Table of Contents - Previous - Next

Notice of Ways and Means Motion to amend the Income Tax Act, the Excise Tax Act and related legislation

PART 2
AMENDMENTS IN RESPECT OF FOREIGN AFFILIATES: SURPLUS RULES AND OTHER TECHNICAL AMENDMENTS

R.S., c. 1 (5th Supp.)

Income Tax Act

29. (1) Paragraph 53(1)(d) of the Income Tax Act is replaced by the following:

(dif the property is a share of the capital stock of a foreign affiliate of the taxpayer, any amount required by section 92 to be added in computing the adjusted cost base to the taxpayer of the share;

(2) Subsection (1) is deemed to have come into force on December 21, 2002.

30. (1) Subparagraph 88(1)(d)(ii) of the Act is replaced by the following:

(ii) in no case shall the amount so designated in respect of any such capital property exceed the amount, if any, by which the fair market value of the property at the time the parent last acquired control of the subsidiary exceeds the total of

(A)  the cost amount to the subsidiary of the property immediately before the winding-up, and

(B) the prescribed amount, and

(2) Subparagraph 88(1)(d)(iii) of the French version of the Act is replaced by the following:

(iii) le total des sommes ainsi désignées, relativement à toute immobilisation semblable, ne peut en aucun cas dépasser l'excédent du total déterminé selon le sous-alinéa b)(ii) sur le total des sommes déterminées selon les sous-alinéas (i) et (i.1);

(3) Section 88 of the Act is amended by adding the following after subsection (1.7):

Application of subsection (1.9)

(1.8) Subsection (1.9) applies if

(aa corporation has made a designation (referred to in this subsection and subsection (1.9) as the "initial designation") under paragraph (1)(d) in respect of a share of the capital stock of a foreign affiliate of the corporation, or an interest in a partnership that, based on the assumptions contained in paragraph 96(1)(c), owns a share of the capital stock of a foreign affiliate of the corporation, on or before the filing-due date for its return of income under this Part for the taxation year in which a disposition of the share or the partnership interest, as the case may be, occurred in the course of a winding-up referred to in subsection (1) or an amalgamation referred to in subsection 87(11);

(bthe corporation made reasonable efforts to determine the foreign affiliate's tax-free surplus balance (within the meaning assigned by subsection 5905(5.5) of the Income Tax Regulations ), in respect of the corporation, that was relevant in the computation of the maximum amount available under subparagraph (1)(d)(ii) to be designated in respect of that disposition; and

(cthe corporation amends the initial designation on or before the day that is 10 years after the filing-due date referred to in paragraph (a).

Amended designation

(1.9) If this subsection applies and, in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the initial designation to be amended, the amended designation under paragraph (1.8)(c) is deemed to have been made on the day on which the initial designation was made and the initial designation is deemed not to have been made.

(4) Subsections (1) and (2) apply in respect of windings-up that begin, and amalgamations that occur, after February 27, 2004.

(5) Subsection (3) is deemed to have come into force on December 19, 2009.

31. (1) Section 92 of the Act is amended by adding the following after subsection (1):

Adjustment for prescribed amount

(1.1) The prescribed amount shall be added in computing the adjusted cost base of a share of the capital stock of a foreign affiliate of a corporation resident in Canada to

(aanother foreign affiliate of the corporation; or

(ba partnership of which another foreign affiliate of the corporation is a member.

(2) Subsection (1) is deemed to have come into force on December 19, 2009.

32. (1) Paragraph 93(1)(b) of the Act is replaced by the following:

(bif subsection 40(3) applies to the disposing corporation or disposing affiliate, as the case may be, in respect of the share, the amount deemed by that subsection to be the gain of the disposing corporation or disposing affiliate, as the case may be, from the disposition of the share is, except for the purposes of paragraph 53(1)(a), deemed to be equal to the amount, if any, by which

(ithe amount deemed by that subsection to be the gain from the disposition of the share determined without reference to this paragraph

exceeds

(iithe elected amount.

(2) Subparagraph 93(1.2)(a)(ii) of the Act is replaced by the following:

(ii) if subsection (1.3) applies, the prescribed amount

(3) Subsection 93(3) of the Act is amended by striking out "and" at the end of paragraph (a), by adding "and" at the end of paragraph (b) and by adding the following after paragraph (b):

(cthe prescribed amount is deemed to be an amount that is received, at the adjustment time referred to in subsection 5905(7.7) of the Income Tax Regulations, by a particular foreign affiliate of a corporation resident in Canada from another foreign affiliate of the corporation and that is in respect of an exempt dividend on a share of the capital stock of the other affiliate.

(4) Section 93 of the Act is amended by adding the following after subsection (5.1):

Amended election

(5.2) An election (referred to in this subsection as the "amended election") by a taxpayer under subsection (1) in respect of a disposition of shares of the capital stock of a foreign affiliate of the taxpayer is deemed to have been made on the day on or before which the election was required to be made and any previous election (referred to in this subsection as the "old election") under subsection (1) in respect of that disposition is deemed not to have been made if

(athe taxpayer has not elected under section 51 of the Technical Tax Amendments Act, 2012;

(bthe taxpayer made the old election on or before December 18, 2009;

(cin the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the old election to be amended; and

(dthe amended election is made in prescribed form on or before December 31, 2013.

(5) Subsection (1) applies in respect of elections made in respect of dispositions that occur after December 18, 2009.

(6) Subsection (2) applies in respect of elections made under subsection 93(1.2) of the Act in respect of dispositions that occur after November 1999.

(7) Subsections (3) and (4) are deemed to have come into force on December 19, 2009.

33. (1) The description of F in the definition "foreign accrual property income" in subsection 95(1) of the Act is replaced by the following:

F

is the prescribed amount for the year,

(2) Clause (a)(i)(A) of the definition "investment business" in subsection 95(1) of the Act is replaced by the following:

(A) of each country in which the business is carried on through a permanent establishment in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,

(3) Subsection 95(1) of the Act is amended by adding the following in alphabetical order:

"permanent establishment"

« établissement stable »

"permanent establishment" has the meaning assigned by regulation;

(4) Clause 95(2)(l)(iii)(A) of the Act is replaced by the following:

(A) of each country in which the business is carried on through a permanent establishment in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,

(5) Clause 95(2.3)(b)(ii)(A) of the Act is replaced by the following:

(A) under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment in that country,

(6) Subparagraph 95(2.4)(a)(i) of the Act is replaced by the following:

(i) of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued and of each country in which the business is carried on through a permanent establishment in that country,

(7) Subclause (c)(ii)(B)(I) of the definition "indebtedness" in subsection 95(2.5) of the Act is replaced by the following:

(I) under the laws of the country under whose laws the non-resident corporation is governed and any of exists, was (unless the non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued and under the laws of each country in which the business is carried on through a permanent establishment in that country,

(8) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after November 1999.

(9) Subsections (2) to (7) apply to taxation years of a foreign affiliate of a taxpayer that begin after 1999.

34. (1) Subparagraph 152(4)(b)(i) of the Act is replaced by the following:

(i) is required under subsection (6) or (6.1), or would be so required if the taxpayer had claimed an amount by filing the prescribed form referred to in the subsection on or before the day referred to in the subsection,

(2) Subsection 152(6.1) of the Act is replaced by the following:

Reassessment if amount under subsection 91(1) is reduced

(6.1) If

(aa taxpayer has filed for a particular taxation year the return of income required by section 150,

(bthe amount included in computing the taxpayer's income for the particular year under subsection 91(1) is subsequently reduced because of a reduction in the foreign accrual property income of a foreign affiliate of the taxpayer for a taxation year (referred to in this paragraph as the "claim year") of the affiliate that ends in the particular year, if the reduction in that foreign accrual property income is

(i) attributable to a foreign accrual property loss (within the meaning assigned by subsection 5903(3) of the Income Tax Regulations ) of the affiliate for a taxation year of the affiliate that ends in a subsequent taxation year of the taxpayer, and

(ii) included in the description of F in the definition "foreign accrual property income" in subsection 95(1) in respect of the affiliate for the claim year, and

(cthe taxpayer has filed with the Minister, on or before the filing-due date for that subsequent taxation year, a prescribed form amending the return,

the Minister shall reassess the taxpayer's tax for any relevant taxation year (other than a taxation year preceding the particular year) in order to take into account the reduction in the amount included under subsection 91(1) in computing the income of the taxpayer for the particular year.

(3) Subsections (1) and (2) apply to taxation years that begin after November 1999.

35. (1) The portion of paragraph 161(7)(a) of the Act before subparagraph (i) is replaced by the following:

(athe tax payable under this Part and Parts I.3, VI and VI.1 by the taxpayer for the year is deemed to be the amount that it would be if the consequences of the deduction, reduction or exclusion of the following amounts were not taken into consideration:

(2) Paragraph 161(7)(a) of the Act is amended by striking out "and" at the end of subparagraph (x) and by adding the following after subparagraph (xi):

(xii) any amount by which the amount included under subsection 91(1) for the year is reduced because of a reduction referred to in paragraph 152(6.1)(b) in the foreign accrual property income of a foreign affiliate of the taxpayer for a taxation year of the affiliate that ends in the year; and

(3) Subparagraph 161(7)(b)(iii) of the Act is replaced by the following:

(iii) if an amended return of the taxpayer's income for the year or a prescribed form amending the taxpayer's return of income for the year was filed under subsection 49(4) or 152(6) or (6.1) or paragraph 164(6)(e), the day on which the amended return or prescribed form was filed, and

(4) Subsections (1) to (3) apply to taxation years that begin after December 18, 2009.

36. (1) Subsection 164(5) of the Act is amended by striking out "or" at the end of paragraph (h.2), by adding "or" at the end of paragraph (h.3), and by adding the following after paragraph (h.3):

(h.4the reduction of the amount included under subsection 91(1) for the year because of a reduction referred to in paragraph 152(6.1)(b) in the foreign accrual property income of a foreign affiliate of the taxpayer for a taxation year of the affiliate that ends in the year,

(2) Paragraph 164(5)(k) of the Act is replaced by the following:

(kif an amended return of a taxpayer's income for the year or a prescribed form amending the taxpayer's return of income for the year was filed under paragraph (6)(e) or subsection 49(4) or 152(6) or (6.1), the day on which the amended return or prescribed form was filed, and

(3) Subsections (1) and (2) apply to taxation years that begin after December 18, 2009.

37. (1) The portion of subsection 256(7) of the Act before paragraph (a) is replaced by the following:

Acquiring control

(7) For the purposes of this subsection, of subsections 10(10), 13(21.2) and (24), 14(12) and 18(15), sections 18.1 and 37, subsection 40(3.4), the definition "superficial loss" in section 54, section 55, subsections 66(11), (11.4) and (11.5), 66.5(3) and 66.7(10) and (11), section 80, paragraph 80.04(4)(h), subsections 85(1.2), 88(1.1) and (1.2) and 110.1(1.2), sections 111 and 127 and subsection 249(4) and of subsection 5905(5.2) of the Income Tax Regulations,

(2) Subsection (1) is deemed to have come into force on December 19, 2009.

38. (1) The portion of subparagraph 261(5)(h)(i) of the Act before clause (A) is replaced by the following:

(i) the references in section 95 (other than paragraph 95(2)(f.15)) and the references in regulations made for the purposes of section 95 or 113 to

(2) The portion of subsection 261(15) of the Act before paragraph (a) is replaced by the following:

Amounts carried back

(15) For the purposes of determining the amount that may be deducted, in respect of a particular amount that arises in a taxation year (referred to in this subsection as the "later year") of a taxpayer, under section 111 or subsection 126(2), 127(5), 181.1(4) or 190.1(3) in computing the taxpayer's Canadian tax results for a taxation year (referred to in this subsection as the "current year") that ended before the later year, and for the purposes of determining the amount by which the amount included under subsection 91(1) for the current year is reduced because of a reduction referred to in paragraph 152(6.1)(b) in respect of the later year,

(3) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after December 18, 2009.

(4) Subsection (2) is deemed to have come into force on December 14, 2007.

2007, c. 35

Budget and Economic Statement Implementation Act, 2007

39. (1) The read-as text in paragraph 26(27)(b) of the Budget and Economic Statement Implementation Act, 2007 is replaced by the following:

"controlled foreign affiliate" , at any time of a taxpayer resident in Canada, means a foreign affiliate of the taxpayer that

(ais, at that time, controlled

(i) by the taxpayer,

(ii) by the taxpayer and not more than four other persons resident in Canada, or

(iii) by not more than four persons resident in Canada, other than the taxpayer, or

(bwould, at that time, be controlled by the taxpayer if the taxpayer owned

(i) each share of the capital stock of a corporation that is owned at that time by the taxpayer and each share of the capital stock of a corporation that is owned at that time by any of not more than four other persons resident in Canada,

(ii) each share of the capital stock of a corporation that is owned at that time by any of not more than four persons resident in Canada (other than the taxpayer), or

(iii) each share of the capital stock of a corporation that is owned at that time by the taxpayer and each share of the capital stock of a corporation that is owned at that time by any person with whom the taxpayer does not deal at arm's length;

(2) The portion of paragraph 26(35)(b) of the Act before subparagraph (i) is replaced by the following:

(bif a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer's filing-due date for the taxpayer's taxation year that includes December 14, 2007,

(3) The portion of subsection 26(37) of the English version of the Act before the read-as text is replaced by the following:

(37) Subject to subsection (46), paragraphs 95(2)(g) to (g.03) of the Act, as enacted by subsection (13), apply to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002, except that, for taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002 and before 2009, paragraph 95(2)(g.03) of the Act, as enacted by subsection (13), is to be read as if the references in that paragraph to "qualified foreign affiliate" were references to "qualified foreign corporation" and paragraph 95(2)(g) of the Act, as enacted by subsection (13), is to be read as follows:

(4) Subsection 26(38) of the Act is replaced by the following:

(38) Subject to subsection (46), paragraphs 95(2)(n), (p), (r) to (t), (v) and (y) of the Act, as enacted by subsection (16), apply to taxation years, of a foreign affiliate of a taxpayer, that end after 1999. However, if a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer's filing-due date for the taxpayer's taxation year that includes December 14, 2007, paragraph 95(2)(n) of the Act, as enacted by subsection (16), applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994.

(5) Subsection 26(40) of the Act is replaced by the following:

(40) Paragraph 95(2)(u) of the Act, as enacted by subsection (16), applies to taxation years, of foreign affiliates of a taxpayer, that end after 1999. However, if a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer's filing-due date for the taxpayer's taxation year that includes December 14, 2007, paragraph 95(2)(u) of the Act, as enacted by subsection (16), applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994.

(6) The portion of paragraph 26(42)(b) of the Act before the read-as text is replaced by the following:

(bif a taxpayer elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer's filing-due date for the taxpayer's taxation year that includes December 14, 2007, subsection 95(2.2) of the Act, as enacted by subsection (19), also applies to taxation years, of all its foreign affiliates, that begin after 1994 and end before 2000, as though subsection 95(2.2) of the Act, as enacted by subsection (19), read as follows:

(7) Subsections 26(44) and (45) of the Act are replaced by the following:

(44) Subject to subsection (46), subsection (24) applies to the 2001 and subsequent taxation years of a foreign affiliate of a taxpayer. However, if a taxpayer elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer's filing-due date for the taxpayer's taxation year that includes December 14, 2007, subsection (24) applies to taxation years, of all its foreign affiliates, that begin after 1994.

(45) Subsection (25) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002. However, if a taxpayer elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer's filing-due date for the taxpayer's taxation year that includes December 14, 2007, subsections (11) and (25) apply to taxation years, of all its foreign affiliates, that begin after 1994.

(8) The portion of subsection 26(46) of the Act before paragraph (a) is replaced by the following:

(46) If a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer's filing-due date for the taxpayer's taxation year that includes December 14, 2007,

(9) Subsection 26(47) of the Act is replaced by the following:

(47) If a taxpayer has made what would, but for this subsection, be a valid election under any of paragraph (35)(b), subsections (38) and (40), paragraph (42)(b) and subsections (44) to (46) and the taxpayer has, on or before the taxpayer's filing-due date for the taxpayer's taxation year that includes December 14, 2010, filed with the Minister of National Revenue a notice in writing to revoke the election, the election is deemed, otherwise than for the purpose of this subsection, never to have been made.

(10) Subsection 26(48) of the Act is replaced by the following:

(48) Any assessment of a taxpayer's tax, interest and penalties payable under the Act for any taxation year that ends before December 14, 2007 and would, in the absence of this subsection, be precluded because of subsections 152(4) to (5) of the Act shall be made to the extent necessary to take into account any of the following :

(a)  an election made by the taxpayer under any of subsections (35), (38), (40), (42) and (44) to (46), a revocation referred to in subsection (47) or any provision of this section in respect of which an election is made under any of those subsections by the taxpayer; or

(bsubsection 10(3) or any provision of this section (other than any provision referred to in paragraph (a) in respect of which the taxpayer has made an election referred to in paragraph (a)), if the taxpayer

(i) elects in writing in respect of all of its foreign affiliates that this subsection apply in respect of that provision, and

(ii) files that election with the Minister of National Revenue on or before the day that is six months after the day on which the Technical Tax Amendments Act, 2012 receives royal assent.

(11) Subsections (1) to (10) are deemed to have come into force on December 14, 2007.

C.R.C., c. 945

Income Tax Regulations

40. (1) Subsection 5900(3) of the Income Tax Regulations is replaced by the following:

(3) For the purposes of subsection 91(5) of the Act, if a person resident in Canada (other than a corporation) receives a dividend on a share of any class of the capital stock of a foreign affiliate of the person, the dividend is prescribed to have been paid out of the affiliate's taxable surplus.

(2) Subsection (1) applies in respect of dividends received after November 1999.

41. (1) Subsections 5902(1) to (3) of the Regulations are replaced by the following:

5902. (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:

(afor the purposes 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, 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

(bsubject 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,

(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,

(afor the purpose of paragraph (1)(a),

(i) 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 (within the meaning assigned by subsection 95(4) of the Act), no amount shall be included in respect of any distribution that would be received by the particular affiliate from that other affiliate, 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 exempt surplus or exempt deficit and its taxable surplus (including underlying foreign tax applicable) or taxable deficit (and thus net surplus) that, in the circumstances, would reasonably be expected to have been paid on all the shares of that class; and

(bthe 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.

(2) Paragraph 5902(6)(b) of the Regulations is replaced by the following:

(bthe 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.

(3) Subsections (1) and (2) apply in respect of elections made in respect of dispositions that occur after December 18, 2009. However, in applying subsection 5905(5.6) of the Regulations, as enacted by subsection 44 (6), the portion of subsection 5902(1) of the Regulations before its subparagraph (a)(ii), as enacted by subsection (1), applies after December 18, 2009.

42. (1) Section 5903 of the Regulations is replaced by the following:

5903. (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

(aone of the 20 taxation years of the affiliate that immediately precede the particular year; or

(bone of the three taxation years of the affiliate that immediately follow the particular year.

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

(aa 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;

(bno 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

(cif 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

(aif, 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 total of the amounts determined for D, E, G and H 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 total of the amounts determined for A to C in that formula in that definition in respect of the affiliate for the year; and

(bin any other case, nil.

(4) In computing under subsection (3) the affiliate's foreign accrual property loss 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 or 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.

(5) For the purpose of this section,

(aif there is 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 immediately before the merger is not less than 90 per cent to form one corporate entity in respect of which the taxpayer's surplus entitlement percentage immediately after the merger is not less than 90 per cent, the corporate entity is deemed to be the same corporation as, and a continuation of, each of those predecessor affiliates; and

(bif there is a liquidation and dissolution of a foreign affiliate of a taxpayer resident in Canada in respect of which the taxpayer's surplus entitlement percentage immediately before the liquidation and dissolution is not less than 90 per cent into another foreign affiliate of the taxpayer in respect of which the taxpayer's surplus entitlement percentage immediately before and immediately after the liquidation and dissolution is not less than 90 per cent, the other affiliate is deemed to be the same corporation as, and a continuation of, that predecessor affiliate.

