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Income Tax Regulations (C.R.C., c. 945)

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Regulations are current to 2022-06-20 and last amended on 2022-06-09. Previous Versions

PART LIXForeign Affiliates (continued)

[
  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/94-686, s. 79(F)
]

Deductible Loss

  •  (1) For the purposes of the description of F in the definition foreign accrual property income in subsection 95(1) of the Act, subject to subsection (2), the prescribed amount for the year (referred to in this subsection and subsection (2) as the “particular year”) is the total of all amounts each of which is a portion designated for the particular year by the taxpayer of the foreign accrual property loss of the affiliate for a taxation year of the affiliate that is

    • (a) one of the 20 taxation years of the affiliate that immediately precede the particular year; or

    • (b) one of the three taxation years of the affiliate that immediately follow the particular year.

  • (2) For the purposes of this subsection and subsection (1),

    • (a) a portion of a foreign accrual property loss of the affiliate for any taxation year of the affiliate may be designated for the particular year only to the extent that the foreign accrual property loss exceeds the total of all amounts each of which is a portion, of the foreign accrual property loss, designated by the taxpayer for a taxation year of the affiliate that precedes the particular year;

    • (b) no portion of the affiliate’s foreign accrual property loss for a taxation year of the affiliate is to be designated for the particular year until the affiliate’s foreign accrual property losses for the preceding taxation years referred to in paragraph (1)(a) have been fully designated; and

    • (c) if any person or partnership that was, at the end of a taxation year (referred to in this paragraph as the “relevant loss year”) of the affiliate, a relevant person or partnership in respect of the taxpayer designates for a taxation year (referred to in this paragraph as the “relevant claim year”) of the affiliate a particular portion of the affiliate’s foreign accrual property loss for the relevant loss year, there is deemed to have been designated for the relevant claim year by the taxpayer the portion of that loss that is the greater of

      • (i) the particular portion, and

      • (ii) the greatest of the portions of that loss that are so designated by any other relevant persons or partnerships in respect of the taxpayer.

  • (3) For the purposes of this section, and subject to subsection (4), foreign accrual property loss of the affiliate for a taxation year of the affiliate means

    • (a) where, at the end of the year, the affiliate is a controlled foreign affiliate of a person or partnership that is, at the end of the year, a relevant person or partnership in respect of the taxpayer, the amount, if any, determined by the formula

      J – (K + L + M + N)

      where

      J
      is the amount determined for D in the formula in the definition foreign accrual property income in subsection 95(1) of the Act in respect of the affiliate for the year,
      K
      is the amount, if any, by which
      • (i) the amount determined for A in that formula in respect of the affiliate for the year

      exceeds

      • (ii) the amount determined for H in that formula in respect of the affiliate for the year,

      L
      is the amount, if any, by which
      • (i) the amount determined for B in that formula in respect of the affiliate for the year

      exceeds

      • (ii) the total of

        • (A) the amount determined for E in that formula in respect of the affiliate for the year, and

        • (B) the amount determined for F.1 in that formula in respect of the affiliate for the year,

      M
      is the amount determined for C in that formula in respect of the affiliate for the year, and
      N
      is the amount, if any, by which
      • (i) the total of

        • (A) the amount determined for A.1 in that formula in respect of the affiliate for the year, and

        • (B) the amount determined for A.2 in that formula in respect of the affiliate for the year

      exceeds

      • (ii) the amount determined for G in that formula in respect of the affiliate for the year; and

    • (b) in any other case, nil.

  • (4) In computing under subsection (3) the foreign accrual property loss of the affiliate for a taxation year, if the affiliate or another corporation receives a payment described in subsection 5907(1.3) from a non-resident corporation that is, at the time of the payment, a foreign affiliate of a relevant person or partnership in respect of the taxpayer and any portion of the payment can reasonably be considered to relate to a loss or portion of a loss of the affiliate for the year described in the description of D in the definition foreign accrual property income in subsection 95(1) of the Act, the amount of the loss or portion of the loss is deemed to be nil.

  • (5) For the purposes of this section and section 5903.1,

    • (a) if paragraph 95(2)(d.1) of the Act applies to a foreign merger, the new foreign corporation referred to in that paragraph is, except in the determination of the foreign accrual property income of a foreign affiliate predecessor referred to in that paragraph, deemed to be the same corporation as, and a continuation of, each foreign affiliate predecessor; and

    • (b) if paragraph 95(2)(e) of the Act applies to a liquidation and dissolution, of a disposing affiliate referred to in that paragraph, that is a designated liquidation and dissolution of the disposing affiliate, the shareholder affiliate referred to in that paragraph is, except in the determination of the foreign accrual property income of the disposing affiliate, deemed to be the same corporation as, and a continuation of, the disposing affiliate.

