Marginal note:Deduction in respect of dividend received from foreign affiliate
113 (1) Where in a taxation year a corporation resident in Canada has received a dividend on a share owned by it of the capital stock of a foreign affiliate of the corporation, there may be deducted from the income for the year of the corporation for the purpose of computing its taxable income for the year, an amount equal to the total of
(a) an amount equal to such portion of the dividend as is prescribed to have been paid out of the exempt surplus, as defined by regulation (in this Part referred to as “exempt surplus”) of the affiliate,
(a.1) an amount equal to the total of
(i) one-half of the portion of the dividend that is prescribed to have been paid out of the hybrid surplus, as defined by regulation (in this Part referred to as “hybrid surplus”), of the affiliate, and
(ii) the lesser of
(A) the total of
(I) the product obtained when the foreign tax prescribed to be applicable to the portion of the dividend referred to in subparagraph (i) is multiplied by the amount by which
1 the corporation’s relevant tax factor for the year
exceeds
2 one-half, and
(II) the product obtained when
1 the non-business-income tax paid by the corporation applicable to the portion of the dividend referred to in subparagraph (i)
is multiplied by
2 the corporation’s relevant tax factor for the year, and
(B) the amount determined under subparagraph (i),
(b) an amount equal to the lesser of
(i) the product obtained when the foreign tax prescribed to be applicable to such portion of the dividend as is prescribed to have been paid out of the taxable surplus, as defined by regulation (in this Part referred to as “taxable surplus”) of the affiliate is multiplied by the amount by which
(A) the corporation’s relevant tax factor for the year
exceeds
(B) one, and
(ii) that portion of the dividend,
(c) an amount equal to the lesser of
(i) the product obtained when
(A) the non-business-income tax paid by the corporation applicable to such portion of the dividend as is prescribed to have been paid out of the taxable surplus of the affiliate
is multiplied by
(B) the corporation’s relevant tax factor for the year, and
(ii) the amount by which such portion of the dividend as is prescribed to have been paid out of the taxable surplus of the affiliate exceeds the deduction in respect thereof referred to in paragraph 113(1)(b), and
(d) an amount equal to such portion of the dividend as is prescribed to have been paid out of the pre-acquisition surplus of the affiliate,
and for the purposes of this subsection and Subdivision I of Division B, the corporation may make such elections as may be prescribed.
Marginal note:Additional deduction
(2) Where, at any particular time in a taxation year ending after 1975, a corporation resident in Canada has received a dividend on a share owned by it at the end of its 1975 taxation year of the capital stock of a foreign affiliate of the corporation, there may be deducted from the income for the year of the corporation for the purpose of computing its taxable income for the year, an amount in respect of the dividend equal to the lesser of
(a) the amount, if any, by which the amount of the dividend so received exceeds the total of
(i) the deduction in respect of the dividend permitted by subsection 91(5) in computing the corporation’s income for the year, and
(ii) the deduction in respect of the dividend permitted by subsection 113(1) from the income for the year of the corporation for the purpose of computing its taxable income, and
(b) the amount, if any, by which
(i) the adjusted cost base to the corporation of the share at the end of its 1975 taxation year
exceeds the total of
(iii) such amounts in respect of dividends received by the corporation on the share after the end of its 1975 taxation year and before the particular time as are deductible under paragraph 113(1)(d) in computing the taxable income of the corporation for taxation years ending after 1975,
(iii.1) the total of all amounts received by the corporation on the share after the end of its 1975 taxation year and before the particular time
(A) on a reduction, before August 20, 2011, of the paid-up capital of the foreign affiliate in respect of the share, or
(B) on a reduction, after August 19, 2011, of the paid-up capital of the foreign affiliate in respect of the share that is a qualifying return of capital (within the meaning assigned by subsection 90(3)) in respect of the share, and
(iv) the total of all amounts deducted under this subsection in respect of dividends received by the corporation on the share before the particular time.
Marginal note:Definitions
(3) In this section,
- deductible
deductible, in relation to an amount in respect of a payment, in computing relevant foreign income or profits, has the same meaning as in subsection 18.4(1). (déductible)
- entity
entity has the same meaning as in subsection 95(1). (entité)
- equity interest
equity interest has the same meaning as in subsection 18.4(1). (participation au capital)
- foreign expense restriction rule
foreign expense restriction rule has the same meaning as in subsection 18.4(1). (régle étrangère de restriction des dépenses)
- foreign hybrid mismatch rule
foreign hybrid mismatch rule has the same meaning as in subsection 18.4(1). (règle étrangère d’asymétrie hybride)
- foreign taxation year
foreign taxation year of an entity has the same meaning as in subsection 18.4(1). (année d’imposition étrangère)
- non-business-income tax
non-business-income tax paid by a taxpayer has the meaning assigned by subsection 126(7); (impôt sur le revenu ne provenant pas d’une entreprise)
- relevant foreign income or profits
relevant foreign income or profits of an entity for a foreign taxation year has the same meaning as in subsection 18.4(1). (revenus ou bénéfices étrangers pertinents)
- relevant tax factor
relevant tax factor has the meaning assigned by subsection 95(1). (facteur fiscal approprié)
Marginal note:Portion of dividend deemed paid out of exempt surplus
(4) Such portion of any dividend received at any time in a taxation year by a corporation resident in Canada on a share owned by it of the capital stock of a foreign affiliate of the corporation, that was received after the 1971 taxation year of the affiliate and before the affiliate’s 1976 taxation year, as exceeds the amount deductible in respect of the dividend under paragraph 113(1)(d) in computing the corporation’s taxable income for the year shall, for the purposes of paragraph 113(1)(a), be deemed to be the portion of the dividend prescribed to have been paid out of the exempt surplus of the affiliate.
Marginal note:Deduction restriction
(5) Any amount that, in the absence of this subsection, would be a dividend received by a corporation resident in Canada on a share owned by it of the capital stock of a foreign affiliate of the corporation is deemed, for the purposes of this section (other than this subsection), not to be a dividend received by the corporation on a share of the capital stock of the affiliate to the extent of the total of all amounts, each of which, in respect of the dividend,
(a) is an amount that is or can reasonably be expected to be deductible in computing
(i) relevant foreign income or profits, for a foreign taxation year, of
(A) the affiliate, or
(B) another entity (other than the corporation) because that entity has a direct or indirect equity interest in the affiliate, or
(ii) income or profits of the affiliate that are taken into account in determining relevant foreign income or profits of another entity for a foreign taxation year; or
(b) would, in the absence of any foreign hybrid mismatch rule or foreign expense restriction rule, be described in paragraph (a).
Marginal note:Deduction for foreign taxes
(6) If, for the purposes of this section (other than subsection (5)), all or any portion of a particular amount is deemed by subsection (5) not to be a dividend received by a corporation on a share of the capital stock of a foreign affiliate in a taxation year of the corporation, there may be deducted from the corporation’s income for the taxation year for the purpose of computing its taxable income for the year an amount equal to the lesser of
(a) the particular amount or portion of the particular amount, as the case may be, and
(b) the amount determined by the formula
A × B
where
- A
- is the non-business-income tax paid by the corporation applicable to the particular amount or portion of the particular amount, as the case may be, and
- B
- is the corporation’s relevant tax factor for the year.
Marginal note:Filing Requirement
(7) Each corporation shall file with its return of income for a taxation year a prescribed form containing prescribed information if subsection (5) deems an amount not to be a dividend received by the corporation on a share of the capital stock of a foreign affiliate.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 113
- 2013, c. 34, ss. 72, 243
- 2024, c. 15, s. 29
- Date modified: