amounts each of which is an amount received before the disposition time, in respect of an exempt dividend on affiliate shares or on shares for which affiliate shares were substituted, by
        • (i) the particular corporation referred to in subsection (2.2),

        • (ii) another corporation that is related to the particular corporation,

        • (iii) a foreign affiliate of the particular corporation, or

        • (iv) a foreign affiliate of another corporation that is related to the particular corporation, and

        C 
        is the total of
        • (i) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.01)(a) in respect of the exempt dividends referred to in the description of B,

        • (ii) the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.11)(a) in respect of the exempt dividends referred to in the description of B,

        • (iii) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B, and

        • (iv) the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under paragraph (2.31)(a) in respect of the exempt dividends referred to in the description of B, and

      • (b) the lesser of

        • (i) the portion of the particular loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and

        • (ii) the amount determined in respect of the vendor that is

          • (A) if the particular loss is a capital loss, the amount of a gain (other than a specified gain) that

            • (I) was made within 30 days before or after the disposition time by the vendor and that

              1. is deemed under subsection 39(2) to be a capital gain of the vendor for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and

              2. is in respect of the settlement or extinguishment of a foreign currency debt that was issued or incurred by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor and that was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation and can reasonably be considered to have been issued or incurred in relation to the acquisition of the partnership interest, or

            • (II) is a capital gain realized within 30 days before or after the disposition time by the vendor under an agreement that

              1. was entered into by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

              2. provides for the purchase, sale or exchange of currency, and

              3. can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the partnership interest, or

          • (B) in any other case, the amount of a gain (other than a specified gain or a capital gain) that was realized within 30 days before or after the disposition time by the vendor that is included in computing the income of the vendor for the taxation year that includes the time the gain was realized and

            • (I) that is in respect of the settlement or extinguishment of a foreign currency debt that

              1. was issued or incurred by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor,

              2. was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and

              3. can reasonably be considered to have been issued or incurred in relation to the acquisition of the partnership interest, or

            • (II) under an agreement that

              1. was entered into by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

              2. provides for the purchase, sale or exchange of currency, and

              3. can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the partnership interest.

    • Marginal note:Specified gain

      (2.22) For the purposes of clauses (2.21)(b)(ii)(A) and (B), a “specified gain” means a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in sub-subclause (2.21)(b)(ii)(A)(I)2 or subclause (2.21)(b)(ii)(B)(I), as the case may be, or that arises under a particular agreement referred to in subclause (2.21)(b)(ii)(A)(II) or (B)(II), if the particular corporation, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.

    • Marginal note:Application of subsection (2.31)

      (2.3) Subsection (2.31) applies if

      • (a) a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.31) as the “disposition time”) by a particular partnership of an interest (referred to in subsection (2.31) as the “partnership interest”) in another partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.31) as the “affiliate shares”) of the capital stock of a foreign affiliate of the particular corporation; or

      • (b) a foreign affiliate of a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.31) as the “disposition time”) by a particular partnership of an interest (referred to in subsection (2.31) as the “partnership interest”) in another partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.31) as the “affiliate shares”) of the capital stock of a foreign affiliate of the particular corporation that would not be excluded property of the affiliate if the affiliate had owned the shares immediately before the disposition time.

    • Marginal note:Loss limitation on disposition by a partnership of an indirect interest in foreign affiliate shares

      (2.31) If this subsection applies, the amount of the particular allowable capital loss referred to in paragraph (2.3)(a) or (b) is deemed to be the greater of

      • (a) the amount determined by the formula

        A – (B – C)

        where

        A 
        is the amount of the particular allowable capital loss determined without reference to this section,
        B 
        is ½ of the total of all amounts each of which is an amount received before the disposition time, in respect of an exempt dividend on the affiliate shares or on shares for which the affiliate shares were substituted, by
        • (i) the particular corporation referred to in subsection (2.3),

        • (ii) another corporation that is related to the particular corporation,

        • (iii) a foreign affiliate of the particular corporation, or

        • (iv) a foreign affiliate of another corporation that is related to the particular corporation, and

        C 
        is the total of
        • (i) the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.01)(a) in respect of the exempt dividends referred to in the description of B,

        • (ii) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.11)(a) in respect of the exempt dividends referred to in the description of B,

        • (iii) the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under paragraph (2.21)(a) in respect of the exempt dividends referred to in the description of B, and

        • (iv) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B, and

      • (b) the lesser of

        • (i) the portion of the particular allowable capital loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and

        • (ii) ½ of the amount determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.3)(b)), of the particular corporation, that is the amount of a gain (other than a specified gain) that

          • (A) was made within 30 days before or after the disposition time by the particular partnership to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be, and that

            • (I) is deemed under subsection 39(2) to be a capital gain of the particular partnership for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and

            • (II) is in respect of the settlement or extinguishment of a foreign currency debt that

              1. was issued or incurred by the particular partnership within 30 days before or after the acquisition of the partnership interest by the particular partnership,

              2. was, at all times at which it was a debt obligation of the particular partnership, owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and

              3. can reasonably be considered to have been issued or incurred in relation to the acquisition of the partnership interest, or

          • (B) is a capital gain (to the extent that the capital gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) realized within 30 days before or after the disposition time by the particular partnership under an agreement that

            • (I) was entered into by the particular partnership, within 30 days before or after the acquisition of the partnership interest by the particular partnership, with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

            • (II) provides for the purchase, sale or exchange of currency, and

            • (III) can reasonably be considered to have been entered into by the particular partnership for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the partnership interest.

    • Marginal note:Specified gain

      (2.32) For the purposes of subparagraph (2.31)(b)(ii), a “specified gain” means a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in subclause (2.31)(b)(ii)(A)(II), or that arises under a particular agreement referred to in clause (2.31)(b)(ii)(B), if the particular partnership, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.

  • (5) The portion of subsection 93(3) of the Act before paragraph (b) is replaced by the following:

    • Marginal note:Exempt dividends

      (3) For the purposes of subsections (2.01), (2.11), (2.21) and (2.31),

      • (a) a dividend received by a corporation resident in Canada is an exempt dividend to the extent of the amount in respect of the dividend that is deductible from the income of the corporation for the purpose of computing the taxable income of the corporation because of any of paragraphs 113(1)(a) to (c); and

  • (6) Subsection 93(4) of the Act is replaced by the following:

    • Marginal note:Loss on disposition of shares of foreign affiliate

      (4) If a taxpayer resident in Canada or a foreign affiliate (which taxpayer or foreign affiliate is referred to in this subsection as the “transferee”) of the taxpayer has acquired shares of the capital stock of one or more foreign affiliates (each referred to in this subsection as an “acquired affiliate”) of the taxpayer on a disposition of shares (such shares disposed of being referred to in this subsection as the “disposed shares”) of the capital stock of any other foreign affiliate of the taxpayer (other than, where the transferee is a foreign affiliate of the taxpayer, a disposition of shares that are, immediately before the acquisition, excluded property of the transferee or a disposition to which subsection 40(3.4) applies), the following rules apply:

      • (a) the capital loss, if any, of the transferee from the disposition, is deemed to be nil; and

      • (b) in computing the adjusted cost base to the transferee of a share of a particular class of the capital stock of an acquired affiliate that is owned by the transferee immediately after the disposition, there is to be added the amount determined by the formula

        [(A – B) × C/D]/E

        where

        A 
        is the total of all amounts each of which is the cost amount to the transferee, immediately before the disposition, of a disposed share,
        B 
        is the total of
        • (i) the total of all amounts each of which is the proceeds of disposition of a disposed share, and

        • (ii) the total of all amounts in respect of the computation of losses of the transferee from the dispositions of the disposed shares, each of which is, in respect of the disposition of a disposed share, the amount by which the amount for A in the formula in paragraph (2.01)(a) exceeds the amount determined by that formula,

        C 
        is the fair market value, immediately after the disposition, of all shares of the particular class owned, immediately after the disposition, by the transferee,
        D 
        is the fair market value, immediately after the disposition, of all shares owned, immediately after the disposition, by the transferee of the capital stock of all acquired affiliates, and
        E 
        is the number of shares of the particular class that are owned by the transferee immediately after the disposition.
  • (7) Subsections (1) and (2) apply in respect of elections in respect of dispositions that occur after August 19, 2011. However, subsections (1) and (2) do not apply in respect of the determination of the income earned or realized of a foreign affiliate of a corporation under paragraph 55(5)(d) of the Act unless paragraph 55(5)(d) of the Act, as enacted by subsection 62(1), applies in respect of that determination.

  • (8) Subsection (3) applies to dispositions of shares of the capital stock of a foreign affiliate of a corporation that occur after August 19, 2011. However, if the corporation

    • (a) has elected under paragraph 79(2)(a), then subsection (3) also applies to dispositions of shares of the capital stock of all foreign affiliates of the corporation that occur after December 20, 2002 and on or before August 19, 2011 as if paragraph 93(1.1)(b) of the Act, as enacted by subsection (3), were read as follows:

      • (b) a corporation resident in Canada would, in the absence of subsections (1) and (1.11), be deemed under subsection 40(3), because of an election under subparagraph 5901(2)(b)(i) of the Income Tax Regulations, to have realized a gain from a disposition at any time of a share (referred to in subsection (1.11) as the “disposed share”) of the capital stock of a foreign affiliate of the corporation.

    • (b) has not elected under paragraph 79(2)(a) but elects in writing under this paragraph and files the election with the Minister of National Revenue on or before the day that is the later of the corporation’s filing-due date for the corporation’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, then subsection 93(1.1) of the Act, as enacted by subsection (3), is to be read as follows in respect of any disposition of shares of the capital stock of a foreign affiliate of the corporation that occurs after February 27, 2004 and on or before August 19, 2011:

      • (1.1) If at any time shares of the capital stock of a foreign affiliate of a corporation resident in Canada are disposed of by another foreign affiliate of the corporation, the corporation is deemed

        • (a) to have made an election at that time under subsection (1) in respect of each of those shares; and

        • (b) to have designated, in the election, the amount prescribed in respect of each of those shares.

  • (9) Subsection (4) applies in respect of losses of a corporation resident in Canada, or of foreign affiliates of such a corporation, in respect of dispositions (referred to in paragraphs (a) and (c) as “relevant dispositions” in respect of the corporation) of shares and partnership interests that occur after February 27, 2004. However,

    • (a) subject to paragraph (c), in respect of relevant dispositions in respect of the corporation that occur before August 19, 2012, the Act is to be read without reference to its subsections 93(2.02), (2.12), (2.22) and (2.32), as enacted by subsection (4), and

      • (i) if the corporation does not elect under subparagraph (ii),

        • (A) paragraph 93(2.01)(b) of the Act, as enacted by subsection (4), is to be read as follows:

          • (b) the total of the following amounts determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2)(b)) of the particular corporation, as the case may be,

            • (i) the amount of the gain that is included in the determination made under subsection 39(2) of the capital gain or capital loss of the particular corporation or the foreign affiliate, as the case may be, for the taxation year that includes the time the gain was made from the disposition of currency of a country other than Canada if the gain is in respect of

              • (A) the settlement or extinguishment of an obligation of the particular corporation or the foreign affiliate, as the case may be, that can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share by the particular corporation or the foreign affiliate, as the case may be, or

              • (B) if that taxation year began on or before August 19, 2011 (in the case of the particular corporation) or ended on or before August 19, 2011 (in the case of the foreign affiliate), the redemption, acquisition or cancellation of a share of the capital stock of the particular corporation or the foreign affiliate, as the case may be, that can reasonably be considered to have been issued in relation to the acquisition of the affiliate share by the particular corporation or the foreign affiliate, as the case may be, and

            • (ii) the amount of any gain realized by the particular corporation or the foreign affiliate, as the case may be, under an agreement that provides for the purchase, sale or exchange of currency, or from the disposition of a currency, which agreement or currency, as the case may be, can reasonably be considered to have been entered into or acquired, by the particular corporation or the foreign affiliate, as the case may be, for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share.

        • (B) paragraph 93(2.11)(b) of the Act, as enacted by subsection (4), is to be read as follows:

          • (b) ½ of the total of the following amounts determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.1)(b)) of the particular corporation, as the case may be:

            • (i) the amount of the gain of the particular corporation, the foreign affiliate or the disposing partnership (to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) that is included in the determination made under subsection 39(2) of the capital gain or capital loss of the particular corporation, the foreign affiliate or the disposing partnership, as the case may be, for the taxation year that includes the time the gain was made from the disposition of currency of a country other than Canada if the gain is in respect of

              • (A) the settlement or extinguishment of an obligation of the particular corporation, the foreign affiliate or the disposing partnership, as the case may be, that can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share by the disposing partnership, or

              • (B) if that taxation year began on or before August 19, 2011 (in the case of the particular corporation) or ended on or before August 19, 2011 (in the case of the foreign affiliate), the redemption, acquisition or cancellation of a share of the capital stock of the particular corporation or the foreign affiliate, as the case may be, that can reasonably be considered to have been issued in relation to the acquisition of the affiliate share by the disposing partnership, and

            • (ii) the amount of any gain realized by the disposing partnership (to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be), the particular corporation or the foreign affiliate, as the case may be, under an agreement that provides for the purchase, sale or exchange of currency, or from the disposition of a currency, which agreement or currency, as the case may be, can reasonably be considered to have been entered into or acquired, by the disposing partnership, the particular corporation or the foreign affiliate, as the case may be, for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share.

        • (C) paragraph 93(2.21)(b) of the Act, as enacted by subsection (4), is to be read as follows:

          • (b) the total of the following amounts determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.2)(b)) of the particular corporation, as the case may be:

            • (i) the amount of the gain of the particular corporation, the foreign affiliate or the partnership (to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) that is included in the determination made under subsection 39(2) of the capital gain or capital loss of the particular corporation, the foreign affiliate or the partnership, as the case may be, for the taxation year that includes the time the gain was made from the disposition of currency of a country other than Canada if the gain is in respect of

              • (A) the settlement or extinguishment of an obligation of the particular corporation, the foreign affiliate or the partnership, as the case may be, that can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate shares, or

              • (B) if that taxation year began on or before August 19, 2011 (in the case of the particular corporation) or ended on or before August 19, 2011 (in the case of the foreign affiliate), the redemption, acquisition or cancellation of a share of the particular corporation or the foreign affiliate, as the case may be, or of an interest in the partnership that can reasonably be considered to have been issued in relation to the acquisition of the affiliate shares, and

            • (ii) the amount of any gain realized by the particular corporation or the foreign affiliate, as the case may be, under an agreement that provides for the purchase, sale or exchange of currency, or from the disposition of a currency, which agreement or currency, as the case may be, can reasonably be considered to have been entered into or acquired by the particular corporation, the foreign affiliate or the partnership, as the case may be, for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate shares.

        • (D) paragraph 93(2.31)(b) of the Act, as enacted by subsection (4), is to be read as follows:

          • (b) ½ of the total of the following amounts determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.3)(b)) of the particular corporation, as the case may be:

            • (i) the amount of the gain of the particular corporation, the foreign affiliate or the particular partnership (to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) that is included in the determination made under subsection 39(2) of the capital gain or capital loss of the particular corporation, the foreign affiliate or the particular partnership, as the case may be, for the taxation year that includes the time the gain was made from the disposition of currency of a country other than Canada if the gain is in respect of

              • (A) the settlement or extinguishment of an obligation of the particular corporation, the foreign affiliate, the particular partnership or the other partnership, as the case may be, that can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate shares, or

              • (B) if that taxation year began on or before August 19, 2011 (in the case of the particular corporation) or ended on or before August 19, 2011 (in the case of the foreign affiliate), the redemption, acquisition or cancellation of a share of the particular corporation or the foreign affiliate, as the case may be, or an interest in the particular partnership or the other partnership, as the case may be, that can reasonably be considered to have been issued in relation to the acquisition of the affiliate shares, and

            • (ii) the amount of any gain realized by a partnership (to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be), by the particular corporation or the foreign affiliate, as the case may be, under an agreement that provides for the purchase, sale or exchange of currency, or from the disposition of a currency, which agreement or currency, as the case may be, can reasonably be considered to have been entered into or acquired by the partnership, the particular corporation or the foreign affiliate, as the case may be, for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate shares.

        • (E) if the corporation has elected under subsection 70(32), the references to “August 19, 2011” in clauses 93(2.01)(b)(i)(B), (2.11)(b)(i)(B), (2.21)(b)(i)(B) and (2.31)(b)(i)(B) of the Act in the read-as texts in clauses (A), (B), (C) and (D), respectively, are, in respect of the foreign affiliates referred to in those clauses of the Act, to be read as references to “June 30, 2011”,

      • (ii) if the corporation elects in writing under this subparagraph in respect of all relevant dispositions in respect of the corporation and files the election with the Minister of National Revenue on or before the day that is the later of the corporation’s filing-due date for the corporation’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent,

        • (A) in respect of subsection 93(2.01) of the Act, as enacted by subsection (4),

          • (I) the formula in paragraph (a) of that subsection 93(2.01) is, in respect of all relevant dispositions in respect of the corporation, to be read as follows:

            A – (B – C) + D

          • (II) paragraph (a) of that subsection 93(2.01) is, in respect of all relevant dispositions in respect of the corporation, to be read as if it contained a description of D that reads as follows:

            D 
            is the lesser of
            • (i) the amount, if any, by which the amount determined for B exceeds the amount determined for C, and

            • (ii) the total of the following amounts determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2)(b)) of the particular corporation, as the case may be,

              • (A) the amount of the gain that is included in the determination made under subsection 39(2) of the capital gain or capital loss of the particular corporation or the foreign affiliate, as the case may be, for the taxation year that includes the time the gain was made from the disposition of currency of a country other than Canada if the gain is in respect of

                • (I) the settlement or extinguishment of an obligation of the particular corporation or the foreign affiliate, as the case may be, that can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share by the particular corporation or the foreign affiliate, as the case may be, or

                • (II) if that taxation year began on or before August 19, 2011 (in the case of the particular corporation) or ended on or before August 19, 2011 (in the case of the foreign affiliate), the redemption, acquisition or cancellation of a share of the capital stock of the particular corporation or the foreign affiliate, as the case may be, that can reasonably be considered to have been issued in relation to the acquisition of the affiliate share by the particular corporation or the foreign affiliate, as the case may be, and

              • (B) the amount of any gain realized by the particular corporation or the foreign affiliate, as the case may be, under an agreement that provides for the purchase, sale or exchange of currency, or from the disposition of a currency, which agreement or currency, as the case may be, can reasonably be considered to have been entered into or acquired, by the particular corporation or the foreign affiliate, as the case may be, for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share.

          • (III) if the corporation has elected under subsection 70(32), the reference to “August 19, 2011” in subclause (ii)(A)(II) of that description of D is, in respect of the foreign affiliate referred to in that subclause, to be read as a reference to “June 30, 2011”,

          • (IV) paragraph (b) of that subsection 93(2.01) is, in respect of all relevant dispositions in respect of the corporation, to be read as follows:

            • (b) nil.

        • (B) in respect of subsection 93(2.11) of the Act, as enacted by subsection (4),

          • (I) the formula in paragraph (a) of that subsection 93(2.11) is, in respect of all relevant dispositions in respect of the corporation, to be read as follows:

            A – (B – C) + D

          • (II) paragraph (a) of that subsection 93(2.11) is, in respect of all relevant dispositions in respect of the corporation, to be read as if it contained a description of D that reads as follows:

            D 
            is the lesser of
            • (i) the amount, if any, by which the amount determined for B exceeds the amount determined for C, and

            • (ii) ½ of the total of the following amounts determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.1)(b)) of the particular corporation, as the case may be:

              • (A) the amount of the gain of the particular corporation, the foreign affiliate or the disposing partnership (to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) that is included in the determination made under subsection 39(2) of the capital gain or capital loss of the particular corporation, the foreign affiliate or the disposing partnership, as the case may be, for the taxation year that includes the time the gain was made from the disposition of currency of a country other than Canada if the gain is in respect of

                • (I) the settlement or extinguishment of an obligation of the particular corporation, the foreign affiliate or the disposing partnership, as the case may be, that can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share by the disposing partnership, or

                • (II) if that taxation year began on or before August 19, 2011 (in the case of the particular corporation) or ended on or before August 19, 2011 (in the case of the foreign affiliate), the redemption, acquisition or cancellation of a share of the capital stock of the particular corporation or the foreign affiliate, as the case may be, that can reasonably be considered to have been issued in relation to the acquisition of the affiliate share by the disposing partnership, and

              • (B) the amount of any gain realized by the disposing partnership (to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be), the particular corporation or the foreign affiliate, as the case may be, under an agreement that provides for the purchase, sale or exchange of currency, or from the disposition of a currency, which agreement or currency, as the case may be, can reasonably be considered to have been entered into or acquired, by the disposing partnership, the particular corporation or the foreign affiliate, as the case may be, for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share.

          • (III) if the corporation has elected under subsection 70(32), the reference to “August 19, 2011” in subclause (ii)(A)(II) of that description of D is, in respect of the foreign affiliate referred to in that subclause, to be read as a reference to “June 30, 2011”, and

          • (IV) paragraph (b) of that subsection 93(2.11) is, in respect of all relevant dispositions in respect of the corporation, to be read as follows:

            • (b) nil.

        • (C) in respect of subsection 93(2.21) of the Act, as enacted by subsection (4),

          • (I) the formula in paragraph (a) of that subsection 93(2.21) is, in respect of all relevant dispositions in respect of the corporation, to be read as follows:

            A – (B – C) + D

          • (II) paragraph (a) of that subsection 93(2.21) is, in respect of all relevant dispositions in respect of the corporation, to be read as if it contained a description of D that reads as follows:

            D 
            is the lesser of
            • (i) the amount, if any, by which the amount determined for B exceeds the amount determined for C, and

            • (ii) the total of the following amounts determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.2)(b)) of the particular corporation, as the case may be:

              • (A) the amount of the gain of the particular corporation, the foreign affiliate or the partnership (to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) that is included in the determination made under subsection 39(2) of the capital gain or capital loss of the particular corporation, the foreign affiliate or the partnership, as the case may be, for the taxation year that includes the time the gain was made from the disposition of currency of a country other than Canada if the gain is in respect of

                • (I) the settlement or extinguishment of an obligation of the particular corporation, the foreign affiliate or the partnership, as the case may be, that can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate shares, or

                • (II) if that taxation year began on or before August 19, 2011 (in the case of the particular corporation) or ended on or before August 19, 2011 (in the case of the foreign affiliate), the redemption, acquisition or cancellation of a share of the particular corporation or the foreign affiliate, as the case may be, or of an interest in the partnership that can reasonably be considered to have been issued in relation to the acquisition of the affiliate shares, and

              • (B) the amount of any gain realized by the particular corporation or the foreign affiliate, as the case may be, under an agreement that provides for the purchase, sale or exchange of currency, or from the disposition of a currency, which agreement or currency, as the case may be, can reasonably be considered to have been entered into or acquired by the particular corporation, the foreign affiliate or the partnership, as the case may be, for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate shares.

