• Marginal note:New corporation continuation of a predecessor

  (1.2) Where there has been an amalgamation of corporations described in paragraph (1.1)(a) or of two or more corporations each of which is a subsidiary wholly-owned corporation of the same person, the new corporation is, for the purposes of section 29 of the Income Tax Application Rules, subsection 59(3.3) and sections 66, 66.1, 66.2, 66.21, 66.4 and 66.7, deemed to be the same corporation as, and a continuation of, each predecessor corporation, except that this subsection does not affect the determination of any predecessor corporation’s fiscal period, taxable income or tax payable.

• (ii) for the purposes of subsections 93(2) to (2.3), any exempt dividend received by the predecessor corporation on any such share is deemed to be an exempt dividend received by the new corporation on the share;

• Marginal note:Foreign merger

  (8) Subject to subsection 95(2), where there has been a foreign merger in which a taxpayer’s shares or options to acquire shares of the capital stock of a corporation that was a predecessor foreign corporation immediately before the merger were exchanged for or became shares or options to acquire shares of the capital stock of the new foreign corporation or the foreign parent corporation, unless the taxpayer elects in the taxpayer’s return of income for the taxation year in which the foreign merger took place not to have this subsection apply, subsections (4) and (5) apply to the taxpayer as if the references in those subsections to

• Definition of “foreign merger”

  (8.1) For the purposes of this section, “foreign merger” means a merger or combination of two or more corporations each of which was, immediately before the merger or combination, resident in a country other than Canada (each of which is in this section referred to as a “predecessor foreign corporation”) to form one corporate entity resident in a country other than Canada (in this section referred to as the “new foreign corporation”) in such a manner that, and otherwise than as a result of the distribution of property to one corporation on the winding-up of another corporation,

  • (a) all or substantially all the property (except amounts receivable from any predecessor foreign corporation or shares of the capital stock of any predecessor foreign corporation) of the predecessor foreign corporations immediately before the merger or combination becomes property of the new foreign corporation as a consequence of the merger or combination;

  • (b) all or substantially all the liabilities (except amounts payable to any predecessor foreign corporation) of the predecessor foreign corporations immediately before the merger or combination become liabilities of the new foreign corporation as a consequence of the merger or combination; and

  • (c) all or substantially all of the shares of the capital stock of the predecessor foreign corporations (except any shares or options owned by any predecessor foreign corporation) are exchanged for or become, because of the merger or combination,

    • (i) shares of the capital stock of the new foreign corporation, or

    • (ii) if, immediately after the merger, the new foreign corporation was controlled by another corporation (in this section referred to as the “foreign parent corporation”) that was resident in a country other than Canada, shares of the capital stock of the foreign parent corporation.

the new share is deemed, for the purposes of subsection 116(6), the definitions “qualified investment” in subsections 146(1), 146.1(1), and 146.3(1) and in section 204, and the definition “taxable Canadian property” in subsection 248(1), to be listed on the exchange until the earliest time at which it is so redeemed, acquired or cancelled.

• (III) a corporation (other than a specified person or the subsidiary)

• (A) the reference in the definition “specified shareholder” in subsection 248(1) to “the issued shares of any class of the capital stock of the corporation or of any other corporation that is related to the corporation” shall be read as “the issued shares of any class (other than a specified class) of the capital stock of the corporation or of any other corporation that is related to the corporation and that has a significant direct or indirect interest in any issued shares of the capital stock of the corporation”, and

• (c.8) for the purpose of clause (c.2)(iii)(A), a specified class of the capital stock of a corporation is a class of shares of the capital stock of the corporation where

  • (i) the paid-up capital in respect of the class was not, at any time, less than the fair market value of the consideration for which the shares of that class then outstanding were issued,

  • (ii) the shares are non-voting in respect of the election of the board of directors of the corporation, except in the event of a failure or default under the terms or conditions of the shares,

  • (iii) under neither the terms and conditions of the shares nor any agreement in respect of the shares are the shares convertible into or exchangeable for shares other than shares of a specified class of the capital stock of the corporation, and