  • (6) In this section and section 5903.1, a relevant person or partnership, in respect of the taxpayer at any time, means the taxpayer or a person (other than a designated acquired corporation of the taxpayer), or a partnership, that is at that time

    • (a) a person (other than a partnership) that is resident in Canada and does not, at that time, deal at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act) with the taxpayer;

    • (b) an antecedent corporation of a relevant person or partnership in respect of the taxpayer;

    • (c) a partnership a member of which is at that time a relevant person or partnership in respect of the taxpayer under this subsection; or

    • (d) where paragraph (1)(b) is being applied, a corporation of which the taxpayer is an antecedent corporation.

  • (7) For the purposes of paragraphs (6)(a) to (d),

    • (a) if a person or partnership (referred to in this paragraph as the “relevant person”) is not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act) with another person or partnership (referred to in this paragraph as the “particular person”) at a particular time, the relevant person is deemed to have existed and not to have dealt at arm’s length with the particular person, nor with each antecedent corporation (other than a designated acquired corporation of the particular person) of the particular person, throughout the period that began when the particular person or the antecedent corporation, as the case may be, came into existence and that ends at the particular time; and

    • (b) where paragraph (1)(b) is being applied, if a corporation of which a particular person (other than a designated acquired corporation of the corporation) is an antecedent corporation is not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act) with another person or partnership at any time, the particular person is deemed to exist and not to be dealing at arm’s length with the other person or the partnership, as the case may be, at that time.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/80-141, s. 2
  • SOR/85-176, s. 2
  • SOR/89-135, s. 2
  • SOR/94-686, s. 79(F)
  • SOR/97-505, s. 5
  • 2013, c. 34, ss. 42, 81
  •  (1) For the purposes of the description of F.1 in the definition foreign accrual property income in subsection 95(1) of the Act, subject to subsection (2), the prescribed amount for the year (referred to in this subsection and subsection (2) as the “particular year”) is the total of all amounts each of which is a portion designated for the particular year by the taxpayer of the foreign accrual capital loss of the affiliate for a taxation year of the affiliate that is

    • (a) one of the twenty taxation years of the affiliate that immediately precede the particular year; or

    • (b) one of the three taxation years of the affiliate that immediately follow the particular year.

  • (2) For the purposes of this subsection and subsection (1),

    • (a) a portion of a foreign accrual capital loss of the affiliate for any taxation year of the affiliate may be designated for the particular year only to the extent that the foreign accrual capital loss exceeds the total of all amounts each of which is a portion, of the foreign accrual capital loss, designated by the taxpayer for a taxation year of the affiliate that precedes the particular year;

    • (b) no portion of the foreign accrual capital loss of the affiliate for a taxation year of the affiliate is to be designated for the particular year until the foreign accrual capital losses of the affiliate for the preceding taxation years referred to in paragraph (1)(a) have been fully designated; and

    • (c) if any person or partnership that was, at the end of a taxation year (referred to in this paragraph as the “relevant loss year”) of the affiliate, a relevant person or partnership in respect of the taxpayer designates for a taxation year (referred to in this paragraph as the “relevant claim year”) of the affiliate a particular portion of the foreign accrual capital loss of the affiliate for the relevant loss year, there is deemed to have been designated for the relevant claim year by the taxpayer the portion of that loss that is the greater of

      • (i) the particular portion, and

      • (ii) the greatest of the portions of that loss that are so designated by any other relevant persons or partnerships in respect of the taxpayer.

  • (3) For the purposes of this section, and subject to subsection (4), foreign accrual capital loss of the affiliate for a taxation year of the affiliate means

    • (a) where, at the end of the year, the affiliate is a controlled foreign affiliate of a person or partnership that is, at the end of the year, a relevant person or partnership in respect of the taxpayer, the amount, if any, by which

      • (i) the amount determined under paragraph (a) of the description of E in the formula in the definition foreign accrual property income in subsection 95(1) of the Act in respect of the affiliate for the year

      exceeds

      • (ii) the amount determined for E in that formula in respect of the affiliate for the year; and

    • (b) in any other case, nil.

  • (4) In computing under subsection (3) the foreign accrual capital loss of the affiliate for a taxation year, if the affiliate or another corporation receives a payment described in subsection 5907(1.3) from a non-resident corporation that is, at the time of the payment, a foreign affiliate of a relevant person or partnership in respect of the taxpayer and any portion of the payment can reasonably be considered to relate to an allowable capital loss or a portion of an allowable capital loss of the affiliate for the year described in the description of E in the definition foreign accrual property income in subsection 95(1) of the Act, the amount of the loss or portion of the loss is deemed to be nil.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2013, c. 34, s. 82

Participating Percentage

  •  (1) For the purpose of subparagraph (b)(ii) of the definition participating percentage in subsection 95(1) of the Act, the participating percentage of a particular share owned by a taxpayer of the capital stock of a corporation in respect of any foreign affiliate of the taxpayer that was, at the end of its taxation year, a controlled foreign affiliate of the taxpayer is prescribed to be the percentage that would be the taxpayer’s equity percentage in the affiliate at that time on the assumption that