          • (III) if the corporation has elected under subsection 70(32), the reference to “August 19, 2011” in subclause (ii)(A)(II) of that description of D is, in respect of the foreign affiliate referred to in that subclause, to be read as a reference to “June 30, 2011”, and

          • (IV) paragraph (b) of that subsection 93(2.21) is, in respect of all relevant dispositions in respect of the corporation, to be read as follows:

            • (b) nil.

        • (D) in respect of subsection 93(2.31) of the Act, as enacted by subsection (4),

          • (I) the formula in paragraph (a) of that subsection 93(2.31) is, in respect of all relevant dispositions in respect of the corporation, to be read as follows:

            A – (B – C) + D

          • (II) paragraph (a) of that subsection 93(2.31) is, in respect of all relevant dispositions in respect of the corporation, to be read as if it contained a description of D that reads as follows:

            D 
            is the lesser of
            • (i) the amount, if any, by which the amount determined for B exceeds the amount determined for C, and

            • (ii) ½ of the total of the following amounts determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.3)(b)) of the particular corporation, as the case may be:

              • (A) the amount of the gain of the particular corporation, the foreign affiliate or the particular partnership (to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) that is included in the determination made under subsection 39(2) of the capital gain or capital loss of the particular corporation, the foreign affiliate or the particular partnership, as the case may be, for the taxation year that includes the time the gain was made from the disposition of currency of a country other than Canada if the gain is in respect of

                • (I) the settlement or extinguishment of an obligation of the particular corporation, the foreign affiliate, the particular partnership or the other partnership, as the case may be, that can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate shares, or

                • (II) if that taxation year began on or before August 19, 2011 (in the case of the particular corporation) or ended on or before August 19, 2011 (in the case of the foreign affiliate), the redemption, acquisition or cancellation of a share of the particular corporation or the foreign affiliate, as the case may be, or an interest in the particular partnership or the other partnership, as the case may be, that can reasonably be considered to have been issued in relation to the acquisition of the affiliate shares, and

              • (B) the amount of any gain realized by a partnership (to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be), by the particular corporation or the foreign affiliate, as the case may be, under an agreement that provides for the purchase, sale or exchange of currency, or from the disposition of a currency, which agreement or currency, as the case may be, can reasonably be considered to have been entered into or acquired by the partnership, the particular corporation or the foreign affiliate, as the case may be, for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate shares.

          • (III) if the corporation has elected under subsection 70(32), the reference to “August 19, 2011” in subclause (ii)(A)(II) of that description of D is, in respect of the foreign affiliate referred to in that subclause, to be read as a reference to “June 30, 2011”, and

          • (IV) paragraph (b) of that subsection 93(2.31) is, in respect of all relevant dispositions in respect of the corporation, to be read as follows:

            • (b) nil.

    • (b) if the corporation elects in writing under this paragraph in respect of all losses of the corporation, and of all foreign affiliates of the corporation, in respect of dispositions (referred to in this paragraph as “pertinent dispositions” in respect of the corporation) of shares and partnership interests that occur on or before February 27, 2004 and files the election with the Minister of National Revenue on or before the day that is the later of the corporation’s filing-due date for the corporation’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent,

      • (i) subsections 93(2) and (2.01) — and if paragraph (c) applies, subsection 93(2.02) — of the Act, as enacted by subsection (4), with the modifications described in paragraph (a) (if applicable) being taken into account, also apply in respect of all pertinent dispositions in respect of the corporation that occur after 1994 and on or before February 27, 2004, except that the references to “twice” in that subsection 93(2.01), are,

        • (A) for taxation years of the corporation that end before February 28, 2000, to be read as references to “4/3 of”, and

        • (B) for taxation years of the corporation that include February 28, 2000 or October 17, 2000 or that begin after February 28, 2000 and end before October 17, 2000, to be read as references to “the fraction that is the reciprocal of the fraction in paragraph 38(a), as amended by S.C. 2001, c. 17, that applies to the taxpayer for the year, multiplied by”, and

      • (ii) subsections 93(2.1), (2.11), (2.2), (2.21), (2.3) and (2.31) — and if paragraph (c) applies, subsections 93(2.12), (2.22) and (2.32) — of the Act, as enacted by subsection (4), with the modifications described in paragraph (a) (if applicable) being taken into account, also apply in respect of all pertinent dispositions in respect of the corporation that occur after November 1999 and on or before February 27, 2004, except that the references to “twice” in those subsections 93(2.11), (2.21) and (2.31), are,

        • (A) for taxation years of the corporation that end before February 28, 2000, to be read as references to “4/3 of”, and

        • (B) for taxation years of the corporation that include February 28, 2000 or October 17, 2000 or that begin after February 28, 2000 and end before October 17, 2000, to be read as references to “the fraction that is the reciprocal of the fraction in paragraph 38(a), as amended by S.C. 2001, c. 17, that applies to the taxpayer for the year, multiplied by”; and

    • (c) if the corporation elects in writing under this paragraph in respect of all relevant dispositions in respect of the corporation that occur before August 19, 2012 and files the election with the Minister of National Revenue on or before the day that is the later of the corporation’s filing-due date for the corporation’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, paragraph (a) does not apply in respect of all those relevant dispositions.

  • (10) Subsection (5) applies if subsection 93(2.01) of the Act, as enacted by subsection (4), applies, except that,

    • (a) where that subsection 93(2.01) applies but subsection 93(2.11) of the Act, as enacted by subsection (4), does not apply, the portion of subsection 93(3) of the Act before paragraph (a), as enacted by subsection (5), is to be read as follows:

      • (3) For the purposes of subsection (2.01),

    • (b) in respect of dispositions that occur on or before August 19, 2011, paragraph 93(3)(a) of the Act, as enacted by subsection (5), is to be read as follows:

      • (a) a dividend received by a corporation resident in Canada is an exempt dividend to the extent of the amount in respect of the dividend that is deductible from the income of the corporation for the purposes of computing the taxable income of the corporation because of paragraph 113(1)(a), (b) or (c); and

  • (11) Subsection (6) applies to acquisitions of shares of the capital stock of a foreign affiliate of a taxpayer that occur after February 27, 2004. However, if

    • (a) the acquisition occurs on or before August 19, 2011, the portion of subsection 93(4) of the Act before paragraph (a), as enacted by subsection (6), is to be read as follows:

      • (4) If a taxpayer resident in Canada or a foreign affiliate (which taxpayer or foreign affiliate is referred to in this subsection as the “transferee”) of the taxpayer has acquired shares of the capital stock of one or more foreign affiliates (each referred to in this subsection as an “acquired affiliate”) of the taxpayer on a disposition of shares (such shares disposed of being referred to in this subsection as the “disposed shares”) of the capital stock of any other foreign affiliate of the taxpayer (other than a disposition to which subsection 40(3.4) applies), the following rules apply:

    • (b) the taxpayer has elected under paragraph (8)(b), subsection (6), with the portion of subsection 93(4) of the Act before paragraph (a), as enacted by that subsection, being read as required by paragraph (a), applies to all acquisitions of shares of the capital stock of all foreign affiliates of the taxpayer that occur after 1994.

  •  (1) The portion of subsection 93.1(1) of the Act before paragraph (a) is replaced by the following:

    Marginal note:Shares held by partnership
    • 93.1 (1) For the purposes of determining whether a non-resident corporation is a foreign affiliate of a corporation resident in Canada for the purposes of subsections (2), 20(12) and 39(2.1), sections 90, 93 and 113, paragraph 128.1(1)(d), (and any regulations made for the purposes of those provisions), section 95 (to the extent that it is applied for the purposes of those provisions), paragraph 95(2)(g.04) and section 126, if, based on the assumptions contained in paragraph 96(1)(c), at any time shares of a class of the capital stock of a corporation are owned by a partnership or are deemed under this subsection to be owned by a partnership, then each member of the partnership is deemed to own at that time the number of those shares that is equal to the proportion of all those shares that

  • (2) Section 93.1 of the Act is amended by adding the following after subsection (2):

    • Marginal note:Tiered partnerships

      (3) A person or partnership that is (or is deemed by this subsection to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership, and the person or partnership is deemed to have, directly, rights to the income or capital of the other partnership to the extent of the person or partnership’s direct and indirect rights to that income or capital, for the purposes of applying

      • (a) except to the extent that the context otherwise requires, a provision of this subdivision;

      • (b) any of paragraphs 13(21.2)(a), 14(12)(a), 18(13)(a), 40(2)(e.1), (e.3) and (g) and (3.3)(a); and

      • (c) subsections 39(2.1) and 40(3.6).

  • (3) Subsection (1) is deemed to have come into force on August 20, 2011.

  • (4) Subsection (2) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after August 19, 2011.

  •  (1) The formula in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:

    (A + A.1 + A.2 + B + C) – (D + E + F + F.1 + G + H)

  • (2) The description of B in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:

    B 
    is the total of all amounts each of which is the portion of the affiliate’s income (to the extent that the income is not included under the description of A) for the year, or of the affiliate’s taxable capital gain for the year that can reasonably be considered to have accrued after its 1975 taxation year, from a disposition of property
    • (a) that is not, at the time of disposition, excluded property of the affiliate, or

    • (b) that is, at the time of disposition, excluded property of the affiliate, if any of paragraphs (2)(c), (d) and (d.1), subparagraph (2)(e)(i) and paragraph 88(3)(a) applies to the disposition,

  • (3) The description of E in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:

    E 
    is the lesser of
    • (a) the amount of the affiliate’s allowable capital losses for the year from dispositions of property (other than excluded property and property in respect of which an election is made by the taxpayer under subsection 88(3.3)) that can reasonably be considered to have accrued after its 1975 taxation year, and

    • (b) the total of all amounts each of which is the portion of a taxable capital gain of the affiliate that is included in the amount determined for B in respect of the affiliate for the year,

  • (4) The definition “foreign accrual property income” in subsection 95(1) of the Act is amended by adding the following after the description of F:

    F.1 
    is the lesser of
    • (a) the prescribed amount for the year, and

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

      • (i) the total of all amounts each of which is the portion of a taxable capital gain of the affiliate that is included in the amount determined for B in respect of the affiliate for the year

      exceeds

      • (ii) the amount determined for E in respect of the affiliate for the year,

  • (5) Paragraph (b) of the description of G in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:

    • (b) the total of all amounts determined for D to F.1 in respect of the affiliate for the year, and

  • (6) Subparagraph (b)(i) of the definition “participating percentage” in subsection 95(1) of the Act is replaced by the following:

    • (i) the percentage that would be the taxpayer’s equity percentage in the affiliate at the end of that taxation year on the assumption that the taxpayer owned no shares other than the particular share (but in no case shall that assumption be made for the purpose of determining whether or not a corporation is a foreign affiliate of the taxpayer) if

      • (A) the affiliate and each corporation that is relevant to the determination of the taxpayer’s equity percentage in the affiliate have, at that time, only one class of issued shares, and

      • (B) no foreign affiliate (referred to in this clause as the “upper-tier affiliate”) of the taxpayer that is relevant to the determination of the taxpayer’s equity percentage in the affiliate has, at that time, an equity percentage in a foreign affiliate (including, for greater certainty, the affiliate) of the taxpayer that has an equity percentage in the upper-tier affiliate, and

  • (7) Subsection 95(1) of the Act is amended by adding the following in alphabetical order:

    “designated liquidation and dissolution”

    « liquidation et dissolution désignées »

    “designated liquidation and dissolution”, of a foreign affiliate (referred to in this definition as the “disposing affiliate”) of a taxpayer, means a liquidation and dissolution of the disposing affiliate in respect of which

    • (a) the taxpayer had, immediately before the time of the earliest distribution of property by the disposing affiliate in the course of the liquidation and dissolution, a surplus entitlement percentage in respect of the disposing affiliate of not less than 90%,

    • (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, in respect of shares of the capital stock of the disposing affiliate, in the course of the liquidation and dissolution to one particular shareholder of the disposing affiliate that was, immediately before the time of the distribution, a foreign affiliate of the taxpayer

        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 particular shareholder 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, in respect of shares of the capital stock of the disposing affiliate, to a shareholder of the disposing affiliate in the course of the liquidation and dissolution

        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 particular shareholder 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, or

    • (c) one particular shareholder of the disposing affiliate that was, throughout the liquidation and dissolution, a foreign affiliate of the taxpayer owns not less than 90% of the issued shares of each class of the capital stock of the disposing affiliate throughout the liquidation and dissolution;

    “taxable Canadian business”

    « entreprise canadienne imposable »

    “taxable Canadian business”, at any time, of a foreign affiliate of a taxpayer resident in Canada or of a partnership of which a foreign affiliate of a taxpayer resident in Canada is a member (which foreign affiliate or partnership is referred to in this definition as the “operator”), means a business the income from which

    • (a) is, or would be if there were income from the business for the operator’s taxation year or fiscal period that includes that time, included in computing the foreign affiliate’s taxable income earned in Canada for a taxation year under subparagraph 115(1)(a)(ii), and

    • (b) is not, or would not be if there were income from the business for the operator’s taxation year or fiscal period that includes that time, exempt, because of a tax treaty with a country, from tax under this Part;

  • (8) Paragraph 95(2)(c) of the Act is replaced by the following:

    • (c) if a foreign affiliate (referred to in this paragraph as the “disposing affiliate”) of a taxpayer has, at any time, disposed of capital property (other than property the adjusted cost base of which, at that time, is greater than the amount that would, in the absence of this paragraph, be the disposing affiliate’s proceeds of disposition of the property in respect of the disposition) that was shares (referred to in this paragraph as the “shares disposed of”) of the capital stock of another foreign affiliate of the taxpayer to any other corporation that was, immediately after that time, a foreign affiliate (referred to in this paragraph as the “acquiring affiliate”) of the taxpayer for consideration that includes shares of the capital stock of the acquiring affiliate,

      • (i) the cost to the disposing affiliate of any property (other than shares of the capital stock of the acquiring affiliate) receivable by the disposing affiliate as consideration for the disposition is deemed to be the fair market value of the property at that time,

      • (ii) the cost to the disposing affiliate of each share of a class of the capital stock of the acquiring affiliate that is receivable by the disposing affiliate as consideration for the disposition is deemed to be the amount determined by the formula

        (A – B) × C/D

        where

        A 
        is the total of all amounts each of which is the relevant cost base to the disposing affiliate at that time, in respect of the taxpayer, of a share disposed of,
        B 
        is the fair market value at that time of the consideration receivable for the disposition (other than shares of the capital stock of the acquiring affiliate),
        C 
        is the fair market value, immediately after that time, of the share, and
        D 
        is the fair market value, immediately after that time, of all shares of the capital stock of the acquiring affiliate receivable by the disposing affiliate as consideration for the disposition,
      • (iii) the disposing affiliate’s proceeds of disposition of the shares are deemed to be an amount equal to the cost to it of all shares and other property receivable by it from the acquiring affiliate as consideration for the disposition, and

      • (iv) the cost to the acquiring affiliate of the shares acquired from the disposing affiliate is deemed to be an amount equal to the disposing affiliate’s proceeds of disposition referred to in subparagraph (iii);

  • (9) Subparagraph 95(2)(d)(iv) of the Act is replaced by the following:

    • (iv) “adjusted cost bases” were read as “relevant cost bases, in respect of the taxpayer,”;

  • (10) Paragraphs 95(2)(d.1) to (e.1) of the Act are replaced by the following:

    • (d.1) if there has been a foreign merger of two or more predecessor foreign corporations to form a new foreign corporation that is, immediately after the merger, a foreign affiliate of a taxpayer and one or more of the predecessor foreign corporations (each being referred to in this paragraph as a “foreign affiliate predecessor”) was, immediately before the merger, a foreign affiliate of the taxpayer,

      • (i) each property of the new foreign corporation that was a property of a foreign affiliate predecessor immediately before the merger is deemed to have been

        • (A) disposed of by the foreign affiliate predecessor immediately before the merger for proceeds of disposition equal to the relevant cost base of the property to the foreign affiliate predecessor, in respect of the taxpayer, at that time, and

        • (B) acquired by the new foreign corporation, at that time, at a cost equal to the amount determined under clause (A),

      • (ii) the new foreign corporation is deemed to be the same corporation as, and a continuation of, each foreign affiliate predecessor for the purposes of applying

        • (A) this subsection and the definition “foreign accrual property income” in subsection (1) with respect to any disposition by the new foreign corporation of any property to which subparagraph (i) applied,

        • (B) subsections 13(21.2), 14(12), 18(15) and 40(3.4) in respect of any property that was disposed of, at any time before the merger, by a foreign affiliate predecessor, and

        • (C) paragraph 40(3.5)(c) in respect of any share that was deemed under that paragraph to be owned, at any time before the merger, by a foreign affiliate predecessor, and

      • (iii) for the purposes of the description of A.2 in the definition “foreign accrual property income” in subsection (1), the total of all amounts each of which is the amount determined for G in respect of a foreign affiliate predecessor for its last taxation year that ends on or before the time of the merger is deemed to be the amount determined for G in respect of the new foreign corporation for its taxation year that immediately precedes its first taxation year;

    • (e) notwithstanding subsection 69(5), if at any time a foreign affiliate (referred to in this paragraph as the “shareholder affiliate”) of a taxpayer receives a property (referred to in this paragraph as the “distributed property”) from another foreign affiliate (referred to in this paragraph 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,

      • (i) the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the shareholder affiliate for proceeds of disposition equal to the relevant cost base to the disposing affiliate of the distributed property in respect of the taxpayer, immediately before that time, if

        • (A) the liquidation and dissolution is a designated liquidation and dissolution of the disposing affiliate, or

        • (B) 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 of the disposing affiliate,

      • (ii) if subparagraph (i) 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 shareholder affiliate for proceeds of disposition equal to the distributed property’s fair market value at that time,

      • (iii) the distributed property is deemed to have been acquired, at that time, by the shareholder affiliate at a cost equal to the amount determined under subparagraph (i) or (ii) to be the disposing affiliate’s proceeds of disposition of the distributed property,

      • (iv) each share of a class of the capital stock of the disposing affiliate that is disposed of by the shareholder affiliate on the liquidation and dissolution of the disposing affiliate is deemed to be disposed of for proceeds of disposition equal to

        • (A) if the liquidation and dissolution is a designated liquidation and dissolution of the disposing affiliate

          • (I) where the amount that would, if clause (B) applied, be determined under that clause in respect of the share is greater than or equal to the adjusted cost base of the share to the shareholder affiliate immediately before the disposition, that adjusted cost base, or

          • (II) where the adjusted cost base of the share to the shareholder affiliate immediately before the disposition exceeds the amount that would, if clause (B) applied, be determined under that clause in respect of the share

            1. if the share is not excluded property of the shareholder affiliate, that adjusted cost base, and

            2. in any other case, the amount that would be determined under clause (B), and

        • (B) in any other case, the amount determined by the formula

          (A – B)/C

          where

          A 
          is the total of all amounts each of which is the cost to the shareholder affiliate of a distributed property, as determined under subparagraph (iii), received, at any time, in respect of the class,
          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 shareholder affiliate in consideration for the distribution of a distributed property referred to in the description of A, and
          C 
          is the total number of issued and outstanding shares of the class that are owned by the shareholder affiliate during the liquidation and dissolution, and
      • (v) if the liquidation and dissolution is a designated liquidation and dissolution of the disposing affiliate,

        • (A) the shareholder affiliate is deemed to be the same corporation as, and a continuation of, the disposing affiliate for the purposes of applying

          • (I) this subsection and the definition “foreign accrual property income” in subsection (1) with respect to any disposition by the shareholder affiliate of any property to which clause (i)(A) applied,

          • (II) subsections 13(21.2), 14(12), 18(15) and 40(3.4) in respect of any property that was disposed of, at any time before the liquidation and dissolution, by the disposing affiliate, and

          • (III) paragraph 40(3.5)(c) in respect of any share that was deemed under that paragraph to be owned, at any time before the liquidation and dissolution, by the disposing affiliate, and

        • (B) for the purposes of the description of A.2 in the definition “foreign accrual property income” in subsection (1), the amount, if any, determined for G in respect of the disposing affiliate for its first taxation year that ends after the beginning of the liquidation and dissolution is to be added to the amount otherwise determined for G in respect of the shareholder affiliate for its taxation year that immediately precedes its taxation year that includes the time at which the liquidation and dissolution began;

  • (11) Subparagraph 95(2)(f.11)(i) of the Act is replaced by the following:

    • (i) if the amount is described in subparagraph (f)(i), this Act is to be

      • (A) read without reference to section 26 of the Income Tax Application Rules, and

      • (B) applied as if, in respect of any debt obligation owing by the foreign affiliate or a partnership of which the foreign affiliate is a member (which foreign affiliate or partnership is referred to in this clause as the “debtor”), each capital gain or loss of the debtor that is deemed to arise under subsection 39(2) or (3) in respect of the debt obligation were from a disposition of property that was held by the debtor throughout the period during which the debt obligation was owed by the debtor and, for greater certainty, at the time of the disposition,

  • (12) Subparagraph 95(2)(f.11)(ii) of the Act is amended by striking out “and” at the end of clause (A), adding “and” at the end of clause (B) and adding the following after clause (B):

    • (C) this Act is to be applied as if, in respect of any debt obligation owing by the foreign affiliate or a partnership of which the foreign affiliate is a member (which foreign affiliate or partnership is referred to in this clause as the “debtor”), each amount of income or loss of the debtor — from a property, from a business other than an active business or from a non-qualifying business — in respect of the debt obligation were from such a property that was held, or such a business that was carried on, as the case may be, by the debtor throughout the period during which the debt obligation was owed by the debtor and at the time at which the debt obligation was settled or extinguished;

  • (13) Subparagraph 95(2)(f.12)(i) of the Act is replaced by the following:

    • (i) subject to paragraph (f.13), each capital gain, capital loss, taxable capital gain and allowable capital loss (other than a gain or loss in respect of a debt referred to in subparagraph (i)(i) or (ii)) of the foreign affiliate for the taxation year from the disposition, at any time, of a property that, at that time, was an excluded property of the foreign affiliate,

  • (14) Paragraphs 95(2)(f.14) and (f.15) of the Act are replaced by the following:

    • (f.14) a foreign affiliate of a taxpayer is to determine using Canadian currency each amount of its income, loss, capital gain, capital loss, taxable capital gain or allowable capital loss for a taxation year, other than an amount to which paragraph (f.12), (f.13) or (f.15) applies;

    • (f.15) for the purposes of applying subparagraph (f)(i) in respect of a debt obligation owing by a foreign affiliate of a taxpayer, or a partnership of which the foreign affiliate is a member, that is a debt referred to in subparagraph (i)(i) or (ii), the references in subsection 39(2) to “Canadian currency” are to be read as references to “the taxpayer’s calculating currency”;

  • (15) Subparagraph 95(2)(g)(ii) of the Act is replaced by the following:

    • (ii) the redemption, acquisition or cancellation of, or a qualifying return of capital (within the meaning assigned by subsection 90(3)) in respect of, a share of the capital stock of a qualified foreign affiliate by the qualified foreign affiliate, or

  • (16) Paragraph 95(2)(g.02) of the Act is repealed.