(6) In this section, 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

(aa 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;

(ban antecedent corporation of a relevant person or partnership in respect of the taxpayer;

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

(dwhere 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),

(aif a person or partnership (referred to in this subsection 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

(bwhere 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.

(2) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after November 1999, except that

(athe reference to "20 taxation years" in paragraph 5903(1)(a) of the Regulations, as enacted by subsection (1), is, in respect of foreign accrual property losses for the foreign affiliate's taxation years that end in taxation years of the taxpayer that end

(i) before March 23, 2004, to be read as "seven taxation years", and

(ii) after March 22, 2004 and before 2006, to be read as "10 taxation years";

(bsubsection 5903(2) of the Regulations, as enacted by subsection (1), is, in its application to taxation years that begin before 2001, to be read without reference to its paragraph (b);

(cparagraph 5903(3)(a) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

(awhere, 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 total of the amounts determined for D and 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 total of the amounts determined for A, B and C in that formula in that definition in respect of the affiliate for the year; and

(dsubsection 5903(4) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

(4) In computing under subsection (3) the affiliate's foreign accrual property loss for a taxation year, if the affiliate or another corporation has received a payment described in subsection 5907(1.3) from another foreign affiliate 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 or 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.

(esubsection 5903(6) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

(6) In this section, a "relevant person or partnership" , in respect of a taxpayer, at any time means

(athe taxpayer;

(bany person with whom the taxpayer was not dealing at arm's length;

(cany person with whom the taxpayer would not have been dealing at arm's length if the person had been in existence after the taxpayer came into existence;

(dany predecessor corporation (within the meaning assigned by subsection 87(1) of the Act) of a person described in any of paragraphs (a) to (c); or

(eany predecessor corporation (within the meaning assigned by paragraph 87(2)(l.2) of the Act) of a person described in any of paragraphs (a) to (c).

(fsection 5903 of the Regulations, as enacted by subsection (1), is, in its application to taxation years that begin on or before December 18, 2009, to be read without reference to its subsection (7).

43. (1) Paragraph 5904(3)(a) of the Regulations is replaced by the following:

(athe 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;

(2) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after November 1999.

44. (1) Subsection 5905(1) of the Regulations is replaced by the following:

5905. (1) If, at any time, there is an acquisition or a disposition of shares of the capital stock of a particular foreign affiliate of a corporation resident in Canada and the surplus entitlement percentage of the corporation in respect of the particular foreign affiliate or any other foreign affiliate (the particular affiliate and those other affiliates being referred to individually in this subsection as a "relevant affiliate") of the corporation in which the particular affiliate has an equity percentage (within the meaning assigned by subsection 95(4) of the Act) changes, for the purposes of the definitions "exempt surplus" , "taxable surplus" and "underlying foreign tax" in subsection 5907(1), each of the opening exempt surplus or opening exempt deficit, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, as the case may be, of the relevant affiliate in respect of the corporation is, except where the acquisition or disposition occurs in a transaction to which paragraph (3)(a) or subsection (5) or (5.1) applies, the amount determined at that time by the formula

A × B/C
where
A

is the amount of that surplus, deficit or tax, as the case may be, as otherwise determined at that time;

B

is the corporation's surplus entitlement percentage immediately before that time in respect of the relevant affiliate; and

C

is the corporation's surplus entitlement percentage immediately after that time in respect of the relevant affiliate.

(2) Subsection 5905(2) of the Regulations is repealed.

(3) Subsections 5905(3) and (4) of the Regulations are replaced by the following:

(3) If at any time (referred to in this subsection as the "merger time") a foreign affiliate (referred to in this subsection as the "merged affiliate") of a corporation resident in Canada has been formed as a result of a foreign merger (within the meaning assigned by subsection 87(8.1) of the Act) of two or more corporations (referred to individually in this subsection as a "predecessor corporation"), the following rules apply:

(afor the purposes of the definitions "exempt surplus" , "taxable surplus" and "underlying foreign tax" in subsection 5907(1), as they apply in respect of the merged affiliate,

(i) the merged affiliate's opening exempt surplus, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the exempt surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the exempt deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time,

(ii) the merged affiliate's opening exempt deficit, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the exempt deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the exempt surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time,

(iii) the merged affiliate's opening taxable surplus, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the taxable surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the taxable deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time,

(iv) the merged affiliate's opening taxable deficit, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the taxable deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the taxable surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time, and

(v) the merged affiliate's opening underlying foreign tax in respect of the corporation shall be the total of all amounts each of which is the underlying foreign tax of a predecessor corporation, in respect of the corporation, immediately before the merger time;

(bfor the purposes of paragraph (a),

(i) each of the exempt surplus or exempt deficit, taxable surplus or taxable deficit and underlying foreign tax, in respect of the corporation, of each predecessor corporation immediately before the merger time is deemed to be the amount determined by the formula

A × B/C
where
A

is the amount of that surplus, deficit or tax, as the case may be, as otherwise determined,

B

is the surplus entitlement percentage of the corporation immediately before the merger time in respect of the predecessor corporation, and

C

is the percentage that would be the surplus entitlement percentage of the corporation immediately after the merger time in respect of the merged affiliate if the merged affiliate's net surplus were the total of all amounts each of which is the net surplus of a predecessor corporation immediately before the merger time, but

(ii) the values for A, B and C in the formula in subparagraph (i) shall take into account the application of paragraph 5902(1)(b) and subsection 5907(8) in respect of the merger; and

(cin respect of any foreign affiliate (other than a predecessor corporation) of the corporation in which a predecessor corporation had an equity percentage (within the meaning assigned by subsection 95(4) of the Act) immediately before the merger time, for the purposes of subsection (1), there is deemed to be an acquisition or a disposition of shares of the capital stock of that affiliate at the merger time.

(4) Subsection 5905(5) of the Regulations is replaced by the following:

(5) If there is, at any time, a disposition by a corporation (referred to in this subsection as the "disposing corporation") resident in Canada of any of the shares (referred to in this subsection as the "disposed shares") of the capital stock of a particular foreign affiliate of the disposing corporation to a taxable Canadian corporation (referred to in this subsection as the "acquiring corporation") with which the disposing corporation is not dealing at arm's length,

(aeach of the opening exempt surplus or opening exempt deficit, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, in respect of the acquiring corporation, of the particular affiliate and of each foreign affiliate of the disposing corporation in which the particular affiliate has, immediately before that time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be the amount, if any,

(i) in the case of its opening exempt surplus, by which the total of its exempt surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its exempt deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,

(ii) in the case of its opening exempt deficit, by which the total of its exempt deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its exempt surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,

(iii) in the case of its opening taxable surplus, by which the total of its taxable surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its taxable deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,

(iv) in the case of its opening taxable deficit, by which the total of its taxable deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its taxable surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, and

(v) in the case of its opening underlying foreign tax, that is the total of its underlying foreign tax in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time;

(bfor the purpose of paragraph (a), each of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of the disposing corporation and the acquiring corporation, determined immediately before that time, is deemed to be the amount determined by the formula

A × B/C
where
A

is the amount of that surplus, deficit or tax, as the case may be, as determined without reference to this subsection but taking into account the application of subparagraph (c)(i), if applicable,

B

is the surplus entitlement percentage immediately before that time of the disposing corporation or the acquiring corporation, as the case may be, in respect of the affiliate, determined as if the disposed shares were the only shares owned by the disposing corporation immediately before that time, and

C

is the surplus entitlement percentage immediately after that time of the acquiring corporation in respect of the affiliate;

(cif the disposing corporation makes an election under subsection 93(1) of the Act in respect of the disposed shares,

(i) for the purposes of paragraph (b), the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of the disposing corporation, as determined without reference to this subsection, immediately before that time, shall be adjusted in accordance with paragraph 5902(1)(b) as if the disposing corporation's surplus entitlement percentage that is referred to in the description of B in paragraph 5902(2)(b) were determined as if the disposed shares were the only shares owned by the disposing corporation immediately before that time, and

(ii) no adjustment shall be made to the amount of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, or underlying foreign tax of an affiliate in respect of the disposing corporation under paragraph 5902(1)(b) other than for the purpose of paragraph (b); and

(dfor greater certainty, no adjustment shall be made under subsection (1) to the exempt surplus or exempt deficit, taxable surplus or taxable deficit, or underlying foreign tax of an affiliate in respect of the disposing corporation.

(5.1) If there is, at any time, an amalgamation within the meaning of subsection 87(1) of the Act and, as a result of the amalgamation, shares of the capital stock of a particular foreign affiliate of a predecessor corporation become property of the new corporation,

(aeach of the opening exempt surplus or opening exempt deficit, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, in respect of the new corporation, of the particular affiliate and of each foreign affiliate of the predecessor corporation in which the particular affiliate has, immediately before that time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be the amount, if any,

(i) in the case of its opening exempt surplus, by which the total of its exempt surplus in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its exempt deficit in respect of each predecessor corporation, determined immediately before that time,

(ii) in the case of its opening exempt deficit, by which the total of its exempt deficit in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its exempt surplus in respect of each predecessor corporation, determined immediately before that time,

(iii) in the case of its opening taxable surplus, by which the total of its taxable surplus in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its taxable deficit in respect of each predecessor corporation, determined immediately before that time,

(iv) in the case of its opening taxable deficit, by which the total of its taxable deficit in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its taxable surplus in respect of each predecessor corporation, determined immediately before that time, and

(v) in the case of its opening underlying foreign tax, that is the total of its underlying foreign tax in respect of each predecessor corporation, determined immediately before that time; and

(bfor the purpose of paragraph (a), each of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of a predecessor corporation, determined immediately before that time, is deemed to be the amount determined by the formula

A × B/C
where
A

is the amount of that surplus, deficit or tax, as the case may be, as determined without reference to this subsection,

B

is the predecessor corporation's surplus entitlement percentage immediately before that time in respect of the affiliate, and

C

is the new corporation's surplus entitlement percentage immediately after that time in respect of the affiliate.

(5.11) Subsection (5.12) applies if

(ain the case of a winding-up, an amount has been designated, under paragraph 88(1)(d) of the Act by the corporation (referred to in this subsection and subsection (5.12) as the "parent corporation") described in subsection 88(1) of the Act as the parent, in respect of

(i) shares of the capital stock of a corporation (referred to in this subsection and subsection (5.12) as the "particular affiliate") that is, immediately before the winding-up, a foreign affiliate of the corporation (referred to in this subsection and subsection (5.12) as the "subsidiary corporation") resident in Canada that is described in that subsection 88(1) as the subsidiary, or

(ii) an interest in a partnership that holds shares described in subparagraph (i); or

(bin the case of an amalgamation, an amount has been designated, under paragraph 88(1)(d) of the Act by the corporation (referred to in this subsection and subsection (5.12) as the "parent corporation") described in subsection 87(11) of the Act as the parent, in respect of

(i) shares of the capital stock of a corporation (referred to in this subsection and subsection (5.12) as the "particular affiliate") that is, immediately before the amalgamation, a foreign affiliate of the corporation (referred to in this subsection and subsection (5.12) as the "subsidiary corporation") resident in Canada that is described in that subsection 87(11) as the subsidiary, or

(ii) an interest in a partnership that holds shares described in subparagraph (i).

(5.12) If this subsection applies, the following rules apply for the purposes of subsections (5) and (5.1):

(aeach amount of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax, in respect of the subsidiary corporation, of the particular affiliate and of all foreign affiliates of the subsidiary corporation in which the particular affiliate has, immediately before the winding-up or the amalgamation, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be, immediately before the winding-up or the amalgamation, nil; and

(beach amount (referred to individually in this paragraph as a "relevant balance") of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax, in respect of the parent corporation, of the particular affiliate and of all foreign affiliates (referred to individually in this paragraph as a "lower-tier affiliate") of the parent corporation in which the particular affiliate has, immediately before the winding-up or the amalgamation, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be, immediately before the winding-up or the amalgamation, the amount that would be determined to be the relevant balance if

(i) in addition to shares or partnership interests, if any, held by the parent corporation that are relevant in computing any relevant balance of the particular affiliate or of any lower-tier affiliate of the parent corporation, in respect of the parent corporation, any shares of the particular affiliate's capital stock, and any interests in partnerships that hold such shares, that were held by the subsidiary corporation at any time in the period (referred to in this paragraph as the "control period") that begins at the first time referred to in subparagraph 88(1)(d)(ii) of the Act and ends immediately before the winding-up or the amalgamation, that are relevant in computing any relevant balance of the particular affiliate or any lower-tier affiliate of the subsidiary corporation, in respect of the subsidiary corporation, were held by the parent corporation at the same time in the control period that they were held by the subsidiary corporation,

(ii) the parent corporation had acquired, at that first time, all the shares and partnership interests held, at that first time, by the subsidiary corporation that are relevant in computing any relevant balance of the particular affiliate or any lower-tier affiliate of the subsidiary corporation, in respect of the subsidiary corporation, and

(iii) where the subsidiary corporation acquired or disposed of any shares or partnership interests in the control period that are relevant in computing any relevant balance of the particular affiliate or of any lower-tier affiliate of the subsidiary corporation, in respect of the subsidiary corporation, the parent corporation is deemed to have acquired or disposed of, as the case may be, the shares or partnership interests at the same time they were acquired or disposed of by the subsidiary corporation.

(5.13) For the purposes of clause (B) of subparagraph 88(1)(d)(ii) of the Act, the prescribed amount is

(aif the property described in that subparagraph is a share of the capital stock of a foreign affiliate of the subsidiary or if that property is an interest in a partnership that holds one or more such shares, the amount determined by the formula

A × B/C
where
A

is the total of all amounts each of which is the amount, if any, by which

(i) the amount of a dividend received, after the particular time at which the parent last acquired control of the subsidiary, on any share of the capital stock of the foreign affiliate (or any share of the capital stock of the foreign affiliate for which that share was substituted) held by the subsidiary or the partnership, as the case may be, immediately before the winding-up, that was deductible under paragraph 113(1)(a) or (b) of the Act in computing the taxable income of the subsidiary or of a corporation with which the subsidiary was not dealing at arm's length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act in respect of the foreign affiliate)

exceeds

(ii) the portion of that dividend that may reasonably be considered to have reduced the foreign affiliate's exempt surplus or taxable surplus in respect of the subsidiary that arose after the particular time (determined as if a dividend were paid out of the foreign affiliate's exempt surplus or taxable surplus, as the case may be, in respect of the subsidiary, in the reverse order to that in which that surplus of the foreign affiliate in respect of the subsidiary arose),

B

is the fair market value of the property immediately before the winding-up, and

C

is

(i) if the property is a share, the fair market value, immediately before the winding-up, of all of the shares of the capital stock of the foreign affiliate held by the subsidiary immediately before the winding-up, and

(ii) if the property is an interest in a partnership, the fair market value of the interest in the partnership immediately before the winding-up; and

(bin any other case, nil.

(5) Subsections 5905(5.11) to (5.13) of the Regulations, as enacted by subsection (4), are repealed.

(6) Section 5905 of the Regulations is amended by adding the following in numerical order:

(5.2) If, at a particular time, control of a corporation resident in Canada has been acquired by a person or a group of persons and, at the particular time, the corporation owns shares of the capital stock of a foreign affiliate of the corporation, there shall be included — under subparagraph (v) of the description of B in the definition "exempt surplus" in subsection 5907(1) in computing the affiliate's exempt surplus or exempt deficit, as the case may be, in respect of the corporation at the time that is immediately before the particular time — the amount, if any, determined by the formula

(A + B – C)/D
where
A

is the amount determined by the formula

E × F
where

E

is the affiliate's tax-free surplus balance in respect of the corporation, determined at the time (referred to in this subsection as the "relevant time") that is immediately before the time that is immediately before the particular time, and

F

is the corporation's surplus entitlement percentage in respect of the affiliate determined at the relevant time;

B

is the total of all amounts each of which is the corporation's cost amount, determined at the particular time, of a share of the capital stock of the affiliate that is owned by the corporation at the particular time;

C

is the total of

(a) the fair market value, determined at the particular time, of all of the shares of the capital stock of the affiliate that are owned by the corporation at the particular time, and

(b) the amount, if any, determined under paragraph 5908(6)(b); and

D

is the corporation's surplus entitlement percentage in respect of the affiliate determined at the relevant time.

(5.3) The cost amount of a share that is referred to in the description of B in subsection (5.2) shall be determined after taking into account the application of subsection 111(4) of the Act.

(5.4) For the purposes of clause (B) of subparagraph 88(1)(d)(ii) of the Act, the prescribed amount is

(aif the property described in that subparagraph is a share of the capital stock of a foreign affiliate of the subsidiary, the amount determined by the formula

A × B
where
A

is the affiliate's tax-free surplus balance, in respect of the subsidiary, determined at the time at which the parent last acquired control of the subsidiary, and

B

is the percentage that would be the subsidiary's surplus entitlement percentage, determined at that time, in respect of the affiliate if at that time the subsidiary had owned no shares of the affiliate's capital stock other than the share;

(bif the property described in that subparagraph is an interest in a partnership, the amount determined by subsection 5908(7); and

(cin any other case, nil.

(5.5) For the purposes of subsections (5.2), (5.4), (7.2) and (7.3), the "tax-free surplus balance" of a foreign affiliate of a corporation resident in Canada, in respect of the corporation, at any time, is the total of

(athe amount, if any, by which the affiliate's exempt surplus in respect of the corporation at that time exceeds the affiliate's taxable deficit in respect of the corporation at that time; and

(bthe lesser of

(i) the amount, if any, determined by the formula

A × B
where
A

is the affiliate's underlying foreign tax in respect of the corporation at that time, and

B

is the amount by which the corporation's relevant tax factor (within the meaning assigned by subsection 95(1) of the Act), for the corporation's taxation year that includes that time, exceeds one, and

(ii) the amount, if any, by which the affiliate's taxable surplus in respect of the corporation at that time exceeds the affiliate's exempt deficit in respect of the corporation at that time.

(5.6) For the purposes of subsection (5.5), the amounts of exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of a foreign affiliate of a corporation resident in Canada, in respect of the corporation, at a particular time are those amounts that would be determined, at the particular time, under subparagraph 5902(1)(a)(i) if that subparagraph were applicable at the particular time and the references in that subparagraph to "the dividend time" were references to the particular time.

(7) Subsection 5905(6) of the Regulations is repealed.

(8) Section 5905 of the Regulations is amended by adding the following after subsection (7):

(7.1) Subsection (7.2) applies if

(aa foreign affiliate (referred to in this subsection and subsections (7.2) to (7.6) as the "deficit affiliate") of a corporation resident in Canada has an exempt deficit, in respect of the corporation, at a particular time; and

(bat the time (referred to in this paragraph and subsections (7.2) to (7.6) as the "acquisition time") that is immediately after the particular time, shares of the capital stock of a foreign affiliate (referred to in this subsection and subsections (7.2) to (7.6) as an "acquired affiliate") of the corporation in which the deficit affiliate has, at the particular time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) are acquired by, or otherwise become property of,

(i) the corporation, or

(ii) another foreign affiliate of the corporation, in the case where the percentage that would, if the deficit affiliate were resident in Canada, be the deficit affiliate's surplus entitlement percentage in respect of the acquired affiliate immediately after the acquisition time is less than the percentage that would, if the deficit affiliate were so resident, be its surplus entitlement percentage in respect of the acquired affiliate at the particular time.

