Budget Implementation Act, 2018, No. 2 (S.C. 2018, c. 27)

unless it is established by the taxpayer or the foreign affiliate that, throughout the period in the taxation year during which the business was carried on by the affiliate,

• (iii) the business (other than any business conducted principally with persons with whom the affiliate does not deal at arm’s length) is carried on by the affiliate as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws

• Marginal note:Rule for investment business definition and paragraph (2)(l)

  (2.11) A taxpayer or a foreign affiliate of the taxpayer, as the case may be, is deemed not to have established that the conditions in subparagraph (a)(i) of the definition investment business in subsection (1), or in subparagraph (2)(l)(iii), have been satisfied throughout a period in a particular taxation year of the affiliate unless

• Marginal note:Tracking interests — interpretation

  (8) For the purposes of subsections (9) to (12), a particular property is a tracking interest in respect of a person or partnership (referred to in this subsection as the “tracked entity”) if

  • (a) all or part of the fair market value of the particular property — or of any payment or right to receive an amount in respect of the particular property — can reasonably be considered to be determined, directly or indirectly, by reference to one or more of the following criteria in respect of property or activities of the tracked entity (referred to in this subsection and subsections (9) to (11) as the “tracked property and activities”):

    • (i) the fair market value of property of the tracked entity,

    • (ii) any revenue, income or cash flow from property or activities of the tracked entity,

    • (iii) any profits or gains from the disposition of property of the tracked entity, and

    • (iv) any similar criteria in respect of property or activities of the tracked entity; and

  • (b) the tracked property and activities in respect of the particular property represent less than all of the property and activities of the tracked entity.

• Marginal note:Tracking interests — investment business definition

  (9) For the purposes of the definition investment business in subsection (1), if, at any time in a taxation year of a foreign affiliate of a taxpayer, a person or partnership holds a tracking interest in respect of the affiliate or a partnership of which the affiliate is a member, the tracked property and activities in respect of the tracking interest are, to the extent they would not otherwise be part of an investment business of the affiliate, deemed, in respect of the taxpayer,

  • (a) to be a separate business carried on by the affiliate throughout the year; and

  • (b) not to be part of any other business of the affiliate.

• Marginal note:Conditions for subsection (11)

  (10) Subsection (11) applies in respect of a foreign affiliate of a taxpayer for a taxation year of the affiliate if, at any time in the year,

  • (a) the taxpayer holds a property that is a tracking interest in respect of the affiliate; and

  • (b) shares of a class of the capital stock of the affiliate the fair market value of which can reasonably be considered to be determined by reference to the tracked property and activities in respect of the tracking interest (referred to in subsection (11) as a “tracking class”) are held by the taxpayer or a foreign affiliate of the taxpayer.

• Marginal note:Tracking class — separate corporation

  (11) If this subsection applies in respect of a foreign affiliate (referred to in this subsection as the “actual affiliate”) of a taxpayer for a taxation year of the actual affiliate, the following rules apply for the purpose of determining the amounts, if any, to be included under subsection 91(1), and to be deducted under subsection 91(4), by the taxpayer in respect of the year and for the purpose of applying section 233.4 in respect of the year:

  • (a) the tracked property and activities of the actual affiliate are deemed to be property and activities of a non-resident corporation (referred to in this subsection as the “separate corporation”) that is separate from the actual affiliate and not to be property or activities of the actual affiliate;

  • (b) any income, losses or gains for the year in respect of the property and activities described in paragraph (a) are deemed to be income, losses or gains of the separate corporation and not of the actual affiliate;

  • (c) all rights and obligations of the actual affiliate in respect of the property and activities described in paragraph (a) are deemed to be rights and obligations of the separate corporation and not of the actual affiliate;

  • (d) the separate corporation is deemed to have, at the end of the year, 100 issued and outstanding shares of a single class (referred to in this subsection as the “single class”) of its capital stock, having full voting rights under all circumstances;

  • (e) each shareholder of the actual affiliate is deemed to own, at the end of the year, that number of shares of the single class that is equal to the product of 100 and the amount that would be the aggregate participating percentage (as defined in subsection 91(1.3)) of that shareholder in respect of the actual affiliate for the year if

    • (i) the actual affiliate were a controlled foreign affiliate of that shareholder at the end of the year,

    • (ii) the only shares of the capital stock of the actual affiliate issued and outstanding at the end of the year were shares of tracking classes in respect of the tracked properties and activities, and

    • (iii) the only income, losses and gains of the actual affiliate for the year were those referred to in paragraph (b); and

  • (f) any amounts included under subsection 91(1), or deducted under subsection 91(4), by the taxpayer in respect of shares of the separate corporation are deemed to be amounts included under subsection 91(1), or deducted under subsection 91(4), as the case may be, by the taxpayer in respect of shares of tracking classes held by the taxpayer or a foreign affiliate of the taxpayer, as the case may be.

• Marginal note:Tracking interests – controlled foreign affiliate

  (12) If subsection (11) does not apply in respect of a foreign affiliate of the taxpayer for a taxation year of the affiliate, the affiliate is deemed to be a controlled foreign affiliate of the taxpayer throughout the taxation year if, at any time in the year, a tracking interest in respect of the affiliate, or a partnership of which the affiliate is a member, is held by

  • (a) the taxpayer; or

  • (b) a person or partnership (each referred to in this paragraph as a “holder”), if

    • (i) the holder does not deal at arm’s length with the taxpayer at that time,

    • (ii) where either the taxpayer or the holder is a partnership and the other party is not, any member of the partnership does not deal at arm’s length, at that time, with the other party, or

    • (iii) where both the taxpayer and the holder are partnerships, the taxpayer or any member of the taxpayer does not deal at arm’s length, at that time, with the holder or any member of the holder.