  • (17) Subsection 95(2) of the Act is amended by adding the following after paragraph (g.03):

    • (g.04) if at any time a corporation resident in Canada or a partnership of which such a corporation is a member (such corporation or partnership referred to in this paragraph as the “borrowing party”) has received a loan from, or become indebted to, a creditor that is a foreign affiliate (referred to in this paragraph as a “creditor affiliate”) of the borrowing party or that is a partnership (referred to in this paragraph as a “creditor partnership”) of which such an affiliate is a member, the loan or indebtedness is at a later time repaid, in whole or in part, and the amount of the borrowing party’s capital gain or capital loss determined, in the absence of subsection 39(2.1), under subsection 39(2) in respect of the repayment is equal to the amount of the creditor affiliate’s or creditor partnership’s capital loss or capital gain, as the case may be, determined, in respect of the borrowing party and in the absence of this paragraph, in respect of the repayment, then that capital loss or capital gain is deemed to be nil;

  • (18) Subparagraph 95(2)(k)(iv) of the Act is replaced by the following:

    • (iv) if the foreign business of the affiliate is a business in respect of which the affiliate would, if the foreign business were carried on in Canada, be required by law to report to a regulating authority in Canada such as the Superintendent of Financial Institutions or a similar authority of a province,

      • (A) the affiliate is deemed to be required by law to report to and to be subject to the supervision of such regulating authority, and

      • (B) if the affiliate is a life insurer and the foreign business of the affiliate is a life insurance business, the life insurance policies issued in the conduct of that business are deemed to be life insurance policies in Canada, and

  • (19) Paragraph 95(2)(k) of the Act, as amended by subsection (18), is replaced by the following:

    • (j.1) paragraph (j.2) applies if, in a particular taxation year of a foreign affiliate of a taxpayer or in a particular fiscal period of a partnership (which foreign affiliate or partnership is referred to in this paragraph and paragraph (j.2) as the “operator” and which particular taxation year or particular fiscal period is referred to in this paragraph and paragraph (j.2) as the “specified taxation year”) a member of which is, at the end of the period, a foreign affiliate of a taxpayer,

      • (i) the operator carries on a business,

      • (ii) the business includes the insuring of risks,

      • (iii) the business is not, at any time, a taxable Canadian business,

      • (iv) the business is

        • (A) an investment business,

        • (B) a non-qualifying business, or

        • (C) a business whose activities include activities deemed by paragraph (a.2) or (b) to be a separate business, other than an active business, carried on by the affiliate, and

      • (v) in respect of the investment business, non-qualifying business or separate business (each of these businesses being referred to in this subparagraph and paragraph (j.2) as a “foreign business”), as the case may be, the operator would, if it were a corporation carrying on the foreign business in Canada, be required by law to report to, and be subject to the supervision of, a regulatory authority that is the Superintendent of Financial Institutions or is a similar authority of a province;

    • (j.2) if this paragraph applies, in computing the operator’s income or loss from the foreign business for the specified taxation year and each subsequent taxation year or fiscal period in which the foreign business is carried on by the operator

      • (i) the operator is deemed to carry on the foreign business in Canada throughout that part of the specified taxation year, and of each of those subsequent taxation years or fiscal periods, in which the foreign business is carried on by the operator, and

      • (ii) for the purposes of Part XIV of the Income Tax Regulations,

        • (A) the operator is deemed to be required by law to report to, and to be subject to the supervision of, the regulatory authority referred to in subparagraph (j.1)(v), and

        • (B) if the operator is a life insurer and the foreign business is part of a life insurance business, the life insurance policies issued in the conduct of the foreign business are deemed to be life insurance policies in Canada;

    • (k) paragraph (k.1) applies if

      • (i) in a particular taxation year of a foreign affiliate of a taxpayer or in a particular fiscal period of a partnership (which foreign affiliate or partnership is referred to in this paragraph and paragraph (k.1) as the “operator” and which particular taxation year or particular fiscal period is referred to in this paragraph and paragraph (k.1) as the “specified taxation year”) a member of which is, at the end of the period, a foreign affiliate of a taxpayer,

        • (A) the operator carries on a business,

        • (B) the business is not, at any time, a taxable Canadian business, and

        • (C) the business is

          • (I) an investment business,

          • (II) a non-qualifying business,

          • (III) a business whose activities include activities deemed by any of paragraphs (a.1) to (b) to be a separate business, other than an active business, carried on by the affiliate, or

          • (IV) a business the income from which is included by paragraph (l) in computing the affiliate’s income from property for the specified taxation year, and

      • (ii) in the taxation year of the affiliate or the fiscal period of the partnership that includes the day that is immediately before the beginning of the specified taxation year,

        • (A) the affiliate or partnership carried on the business, or the activities so deemed to be a separate business, as the case may be,

        • (B) the business was not, or the activities were not, as the case may be, at any time, part of a taxable Canadian business, and

        • (C) the business was not described in any of subclauses (i)(C)(I), (II) and (IV), or the activities were not described in subclause (i)(C)(III), as the case may be;

    • (k.1) if this paragraph applies, in computing the operator’s income or loss from the investment business, non-qualifying business, separate business or business described in paragraph (l) (each of these businesses being referred to in this paragraph as a “foreign business”), as the case may be, and the operator’s capital gain or capital loss from the disposition of property used or held in the course of carrying on the foreign business, for the specified taxation year and each subsequent taxation year or fiscal period in which the foreign business is carried on by the operator

      • (i) the operator is deemed

        • (A) to begin to carry on the foreign business in Canada at the beginning of the specified taxation year, and

        • (B) to carry on the foreign business in Canada throughout that part of the specified taxation year, and of each of those subsequent taxation years or fiscal periods, in which the foreign business is carried on by the operator,

      • (ii) where, in respect of the foreign business, the operator would, if it were a corporation carrying on the foreign business in Canada, be required by law to report to, and be subject to the supervision of, a regulatory authority that is the Superintendent of Financial Institutions or a similar authority of a province,

        • (A) the operator is deemed to be required by law to report to, and to be subject to the supervision of, the regulatory authority, and

        • (B) if the operator is a life insurer and the foreign business is part of a life insurance business, the life insurance policies issued in the conduct of the foreign business are deemed to be life insurance policies in Canada, and

      • (iii) paragraphs 138(11.91)(c) to (e) apply to the operator for the specified taxation year in respect of the foreign business as if

        • (A) the operator were the insurer referred to in subsection 138(11.91),

        • (B) the specified taxation year of the operator were the particular taxation year of the insurer referred to in that subsection,

        • (C) the foreign business of the operator were the business of the insurer referred to in that subsection, and

        • (D) the reference in paragraph 138(11.91)(e) to “property owned by it at that time that is designated insurance property in respect of the business” were read as a reference to “property owned or held by it at that time that is used or held by it in the particular taxation year in the course of carrying on the insurance business”;

    • (k.2) for the purposes of paragraphs (j.1) to (k.1) and the definition “taxable Canadian business” in subsection (1), any portion of a business carried on by a person or partnership that is carried on in Canada is deemed to be a business that is separate from any other portion of the business carried on by the person or partnership;

  • (20) Paragraph 95(2)(u) of the Act is replaced by the following:

    • (u) if any entity is (or is deemed by this paragraph to be) a member of a particular partnership that is a member of another partnership,

      • (i) the entity is deemed to be a member of the other partnership for the purposes of

        • (A) subparagraph (ii),

        • (B) applying the reference, in paragraph (a), to “a member” of a partnership,

        • (C) paragraphs (a.1) to (b), (g.03), (j.1) to (k.1) and (o),

        • (D) paragraphs (b) and (c) of the definition “investment business” in subsection (1), and

        • (E) the definition “taxable Canadian business” in subsection (1), and

      • (ii) in applying paragraph (g.03) and the definition “taxable Canadian business” in subsection (1), the entity is deemed to have, directly, rights to the income or capital of the other partnership to the extent of the entity’s direct and indirect rights to that income or capital;

  • (21) Paragraph 95(2)(u) of the Act, as enacted by subsection (20), is repealed.

  • (22) The definition “relevant cost base” in subsection 95(4) of the Act is replaced by the following:

    “relevant cost base”

    « prix de base approprié »

    “relevant cost base”, of a property at any time to a foreign affiliate of a taxpayer, in respect of the taxpayer, means the greater of

    • (a) the amount determined — or, if the taxpayer is not a corporation, the amount that would be determined if the taxpayer were a corporation resident in Canada — by the formula

      A + B – C

      where

      A 
      is the amount for which the property could be disposed of at that time that would not, in the absence of paragraph (2)(f.1), result in any amount being added to, or deducted from, any of the affiliate’s
      • (i) exempt earnings, exempt loss, taxable earnings and taxable loss (all within the meaning of subsection 5907(1) of the Income Tax Regulations), in respect of the taxpayer, for the taxation year of the affiliate that includes that time, and

      • (ii) hybrid surplus and hybrid deficit, in respect of the taxpayer, at that time,

      B 
      is the amount, if any, by which any income or gain from a disposition of the property would, if the property were disposed of at that time for proceeds of disposition equal to its fair market value at that time be reduced under paragraph (2)(f.1), and
      C 
      is the amount, if any, by which any loss from a disposition of the property would, if the property were disposed of at that time for proceeds of disposition equal to its fair market value at that time be reduced under paragraph (2)(f.1), and
    • (b) either

      • (i) if the affiliate is an eligible controlled foreign affiliate of the taxpayer at that time, the amount that the taxpayer elects, in accordance with prescribed rules, in respect of the property not exceeding the fair market value at that time of the property, or

      • (ii) in any other case, nil.

  • (23) Subsection 95(4) of the Act is amended by adding the following in alphabetical order:

    “eligible controlled foreign affiliate”

    « société étrangère affiliée contrôlée admissible »

    “eligible controlled foreign affiliate”, of a taxpayer, at any time, means a foreign affiliate at that time of the taxpayer in respect of which the following conditions are met:

    • (a) the affiliate is a controlled foreign affiliate of the taxpayer at that time and at the end of the affiliate’s taxation year that includes that time, and

    • (b) the total of all amounts each of which would be, if this definition were read without reference to this paragraph, the participating percentage (determined at the end of the taxation year) of a share owned by the taxpayer of the capital stock of a corporation, in respect of the affiliate, is not less than 90%;

  • (24) Subsections (1), (4) and (5) apply in respect of taxation years of a foreign affiliate of a taxpayer that end after August 19, 2011.

  • (25) Subsection (2) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after December 19, 2002. However, paragraph (b) of the description of B in the definition “foreign accrual property income” in subsection 95(1) of the Act, as enacted by subsection (2), is

    • (a) if the taxpayer has elected under subsection (28) but not under subsection (31), to be read as follows:

      • (b) that is, at the time of disposition, excluded property of the affiliate, if any of paragraphs (2)(c) and (d), subparagraph (2)(e)(i) and paragraph 88(3)(a) applies to the disposition,

    • (b) if the taxpayer has elected under subsection (31) but not under subsection (28), to be read as follows:

      • (b) that is, at the time of disposition, excluded property of the affiliate, if any of paragraphs (2)(c) to (e) and 88(3)(a) applies to the disposition,

    • (c) if the taxpayer has elected under neither subsection (28) nor subsection (31), to be read as follows:

      • (b) that is, at the time of disposition, excluded property of the affiliate, if any of paragraphs (2)(c), (d), (e) and 88(3)(a) applies to the disposition,

  • (26) Subsection (3) applies to dispositions of property by a foreign affiliate of a taxpayer that occur after February 27, 2004, except that, in respect of such dispositions of property that occur in taxation years of the foreign affiliate that end on or before August 19, 2011, the description of E in the definition “foreign accrual property income” in subsection 95(1) of the Act, as enacted by subsection (3), is to be read as follows:

    E 
    is the amount of the affiliate’s allowable capital losses for the year from dispositions of property (other than excluded property and property in respect of which an election is made by the taxpayer under subsection 88(3.3)) that can reasonably be considered to have accrued after its 1975 taxation year,
  • (27) Subsection (6) applies in respect of taxation years of a foreign affiliate of a taxpayer that begin after August 19, 2011.

  • (28) The definition “designated liquidation and dissolution” in subsection 95(1) of the Act, as enacted by subsection (7), paragraph 95(2)(e) of the Act, as enacted by subsection (10), and the repeal by subsection (10) of paragraph 95(2)(e.1) of the Act apply in respect of liquidations and dissolutions of foreign affiliates of a taxpayer that begin after August 19, 2011. However, if the taxpayer elects in writing under this subsection in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, then

    • (a) the definition “designated liquidation and dissolution” in subsection 95(1) of the Act, as enacted by subsection (7), that paragraph 95(2)(e) and that repeal of paragraph 95(2)(e.1) apply to liquidations and dissolutions of all foreign affiliates of the taxpayer that begin after December 20, 2002; and

    • (b) in respect of liquidations and dissolutions of all foreign affiliates of the taxpayer that begin on or before August 19, 2011,

      • (i) the definition “designated liquidation and dissolution” in subsection 95(1) of the Act, as enacted by subsection (7), is to be read without reference to its subparagraph (b)(ii), and

      • (ii) subparagraphs 95(2)(e)(iv) and (v) of the Act, as enacted by subsection (10), are to be read as follows:

        • (iv) each share of a class of the capital stock of the disposing affiliate that is disposed of by the shareholder affiliate on the liquidation and dissolution of the disposing affiliate is deemed to be disposed of for proceeds of disposition equal to

          • (A) if the liquidation and dissolution is a designated liquidation and dissolution of the disposing affiliate, the adjusted cost base of the share to the shareholder affiliate immediately before the disposition, and

          • (B) in any other case, the amount determined by the formula

            (A – B)/C

            where

            A 
            is the total of all amounts each of which is the cost to the shareholder affiliate of a distributed property, as determined under subparagraph (iii), received in respect of the class,
            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 shareholder affiliate in consideration for the distribution of a distributed property referred to in the description of A, and
            C 
            is the total number of issued and outstanding shares of the class that are owned by the shareholder affiliate during the liquidation and dissolution, and
        • (v) if the liquidation and dissolution is a designated liquidation and dissolution of the disposing affiliate, for the purposes of this subsection and the definition “foreign accrual property income” in subsection (1), the shareholder affiliate is, with respect to any disposition by it of any property to which clause (i)(A) applied, deemed to be the same corporation as, and a continuation of, the disposing affiliate;

  • (29) The definition “taxable Canadian business” in subsection 95(1) of the Act, as enacted by subsection (7), and subsection (19) apply in respect of taxation years of a foreign affiliate of a taxpayer that begin after December 20, 2002. However,

    • (a) in respect of taxation years of a foreign affiliate of the taxpayer that begin before August 19, 2011,

      • (i) subparagraph 95(2)(j.1)(iv) of the Act, as enacted by subsection (19), is to be read without reference to its clause (B),

      • (ii) subparagraph 95(2)(j.1)(v) of the Act, as enacted by subsection (19), is to be read as follows:

        • (v) in respect of the investment business or separate business (each of these businesses being referred to in this subparagraph and paragraph (j.2) as a “foreign business”), as the case may be, the operator would, if it were a corporation carrying on the foreign business in Canada, be required by law to report to, and be subject to the supervision of, a regulatory authority that is the Superintendent of Financial Institutions or a similar authority of a province;

      • (iii) clause 95(2)(k)(i)(C) of the Act, as enacted by subsection (19), is to be read without reference to its subclause (II),

      • (iv) clause 95(2)(k)(ii)(C) of the Act, as enacted by subsection (19), is to be read as follows:

        • (C) the business was not described in subclause (i)(C)(I) or (IV) or the activities were not described in subclause (i)(C)(III);

      • (v) the portion of paragraph 95(2)(k.1) of the Act before subparagraph (i), as enacted by subsection (19), is to be read as follows:

        • (k.1) if this paragraph applies, in computing the operator’s income or loss from the investment business, separate business or business referred to in paragraph (l) (each of these businesses being referred to in this paragraph as a “foreign business”), as the case may be, and the operator’s capital gain or capital loss from the disposition of property used or held in the course of carrying on the foreign business, for the specified taxation year and each subsequent taxation year or fiscal period in which the foreign business is carried on by the operator

    • (b) if the taxpayer elects in writing under this paragraph in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent,

      • (i) the definition “taxable Canadian business” in subsection 95(1) of the Act, as enacted by subsection (7), and subsection (19), with paragraphs 95(2)(j.1) to (k.1) of the Act, as enacted by that subsection, being read as required by subparagraphs (a)(i) to (v), also apply in respect of taxation years of all foreign affiliates of the taxpayer that begin after 1994 and before December 21, 2002,

      • (ii) in applying paragraph (b) of the definition “taxable Canadian business” in subsection 95(1) of the Act, as enacted by subsection (7), in respect of the 1997 and preceding taxation years of all foreign affiliates of the taxpayer, that paragraph is to be read as follows:

        • (b) is not, or would not be if there were income from the business for the operator’s taxation year or fiscal period that includes that time, exempt — because of a comprehensive agreement or convention for the elimination of double taxation on income, between the Government of Canada and the government of another country, which has the force of law in Canada at that time — from tax under this Part;

      • (iii) in applying subparagraph 95(2)(k)(ii) of the Act, as enacted by subsection (19), in respect of taxation years of all foreign affiliates of the taxpayer that begin after 1994 and before December 21, 2002, that subparagraph is to be read as follows:

        • (ii) both

          • (A) in the taxation year of the affiliate or the fiscal period of the partnership that includes the day that is immediately before the beginning of the specified taxation year,

            • (I) the affiliate or partnership carried on the business, or the activities deemed to be a separate business, as the case may be,

            • (II) the business was not, or the activities were not, as the case may be, at any time, part of a taxable Canadian business, and

            • (III) the business was not described in subclause (i)(C)(IV), or the activities were not described in subclause (i)(C)(III), as the case may be, and

          • (B) in the case of the business, if any,

            • (I) the business was not described in subclause (i)(C)(I) in that taxation year or fiscal period, or

            • (II) the definition “investment business” in subsection (1) did not apply in respect of that taxation year or fiscal period;

  • (30) Subsection (8) applies to dispositions that occur after August 19, 2011.

  • (31) Subsection (9) and paragraph 95(2)(d.1) of the Act, as enacted by subsection (10), apply in respect of mergers or combinations in respect of a foreign affiliate of a taxpayer that occur after August 19, 2011. However, if the taxpayer elects in writing under this subsection in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent,

    • (a) that paragraph 95(2)(d.1) applies to mergers or combinations in respect of all foreign affiliates of the taxpayer that occur after December 20, 2002; and

    • (b) in respect of such mergers or combinations that occur before August 19, 2011, the portion of that paragraph 95(2)(d.1) after subparagraph (i) is to be read as follows:

      • (ii) for the purposes of this subsection and the definition “foreign accrual property income” in subsection (1), the new foreign corporation is, with respect to any disposition by it of any property to which subparagraph (i) applied, deemed to be the same corporation as, and a continuation of, the foreign affiliate predecessor that owned the property immediately before the merger;

  • (32) Subsections (11) to (16) apply in respect of taxation years of a foreign affiliate of a taxpayer that end after August 19, 2011. However, if the taxpayer so elects in writing under this subsection in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, then subsections (11) to (16) apply in respect of taxation years of all foreign affiliates of the taxpayer that end after June 2011.

  • (33) Subsection (17) applies in respect of the portions of loans received and indebtedness incurred on or before August 19, 2011 that remain outstanding on that date and that are repaid, in whole or in part, on or before August 19, 2016.

  • (34) Subsection (18) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after 1999.

  • (35) Subsection (20) applies in respect of taxation years of a foreign affiliate of a taxpayer that begin after December 20, 2002. However, if the taxpayer has elected under paragraph (29)(b), subsection (20) also applies in respect of taxation years of all foreign affiliates of the taxpayer that begin after 1994 and before December 21, 2002, except that, if the taxpayer has not elected under subsection 26(40) of the Budget and Economic Statement Implementation Act, 2007, paragraph 95(2)(u) of the Act, as enacted by subsection (20), is, in respect of taxation years of all foreign affiliates of the taxpayer that end before 2000, to be read as follows:

    • (u) if any entity is, or is deemed by this paragraph to be, a member of a particular partnership that is a member of another partnership,

      • (i) the entity is deemed to be a member of the other partnership for the purposes of

        • (A) paragraphs (j.1) to (k.1), and

        • (B) the definition “taxable Canadian business” in subsection (1), and

      • (ii) in applying the definition “taxable Canadian business” in subsection (1), the entity is deemed to have, directly, rights to the income or capital of the other partnership to the extent of the entity’s direct and indirect rights to that income or capital;

  • (36) Subsection (21) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after August 19, 2011.

