Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Marginal note:Adjusted cost base of share of foreign affiliate

• 92 (1) In computing, at any time in a taxation year, the adjusted cost base to a taxpayer resident in Canada of any share owned by the taxpayer of the capital stock of a foreign affiliate of the taxpayer,

  • (a) there shall be added in respect of that share any amount included in respect of that share under subsection 91(1) or (3) in computing the taxpayer’s income for the year or any preceding taxation year (or that would have been required to have been so included in computing the taxpayer’s income but for subsection 56(4.1) and sections 74.1 to 75 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952), except that, if the amount so included is greater than it otherwise would have been because of the application of clause 95(2)(f.11)(ii)(D), the amount added under this paragraph shall be the amount that would have been so included in the absence of that clause; and

  • (b) there shall be deducted in respect of that share

    • (i) any amount deducted by the taxpayer under subsection 91(2) or (4), and

    • (ii) any dividend received by the taxpayer before that time, to the extent of the amount deducted by the taxpayer, in respect of the dividend, under subsection 91(5)

    in computing the taxpayer’s income for the year or any preceding taxation year (or that would have been deductible by the taxpayer but for subsection 56(4.1) and sections 74.1 to 75 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952).

• Marginal note:Adjustment for prescribed amount

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

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

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

• Marginal note:Adjustment re adjusted cost base

  (1.2) There is to be added in computing the adjusted cost base to a taxpayer of a share of the capital stock of a foreign affiliate of the taxpayer any amount required by paragraph 93(4)(b) to be so added.

• Marginal note:Deduction in computing adjusted cost base

  (2) In computing, at any time in a taxation year,

  • (a) the adjusted cost base to a corporation resident in Canada (in this subsection referred to as an “owner”) of any share of the capital stock of a foreign affiliate of the corporation, or

  • (b) the adjusted cost base to a foreign affiliate (in this subsection referred to as an “owner”) of a person resident in Canada of any share of the capital stock of another foreign affiliate of that person,

  there shall be deducted, in respect of any dividend received on the share before that time by the owner of the share, an amount equal to the amount, if any, by which

  • (c) such portion of the amount of the dividend so received as was deductible by virtue of paragraph 113(1)(d) from the income of the owner for the year in computing the owner’s taxable income for the year or as would have been so deductible if the owner had been a corporation resident in Canada,

  exceeds

  • (d) such portion of any income or profits tax paid by the owner to the government of a country other than Canada as may reasonably be regarded as having been paid in respect of the portion described in paragraph 92(2)(c).

• Marginal note:Idem

  (3) In computing, at any time in a taxation year, the adjusted cost base to a corporation resident in Canada of any share of the capital stock of a foreign affiliate of the corporation, there shall be deducted an amount in respect of any dividend received on the share by the corporation before that time equal to such portion of the amount so received as was deducted under subsection 113(2) from the income of the corporation for the year or any preceding year in computing its taxable income.

• Marginal note:Disposition of a partnership interest

  (4) Where a corporation resident in Canada or a foreign affiliate of a corporation resident in Canada has at any time disposed of all or a portion of an interest in a partnership of which it was a member, there shall be added, in computing the proceeds of disposition of that interest, the amount determined by the formula

  (A - B) × (C/D)

  where

  A

  is the amount, if any, by which

  • (a) the total of all amounts each of which is an amount that was deductible under paragraph 113(1)(d) by the member from its income in computing its taxable income for any taxation year of the member that began before that time in respect of any portion of a dividend received by the partnership, or would have been so deductible if the member were a corporation resident in Canada,

  exceeds

  • (b) the total of all amounts each of which is the portion of any income or profits tax paid by the partnership or the member of the partnership to a government of a country other than Canada that can reasonably be considered as having been paid in respect of the member’s share of the dividend described in paragraph (a);

  B

  is the total of

  • (a) the total of all amounts each of which was an amount added under this subsection in computing the member’s proceeds of a disposition before that time of another interest in the partnership, and

  • (b) the total of all amounts each of which was an amount deemed by subsection (5) to be a gain of the member from a disposition before that time of a share by the partnership;

  C

  is the adjusted cost base, immediately before that time, of the portion of the member’s interest in the partnership disposed of by the member at that time; and

  D

  is the adjusted cost base, immediately before that time, of the member’s interest in the partnership immediately before that time.