(7.2) If this subsection applies, there is to be included,

(aat the time (referred to in this subsection and subsections (7.6) and (7.7) and 5908(11) and (12) as the "adjustment time") that is immediately before the time that is immediately before the time that is immediately before the acquisition time, under subparagraph (v) of the description of B in the definition "exempt surplus" in subsection 5907(1) in computing an acquired affiliate's exempt surplus or exempt deficit in respect of the corporation, the amount, if any, equal to the lesser of

(i) the amount determined by the formula

A/B
where
A

is the deficit affiliate's exempt deficit in respect of the corporation immediately before the acquisition time, and

B

is the percentage that would, if the deficit affiliate were resident in Canada, be the deficit affiliate's surplus entitlement percentage in respect of the acquired affiliate immediately before the acquisition time, and

(ii) the lesser of

(A) the acquired affiliate's tax-free surplus balance in respect of the corporation immediately before the adjustment time, and

(B) either

(I) if there is more than one acquired affiliate, the amount designated by the corporation, in its return of income for the taxation year in which the taxation year of the acquired affiliate that includes the acquisition time ends, in respect of the acquired affiliate, or

(II) in any other case, the amount determined under clause (A);

(bat the time that is immediately after the acquisition time, under subparagraph (vi.1) of the description of A in the definition "exempt surplus" in subsection 5907(1) in computing the deficit affiliate's exempt deficit in respect of the corporation, the total of all amounts each of which is the amount determined in respect of an acquired affiliate by the formula

C × D
where
C

is the amount determined under paragraph (a) in respect of the acquired affiliate, and

D

is the percentage that would, if the deficit affiliate were resident in Canada, be the deficit affiliate's surplus entitlement percentage immediately before the acquisition time in respect of the acquired affiliate; and

(cat the time that is immediately after the acquisition time, under subparagraph (vi.1) of the description of A in the definition "exempt surplus" in subsection 5907(1) in computing the exempt surplus or exempt deficit of any other foreign affiliate (referred to in this paragraph and paragraph (7.6)(b) as a "subordinate affiliate") of the corporation, in respect of the corporation, that has immediately before the acquisition time a direct equity percentage (within the meaning assigned by subsection 95(4) of the Act) in the acquired affiliate and in which, immediately before the acquisition time, the deficit affiliate does not have an equity percentage (within the meaning assigned by subsection 95(4) of the Act), the amount determined by the formula

E × F
where
E

is the amount determined under paragraph (a) in respect of the acquired affiliate, and

F

is the percentage that would, if the subordinate affiliate were resident in Canada, be the subordinate affiliate's surplus entitlement percentage immediately before the acquisition time in respect of the acquired affiliate if the subordinate affiliate owned no shares of the capital stock of any corporation other than its shares of the capital stock of the acquired affiliate.

(7.3) Subsection (7.4) applies if

(athe lesser of

(i) the deficit affiliate's exempt deficit in respect of the corporation immediately before the acquisition time, and

(ii) the total of all amounts each of which is the amount, if any, that is the product obtained by multiplying

(A) the tax-free surplus balance immediately before the acquisition time in respect of the corporation of an acquired affiliate, and

(B) the surplus entitlement percentage of the corporation in respect of that acquired affiliate immediately before the acquisition time

exceeds

(bthe total of all amounts each of which is the amount, if any, that is the product obtained by multiplying

(i) the amount, if any, actually designated under subclause (7.2)(a)(ii)(B)(I) in respect of an acquired affiliate, and

(ii) the surplus entitlement percentage of the corporation in respect of that acquired affiliate immediately before the acquisition time.

(7.4) If this subsection applies, the amount designated by the corporation in respect of a particular acquired affiliate is deemed, for the purposes of subclause (7.2)(a)(ii)(B)(I),

(ato be the amount determined by the Minister in respect of the particular acquired affiliate; and

(bnot to be the amount, if any, actually designated under subclause (7.2)(a)(ii)(B)(I).

(7.5) Subsection (7.6) applies if

(asubsection (7.2) applies;

(bthe deficit affiliate, or any other foreign affiliate of the corporation in which the deficit affiliate has, immediately before the acquisition time, an equity percentage (which percentage has, for the purposes of this subsection, the meaning assigned by subsection 95(4) of the Act and which deficit affiliate or other affiliate is referred to in subsection (7.6) as the "direct holder"), has, immediately before the acquisition time, a direct equity percentage (within the meaning assigned by that subsection 95(4)) in any other foreign affiliate (referred to in paragraph (c) and subsection (7.6) as the "subject affiliate") of the corporation; and

(cthe subject affiliate is the acquired affiliate or has, immediately before the acquisition time, an equity percentage in the acquired affiliate.

(7.6) Subject to paragraph 5908(11)(c), for the purposes of paragraph 92(1.1)(a) of the Act, if this subsection applies, there shall be added, in computing on and after the adjustment time

(athe direct holder's adjusted cost base of a share of the capital stock of the subject affiliate, the amount determined by the formula

A × B
where
A

is the amount determined under paragraph (7.2)(a) in respect of the acquired affiliate, and

B

is the percentage that would, if the direct holder were resident in Canada, be the direct holder's surplus entitlement percentage in respect of the acquired affiliate immediately before the acquisition time if the direct holder owned only the share; and

(bthe subordinate affiliate's adjusted cost base of a share of the capital stock of the acquired affiliate, the amount determined by the formula

C × D
where
C

is the amount determined under paragraph (7.2)(a) in respect of the acquired affiliate, and

D

is the percentage that would, if the subordinate affiliate were resident in Canada, be the subordinate affiliate's surplus entitlement percentage in respect of the acquired affiliate immediately before the acquisition time if the subordinate affiliate owned only the share.

(7.7) For the purposes of paragraph 93(3)(c) of the Act, if an amount (referred to in this subsection and subsection 5908(12) as the "adjustment amount") is required by subsection 92(1.1) of the Act to be added in computing, on or after the adjustment time, the adjusted cost base of a share of the capital stock of a foreign affiliate of a corporation resident in Canada,

(awhere paragraph 92(1.1)(a) of the Act applies, the prescribed amount is the adjustment amount; and

(bwhere paragraph 92(1.1)(b) of the Act applies, the prescribed amount is the amount determined under subsection 5908(12).

(9) Subsection 5905(8) of the Regulations is repealed.

(10) Subsection 5905(9) of the Regulations is repealed.

(11) Subsection (1) applies in respect of acquisitions and dispositions that occur after December 18, 2009.

(12) Subsection (2) applies in respect of redemptions, acquisitions and cancellations that occur after December 18, 2009.

(13) Subsection (3) applies in respect of mergers or combinations that occur after December 18, 2009.

(14) Subsections 5905(5) and (5.1) of the Regulations, as enacted by subsection (4), and subsection (7) apply in respect of dispositions and amalgamations that occur, and windings-up that begin, after December 18, 2009.

(15) Subsections 5905(5.11) and (5.12) of the Regulations, as enacted by subsection (4), apply in respect of an amalgamation that occurs, or a winding-up that begins, after February 27, 2004, except that, if subsection 5905(6) of the Regulations applies in respect of the amalgamation or winding-up, then the portion of subsection 5905(5.12) of the Regulations, as so enacted, before its paragraph (a) is to be read as follows:

(5.12) If this subsection applies, the following rules apply for the purposes of subsections (5) and (6):

(16) Subsection 5905(5.13) of the Regulations, as enacted by subsection (4), applies in respect of windings-up that begin, and amalgamations that occur, after February 27, 2004.

(17) Subsection (5) applies in respect of acquisitions of control that occur after December 18, 2009, except if the acquisition of control results from an acquisition of shares made under an agreement in writing entered into before December 18, 2009.

(18) Subsections 5905(5.2) to (5.4) of the Regulations, as enacted by subsection (6), apply in respect of acquisitions of control that occur after December 18, 2009, except if the acquisition of control results from an acquisition of shares made under an agreement in writing entered into before December 18, 2009.

(19) Subsections 5905(5.5) and (5.6) of the Regulations, as enacted by subsection (6), are deemed to have come into force on December 19, 2009.

(20) Subsection (8) applies where a share of the capital stock of a foreign affiliate of a corporation is acquired by, or otherwise becomes property of, a person after December 18, 2009.

(21) Subsection (9) applies in respect of dispositions that occur after December 18, 2009.

(22) Subsection (10) applies in respect of issuances that occur after December 18, 2009.

45. (1) Subsection 5906(2) of the Regulations is replaced by the following:

(2) The expression "permanent establishment" means

(afor the purposes of paragraph (1)(a) and the definition "earnings" in subsection 5907(1) (which paragraph or definition is referred to in this paragraph as a "provision"),

(i)  if the expression is given a particular meaning in a tax treaty with a country, a permanent establishment within the meaning assigned by that tax treaty with respect to the business carried on in that country by the foreign affiliate referred to in the provision, and

(ii) in any other case, a fixed place of business of the affiliate, including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse, or if the affiliate does not have any fixed place of business, the principal place at which the affiliate's business is conducted; and

(bfor the purposes of subdivision i of Division B of Part I of the Act,

(i) if the expression is given a particular meaning in a tax treaty with a country, a permanent establishment within the meaning assigned by that tax treaty if the person or partnership referred to in the relevant portion of that subdivision (which person or partnership is referred to in this paragraph and subsection (3) as the "person") is a resident of that country for the purpose of that tax treaty, and

(ii) in any other case, a fixed place of business of the person, including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse, or if the person does not have any fixed place of business, the principal place at which the person's business is conducted.

(3) For the purposes of subparagraphs (2)(a)(ii) and (b)(ii),

(aif the affiliate or the person, as the case may be, carries on business through an employee or agent, established in a particular place, who has general authority to contract for the affiliate or the person or who has a stock of merchandise owned by the affiliate or the person from which the employee or agent regularly fills orders, the affiliate or the person is deemed to have a fixed place of business at that place;

(bif the affiliate or the person, as the case may be, is an insurance corporation, the affiliate or the person is deemed to have a fixed place of business in each country in which the affiliate or the person is registered or licensed to do business;

(cif the affiliate or the person, as the case may be, uses substantial machinery or equipment at a particular place at any time in a taxation year, the affiliate or the person is deemed to have a fixed place of business at that place;

(dthe fact that the affiliate or the person, as the case may be, has business dealings through a commission agent, broker or other independent agent or maintains an office solely for the purchase of merchandise at a particular place does not of itself mean that the affiliate or the person has a fixed place of business at that place; and

(ethe fact that the affiliate or the person, as the case may be, has a subsidiary controlled corporation at a place or a subsidiary controlled corporation engaged in trade or business at a place does not of itself mean that the affiliate or person has a fixed place of business at that place.

(2) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999 except that, for taxation years of the affiliate that end on or before December 18, 2009, the portion of paragraph 5906(2)(b) of the Regulations, as enacted by subsection (1), before its subparagraph (i) is to be read as follows:

(bfor the purposes of subdivision i of Division B of Part I (other than the definitions "excluded income" and "excluded revenue" in subsection 95(2.5)) of the Act,

46. (1) The definition "loss" in subsection 5907(1) of the Regulations is replaced by the following:

"loss" , of a foreign affiliate of a taxpayer resident in Canada for a taxation year of the affiliate from an active business, means

(a)  in the case of an active business carried on by it in a country, the amount of its loss for the year from the active business carried on in the country computed by applying the provisions of paragraph (a) of the definition "earnings" respecting the computation of earnings from that active business carried on in that country, with any modifications that the circumstances require, and

(bin any other case, the total of all amounts each of which is an amount of a loss that is required under paragraph 95(2)(a) of the Act to be included in computing the affiliate's income or loss from an active business for the year; (perte)

(2) Paragraph (b) of the definition "earnings" in subsection 5907(1) of the Regulations is replaced by the following:

(bin any other case, the total of all amounts each of which is an amount of income that is required under paragraph 95(2)(a) of the Act to be included in computing the affiliate's income or loss from an active business for the year; (gains)

(3) Subparagraph (a)(ii) of the definition "exempt earnings" in subsection 5907(1) of the Regulations is replaced by the following:

(ii) the amount of the taxable capital gains for the year referred to in subparagraphs (c)(i), (d)(iii), (e)(i) and (f)(iv) of the definition "net earnings" , and

(4) The definition "exempt earnings" in subsection 5907(1) of the Regulations is amended by adding the following after paragraph (a):

(a.1the amount determined by the formula

A – B
where
A

is the total of all amounts each of which is a particular amount that would be included, in respect of a particular business of the particular affiliate, by paragraph (c), (c.1) or (c.2) of the definition "capital dividend account" in subsection 89(1) of the Act in determining the particular affiliate's capital dividend account at the end of the year if

(i) the particular affiliate were the corporation referred to in that definition,

(ii) the references in paragraphs (c.1) and (c.2) of that definition, and in paragraph (c) of that definition as that paragraph (c) read in its application to taxation years that ended before February 28, 2000, to "a business" were read as references to a business that

(A) is not an active business (as defined in subsection 95(1) of the Act), or

(B) is an active business (as defined in that subsection 95(1)) the particular affiliate's earnings from which for the year are determined under subparagraph (a)(iii) of the definition "earnings", and

(iii) the particular amount did not include any amount that can reasonably be considered to have accrued while no person or partnership that carried on the particular business was a specified person or partnership (within the meaning of section 95 of the Act) in respect of the particular corporation, and

B

is the amount determined for A at the end of the particular affiliate's taxation year that immediately precedes the year,

(5) Paragraph (d) of the definition "exempt earnings" in subsection 5907(1) of the Regulations is replaced by the following:

(dwhere the year is the 1976 or any subsequent taxation year of the particular affiliate and the particular affiliate is, throughout the year, resident in a designated treaty country,

(i) the particular affiliate's net earnings for the year from an active business carried on by it in Canada or a designated treaty country, or

(ii) the particular affiliate's earnings for the year from an active business to the extent that they derive from

(A) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under subparagraph 95(2)(a)(i) of the Act and that would

(I) if earned by the other foreign affiliate referred to in subclause 95(2)(a)(i)(A)(I) of the Act, be included in computing the exempt earnings or exempt loss of the other foreign affiliate for a taxation year, or

(II) if earned by the life insurance corporation referred to in subclause 95(2)(a)(i)(A)(II) of the Act and based on the assumptions contained in subclause 95(2)(a)(i)(B)(II) of the Act, be included in computing the exempt earnings or exempt loss of the life insurance corporation for a taxation year,

(B) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under clause 95(2)(a)(ii)(A) of the Act where the income is derived from amounts that are paid or payable by the life insurance corporation referred to in that clause and are for expenditures that would, if that life insurance corporation were a foreign affiliate of the particular corporation, be deductible in computing its exempt earnings or exempt loss for a taxation year,

(C) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under clause 95(2)(a)(ii)(B) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that are deductible in computing the exempt earnings or exempt loss, for a taxation year, of the other foreign affiliate referred to in that clause,

(D) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under clause 95(2)(a)(ii)(C) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that are deductible in computing its exempt earnings or exempt loss for a taxation year,

(E) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under clause 95(2)(a)(ii)(D) of the Act if

(I) the country referred to in subclause 95(2)(a)(ii)(D)(IV) of the Act is a designated treaty country, and

(II) that income would be required to be so included if

1. paragraph (a) of the definition "excluded property" in subsection 95(1) of the Act were read as follows:

(aused or held by the foreign affiliate principally for the purpose of gaining or producing income from an active business carried on by it in a designated treaty country (within the meaning assigned by subsection 5907(11) of the Income Tax Regulations ),

2. paragraph (c) of that definition "excluded property" were read as follows:

(cproperty all or substantially all of the income from which is, or would be, if there were income from the property, income from an active business (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph (2)(a) if that paragraph were read without reference to subparagraph (v)) that is included in computing the foreign affiliate's exempt earnings, or exempt loss, as defined in subsection 5907(1) of the Income Tax Regulations, for a taxation year,

(F) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under subparagraph 95(2)(a)(iii) of the Act to the extent that the trade accounts receivable referred to in that subparagraph arose in the course of an active business carried on by the other foreign affiliate referred to in that subparagraph the income or loss from which is included in computing its exempt earnings or exempt loss for a taxation year,

(G) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under subparagraph 95(2)(a)(iv) of the Act to the extent that the loans or lending assets referred to in that subparagraph arose in the course of an active business carried on by the other foreign affiliate referred to in that subparagraph the income or loss from which is included in computing its exempt earnings or exempt loss for a taxation year,

(H) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under subparagraph 95(2)(a)(v) of the Act, where all or substantially all of its income, from the property described in that subparagraph, is, or would be if there were income from the property, income from an active business (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph 95(2)(a) of the Act if that paragraph were read without reference to its subparagraph (v) and, for greater certainty, excludes income arising as a result of the disposition of the property) that is included in computing its exempt earnings or exempt loss for a taxation year, or

(I) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under subparagraph 95(2)(a)(vi) of the Act, where the agreement for the purchase, sale or exchange of currency referred to in that subparagraph can reasonably be considered to have been made by the particular affiliate to reduce its risk with respect to an amount of income or loss that is included in computing its exempt earnings or exempt loss for a taxation year, or

(6) Subparagraph (a)(ii) of the definition "exempt loss" in subsection 5907(1) of the Regulations is replaced by the following:

(ii) the amount of the allowable capital losses for the year referred to in subparagraphs (c)(i), (d)(iii), (e)(i) and (f)(iv) of the definition "net loss" , and

(7) The definition "exempt loss" in subsection 5907(1) of the Regulations is amended by adding the following after paragraph (a):

(a.1the total of all amounts each of which is the portion of an eligible capital expenditure of the affiliate, in respect of a business of the affiliate, that was not included at any time in the affiliate's cumulative eligible capital in respect of the business, if

(i) the business

(A) is not an active business (as defined in subsection 95(1) of the Act), or

(B) is an active business (as defined in subsection 95(1) of the Act) the affiliate's earnings from which for the year are determined under subparagraph (a)(iii) of the definition "earnings" , and

(ii) in computing its income for the year, the affiliate has deducted an amount described in paragraph 24(1)(a) of the Act for the year in respect of the business,

(8) Paragraph (c) of the definition "exempt loss" in subsection 5907(1) of the Regulations is replaced by the following:

(cwhere the year is the 1976 or any subsequent taxation year of the affiliate and the affiliate is, throughout the year, resident in a designated treaty country,

(i) the affiliate's net loss for the year from an active business carried on by it in Canada or a designated treaty country, or

(ii) the amount by which

(A) the affiliate's loss for the year from an active business to the extent determined under subparagraph (d)(ii) of the definition "exempt earnings" in respect of the year with any modifications that the circumstances require

exceeds

(B) the portion of any income or profits tax refunded by the government of a country for the year to the affiliate that can reasonably be regarded as tax that was refunded in respect of the amount determined under clause (A), or

(9) Paragraphs (b) and (c) of the definition "exempt surplus" in subsection 5907(1) of the Regulations are replaced by the following:

(bthe last time for which the opening exempt surplus of the subject affiliate in respect of the corporation was required to be determined under section 5905, and

(cthe last time for which the opening exempt deficit of the subject affiliate in respect of the corporation was required to be determined under section 5905

(10) Subparagraph (i) of the description of A in the definition "exempt surplus" in subsection 5907(1) of the Regulations is replaced by the following:

(i) the opening exempt surplus, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),

(11) The description of A in the definition "exempt surplus" in subsection 5907(1) of the Regulations is amended by striking out "or" at the end of subparagraph (vi) and by adding the following after that subparagraph:

(vi.1) each amount that is required, under section 5905, to be included under this subparagraph in the period and before the particular time, or

(12) Subparagraph (i) of the description of B in the definition "exempt surplus" in subsection 5907(1) of the Regulations is replaced by the following:

(i) the opening exempt deficit, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (c),

(13) Subparagraph (v) of the description of B in the definition "exempt surplus" in subsection 5907(1) of the Regulations is replaced by the following:

(v) each amount that is required under section 5902 or 5905 to be included under this subparagraph, or subparagraph (1)(d)(xii) as it applies to taxation years that end before February 22, 1994, in the period and before the particular time, or

(14) The definition "net earnings" in subsection 5907(1) of the Regulations is amended by striking out "and" at the end of paragraph (c) and by adding the following after paragraph (d):

(efrom the disposition of a property that is an excluded property of the affiliate that is described in paragraph (c) of the definition "excluded property" in subsection 95(1) of the Act but that would not be an excluded property of the affiliate if that paragraph were read in the manner described in sub-subclause (d)(ii)(E)(II)2 of the definition "exempt earnings" is the amount, if any, by which

(i) the portion of the affiliate's taxable capital gain for the year from the disposition of the property that accrued after its 1975 taxation year

exceeds

(ii) the portion of any income or profits tax paid to the government of a country for the year by the affiliate that can reasonably be regarded as tax that was paid in respect of the amount determined under subparagraph (i), and

(ffrom a particular disposition of a property, that is an excluded property of the affiliate because of paragraph (c.1) of the definition "excluded property" in subsection 95(1) of the Act, that related to