  • (37) Subsections (22) and (23) apply in respect of determinations made after February 27, 2004 in respect of property of a foreign affiliate of a taxpayer. However,

    • (a) if the taxpayer has elected under subsection (28) or (31), subsections (22) and (23) also apply to such determinations made after December 20, 2002 and before February 28, 2004 but only in respect of

      • (i) where an election is made under subsection (28) but no election is made under subsection (31), property that is subject to the application of paragraph 95(2)(e) of the Act, as enacted by subsection (10),

      • (ii) where no election is made under subsection (28) but an election is made under subsection (31), property that is subject to the application of paragraph 95(2)(d.1) of the Act, as enacted by subsection (10), and

      • (iii) where elections are made under subsections (28) and (31), property that is subject to the application of paragraph 95(2)(d.1) or (e) of the Act, as enacted by subsection (10);

    • (b) in respect of any such determinations made for the purposes of paragraph 88(3)(a) of the Act, as enacted by subsection 65(1),

      • (i) if the determination is made on or before August 19, 2011 and is in respect of property that is a share of the capital stock of a foreign affiliate of the taxpayer that is excluded property (within the meaning assigned by subsection 95(1) of the Act) of the disposing affiliate, the definition “relevant cost base” in subsection 95(4) of the Act, as enacted by subsection (22), is to be read as follows:

        “relevant cost base”

        “relevant cost base”, of a property at any time to a foreign affiliate of a taxpayer, means the adjusted cost base to the affiliate of the property at that time or such greater amount as the taxpayer elects, in accordance with prescribed rules, in respect of the property not exceeding the fair market value at that time of the property.

      • (ii) if the determination is made on or before August 19, 2011 and is in respect of property received in the course of a qualifying liquidation and dissolution of the disposing affiliate, the definition “eligible controlled foreign affiliate” in subsection 95(4) of the Act, as enacted by subsection (23), is to be read as follows:

        “eligible controlled foreign affiliate”

        “eligible controlled foreign affiliate”, of a taxpayer at any time, means a controlled foreign affiliate of the taxpayer at that time.

    • (c) in respect of any such determinations made on or before August 19, 2011 for the purposes of paragraph 95(2)(c), (d) or, if the taxpayer has not elected under subsection (28), paragraph 95(2)(e) of the Act, the definition “relevant cost base” in subsection 95(4) of the Act, as enacted by subsection (22), is to be read in the manner specified in subparagraph (b)(i);

    • (d) if the taxpayer has elected under subsection (31), in respect of any such determinations made on or before August 19, 2011 for the purposes of paragraph 95(2)(d.1) of the Act, as enacted by subsection (10), the definition “eligible controlled foreign affiliate” in subsection 95(4) of the Act, as enacted by subsection (23), is to be read in the manner specified in subparagraph (b)(ii); and

    • (e) if the taxpayer has elected under subsection (28), in respect of any such determinations made on or before August 19, 2011 for the purposes of paragraph 95(2)(e) of the Act, as enacted by subsection (10), the definition “eligible controlled foreign affiliate” in subsection 95(4) of the Act, as enacted by subsection (23), is to be read in the manner specified in subparagraph (b)(ii).

  •  (1) The portion of subsection 96(3) of the Act before paragraph (a), as enacted by subsection 228(5), is replaced by the following:

    • Marginal note:Agreement or election of partnership members

      (3) If a taxpayer who was a member of a partnership at any time in a fiscal period has, for any purpose relevant to the computation of the taxpayer’s income from the partnership for the fiscal period, made or executed an agreement, designation or election under or in respect of the application of any of subsections 13(4), (4.2) and (16) and 14(1.01), (1.02) and (6), section 15.2, subsections 20(9) and 21(1) to (4), section 22, subsection 29(1), section 34, clause 37(8)(a)(ii)(B), subsections 44(1) and (6), 50(1) and 80(5) and (9) to (11), section 80.04, subsections 86.1(2), 88(3.1), (3.3) and (3.5) and 90(3), the definition “relevant cost base” in subsection 95(4) and subsections 97(2), 139.1(16) and (17) and 249.1(4) and (6) that, if this Act were read without reference to this subsection, would be a valid agreement, designation or election,

  • (2) Subsection (1) applies to agreements, designations and elections made or executed after August 19, 2011.

  •  (1) Subsection 113(1) of the Act is amended by adding the following after paragraph (a):

    • (a.1) an amount equal to the total of

      • (i) one-half of the portion of the dividend that is prescribed to have been paid out of the hybrid surplus, as defined by regulation (in this Part referred to as “hybrid surplus”), of the affiliate, and

      • (ii) the lesser of

        • (A) the total of

          • (I) the product obtained when the foreign tax prescribed to be applicable to the portion of the dividend referred to in subparagraph (i) is multiplied by the amount by which

            1. the corporation’s relevant tax factor for the year

            exceeds

            2. one-half, and

          • (II) the product obtained when

            1. the non-business-income tax paid by the corporation applicable to the portion of the dividend referred to in subparagraph (i)

            is multiplied by

            2. the corporation’s relevant tax factor for the year, and

        • (B) the amount determined under subparagraph (i),

  • (2) Subparagraph 113(2)(b)(iii.1) of the Act is replaced by the following:

    • (iii.1) the total of all amounts received by the corporation on the share after the end of its 1975 taxation year and before the particular time

      • (A) on a reduction, before August 20, 2011, of the paid-up capital of the foreign affiliate in respect of the share, or

      • (B) on a reduction, after August 19, 2011, of the paid-up capital of the foreign affiliate in respect of the share that is a qualifying return of capital (within the meaning assigned by subsection 90(3)) in respect of the share, and

  • (3) Subsection (1) applies in respect of dividends received after August 19, 2011.

  • (4) Subsection (2) is deemed to have come into force on August 20, 2011.

  •  (1) Subparagraphs 128.1(1)(d)(i) and (ii) of the Act are replaced by the following:

    • (i) the affiliate is deemed to have been a controlled foreign affiliate of the other taxpayer immediately before the particular time, and

    • (ii) the prescribed amount is to be included in the foreign accrual property income of the affiliate for its taxation year that ends immediately before the particular time.

  • (2) Subsection (1) applies to taxation years that begin after 2006.

  •  (1) Paragraph 152(6.1)(b) of the Act, as enacted by Part 2, is replaced by the following:

    • (b) the amount included in computing the taxpayer’s income for the particular year under subsection 91(1) is subsequently reduced because of a reduction in the foreign accrual property income of a foreign affiliate of the taxpayer for a taxation year (referred to in this paragraph as the “claim year”) of the affiliate that ends in the particular year, if

      • (i) the reduction is

        • (A) attributable to a foreign accrual property loss (within the meaning assigned by subsection 5903(3) of the Income Tax Regulations) of the affiliate for a taxation year of the affiliate that ends in a subsequent taxation year of the taxpayer, and

        • (B) included in the description of F in the definition “foreign accrual property income” in subsection 95(1) in respect of the affiliate for the claim year, or

      • (ii) the reduction is

        • (A) attributable to a foreign accrual capital loss (within the meaning assigned by subsection 5903.1(3) of the Income Tax Regulations) of the affiliate for a taxation year of the affiliate that ends in a subsequent taxation year of the taxpayer, and

        • (B) included in the description of F.1 in the definition “foreign accrual property income” in subsection 95(1) in respect of the affiliate for the claim year, and

  • (2) Subsection (1) applies to taxation years that end after August 19, 2011.

  •  (1) The portion of subsection 186(1) of the French version of the Act before subparagraph (b)(i) is replaced by the following:

    Marginal note:Impôt sur les dividendes imposables déterminés
    • 186. (1) Toute société qui est une société privée ou une société assujettie au cours d’une année d’imposition est tenue de payer, au plus tard à la date d’exigibilité du solde qui lui est applicable pour l’année, un impôt pour l’année en vertu de la présente partie égal à l’excédent éventuel du total des montants suivants :

      • a) le tiers de l’ensemble des dividendes imposables déterminés qu’elle a reçus au cours de l’année de sociétés autres que des sociétés payantes auxquelles elle est rattachée,

      • b) les montants représentant chacun un montant au titre d’un dividende imposable déterminé qu’elle a reçu au cours de l’année d’une société privée ou d’une société assujettie qui était une société payante à laquelle elle était rattachée, égal au produit de la multiplication du remboursement au titre de dividendes, au sens de l’alinéa 129(1)a), de la société payante pour son année d’imposition au cours de laquelle elle a versé le dividende par le rapport entre :

  • (2) The portion of subsection 186(1.1) of the French version of the Act before paragraph (a) is replaced by the following:

    • Marginal note:Réduction d’impôt

      (1.1) Malgré le paragraphe (1), l’impôt payable par ailleurs en vertu de la présente partie par une société pour une année d’imposition est réduit de celui des montants ci-après qui est applicable si elle reçoit au cours de l’année un dividende imposable déterminé qui est inclus dans un montant sur lequel l’impôt prévu à la partie IV.1 est payable par elle pour l’année :

  • (3) The definition dividende déterminé in subsection 186(3) of the French version of the Act is repealed.

  • (4) The definition “assessable dividend” in subsection 186(3) of the English version of the Act is replaced by the following:

    “assessable dividend”

    « dividende imposable déterminé »

    “assessable dividend” means an amount received by a corporation at a time when it is a private corporation or a subject corporation as, on account of, in lieu of payment of or in satisfaction of, a taxable dividend from a corporation, to the extent of the amount in respect of the dividend that is deductible under section 112, paragraph 113(1)(a), (a.1), (b) or (d) or subsection 113(2) in computing the recipient corporation’s taxable income for the year.

  • (5) Subsection 186(3) of the French version of the Act is amended by adding the following in alphabetical order:

    « dividende imposable déterminé »

    “assessable dividend”

    dividende imposable déterminé Somme reçue par une société, à un moment où elle est une société privée ou une société assujettie, au titre ou en paiement intégral ou partiel d’un dividende imposable d’une société, jusqu’à concurrence de la somme relative au dividende qui est déductible en application de l’article 112, des alinéas 113(1)a), a.1), b) ou d) ou du paragraphe 113(2) dans le calcul du revenu imposable pour l’année de la société qui a reçu le dividende.

  • (6) Subsections (1) to (5) are deemed to have come into force on August 20, 2011.

  •  (1) Subsection 258(4) of the Act is replaced by the following:

    • Marginal note:Exception

      (4) Subsection (3) does not apply to a dividend described in paragraph (3)(a)

      • (a) if the share on which the dividend was paid was not acquired in the ordinary course of the business carried on by the corporation; or

      • (b) to the extent that the dividend would be described by subparagraph 53(2)(b)(ii) if the corporation not resident in Canada were not a foreign affiliate of the corporation.

  • (2) Section 258 of the Act is amended by adding the following after subsection (5):

    • Marginal note:Exception

      (6) Subsection (5) does not apply to a dividend described in that subsection to the extent that the dividend would be described by subparagraph 53(2)(b)(ii) if the corporation not resident in Canada were not a foreign affiliate of the recipient.

  • (3) Subsections (1) and (2) apply to dividends paid after August 19, 2011.

  •  (1) Paragraph 261(5)(e) of the Act is replaced by the following:

    • (e) except in applying paragraph 95(2)(f.15) in respect of a taxation year, of a foreign affiliate of the taxpayer, that is a functional currency year of the foreign affiliate within the meaning of subsection (6.1), each reference in subsection 39(2) to “Canadian currency” is to be read, in respect of the taxpayer and the particular taxation year, and with such modifications as the context requires, as a reference to “the taxpayer’s elected functional currency”;

  • (2) Subparagraph 261(5)(f)(i) of the Act is replaced by the following:

    • (i) section 76.1, subsection 79(7), paragraph 80(2)(k), subsections 80.01(11), 80.1(8), 93(2.01) to (2.31), 142.4(1) and 142.7(8) and the definition “amortized cost” in subsection 248(1), and subparagraph 231(6)(a)(iv) of the Income Tax Regulations, to “Canadian currency” is, in respect of the taxpayer and the particular taxation year, and with such modifications as the context requires, to be read as “the taxpayer’s elected functional currency”, and

  • (3) Subparagraph 261(7)(a)(i) of the Act is replaced by the following:

    • (i) is, or is relevant to the determination of, an amount that may be deducted under subsection 37(1) or 66(4), variable F or F.1 in the definition “foreign accrual property income” in subsection 95(1), section 110.1 or 111 or subsection 126(2), 127(5), 129(1), 181.1(4) or 190.1(3), in the particular functional currency year, and

  • (4) Subsection (1) applies in respect of gains made and losses sustained in taxation years that begin after August 19, 2011.

  • (5) Subsection (2) applies in respect of taxation years that begin after December 13, 2007.

  • (6) Subsection (3) is deemed to have come into force on August 20, 2011.

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

  •  (1) Subsection 5900(1) of the Income Tax Regulations is amended by adding the following after paragraph (a):

    • (a.1) for the purposes of this Part and paragraph 113(1)(a.1) of the Act, the portion of the dividend paid out of the hybrid surplus of the affiliate is prescribed to be that proportion of the dividend received that

      • (i) the portion of the whole dividend paid by the affiliate on the shares of that class at that time that was deemed by section 5901 to have been paid out of the affiliate’s hybrid surplus in respect of the corporation

      is of

      • (ii) the whole dividend paid by the affiliate on the shares of that class at that time;

  • (2) Subsection 5900(1) of the Regulations is amended by striking out “and” at the end of paragraph (c) and by adding the following after paragraph (c):

    • (c.1) for the purposes of this Part and paragraph 113(1)(a.1) of the Act, the foreign tax applicable to the portion of the dividend prescribed to have been paid out of the hybrid surplus of the affiliate is prescribed to be that proportion of the hybrid underlying tax applicable, in respect of the corporation, to the whole dividend paid by the affiliate on the shares of that class at that time that

      • (i) the amount of the dividend received by the corporation or the affiliate, as the case may be, on that share at that time

      is of

      • (ii) the whole dividend paid by the affiliate on the shares of that class at that time; and

  • (3) Subsections (1) and (2) apply to dividends received after August 19, 2011.

  •  (1) Subsections 5901(1) and (2) of the Regulations are replaced by the following:

    • 5901. (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.

  • (2) Subsection (1) applies to dividends paid after August 19, 2011 by a foreign affiliate of a corporation. However,

    • (a) if the corporation and each other corporation (the corporation and those other corporations together referred to in this paragraph as the “elector corporations”), if any, of which the affiliate would 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 related to the corporation jointly elect in writing under this paragraph in respect of all of their respective foreign affiliates and file the election with the Minister of National Revenue on or before the day that is the later of the earliest of the filing-due dates for their taxation years that include the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, subsections 5901(2) to (2.2) of the Regulations, as enacted by subsection (1), apply to dividends paid after December 20, 2002 by all the respective foreign affiliates of the elector corporations, except that, for such dividends paid on or before August 19, 2011,

      • (i) paragraph 5901(2)(a) of the Regulations, as enacted by subsection (1), is to be read as follows:

        • (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 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, 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

      • (ii) the portion of paragraph 5901(2)(b) of the Regulations, as enacted by subsection (1), before subparagraph (i) is to be read as follows:

        • (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 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

      • (iii) paragraph 5901(2)(b) of the Regulations, as enacted by subsection (1), is to be read without reference to its subparagraph (iii);

    • (b) any election referred to in subparagraph 5901(2)(b)(i) of the Regulations, as enacted by subsection (1), that would otherwise be required to be filed with the Minister of National Revenue before the day that is 120 days after the day on which this Act receives royal assent is deemed to have been filed with the Minister on a timely basis if it is filed with the Minister within 365 days after the day on which this Act receives royal assent; and

    • (c) any determination referred to in paragraph 5901(2.1)(a) of the Regulations, as enacted by subsection (1), that would otherwise be required to be made before the day that is 120 days after the day on which this Act receives royal assent is deemed to have been made on a timely basis if it is made within 365 days after the day on which this Act receives royal assent.

  •  (1) The portion of subparagraph 5902(1)(a)(i) of the Regulations before clause (A), as enacted by Part 2, is replaced by the following:

    • (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

  • (2) Paragraph 5902(1)(b) of the Regulations, as enacted by Part 2, is amended by adding the following after subparagraph (i):

    • (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,

  • (3) Subparagraphs 5902(2)(a)(i) and (ii) of the Regulations, as enacted by Part 2, are replaced by the following:

    • (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

  • (4) The portion of subsection 5902(6) of the Regulations before paragraph (a) is replaced by the following:

    • (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

  • (5) Subsections (1) to (3) apply in respect of elections in respect of dispositions of shares of the capital stock of a foreign affiliate of a taxpayer that occur after August 19, 2011.

  • (6) Subsection (4) applies in respect of elections in respect of dispositions of shares of the capital stock of a foreign affiliate of a corporation that occur after August 19, 2011. However, if the corporation elects under paragraph 79(2)(a), subsection (4) applies in respect of elections in respect of dispositions of shares of the capital stock of all foreign affiliates of the corporation that occur after December 20, 2002.

  •  (1) Paragraph 5903(3)(a) of the Regulations, as enacted by Part 2, is replaced by the following:

    • (a) where, at the end of the year, the affiliate is a controlled foreign affiliate of a person or partnership that is, at the end of the year, a relevant person or partnership in respect of the taxpayer, the amount, if any, determined by the formula

      J – (K + L + M + N)

      where

      J 
      is the amount determined for D in the formula in the definition “foreign accrual property income” in subsection 95(1) of the Act in respect of the affiliate for the year,
      K 
      is the amount, if any, by which
      • (i) the amount determined for A in that formula in respect of the affiliate for the year

      exceeds

      • (ii) the amount determined for H in that formula in respect of the affiliate for the year,

      L 
      is the amount, if any, by which
      • (i) the amount determined for B in that formula in respect of the affiliate for the year

      exceeds

      • (ii) the total of

        • (A) the amount determined for E in that formula in respect of the affiliate for the year, and

        • (B) the amount determined for F.1 in that formula in respect of the affiliate for the year,

      M 
      is the amount determined for C in that formula in respect of the affiliate for the year, and
      N 
      is the amount, if any, by which
      • (i) the total of

        • (A) the amount determined for A.1 in that formula in respect of the affiliate for the year, and

        • (B) the amount determined for A.2 in that formula in respect of the affiliate for the year

      exceeds

      • (ii) the amount determined for G in that formula in respect of the affiliate for the year; and

  • (2) Subsection 5903(4) of the Regulations, as enacted by Part 2, is replaced by the following:

    • (4) In computing under subsection (3) the foreign accrual property loss of the affiliate for a taxation year, if the affiliate or another corporation receives a payment described in subsection 5907(1.3) from a non-resident corporation that is, at the time of the payment, a foreign affiliate of a relevant person or partnership in respect of the taxpayer and any portion of the payment can reasonably be considered to relate to a loss or portion of a loss of the affiliate for the year described in the description of D in the definition “foreign accrual property income” in subsection 95(1) of the Act, the amount of the loss or portion of the loss is deemed to be nil.

  • (3) The portion of subsection 5903(5) of the Regulations before paragraph (a), as enacted by Part 2, is replaced by the following:

    • (5) For the purposes of this section and section 5903.1,

  • (4) Paragraphs 5903(5)(a) and (b) of the Regulations, as enacted by Part 2, are replaced by the following:

    • (a) if paragraph 95(2)(d.1) of the Act applies to a foreign merger, the new foreign corporation referred to in that paragraph is, except in the determination of the foreign accrual property income of a foreign affiliate predecessor referred to in that paragraph, deemed to be the same corporation as, and a continuation of, each foreign affiliate predecessor; and

    • (b) if paragraph 95(2)(e) of the Act applies to a liquidation and dissolution, of a disposing affiliate referred to in that paragraph, that is a designated liquidation and dissolution of the disposing affiliate, the shareholder affiliate referred to in that paragraph is, except in the determination of the foreign accrual property income of the disposing affiliate, deemed to be the same corporation as, and a continuation of, the disposing affiliate.

  • (5) The portion of subsection 5903(6) of the Regulations before paragraph (a), as enacted by Part 2, is replaced by the following:

    • (6) In this section and section 5903.1, a “relevant person or partnership”, in respect of the taxpayer at any time, means the taxpayer or a person (other than a designated acquired corporation of the taxpayer), or a partnership, that is at that time

  • (6) Subsections (1) to (3) and (5) apply in respect of capital losses of a foreign affiliate of a taxpayer that are incurred in taxation years of the foreign affiliate that end after August 19, 2011.

  • (7) Subsection (4) applies in respect of mergers or combinations that occur, and liquidations and dissolutions that begin, in respect of a foreign affiliate of a taxpayer, after August 19, 2011. However,

    • (a) if the taxpayer has elected under subsection 70(31),

      • (i) paragraph 5903(5)(a) of the Regulations, as enacted by subsection (4), also applies in respect of mergers or combinations in respect of all foreign affiliates of the taxpayer that occur after December 20, 2002 and on or before August 19, 2011, and

      • (ii) that paragraph is, for such mergers or combinations, to be read as follows:

        • (a) if paragraph 95(2)(d.1) of the Act applies to a foreign merger, the new foreign corporation referred to in that paragraph is deemed to be the same corporation as, and a continuation of, each foreign affiliate predecessor; and

    • (b) if the taxpayer has elected under subsection 70(28),

      • (i) paragraph 5903(5)(b) of the Regulations, as enacted by subsection (4), also applies in respect of liquidations and dissolutions of all foreign affiliates of the taxpayer that begin after December 20, 2002 and on or before August 19, 2011, and

      • (ii) that paragraph is, in respect of such liquidations and dissolutions, to be read as follows:

        • (b) if paragraph 95(2)(e) of the Act applies to a liquidation and dissolution, of a disposing affiliate referred to in that paragraph, that is a designated liquidation and dissolution of the disposing affiliate, the shareholder affiliate referred to in that paragraph is deemed to be the same corporation as, and a continuation of, the disposing affiliate.

  •  (1) The Regulations are amended by adding the following after section 5903:

    • 5903.1 (1) For the purposes of the description of F.1 in the definition “foreign accrual property income” in subsection 95(1) of the Act, subject to subsection (2), the prescribed amount for the year (referred to in this subsection and subsection (2) as the “particular year”) is the total of all amounts each of which is a portion designated for the particular year by the taxpayer of the foreign accrual capital loss of the affiliate for a taxation year of the affiliate that is

      • (a) one of the twenty taxation years of the affiliate that immediately precede the particular year; or

      • (b) one of the three taxation years of the affiliate that immediately follow the particular year.

