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

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Regulations are current to 2022-09-22 and last amended on 2022-06-23. 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)
]

Election in Respect of Capital Gains

  •  (1) If at any time a dividend (such time and each such dividend, respectively, referred to in this subsection and subsection (2) as the “dividend time” and an “elected dividend”) is, by virtue of an election made under subsection 93(1) of the Act by a corporation in respect of a disposition, deemed to have been received on a share (each such share referred to in this subsection as an “elected share”) of a class of the capital stock of a particular foreign affiliate of the corporation, the following rules apply:

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

      • (i) the particular affiliate’s exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, underlying foreign tax and net surplus, in respect of the corporation at the dividend time, are deemed to be those amounts that would otherwise be determined immediately before the dividend time if

        • (A) each other foreign affiliate of the corporation in which the affiliate had an equity percentage (within the meaning assigned by subsection 95(4) of the Act) at the dividend time had, immediately before the time that is immediately before the dividend time, paid a dividend equal to its net surplus in respect of the corporation, determined immediately before the time the dividend was paid, and

        • (B) any dividend referred to in clause (A) that any other foreign affiliate would have received had been received by it immediately before any such dividend that it would have paid, and

      • (ii) the particular affiliate is deemed to have paid a whole dividend at the dividend time on the shares of that class of its capital stock in an amount determined by the formula

        A × B

        where

        A
        is the total of all amounts each of which is the amount of an elected dividend, and
        B
        is the greater of
        • (A) one, and

        • (B) the quotient determined by the formula

          C/D

          where

          C
          is the amount of the particular affiliate’s net surplus determined under subparagraph (a)(i), and
          D
          is the greater of
          • (I) one unit of the currency in which the amount determined for C is expressed, and

          • (II) the amount that would have been received on the elected shares if the particular affiliate had at the dividend time paid dividends, on all shares of its capital stock, the total of which was equal to the amount of its net surplus referred to in subparagraph (a)(i); and

    • (b) subject to paragraph 5905(5)(c), there is to be included, at the dividend time,

      • (i) under subparagraph (v) of the description of B in the definition exempt surplus in subsection 5907(1) in computing the particular affiliate’s exempt surplus or exempt deficit, as the case may be, in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the portion of any elected dividend that is prescribed by paragraph 5900(1)(a) to have been paid out of the exempt surplus of the particular affiliate,

      • (i.1) under subparagraph (vi) of the description of B in the definition hybrid surplus in subsection 5907(1) in computing the particular affiliate’s hybrid surplus or hybrid deficit, as the case may be, in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the portion of any elected dividend that is prescribed by paragraph 5900(1)(a.1) to have been paid out of the hybrid surplus of the particular affiliate,

      • (i.2) under subparagraph (iii) of the description of B in the definition hybrid underlying tax in subsection 5907(1) in computing the particular affiliate’s hybrid underlying tax in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the amount prescribed by paragraph 5900(1)(c.1) to be the foreign tax applicable to the portion of any elected dividend that is prescribed by paragraph 5900(1)(a.1) to have been paid out of the hybrid surplus of the particular affiliate,

      • (ii) under subparagraph (v) of the description of B in the definition taxable surplus in subsection 5907(1) in computing the particular affiliate’s taxable surplus or taxable deficit, as the case may be, in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the portion of any elected dividend that is prescribed by paragraph 5900(1)(b) to have been paid out of the taxable surplus of the particular affiliate, and

      • (iii) under subparagraph (iii) of the description of B in the definition underlying foreign tax in subsection 5907(1) in computing the particular affiliate’s underlying foreign tax in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the amount prescribed by paragraph 5900(1)(d) to be the foreign tax applicable to such portion of any elected dividend as is prescribed by paragraph 5900(1)(b) to have been paid out of the taxable surplus of the particular affiliate.

  • (2) In this section,

    • (a) for the purpose of paragraph (1)(a),

      • (i) 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 exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, underlying foreign tax and net surplus of, and the amount of a dividend paid or received by, the particular affiliate are to be determined in a manner that is

        • (A) reasonable in the circumstances, and

        • (B) consistent with the results that would be obtained if a series of actual dividends had been paid and received by the foreign affiliates of the corporation that are relevant to the determination, and

      • (ii) 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 the portion of its net surplus that, in the circumstances, it might reasonably be expected to have paid on all the shares of the class, and

    • (b) the specified adjustment factor in respect of a disposition is the percentage determined by the formula

      A/B

      where

      A
      is
      • (i) if the elected dividend is received by the corporation, 100 per cent, and

      • (ii) if the elected dividend is received by another foreign affiliate of the corporation, the surplus entitlement percentage of the corporation in respect of the other affiliate immediately before the dividend time, and

      B
      is the surplus entitlement percentage of the corporation in respect of the particular affiliate immediately before the dividend time.
  • (3) [Repealed, 2013, c. 34, s. 41]

  • (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) If at any time a corporation resident in Canada is deemed under subsection 93(1.11) of the Act to have made an election under subsection 93(1) of the Act in respect of a disposition of a share of the capital stock of a particular foreign affiliate of the corporation, the prescribed amount is the lesser of

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

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

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/80-141, s. 1
  • SOR/82-910, s. 1
  • SOR/85-176, s. 1
  • SOR/89-135, s. 1
  • SOR/94-686, s. 79(F)
  • SOR/97-505, s. 4
  • 2013, c. 34, ss. 41, 80

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
 
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