(i) an amount that was receivable under an agreement that relates to the sale of a particular property the taxable capital gain or allowable capital loss from the sale of which is included under any of paragraphs (c) to (e) of this definition or of the definition "net loss" , as the case may be,

(ii) an amount that was receivable and was a property that was described in paragraph (c) of that definition "excluded property" but that would not have been an excluded property of the affiliate if that paragraph were read in the manner described in sub-subclause (d)(ii)(E)(II)2 of the definition "exempt earnings" , or

(iii) an amount payable, or an amount of indebtedness, described in clause (c.1)(ii)(B) of that definition "excluded property" arising in respect of the acquisition of an excluded property of the affiliate any taxable capital gain or allowable capital loss from the disposition of which would, if that excluded property were disposed of, be included under any of paragraphs (c) to (e) of this definition or of the definition "net loss" , as the case may be,

is the amount, if any, by which

(iv) the portion of the affiliate's taxable capital gain for the year from the particular disposition that accrued after its 1975 taxation year

exceeds

(v) the portion of any income or profits tax paid to the government of a country for the year by the affiliate that can reasonably be regarded as tax that was paid for the year in respect of the amount determined under subparagraph (iv); (gains nets)

(15) The definition "net loss" in subsection 5907(1) of the Regulations is amended by striking out "and" at the end of paragraph (c) and by adding the following after paragraph (d):

(efrom the disposition of a property, that is an excluded property of the affiliate that is described in paragraph (c) of the definition "excluded property" in subsection 95(1) of the Act but that would not be an excluded property of the affiliate if that paragraph were read in the manner described in sub-subclause (d)(ii)(E)(II)2 of the definition "exempt earnings" is the amount, if any, by which

(i) the portion of the affiliate's allowable capital loss for the year from the disposition of the property that accrued after its 1975 taxation year

exceeds

(ii) the portion of any income or profits tax refunded by the government of a country for the year to the affiliate that can reasonably be regarded as tax that was refunded in respect of the amount determined under subparagraph (i), and

(ffrom a particular disposition of a property, that is an excluded property of the affiliate because of paragraph (c.1) of the definition "excluded property" in subsection 95(1) of the Act, that related to

(i) an amount that was receivable under an agreement that relates to the sale of a particular property the taxable capital gain or allowable capital loss from the sale of which is included under any of paragraphs (c) to (e) of the definition "net earnings" or of this definition, as the case may be,

(ii) an amount that was receivable and was a property that was described in paragraph (c) of that definition "excluded property" but that would not have been an excluded property of the affiliate if that paragraph were read in the manner described in sub-subclause (d)(ii)(E)(II)2 of the definition "exempt earnings" , or

(iii) an amount payable, or an amount of indebtedness, described in clause (c.1)(ii)(B) of that definition "excluded property" arising in respect of the acquisition of an excluded property of the affiliate any taxable capital gain or allowable capital loss from the disposition of which would, if that excluded property were disposed of, be included under any of paragraphs (c) to (e) of the definition "net earnings" or of this definition, as the case may be,

is the amount, if any, by which

(iv) the portion of the affiliate's allowable capital loss for the year from the particular disposition that accrued after its 1975 taxation year

exceeds

(v) the portion of any income or profits tax refunded by the government of a country for the year to the affiliate that can reasonably be regarded as tax that was refunded in respect of the amount determined under subparagraph (iv); (perte nette)

(16) Subparagraphs (b)(iii) to (v) of the definition "taxable earnings" in subsection 5907(1) of the Regulations are replaced by the following:

(iii) the affiliate's earnings for the year as determined under paragraph (b) of the definition "earnings" minus the portion of any income or profits tax paid to the government of a country for a year by the affiliate that can reasonably be regarded as tax in respect of those earnings, or

(iv) to the extent not included under subparagraph (ii), the affiliate's net earnings for the year determined under paragraphs (c) to (f) of the definition "net earnings" ,

(17) Subparagraphs (b)(iii) and (iv) of the definition "taxable loss" in subsection 5907(1) of the Regulations are replaced by the following:

(iii) the affiliate's loss for the year as determined under paragraph (b) of the definition "loss" minus the portion of any income or profits tax refunded by the government of a country for a year to the affiliate that can reasonably be regarded as tax refunded in respect of that loss, or

(iv) to the extent not included under subparagraph (ii), the affiliate's net loss for the year determined under paragraphs (c) to (f) of the definition "net loss" ,

(18) Paragraphs (b) and (c) of the definition "taxable surplus" in subsection 5907(1) of the Regulations are replaced by the following:

(bthe last time for which the opening taxable surplus of the subject affiliate in respect of the corporation was required to be determined under section 5905, and

(cthe last time for which the opening taxable deficit of the subject affiliate in respect of the corporation was required to be determined under section 5905

(19) Subparagraph (i) of the description of A in the definition "taxable surplus" in subsection 5907(1) of the Regulations is replaced by the following:

(i) the opening taxable surplus, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),

(20) The description of A in the definition "taxable surplus" in subsection 5907(1) of the Regulations is amended by adding the following after subparagraph (iv):

(iv.1) each amount that is required under section 5905 to be included under this subparagraph in the period and before the particular time, or

(21) Subparagraph (i) of the description of B in the definition "taxable surplus" in subsection 5907(1) of the Regulations is replaced by the following:

(i) the opening taxable deficit, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (c),

(22) Subparagraph (v) of the description of B in the definition "taxable surplus" in subsection 5907(1) of the Regulations is replaced by the following:

(v) each amount that is required under section 5902 or 5905 to be included under this subparagraph, or subparagraph (1)(k)(xi) as it applies to taxation years that end before February 22, 1994, in the period and before the particular time, or

(23) The definition "underlying foreign tax" in subsection 5907(1) of the Regulations is amended by adding "and" at the end of paragraph (a) and by replacing paragraphs (b) and (c) with the following:

(bthe last time for which the opening underlying foreign tax of the subject affiliate in respect of the corporation was required to be determined under section 5905

(24) Subparagraph (i) of the description of A in the definition "underlying foreign tax" in subsection 5907(1) of the Regulations is replaced by the following:

(i) the opening underlying foreign tax, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),

(25) Subparagraph (iii) of the description of B in the definition "underlying foreign tax" in subsection 5907(1) of the Regulations is replaced by the following:

(iii) each amount that is required under section 5902 or 5905 to be included under this subparagraph, or subparagraph (1)(l)(x) as it applies to taxation years that end before February 22, 1994, in the period and before the particular time, or

(26) Paragraph (b) of the definition "underlying foreign tax applicable" in subsection 5907(1) of the Regulations is replaced by the following:

(bany additional amount in respect of the whole dividend that the corporation claims in its return of income under Part I of the Act in respect of the whole dividend, not exceeding the amount that is the lesser of

(i) the amount by which the portion of the whole dividend deemed to have been paid out of the affiliate's taxable surplus in respect of the corporation exceeds the amount determined under paragraph (a), and

(ii) the amount by which the affiliate's underlying foreign tax in respect of the corporation immediately before the whole dividend was paid exceeds the amount determined under paragraph (a); (montant intrinsèque d'impôt étranger applicable)

(27) Paragraph (b) of the definition "whole dividend" in subsection 5907(1) of the Regulations is replaced by the following:

(bwhere a whole dividend is deemed by subparagraph 5902(1)(a)(ii) to have been paid at the same time on shares of more than one class of an affiliate's capital stock, for the purpose only of that subparagraph, the whole dividend deemed to have been paid at that time on the shares of a class of the affiliate's capital stock is deemed to be the total of all amounts each of which is a whole dividend deemed to have been paid at that time on the shares of a class of the affiliate's capital stock, and

(28) The portion of the definition « gains exonérés » in subsection 5907(1) of the French version of the Regulations before paragraph (a) is replaced by the following:

« gains exonérés » En ce qui concerne une société étrangère affiliée d'une société donnée pour une année d'imposition de la société affiliée, le total des sommes représentant chacune l'une des sommes ci-après, moins la partie de l'impôt sur le revenu ou sur les bénéfices payé par la société affiliée pour l'année au gouvernement d'un pays qu'il est raisonnable de considérer comme un impôt sur les gains visés à l'alinéa c) ou au sous-alinéa d)(ii) :

(29) The portion of paragraph (a) of the definition « gains exonérés » in subsection 5907(1) of the French version of the Regulations after subparagraph (iii) is replaced by the following:

pour l'application du présent alinéa, lorsque la société affiliée a disposé d'immobilisations qui étaient des actions du capital-actions d'une autre société étrangère affiliée de la société donnée en faveur d'une autre société qui était, immédiatement après la disposition, une société étrangère affiliée de la société donnée, est exclue des gains en capital de la société affiliée pour l'année la fraction de ces gains qui correspond au total des sommes représentant chacune l'excédent de la juste valeur marchande, à la fin de l'année d'imposition 1975 de la société affiliée, de l'une des actions dont il a été disposé sur son prix de base rajusté;

(30) Subsection 5907(1.02) of the Regulations is repealed.

(31) Section 5907 of the Regulations is amended by adding the following after subsection (1.01):

(1.02) For the purposes of paragraph (d) of the definition "exempt earnings" and paragraph (c) of the definition "exempt loss" in subsection (1), if a foreign affiliate of a corporation becomes a foreign affiliate of the corporation in a taxation year of the affiliate, otherwise than as a result of a transaction between persons that do not deal with each other at arm's length, and the affiliate is resident in a designated treaty country at the end of the year, the affiliate is deemed to be so resident throughout the year.

(32) Subparagraph 5907(1.1)(b)(ii) of the Regulations is replaced by the following:

(ii) an amount is paid by the primary affiliate to a secondary affiliate in respect of a reduction or refund, because of a loss or a tax credit of the secondary affiliate for a taxation year, of the income or profits tax that would otherwise have been payable by the primary affiliate for the year on behalf of the consolidated group

(A) in respect of the primary affiliate,

(I) the portion of the amount so paid that can reasonably be regarded as relating to an amount deducted from the exempt surplus or included in the exempt deficit, as the case may be, of the secondary affiliate shall, at the end of the year to which the loss or the tax credit relates, be deducted from the exempt surplus or added to the exempt deficit, as the case may be, of the primary affiliate, and

(II) the portion of the amount so paid that can reasonably be regarded as relating to an amount deducted from the taxable surplus or included in the taxable deficit, as the case may be, of the secondary affiliate shall, at the end of the year to which the loss or the tax credit relates, be deducted from the taxable surplus or added to the taxable deficit, as the case may be, of the primary affiliate and be added to the underlying foreign tax of the primary affiliate, and

(B) in respect of the secondary affiliate, the amount is deemed to be a refund to the secondary affiliate, for the year to which the loss or the tax credit relates, of income or profits tax in respect of the loss or the tax credit ,

(33) The portion of subsection 5907(1.3) of the Regulations before paragraph (a) is replaced by the following:

(1.3) For the purpose of paragraph (b) of the definition "foreign accrual tax" in subsection 95(1) of the Act and subject to subsection (1.4),

(34) Section 5907 of the Regulations is amended by adding the following after subsection (1.3):

(1.4) If the amount prescribed under paragraph (1.3)(a) or (b), or any portion of the amount, can reasonably be considered to be in respect of a loss of another corporation for a taxation year of the other corporation, then the amount so prescribed is to be reduced to the extent that it can reasonably be considered to be in respect of the portion of that loss that would, if section 5903 were read without reference to its subsection (4), not be a foreign accrual property loss (within the meaning assigned by subsection 5903(3)) of a controlled foreign affiliate of a person or partnership that is, at the end of that taxation year, a relevant person or partnership (within the meaning assigned by subsection 5903(6)) in respect of the taxpayer.

(1.5) If subsection (1.4) applied to reduce an amount that would, in the absence of subsection (1.4), be prescribed by paragraph (1.3)(a) to be foreign accrual tax applicable to an amount (referred to in this subsection as the "FAPI amount") included in the taxpayer's income under subsection 91(1) of the Act for a taxation year (referred to in subsection (1.6) as the "FAPI year") of the taxpayer, an amount equal to that reduction is, for the purpose of paragraph (b) of the definition "foreign accrual tax" in subsection 95(1) of the Act, prescribed to be foreign accrual tax applicable to the FAPI amount in the taxpayer's taxation year that includes the last day of the designated taxation year, if any, of the particular affiliate referred to in paragraph (1.3)(a).

(1.6) For the purposes of subsection (1.5), the designated taxation year of the particular affiliate is a particular taxation year of the particular affiliate if

(ain the particular year, or in the particular affiliate's taxation year (referred to in this paragraph as the "PATY") ending in the FAPI year and one or more taxation years of the particular affiliate each of which follows the PATY and the latest of which is the particular year, all losses of the particular affiliate and the other corporations referred to in paragraph (1.3)(a) for their taxation years ending in the FAPI year would, on the assumption that the particular affiliate and each of those other corporations had no foreign accrual property income for any taxation year, reasonably be considered to have been fully deducted (under the tax law referred to in paragraph (1.3)(a)) against income (as determined under that tax law) of the particular affiliate or those other corporations;

(bthe taxpayer demonstrates that no other losses of the particular affiliate or those other corporations for any taxation year were, or could reasonably have been, deducted under that tax law against that income; and

(cthe last day of the particular year occurs in one of the five taxation years of the taxpayer that immediately follow the FAPI year.

(35) Subsections 5907(2.7) and (2.8) of the Regulations are replaced by the following:

(2.7) Notwithstanding any other provision of this Part, if an amount (referred to in this subsection as the "inclusion amount") is included in computing the income or loss from an active business of a foreign affiliate of a taxpayer for a taxation year under subparagraph 95(2)(a)(i) or (ii) of the Act and the inclusion amount is in respect of a particular amount paid or payable,

(aif clause 95(2)(a)(ii)(D) of the Act is applicable, by the second affiliate referred to in that clause,

(i) the particular amount is to be deducted in computing the second affiliate's income or loss from an active business carried on by it in the country in which it is resident for its earliest taxation year in which that amount was paid or payable,

(ii) the second affiliate is deemed to have carried on an active business in that country for that earliest taxation year, and

(iii) in computing the second affiliate's income or loss for a taxation year from any source, no amount is to be deducted in respect of the particular amount except as required under subparagraph (i); and

(bin any other case, by the other foreign affiliate referred to in subparagraph 95(2)(a)(i) or (ii) of the Act, as the case may be, or by a partnership of which the other foreign affiliate is a member, the particular amount is, except where it has been deducted under paragraph (2)(j) in computing the other foreign affiliate's earnings or loss from an active business,

(i) to be deducted in computing the earnings or loss of the other foreign affiliate or the partnership, as the case may be, from the active business for its earliest taxation year in which the particular amount was paid or payable, and

(ii) not to be deducted in computing its earnings or loss from the active business for any other taxation year.

(36) Subsection 5907(5) of the Regulations is replaced by the following:

(5) For the purposes of this section, each capital gain, capital loss, taxable capital gain or allowable capital loss of a foreign affiliate of a taxpayer from the disposition of property shall be computed in accordance with the rules set out in subsection 95(2) of the Act and, for the purposes of subsection (6), if any such gain or loss is required to be computed in Canadian currency, the amount of such gain or loss shall be converted from Canadian currency into the currency referred to in subsection (6) at the rate of exchange prevailing on the date of disposition of the property.

(37) Subsection 5907(6) of the Regulations is replaced by the following:

(6) All amounts referred to in subsections (1) and (2) shall be maintained on a consistent basis from year to year in the currency of the country in which the foreign affiliate of the corporation resident in Canada is resident or any currency that the corporation resident in Canada demonstrates to be reasonable in the circumstances.

(38) Subsection 5907(12) of the Regulations is repealed.

(39) Subject to section 50, subsections (1) and (2) apply to taxation years of a foreign affiliate of a taxpayer that end after 1999.

(40) Subsections (3), (6) and (14) to (16) apply in respect of dispositions of property that occur after December 18, 2009.

(41) Subject to section 50, subsection (4) applies to taxation years of a foreign affiliate of a taxpayer that begin after December 20, 2002, except that the description of A in paragraph (a.1) of the definition "exempt earnings" in subsection 5907(1) of the Regulations, as enacted by subsection (4), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read without reference to its subparagraph (iii).

(42) Subject to section 50, subsection (5) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999, except that

(athe portion of paragraph (d) of the definition "exempt earnings" in subsection 5907(1) of the Regulations before its subparagraph (i), as enacted by subsection (5), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

(dwhere the year is the 1976 or any subsequent taxation year of the particular affiliate and the particular affiliate is resident in a designated treaty country,

(bsubclause (d)(ii)(E)(II) of the definition "exempt earnings" in subsection 5907(1) of the Regulations, as enacted by subsection (5), is, in its application to taxation years of the foreign affiliate that begin after 2008 and on or before June 18, 2010, to be read as follows:

 

(II) that income would be required to be so included if paragraph (c) of the definition "excluded property" in subsection 95(1) of the Act were read as follows:

(cproperty all or substantially all of the income from which is deemed, or would be deemed, if there were income from the property, to be income from an active business by paragraph (2)(a) (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph (2)(a) if that paragraph were read without reference to its subparagraph (v)) that is derived from amounts payable by payers who are, or would be, if they were foreign affiliates of the taxpayer, entitled to deduct the amounts in computing their exempt earnings or exempt loss, as defined in subsection 5907(1) of the Income Tax Regulations, for a taxation year,

(csubject to paragraph (d), subparagraph (d)(ii) of the definition "exempt earnings" in subsection 5907(1) of the Regulations, as enacted by subsection (5), is, in its application to taxation years of the foreign affiliate that end after 1999 and begin before 2009, to be read as follows:

(ii) the particular affiliate's earnings for the year from an active business to the extent that they derive from

(A) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under subparagraph 95(2)(a)(i) of the Act and that would,

(I) if earned by the non-resident corporation referred to in sub-subclause 95(2)(a)(i)(A)(I)1 of the Act and based on the assumptions contained in subclause 95(2)(a)(i)(B)(I) of the Act, be included in computing the exempt earnings or exempt loss of the non-resident corporation for a taxation year,

(II) if earned by the foreign affiliate referred to in sub-subclause 95(2)(a)(i)(A)(I)2 of the Act, be included in computing the exempt earnings or exempt loss of that foreign affiliate for a taxation year, or

(III) if earned by the life insurance corporation referred to in subclause 95(2)(a)(i)(A)(II) of the Act and based on the assumptions contained in subclause 95(2)(a)(i)(B)(I) of the Act, be included in computing the exempt earnings or exempt loss of the life insurance corporation for a taxation year,

(B) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under clause 95(2)(a)(ii)(A) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that would be deductible in computing the exempt earnings or exempt loss for a taxation year of the non-resident corporation or the partnership, as the case may be, referred to in that clause if it were a foreign affiliate of the particular corporation,

(C) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under clause 95(2)(a)(ii)(B) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that

(I) are deductible in computing the exempt earnings or exempt loss, for a taxation year, of the other foreign affiliate referred to in that clause, or

(II) would be deductible in computing the exempt earnings or exempt loss, for a taxation year, of the partnership referred to in that clause if the partnership were a foreign affiliate of the particular corporation,

(D) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under clause 95(2)(a)(ii)(C) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that would be deductible in computing the exempt earnings or exempt loss, for a taxation year, of the partnership referred to in that clause if the partnership were a foreign affiliate of the particular corporation,

(E) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under clause 95(2)(a)(ii)(D) of the Act if

(I) the country referred to in subclause 95(2)(a)(ii)(D)(IV) of the Act is a designated treaty country, and

(II) that income would be required to be so included if paragraph (c) of the definition "excluded property" in subsection 95(1) of the Act were read as follows:

(cproperty all or substantially all of the income from which is deemed, or would be deemed if there were income from the property, to be income from an active business by paragraph (2)(a) (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph (2)(a) if that paragraph were read without reference to its subparagraph (v)) that is derived from amounts payable by payers who are, or would be, if they were foreign affiliates of the taxpayer, entitled to deduct the amounts in computing their exempt earnings or exempt loss, as defined in subsection 5907(1) of the Income Tax Regulations, for a taxation year,

(F) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under clause 95(2)(a)(ii)(E) of the Act where the income is derived from amounts that are paid or payable by the life insurance corporation referred to in that clause and are for expenditures that would, if that life insurance corporation were a foreign affiliate of the particular corporation, be deductible in computing its exempt earnings or exempt loss for a taxation year,

(G) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under subparagraph 95(2)(a)(iii) of the Act to the extent that the trade accounts receivable referred to in that subparagraph arose in the course of an active business carried on by the non-resident corporation referred to in that subparagraph the income or loss from which would be included in computing its exempt earnings or exempt loss for a taxation year if it were a foreign affiliate of the particular corporation,

(H) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under subparagraph 95(2)(a)(iv) of the Act to the extent that the loans or lending assets referred to in that subparagraph arose in the course of an active business carried on by the non-resident corporation referred to in that subparagraph the income or loss from which would be included in computing its exempt earnings or exempt loss for a taxation year if it were a foreign affiliate of the particular corporation,

(I) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under subparagraph 95(2)(a)(v) of the Act, where all or substantially all of its income, from the property described in that subparagraph, is, or would be if there were income from the property, income from an active business (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph 95(2)(a) of the Act if that paragraph were read without reference to its subparagraph (v) and, for greater certainty, excludes income arising as a result of the disposition of the property) that is included in computing its exempt earnings or exempt loss for a taxation year, or

(J) income that is required to be included in computing the particular affiliate's income or loss from an active business for the year under subparagraph 95(2)(a)(vi) of the Act, where the agreement for the purchase, sale or exchange of currency referred to in that subparagraph can reasonably be considered to have been made by the particular affiliate to reduce its risk with respect to an amount of income or loss that is included in computing its exempt earnings or exempt loss for a taxation year, or

(dsubclause (d)(ii)(E)(II) of the definition "exempt earnings" in subsection 5907(1) of the Regulations, as set out in the read-as text contained in paragraph (c), is, in its application to taxation years of the foreign affiliate that end after 1999 and begin before December 21, 2002, to be read as follows:

(II) that income would be required to be so included if paragraph (c) of the definition "excluded property" in subsection 95(1) of the Act were read without reference to amounts receivable referred to in that paragraph (c), where the interest on the amounts is not, or would not be if interest were payable on the amounts, deductible in computing the debtor's exempt earnings or exempt loss for a taxation year,

(43) Subsections (7), (31), (36) and (37) apply to taxation years of a foreign affiliate of a taxpayer that begin after December 18, 2009.