    • (2) For the purposes of this subsection and subsection (1),

      • (a) a portion of a foreign accrual capital loss of the affiliate for any taxation year of the affiliate may be designated for the particular year only to the extent that the foreign accrual capital loss exceeds the total of all amounts each of which is a portion, of the foreign accrual capital loss, designated by the taxpayer for a taxation year of the affiliate that precedes the particular year;

      • (b) no portion of the foreign accrual capital loss of the affiliate for a taxation year of the affiliate is to be designated for the particular year until the foreign accrual capital losses of the affiliate for the preceding taxation years referred to in paragraph (1)(a) have been fully designated; and

      • (c) if any person or partnership that was, at the end of a taxation year (referred to in this paragraph as the “relevant loss year”) of the affiliate, a relevant person or partnership in respect of the taxpayer designates for a taxation year (referred to in this paragraph as the “relevant claim year”) of the affiliate a particular portion of the foreign accrual capital loss of the affiliate for the relevant loss year, there is deemed to have been designated for the relevant claim year by the taxpayer the portion of that loss that is the greater of

        • (i) the particular portion, and

        • (ii) the greatest of the portions of that loss that are so designated by any other relevant persons or partnerships in respect of the taxpayer.

    • (3) For the purposes of this section, and subject to subsection (4), “foreign accrual capital loss” of the affiliate for a taxation year of the affiliate means

      • (a) where, at the end of the year, the affiliate is a controlled foreign affiliate of a person or partnership that is, at the end of the year, a relevant person or partnership in respect of the taxpayer, the amount, if any, by which

        • (i) the amount determined under paragraph (a) of the description of E in the formula in the definition “foreign accrual property income” in subsection 95(1) of the Act in respect of the affiliate for the year

        exceeds

        • (ii) the amount determined for E in that formula in respect of the affiliate for the year; and

      • (b) in any other case, nil.

    • (4) In computing under subsection (3) the foreign accrual capital loss of the affiliate for a taxation year, if the affiliate or another corporation receives a payment described in subsection 5907(1.3) from a non-resident corporation that is, at the time of the payment, a foreign affiliate of a relevant person or partnership in respect of the taxpayer and any portion of the payment can reasonably be considered to relate to an allowable capital loss or a portion of an allowable capital loss of the affiliate for the year described in the description of E in the definition “foreign accrual property income” in subsection 95(1) of the Act, the amount of the loss or portion of the loss is deemed to be nil.

  • (2) Subsection (1) applies in respect of capital losses of a foreign affiliate of a taxpayer that are incurred in taxation years of the foreign affiliate that end after August 19, 2011.

  •  (1) Paragraph 5904(1)(c) of the Regulations is replaced by the following:

    • (c) the direct equity percentage of a person in any foreign affiliate of the taxpayer, for which the total of the distribution entitlements of all the shares of all classes of the capital stock of the affiliate would not, in the absence of this paragraph, be greater than nil, was determined on the assumption that the amount determined under subparagraph (2)(b)(i) were the greater of

      • (i) the amount of the affiliate’s retained earnings, if any, determined at the end of the taxation year under accounting principles that are relevant to the affiliate for the taxation year, and

      • (ii) the amount determined by the formula

         A × B

        where

        A 
        is the amount of the affiliate’s total assets determined at the end of the taxation year under accounting principles that are relevant to the affiliate for the taxation year, and
        B 
        is 25%.
  • (2) Paragraph 5904(3)(b) of the Regulations is replaced by the following:

    • (b) 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 net surplus of, or the amount of a distribution received by, the particular affiliate is to be determined in a manner that is

      • (i) reasonable in the circumstances, and

      • (ii) consistent with the results that would be obtained if a series of actual distributions had been made and received by the foreign affiliates of the corporation that are relevant to the determination;

  • (3) Subsections (1) and (2) apply in respect of taxation years of a foreign affiliate of a taxpayer that begin after August 19, 2011.

  •  (1) The portion of subsection 5905(1) of the Regulations before the formula, as enacted by Part 2, is replaced by the following:

    • 5905. (1) If, at any time, there is an acquisition or a disposition of shares of the capital stock of a particular foreign affiliate of a corporation resident in Canada and the surplus entitlement percentage of the corporation in respect of the particular foreign affiliate or any other foreign affiliate (the particular affiliate and those other affiliates each being referred to in this subsection as a “relevant affiliate”) of the corporation in which the particular affiliate has an equity percentage (within the meaning assigned by subsection 95(4) of the Act) changes, for the purposes of the definitions “exempt surplus”, “hybrid surplus”, “hybrid underlying tax”, “taxable surplus”, and “underlying foreign tax” in subsection 5907(1), each of the opening exempt surplus or opening exempt deficit, opening hybrid surplus or opening hybrid deficit, opening hybrid underlying tax, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, as the case may be, of the relevant affiliate in respect of the corporation is, except where the acquisition or disposition occurs in a transaction to which paragraph (3)(a) or subsection (5) or (5.1) applies, the amount determined at that time by the formula

  • (2) The portion of paragraph 5905(3)(a) of the Regulations before subparagraph (i), as enacted by Part 2, is replaced by the following:

    • (a) for the purposes of the definitions “exempt surplus”, “hybrid surplus”, “hybrid underlying tax”, “taxable surplus” and “underlying foreign tax” in subsection 5907(1), as they apply in respect of the merged affiliate,

  • (3) Paragraph 5905(3)(a) of the Regulations, as enacted by Part 2, is amended by adding the following after subparagraph (ii):

    • (ii.1) the merged affiliate’s opening hybrid surplus, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the hybrid surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the hybrid deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time,

    • (ii.2) the merged affiliate’s opening hybrid deficit, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the hybrid deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the hybrid surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time,

    • (ii.3) the merged affiliate’s opening hybrid underlying tax in respect of the corporation shall be the total of all amounts each of which is the hybrid underlying tax of a predecessor corporation, in respect of the corporation, immediately before the merger time,

  • (4) The portion of subparagraph 5905(3)(b)(i) of the Regulations before the formula, as enacted by Part 2, is replaced by the following:

    • (i) each of the exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit and underlying foreign tax, in respect of the corporation, of each predecessor corporation immediately before the merger time is deemed to be the amount determined by the formula

  • (5) The portion of paragraph 5905(5)(a) of the Regulations before subparagraph (i), as enacted by Part 2, is replaced by the following:

    • (a) each of the opening exempt surplus or opening exempt deficit, opening hybrid surplus or opening hybrid deficit, opening hybrid underlying tax, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, in respect of the acquiring corporation, of the particular affiliate and of each foreign affiliate of the disposing corporation in which the particular affiliate has, immediately before that time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be the amount, if any,

  • (6) Paragraph 5905(5)(a) of the Regulations, as enacted by Part 2, is amended by adding the following after subparagraph (ii):

    • (ii.1) in the case of its opening hybrid surplus, by which the total of its hybrid surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its hybrid deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,

    • (ii.2) in the case of its opening hybrid deficit, by which the total of its hybrid deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its hybrid surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,

    • (ii.3) in the case of its opening hybrid underlying tax, that is the total of its hybrid underlying tax in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,

  • (7) The portion of paragraph 5905(5)(b) of the Regulations before the formula, as enacted by Part 2, is replaced by the following:

    • (b) for the purposes of paragraph (a), each of the exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of the disposing corporation and the acquiring corporation, determined immediately before that time, is deemed to be the amount determined by the formula

  • (8) Paragraphs 5905(5)(c) and (d) of the Regulations, as enacted by Part 2, are replaced by the following:

    • (c) if the disposing corporation makes an election under subsection 93(1) of the Act in respect of the disposed shares,

      • (i) for the purposes of paragraph (b), the exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of the disposing corporation, as determined without reference to this subsection, immediately before that time, shall be adjusted in accordance with paragraph 5902(1)(b) as if the disposing corporation’s surplus entitlement percentage that is referred to in the description of B in paragraph 5902(2)(b) were determined as if the disposed shares were the only shares owned by the disposing corporation immediately before that time, and

      • (ii) no adjustment shall be made to the amount of the exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, or underlying foreign tax of an affiliate in respect of the disposing corporation under paragraph 5902(1)(b) other than for the purpose of paragraph (b); and

    • (d) for greater certainty, no adjustment shall be made under subsection (1) to the exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, or underlying foreign tax of an affiliate in respect of the disposing corporation.

  • (9) The portion of paragraph 5905(5.1)(a) of the Regulations before subparagraph (i), as enacted by Part 2, is replaced by the following:

    • (a) each of the opening exempt surplus or opening exempt deficit, opening hybrid surplus or opening hybrid deficit, opening hybrid underlying tax, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, in respect of the new corporation, of the particular affiliate and of each foreign affiliate of the predecessor corporation in which the particular affiliate has, immediately before that time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be the amount, if any,

  • (10) Paragraph 5905(5.1)(a) of the Regulations, as enacted by Part 2, is amended by adding the following after subparagraph (ii):

    • (ii.1) in the case of its opening hybrid surplus, by which the total of its hybrid surplus in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its hybrid deficit in respect of each predecessor corporation, determined immediately before that time,

    • (ii.2) in the case of its opening hybrid deficit, by which the total of its hybrid deficit in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its hybrid surplus in respect of each predecessor corporation, determined immediately before that time,

    • (ii.3) in the case of its opening hybrid underlying tax, that is the total of its hybrid underlying tax in respect of each predecessor corporation, determined immediately before that time,

  • (11) The portion of paragraph 5905(5.1)(b) of the Regulations before the formula, as enacted by Part 2, is replaced by the following:

    • (b) for the purpose of paragraph (a), each of the exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of a predecessor corporation, determined immediately before that time, is deemed to be the amount determined by the formula

  • (12) Paragraph 5905(5.5)(a) of the Regulations, as enacted by Part 2, is replaced by the following:

    • (a) the amount, if any, by which the affiliate’s exempt surplus in respect of the corporation at that time exceeds the total of

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

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

    • (a.1) the amount, if any, by which the amount of the affiliate’s hybrid surplus in respect of the corporation at that time exceeds the amount determined under subsection (5.7) in respect of the corporation at that time if, at that time, the amount of that hybrid surplus is less than or equal to the amount determined by the formula

      [A × (B – 0,5)] + (C × 0,5)

      where

      A 
      is the affiliate’s hybrid underlying tax in respect of the corporation at that time,
      B 
      is the corporation’s relevant tax factor (within the meaning assigned by subsection 95(1) of the Act) for the corporation’s taxation year that includes that time, and
      C 
      is the affiliate’s hybrid surplus in respect of the corporation at that time; and
  • (13) Subparagraph 5905(5.5)(b)(ii) of the Regulations, as enacted by Part 2, is replaced by the following:

    • (ii) the amount, if any, by which the affiliate’s taxable surplus in respect of the corporation at that time 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.

  • (14) Subsection 5905(5.6) of the Regulations, as enacted by Part 2, is replaced by the following:

    • (5.6) For the purposes of subsection (5.5), the amounts of exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, and underlying foreign tax, of a foreign affiliate of corporation resident in Canada, in respect of the corporation, at a particular time are those amounts that would be determined, at the particular time, under subparagraph 5902(1)(a)(i) if that subparagraph were applicable at the particular time and the references in that subparagraph to “the dividend time” were references to the particular time.

    • (5.7) For the purposes of paragraph (5.5)(a.1), the amount determined under this subsection in respect of the corporation at any time is

      • (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.

  • (15) Subsection 5905(7) of the Regulations is replaced by the following:

    • (7) If at any time there has been a liquidation and dissolution of a foreign affiliate (referred to in this subsection as the “dissolved affiliate”) of a corporation resident in Canada that is a designated liquidation and dissolution (within the meaning assigned by subsection 95(1) of the Act) of the dissolved affiliate, each other foreign affiliate of the corporation that had a direct equity percentage (within the meaning assigned by subsection 95(4) of the Act) in the dissolved affiliate immediately before that time is, for the purposes of computing its exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, and underlying foreign tax, in respect of the corporation, deemed to have received dividends immediately before that time the total of which is equal to the amount it might reasonably have expected to receive if the dissolved affiliate had, immediately before that time, paid dividends on all shares of its capital stock the total of which was equal to the amount of its net surplus in respect of the corporation immediately before that time, determined on the assumption that the taxation year of the dissolved affiliate that otherwise would have included that time had ended immediately before that time.

  • (16) Subsection 5905(11) of the Regulations is replaced by the following:

    • (11) For the purposes of subsection (10),

      • (a) if a particular foreign affiliate of a corporation has an equity percentage in another foreign affiliate of the corporation that has an equity percentage in the particular affiliate, the amount that would be the net surplus of, or the amount that would be a dividend received by, the particular affiliate is to be determined in a manner that is

        • (i) reasonable in the circumstances, and

        • (ii) 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;

      • (b) 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 that class; and

      • (c) if the particular affiliate’s net surplus as determined for the purposes of subsection (10) would, in the absence of this paragraph, be nil the particular affiliate’s net surplus for the purposes of that subsection is deemed to be the greater of

        • (i) the amount of the particular affiliate’s retained earnings, if any, determined at the end of its last taxation year ending before the time referred to in that subsection under accounting principles that are relevant to the particular affiliate for that year, and

        • (ii) the amount determined by the formula

           A × B

          where

          A 
          is the amount of the particular affiliate’s total assets determined at the end of that year under accounting principles that are relevant to the particular affiliate for that year, and
          B 
          is 25%.
  • (17) Subsection 5905(12) of the Regulations is repealed.

  • (18) Paragraph 5905(13)(a) of the Regulations is replaced by the following:

    • (a) the percentage that is the corporation’s equity percentage in the particular affiliate at that time if

      • (i) the particular affiliate and each corporation that is relevant to the determination of the corporation’s equity percentage in the particular affiliate have, at that time, only one class of issued shares, and

      • (ii) no foreign affiliate (referred to in this subparagraph as the “upper-tier affiliate”) of the corporation that is relevant to the determination of the corporation’s equity percentage in the particular affiliate has, at that time, an equity percentage in a foreign affiliate (including, for greater certainty, the particular affiliate) of the corporation that has an equity percentage in the upper-tier affiliate; and

  • (19) The portion of subsection 5905(13) of the Regulations after subparagraph (b)(ii) is repealed.

  • (20) Section 5905 of the Regulations is amended by adding the following after subsection (13):

    • (14) For the purposes of subsections (10), (11) and (13), “equity percentage” has the meaning that would be assigned by subsection 95(4) of the Act if the reference in paragraph (b) of the definition “equity percentage” in that subsection to “any corporation” were read as a reference to “any corporation other than a corporation resident in Canada”.

  • (21) Subsection (1) applies in respect of acquisitions and dispositions that occur after August 19, 2011.

  • (22) Subsections (2) to (14), (16) and (18) to (20) are deemed to have come into force on August 20, 2011.

  • (23) Subsection (15) applies in respect of liquidations and dissolutions of foreign affiliates of a taxpayer that begin after August 19, 2011. However, if the taxpayer has elected under subsection 70(28),

    • (a) subsection (15) applies in respect of all liquidations and dissolutions of foreign affiliates of the taxpayer that begin after December 20, 2002; and

    • (b) subsection 5905(7) of the Regulations, as enacted by subsection (15), is, in respect of all such liquidations and dissolutions that begin on or before August 19, 2011, to be read as follows:

      • (7) If at any time there has been a liquidation and dissolution of a foreign affiliate (referred to in this subsection as the “dissolved affiliate”) of a corporation resident in Canada that is a designated liquidation and dissolution (within the meaning assigned by subsection 95(1) of the Act) of the dissolved affiliate, each other foreign affiliate of the corporation that had a direct equity percentage (within the meaning assigned by subsection 95(4) of the Act) in the dissolved affiliate immediately before that time is, for the purposes of computing its exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax, in respect of the corporation, deemed to have received dividends immediately before that time the total of which is equal to the amount it might reasonably have expected to receive if the dissolved affiliate had, immediately before that time, paid dividends on all shares of its capital stock the total of which was equal to the amount of its net surplus in respect of the corporation immediately before that time, determined on the assumption that the taxation year of the dissolved affiliate that otherwise would have included that time had ended immediately before that time.

  • (24) Subsection (17) is deemed to have come into force on December 19, 2009.

  •  (1) Paragraph (b) of the definition “earnings” in subsection 5907(1) of the Regulations, as enacted by Part 2, is replaced by the following:

    • (b) in any other case, the total of all amounts each of which is an amount of income that would be required under paragraph 95(2)(a) of the Act to be included in computing the affiliate’s income or loss from an active business for the year if that income were computed taking into account the rules in subsection (2.03); (gains)

  • (2) The portion of the definition “exempt earnings” in subsection 5907(1) of the Regulations before subparagraph (a)(iii), as amended by Part 2, is replaced by the following:

    “exempt earnings”

    “exempt earnings”, of a particular foreign affiliate of a particular corporation for a taxation year of the particular affiliate, means, subject to subsection (2.02), the total of all amounts each of which is

    • (a) the amount by which the capital gains of the particular affiliate for the year (other than capital gains included in computing the amount, at any time in the year, of the particular affiliate’s hybrid surplus, or hybrid deficit, in respect of the particular corporation) exceed the total of

      • (i) the amount of the taxable capital gains for the year referred to in the description of B in the definition “foreign accrual property income” in subsection 95(1) of the Act,

      • (ii) the amount of the taxable capital gains for the year referred to in subparagraphs (c)(i), (e)(i) and (f)(iv) of the definition “net earnings”, and

  • (3) The portion of the definition “exempt loss” in subsection 5907(1) of the Regulations before subparagraph (a)(iii), as amended by Part 2, is replaced by the following:

    “exempt loss”

    “exempt loss”, of a foreign affiliate of a corporation for a taxation year of the affiliate, means, subject to subsection (2.02), the total of all amounts each of which is

    • (a) the amount by which the capital losses of the affiliate for the year (other than capital losses included in computing the amount, at any time in the year, of the particular affiliate’s hybrid surplus, or hybrid deficit, in respect of the particular corporation) exceed the total of

      • (i) the amount of the allowable capital losses for the year referred to in the description of E in the definition “foreign accrual property income” in subsection 95(1) of the Act,

      • (ii) the amount of the allowable capital losses for the year referred to in subparagraphs (c)(i), (e)(i) and (f)(iv) of the definition “net loss”, and

  • (4) The portion of the definition “exempt surplus” in subsection 5907(1) of the Regulations before paragraph (a) is replaced by the following:

    “exempt surplus”

    “exempt surplus”, of a foreign affiliate (in this definition referred to as the “subject affiliate”) of a corporation in respect of the corporation, at any particular time, means the amount determined by the following formula in respect of the period that begins with the latest of the following times and that ends with the particular time:

  • (5) The portion of the definition “exempt surplus” in subsection 5907(1) of the English version of the Regulations after paragraph (c) and before the description of A is replaced by the following:

    A – B

    where

  • (6) Subparagraph (vii) of the description of A in the definition “exempt surplus” in subsection 5907(1) of the Regulations is replaced by the following:

    • (vii) an amount added, in the period and before the particular time, to the exempt surplus of the subject affiliate under paragraph (7.1)(d) (as that paragraph applied to dividends paid on or before August 19, 2011), and

  • (7) Paragraph (b) of the definition “loss” in subsection 5907(1) of the Regulations, as enacted by Part 2, is replaced by the following:

    • (b) in any other case, the total of all amounts each of which is an amount of a loss that would be required under paragraph 95(2)(a) of the Act to be included in computing the affiliate’s income or loss from an active business for the year if that loss were computed taking into account the rules in subsection (2.03);

  • (8) Paragraph (b) of the definition “net earnings” in subsection 5907(1) of the Regulations is replaced by the following:

    • (b) in respect of foreign accrual property income is the amount that would be its foreign accrual property income for the year, if the formula in the definition “foreign accrual property income” in subsection 95(1) of the Act were read without reference to F and F.1 in that formula and the amount determined for E in that formula were the amount determined under paragraph (a) of the description of E in that formula, minus the portion of any income or profits tax paid to the government of a country for the year by the affiliate that can reasonably be regarded as tax in respect of that income,

  • (9) Subparagraphs (d)(i) and (ii) of the definition “net earnings” in subsection 5907(1) of the Regulations are replaced by the following:

    • (i) shares of the capital stock of another foreign affiliate of the corporation that were excluded property of the affiliate (other than dispositions to which any of paragraphs 95(2)(c) to (e) of the Act was applicable and dispositions in respect of which the amount of the capital gain is included in computing the amount, at any time in the year, of the affiliate’s hybrid surplus, or hybrid deficit, in respect of the corporation), or

    • (ii) partnership interests that were excluded property of the affiliate (other than dispositions in respect of which the amount of the capital gain is included in computing the amount, at any time in the year, of the affiliate’s hybrid surplus, or hybrid deficit, in respect of the corporation)

  • (10) Paragraph (d) of the definition “net earnings” in subsection 5907(1) of the Regulations, as amended by subsection (9), is repealed.

  • (11) Clause (b)(i)(A) of the definition “net loss” in subsection 5907(1) of the Regulations is replaced by the following:

    • (A) the total of

      • (I) the amount determined for D in the formula in the definition “foreign accrual property income” in subsection 95(1) of the Act for the year,

      • (II) the amount determined under paragraph (a) of the description of E in that formula for the year,

      • (III) the amount determined for G in that formula for the year, and

      • (IV) the amount determined for H in that formula for the year

  • (12) Subparagraphs (d)(i) and (ii) of the definition “net loss” in subsection 5907(1) of the Regulations are replaced by the following:

    • (i) shares of the capital stock of another foreign affiliate of the corporation that were excluded property of the affiliate (other than dispositions to which paragraph 95(2)(c), (d) or (e) of the Act was applicable and dispositions in respect of which the amount of the capital loss is included in computing the amount, at any time in the year, of the affiliate’s hybrid surplus, or hybrid deficit, in respect of the corporation), or

    • (ii) partnership interests that were excluded property of the affiliate (other than dispositions in respect of which the amount of the capital loss is included in computing the amount, at any time in the year, of the affiliate’s hybrid surplus, or hybrid deficit, in respect of the corporation)

  • (13) Paragraph (d) of the definition “net loss” in subsection 5907(1) of the Regulations, as amended by subsection (12), is repealed.