• Marginal note:Deemed gain from the disposition of a share

  (5) Where a partnership has, at any time in a fiscal period of the partnership at the end of which a corporation resident in Canada or a foreign affiliate of a corporation resident in Canada was a member, disposed of a share of the capital stock of a corporation, the amount determined under subsection (6) in respect of such a member is deemed to be a gain of the member from the disposition of the share by the partnership for the member’s taxation year in which the fiscal period of the partnership ends.

• Marginal note:Formula

  (6) The amount determined for the purposes of subsection (5) is the amount determined by the formula

  A - B

  where

  A

  is the amount, if any, by which

  • (a) the total of all amounts each of which is an amount that was deductible under paragraph 113(1)(d) by the member from its income in computing its taxable income for a taxation year in respect of any portion of a dividend received by the partnership on the share in a fiscal period of the partnership that began before the time referred to in subsection (5) and ends in the member’s taxation year, or would have been so deductible if the member were a corporation resident in Canada,

  exceeds

  • (b) the total of all amounts each of which is the portion of any income or profits tax paid by the partnership or the member to a government of a country other than Canada that can reasonably be considered as having been paid in respect of the member’s share of the dividend described in paragraph (a); and

  B

  is the total of all amounts each of which is an amount that was added under subsection (4) in computing the member’s proceeds of a disposition before the time referred to in subsection (5) of an interest in the partnership.

Marginal note:Election re disposition of share of foreign affiliate

• 93 (1) For the purposes of this Act, if a corporation resident in Canada elects, in accordance with prescribed rules, in respect of any share of the capital stock of a particular foreign affiliate of the corporation that is disposed of, at any time, by the corporation (referred to in this subsection as the “disposing corporation”) or by another foreign affiliate (referred to in this subsection as the “disposing affiliate”) of the corporation,

  • (a) the amount (referred to in this subsection as the “elected amount”) designated by the corporation in its election not exceeding the amount that would, in the absence of this subsection, be the gain of the disposing corporation or disposing affiliate, as the case may be, from the disposition of the share, is deemed

    • (i) to have been a dividend received on the share from the particular affiliate by the disposing corporation or disposing affiliate, as the case may be, immediately before that time, and

    • (ii) not to have been received by the disposing corporation or disposing affiliate, as the case may be, as proceeds of disposition in respect of the disposition of the share; and

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

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

    exceeds

    • (ii) the elected amount.

• Marginal note:Application of subsection (1.11)

  (1.1) Subsection (1.11) applies if

  • (a) a particular foreign affiliate of a corporation resident in Canada disposes at any time of a share (referred to in this paragraph and subsection (1.11) as the “disposed share”) of the capital stock of another foreign affiliate of the corporation and the particular affiliate would, in the absence of subsections (1) and (1.11), have a capital gain from the disposition of the disposed share; or

  • (b) a corporation resident in Canada would, in the absence of subsections (1) and (1.11), be deemed under subsection 40(3), because of an election under subsection 90(3) or subparagraph 5901(2)(b)(i) of the Income Tax Regulations, to have realized a gain from a disposition at any time of a share (referred to in subsection (1.11) as the “disposed share”) of the capital stock of a foreign affiliate of the corporation.

• Marginal note:Deemed election

  (1.11) If this subsection applies, the corporation resident in Canada referred to in subsection (1.1) is deemed

  • (a) to have made an election, at the time referred to in subsection (1.1), under subsection (1) in respect of the disposition of the disposed share; and

  • (b) to have designated, in the election, the prescribed amount in respect of the disposition of the disposed share.

