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

Assented to 2013-06-26

  •  (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.

 
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