  • (14) Paragraphs (a) to (c) of the definition “net surplus” in subsection 5907(1) of the Regulations are replaced by the following:

    • (a) if the affiliate has no exempt deficit, no hybrid deficit and no taxable deficit, the amount that is the total of its exempt surplus, hybrid surplus and taxable surplus in respect of the corporation,

    • (b) if the affiliate has no exempt deficit but has a hybrid deficit and a taxable deficit, the amount, if any, by which its exempt surplus exceeds the total of its hybrid deficit and taxable deficit in respect of the corporation,

    • (c) if the affiliate has no exempt deficit and no hybrid deficit but has a taxable deficit, the amount, if any, by which the total of its exempt surplus and hybrid surplus exceeds its taxable deficit in respect of the corporation,

    • (d) if the affiliate has no exempt deficit and no taxable deficit but has a hybrid deficit, the amount, if any, by which the total of its exempt surplus and taxable surplus exceeds its hybrid deficit in respect of the corporation,

    • (e) if the affiliate has an exempt deficit but no hybrid deficit or taxable deficit, the amount, if any, by which the total of its hybrid surplus and taxable surplus exceeds its exempt deficit in respect of the corporation,

    • (f) if the affiliate has an exempt deficit and a hybrid deficit but no taxable deficit, the amount, if any, by which its taxable surplus exceeds the total of its exempt deficit and hybrid deficit in respect of the corporation, or

    • (g) if the affiliate has an exempt deficit and a taxable deficit but no hybrid deficit, the amount, if any, by which its hybrid surplus exceeds the total of its exempt deficit and taxable deficit in respect of the corporation,

  • (15) Paragraph (b) of the definition “taxable earnings” in subsection 5907(1) of the Regulations, as amended by Part 2, is amended by striking out “or” at the end of subparagraph (iii), adding “or” at the end of subparagraph (iv) and adding the following after subparagraph (iv):

    • (iv.1) the amount, if any, by which

      • (A) the total of all amounts each of which is an amount required by paragraph (2.02)(a) to be included under this definition for the year

      exceeds

      • (B) the total of all amounts each of which is an amount required by paragraph (2.02)(b) to be deducted under this definition for the year,

  • (16) The portion of the definition “taxable surplus” in subsection 5907(1) of the Regulations before paragraph (a) is replaced by the following:

    “taxable surplus”

    “taxable surplus”, of a foreign affiliate (in this definition referred to as the “subject affiliate”) of a corporation in respect of the corporation, at any particular time, means the amount determined by the following formula in respect of the period that begins with the latest of the following times and that ends with the particular time:

  • (17) The portion of the definition “taxable surplus” in subsection 5907(1) of the English version of the Regulations after paragraph (c) and before the description of A is replaced by the following:

    A – B

    where

  • (18) Subparagraph (v) of the description of A in the definition “taxable surplus” in subsection 5907(1) of the Regulations is replaced by the following:

    • (v) an amount added, in the period and before the particular time, to the subject affiliate’s taxable surplus under paragraph (7.1)(e) (as that paragraph applied to dividends paid on or before August 19, 2011), and

  • (19) Subparagraph (iv) of the description of B in the definition “taxable surplus” in subsection 5907(1) of the Regulations is replaced by the following:

    • (iv) the portion of any whole dividend paid by the subject affiliate in the period and before the particular time deemed under paragraph 5901(1)(b) or, if subsection 5901(1.1) applied to the whole dividend, paragraph 5901(1)(a.1) to have been paid out of the subject affiliate’s taxable surplus in respect of the corporation,

  • (20) The portion of the definition “underlying foreign tax” in subsection 5907(1) of the Regulations before paragraph (a) is replaced by the following:

    “underlying foreign tax”

    “underlying foreign tax”, of a foreign affiliate (in this definition referred to as the “subject affiliate”) of a corporation in respect of the corporation, at any particular time, means the amount determined by the following formula in respect of the period that begins with the later of the following times and that ends with the particular time:

  • (21) The portion of the definition “underlying foreign tax” in subsection 5907(1) of the English version of the Regulations, as amended by Part 2, after paragraph (b) and before the description of A is replaced by the following:

    A – B

    where

  • (22) Subparagraph (ii) of the description of A in the definition “underlying foreign tax” in subsection 5907(1) of the Regulations is replaced by the following:

    • (ii) the portion of any income or profits tax paid to the government of a country by the subject affiliate that can reasonably be regarded as having been paid in respect of the taxable earnings, including for greater certainty any amounts included because of paragraph (2.02)(a) in computing the taxable earnings, of the affiliate for a taxation year ending in the period,

  • (23) Subparagraph (ii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1) of the Regulations is replaced by the following:

    • (ii) the underlying foreign tax applicable to any whole dividend paid by the subject affiliate in the period and before the particular time deemed under paragraph 5901(1)(b) or, if subsection 5901(1.1) applied to the whole dividend, paragraph 5901(1)(a.1) to have been paid out of the subject affiliate’s taxable surplus in respect of the corporation before that time,

  • (24) Subsection 5907(1) of the Regulations is amended by adding the following in alphabetical order:

    “designated person or partnership”

    “designated person or partnership”, in respect of a taxpayer at any time, means the taxpayer or a person or partnership that is at that time

    • (a) a person (other than a partnership) that does not, at that time, deal at arm’s length with the taxpayer, or

    • (b) a partnership a member of which is, at that time, a designated person or partnership in respect of the taxpayer under this definition; (personne ou société de personnes désignée)

    “hybrid deficit”

    “hybrid deficit”, of a foreign affiliate of a corporation in respect of the corporation at any time, means the amount, if any, by which

    • (a) the total of all amounts each of which is an amount determined at that time under any of subparagraphs (i) to (vii) of the description of B in the definition “hybrid surplus”

    exceeds

    • (b) the total of all amounts each of which is an amount determined at that time under any of subparagraphs (i) to (v) of the description of A in that definition; (déficit hybride)

    “hybrid surplus”

    “hybrid surplus”, of a foreign affiliate (in this definition referred to as the “subject affiliate”) of a corporation in respect of the corporation, at any particular time, means the amount determined by the following formula in respect of the period that begins with the latest of the following times and that ends with the particular time:

    • (a) the first day of the taxation year of the subject affiliate in which it last became a foreign affiliate of the corporation,

    • (b) the last time for which the opening hybrid surplus of the subject affiliate in respect of the corporation was required to be determined under section 5905, and

    • (c) the last time for which the opening hybrid deficit of the subject affiliate in respect of the corporation was required to be determined under section 5905

    A – B

    where

    A 
    is the total of all amounts, in respect of the period, each of which is
    • (i) the opening hybrid surplus, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),

    • (ii) the amount of a capital gain (except to the extent that the taxable portion of the capital gain is included under the description of B in the definition “foreign accrual property income” in subsection 95(1) of the Act in respect of the subject affiliate), for a taxation year, of the subject affiliate, or of a partnership of which the subject affiliate is a member (to the extent that the capital gain is reasonably attributable to the subject affiliate), in respect of a disposition, at any time in the period, of

      • (A) a share of the capital stock of another foreign affiliate of the corporation,

      • (B) a partnership interest, or

      • (C) a property, that is an excluded property of the subject affiliate because of paragraph (c.1) of the definition “excluded property” in subsection 95(1) of the Act, that related to

        • (I) an amount that was receivable under an agreement that relates to the sale of a property that is referred to in clause (A) or (B) the capital gain or capital loss from the sale of which is included under this subparagraph or subparagraph (ii) of the description of B, as the case may be, or

        • (II) an amount payable, or an amount of indebtedness, described in clause (c.1)(ii)(B) of that definition “excluded property” arising in respect of the acquisition of an excluded property of the affiliate that is referred to in clause (A) or (B) any capital gain or capital loss from the disposition of which would, if that excluded property were disposed of, be included under this subparagraph or subparagraph (ii) of the description of B, as the case may be,

    • (iii) the portion of any income or profits tax refunded by the government of a country to the subject affiliate that can reasonably be regarded as having been refunded in respect of an amount referred to in subparagraph (ii) or (iii) of the description of B,

    • (iv) the portion of any dividend received in the period and before the particular time by the subject affiliate from another foreign affiliate of the corporation (including, for greater certainty, any dividend deemed under subsection 5905(7) to have been received by the subject affiliate) that was prescribed under paragraph 5900(1)(a.1) to have been paid out of the payer affiliate’s hybrid surplus in respect of the corporation, or

    • (v) an amount added to the hybrid surplus of the subject affiliate or deducted from its hybrid deficit in the period and before the particular time under subsection (1.1) or (1.2), and

    B 
    is the total of those of the following amounts that apply in respect of the period:
    • (i) the opening hybrid deficit, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (c),

    • (ii) the amount of a capital loss (except to the extent that the allowable portion of the capital loss is included under paragraph (a) of the description of E in the definition “foreign accrual property income” in subsection 95(1) of the Act in respect of the subject affiliate), for a taxation year, of the subject affiliate, or of a partnership of which the subject affiliate is a member (to the extent that the capital loss is reasonably attributable to the subject affiliate), in respect of a disposition, at any time in the period, of

      • (A) a share of the capital stock of another foreign affiliate of the corporation,

      • (B) a partnership interest, or

      • (C) a property, that is an excluded property of the subject affiliate because of paragraph (c.1) of the definition “excluded property” in subsection 95(1) of the Act, that related to

        • (I) an amount that was receivable under an agreement that relates to the sale of a property that is referred to in clause (A) or (B) the capital gain or capital loss from the sale of which is included under subparagraph (ii) of the description of A or this subparagraph, as the case may be, or

        • (II) an amount payable, or an amount of indebtedness, described in clause (c.1)(ii)(B) of that definition “excluded property” arising in respect of the acquisition of an excluded property of the affiliate that is referred to in clause (A) or (B) any capital gain or capital loss from the disposition of which would, if that excluded property were disposed of, be included under subparagraph (ii) of the description of A or this subparagraph, as the case may be,

    • (iii) the amount of a capital loss for a taxation year of the subject affiliate that would arise in respect of a disposition, at any time in the period, of a share of the capital stock of another foreign affiliate of the corporation in the course of the liquidation and dissolution of that other affiliate if subclause 95(2)(e)(iv)(A)(II) of the Act were read without reference to its sub-subclause 1 and section 93 of the Act were read without reference to its subsection (4),

    • (iv) the portion of any income or profits tax paid to the government of a country by the subject affiliate that can reasonably be regarded as having been paid in respect of an amount referred to in subparagraph (ii) or (iv) of the description of A,

    • (v) the portion of any whole dividend paid by the subject affiliate in the period and before the particular time deemed under paragraph 5901(1)(a.1) or, if subsection 5901(1.1) applied to the whole dividend, paragraph 5901(1)(b) to have been paid out of the subject affiliate’s hybrid surplus in respect of the corporation,

    • (vi) each amount that is required under section 5902 to be included under this subparagraph in the period and before the particular time, or

    • (vii) an amount, in the period and before the particular time, deducted from the hybrid surplus of the subject affiliate or added to its hybrid deficit under subsection (1.1) or (1.2); (surplus hybride)

    “hybrid underlying tax”

    “hybrid underlying tax”, of a foreign affiliate (in this definition referred to as the “subject affiliate”) of a corporation in respect of the corporation, at any particular time, means the amount determined by the following formula in respect of the period that begins with the later of the following times and that ends with the particular time:

    • (a) the first day of the taxation year of the subject affiliate in which it last became a foreign affiliate of the corporation, and

    • (b) the last time for which the opening hybrid underlying tax of the subject affiliate in respect of the corporation was required to be determined under section 5905

    A – B

    where

    A 
    is the total of all amounts, in respect of the period, each of which is
    • (i) the opening hybrid underlying tax, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),

    • (ii) the portion of any income or profits tax paid to the government of a country by the subject affiliate that can reasonably be regarded as having been paid in respect of any amount referred to in subparagraph (ii) or (iv) of the description of A in the definition “hybrid surplus”,

    • (iii) each amount that was prescribed by paragraph 5900(1)(c.1) to have been the foreign tax applicable to the portion of any dividend received in the period and before the particular time by the subject affiliate from another foreign affiliate of the corporation (including, for greater certainty, any dividend deemed under subsection 5905(7) to have been received by the subject affiliate) that was prescribed by paragraph 5900(1)(a.1) to have been paid out of the payer affiliate’s hybrid surplus in respect of the corporation, or

    • (iv) the amount by which the subject affiliate’s hybrid underlying tax is required to be increased under subsection (1.1) or (1.2),

    B 
    is the total of those of the following amounts that apply in respect of the period:
    • (i) the portion of any income or profits tax refunded by the government of a country to the subject affiliate that can reasonably be regarded as having been refunded in respect of an amount referred to in subparagraph (ii) or (iii) of the description of B in the definition “hybrid surplus”,

    • (ii) the hybrid underlying tax applicable to any whole dividend paid by the subject affiliate in the period and before the particular time deemed under paragraph 5901(1)(a.1) or, if subsection 5901(1.1) applied to the whole dividend, paragraph 5901(1)(b) to have been paid out of the subject affiliate’s hybrid surplus in respect of the corporation before that time,

    • (iii) each amount that is required under section 5902 to be included under this subparagraph in the period and before the particular time, or

    • (iv) the amount by which the subject affiliate’s hybrid underlying tax is required to be decreased in the period and before the particular time under subsection (1.1) or (1.2); (montant intrinsèque d’impôt hybride)

    “hybrid underlying tax applicable”

    “hybrid underlying tax applicable”, in respect of a corporation to a whole dividend paid at any time on the shares of any class of the capital stock of a foreign affiliate of the corporation by the affiliate, means the proportion of the hybrid underlying tax of the affiliate at that time in respect of the corporation that

    • (a) the portion of the whole dividend deemed to have been paid out of the affiliate’s hybrid surplus in respect of the corporation

    is of

    • (b) the affiliate’s hybrid surplus at that time in respect of the corporation; (montant intrinsèque d’impôt hybride applicable)

  • (25) Subsection 5907(1.01) of the Regulations is replaced by the following:

    • (1.01) For the purposes of section 113 of the Act, “exempt surplus”, “hybrid surplus” and “taxable surplus” have the meanings assigned by subsection (1).

  • (26) Subparagraph 5907(1.1)(a)(iv) of the Regulations is amended by striking out “and” at the end of clause (A) and adding the following after clause (A):

    • (A.1) to the extent that such income or profits tax would otherwise have reduced the hybrid surplus or increased the hybrid deficit of the secondary affiliate,

      • (I) be deducted from the hybrid surplus or added to the hybrid deficit, as the case may be, of the primary affiliate, and

      • (II) be added to the hybrid underlying tax of the primary affiliate, and

  • (27) Subparagraph 5907(1.1)(a)(v) of the Regulations is amended by striking out “and” at the end of clause (C) and adding the following after clause (C):

    • (C.1) where such loss reduces the hybrid surplus or increases the hybrid deficit, as the case may be, of the secondary affiliate,

      • (I) be added to the hybrid surplus or deducted from the hybrid deficit, as the case may be, of the primary affiliate, and

      • (II) be deducted from the hybrid underlying tax of the primary affiliate, and

  • (28) Clause 5907(1.1)(b)(i)(B) of the Regulations is amended by striking out “and” at the end of subclause (I) and adding the following after subclause (I):

    • (I.1) such portion of the amount so paid as may reasonably be regarded as relating to an amount included in the hybrid surplus or deducted from the hybrid deficit, as the case may be, of the secondary affiliate is, at the end of the year, to be added to the hybrid surplus or deducted from the hybrid deficit, as the case may be, of the primary affiliate and deducted from the hybrid underlying tax of the primary affiliate, and

  • (29) Clause 5907(1.1)(b)(ii)(A) of the Regulations, as enacted by Part 2, is amended by striking out “and” at the end of subclause (I) and adding the following after subclause (I):

    • (I.1) such portion of the amount so paid as may reasonably be regarded as relating to an amount deducted from the hybrid surplus or included in the hybrid deficit, as the case may be, of the secondary affiliate is, at the end of the year of the loss, to be deducted from the hybrid surplus or added to the hybrid deficit, as the case may be, of the primary affiliate and added to the hybrid underlying tax of the primary affiliate, and

  • (30) Paragraph 5907(1.2)(c) of the Regulations is amended by striking out “and” at the end of subparagraph (i) and adding the following after subparagraph (i):

    • (i.1) where such loss reduces the hybrid surplus or increases the hybrid deficit, as the case may be, of the loss affiliate,

      • (A) be added to the hybrid surplus or deducted from the hybrid deficit, as the case may be, of the taxpaying affiliate, and

      • (B) be deducted from the hybrid underlying tax of the taxpaying affiliate, and

  • (31) Subparagraph 5907(1.2)(d)(i) of the Regulations is amended by striking out “and” at the end of clause (A) and adding the following after clause (A):

    • (A.1) such portion of the amount as may reasonably be regarded as relating to an amount deducted from the hybrid surplus or included in the hybrid deficit, as the case may be, of the loss affiliate is, at the end of the year, to be deducted from the hybrid surplus or added to the hybrid deficit, as the case may be, of the taxpaying affiliate and added to the hybrid underlying tax of the taxpaying affiliate, and

  • (32) Subsection 5907(1.4) of the Regulations, as enacted by Part 2, is replaced by the following:

    • (1.4) If the amount prescribed under paragraph (1.3)(a) or (b), or any portion of the amount, can reasonably be considered to be in respect of a particular loss (other than a capital loss) or a capital loss of another corporation for a taxation year of the other corporation, then the amount so prescribed is to be reduced to the extent that it can reasonably be considered to be in respect of the portion of the particular loss or capital loss, as the case may be, that would, if sections 5903 and 5903.1 were read without reference to their subsection (4), not be a foreign accrual property loss (within the meaning assigned by subsection 5903(3)), or a foreign accrual capital loss (within the meaning assigned by subsection 5903.1(3)), as the case may be, of a controlled foreign affiliate of a person or partnership that is, at the end of that taxation year, a relevant person or partnership (within the meaning assigned by subsection 5903(6)) in respect of the taxpayer.

  • (33) Section 5907 of the Regulations is amended by adding the following after subsection (1.6), as enacted by Part 2:

    • (1.7) If the amount prescribed under paragraph (1.3)(a) or (b), or any portion of the amount, can reasonably be considered to be in respect of a capital loss of another corporation for a taxation year of the other corporation, then the amount so prescribed, as reduced by subsection (1.4), if applicable, shall be reduced to the extent that it can reasonably be considered to be in respect of the portion of that capital loss that would not be deductible by the particular affiliate in computing its foreign accrual property income for the year if the capital loss had been incurred by the particular affiliate.

  • (34) Subparagraph 5907(2)(f)(ii) of the Regulations is replaced by the following:

    • (ii) subject to subsection (2.01), does not arise with respect to a disposition (other than a disposition to which subsection (9) applies), of property by the affiliate,

      • (A) to a person or partnership that was, at the time of the disposition, a designated person or partnership in respect of the taxpayer, and

      • (B) to which a tax deferral, rollover or similar tax postponement provision of the income tax laws that are relevant in computing the earnings amount of the affiliate applied, and

  • (35) Subparagraph 5907(2)(j)(iii) of the Regulations is replaced by the following:

    • (iii) subject to subsection (2.01), does not arise with respect to a disposition (other than a disposition to which subsection (9) applies), of property by the affiliate,

      • (A) to a person or partnership that was, at the time of the disposition, a designated person or partnership in respect of the taxpayer, and

      • (B) to which a loss deferral or similar loss postponement provision of the income tax laws that are relevant in computing the earnings amount of the affiliate applied, and

  • (36) Paragraph 5907(2)(l) of the Regulations is replaced by the following:

    • (l) if any property of the affiliate that was acquired from a person or partnership that was, at the time of the acquisition, a designated person or partnership in respect of the taxpayer has been disposed of, the amount in respect of that property that may reasonably be considered as having been included under paragraph (f) in computing the earnings amount of any foreign affiliate of the taxpayer or of a person or partnership that was, at the time of the disposition, a designated person or partnership in respect of the taxpayer.

  • (37) Section 5907 of the Regulations is amended by adding the following after subsection (2):

    • (2.01) Subparagraphs (2)(f)(ii) and (j)(iii) and subsection (5.1) do not apply to a particular disposition of property (referred to in this subsection as the “affiliate property”) by a particular foreign affiliate of a taxpayer if

      • (a) the only consideration received in respect of the particular disposition is shares of the capital stock of another foreign affiliate of the taxpayer;

      • (b) all of the shares of the capital stock of the other affiliate that are, immediately after the particular disposition, owned by the particular affiliate are disposed of, at a particular time that is within 90 days of the day that includes the time of the particular disposition, to a person or partnership that at the particular time is not a designated person or partnership in respect of the taxpayer; and

      • (c) the affiliate property is not disposed of by the other affiliate as part of a series of transactions or events that includes the particular disposition.

    • (2.02) If an amount or a portion of an amount would, in the absence of this subsection, be included in computing the exempt earnings, or deducted in computing the exempt loss, of a foreign affiliate of a corporation in respect of the corporation for a taxation year of the affiliate and the amount or portion arises from a disposition of property (other than money), at any time, to a person or partnership that was, at that time, a designated person or partnership in respect of the corporation where that disposition is a transaction (within the meaning of subsection 245(1) of the Act) that is, or would be (if the amount or portion were a tax benefit for the purposes of section 245 of the Act), an avoidance transaction (within the meaning of subsection 245(3) of the Act), the following rules apply:

      • (a) the amount or portion is instead to be included in the affiliate’s taxable earnings for the year in respect of the corporation; and

      • (b) any income or profits tax relating to the transaction that would otherwise be deducted in computing the exempt earnings, or included in computing the exempt loss, of the affiliate for the year in respect of the corporation, is instead to be deducted from the affiliate’s taxable earnings for the year in respect of the corporation.