(44) Subject to section 50, subsection (8) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999, except that the portion of paragraph (c) of the definition "exempt loss" in subsection 5907(1) of the Regulations before subparagraph (i), as enacted by subsection (8), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

(cwhere the year is the 1976 or any subsequent taxation year of the affiliate and the affiliate is resident in a designated treaty country,

(45) Subsections (9), (10), (12), (13), (18), (19) and (21) to (25) are deemed to have come into force on December 1, 1999.

(46) Subsections (11) and (20) apply where a share of the capital stock of a foreign affiliate of a corporation is acquired by, otherwise becomes property of, or is disposed of by, a person after December 20, 2002.

(47) Subject to section 50, subsection (17) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999, except that, in respect of dispositions of property that occur before December 18, 2009, subparagraph (b)(iv) of the definition "taxable loss" in subsection 5907(1) of the Regulations, as enacted by subsection (17), is to be read as follows:

(iv) to the extent not included under subparagraph (ii), the affiliate's net loss for the year determined under paragraphs (c) and (d) of the definition "net loss" ,

(48) Subsection (26) applies in respect of whole dividends paid on the shares of a class of the capital stock of a foreign affiliate of a corporation after December 18, 2009.

(49) Subsection (27) applies to elections made in respect of dispositions that occur after December 18, 2009.

(50) Subsections (28) and (29) apply to taxation years of a foreign affiliate of a taxpayer that begin after December 20, 2002.

(51) Subsections (30) and (35) apply to taxation years of a foreign affiliate of a taxpayer that begin after 2008.

(52) Subsection (32) applies in respect of payments made after December 20, 2002.

(53) Subsections (33) and (34) apply to taxation years of a foreign affiliate of a taxpayer that begin after November 1999.

(54) Subsection (38) is deemed to have come into force on December 19, 2009.

47. (1) The Regulations are amended by adding the following after section 5907:

5908. (1) For the purposes of this subsection, subsections (2) to (7), paragraph 5902(2)(b) and section 5905, if at any time shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada are, based on the assumptions contained in paragraph 96(1)(c) of the Act, owned by a partnership, or are deemed under this subsection to be owned by a partnership, each member of the partnership is deemed to own at that time the number of shares of that class that is determined by the formula

A × B/C
where
A

is the number of shares of that class that are so owned or so deemed owned by the partnership;

B

is the fair market value of the member's interest in the partnership at that time; and

C

is the fair market value of all members' interests in the partnership at that time.

(2) For the purposes of subsections (4) and 5905(1), (5) and (7.1), if a person is deemed by subsection (1) to own at a particular time a different number of shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada (which shares so deemed owned are referred to in this subsection as "affiliate shares") than the person was deemed by that subsection to have owned immediately before the particular time, the number of affiliate shares equal to that difference is deemed to be

(adisposed of, at the particular time, by the person, when that person is deemed to own fewer affiliate shares at the particular time than immediately before it; and

(bacquired by, at the particular time, the person, when that person is deemed to own more affiliate shares at the particular time than immediately before it.

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

(aif a partnership of which a person is a member at any time does not own, and (but for this subsection) is not deemed by subsection (1) to own, any shares of a class of the capital stock of the foreign affiliate at that time, subsection (1) is deemed to have applied in respect of the person and to have deemed the person to own, because of subsection (1) in respect of the partnership, no shares of that class at that time; and

(bif a corporation resident in Canada or a foreign affiliate of such a corporation disposes of or acquires its entire interest in a partnership that, based on the assumptions contained in paragraph 96(1)(c) of the Act, owns shares of a class of the capital stock of a non-resident corporation, the corporation resident in Canada or the foreign affiliate, as the case may be, is deemed at the time that is immediately after the disposition or immediately before the acquisition, as the case may be, to own, because of subsection (1) in respect of the partnership, no shares of that class.

(4) For the purposes of subsection 5905(5), if at any time a corporation resident in Canada (referred to in this subsection as the "disposing corporation") disposes of shares of a class of the capital stock of a foreign affiliate of the disposing corporation and, as a consequence of the same transaction or event (other than one to which neither paragraph (2)(a) nor paragraph (2)(b) applies) that caused the disposition, a taxable Canadian corporation with which the disposing corporation is not, at that time, dealing at arm's length acquires shares of that class, the disposing corporation is, at that time, deemed to have disposed of, to the taxable Canadian corporation, the number of the shares of that class that is determined by the formula

A × B
where
A

is the number of shares of that class disposed of by the disposing corporation; and

B

is

(a) if the taxable Canadian corporation acquires, because of paragraph (2)(b), shares of that class, the fraction determined by the formula

C/D
where
C

is the number of shares of that class that is deemed by that paragraph to be acquired by the taxable Canadian corporation as a result of the transaction or event, and

D

is the total of all amounts each of which is the number of shares of that class that is deemed by that paragraph to be acquired by a person as a result of the transaction or event, and

(b) in any other case, one.

(5) For the purposes of subsection 5905(5.1), if a predecessor corporation described in that subsection is, at the time that is immediately before the amalgamation described in that subsection, a member of a particular partnership that, based on the assumptions contained in paragraph 96(1)(c) of the Act, owns, at that time, shares of the capital stock of a foreign affiliate of the predecessor corporation and the predecessor corporation's interest in the particular partnership, or in another partnership that is a member of the particular partnership, becomes, upon the amalgamation, property of the new corporation described in that subsection, the shares of the capital stock of the affiliate that are deemed under subsection (1) to be owned by the predecessor corporation at that time are deemed to become property of the new corporation upon the amalgamation.

(6) In applying subsection 5905(5.2), if the corporation is a member of a partnership that, based on the assumptions contained in paragraph 96(1)(c) of the Act, owns shares (referred to individually in paragraph (a) as a "relevant share") of the affiliate's capital stock at the particular time,

(a) for the purposes of the description of B in subsection 5905(5.2), the corporation's cost amount of each relevant share at the particular time is to be determined by the formula

P × Q/R
where
P

is the partnership's cost amount of that relevant share at the particular time,

Q

is the number of shares of the capital stock of the affiliate that are deemed by subsection (1), in respect of the partnership, to be owned by the corporation at the particular time, and

R

is the total number of relevant shares at the particular time; and

(b) for the purposes of paragraph (b) of the description of C in subsection 5905(5.2), the amount determined under this paragraph is the total of all amounts each of which is the amount that would be the corporation's portion of a gain that would be deemed under subsection 92(5) of the Act to be a gain of the member of the partnership from the disposition of a share of the capital stock of the affiliate by the partnership if that share were disposed of immediately before the particular time.

(7) For the purposes of paragraph 5905(5.4)(b), the amount determined by this subsection is the amount determined by the following formula for shares of the capital stock of a foreign affiliate of the subsidiary that were deemed by subsection (1), in respect of the partnership, to be owned by the subsidiary at the time at which the parent last acquired control of the subsidiary:

A × B
where
A

is the tax-free surplus balance of the affiliate, in respect of the subsidiary, at that time; and

B

is the percentage that would be the subsidiary's surplus entitlement percentage in respect of the affiliate at that time if the only shares of that capital stock that were owned at that time by the subsidiary were the shares of that capital stock that were deemed by subsection (1), in respect of the partnership, to be owned by the subsidiary at the time at which the parent last acquired control of the subsidiary.

(8) If a particular corporation resident in Canada or a particular foreign affiliate of a particular corporation resident in Canada is a member of a particular partnership, the particular partnership owns (based on the assumptions contained in paragraph 96(1)(c) of the Act) shares of a class of the capital stock of a foreign affiliate of the particular corporation and the particular partnership disposes of any of those shares,

(a) any reference in this Part (other than subsections 5902(5) and (6)) to subsection 93(1) of the Act is deemed to include a reference to subsection 93(1.2) of the Act;

(b) an election under subsection 93(1.2) of the Act by the particular corporation is to be made by filing the prescribed form with the Minister on or before

(i) where the particular corporation is the disposing corporation referred to in that subsection, the particular corporation's filing-due date for its taxation year that includes the last day of the particular partnership's fiscal period in which the disposition was made, and

(ii) where the particular affiliate is the disposing corporation referred to in that subsection, the particular corporation's filing-due date for its taxation year that includes the last day of the particular affiliate's taxation year that includes the last day of the disposing partnership's fiscal period in which the disposition was made; and

(c) the prescribed amount for the purposes of subparagraph 93(1.2)(a)(ii) of the Act is the lesser of

(i) the taxable capital gain, if any, of the particular affiliate otherwise determined in respect of the disposition, and

(ii) the amount determined by the formula

A × B × C/D
where
A

is the fraction referred to in paragraph 38(a) of the Act that applies to the particular affiliate's taxation year that includes the last day of the particular partnership's fiscal period that includes the time of the disposition,

B

is the amount that could reasonably be expected to have been received in respect of all the shares of that class if the second foreign affiliate referred to in subsection 93(1.2) of the Act had, immediately before that time, paid dividends, on all shares of its capital stock, the total of which was equal to the amount determined under subparagraph 5902(1)(a)(i) to be its net surplus in respect of the particular corporation,

C

is the number of shares of that class that is determined under subsection 93(1.3) of the Act, and

D

is the total number of issued shares of that class immediately before that time.

(9) For the purposes of this Part, except to the extent that the context otherwise requires, if a person or partnership is (or is deemed by this subsection to be) a member of a particular partnership that is a member of another partnership, the person or partnership is deemed to be a member of the other partnership.

(10) For the purposes of paragraph 95(2)(j) of the Act, the adjusted cost base to a foreign affiliate of a taxpayer of an interest in a partnership at any time is prescribed to be the cost to the affiliate of the interest as otherwise determined at that time, and for those purposes

(a) there shall be added to that cost such of the following amounts as are applicable:

(i) any amount included in the affiliate's earnings for a taxation year ending after 1971 and before that time that may reasonably be considered to relate to profits of the partnership,

(ii) the affiliate's incomes as described by the description of A in the definition "foreign accrual property income" in subsection 95(1) of the Act for a taxation year ending after 1971 and before that time that can reasonably be considered to relate to profits of the partnership,

(iii) any amount included in computing the exempt earnings or taxable earnings, as the case may be, of the affiliate for a taxation year ending after 1971 and before that time that may reasonably be considered to relate to a capital gain of the partnership,

(iv) where the affiliate has, at any time before that time and in a taxation year ending after 1971, made a contribution of capital to the partnership otherwise than by way of a loan, such part of the amount of the contribution as cannot reasonably be regarded as a gift made to or for the benefit of any other member of the partnership who was related to the affiliate,

(v) such portion of any income or profits tax refunded before that time by the government of a country to the partnership as may reasonably be regarded as tax refunded in respect of an amount described in any of subparagraphs (b)(i) to (iii), and

(vi) the amount, if any, determined under paragraph (11)(b);

(b) there shall be deducted from that cost such of the following amounts as are applicable:

(i) any amount included in the affiliate's loss for a taxation year ending after 1971 that may reasonably be considered to relate to a loss of the partnership,

(ii) the affiliate's losses as described by the description of D in the definition "foreign accrual property income" in subsection 95(1) of the Act for a taxation year ending after 1971 and before that time that can reasonably be considered to relate to the losses of the partnership,

(iii) any amount included in computing the exempt loss or taxable loss, as the case may be, of the affiliate for a taxation year ending after 1971 and before that time that may reasonably be considered to relate to a capital loss of the partnership,

(iv) any amount received by the affiliate before that time and in a taxation year ending after 1971 as, on account or in lieu of payment of, or in satisfaction of, a distribution of the affiliate's share of the partnership profits or partnership capital, and

(v) such portion of any income or profits tax paid before that time to the government of a country by the partnership as may reasonably be regarded as tax paid in respect of an amount described in any of subparagraphs (a)(i) to (iii); and

(c) for greater certainty, where any interest of a foreign affiliate in a partnership was reacquired by the affiliate after having been previously disposed of, no adjustment that was required to be made under this subsection before such reacquisition shall be made under this subsection to the cost to the affiliate of the interest as reacquired property of the affiliate.

(11) If at any time a partnership owns, based on the assumptions contained in paragraph 96(1)(c) of the Act, a share of the capital stock of a particular foreign affiliate of a corporation resident in Canada and one or more members of the partnership is at that time a direct holder referred to in paragraph 5905(7.6)(a) or a subordinate affiliate referred to in paragraph 5905(7.6)(b), the following rules apply:

(a) for the purposes of paragraph 92(1.1)(b) of the Act, there is to be added, in computing at or after that time the partnership's adjusted cost base of the share, the total of all amounts each of which is the amount determined, in respect of an acquired affiliate referred to in subsection 5905(7.6), by the formula

A × B
where
A

is the amount, if any, determined under paragraph 5905(7.2)(a) in respect of the acquired affiliate, and

B

is the percentage that would, if the partnership were a corporation resident in Canada, be the partnership's surplus entitlement percentage in respect of the acquired affiliate, at the adjustment time, if the partnership owned only the share;

(b) for the purposes of subparagraph (10)(a)(vi), the amount determined under this paragraph, in respect of the interest in the partnership of the direct holder or the subordinate affiliate, is the amount determined by the formula

A × B/C
where
A

is the total of all amounts each of which is the amount, if any, determined under paragraph (a) in respect of a share of the capital stock of the particular affiliate,

B

is the fair market value, at the adjustment time, of the interest in the partnership of the direct holder or the subordinate affiliate, as the case may be, and

C

is the fair market value, at the adjustment time, of all members' interests in the partnership; and

(c) no amount is to be added under subsection 5905(7.6) to the direct holder's or the subordinate affiliate's adjusted cost base of the share.

(12) For the purposes of paragraph 5905(7.7)(b), the amount determined under this subsection is the amount determined by the formula

A × B/C
where
A

is the adjustment amount;

B

is the fair market value, at the adjustment time, of the interest in the partnership that is referred to in paragraph 92(1.1)(b) of the Act of the particular foreign affiliate that is referred to in paragraph 93(3)(c) of the Act; and

C

is the fair market value, at the adjustment time, of all members' interests in the partnership.

(2) Subsections 5908(1) and (2) of the Regulations, as enacted by subsection (1), apply to taxation years of a foreign affiliate of a taxpayer that begin after November 1999, except that those subsections, as so enacted, are, in their application to acquisitions, dispositions, redemptions, cancellations, foreign mergers, amalgamations and issuances that occur, and windings-up that begin, on or before December 18, 2009, to be read as follows:

5908. (1) In determining,

(a) for the purposes of this Part (other than section 5904), the equity percentage at any time of a person in a corporation,

(b) for the purposes of this section and section 5905, the surplus entitlement at any time of a share owned by a corporation resident in Canada of the capital stock of a foreign affiliate of the corporation in respect of a particular foreign affiliate of the corporation, and

(c) for the purposes of this Part and the definition "surplus entitlement percentage" in subsection 95(1) of the Act, the surplus entitlement percentage at any time of a corporation resident in Canada in respect of a particular foreign affiliate of the corporation,

if at any time shares of a class of the capital stock of a corporation are owned by a partnership or are deemed under this subsection to be owned by a partnership, those shares are deemed to be owned at that time by each member of the partnership in a proportion equal to the proportion of all such shares that

(d) the fair market value of the member's interest in the partnership at that time

is of

(e) the fair market value of all members' interests in the partnership at that time.

(2) For the purposes of this section and section 5905, if the number of shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada deemed by subsection 93.1(1) of the Act to be owned by a person at a particular time is different from the number so deemed immediately before the particular time,

(a) where the number of shares of that class deemed to be owned by the person has decreased, the person is deemed to have disposed of, at the particular time, the number of shares of that class equal to the amount of the decrease;

(b) where the number of shares of that class deemed to be owned by the person has increased, the person is deemed to have acquired, at the particular time, the number of shares of that class equal to the amount of the increase;

(c) a person (referred to in this paragraph as the "seller") that is deemed by paragraph (a) to have disposed of, at a particular time, shares of a class of the foreign affiliate's capital stock is deemed to have disposed of those shares to the persons (referred to in this paragraph as the "acquirers") deemed in paragraph (b) to have acquired shares of that class at that time and the number of shares of that class deemed to have been acquired at that time by a particular acquirer from the seller shall be determined by the formula

A × B/C
where
A

is the number of shares of that class acquired by the particular acquirer at that time,

B

is the number of shares of that class disposed of by the seller at that time, and

C

is the number of shares of that class acquired by all acquirers at that time; and

(d) persons (referred to in this paragraph as the "acquirers") that are deemed by paragraph (b) to have acquired, at a particular time, shares of a class of the foreign affiliate's capital stock are deemed to have acquired those shares from a person (referred to in this paragraph as the "seller") deemed in paragraph (a) to have disposed of shares of that class at that time and the number of shares of that class deemed to have been disposed of by the seller to a particular acquirer at that time shall be determined by the formula

A × B/C
where
A

is the number of shares of that class disposed of by the seller,

B

is the number of shares of that class acquired by the particular acquirer at that time, and

C

is the number of shares of that class disposed of by all sellers at that time.

(3) Subsections 5908(3) to (5) of the Regulations, as enacted by subsection (1), apply to taxation years of a foreign affiliate of a taxpayer that begin after December 18, 2009.

(4) Subsections 5908(6) and (7) of the Regulations, as enacted by subsection (1), apply in respect of acquisitions of control that occur after December 18, 2009, except if the acquisition of control results from an acquisition of shares made under an agreement in writing entered into before December 18, 2009.

(5) Subsection 5908(8) of the Regulations, as enacted by subsection (1), applies to elections made under subsection 93(1.2) of the Income Tax Act in respect of dispositions that occur after November 1999.

(6) Subsection 5908(9) of the Regulations, as enacted by subsection (1), applies for taxation years of a foreign affiliate of a taxpayer that begin after November 1999 except that, for the foreign affiliate's taxation years that end on or before August 27, 2010, that subsection 5908(9) is to be read as follows:

(9) For the purposes of this section and paragraph 5907(2.7)(b), if any corporation is (or is deemed by this subsection to be) a member of a particular partnership that is a member of another partnership, the corporation is deemed to be a member of the other partnership.

