Income Tax Regulations

5903 (1) For the purpose of the description of F in the definition foreign accrual property income in subsection 95(1) of the Act, the amount prescribed to be the deductible loss of a particular foreign affiliate of a taxpayer for a taxation year and the five immediately preceding taxation years (each of which preceding taxation years is referred to in this subsection as a “preceding year”) is the amount, if any, by which

• (a) the total of all amounts each of which is the amount, if any, determined in respect of the particular affiliate in respect of a preceding year during which it was a controlled foreign affiliate of the taxpayer or of a person described in any of subparagraphs 95(2)(f)(iv) to (vii) of the Act, by which

  • (i) the total of the amounts determined for D and E in the definition foreign accrual property income in subsection 95(1) of the Act in respect of the particular affiliate for the preceding year

  exceeds

  • (ii) the total of the amounts determined for A, B and C in the definition foreign accrual property income in subsection 95(1) of the Act in respect of the particular affiliate for the preceding year

exceeds the total of

• (b) the total of all amounts each of which is an amount determined in respect of the particular affiliate in respect of a preceding year during which it was a controlled foreign affiliate of the taxpayer or of a person described in any of subparagraphs 95(2)(f)(iv) to (vii) of the Act and equal to the lesser of

  • (i) the amount that would be determined for F in the definition foreign accrual property income in subsection 95(1) of the Act in respect of the particular affiliate for the preceding year if that amount did not take into account any amount determined for any of A, B, C, D or E in the definition foreign accrual property income in subsection 95(1) of the Act in respect of the particular affiliate for any taxation year that is not a preceding taxation year, and

  • (ii) the amount that would be the foreign accrual property income of the particular affiliate for the preceding year if the formula in the definition foreign accrual property income in subsection 95(1) of the Act were read without reference to the variable F; and

• (c) where a payment has been received by the particular affiliate and the payment can reasonably be considered to relate to a payment described in subsection 5907(1.3) made by another foreign affiliate of the taxpayer in respect of a loss, or any portion of a loss, of the particular affiliate described in the description of D or E of the definition foreign accrual property income in subsection 95(1) of the Act in respect of any preceding year of the particular affiliate, the amount of that loss or portion.

(2) For the purpose of subsection (1), each amount referred to in paragraph (1)(c) in respect of a controlled foreign affiliate of a taxpayer resident in Canada that is not otherwise determined in Canadian currency shall be converted to Canadian currency at the rate of exchange prevailing on the last day of the affiliate’s taxation year in respect of which the amount determined under subsection (1) is being used to determine the foreign affiliate’s foreign accrual property income as defined in subsection 95(1) of the Act.

(3) Where

• (a) there has been a foreign merger (within the meaning assigned by subsection 87(8.1) of the Act) of two or more foreign affiliates of a taxpayer resident in Canada in respect of each of which the taxpayer’s surplus entitlement percentage was not less than 90 per cent immediately before the merger (in this subsection referred to as “predecessor affiliates”) to form a new foreign affiliate in respect of which the taxpayer’s surplus entitlement percentage immediately after the merger was not less than 90 per cent (in this subsection referred to as the “successor affiliate”), or

• (b) there has been a dissolution of a foreign affiliate (in this subsection referred to as the “predecessor affiliate”) of a taxpayer resident in Canada and on the dissolution property of the predecessor affiliate, the fair market value of which was not less than 90 per cent of the fair market value of all property of the predecessor affiliate immediately before the dissolution, was distributed to another foreign affiliate (in this subsection referred to as the “successor affiliate”) of the taxpayer,

the successor affiliate shall, in respect of such part of the amount determined under subsection (1) to be the deductible loss of a predecessor affiliate at the time of the foreign merger or dissolution as may reasonably be considered to have arisen while the taxpayer, a person or persons referred to in any of subparagraphs 95(2)(f)(iv) to (vii) of the Act, or the taxpayer together with such a person or persons, had a surplus entitlement percentage in respect of such predecessor affiliate that was not less than 90 per cent, be considered to be the same corporation as, and a continuation of, such predecessor affiliate.