    • (2.03) The determination — under subparagraph (a)(iii) and paragraph (b) of the definition “earnings”, and paragraph (b) of the definition “loss”, in subsection (1) — of the earnings or loss of a foreign affiliate of a taxpayer resident in Canada for a particular taxation year from an active business is to be made as if the affiliate

      • (a) had, in computing its income or loss from the business for each taxation year (referred to in this paragraph as an “earnings or loss year”) that is the particular year or is any preceding taxation year that ends after August 19, 2011,

        • (i) claimed all deductions that it could have claimed under the Act, up to the maximum amount deductible in computing the income or loss from the business for that earnings or loss year, and

        • (ii) made all claims and elections and taken all steps under applicable provisions of the Act, or of enactments implementing amendments to the Act or its regulations, to maximize the amount of any deduction referred to subparagraph (i); and

      • (b) had, in computing its income or loss from the business for any preceding taxation year that ended on or before August 19, 2011, claimed all deductions, if any, that it actually claimed under the Act, up to the maximum amount deductible, and made all claims and elections, if any, and taken all steps, if any, under applicable provisions of the Act, or of enactments implementing amendments to the Act or its regulations, that it actually made.

  • (38) Subsection 5907(2.9) of the Regulations is replaced by the following:

    • (2.9) If paragraph 95(2)(k.1) of the Act applies in respect of a particular taxation year of a foreign affiliate of a taxpayer or in respect of a particular fiscal period of a partnership (which foreign affiliate or partnership is referred to in this subsection as the “operator” and which particular taxation year or particular fiscal period is referred to in this subsection as the “specified taxation year”) a member of which is, at the end of the period, a foreign affiliate of a taxpayer,

      • (a) in computing the affiliate’s earnings or loss from the foreign business referred to in that paragraph for the affiliate’s taxation year (referred to in subparagraphs (i) and (ii) as the “preceding taxation year”) that includes the day that is immediately before the beginning of the specified taxation year,

        • (i) there is to be added to the amount determined under paragraph (a) of the definition “earnings” in subsection (1), after adjustment in accordance with subsections (2) to (2.2),

          • (A) where the operator is the affiliate, the total of

            • (I) the amount, if any, by which the total determined under sub-subclause (ii)(A)(I)2 in respect of the operator for the preceding taxation year exceeds the total determined under sub-subclause (ii)(A)(I)1 in respect of the operator for that year, and

            • (II) if the operator was deemed under paragraph 95(2)(k.1) of the Act to have, at the end of the preceding taxation year, disposed of property owned by it that was used or held by it in the course of carrying on the foreign business in that year, the amount that is the total of all amounts each of which is determined by the formula

              (A – B) – C

              where

              A 
              is the fair market value, immediately before the end of that year, of a property deemed because of that paragraph to have been disposed of,
              B 
              is the amount determined under paragraph (a) of the definition “relevant cost base” in subsection 95(4) of the Act in respect of the property, in respect of the taxpayer, immediately before the time of the disposition, and
              C 
              is the amount, if any, of the capital gain determined in respect of the disposition of the property at that time, and
          • (B) where the operator is the partnership, the amount determined under subsection 5908(13); and

        • (ii) there is to be added to the amount determined under paragraph (a) of the definition “loss” in subsection (1),

          • (A) where the operator is the affiliate, the total of

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

              1. the total of all amounts each of which is an amount deemed under paragraph 95(2)(k.1) of the Act to have been claimed under any of paragraphs 20(1)(l), (l.1) and (7)(c), and subparagraphs 138(3)(a)(i), (ii) and (iv), of the Act (each of which provisions is referred to in this subparagraph as a “reserve provision”) in computing the income from the foreign business for the preceding taxation year

              exceeds

              2. the total of all amounts each of which is an amount actually claimed by the operator as a reserve in computing its income from the foreign business for that year that can reasonably be considered to be in respect of amounts in respect of which a reserve could have been claimed under a reserve provision on the assumption that the operator could have claimed amounts in respect of the reserve provisions for that year, and

            • (II) the total of all amounts each of which is the amount, if any, by which the amount determined under the description of B in the formula in subclause (i)(A)(II) in respect of a property described in that subclause exceeds the amount determined under the description of A in the formula in that clause in respect of the property, and

          • (B) where the operator is the partnership, the amount determined under subsection 5908(13); and

      • (b) any property of the operator that is, under that paragraph, deemed to have been disposed of and reacquired by the operator is, for the purposes of this section, deemed to have been disposed of and reacquired by the operator in the same manner and for the same amounts as if that paragraph applied for the purposes of this section.

  • (39) Subsection 5907(5) of the Regulations, as enacted by Part 2, is replaced by the following:

    • (5) For the purposes of this section, each capital gain, capital loss, taxable capital gain or allowable capital loss of a foreign affiliate of a taxpayer from the disposition of property is to be computed in accordance with the rules set out in subsection 95(2) of the Act.

    • (5.01) For the purposes of subsection (6), if any capital gain, capital loss, taxable capital gain or allowable capital loss referred to in subsection (5), or any capital loss referred to in subparagraph (iii) of the description of B in the definition “hybrid surplus” in subsection (1), of a foreign affiliate of a corporation is required to be computed in Canadian currency and the currency referred to in subsection (6) is not Canadian currency, the amount of the gain or loss is to be converted from Canadian currency into the currency referred to in subsection (6) at the rate of exchange prevailing on the date of disposition of the property.

  • (40) The portion of subsection 5907(5.1) of the Regulations before paragraph (a) is replaced by the following:

    • (5.1) Notwithstanding subsection (5), if, under the income tax laws of a country other than Canada that are relevant in computing the earnings of a foreign affiliate of a taxpayer resident in Canada from an active business carried on by it in a country, no gain or loss is recognized in respect of a disposition (other than a disposition to which subsection (9) applies) by the affiliate of a capital property used or held principally for the purpose of gaining or producing income from an active business to a person or partnership (in this subsection referred to as the “transferee”) that was, at the time of the disposition, a designated person or partnership in respect of the taxpayer, for the purposes of this section,

  • (41) Subsection 5907(7.1) of the Regulations is repealed.

  • (42) Subsection 5907(8) of the Regulations is replaced by the following:

    • (8) For the purposes of computing the various amounts referred to in this section, the first taxation year of a foreign affiliate, of a corporation resident in Canada, that is formed as a result of a foreign merger (within the meaning assigned by subsection 87(8.1) of the Act) is deemed to have commenced at the time of the merger, and a taxation year of a predecessor corporation (within the meaning assigned by subsection 5905(3)) that would otherwise have ended after that time is deemed to have ended immediately before that time.

  • (43) Subsection 5907(9) of the Regulations is replaced by the following:

    • (9) If a foreign affiliate of a taxpayer has been liquidated and dissolved (otherwise than as a result of a foreign merger within the meaning assigned by subsection 87(8.1) of the Act), for the purposes of computing the various amounts referred to in this section, the following rules apply:

      • (a) where, at a particular time, property having a fair market value equal to or greater than 90 percent of the fair market value of all of the property that was owned by the affiliate immediately before the commencement of the liquidation and dissolution has been disposed of by the affiliate in the course of the liquidation and dissolution, the taxation year of the affiliate that otherwise would have included the particular time is deemed to have ended immediately before that time; and

      • (b) each property of the affiliate that was disposed of by the affiliate in the course of the liquidation and dissolution is deemed to have been

        • (i) disposed of by the affiliate, at the time that is the earlier of the time it was actually disposed of and the time that is immediately before the time that is immediately before the particular time, for proceeds of disposition equal to

          • (A) if the liquidation and dissolution is one to which subsection 88(3) of the Act applies in respect of the disposition, the amount that would, in the absence of subsection 88(3.3) of the Act, be determined under paragraph 88(3)(a) or (b) of the Act, as the case may be,

          • (B) if the liquidation and dissolution is one to which paragraph 95(2)(e) of the Act applies in respect of the disposition, the amount determined under subparagraph 95(2)(e)(i) or (ii) of the Act, as the case may be, and

          • (C) in any other case, the fair market value of the property at the time it was actually disposed of, and

        • (ii) acquired by the person or partnership to which the affiliate disposed of the property, at the time it was actually acquired, at a cost equal to the affiliate’s proceeds of disposition of the property.

    • (9.1) Notwithstanding any other provision of this Part, in determining the earnings or loss of a foreign affiliate of a taxpayer resident in Canada, for a taxation year of the affiliate from an active business carried on by it in a country,

      • (a) from a disposition of property to which paragraph 95(2)(d.1) of the Act applies, those earnings or that loss are to be determined using the rules in that paragraph; and

      • (b) from a disposition of property acquired in a transaction to which paragraph 95(2)(d.1) of the Act applies, the cost to the affiliate of the property is to be determined using the rules in that paragraph.

  • (44) Subsection 5907(13) of the Regulations is replaced by the following:

    • (13) For the purposes of subparagraph (ii) of paragraph 128.1(1)(d) of the Act, the prescribed amount is the amount determined by the formula

      X + Y

      where

      X 
      is the amount, if any, by which
      • (a) the amount, if any, determined by the formula

        A – B – (C – D) + (E – F)

        where

        A 
        is the taxable surplus of the foreign affiliate of the other taxpayer referred to in that paragraph, in respect of the other taxpayer, at the end of the year referred to in that subparagraph,
        B 
        is the affiliate’s net earnings for the year in respect of the affiliate’s foreign accrual property income for the year to the extent those net earnings have been included in the amount referred to in the description of A,
        C 
        is the total of all amounts each of which is the amount by which the affiliate’s underlying foreign tax in respect of the other taxpayer at the end of the year would have increased because of the gain or income of the affiliate that would have arisen if a disposition, deemed under paragraph 128.1(1)(b) of the Act, of a property by the affiliate had been an actual disposition of the property by the affiliate,
        D 
        is the total of all amounts each of which is the amount otherwise added in computing the affiliate’s underlying foreign tax in respect of the other taxpayer at the end of the year in respect of income or profits taxes paid to the government of a country in respect of all or a portion of a gain or an income of the affiliate referred to in the description of C,
        E 
        is the total of all amounts each of which is the amount by which the affiliate’s underlying foreign tax in respect of the other taxpayer at the end of the year would have decreased because of the loss of the affiliate that would have arisen if a disposition, deemed under paragraph 128.1(1)(b) of the Act, of a property by the affiliate had been an actual disposition of the property by the affiliate, and
        F 
        is the total of all amounts each of which is the amount otherwise deducted in computing the affiliate’s underlying foreign tax in respect of the other taxpayer at the end of the year in respect of income or profits taxes refunded by the government of a country in respect of all or a portion of a loss of the affiliate referred to in the description of E

      exceeds

      • (b) the amount, if any, determined by the formula

        [(G – H) × (J – 1)] + K

        where

        G 
        is the amount determined by the formula

        L + M – N

        where

        L 
        is the underlying foreign tax of the affiliate in respect of the other taxpayer at the end of the year,
        M 
        is the amount, if any, by which the amount determined under the description of C in paragraph (a) exceeds the amount determined under the description of D in that paragraph, and
        N 
        is the amount, if any, by which the amount determined under the description of E in paragraph (a) exceeds the amount determined under the description of F in that paragraph,
        H 
        is the portion of the value of L that can reasonably be considered to relate to the affiliate’s net earnings for the year in respect of the affiliate’s foreign accrual property income,
        J 
        is the other taxpayer’s relevant tax factor (within the meaning assigned by subsection 95(1) of the Act) for its taxation year that includes the time that is immediately before the particular time, and
        K 
        is the amount, if any, by which
        • (i) the total of all amounts required by paragraph 92(1)(a) of the Act to be added at any time in a preceding taxation year in computing the adjusted cost base to the other taxpayer of the shares of the affiliate owned by the other taxpayer at the end of the year

        exceeds

        • (ii) the total of all amounts required by paragraph 92(1)(b) of the Act to be deducted at any time in a preceding taxation year in computing the adjusted cost base to the other taxpayer of the shares of the affiliate owned by the other taxpayer at the end of the year, and

      Y 
      is the amount, if any, by which
      • (a) the amount, if any, determined by the formula

        P – (Q – R) + (S – T)

        where

        P 
        is the affiliate’s hybrid surplus in respect of the other taxpayer at the end of the year,
        Q 
        is the total of all amounts each of which is the amount by which the affiliate’s hybrid underlying tax in respect of the other taxpayer at the end of the year would have increased because of the capital gain of the affiliate that would have arisen if a disposition, deemed under paragraph 128.1(1)(b) of the Act, of a property by the affiliate had been an actual disposition of the property by the affiliate,
        R 
        is the total of all amounts each of which is the amount otherwise added in computing the affiliate’s hybrid underlying tax in respect of the other taxpayer at the end of the year in respect of income or profits taxes paid to the government of a country in respect of all or a portion of a capital gain of the affiliate referred to in the description of Q,
        S 
        is the total of all amounts each of which is the amount by which the affiliate’s hybrid underlying tax in respect of the other taxpayer at the end of the year would have decreased because of the capital loss of the affiliate that would have arisen if a disposition, deemed under paragraph 128.1(1)(b) of the Act, of a property by the affiliate had been an actual disposition of the property by the affiliate, and
        T 
        is the total of all amounts each of which is the amount otherwise deducted in computing the affiliate’s hybrid underlying tax in respect of the other taxpayer at the end of the year in respect of income or profits taxes refunded by the government of a country in respect of all or a portion of a capital loss of the affiliate referred to in the description of S;

      exceeds

      • (b) the amount, if any, determined by the formula

        [U × (V – 0.5)] + (W × 0.5)

        where

        U 
        is the amount determined by the formula

        U.1 + U.2 – U.3

        where

        U.1 
        is the hybrid underlying tax of the affiliate in respect of the other taxpayer at the end of the year,
        U.2 
        is the amount, if any, by which the amount determined under the description of Q in paragraph (a) exceeds the amount determined under the description of R in that paragraph, and
        U.3 
        is the amount, if any, by which the amount determined under the description of S in paragraph (a) exceeds the amount determined under the description of T in that paragraph,
        V 
        is the other taxpayer’s relevant tax factor (within the meaning assigned by subsection 95(1) of the Act) for its taxation year that includes the time that is immediately before the particular time, and
        W 
        is the amount determined under paragraph (a).
    • (14) For the purposes of the description of C in paragraph (a) of the description of X in subsection (13) and the description of Q in paragraph (a) of the description of Y in subsection (13), the amount by which the underlying foreign tax or the hybrid underlying tax, as the case may be, of the affiliate in respect of the other taxpayer at the end of the year would have increased if a disposition (referred to in this subsection as the “notional actual disposition”) deemed under paragraph 128.1(1)(b) of the Act of any property by the affiliate had been an actual disposition of the property by the affiliate is the total of all amounts each of which is the amount, if any, by which

      • (a) the amount (determined on the assumption that the notional actual disposition occurred at the time of the deemed disposition) that can reasonably be considered to be the amount of income or profits tax that the affiliate would, because of the notional actual disposition, have had to pay to the government of a particular country (other than Canada), in addition to any other income or profits tax otherwise payable to that government, in relation to the gain or income of the affiliate from the notional actual disposition

      exceeds

      • (b) the amount that can reasonably be considered to be the portion of the notional income or profits tax payable by the affiliate to the government of the particular country in relation to the gain or income of the affiliate from the notional actual disposition (determined on the assumptions that the notional actual disposition occurred immediately after the time that is immediately after the time of the deemed disposition and that the notional income or profits tax payable by the affiliate to the government of the particular country in relation to the notional actual disposition is equal to the amount determined under paragraph (a)) that, because of a comprehensive agreement or convention for the elimination of double taxation on income between the government of the particular country and the government of any other country, would not have been payable to the government of the particular country.

    • (15) For the purposes of the description of E in paragraph (a) of the description of X in subsection (13) and the description of S in paragraph (a) of the description of Y in subsection (13), the amount by which the underlying foreign tax or the hybrid underlying tax, as the case may be, of the affiliate in respect of the other taxpayer at the end of the year would have decreased if a disposition (referred to in this subsection as the “notional actual disposition”) deemed under paragraph 128.1(1)(b) of the Act of any property by the affiliate had been an actual disposition of the property by the affiliate is the total of all amounts each of which the amount, if any, by which

      • (a) the amount (determined on the assumption that the notional actual disposition occurred at the time of the deemed disposition) that can reasonably be considered to be the amount of income or profits tax that the affiliate would, because of the notional actual disposition, have had refunded to it by the government of a particular country (other than Canada), in addition to any other income or profits tax otherwise refundable by that government, in relation to the loss or capital loss, as the case may be, of the affiliate from the notional actual disposition

      exceeds

      • (b) the amount that can reasonably be considered to be the portion of the notional income or profits tax refundable to the affiliate by the government of the particular country in relation to the loss or capital loss, as the case may be, of the affiliate from the notional actual disposition (determined on the assumptions that the notional actual disposition occurred immediately after the time that is immediately after the time of the deemed disposition and that the notional income or profits tax refundable to the affiliate by the government of the particular country in relation to the notional actual disposition is equal to the amount determined by paragraph (a)) that, because of a comprehensive agreement or convention for the elimination of double taxation on income between the government of the particular country and the government of any other country, would not have been refundable by the government of the particular country.

  • (45) Subsections (1), (7), (8), (11), (15), (22) and (26) to (33) and subsection 5907(2.03) of the Regulations, as enacted by subsection (37), apply in respect of taxation years of a foreign affiliate of a taxpayer that end after August 19, 2011.

  • (46) Subsection (2) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after August 19, 2011, except that, for taxation years of the foreign affiliate that begin before 2013, subparagraph (a)(ii) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection (2), is to be read as follows:

    • (ii) the amount of the taxable capital gains for the year referred to in subparagraphs (c)(i), (d)(iii), (e)(i) and (f)(iv) of the definition “net earnings”, and

  • (47) Subsection (3) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after August 19, 2011, except that, for taxation years of the foreign affiliate that begin before 2013, subparagraph (a)(ii) of the definition “exempt loss” in subsection 5907(1) of the Regulations, as enacted by subsection (3), is to be read as follows:

    • (ii) the amount of the allowable capital losses for the year referred to in subparagraphs (c)(i), (d)(iii), (e)(i) and (f)(iv) of the definition “net loss”, and

  • (48) Subsections (4) to (6), (14), (16) to (21), (23), (25), (39) and (41) are deemed to have come into force on August 20, 2011.

  • (49) Subsections (9) and (12) apply in respect of taxation years of a foreign affiliate of a taxpayer that end after August 19, 2011. However, if the taxpayer has elected under subsection 70(31), subsection (9) also applies to all mergers or combinations in respect of foreign affiliates of the taxpayer that occur after December 20, 2002 and in taxation years of those foreign affiliates that end on or before August 19, 2011 and, in respect of those mergers or combinations, subparagraphs (d)(i) and (ii) of the definition “net earnings” in subsection 5907(1) of the Regulations, as enacted by subsection (9), are to be read as follows:

    • (i) shares of the capital stock of another foreign affiliate of the corporation that were excluded property of the affiliate (other than dispositions to which any of paragraphs 95(2)(c) to (e) of the Act was applicable), or

    • (ii) partnership interests that were excluded property of the affiliate

  • (50) Subsections (10) and (13) apply to taxation years of a foreign affiliate of a taxpayer that begin after 2012.

  • (51) Subsection (24) is deemed to have come into force on August 20, 2011. However, in respect of dispositions that occur after August 19, 2011 and before 2013,

    • (a) the portion of subparagraph (ii) of the description of A in the definition “hybrid surplus” in subsection 5907(1) of the Regulations before clause (A), as enacted by subsection (24), is to be read as follows:

      • (ii) the amount of a capital gain (except to the extent that the taxable portion of the capital gain is included under the description of B in the definition “foreign accrual property income” in subsection 95(1) of the Act in respect of the subject affiliate), for a taxation year, of the subject affiliate, or of a partnership of which the subject affiliate is a member (to the extent that the capital gain is reasonably attributable to the subject affiliate), in respect of a disposition, at any time in the period, to a person or partnership that was, at that time, a designated person or partnership in respect of the corporation, of

    • (b) the portion of subparagraph (ii) of the description of B in the definition “hybrid surplus” in subsection 5907(1) of the Regulations before clause (A), as enacted by subsection (24), is to be read as follows:

      • (ii) the amount of a capital loss (except to the extent that the allowable portion of the capital loss is included under paragraph (a) of the description of E in the definition “foreign accrual property income” in subsection 95(1) of the Act in respect of the subject affiliate), for a taxation year, of the subject affiliate, or of a partnership of which the subject affiliate is a member (to the extent that the capital loss is reasonably attributable to the subject affiliate), in respect of a disposition, at any time in the period, to a person or partnership that was, at that time, a designated person or partnership in respect of the corporation, of

    • (c) section 5907 of the Regulations is to be read as if it contained a subsection (1.001) that reads as follows:

      • (1.001) For the purposes of subparagraph (ii) of the description of A, and subparagraph (ii) of the description of B, in the definition “hybrid surplus” in subsection (1)

        • (a) if a foreign affiliate of a corporation redeems, acquires or cancels shares of its capital stock those shares are, for greater certainty, deemed to be disposed of to the affiliate by the person or partnership that, immediately before the redemption, acquisition or cancellation, holds those shares;

        • (b) if a partnership redeems, acquires or cancels interests in the partnership those interests are, for greater certainty, deemed to be disposed of to the partnership by the person or partnership that, immediately before the redemption, acquisition or cancellation, holds those interests; and

        • (c) if a person or partnership is deemed under subsection 40(3) of the Act to have disposed of shares of the capital stock of a corporation, the person or partnership is deemed to have disposed of those shares to itself.