(7) Subsection 5908(10) of the Regulations, as enacted by subsection (1), is deemed to have come into force on December 19, 2009.

(8) Subsections 5908(11) and (12) of the Regulations, as enacted by subsection (1), apply where a share of the capital stock of a foreign affiliate of a corporation is acquired by, or otherwise becomes property of, a person after December 18, 2009.

48. (1) The Regulations are amended by adding the following in numerical order:

5910. (1) If a foreign affiliate of a corporation resident in Canada carries on in a particular taxation year an active business that is a foreign oil and gas business in a taxing country, the affiliate is deemed for the purposes of this Part to have paid for the particular year, as an income or profits tax to the government of the taxing country in respect of its earnings from the business for the particular year, an amount equal to the lesser of

(a) the amount, if any, determined by the formula

(A × B) – C
where
A

is the percentage determined under subsection (2) for the particular year,

B

is the amount determined under subsection (3) in respect of the business for the particular year, and

C

is the total of all amounts each of which is an amount that would, but for this subsection, be an income or profits tax paid to the government of the taxing country by the affiliate for the particular year in respect of its earnings from the business for the particular year; and

(b) the affiliate's production tax amount for the business in the taxing country for the particular year.

(2) The percentage determined under this subsection for the particular year is the percentage determined by the formula

P – Q
where
P

is the percentage set out in paragraph 123(1)(a) of the Act for the corporation's taxation year that includes the last day of the particular year; and

Q

is the corporation's general rate reduction percentage (within the meaning assigned by subsection 123.4(1) of the Act) for that taxation year of the corporation.

(3) The amount determined under this subsection in respect of the business for the particular year is

(a) if the affiliate's earnings from the business for the particular year are required to be determined under subparagraph (a)(iii) of the definition "earnings" in subsection 5907(1), the amount that would be determined to be the affiliate's earnings for the particular year from the business if the affiliate

(i) had, in computing its income from the business for each taxation year (referred to in this subparagraph as an "earnings year") that is the particular year or is any preceding taxation year that begins after December 18, 2009,

(A) claimed all deductions that it could have claimed under the Act, up to the maximum amount deductible in computing the income from the business for that earnings year, and

(B) made all claims and elections and taken all steps under applicable provisions of the Act, or of enactments implementing amendments to the Act or its regulations, to maximize the amount of any deduction referred to clause (A), and

(ii) had, in computing its income from the business for any preceding taxation year that began before December 19, 2009, claimed all deductions, if any, that it actually claimed under the Act, up to the maximum amount deductible, and made all claims and elections, if any, and taken all steps, if any, under applicable provisions of the Act, or of enactments implementing amendments to the Act or its regulations, that it actually made; and

(b) in any other case, the affiliate's earnings from the business for the particular year.

(4) In this section, "foreign oil and gas business", "production tax amount" and "taxing country" have the meanings assigned by subsection 126(7) of the Act.

(2) Subsection (1) applies in respect of production tax amounts that become receivable by the government of a taxing country in taxation years of a taxpayer's foreign affiliate that begin after the date (referred to in this subsection as the "application date") that is the earlier of December 31, 2002 and the designated date. The designated date is the later of

(a) December 31, 1994; and

(b) any date that the taxpayer designates in writing for the purpose of this subsection, if the designation is filed with the Minister of National Revenue on or before the taxpayer's filing-due date for the taxpayer's taxation year that includes the day on which this Act receives royal assent.

However, in their application to taxation years of the foreign affiliate that begin after the application date and on or before December 18, 2009, subsections 5910(2) and (3) of the Regulations, as enacted by subsection (1), are to be read as follows:

(2) The percentage determined under this subsection for the particular year is 40 per cent.

(3) The amount determined under this subsection in respect of the business for the particular year is the amount that would, if the definition "earnings" in subsection 5907(1) were read without reference to its subparagraphs (a)(i) and (ii), be the foreign affiliate's earnings from the business in the taxing country for the particular year.

49. (1) The portion of section 8201 of the Regulations before paragraph (a) is replaced by the following:

8201. For the purposes of subsection 16.1(1), the definition "outstanding debts to specified non-residents" in subsection 18(5), subsection 112(2), the definition "qualified Canadian transit organization" in subsection 118.02(1), subsections 125.4(1) and 125.5(1), the definition "taxable supplier" in subsection 127(9), subparagraph 128.1(4)(b)(ii), paragraphs 181.3(5)(a) and 190.14(2)(b), the definition "Canadian banking business" in subsection 248(1) and paragraph 260(5)(a) of the Act, a "permanent establishment" of a person or partnership (either of whom is referred to in this section as the "person") means a fixed place of business of the person, including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse if the person has a fixed place of business and, where the person does not have any fixed place of business, the principal place at which the person's business is conducted, and

(2) Subsection (1) applies to taxation years that end after 2008, except that, for taxation years that end before December 19, 2009, the portion of section 8201 of the Regulations before paragraph (a), as enacted by subsection (1), is to be read as follows:

8201. For the purposes of subsection 16.1(1), the definition "outstanding debts to specified non-residents" in subsection 18(5), the definitions "excluded income" and "excluded revenue" in subsection 95(2.5), subsection 112(2), the definition "qualified Canadian transit organization" in subsection 118.02(1), subsections 125.4(1) and 125.5(1), the definition "taxable supplier" in subsection 127(9), subparagraph 128.1(4)(b)(ii), paragraphs 181.3(5)(a) and 190.14(2)(b), the definition "Canadian banking business" in subsection 248(1) and paragraph 260(5)(a) of the Act, a "permanent establishment" of a person or partnership (either of whom referred to in this section as the "person" ) means a fixed place of business of the person, including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse if the person has a fixed place of business and, where the person does not have any fixed place of business, the principal place at which the person's business is conducted, and

50. (1) If a taxpayer has elected under subsection 26(46) of the Budget and Economic Statement Implementation Act, 2007 ,

(a) subsections 46 (1), (2) and (8) (with the portion of paragraph (c) of the definition "exempt loss" in subsection 5907(1) of the Regulations before subparagraph (i) being read in the manner described in subsection 46 (44)) also apply to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000;

(b) subsection 46 (4) (with paragraph (a.1) of the definition "exempt earnings" in subsection 5907(1) of the Regulations being read in the manner described in subsection 46 (41)) also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and on or before December 20, 2002;

(c) subparagraph (d)(ii) of the definition "exempt earnings" in subsection 5907(1) of the Regulations, as enacted by subsection 46 (5) and being read in the manner described in paragraph 46 (42)(c), but without reference to paragraph 46 (42)(d), also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000, except that, for those taxation years,

(i) clause (A) of that subparagraph (d)(ii), as so read, is to be read without reference to its subclause (II),

(ii) if the taxpayer has not elected under paragraph 26(35)(b) of that Act, clause (E) of that subparagraph (d)(ii), as so read, is to be read as if it also contained a subclause (I.1) that read as follows:

(I.1) the shares of a foreign affiliate (referred to in this subclause as the "non-qualifying affiliate" ) that is not resident and subject to income taxation in a designated treaty country are not considered relevant for the purpose of determining whether shares of the third affiliate that is referred to in clause 95(2)(a)(ii)(D) of the Act are excluded property unless the shares of the third affiliate would not have been excluded property if the shares of all such non-qualifying affiliates were not excluded property, and

(iii) each reference to "income or loss" in clauses (H) and (I) of that subparagraph (d)(ii), as so read, is to be replaced by a reference to "income"; and

(d) subsection 46 (17) (with subparagraph (b)(iv) of the definition "taxable loss" in subsection 5907(1) of the Regulations being read in the manner described in subsection 46 (47)) also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000.

(2) If a taxpayer has not elected under subsection 26(46) of the Budget and Economic Statement Implementation Act, 2007 but has elected under paragraph 26(35)(b) of that Act, subparagraph (d)(ii) of the definition "exempt earnings" in subsection 5907(1) of the Regulations, as enacted by subsection 46 (5) and being read in the manner described in paragraphs 46 (42)(c) and (d), also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000.

51. Subject to section 52, if a corporation resident in Canada elects in writing under this section in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the corporation's filing-due date for the corporation's taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, the following rules apply:

(a) if there is an election (referred to in this section as a "designated section 93 election") made by the corporation under subsection 93(1) or (1.2) of the Income Tax Act in respect of a disposition of shares (referred to in this section as the "designated shares") of the capital stock of a foreign affiliate of the corporation that occurs after December 20, 2002 and before December 19, 2009, other than a disposition that is required to be made under an agreement in writing made by the vendor before December 21, 2002,

(i) section 92 of that Act is, in respect of the designated shares, to be read as if it also contained the following subsections:

(1.2) Subsection (1.4) applies to a holder of a share (referred to in this subsection and subsections (1.3) and (1.4) as the "relevant share") of a foreign affiliate (referred to in subsection (1.3) as the "relevant foreign affiliate") of a particular corporation resident in Canada in computing at any time (referred to in this subsection and subsection (1.3) as the "computation time") the adjusted cost base to the holder of the relevant share, if, at the computation time, there is a specified section 93 election related to the relevant share.

(1.3) An election made by the particular corporation resident in Canada under subsection 93(1) or (1.2), as the case may be, in respect of a share of a particular foreign affiliate of the particular corporation that is disposed of at a time (referred to in this subsection and subsection (1.4) as the "election time") before the computation time is, at the computation time, a specified section 93 election related to the relevant share if

(a) the particular foreign affiliate has, at the election time, an equity percentage in the relevant foreign affiliate;

(b) the relevant foreign affiliate was, at the election time, a foreign affiliate of the particular corporation;

(c) throughout the period that begins at the election time and ends at the computation time,

(i) the holder held the relevant share, and

(ii) the holder was

(A) a foreign affiliate of the particular corporation,

(B) a foreign affiliate of a corporation resident in Canada that was related to the particular corporation,

(C) a partnership of which a foreign affiliate of the particular corporation was a member, or

(D) a partnership of which a foreign affiliate, of a corporation resident in Canada that was related to the particular corporation, was a member;

(d) the relevant share was, at the election time, excluded property of the holder (or would have been, at the election time, excluded property of the holder if the holder had been a foreign affiliate of the particular corporation); and

(e) the relevant share is, at the computation time, excluded property of the holder (or would have been, at the computation time, excluded property of the holder if the holder had been a foreign affiliate of the particular corporation or of a corporation resident in Canada that is related to the particular corporation).

(1.4) If this subsection applies, for the purposes of computing, at any time after the election time, the exempt surplus or deficit, the taxable surplus or deficit, and the underlying foreign tax, of the holder, in respect of the particular corporation resident in Canada or in respect of any other person that would, at the time after the election time, be a designated person in respect of the particular corporation, the following rules apply in determining the adjusted cost base to the holder of the relevant share:

(a) there shall be added, to the adjusted cost base to the holder of the relevant share, the amount prescribed in respect of the relevant share in respect of the specified section 93 election, and

(b) there shall be deducted, from the adjusted cost base to the holder of the relevant share, the amount prescribed in respect of the relevant share in respect of the specified section 93 election.

(1.5) For the purposes of subsection (1.4), a designated person, in respect of a particular corporation, at any time means

(a) any person with whom the particular corporation was not dealing at arm's length;

(b) any person with whom the particular corporation would not have been dealing at arm's length if the person had been in existence after the particular corporation came into existence;

(c) any predecessor corporation (within the meaning assigned by subsection 87(1) of the Act) of a person described in paragraph (a) or (b); or

(d) any predecessor corporation (within the meaning assigned by paragraph 87(2)(l.2) of the Act) of a person described in paragraph (a) or (b).

(ii) subsection 5902(1) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

5902. (1) If, at a particular time, one or more shares (each of which is referred to in this subsection as a "disposed share") of a class (referred to in this subsection as the "specified class") of the capital stock of a particular foreign affiliate of a corporation resident in Canada are disposed of by a particular shareholder of the particular foreign affiliate and, because of an election made under subsection 93(1) of the Act in respect of that disposition, a dividend is deemed under subsection 93(1) of the Act to have been received on a disposed share at the time (referred to in this subsection and section 5905 as the "dividend time") that is immediately before the particular time, the following rules apply:

(a) the amount of the particular foreign affiliate's exempt surplus, in respect of the corporation resident in Canada, (in this subsection referred to as the "consolidated exempt surplus" in respect of the corporation resident in Canada) at the time (in this section and in section 5905 referred to as the "calculation time") that is immediately before the dividend time, is deemed to be the amount that would be its exempt surplus, in respect of the corporation resident in Canada, at the calculation time if

(i) the particular foreign affiliate and each other foreign affiliate of the corporation resident in Canada in which the particular foreign affiliate had, at the calculation time, an equity percentage (each of which other foreign affiliates is referred to in this section as a "subsidiary affiliate") had (except for the purpose of determining consolidated net surplus in respect of the corporation resident in Canada in subparagraph (iii)), at the calculation time, no amount of exempt deficit, taxable surplus or taxable deficit, in respect of the corporation resident in Canada,

(ii) the amount of the exempt surplus, in respect of the corporation resident in Canada, of the particular foreign affiliate were, immediately before the calculation time, increased by the total of all amounts each of which is an amount equal to the particular foreign affiliate's proportionate share of the amount that would be the exempt surplus, in respect of the corporation resident in Canada, of a subsidiary affiliate in which it has, immediately before the calculation time, a direct equity percentage if that exempt surplus were, immediately before the calculation time, determined in the following manner:

(A) the exempt surplus, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate's proportionate share of the exempt surplus of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate has, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

(B) the exempt surplus, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate's exempt surplus in respect of the corporation resident in Canada,

(iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the "calculating foreign affiliate") of the corporation resident in Canada, of the exempt surplus, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the "providing foreign affiliate") of the corporation resident in Canada in which the calculating foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

A/B
where
A

is the amount of dividends that would be received, at that time, by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such a consolidated net surplus, in respect of the corporation resident in Canada, its consolidated exempt surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

B

is the amount of the providing foreign affiliate's consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated exempt surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

(iv) in determining, under this paragraph, the particular foreign affiliate's consolidated exempt surplus, in respect of the corporation resident in Canada,

(A) no amount were included, directly or indirectly, in respect of the exempt surplus, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

(B) no amount were included, directly or indirectly, in respect of the exempt surplus, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

(b) the amount of the particular foreign affiliate's exempt deficit, in respect of the corporation resident in Canada, (in this subsection referred to as the "consolidated exempt deficit" in respect of the corporation resident in Canada) at the calculation time, is deemed to be the amount that would be its exempt deficit, in respect of the corporation resident in Canada, at that time, if

(i) the particular foreign affiliate and each subsidiary affiliate had (except for the purpose of determining consolidated net surplus, in respect of the corporation resident in Canada, in subparagraph (iii)), at the calculation time, no amount of exempt surplus, taxable surplus or taxable deficit, in respect of the corporation resident in Canada,

(ii) the amount of the exempt deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate, were, immediately before the calculation time, increased by the total of all amounts each of which is an amount equal to the particular foreign affiliate's proportionate share of the exempt deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which the particular foreign affiliate has, immediately before the calculation time, a direct equity percentage if that exempt deficit were, immediately before the calculation time, determined in the following manner:

(A) the exempt deficit, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate's proportionate share of the exempt deficit of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate has, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

(B) the exempt deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate's exempt deficit in respect of the corporation resident in Canada,

(iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the "calculating foreign affiliate") of the corporation resident in Canada, of the exempt deficit, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the "providing foreign affiliate") of the corporation resident in Canada in which the calculating foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

A/B
where
A

is the amount of dividends that would be received by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its exempt deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

B

is the amount of the providing foreign affiliate's consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated exempt deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

(iv) in determining, under this paragraph, the particular foreign affiliate's consolidated exempt deficit, in respect of the corporation resident in Canada,

(A) no amount were included, directly or indirectly, in respect of the exempt deficit, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

(B) no amount were included, directly or indirectly, in respect of the exempt deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

(c) the amount of the particular foreign affiliate's taxable surplus and underlying foreign tax, in respect of the corporation resident in Canada, (referred to, respectively, in this subsection as the "consolidated taxable surplus", and "consolidated underlying foreign tax", in respect of the corporation resident in Canada) at the calculation time, is deemed to be the amount that would be its taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, at that time, if

(i) the particular foreign affiliate and each subsidiary affiliate had (except for the purpose of determining consolidated net surplus, in respect of the corporation resident in Canada, in subparagraph (iii)), at the calculation time, no amount of exempt surplus, exempt deficit or taxable deficit, in respect of the corporation resident in Canada,

(ii) the amount of the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the particular foreign affiliate, were, immediately before the calculation time, increased by an amount equal to the total of all amounts each of which is the particular foreign affiliate's proportionate share of the taxable surplus, or underlying foreign tax, as the case may be, in respect of the corporation resident in Canada, of a subsidiary affiliate in which the particular foreign affiliate has, immediately before the calculation time, a direct equity percentage if that taxable surplus and underlying foreign tax were, immediately before the calculation time, determined in the following manner:

(A) the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate's proportionate share of the taxable surplus, or underlying foreign tax, respectively, of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate had, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

(B) the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate's taxable surplus, and underlying foreign tax, respectively, in respect of the corporation resident in Canada,

(iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the "calculating foreign affiliate") of the corporation resident in Canada, of the taxable surplus, or underlying foreign tax, as the case may be, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the "providing foreign affiliate") of the corporation resident in Canada in which the particular foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

A/B
where
A

is the amount of dividends that would be received, at that time, by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

B

is the amount of the providing foreign affiliate's consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

(iv) in determining, under this paragraph, the particular foreign affiliate's consolidated taxable surplus, and consolidated underlying foreign tax, in respect of the corporation resident in Canada,

(A) no amount were included, directly or indirectly, in respect of the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

(B) no amount were included, directly or indirectly, in respect of the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

(d) the amount of the particular foreign affiliate's taxable deficit, in respect of the corporation resident in Canada, (in this subsection referred to as the "consolidated taxable deficit" in respect of the corporation resident in Canada) at the calculation time is deemed to be the amount that would be its taxable deficit, in respect of the corporation resident in Canada, at that time if

(i) the particular foreign affiliate and each subsidiary affiliate had (except for the purpose of determining consolidated net surplus, in respect of the corporation resident in Canada, in subparagraph (iii)), at the calculation time, no amount of exempt surplus, exempt deficit or taxable surplus, in respect of the corporation resident in Canada,

(ii) the amount of the taxable deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate, were, immediately before the calculation time, increased by the total of all amounts each of which is an amount equal to the particular foreign affiliate's proportionate share of the taxable deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which the particular foreign affiliate has, immediately before the calculation time, a direct equity percentage if that taxable deficit were, immediately before the calculation time, determined in the following manner:

(A) the taxable deficit, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate's proportionate share of the taxable deficit of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate had, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

(B) the taxable deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate's taxable deficit in respect of the corporation resident in Canada,

(iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the "calculating foreign affiliate") of the corporation resident in Canada, of the taxable deficit, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the "providing foreign affiliate") of the corporation resident in Canada in which the calculating foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

A/B
where
A

is the amount of dividends that would be received, at that time, by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

B

is the amount of the providing foreign affiliate's consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

(iv) in determining, under this paragraph, the particular foreign affiliate's consolidated taxable deficit, in respect of the corporation resident in Canada,

(A) no amount were included, directly or indirectly, in respect of taxable deficit, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

(B) no amount were included, directly or indirectly, in respect of the taxable deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

(e) for the purpose of applying subsection 5901(1) to subsection 5900(1), and for the purpose of paragraph (f),

(i) the particular foreign affiliate's exempt surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate's consolidated exempt surplus, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate's consolidated exempt deficit, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

(ii) the particular foreign affiliate's exempt deficit in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate's consolidated exempt deficit, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate's consolidated exempt surplus, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

(iii) the particular foreign affiliate's taxable surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate's consolidated taxable surplus, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate's consolidated taxable deficit, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

(iv) the particular foreign affiliate's taxable deficit, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate's consolidated taxable deficit, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate's consolidated taxable surplus, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

(v) the particular foreign affiliate's underlying foreign tax, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount of the particular foreign affiliate's consolidated underlying foreign tax, in respect of the corporation resident in Canada, at that time, and

(vi) the particular foreign affiliate's consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which

(A) the total of the particular foreign affiliate's consolidated exempt surplus, in respect of the corporation resident in Canada, at that time, and the particular foreign affiliate's consolidated taxable surplus, in respect of the corporation resident in Canada, at that time,

exceeds

(B) the total of the particular foreign affiliate's consolidated exempt deficit, in respect of the corporation resident in Canada, at that time, and the particular foreign affiliate's consolidated taxable deficit, in respect of the corporation resident in Canada, at that time;

(f) the attributed net surplus in respect of a disposed share of the specified class in respect of the particular foreign affiliate's consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount that would be received by the holder of the disposed share, in respect of the disposed share, at the dividend time, if the particular foreign affiliate paid a dividend, at that time, on all of its shares, the total of which was equal to the amount of its consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time;

(g) for the purpose of applying subsection 5901(1) to subsection 5900(1), the amount of the whole dividend paid by the particular foreign affiliate, at the dividend time, on the shares of the specified class is deemed to be equal to the amount obtained when the total of all amounts each of which is an amount deemed by subsection 93(1) of the Act to have been received as a dividend on a disposed share of the specified class is multiplied by the greater of

(i) one, and

(ii) the amount determined by the formula

A/B
where
A

is the amount determined, under subparagraph (e)(vi), to be the amount of the particular foreign affiliate's consolidated net surplus in respect of the corporation, immediately before the dividend time, and

B

is the greater of

(A) one, and

(B) the total of all amounts each of which is the amount determined, under paragraph (f), to be the amount of the attributed net surplus, in respect of a disposed share of the specified class, in respect of the particular foreign affiliate's consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time; and

(h) for the purposes of paragraphs (a) to (d), the consolidated net surplus, at any time, in respect of a corporation resident in Canada, of a particular foreign affiliate of the corporation resident in Canada, is the amount that would be determined in paragraph (e) in respect of the particular foreign affiliate if the reference in that paragraph to "immediately before the dividend time" were read as a reference to "at any time".