• Marginal note:Disposition of shares of a foreign affiliate held by a partnership

  (1.2) Where a particular corporation resident in Canada or a foreign affiliate of the particular corporation (each of which is referred to in this subsection as the “disposing corporation”) would, but for this subsection, have a taxable capital gain from a disposition by a partnership, at any time, of shares of a class of the capital stock of a foreign affiliate of the particular corporation and the particular corporation so elects in prescribed manner in respect of the disposition,

  • (a) twice

    • (i) the amount designated by the particular corporation (which amount shall not exceed the amount that is equal to the proportion of the taxable capital gain of the partnership that the number of shares of that class of the capital stock of the foreign affiliate, determined as the amount, if any, by which the number of those shares that were deemed to have been owned by the disposing corporation for the purposes of subsection 93.1(1) immediately before the disposition exceeds the number of those shares that were deemed to have been owned for those purposes by the disposing corporation immediately after the disposition, is of the number of those shares of the foreign affiliate that were owned by the partnership immediately before the disposition), or

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

    in respect of those shares is deemed to have been a dividend received immediately before that time on the number of those shares of the foreign affiliate which shall be determined as the amount, if any, by which the number of those shares that the disposing corporation was deemed to own for the purpose of subsection 93.1(1) immediately before the disposition exceeds the number of those shares of the foreign affiliate that the disposing corporation was deemed to own for the purposes of subsection 93.1 (1) immediately after the disposition;

  • (b) notwithstanding section 96, the disposing corporation’s taxable capital gain from the disposition of those shares is deemed to be the amount, if any, by which the disposing corporation’s taxable capital gain from the disposition of the shares otherwise determined exceeds the amount designated by the particular corporation in respect of the shares;

  • (c) for the purpose of any regulation made under this subsection, the disposing corporation is deemed to have disposed of the number of those shares of the foreign affiliate which shall be determined as the amount, if any, by which the number of those shares that the disposing corporation was deemed to own for the purposes of subsection 93.1(1) immediately before the disposition exceeds the number of those shares that the disposing corporation was deemed to own for those purposes immediately after the disposition;

  • (d) for the purposes of section 113 in respect of the dividend referred to in paragraph (a), the disposing corporation is deemed to have owned the shares on which that dividend was received; and

  • (e) where the disposing corporation has a taxable capital gain from the partnership because of the application of subsection 40(3) to the partnership in respect of those shares, for the purposes of this subsection, the shares are deemed to have been disposed of by the partnership.

• Marginal note:Deemed election

  (1.3) Where a foreign affiliate of a particular corporation resident in Canada has a gain from the disposition by a partnership at any time of shares of a class of the capital stock of a foreign affiliate of the particular corporation that are excluded property, the particular corporation is deemed to have made an election under subsection (1.2) in respect of the number of shares of the foreign affiliate which shall be determined as the amount, if any, by which the number of those shares that the disposing corporation was deemed to own for the purposes of subsection 93.1(1) immediately before the disposition exceeds the number of those shares that the disposing corporation was deemed to own for those purposes immediately after the disposition.

• Marginal note:Application of subsection (2.01)

  (2) Subsection (2.01) applies if

  • (a) a particular corporation (referred to in subparagraph (2.01)(b)(ii) as the “vendor”, as the context requires) resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.01) as the “disposition time”) of a share (referred to in subsection (2.01) as the “affiliate share”) of the capital stock of a foreign affiliate of the particular corporation; or

  • (b) a foreign affiliate (referred to in subparagraph (2.01)(b)(ii) as the “vendor”) of a particular corporation resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.01) as the “disposition time”) of a share (referred to in subsection (2.01) as the “affiliate share”) of the capital stock of another foreign affiliate of the particular corporation that is not excluded property.

• Marginal note:Loss limitation on disposition of share of foreign affiliate

  (2.01) If this subsection applies, the amount of the particular loss referred to in paragraph (2)(a) or (b) is deemed to be the greater of

  • (a) the amount determined by the formula

    A – (B – C)

    where

    A

    is the amount of the particular loss determined without reference to this section,

    B

    is the total of all amounts each of which is an amount received before the disposition time, in respect of an exempt dividend on the affiliate share or on a share for which the affiliate share was substituted, by

    • (i) the particular corporation referred to in subsection (2),

    • (ii) another corporation that is related to the particular corporation,

    • (iii) a foreign affiliate of the particular corporation, or

    • (iv) a foreign affiliate of another corporation that is related to the particular corporation, and

    C

    is the total of

    • (i) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate share or a share for which the affiliate share was substituted, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B,

    • (ii) the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under paragraph (2.11)(a) in respect of the exempt dividends referred to in the description of B,

    • (iii) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under paragraph (2.21)(a) in respect of the exempt dividends referred to in the description of B, and