  • (52) Subsections (34) to (36) apply in respect of dispositions of property by a foreign affiliate of a taxpayer that occur after August 19, 2011. However, if the taxpayer has elected under subsection (53),

    • (a) subparagraph 5907(2)(f)(ii) of the Regulations, as enacted by subsection (34), and subparagraph 5907(2)(j)(iii) of the Regulations, as enacted by subsection (35), apply in respect of dispositions of property by all foreign affiliates of the taxpayer that occur after December 20, 2002;

    • (b) that subparagraph 5907(2)(f)(ii) is, in respect of all such dispositions that occur on or before August 19, 2011, to be read as follows:

      • (ii) subject to subsection (2.01), does not arise with respect to a disposition (other than a disposition to which subsection (9) applies) by the affiliate of property to another foreign affiliate of the taxpayer or to a person with whom the taxpayer does not deal at arm’s length, to which a tax deferral, rollover or similar tax postponement provision of the income tax law that is relevant in computing the earnings amount of the affiliate applied, and

    • (c) that subparagraph 5907(2)(j)(iii) is, in respect of all such dispositions that occur on or before August 19, 2011, to be read as follows:

      • (iii) subject to subsection (2.01), does not arise with respect to a disposition (other than a disposition to which subsection (9) applies) by the affiliate of property to another foreign affiliate of the taxpayer or to a person with whom the taxpayer does not deal at arm’s length, to which a loss deferral or similar loss postponement provision of the income tax law that is relevant in computing the earnings amount of the affiliate applied, and

  • (53) Subsection 5907(2.01) of the Regulations, as enacted by subsection (37), applies to dispositions by a foreign affiliate of a taxpayer that occur after August 19, 2011. However, if the taxpayer elects in writing under this subsection in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, that subsection 5907(2.01) applies to dispositions by all foreign affiliates of the taxpayer that occur after December 20, 2002.

  • (54) Subsection 5907(2.02) of the Regulations, as enacted by subsection (37), applies in respect of transactions (within the meaning of subsection 245(1) of the Act) that are entered into after August 19, 2011.

  • (55) Subsection (38) applies in respect of taxation years of a foreign affiliate of a taxpayer that begin after December 20, 2002. However, if the taxpayer has elected under paragraph 70(29)(b), subsection (38) applies in respect of taxation years of all foreign affiliates of the taxpayer that begin after 1994.

  • (56) Subsection (40) applies to dispositions that occur after August 19, 2011.

  • (57) Subsection (42) applies in respect of mergers or combinations in respect of a foreign affiliate of a taxpayer that occur after August 19, 2011.

  • (58) Subsection 5907(9) of the Regulations, as enacted by subsection (43), applies in respect of liquidations and dissolutions of foreign affiliates of a taxpayer that begin after December 20, 2002, except that

    • (a) if the taxpayer has elected under subsection 70(28), paragraph 5907(9)(b) of the Regulations, as enacted by subsection (43), is, in respect of liquidations and dissolutions of all foreign affiliates of the taxpayer that begin on or before February 27, 2004, to be read as follows:

      • (b) each property of the affiliate that was disposed of by the affiliate in the course of the liquidation and dissolution is, subject to subsection 88(3) of the Act, deemed to have been

        • (i) disposed of by the affiliate, at the time that is the earlier of the time it was actually disposed of and the time that is immediately before the time that is immediately before the particular time, for proceeds of disposition equal to

          • (A) if the liquidation and dissolution is one to which paragraph 95(2)(e) of the Act applies in respect of the disposition, the amount determined under subparagraph 95(2)(e)(i) or (ii) of the Act, and

          • (B) in any other case, the fair market value of the property at the time it was actually disposed of, and

        • (ii) acquired by the person or partnership to which the affiliate disposed of the property, at the time it was actually acquired, at a cost equal to the affiliate’s proceeds of disposition of the property.

    • (b) if the taxpayer has not elected under subsection 70(28), paragraph 5907(9)(b) of the Regulations, as enacted by subsection (43), is, in respect of liquidations and dissolutions of foreign affiliates of the taxpayer that

      • (i) begin on or before February 27, 2004, to be read as follows:

        • (b) each property of the affiliate that was disposed of by the affiliate in the course of the liquidation and dissolution is, subject to subsection 88(3) and paragraphs 95(2)(e) and (e.1) of the Act, deemed to have been

          • (i) disposed of by the affiliate, at the time that is the earlier of the time it was actually disposed of and the time that is immediately before the time that is immediately before the particular time, for proceeds of disposition equal to the fair market value of the property at the time it was actually disposed of, and

          • (ii) acquired by the person or partnership to which the affiliate disposed of the property, at the time it was actually acquired, at a cost equal to the affiliate’s proceeds of disposition of the property.

      • (ii) begin after February 27, 2004 and on or before August 19, 2011, to be read as follows:

        • (b) each property of the affiliate that was disposed of by the affiliate in the course of the liquidation and dissolution is, subject to paragraphs 95(2)(e) and (e.1) of the Act, deemed to have been

          • (i) disposed of by the affiliate, at the time that is the earlier of the time it was actually disposed of and the time that is immediately before the time that is immediately before the particular time, for proceeds of disposition equal to

            • (A) if the liquidation and dissolution is one to which subsection 88(3) of the Act applies in respect of the disposition, the amount that would (in the absence of subsection 88(3.3) of the Act) be determined under paragraph 88(3)(a) or (b) of the Act, as the case may be, and

            • (B) in any other case, the fair market value of the property at the time it was actually disposed of, and

          • (ii) acquired by the person or partnership to which the affiliate disposed of the property, at the time it was actually acquired, at a cost equal to the affiliate’s proceeds of disposition of the property.

  • (59) Subsection 5907(9.1) of the Regulations, as enacted by subsection (43), applies to mergers or combinations in respect of a foreign affiliate of a taxpayer that occur after August 19, 2011. However, if the taxpayer has elected under subsection 70(31), that subsection 5907(9.1) applies to mergers or combinations in respect of all foreign affiliates of the taxpayer that occur after December 20, 2002.

  • (60) Subsections 5907(13) and (14) of the Regulations, as enacted by subsection (44), apply after 1992 in respect of a foreign affiliate of a taxpayer. However,

    • (a) if the foreign affiliate elected in accordance with paragraph 111(4)(a) of the Statutes of Canada, 1994, chapter 21, those subsections 5907(13) and (14) apply to the foreign affiliate from the foreign affiliate’s time of continuation (within the meaning assigned by that paragraph);

    • (b) in their application in respect of dispositions that occur on or before August 19, 2011,

      • (i) subject to paragraph (c), subsection 5907(13) of the Regulations, as enacted by subsection (44), is to be read as follows:

        • (13) For the purposes of subparagraph (ii) of paragraph 128.1(1)(d) of the Act, the prescribed amount is the amount determined by the formula

          X – Z

          where

          X 
          is the amount determined by the formula

          A – B – (C – D)

          where

          A 
          is the taxable surplus of the foreign affiliate of the other taxpayer referred to in that paragraph, in respect of the other taxpayer, at the end of the year referred to in that subparagraph,
          B 
          is the affiliate’s net earnings for the year in respect of the affiliate’s foreign accrual property income for the year to the extent those net earnings have been included in the amount referred to in the description of A,
          C 
          is the total of all amounts each of which is the amount by which the affiliate’s underlying foreign tax in respect of the other taxpayer at the end of the year would have increased because of the gain or income of the affiliate that would have arisen if a disposition, deemed under paragraph 128.1(1)(b) of the Act, of a property by the affiliate had been an actual disposition of the property by the affiliate, and
          D 
          is the total of all amounts each of which is the amount otherwise added in computing the affiliate’s underlying foreign tax in respect of the other taxpayer at the end of the year in respect of income or profits taxes paid to the government of a country in respect of all or a portion of a gain or an income of the affiliate referred to in the description of C, and
          Z 
          is the amount determined by the formula

          [(G – H) × (J – 1)] + K

          where

          G 
          is the amount determined by the formula

           L + M

          where

          L 
          is the underlying foreign tax of the affiliate in respect of the other taxpayer at the end of the year, and
          M 
          is the amount, if any, by which the amount determined under the description of C exceeds the amount determined under the description of D,
          H 
          is the portion of the value of L that can reasonably be considered to relate to the affiliate’s net earnings for the year in respect of the affiliate’s foreign accrual property income,
          J 
          is the other taxpayer’s relevant tax factor (within the meaning assigned by subsection 95(1) of the Act) for its taxation year that includes the time that is immediately before the particular time, and
          K 
          is the amount, if any, by which
          • (i) the total of all amounts required by paragraph 92(1)(a) of the Act to be added at any time in a preceding taxation year in computing the adjusted cost base to the other taxpayer of the shares of the affiliate owned by the other taxpayer at the end of the year

          exceeds

          • (ii) the total of all amounts required by paragraph 92(1)(b) of the Act to be deducted at any time in a preceding taxation year in computing the adjusted cost base to the other taxpayer of the shares of the affiliate owned by the other taxpayer at the end of the year.

      • (ii) the portion of subsection 5907(14) of the Regulations before paragraph (a), as enacted by subsection (44), is to be read as follows:

        • (14) For the purposes of the description of C in the description of X in subsection (13), the amount by which the underlying foreign tax of the affiliate in respect of the taxpayer at the end of the year would have increased, if a disposition (referred to in this subsection as the “notional actual disposition”) deemed under paragraph 128.1(1)(b) of the Act of any property by the affiliate had been an actual disposition of the property by the affiliate, is the total of all amounts each of which is the amount, if any, by which

    • (c) in its application in respect of dispositions that occur on or before February 27, 2004, the description of M in subsection 5907(13) of the Regulations, as enacted by subsection (44) and as required to be read by subparagraph (b)(i), is instead to be read as follows:

      M 
      is the amount that would be determined to be the amount by which the amount determined under the description of C exceeds the amount determined under the description of D if this section were read without reference to subsection (14), and
  • (61) Subsection 5907(15) of the Regulations, as enacted by subsection (44), applies in respect of dispositions that occur after August 19, 2011.

  •  (1) Paragraph 5908(10)(a) of the Regulations, as enacted by Part 2, is amended by adding the following after subparagraph (iii):

    • (iii.1) any amount included in computing the hybrid surplus or hybrid deficit of the affiliate before that time that may reasonably be considered to relate to a capital gain of the partnership,

  • (2) Paragraph 5908(10)(b) of the Regulations, as enacted by Part 2, is amended by adding the following after subparagraph (iii):

    • (iii.1) any amount included in computing the hybrid surplus or hybrid deficit of the affiliate before that time that may reasonably be considered to relate to a capital loss of the partnership,

  • (3) Section 5908 of the Regulations, as enacted by Part 2, is amended by adding the following after subsection (12):

    • (13) For the purposes of clauses 5907(2.9)(a)(i)(B) and (ii)(B), the amount determined under this subsection is, subject to subsection (14), the amount determined by the formula

      A × B/C

      where

      A 
      is
      • (a) if clause 5907(2.9)(a)(i)(B) applies, the amount determined under clause 5907(2.9)(a)(i)(A), and

      • (b) if clause 5907(2.9)(a)(ii)(B) applies, the amount determined under clause 5907(2.9)(a)(ii)(A),

      B 
      is the affiliate’s direct or indirect share of the partnership’s income or loss for the preceding taxation year, and
      C 
      is the partnership’s income or loss for the preceding taxation year.
    • (14) For the purposes of subsection (13), if both the income and loss of the partnership for the preceding taxation year are nil, the descriptions of B and C in the formula in that subsection are to be applied as if the partnership had income for that year in the amount of $1,000,000.

  • (4) Subsections (1) and (2) are deemed to have come into force on August 20, 2011.

  • (5) Subsection (3) applies in respect of taxation years of a foreign affiliate of a taxpayer that begin after December 20, 2002. However, if the taxpayer has elected under paragraph 70(29)(b), the following rules apply in respect of taxation years of the foreign affiliate that begin after 1994 and before December 21, 2002:

    • (a) the reference to “5908(13)” in clauses 5907(2.9)(a)(i)(B) and (ii)(B) of the Regulations, as enacted by subsection 85(38), is to be read as a reference to “5907.1(1)”; and

    • (b) the Income Tax Regulations are to be read as if they contained a section that reads as follows

      • 5907.1 (1) For the purposes of clauses 5907(2.9)(a)(i)(B) and (ii)(B), the amount determined under this subsection is, subject to subsection (2), the amount determined by the formula

        A × B/C

        where

        A 
        is
        • (a) if clause 5907(2.9)(a)(i)(B) applies, the amount determined under clause 5907(2.9)(a)(i)(A), and

        • (b) if clause 5907(2.9)(a)(ii)(B) applies, the amount determined under clause 5907(2.9)(a)(ii)(A);

        B 
        is the affiliate’s direct or indirect share of the partnership’s income or loss for the preceding taxation year; and
        C 
        is the partnership’s income or loss for the preceding taxation year.
      • (2) For the purposes of subsection (1), if both the income and loss of the partnership for the preceding taxation year are nil, the descriptions of B and C in the formula in that subsection are to be applied as if the partnership had income for that year in the amount of $1,000,000.

  •  (1) The description of B in paragraph 5910(1)(a) of the Regulations, as enacted by Part 2, is replaced by the following:

    B 
    is the affiliate’s earnings from the business for the particular year, and
  • (2) Subsection 5910(3) of the Regulations, as enacted by Part 2, is repealed.

  • (3) Subsections (1) and (2) apply in respect of taxation years of a foreign affiliate of a taxpayer that end after August 19, 2011.

  •  (1) The Regulations are amended by adding the following after section 5910, as enacted by Part 2:

    • 5911. (1) A listed election is to be made by the taxpayer and, if applicable, the disposing affiliate by so notifying the Minister in writing on or before

      • (a) if the taxpayer is a partnership, the earliest of the filing-due dates of any member of the partnership for the member’s taxation year that includes the last day of the partnership’s fiscal period that includes the last day of the foreign affiliate’s taxation year that includes the time of distribution of a distributed property; and

      • (b) in any other case, the taxpayer’s filing-due date for its taxation year that includes the last day of the foreign affiliate’s taxation year that includes the time of distribution of a distributed property.

    • (2) For the purposes of subsection (1), a listed election is any of the following:

      • (a) an election by the taxpayer under subsection 88(3.1) of the Act in respect of a liquidation and dissolution of a disposing affiliate;

      • (b) an election by the taxpayer under subsection 88(3.3) of the Act in respect of a distribution of distributed property; and

      • (c) a joint election by the taxpayer and a disposing affiliate under subsection 88(3.5) of the Act in respect of a distribution of distributed property.

    • (3) Subsection (4) applies if

      • (a) a taxpayer has made an election (referred to in this subsection and subsection (4) as the “initial election”) under subsection 88(3.3) of the Act in respect of a distribution of distributed property on or before the filing-due date specified in subsection (1);

      • (b) the taxpayer made reasonable efforts to determine all amounts, in respect of the disposing affiliate, that may reasonably be considered to be relevant in making the claim under the initial election; and

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

    • (4) 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 election to be amended, the amended election under paragraph (3)(c) is deemed to have been made on the day on which the initial election was made and the initial election is deemed not to have been made.

    • (5) An election under the definition “relevant cost base” in subsection 95(4) of the Act in respect of a property of a foreign affiliate of a taxpayer, in respect of the taxpayer, is to be made by the taxpayer by so notifying the Minister in writing on or before

      • (a) if the taxpayer is a partnership, the earliest of the filing-due dates of any member of the partnership for the member’s taxation year that includes the last day of the partnership’s fiscal period that includes the last day of the foreign affiliate’s taxation year in which the determination of the relevant cost base of the property, in respect of the taxpayer, is relevant; and

      • (b) in any other case, the taxpayer’s filing-due date for its taxation year that includes the last day of the foreign affiliate’s taxation year in which the determination of the relevant cost base of the property, in respect of the taxpayer, is relevant.

    • (6) An election, or joint election, as the case may be, under subsection 90(3) of the Act in respect of a distribution made by a foreign affiliate of a taxpayer is to be made by the taxpayer, or by the taxpayer and each connected person or partnership referred to in that subsection, as the case may be, by so notifying the Minister in writing on or before

      • (a) in the case of an election by the taxpayer,

        • (i) if the taxpayer is a partnership, the earliest of the filing-due dates of any member of the partnership for the member’s taxation year that includes the last day of the partnership’s fiscal period in which the distribution was made, and

        • (ii) in any other case, the taxpayer’s filing-due date for its taxation year that includes the last day of the foreign affiliate’s taxation year in which the distribution was made; and

      • (b) in the case of a joint election, the earliest of the filing-due dates that would be determined under paragraph (a) for each taxpayer that is required to make the joint election if there were no connected persons or partnerships in respect of the taxpayer.

  • (2) Subsections 5911(1) to (4) of the Regulations, as enacted by subsection (1), apply in respect of liquidations and dissolutions of foreign affiliates of a taxpayer that begin after February 27, 2004. However, any listed election referred to in that subsection 5911(1) that would otherwise be required to be filed with the Minister of National Revenue before the day that is 120 days after the day on which this Act receives royal assent is deemed to have been filed with the Minister on a timely basis if it is filed with the Minister within 365 days after the day on which this Act receives royal assent.

  • (3) Subsection 5911(5) of the Regulations, as enacted by subsection (1), applies in respect of determinations in respect of which subsection 70(22) applies. However, any election referred to in that subsection 5911(5) that would otherwise be required to be filed with the Minister of National Revenue before the day that is 120 days after the day on which this Act receives royal assent is deemed to have been filed with the Minister on a timely basis if it is filed with the Minister within 365 days after the day on which this Act receives royal assent.

  • (4) Subsection 5911(6) of the Regulations, as enacted by subsection (1), applies in respect of distributions made after August 19, 2011. However, any election referred to in that subsection 5911(6) that would otherwise be required to be filed with the Minister of National Revenue before the day that is 120 days after the day on which this Act receives royal assent is deemed to have been filed with the Minister on a timely basis if it is filed with the Minister within 365 days after the day on which this Act receives royal assent.

Elections and Assessments

 If the taxpayer referred to in any election provided for under this Part is a partnership, any reference in those elections to “the taxpayer’s filing-due date” is to be read as a reference to “the earliest of the filing-due dates of any member of the taxpayer”.

 Any assessment of a taxpayer’s tax, interest and penalties payable under the Act for any taxation year that ends before the day on which this Act receives royal assent that would, in the absence of this section, be precluded because of subsections 152(4) to (5) of the Act shall be made to the extent necessary to take into account sections 54 to 89.

PART 4R.S., c. 1 (5th Supp.)AMENDMENTS TO THE INCOME TAX ACT RELATED TO BIJURALISM

  •  (1) Subparagraph 12(1)(x)(viii) of the Income Tax Act is replaced by the following:

    • (viii) may not reasonably be considered to be a payment made in respect of the acquisition by the payer or the public authority of an interest in the taxpayer, an interest in, or for civil law a right in, the taxpayer’s business or an interest in, or for civil law a real right in, the taxpayer’s property;

  • (2) Subsection 12(4) of the Act is replaced by the following:

    • Marginal note:Interest from investment contract

      (4) Subject to subsection (4.1), if in a taxation year a taxpayer (other than a taxpayer to whom subsection (3) applies) holds an interest in, or for civil law a right in, an investment contract on any anniversary day of the contract, there shall be included in computing the taxpayer’s income for the year the interest that accrued to the taxpayer to the end of that day with respect to the investment contract, to the extent that the interest was not otherwise included in computing the taxpayer’s income for the year or any preceding taxation year.

  • (3) Subsections 12(9) and (9.1) of the Act are replaced by the following:

    • Marginal note:Deemed accrual

      (9) For the purposes of subsections (3), (4) and (11) and 20(14) and (21), if a taxpayer acquires an interest in, or for civil law a right in, a prescribed debt obligation, an amount determined in prescribed manner is deemed to accrue to the taxpayer as interest on the obligation in each taxation year during which the taxpayer holds the interest or the right in the obligation.

    • Marginal note:Exclusion of proceeds of disposition

      (9.1) If a taxpayer disposes of an interest in, or for civil law a right in, a debt obligation that is a debt obligation in respect of which the proportion of the payments of principal to which the taxpayer is entitled is not equal to the proportion of the payments of interest to which the taxpayer is entitled, the portion of the proceeds of disposition received by the taxpayer that can reasonably be considered to represent a recovery of the cost to the taxpayer of the interest or the right in the debt obligation shall, notwithstanding any other provision of this Act, not be included in computing the taxpayer’s income, and for the purpose of this subsection, a debt obligation includes, for greater certainty, all of the issuer’s obligations to pay principal and interest under that obligation.

  • (4) Paragraph (i) of the definition “investment contract” in subsection 12(11) of the Act is replaced by the following:

    • (i) an obligation in respect of which the taxpayer has (otherwise than because of subsection (4)) at periodic intervals of not more than one year, included, in computing the taxpayer’s income throughout the period in which the taxpayer held an interest in, or for civil law a right in, the obligation, the income accrued on it for those intervals,

  •  (1) The portion of subsection 13(5.2) of the Act before paragraph (a) is replaced by the following:

    • Marginal note:Deemed cost and depreciation

      (5.2) If, at any time, a taxpayer has acquired a capital property that is depreciable property or real or immovable property in respect of which, before that time, the taxpayer or any person with whom the taxpayer was not dealing at arm’s length was entitled to a deduction in computing income in respect of any amount paid or payable for the use of, or the right to use, the property and the cost or the capital cost (determined without reference to this subsection) at that time of the property to the taxpayer is less than the fair market value thereof at that time determined without reference to any option with respect to that property, for the purposes of this section, section 20 and any regulations made under paragraph 20(1)(a), the following rules apply:

  • (2) Subsection 13(5.3) of the Act is replaced by the following:

    • Marginal note:Deemed recapture

      (5.3) If, at any time in a taxation year, a taxpayer has disposed of a capital property that is an option with respect to depreciable property or real or immovable property in respect of which the taxpayer or any person with whom the taxpayer was not dealing at arm’s length was entitled to a deduction in computing income in respect of any amount paid for the use of, or the right to use, the property, for the purposes of this section, the amount, if any, by which the proceeds of disposition to the taxpayer of the option exceed the taxpayer’s cost in respect thereof is deemed to be an excess referred to in subsection (1) in respect of the taxpayer for the year.

  • (3) Paragraph 13(7.5)(c) of the Act is replaced by the following:

    • (c) if a taxpayer acquires an intangible property, or for civil law an incorporeal property, as a consequence of making a payment to which paragraph (a) applies or incurring a cost to which paragraph (b) applies,

      • (i) the property referred to in paragraph (a) or (b) is deemed to include the intangible or incorporeal property, and

      • (ii) the portion of the capital cost referred to in paragraph (a) or (b) that applies to the intangible or incorporeal property is deemed to be the amount determined by the formula

        A × B/C

        where

        A 
        is the lesser of the amount of the payment made or cost incurred and the amount determined for C,
        B 
        is the fair market value of the intangible or incorporeal property at the t