(iii) section 5902 of the Regulations is, in respect of the designated section 93 election, to be read without reference to its subsection (2),

(iv) subsection 5902(3) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

(3) If a corporation resident in Canada elects, under subsection 93(1) of the Act, in respect of the disposition of a share of the capital stock of a foreign affiliate of the corporation, no adjustment, other than an adjustment referred to in subsection 5905(2), (4), (6) or (8), may be made to the foreign affiliate's

(a) exempt surplus in respect of the corporation;

(b) exempt deficit in respect of the corporation;

(c) taxable surplus in respect of the corporation;

(d) taxable deficit in respect of the corporation; or

(e) underlying foreign tax in respect of the corporation.

(v) subsection 5902(6) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

(6) The amount designated in an election deemed by subsection 93(1.1) of the Act to have been made under subsection 93(1) of the Act is prescribed to be the amount that is the lesser of

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

(b) the amount of attributed net surplus (as determined under paragraph (1)(f)) in respect of the share.

(b) in respect of acquisitions that occur after February 27, 2004 and before December 19, 2009, subsection 5905(1) of the Regulations is to be read as follows:

5905. (1) If, at any time, other than in the course of a transaction to which subsection (2) or (5) applies, a corporation resident in Canada or a foreign affiliate of such a corporation acquires in any manner whatever shares of the capital stock of another corporation that was, immediately after that time, a foreign affiliate of the corporation (in this subsection referred to as the "acquired affiliate") and as a result of that acquisition the surplus entitlement percentage of the corporation in respect of the acquired affiliate and in respect of any other foreign affiliate of the corporation resident in Canada (the acquired affiliate and each such other foreign affiliate each being referred to in this subsection as the "particular relevant foreign affiliate"), increases, the following rules apply:

(a) for the purposes of this Part, the amount of the exempt surplus or exempt deficit, the taxable surplus or taxable deficit, and the underlying foreign tax, in respect of the corporation, of the particular relevant foreign affiliate is (unless subsection (8) applies to the particular relevant foreign affiliate because of the acquisition of the shares) to be, at that time, adjusted to become the proportion of that amount, determined without making this adjustment, that

(i) the surplus entitlement percentage, immediately before that time, of the corporation in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year of the particular relevant foreign affiliate that otherwise would have included that time had ended immediately before that time

is of

(ii) the surplus entitlement percentage, immediately after that time, of the corporation in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year of the particular relevant foreign affiliate that otherwise would have included that time had ended immediately after that time; and

(b) for the purposes of applying the definitions "exempt deficit", "exempt surplus", "taxable deficit", "taxable surplus" and "underlying foreign tax" in subsection 5907(1), the adjusted amounts determined under paragraph (a) are deemed to be the opening exempt deficit, opening exempt surplus, opening taxable deficit, opening taxable surplus and opening underlying foreign tax, as the case may be, of the particular relevant foreign affiliate, in respect of the corporation.

(c) in respect of dispositions in respect of which a designated section 93 election was made,

(i) subsection 5905(2) of the Regulations is to be read as follows:

(2) If at any time (referred to in this subsection as the "disposition time") a particular foreign affiliate of a corporation resident in Canada redeems, acquires or cancels (other than a redemption, an acquisition or a cancellation in respect of which an adjustment has previously been made under this subsection or subsection (1) as it read prior to November 13, 1981) in any manner whatever (otherwise than by way of a winding-up) one or more shares (referred to in this subsection and subsections (16) to (23) as "disposed shares") of any class of its capital stock, the following rules apply:

(a) if, because of an election made by the corporation under subsection 93(1) of the Act in respect of the disposition of the disposed shares, a dividend (referred to in this subsection and subsections (18) and (21) as the "disposition dividend") is deemed to have been received on the disposed shares, by the corporation or by another foreign affiliate of the corporation, for the purpose of the adjustment required by paragraph (b),

(i) in computing the exempt surplus, in respect of the corporation resident in Canada, of the particular foreign affiliate or of another foreign affiliate (the particular foreign affiliate and each such other foreign affiliate being referred to in this subsection and subsections (16) to (23) as the "particular relevant foreign affiliate") of the corporation resident in Canada in which the particular foreign affiliate has an equity percentage at the time (referred to in this subsection and subsections (16) to (22) as the "balance adjustment time") that is immediately before the disposition time, there is to be included, under subparagraph (v) of the description of B in the definition "exempt surplus" in subsection 5907(1), the total of

(A) the amount of the exempt surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) the amount of the exempt deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) the amount of the taxable deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(ii) in computing the particular relevant foreign affiliate's taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (v) of the description of B in the definition "taxable surplus" in subsection 5907(1), the total of

(A) an amount equal to the taxable surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) an amount equal to the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) an amount equal to the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(iii) in computing the particular relevant foreign affiliate's underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iii) of the description of B in the definition "underlying foreign tax" in subsection 5907(1), the total of

(A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for B in the formula is nil)

A/B × C × D
where
A

is the portion of the particular relevant foreign affiliate's underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, that may reasonably be considered to have been included in computing the particular foreign affiliate's consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,

B

is the particular foreign affiliate's consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,

C

is the portion, of the particular foreign affiliate's consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition), that is prescribed, by paragraph 5900(1)(d), to be applicable to the portion of the whole dividend (as determined, under paragraph 5902(1)(g), in respect of the disposition dividend in respect of the disposed shares) paid on shares of the specified class that is prescribed, by paragraph 5900(1)(c), to have been paid out of the particular foreign affiliate's consolidated taxable surplus, in respect of the corporation resident in Canada, and

D

is the specified adjustment factor in respect of the particular relevant foreign affiliate, and

(B) the amount of the underlying foreign tax reduction in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares,

(iv) in computing the particular relevant foreign affiliate's exempt deficit, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (vi.1) of the description of A in the definition "exempt surplus" in subsection 5907(1), an amount equal to the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time, and

(v) in computing the particular relevant foreign affiliate's taxable deficit, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iv.1) of the description of A in the definition "taxable surplus" in subsection 5907(1), an amount equal to the taxable deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time;

(b) the amount, at the balance adjustment time, of exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate is to be adjusted to become the proportion of that amount, determined without making this adjustment, that

(i) the surplus entitlement percentage, at the balance adjustment time, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included that time, had ended immediately before that time

is of

(ii) the surplus entitlement percentage, immediately after the time of the disposition, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included the balance adjustment time, had ended at the time of the disposition; and

(c) for the purposes of applying the definitions "exempt deficit", "exempt surplus", "taxable deficit", "taxable surplus" and "underlying foreign tax", in subsection 5907(1), the amounts determined under paragraph (b), in respect of the particular relevant foreign affiliate, in respect of the corporation resident in Canada, are deemed to be the opening exempt deficit, opening exempt surplus, opening taxable deficit, opening taxable surplus and opening underlying foreign tax, as the case may be, of the particular relevant foreign affiliate, in respect of the corporation resident in Canada.

(ii) subsection 5905(4) of the Regulations is to be read as follows:

(4) For the purpose of subsection (3),

(a) if, at any time, a foreign affiliate of a corporation resident in Canada disposes of one or more shares (referred to in this subsection and subsections (16) to (23) as the "disposed shares") of a class of the capital stock of a predecessor corporation and the foreign affiliate is, because of an election made under subsection 93(1) of the Act, deemed to have received a dividend (referred to in this subsection and subsections (18) and (21) as the "disposition dividend") on the disposed shares, for the purposes of the adjustments required by paragraphs (b) and (3)(b),

(i) in computing the exempt surplus, in respect of the corporation resident in Canada, of each predecessor corporation and of each other foreign affiliate of the corporation resident in Canada in which a predecessor foreign affiliate has an equity percentage (the particular predecessor corporation and each such other foreign affiliate being referred to in this subsection and subsections (16) to (23) as the "particular relevant foreign affiliate") at the time (referred to in this subsection and subsections (16) to (22) as the "balance adjustment time") that is immediately before the foreign merger, there is to be included under subparagraph (v) of the description of B in the definition "exempt surplus" in subsection 5907(1), the total of

(A) an amount equal to the exempt surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) an amount equal to the exempt deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) an amount equal to the taxable deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(ii) in computing the particular relevant foreign affiliate's taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (v) of the description of B in the definition "taxable surplus" in subsection 5907(1), the total of

(A) an amount equal to the taxable surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) an amount equal to the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) an amount equal to the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(iii) in computing the particular relevant foreign affiliate's underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iii) of the description of B in the definition "underlying foreign tax" in subsection 5907(1), the total of

(A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for B in the formula is nil)

A/B × C × D
where
A

is the portion of the amount of the particular relevant foreign affiliate's underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, of the particular predecessor corporation that issued the disposed shares, in respect of the disposition,

B

is the amount of the consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, of the particular predecessor corporation that issued the disposed shares, in respect of the disposition,

C

is the total of all amounts each of which is the amount, determined by paragraph 5900(1)(d), to be the amount of foreign tax applicable to the portion of the disposition dividend prescribed to have been paid out of the taxable surplus of the issuing foreign affiliate, that relates to a disposed share, in respect of the disposition, and

D

is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate of the corporation resident in Canada, of the foreign affiliate of the corporation resident in Canada that disposed of the disposed shares, in respect of the disposition of the disposed shares, and

(B) the amount of the underlying foreign tax reduction in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares,

(iv) in computing the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included, under subparagraph (vi.1) of the description of A in the definition "exempt surplus" in subsection 5907(1), an amount equal to the exempt deficit, in respect of the corporation resident in Canada, immediately before that time, of the particular relevant foreign affiliate, and

(v) in computing the particular relevant foreign affiliate's taxable deficit, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iv.1) of the description of A in the definition "taxable surplus" in subsection 5907(1), an amount equal to the taxable deficit, in respect of the corporation resident in Canada, immediately before that time, of the particular relevant foreign affiliate; and

(b) the amount, at the balance adjustment time, of exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate is to be adjusted to become the proportion of that amount, determined without making that adjustment, that

(i) the surplus entitlement percentage, at the balance adjustment time, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate that otherwise would have included that time, had ended immediately before that time

is of

(ii) the surplus entitlement percentage, immediately after the time of the disposition, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included the balance adjustment time, had ended at the time of the disposition.

(iii) the portion of subsection 5905(5) of the Regulations between paragraphs (c) and (d) is to be read as follows:

the following rules apply for the purposes of this Part in respect of the particular affiliate and each other foreign affiliate of the predecessor corporation in which the particular affiliate has an equity percentage (the particular affiliate and each such other foreign affiliate each being referred to in subsections (16) to (23) as the "particular relevant foreign affiliate"):

(iv) subsection 5905(6) of the Regulations is to be read as follows:

(6) For the purpose of subsection (5), the following rules apply:

(a) if paragraph (5)(a) applies and the predecessor corporation is, because of an election made under subsection 93(1) of the Act, deemed to have received a dividend (referred to in this subsection and subsections (18) and (21) as the "disposition dividend") on one or more of the shares (each of which is referred to in this subsection and subsections (16) to (23) as a "disposed share") of the particular foreign affiliate (referred to in this subsection as the "issuing foreign affiliate") disposed of, at that time, for the purpose of the adjustment required by paragraph (b),

(i) in computing the exempt surplus, in respect of the predecessor corporation, of a particular relevant foreign affiliate at the time (referred to in this subsection and subsections (16) to (22) as the "balance adjustment time") that is immediately before the disposition time, the following rules apply:

(A) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and the issuing foreign affiliate has, at that time, an amount of consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed share that is equal to or greater than the amount of its consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, there is to be included under subparagraph (v) of the description of B in the definition "exempt surplus" in subsection 5907(1) the amount determined by the formula

A/B × C/D
where
A

is the portion of the amount of the particular relevant foreign affiliate's exempt surplus, in respect of the predecessor corporation, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate's consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,

B

is the amount of the issuing foreign affiliate's consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,

C

is the portion, of the disposition dividend that is, because of an election made under subsection 93(1) of the Act in respect of the disposition of the disposed shares, deemed to be received on the disposed shares by the person that disposed of the disposed shares, that is prescribed by paragraph 5900(1)(a) to have been paid out of the issuing foreign affiliate's exempt surplus, in respect of the predecessor corporation, and

D

is the surplus entitlement percentage of the predecessor corporation in respect of the particular relevant foreign affiliate at the balance adjustment time, determined on the assumption that the disposed shares were the only shares owned by the predecessor corporation at that time,

(B) if the amount determined, in respect of the particular relevant foreign affiliate, for either B or D in the formula in clause (A) is nil, the amount determined, in respect of the particular relevant foreign affiliate, by that formula is deemed to be nil,

(C) there is to be included under subparagraph (v) of the description of B in the definition "exempt surplus" in subsection 5907(1) the amount of the particular relevant foreign affiliate's exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time if

(I) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and

(II) the issuing foreign affiliate has, at that time, an amount of consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed share that is equal to or greater than the amount of its consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

(D) there is to be included under subparagraph (v) of the description of B in the definition "exempt surplus" in subsection 5907(1) an amount equal to the particular relevant foreign affiliate's taxable deficit allocation in respect of the disposed shares,

(ii) in computing the taxable surplus, in respect of a predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, the following rules apply:

(A) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada, and the issuing foreign affiliate has, at that time, an amount of consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition that is equal to or greater than the amount of the issuing foreign affiliate's consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, there is to be included under subparagraph (v) of the description of B in the definition "taxable surplus" in subsection 5907(1) the amount determined by the formula

A/B × C/D
where
A

is the portion of the amount of the particular relevant foreign affiliate's taxable surplus, in respect of the predecessor corporation, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate's consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,

B

is the amount of the issuing foreign affiliate's consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,

C

is the portion, of the disposition dividend that is, because of an election made under subsection 93(1) of the Act in respect of the disposition of the disposed shares, deemed to be received on the disposed shares by the person that disposed of the disposed shares, that is prescribed by paragraph 5900(1)(b) to have been paid out of the issuing foreign affiliate's taxable surplus, in respect of the predecessor corporation, and

D

is the surplus entitlement percentage of the predecessor corporation in respect of the particular relevant foreign affiliate at the balance adjustment time, determined on the assumption that the disposed shares were the only shares owned by the predecessor corporation at that time,

(B) if the amount determined, in respect of the particular relevant foreign affiliate for either B or D in the formula in clause (A) is nil, the amount determined, in respect of the particular relevant foreign affiliate, by that formula is deemed to be nil,

(C) there is to be included, under subparagraph (v) of the description of B in the definition "taxable surplus" in subsection 5907(1), the amount of particular relevant foreign affiliate's taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, if

(I) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada, and

(II) the issuing foreign affiliate has, at that time, an amount of consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition that is equal to or greater than the amount of the issuing foreign affiliate's consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

(D) there is to be included in subparagraph (v) of the description of B in the definition "taxable surplus" in subsection 5907(1) an amount equal to the particular relevant foreign affiliate's exempt deficit allocation in respect of the disposed shares,

(iii) in computing the underlying foreign tax, in respect of the predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iii) of the description of B in the definition "underlying foreign tax" in subsection 5907(1) the total of

(A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for either B or D in the formula is nil)

A/B × C/D
where
A

is the portion of the amount of the particular relevant foreign affiliate's underlying foreign tax, in respect of the predecessor corporation, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate's consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition,

B

is the amount of the issuing foreign affiliate's consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition,

C

is the total of all amounts each of which is the amount, determined by paragraph 5900(1)(d), to be the amount of foreign tax applicable to the portion of the disposition dividend prescribed to have been paid out of the taxable surplus of the issuing foreign affiliate, that relates to a disposed share, in respect of the disposition, and

D

is the surplus entitlement percentage of the predecessor corporation in respect of the particular relevant foreign affiliate at the balance adjustment time, determined on the assumption that the disposed shares were the only shares owned by the predecessor corporation at that time, and

(B) the amount determined by the formula

A × (B + C)/D
where
A

is the underlying foreign tax, in respect of the particular predecessor corporation, at the balance adjustment time, of the particular relevant foreign affiliate in respect of the disposition of the disposed shares,

B

is the amount determined under clause (ii)(C) in respect of the particular relevant foreign affiliate, in respect of the predecessor corporation, in respect of the disposition of the disposed shares,

C

is the exempt deficit allocation, in respect of the predecessor corporation, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares, and

D

is the taxable surplus in respect of the predecessor corporation, at the balance adjustment time, of the particular relevant foreign affiliate,

(iv) in computing the exempt deficit, in respect of the predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (vi.1) of the description of A in the definition "exempt surplus" in subsection 5907(1) an amount equal to the exempt deficit, in respect of the predecessor corporation, of the particular relevant foreign affiliate, immediately before that time, and

(v) in computing the taxable deficit, in respect of the predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iv.1) of the description of A in the definition "taxable surplus" in subsection 5907(1) an amount equal to the taxable deficit, in respect of the predecessor corporation, of the particular relevant foreign affiliate, immediately before that time; and

(b) the exempt surplus or the exempt deficit, the taxable surplus or the taxable deficit and the underlying foreign tax in respect of a predecessor corporation (within the meaning assigned by subsection (5)) and in respect of the acquiring corporation (within the meaning assigned by subsection (5)) of a particular relevant foreign affiliate is, at the balance adjustment time, to be adjusted to become the proportion of the amount of the surplus, deficit or underlying foreign tax determined without reference to this paragraph that

(i) the surplus entitlement percentage, immediately before the time of the latest of the transactions referred to in paragraphs (5)(a), (b) and (c), of the predecessor corporation or the acquiring corporation, as the case may be, in respect of the particular relevant foreign affiliate, determined on the assumptions

(A) that the taxation year of the particular relevant foreign affiliate that otherwise would have included the balance adjustment time had ended immediately before that time, and

(B) if the transaction is a disposition referred to in paragraph (5)(a), that the shares referred to in that paragraph were the only shares owned by the predecessor corporation at the balance adjustment time

is of

(ii) the surplus entitlement percentage, immediately after the time of the latest of the transactions referred to in paragraphs (5)(a), (b) and (c), of the predecessor corporation or the acquiring corporation, as the case may be, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year of the particular relevant foreign affiliate that otherwise would have included that time had ended immediately after that time.