    • (iv) the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under paragraph (2.31)(a) in respect of the exempt dividends referred to in the description of B, and

  • (b) the lesser of

    • (i) the portion of the particular loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and

    • (ii) the amount determined in respect of the vendor that is

      • (A) if the particular loss is a capital loss, the amount of a gain (other than a specified gain) that

        • (I) was made within 30 days before or after the disposition time by the vendor and that

          1 is deemed under subsection 39(2) to be a capital gain of the vendor for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and

          2 is in respect of the settlement or extinguishment of a foreign currency debt that was issued or incurred by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor and that was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation and can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share, or

        • (II) is a capital gain realized within 30 days before or after the disposition time by the vendor under an agreement that

          1 was entered into by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

          2 provides for the purchase, sale or exchange of currency, and

          3 can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share, or

      • (B) in any other case, the amount of a gain (other than a specified gain or a capital gain) that was realized within 30 days before or after the disposition time by the vendor that is included in computing the income of the vendor for the taxation year that includes the time the gain was realized and

        • (I) that is in respect of the settlement or extinguishment of a foreign currency debt that

          1 was issued or incurred by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor,

          2 was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and

          3 can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share, or

        • (II) under an agreement that

          1 was entered into by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

          2 provides for the purchase, sale or exchange of currency, and

          3 can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share.

• Marginal note:Specified gain

  (2.02) For the purposes of clauses (2.01)(b)(ii)(A) and (B), a specified gain means a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in sub-subclause (2.01)(b)(ii)(A)(I)2 or subclause (2.01)(b)(ii)(B)(I), as the case may be, or that arises under a particular agreement referred to in subclause (2.01)(b)(ii)(A)(II) or (B)(II), if the particular corporation, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.

• Marginal note:Application of subsection (2.11)

  (2.1) Subsection (2.11) applies if

  • (a) a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.11) as the “disposition time”) by a partnership (referred to in subsections (2.11) and (2.12) as the “disposing partnership”) of a share (referred to in subsection (2.11) as the “affiliate share”) of the capital stock of a foreign affiliate of the particular corporation; or

  • (b) a foreign affiliate of a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.11) as the “disposition time”) by a partnership (referred to in subsections (2.11) and (2.12) as the “disposing partnership”) of a share (referred to in subsection (2.11) as the “affiliate share”) of the capital stock of another foreign affiliate of the particular corporation that would not be excluded property of the affiliate if the affiliate had owned the share immediately before the disposition time.

• Marginal note:Loss limitation on disposition of foreign affiliate share by a partnership

  (2.11) If this subsection applies, the amount of the particular allowable capital loss referred to in paragraph (2.1)(a) or (b) is deemed to be the greater of

  • (a) the amount determined by the formula

    A – (B – C)

    where

    A

    is the amount of the particular allowable capital loss determined without reference to this section,

    B

    is ½ of the total of all amounts each of which is an amount received before the disposition time, in respect of an exempt dividend on the affiliate share or on a share for which the affiliate share was substituted, by

    • (i) the particular corporation referred to in subsection (2.1),

    • (ii) another corporation that is related to the particular corporation,

    • (iii) a foreign affiliate of the particular corporation, or

    • (iv) a foreign affiliate of another corporation that is related to the particular corporation, and

    C

    is the total of

    • (i) the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate share or a share for which the affiliate share was substituted, was reduced under paragraph (2.01)(a) in respect of the exempt dividends referred to in the description of B,

    • (ii) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B,

    • (iii) the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under paragraph (2.21)(a) in respect of the exempt dividends referred to in the description of B, and

    • (iv) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under paragraph (2.31)(a) in respect of the exempt dividends referred to in the description of B, and

  • (b) the lesser of

    • (i) the portion of the particular allowable capital loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and

    • (ii) ½ of the amount determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.1)(b)) of the particular corporation, that is the amount of a gain (other than a specified gain) that

      • (A) was made within 30 days before or after the disposition time by the disposing partnership to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be, and that

        • (I) is deemed under subsection 39(2) to be a capital gain of the disposing partnership for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and

        • (II) is in respect of the settlement or extinguishment of a foreign currency debt that

          1 was issued or incurred by the disposing partnership within 30 days before or after the acquisition of the affiliate share by the disposing partnership,

          2 was, at all times at which it was a debt obligation of the disposing partnership, owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and

          3 can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share, or

      • (B) is a capital gain (to the extent that the capital gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) realized within 30 days before or after the disposition time by the disposing partnership under an agreement that

        • (I) was entered into by the disposing partnership, within 30 days before or after the acquisition of the affiliate share by the disposing partnership, with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

        • (II) provides for the purchase, sale or exchange of currency, and

        • (III) can reasonably be considered to have been entered into by the disposing partnership for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share.

