Technical Tax Amendments Act, 2012 (S.C. 2013, c. 34)
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Assented to 2013-06-26
PART 3AMENDMENTS IN RESPECT OF FOREIGN AFFILIATES: REORGANIZATIONS AND DISTRIBUTIONS AND OTHER TECHNICAL AMENDMENTS
C.R.C., c. 945Income Tax Regulations
83. (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.
84. (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.
- Date modified: