Income Tax Regulations

5902 (1) Where at any time a dividend is, by virtue of an election made under subsection 93(1) of the Act in respect of a disposition, deemed to have been received on one or more shares of a class of the capital stock of a particular foreign affiliate of a corporation resident in Canada, the following rules apply:

• (a) determine the amounts that would be the particular affiliate’s exempt surplus or exempt deficit, taxable surplus or taxable deficit, underlying foreign tax and net surplus in respect of the corporation at that time if

  • (i) each other foreign affiliate of the corporation in which the affiliate had an equity percentage had immediately before that time paid a dividend equal to its net surplus in respect of the corporation immediately before the dividend was paid, and

  • (ii) any dividend referred to in subparagraph (i) that any other foreign affiliate would have received had been received by it immediately before any such dividend that it would have paid;

• (b) determine the amount that would have been received on the shares (of that class) in respect of which an election is made, if the particular affiliate had at that time paid dividends the aggregate of which on all shares of its capital stock was equal to the amount of its net surplus referred to in paragraph (a); and

• (c) for the purposes only of subsection 5900(1), in applying the provisions of subsection 5901(1)

  • (i) the particular affiliate’s exempt surplus or exempt deficit, taxable surplus or taxable deficit and underlying foreign tax in respect of the corporation shall be deemed to be the respective amounts thereof referred to in paragraph (a), and

  • (ii) the particular affiliate shall be deemed to have paid a whole dividend at that time on the shares of that class of its capital stock in an amount equal to the product obtained when the aggregate of amounts so deemed by subsection 93(1) of the Act to have been received as dividends on shares of that class is multiplied by the greater of

    • (A) one, and

    • (B) the proportion that the amount of the particular affiliate’s net surplus determined under paragraph (a) is of the amount determined under paragraph (b), except that where the amount determined under paragraph (b) is less than one, the amount determined under paragraph (b) is deemed for the purpose of this clause to be one.

(2) For the purposes of paragraphs (1)(a) and (b),

• (a) in determining the exempt surplus or exempt deficit, the taxable surplus or taxable deficit, the underlying foreign tax and the net surplus of a particular foreign affiliate of a taxpayer resident in Canada in which any other foreign affiliate of the taxpayer has an equity percentage, no amount shall be included in respect of any distribution that would be received by the particular affiliate from such other affiliate; and

• (b) if any foreign affiliate of a corporation resident in Canada has issued shares of more than one class of its capital stock, the amount that would be paid as a dividend on the shares of any class is such portion of its exempt surplus or exempt deficit and its taxable surplus (including underlying foreign tax applicable) or taxable deficit (and thus net surplus) as, in the circumstances, it might reasonably be expected to have paid on all the shares of that class.

(3) Where an election under subsection 93(1) of the Act is made by a corporation resident in Canada in respect of the disposition of a share of the capital stock of a foreign affiliate of the corporation, no adjustment shall be made to the affiliate’s exempt surplus, exempt deficit, taxable surplus, taxable deficit or underlying foreign tax in respect of the corporation except as provided in subsection (4) and subsection 5905(2).

(4) [Repealed, SOR/85-176, s. 1]

(5) Any election under subsection 93(1) of the Act by a corporation resident in Canada in respect of any share of the capital stock of a foreign affiliate of the corporation disposed of by it or by another foreign affiliate of the corporation shall be made by filing the prescribed form with the Minister on or before the day that is the later of

• (a) December 31, 1989; and

• (b) where the election is made

  • (i) in respect of a share disposed of by the corporation, the day on or before which the corporation’s return of income for its taxation year in which the disposition was made is required to be filed pursuant to subsection 150(1) of the Act, or

  • (ii) in respect of a share disposed of by another foreign affiliate of the corporation, the day on or before which the corporation’s return of income for its taxation year, in which the taxation year of the foreign affiliate in which the disposition was made ends, is required to be filed pursuant to subsection 150(1) of the Act,

  as the case may be.

(6) Where at any time a corporation resident in Canada is deemed by virtue of subsection 93(1.1) of the Act to have made an election under subsection 93(1) of the Act in respect of a share of the capital stock of a particular foreign affiliate of the corporation disposed of by another foreign affiliate of the corporation, the amount deemed to have been designated in the election is hereby prescribed to be the lesser of

• (a) the capital gain, if any, otherwise determined in respect of the disposition of the share; and

• (b) the amount that could reasonably be expected to have been received in respect of the share if the particular affiliate had at that time paid dividends the aggregate of which on all shares of its capital stock was equal to the amount determined under paragraph (1)(a) to be its net surplus in respect of the corporation for the purposes of the election.