• Marginal note:Specified gain

  (2.12) For the purposes of subparagraph (2.11)(b)(ii), a specified gain means a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in subclause (2.11)(b)(ii)(A)(II), or that arises under a particular agreement referred to in clause (2.11)(b)(ii)(B), if the disposing partnership, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.

• Marginal note:Application of subsection (2.21)

  (2.2) Subsection (2.21) applies if

  • (a) a particular corporation (referred to in subparagraph (2.21)(b)(ii) as the “vendor”, as the context requires) resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.21) as the “disposition time”) of an interest (referred to in subsection (2.21) as the “partnership interest”) in a partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.21) as the “affiliate shares”) of the capital stock of a foreign affiliate of the particular corporation; or

  • (b) a foreign affiliate (referred to in subparagraph (2.21)(b)(ii) as the “vendor”) of a particular corporation resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.21) as the “disposition time”) of an interest (referred to in subsection (2.21) as the “partnership interest”) in a partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.21) as the “affiliate shares”) of the capital stock of another foreign affiliate of the particular corporation that would not be excluded property of the affiliate if the affiliate had owned the shares immediately before the disposition time.

• Marginal note:Loss limitation on disposition of partnership that has foreign affiliate shares

  (2.21) If this subsection applies, the amount of the particular loss referred to in paragraph (2.2)(a) or (b) is deemed to be the greater of

  • (a) the amount determined by the formula

    A – (B – C)

    where

    A

    is the amount of the particular loss determined without reference to this section,

    B

    is the total of all amounts each of which is an amount received before the disposition time, in respect of an exempt dividend on affiliate shares or on shares for which affiliate shares were substituted, by

    • (i) the particular corporation referred to in subsection (2.2),

    • (ii) another corporation that is related to the particular corporation,

    • (iii) a foreign affiliate of the particular corporation, or

    • (iv) a foreign affiliate of another corporation that is related to the particular corporation, and

    C

    is the total of

    • (i) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.01)(a) in respect of the exempt dividends referred to in the description of B,

    • (ii) the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.11)(a) in respect of the exempt dividends referred to in the description of B,

    • (iii) the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B, and

    • (iv) the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under paragraph (2.31)(a) in respect of the exempt dividends referred to in the description of B, and

  • (b) the lesser of

    • (i) the portion of the particular loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and

    • (ii) the amount determined in respect of the vendor that is

      • (A) if the particular loss is a capital loss, the amount of a gain (other than a specified gain) that

        • (I) was made within 30 days before or after the disposition time by the vendor and that

          1 is deemed under subsection 39(2) to be a capital gain of the vendor for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and

          2 is in respect of the settlement or extinguishment of a foreign currency debt that was issued or incurred by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor and that was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation and can reasonably be considered to have been issued or incurred in relation to the acquisition of the partnership interest, or

        • (II) is a capital gain realized within 30 days before or after the disposition time by the vendor under an agreement that

          1 was entered into by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

          2 provides for the purchase, sale or exchange of currency, and

          3 can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the partnership interest, or

      • (B) in any other case, the amount of a gain (other than a specified gain or a capital gain) that was realized within 30 days before or after the disposition time by the vendor that is included in computing the income of the vendor for the taxation year that includes the time the gain was realized and

        • (I) that is in respect of the settlement or extinguishment of a foreign currency debt that

          1 was issued or incurred by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor,

          2 was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and

          3 can reasonably be considered to have been issued or incurred in relation to the acquisition of the partnership interest, or

        • (II) under an agreement that

          1 was entered into by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

          2 provides for the purchase, sale or exchange of currency, and

          3 can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the partnership interest.