    • (a) the taxpayer owned no shares other than the particular share;

    • (b) the direct equity percentage of a person in any foreign affiliate of the taxpayer, for which the total of the distribution entitlements of all the shares of all classes of the capital stock of the affiliate was greater than nil, was determined by the following rules and not by the rules contained in the definition direct equity percentage in subsection 95(4) of the Act:

      • (i) for each class of the capital stock of the affiliate, determine that amount that is the proportion of the distribution entitlement of all the shares of that class that the number of shares of that class owned by that person is of all the issued shares of that class, and

      • (ii) determine the proportion that

        • (A) the aggregate of the amounts determined under subparagraph (i) for each class of the capital stock of the affiliate

        is of

        • (B) the aggregate of the distribution entitlements of all the issued shares of all classes of the capital stock of the affiliate

      and the proportion determined under subparagraph (ii) when expressed as a percentage is that person’s direct equity percentage in the affiliate; and

    • (c) the direct equity percentage of a person in any foreign affiliate of the taxpayer, for which the total of the distribution entitlements of all the shares of all classes of the capital stock of the affiliate would not, in the absence of this paragraph, be greater than nil, was determined on the assumption that the amount determined under subparagraph (2)(b)(i) were the greater of

      • (i) the amount of the affiliate’s retained earnings, if any, determined at the end of the taxation year under accounting principles that are relevant to the affiliate for the taxation year, and

      • (ii) the amount determined by the formula

         A × B

        where

        A
        is the amount of the affiliate’s total assets determined at the end of the taxation year under accounting principles that are relevant to the affiliate for the taxation year, and
        B
        is 25%.
  • (2) For the purposês of this section, the distribution entitlement of all the shares of a class of the capital stock of a foreign affiliate of the taxpayer at the end of its taxation year is the aggregate of

    • (a) the distributions made during the year by the affiliate to holders of shares of that class; and

    • (b) the amount that the affiliate might reasonably be expected to distribute to holders of shares of that class immediately after the end of the year if at that time it had distributed to its shareholders an amount equal to the aggregate of

      • (i) the amount, if any, by which the net surplus of the affiliate in respect of the taxpayer at the end of the year, computed as though any adjustments resulting from the provisions of sections 5902 and 5905 and subsections 5907(2.1) and (2.2) and any references thereto during the year were ignored, exceeds the net surplus of the affiliate in respect of the taxpayer at the end of its immediately preceding taxation year, and

      • (ii) the amount that the affiliate would receive if at that time each controlled foreign affiliate of the taxpayer in which the affiliate had an equity percentage had distributed to its shareholders an amount equal to the aggregate of

        • (A) the amount that would be determined under subparagraph (i) for the controlled foreign affiliate if the controlled foreign affiliate were the foreign affiliate referred to in subparagraph (i), for each of the taxation years of the controlled foreign affiliate ending in the taxation year of the affiliate, and

        • (B) each such amount that the controlled foreign affiliate would receive from any other controlled foreign affiliate of the taxpayer in which it had an equity percentage.

  • (3) For the purposes of subsection (2),

    • (a) the net surplus of a foreign affiliate of a person resident in Canada is, in respect of that person, to be computed as if that person were a corporation resident in Canada;

    • (b) if a particular foreign affiliate of a corporation has an equity percentage (within the meaning assigned by subsection 95(4) of the Act) in another foreign affiliate of the corporation that has an equity percentage in the particular affiliate, the net surplus of, or the amount of a distribution received by, the particular affiliate is to be determined in a manner that is

      • (i) reasonable in the circumstances, and

      • (ii) consistent with the results that would be obtained if a series of actual distributions had been made and received by the foreign affiliates of the corporation that are relevant to the determination;

    • (c) if any controlled foreign affiliate of a taxpayer resident in Canada has issued shares of more than one class of its capital stock, the amount that would be distributed to the holders of shares of any class is such portion of the amount determined under subparagraph (2)(b)(ii) as, in the circumstances, it might reasonably be expected to distribute to the holders of those shares; and

    • (d) in determining the distribution entitlement

      • (i) of a class of shares of the capital stock of a foreign affiliate that is entitled to cumulative dividends, the amount of any distribution referred to in paragraph (2)(a) shall be deemed not to include any distribution in respect of such class that is, or would, if it were made, be referable to profits of a preceding taxation year, and

      • (ii) of any other class of shares of the capital stock of the affiliate, the net surplus of the affiliate at the end of the year referred to in subparagraph (2)(b)(i) shall be deemed not to have been reduced by any distribution described in subparagraph (i) with respect to a class of shares that is entitled to cumulative dividends to the extent that the distribution was referable to profits of a preceding taxation year.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/78-913, s. 1
  • SOR/80-141, s. 3
  • SOR/94-686, s. 79(F)
  • SOR/97-505, s. 6
  • 2013, c. 34, ss. 43, 83
 
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