(v) subsection 5905(8) of the Regulations is to be read as follows:

(8) If, at any time, a dividend (referred to in this subsection and subsections (18) and (21) as the "disposition dividend") is, because of an election made by a corporation resident in Canada under subsection 93(1) of the Act, deemed to have been received on one or more shares (each of which is referred to in this subsection and subsections (16) to (23) as a "disposed share") of a class of the capital stock of a particular foreign affiliate (referred to in this subsection as the "issuing foreign affiliate") of the corporation resident in Canada that were disposed (which disposition is referred in this subsection and subsections (16) to (23) as the "disposition") to the corporation resident in Canada or to another corporation that was, immediately after the disposition, a foreign affiliate of the corporation resident in Canada, the following rules apply:

(a) for the purpose of the adjustment required by paragraph (b),

(i) in computing the exempt surplus, in respect of the corporation resident in Canada, of the issuing foreign affiliate or another foreign affiliate of the corporation resident in Canada in which the issuing foreign affiliate has an equity percentage (the issuing foreign affiliate and each such other foreign affiliate each being referred to in this subsection and subsections (16) to (23) as the "particular relevant foreign affiliate") at the time (referred to in this subsection and subsections (16) to (22) as the "balance adjustment time") that is immediately before the time of the disposition, there is to be included under subparagraph (v) of the description of B in the definition "exempt surplus" in subsection 5907(1), the total of

(A) an amount equal to the exempt surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) an amount equal to the exempt deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) an amount equal to the taxable deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(ii) in computing the taxable surplus, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (v) of the description of B in the definition "taxable surplus" in subsection 5907(1) the total of

(A) an amount equal to the taxable surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) an amount equal to the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) an amount equal to the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(iii) in computing the underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iii) of the description of B in the definition "underlying foreign tax" in subsection 5907(1) the total of

(A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for B in the formula is nil)

A/B × C × D
where
A

is the portion of the amount of the particular relevant foreign affiliate's underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate's consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,

B

is the amount of the issuing foreign affiliate's consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,

C

is the total of all amounts each of which is the amount, determined by paragraph 5900(1)(d), to be the amount of foreign tax applicable to the portion of the disposition dividend prescribed to have been paid out of the taxable surplus of the issuing foreign affiliate, that relates to a disposed share, in respect of the disposition, and

D

is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate of the corporation resident in Canada, of the foreign affiliate of the corporation resident in Canada that disposed of the disposed shares, in respect of the disposition of the disposed shares, and

(B) the amount of the underlying foreign tax reduction in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares,

(iv) in computing the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (vi.1) of the description of A in the definition "exempt surplus" in subsection 5907(1), an amount equal to the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time, and

(v) in computing the taxable deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iv.1) of the description of A in the definition "taxable surplus" in subsection 5907(1), an amount equal to the taxable deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time;

(b) the amount, at the balance adjustment time, of exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate is to be adjusted to become the proportion of that amount, determined without making this adjustment, that

(i) the surplus entitlement percentage, at the balance adjustment time, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate that otherwise would have included that time, had ended immediately before that time

is of

(ii) the surplus entitlement percentage, immediately after the time of the disposition, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included the balance adjustment time, had ended at the time of the disposition; and

(c) for the purposes of applying the definitions "exempt deficit", "exempt surplus", "taxable deficit", "taxable surplus" and "underlying foreign tax", in subsection 5907(1), the amounts determined under paragraph (b) are deemed to be the opening exempt deficit, opening exempt surplus, opening taxable deficit, opening taxable surplus, and opening underlying foreign tax, as the case may be, of the particular relevant foreign affiliate, in respect of the corporation resident in Canada.

(vi) section 5905 of the Regulations is to be read as if it also contained the following subsections:

(16) The exempt deficit allocation, of a particular relevant foreign affiliate in respect of a corporation resident in Canada, in respect of disposed shares of the particular foreign affiliate of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the "issuing foreign affiliate") is, if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada and the issuing foreign affiliate has, at that time, an amount of consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of its consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

(a) the amount determined by the formula

1/E × [(A – B) × C/D]
where
A

is the amount of the issuing foreign affiliate's consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

B

is the amount of the issuing foreign affiliate's consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C

is the portion of the amount of the particular relevant foreign affiliate's taxable surplus, in respect of the corporation resident in Canada, immediately before the disposition of the disposed shares, that can reasonably be considered to have been included in computing the amount of the issuing foreign affiliate's consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

D

is the amount of the issuing foreign affiliate's consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

E

is

(i) subject to subparagraph (ii), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that would be determined under subsections 5905(10) to (13) at the balance adjustment time if the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

(ii) if the particular relevant foreign affiliate is the issuing foreign affiliate, 1; and

(b) if the amount determined, in respect of the particular relevant foreign affiliate, for the description of D or E in the formula in paragraph (a) is nil, nil.

(17) The exempt deficit reduction, in respect of a corporation resident in Canada, of a particular relevant foreign affiliate of the corporation resident in Canada, in respect of disposed shares, is

(a) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the "issuing foreign affiliate") has, at the balance adjustment time, consolidated exempt surplus (as determined under subparagraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of its consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

(i) the amount determined by the formula

A/B × C/D
where
A

is the portion of the amount of the particular relevant foreign affiliate's exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the issuing foreign affiliate's consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

B

is the amount of the issuing foreign affiliate's consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C

is the amount of the issuing foreign affiliate's consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

D

is

(A) subject to clause (B), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that, under subsections 5905(10) to (13), would be determined, at the balance adjustment time, where the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

(B) where the particular relevant foreign affiliate is the issuing foreign affiliate, 1, and

(ii) if the value determined, in respect of the particular relevant foreign affiliate, for the description of any of A, B or D in the formula in subparagraph (i) is nil, nil; and

(b) the amount of the particular relevant foreign affiliate's exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time, if

(i) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and

(ii) the issuing foreign affiliate has, at that time, an amount of consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares that is equal to or greater than the amount of its consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares.

(18) The exempt surplus reduction in respect of a corporation resident in Canada, of a particular relevant foreign affiliate in respect of disposed shares is

(a) the amount determined by the formula

A/B × C × D
where
A

is the portion of the amount of the particular relevant foreign affiliate's exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the consolidated exempt surplus, in respect of the corporation resident in Canada, (as determined under paragraph 5902(1)(a)) of the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (referred to in this subsection as the "issuing foreign affiliate"), in respect of the disposition of the disposed shares,

B

is the amount of the issuing foreign affiliate's consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C

is the portion of the disposition dividend that is, because of an election made under subsection 93(1) of the Act in respect of the disposition of the disposed shares, received on the disposed shares by the person that disposed of those shares and that is prescribed by paragraph 5900(1)(a) to have been paid out of the issuing foreign affiliate's exempt surplus, in respect of the corporation resident in Canada, and

D

is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, of the person that disposed of the disposed shares;

(b) if the amount determined, in respect of the particular relevant foreign affiliate, for either of A or B, in the formula in paragraph (a) is nil, nil; and

(c) if an amount is determined, in respect of the particular relevant foreign affiliate, under paragraph (17)(b), nil.

(19) The taxable deficit allocation, of a particular relevant foreign affiliate of a corporation resident in Canada, in respect of disposed shares of the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the "issuing foreign affiliate") is, if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus in respect of the corporation resident in Canada and the issuing foreign affiliate has, at that time, an amount of consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of the issuing foreign affiliate's consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

(a) the amount determined by the formula

1/E × [(A – B) × C/D]
where
A

is the amount of the issuing foreign affiliate's consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

B

is the amount of the issuing foreign affiliate's consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C

is the portion of the amount of the particular relevant foreign affiliate's exempt surplus, in respect of the corporation resident in Canada, immediately before the disposition of the disposed shares, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate's consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

D

is the amount of the issuing foreign affiliate's consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

E

is

(i) subject to subparagraph (ii), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that would be determined under subsections 5905(10) to (13) at the balance adjustment time, where the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

(ii) where the particular relevant foreign affiliate is the issuing foreign affiliate, 1; and

(b) where the amount determined, in respect of the particular relevant foreign affiliate, for the description of D or E in the formula in paragraph (a) is nil, nil.

(20) The taxable deficit reduction, in respect of a corporation resident in Canada, of a particular relevant foreign affiliate of the corporation resident in Canada, in respect of disposed shares, is

(a) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus, in respect of the corporation resident in Canada, and the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the "issuing foreign affiliate") has, at the balance adjustment time, consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of the issuing foreign affiliate's consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

(i) the amount determined by the formula

A/B × C/D
where
A

is the portion of the amount of the particular relevant foreign affiliate's taxable surplus, in respect of the corporation, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the issuing foreign affiliate's consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

B

is the amount of the issuing foreign affiliate's consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C

is the amount of the issuing foreign affiliate's consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

D

is

(A) subject to clause (B), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that would be determined under subsections 5905(10) to (13) at the balance adjustment time where the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

(B) where the particular relevant foreign affiliate is the issuing foreign affiliate, 1, and

(ii) where the amount determined, in respect of the particular relevant foreign affiliate, for the description of A, B or D in the formula in subparagraph (i) is nil, nil; and

(b) the amount of the particular relevant foreign affiliate's taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, if

(i) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada, and

(ii) the issuing foreign affiliate has, at that time, an amount of consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition that is equal to or greater than the amount of the issuing foreign affiliate's consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares.

(21) The taxable surplus reduction, in respect of a corporation resident in Canada, of a particular relevant foreign affiliate, in respect of disposed shares, is

(a) the amount determined by the formula

A/B × C × D
where
A

is the portion of the amount of the particular relevant foreign affiliate's taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, of the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the "issuing foreign affiliate"),

B

is the amount of the issuing foreign affiliate's consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C

is the portion, of the disposition dividend that is, because of an election made under subsection 93(1) of the Act, in respect of the disposition of the disposed shares, received on the disposed shares by the person that disposed of those shares and that is prescribed by paragraph 5900(1)(b) to have been paid out of the issuing foreign affiliate's taxable surplus, in respect of the corporation resident in Canada, and

D

is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, of the person that disposed of the disposed shares;

(b) if the amount determined, in respect of the particular relevant foreign affiliate, for the description of A or B in the formula in paragraph (a) is nil, nil; and

(c) if an amount is determined, in respect of the particular relevant foreign affiliate, under paragraph (20)(b), nil.

(22) The underlying foreign tax reduction in respect of the corporation resident in Canada, of a particular relevant foreign affiliate of the corporation resident in Canada, in respect of the disposition of the disposed shares, is the amount determined by the following formula:

A × (B + C)/D
where
A

is the underlying foreign tax in respect of the corporation resident in Canada, at the balance adjustment time, of the particular relevant foreign affiliate;

B

is the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate of the corporation resident in Canada, in respect of the disposition of the disposed shares;

C

is the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate of the corporation resident in Canada, in respect of the disposition of the disposed shares; and

D

is the taxable surplus in respect of the corporation resident in Canada of the particular relevant foreign affiliate, at the balance adjustment time.

(23) The specified adjustment factor, in respect of a corporation resident in Canada, in respect of a particular relevant foreign affiliate of the corporation resident in Canada, of the person that disposed of disposed shares, in respect of the disposition of the disposed shares, is the amount determined by the formula

A/B
where
A

is

(a) where the corporation resident in Canada disposed of the disposed shares, 100 per cent, and

(b) where another foreign affiliate of the corporation resident in Canada disposed of the disposed shares, the surplus entitlement percentage of the corporation resident in Canada in respect of that other foreign affiliate, immediately before the disposition of the disposed shares; and

B

is the surplus entitlement percentage of the corporation resident in Canada in respect of the particular relevant foreign affiliate, immediately before the disposition of the disposed shares.

(d) if there is a designated section 93 election,

(i) the Regulations are, in respect of the designated shares, to be read as if they also contained the following section:

5905.1 (1) The amount prescribed for the purpose of paragraph 92(1.4)(a) of the Act, in respect of a relevant share referred to in that paragraph, in respect of a specified section 93 election related to the relevant share, is the lesser of

(a) the amount, if any, by which the fair market value of the relevant share, at the election time, exceeds the adjusted cost base, at the time of the disposition, of the relevant share to the holder, and

(b) the amount determined by the following formula:

A/C × (C – B)
where
A

is the amount that would, if the relevant share was the disposed share and the relevant affiliate was the disposed affiliate in respect of the specified section 93 election, be determined under paragraph 5902(1)(f) to be the attributed net surplus in respect of the relevant share in respect of the specified section 93 election,

B

is the amount that would be determined under subparagraph 5902(1)(e)(vi) to be the consolidated net surplus in respect of the relevant affiliate, if

(i) the relevant foreign affiliate was the disposed affiliate referred to in subsection 5902(1),

(ii) the relevant share was the disposed share referred to in subsection 5902(1) that was disposed of, immediately following the disposition of the disposed shares to which the specified section 93 election applied, and

(iii) before that determination, in respect of the relevant foreign affiliate and each foreign affiliate of the particular corporation resident in Canada in which the relevant foreign affiliate had an equity percentage, the adjustments that are required by section 5905 to be made, in respect of the whole dividend referred to in paragraph 5902(1)(g) in respect of the specified section 93 election were made, and

C

is the amount that would be determined under subparagraph 5902(1)(e)(vi) to be the consolidated net surplus in respect of the relevant affiliate in respect of the specified section 93 election, if the relevant foreign affiliate was the disposed foreign affiliate referred to in subsection 5902(1) and the relevant share was the disposed share referred to in subsection 5902(1).

(2) The amount prescribed for the purpose of paragraph 92(1.4)(b) of the Act, in respect of a relevant share referred to in that paragraph, in respect of a relevant specified section 93 election related to the relevant share, is the lesser of

(a) the amount, if any, by which the adjusted cost base, at the time of the disposition, of the relevant share to the holder exceeds the fair market value of the relevant share, at the election time, and

(b) the amount determined by the following formula:

A/C × (C – B)
where
A

is the amount that would be determined to be the attributed net surplus in respect of the relevant share under paragraph 5902(1)(f) in respect of the specified section 93 election, if

(i) the relevant share was the disposed share, and the relevant foreign affiliate was the disposed foreign affiliate, in respect of the specified section 93 election, and

(ii) the consolidated net surplus in respect of the relevant foreign affiliate was the amount, if any, determined, in respect of the relevant foreign affiliate, under the description of C,

B

is the amount, if any, by which the total that would be determined under clause 5902(1)(e)(vi)(B) exceeds the total that would be determined under clause 5902(1)(e)(vi)(A), in respect of the relevant foreign affiliate, if

(i) the relevant foreign affiliate was the disposed affiliate referred to in subsection 5902(1),

(ii) the relevant share was the disposed share referred to in subsection 5902(1) that was disposed of immediately following the disposition of the disposed shares to which the specified section 93 election applied, and

(iii) before that determination, in respect of the relevant foreign affiliate and each foreign affiliate of the particular corporation resident in Canada in which the relevant foreign affiliate had an equity percentage, the adjustments that are required by section 5905 to be made, in respect of the whole dividend referred to in paragraph 5902(1)(g) in respect of the specified section 93 election, were made, and

C

is the amount, if any, by which the total that would be determined under clause 5902(1)(e)(vi)(B) exceeds the total that would be determined under clause 5902(1)(e)(vi)(A), in respect of the relevant affiliate in respect of the specified section 93 election, if the relevant foreign affiliate was the disposed foreign affiliate referred to in subsection 5902(1) and the relevant share was the disposed share referred to in subsection 5902(1).

(3) If the amount determined in each of the formulae in paragraphs (1)(b) and (2)(b) in respect of the relevant share referred to in paragraph 92(1.4)(a) of the Act is nil, the amount determined for B in the formula in paragraph (1)(b) in respect of the relevant affiliate is greater than nil and the amount determined for C in the formula in paragraph (2)(b) in respect of the relevant affiliate is greater than nil, the amount prescribed for the purpose of paragraph 92(1.4)(a) of the Act, in respect of the relevant share referred to in that paragraph, in respect of a specified section 93 election related to the relevant share, is the lesser of

(a) the amount, if any, by which the fair market value of the relevant share, at the election time, exceeds the adjusted cost base, at the time of the disposition, of the relevant share to the holder, and

(b) the amount that would, if the relevant share was the disposed share and the relevant affiliate was the disposed affiliate in respect of the specified section 93 election, be determined under paragraph 5902(1)(f) to be the attributed net surplus in respect of the relevant share if the consolidated net surplus of the relevant foreign affiliate were the amount determined for B in the formula in paragraph (1)(b).

(ii) paragraph (b) of the definition "whole dividend" in subsection 5907(1) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

(b) where a whole dividend is deemed by paragraph 5902(1)(g) to have been paid at the same time on shares of more than one class of the capital stock of an affiliate, for the purpose only of that paragraph, the whole dividend deemed to have been paid at that time on the shares of a class of the capital stock of the affiliate is deemed to be the total of all amounts each of which is a whole dividend deemed to have been paid at that time on the shares of a class of the capital stock of the affiliate, and

(iii) paragraph 5908(8)(c) of the Regulations, as enacted by subsection 47 (1), is, in respect of the designated section 93 election, to be read as follows:

(c) the prescribed amount for the purposes of subparagraph 93(1.2)(a)(ii) of the Act is the lesser of

(i) the taxable capital gain, if any, of the particular affiliate otherwise determined in respect of the disposition, and

(ii) the amount that is one-half of the amount referred to in paragraph 5902(6)(b).

52. (1) Subsection (2) applies if

(a) a corporation has made an election under section 51;

(b) the corporation has made an election under subsection 93(1) or (1.2) of the Income Tax Act in respect of a disposition of a share of the capital stock of a foreign affiliate of the corporation that occurs after December 20, 2002 and on or before February 27, 2004 (other than a disposition required to be made under an agreement in writing made by a vendor on or before December 20, 2002), or in respect of a disposition that occurs after February 27, 2004 and that is required to be made under an agreement in writing made by a vendor after December 20, 2002 and before February 28, 2004; and

(c) the corporation elects in writing under this paragraph to apply subsection (2) in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the corporation's filing-due date for the corporation's taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent.

(2) If this subsection applies, section 51 does not apply in respect of dispositions referred to in paragraph (1)(b) and the Regulations are, in respect of the dispositions, to be read as if section 5902 of the Regulations also contained the following subsection:

(6.1) If an election under subsection 93(1) of the Act is made at any time by a particular corporation resident in Canada in respect of a share of the capital stock of a foreign affiliate (in this subsection referred to as the "particular affiliate") of the particular corporation that is disposed of to the particular corporation, to another corporation resident in Canada with which the particular corporation does not deal at arm's length or to another foreign affiliate of the particular corporation, the amount of the particular affiliate's exempt surplus or exempt deficit, taxable surplus or taxable deficit, underlying foreign tax and net surplus in respect of the particular corporation at that time is to be determined under paragraph (1)(a) as if the amount of any dividend referred to in subparagraph (1)(a)(i) or (ii) were nil.

Assessments

53. Any assessment of a taxpayer's tax, interest and penalties payable under the Income Tax Act for any taxation year that ends before the day on which this Act receives royal assent that would, in the absence of this section, be precluded because of subsections 152(4) to (5) of the Income Tax Act is to be made to the extent necessary to take into account any of the following:

(a) sections 50 to 52 or any provision of section 46 in respect of which section 50 applies to the taxpayer; or

(b) any provision of sections 29 to 38 and 40 to 49 (other than a provision of section 46 that is described under paragraph (a)), if the taxpayer

(i) elects in writing in respect of all of its foreign affiliates that this section apply in respect of that provision, and

(ii) files that election with the Minister of National Revenue on or before the day that is six months after the day on which this Act receives royal assent.

Table of Contents - Previous - Next