• Marginal note:Specified gain

  (2.22) For the purposes of clauses (2.21)(b)(ii)(A) and (B), a specified gain means a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in sub-subclause (2.21)(b)(ii)(A)(I)2 or subclause (2.21)(b)(ii)(B)(I), as the case may be, or that arises under a particular agreement referred to in subclause (2.21)(b)(ii)(A)(II) or (B)(II), if the particular corporation, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.

• Marginal note:Application of subsection (2.31)

  (2.3) Subsection (2.31) applies if

  • (a) a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.31) as the “disposition time”) by a particular partnership of an interest (referred to in subsection (2.31) as the “partnership interest”) in another partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.31) as the “affiliate shares”) of the capital stock of a foreign affiliate of the particular corporation; or

  • (b) a foreign affiliate of a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.31) as the “disposition time”) by a particular partnership of an interest (referred to in subsection (2.31) as the “partnership interest”) in another partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.31) as the “affiliate shares”) of the capital stock of a foreign affiliate of the particular corporation that would not be excluded property of the affiliate if the affiliate had owned the shares immediately before the disposition time.

• Marginal note:Loss limitation on disposition by a partnership of an indirect interest in foreign affiliate shares

  (2.31) If this subsection applies, the amount of the particular allowable capital loss referred to in paragraph (2.3)(a) or (b) is deemed to be the greater of

  • (a) the amount determined by the formula

    A – (B – C)

    where

    A

    is the amount of the particular allowable capital loss determined without reference to this section,

    B

    is ½ of the total of all amounts each of which is an amount received before the disposition time, in respect of an exempt dividend on the affiliate shares or on shares for which the affiliate shares were substituted, by

    • (i) the particular corporation referred to in subsection (2.3),

    • (ii) another corporation that is related to the particular corporation,

    • (iii) a foreign affiliate of the particular corporation, or

    • (iv) a foreign affiliate of another corporation that is related to the particular corporation, and

    C

    is the total of

    • (i) the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.01)(a) in respect of the exempt dividends referred to in the description of B,

    • (ii) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.11)(a) in respect of the exempt dividends referred to in the description of B,

    • (iii) the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under paragraph (2.21)(a) in respect of the exempt dividends referred to in the description of B, and

    • (iv) the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B, and

  • (b) the lesser of

    • (i) the portion of the particular allowable capital loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and

    • (ii) ½ of the amount determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.3)(b)), of the particular corporation, that is the amount of a gain (other than a specified gain) that

      • (A) was made within 30 days before or after the disposition time by the particular partnership to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be, and that

        • (I) is deemed under subsection 39(2) to be a capital gain of the particular partnership for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and

        • (II) is in respect of the settlement or extinguishment of a foreign currency debt that

          1 was issued or incurred by the particular partnership within 30 days before or after the acquisition of the partnership interest by the particular partnership,

          2 was, at all times at which it was a debt obligation of the particular partnership, owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and

          3 can reasonably be considered to have been issued or incurred in relation to the acquisition of the partnership interest, or

      • (B) is a capital gain (to the extent that the capital gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) realized within 30 days before or after the disposition time by the particular partnership under an agreement that

        • (I) was entered into by the particular partnership, within 30 days before or after the acquisition of the partnership interest by the particular partnership, with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,

        • (II) provides for the purchase, sale or exchange of currency, and

        • (III) can reasonably be considered to have been entered into by the particular partnership for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the partnership interest.

• Marginal note:Specified gain

  (2.32) For the purposes of subparagraph (2.31)(b)(ii), a specified gain means a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in subclause (2.31)(b)(ii)(A)(II), or that arises under a particular agreement referred to in clause (2.31)(b)(ii)(B), if the particular partnership, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.

• Marginal note:Exempt dividends

  (3) For the purposes of subsections (2.01), (2.11), (2.21) and (2.31),

  • (a) a dividend received by a corporation resident in Canada is an exempt dividend to the extent of the amount in respect of the dividend that is deductible from the income of the corporation for the purpose of computing the taxable income of the corporation because of any of paragraphs 113(1)(a) to (c); and

  • (b) a dividend received by a particular foreign affiliate of a corporation resident in Canada from another foreign affiliate of the corporation is an exempt dividend to the extent of the amount, if any, by which the portion of the dividend that was not prescribed to have been paid out of the pre-acquisition surplus of the other affiliate exceeds the total of such portion of the income or profits tax that can reasonably be considered to have been paid in respect of that portion of the dividend by the particular affiliate or by a partnership in which the particular affiliate had, at the time of the payment of the income or profits tax, a partnership interest, either directly or indirectly; and

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

• Marginal note:Loss on disposition of shares of foreign affiliate

  (4) If a taxpayer resident in Canada or a foreign affiliate (which taxpayer or foreign affiliate is referred to in this subsection as the “transferee”) of the taxpayer has acquired shares of the capital stock of one or more foreign affiliates (each referred to in this subsection as an “acquired affiliate”) of the taxpayer on a disposition of shares (such shares disposed of being referred to in this subsection as the “disposed shares”) of the capital stock of any other foreign affiliate of the taxpayer (other than, where the transferee is a foreign affiliate of the taxpayer, a disposition of shares that are, immediately before the acquisition, excluded property of the transferee or a disposition to which subsection 40(3.4) applies), the following rules apply:

  • (a) the capital loss, if any, of the transferee from the disposition, is deemed to be nil; and

  • (b) in computing the adjusted cost base to the transferee of a share of a particular class of the capital stock of an acquired affiliate that is owned by the transferee immediately after the disposition, there is to be added the amount determined by the formula

    [(A – B) × C/D]/E

    where

    A

    is the total of all amounts each of which is the cost amount to the transferee, immediately before the disposition, of a disposed share,

    B

    is the total of

    • (i) the total of all amounts each of which is the proceeds of disposition of a disposed share, and

    • (ii) the total of all amounts in respect of the computation of losses of the transferee from the dispositions of the disposed shares, each of which is, in respect of the disposition of a disposed share, the amount by which the amount for A in the formula in paragraph (2.01)(a) exceeds the amount determined by that formula,

    C

    is the fair market value, immediately after the disposition, of all shares of the particular class owned, immediately after the disposition, by the transferee,

    D

    is the fair market value, immediately after the disposition, of all shares owned, immediately after the disposition, by the transferee of the capital stock of all acquired affiliates, and

    E

    is the number of shares of the particular class that are owned by the transferee immediately after the disposition.

• Marginal note:Late filed elections

  (5) Where the election referred to in subsection 93(1) was not made on or before the day on or before which the election was required by that subsection to be made, the election shall be deemed to have been made on that day if, on or before the day that is 3 years after that day,

  • (a) the election is made in prescribed manner; and

  • (b) an estimate of the penalty in respect of that election is paid by the corporation when that election is made.

• Marginal note:Special cases

  (5.1) Where, in the opinion of the Minister, the circumstances of a case are such that it would be just and equitable

  • (a) to permit an election under subsection 93(1) to be made after the day that is 3 years after the day on or before which the election was required by that subsection to be made, or

  • (b) to permit an election made under subsection 93(1) to be amended,

  the election or amended election shall be deemed to have been made on the day on or before which the election was so required to be made if

  • (c) the election or amended election is made in prescribed form, and

  • (d) an estimate of the penalty in respect of the election or amended election is paid by the corporation when the election or amended election is made,

  and where this subsection applies to the amendment of an election, that election shall be deemed not to have been effective.

• Marginal note:Amended election

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

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

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

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

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

• Marginal note:Penalty for late filed election

  (6) For the purposes of this section, the penalty in respect of an election or amended election referred to in paragraph 93(5)(a) or 93(5.1)(c) is an amount equal to the lesser of

  • (a) 1/4 of 1% of the amount designated in the election or amended election for each month or part of a month during the period commencing with the day on or before which the election is required by subsection 93(1) to be made and ending on the day the election is made, and

  • (b) an amount, not exceeding $8,000, equal to the product obtained by multiplying $100 by the number of months each of which is a month all or part of which is during the period referred to in paragraph 93(6)(a).

• Marginal note:Unpaid balance of penalty

  (7) The Minister shall, with all due dispatch, examine each election and amended election referred to in paragraph 93(5)(a) or 93(5.1)(c), assess the penalty payable and send a notice of assessment to the corporation, and the corporation shall pay forthwith to the Receiver General the amount, if any, by which the penalty so assessed exceeds the total of all amounts previously paid on account of that penalty.