  • (iv) under neither the terms and conditions of the shares nor any agreement in respect of the shares is any holder of the shares entitled to receive on the redemption, cancellation or acquisition of the shares by the corporation or by any person with whom the corporation does not deal at arm’s length an amount (excluding any premium for early redemption) greater than the total of the fair market value of the consideration for which the shares were issued and the amount of any unpaid dividends on the shares;

• Marginal note:Parent continuation of subsidiary

  (1.5) For the purposes of section 29 of the Income Tax Application Rules, subsection 59(3.3) and sections 66, 66.1, 66.2, 66.21, 66.4 and 66.7, where the rules in subsection (1) applied to the winding-up of a subsidiary, its parent is deemed to be the same corporation as, and a continuation of, the subsidiary.

• Marginal note:Amalgamation deemed not to be acquisition of control

  (4) For the purposes of paragraphs (1)(c), (c.2), (d) and (d.2) and, for greater certainty, paragraphs (c.3) to (c.8) and (d.3),

• (A) the amount of the corporation’s capital gain from a disposition (other than a disposition that is the making of a gift after December 8, 1997 that is not a gift described in subsection 110.1(1)) of a property in the period beginning at the beginning of its first taxation year (that began after the corporation last became a private corporation and that ended after 1971) and ending immediately before the particular time (in this definition referred to as “the period”)

• (c) the total of all amounts each of which is an amount required to have been included under this paragraph as it read in its application to a taxation year that ended before February 28, 2000,

• (c.1) the amount, if any, by which

  • (i) 1/2 of the total of all amounts each of which is an amount required by paragraph 14(1)(b) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ended after February 27, 2000 and before October 18, 2000,

  exceeds

  • (ii) where the corporation has deducted an amount under subsection 20(4.2) in respect of a debt established by it to have become a bad debt in a taxation year that is included in the period and that ended after February 27, 2000 and before October 18, 2000, or has an allowable capital loss for such a year because of the application of subsection 20(4.3), the amount determined by the formula

    V + W

    where

    V

    is 1/2 of the value determined for A under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

    W

    is 1/3 of the value determined for B under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

  • (iii) in any other case, nil,

• (c.2) the amount, if any, by which

  • (i) the total of all amounts each of which is an amount required by paragraph 14(1)(b) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ends after October 17, 2000,

  exceeds

  • (ii) where the corporation has deducted an amount under subsection 20(4.2) in respect of a debt established by it to have become a bad debt in a taxation year that is included in the period and that ends after October 17, 2000, or has an allowable capital loss for such a year because of the application of subsection 20(4.3), the amount determined by the formula

    X + Y

    where

    X

    is the value determined for A under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

    Y

    is 1/3 of the value determined for B under subsection 20(4.2) in respect of the corporation for the last such taxation year that ended in the period, and

  • (iii) in any other case, nil,

• (f) all amounts each of which is an amount in respect of a distribution made in the period by a trust to the corporation in respect of capital gains of the trust equal to the lesser of

  • (i) the amount, if any, by which

    • (A) the amount of the distribution

    exceeds

    • (B) the amount designated under subsection 104(21) by the trust (other than a designation to which subsection 104(21.4) applies) in respect of the net taxable capital gains of the trust attributable to those capital gains, and

  • (ii) the amount determined by the formula

    A × B

    where

    A

    is the fraction or whole number determined when 1 is subtracted from the reciprocal of the fraction under paragraph 38(a) applicable to the trust for the year, and

    B

    is the amount referred to in clause (i) (B), and

• (g) all amounts each of which is an amount in respect of a distribution made by a trust to the corporation in the period in respect of a dividend (other than a taxable dividend) paid on a share of the capital stock of another corporation resident in Canada to the trust during a taxation year of the trust throughout which the trust was resident in Canada equal to the lesser of

  • (i) the amount of the distribution, and

  • (ii) the amount designated under subsection 104(20) by the trust in respect of the corporation in respect of that dividend,

• Marginal note:Shares acquired from a partnership

  (7) For the purpose of subsection (5), where a taxpayer resident in Canada acquires a share of the capital stock of a corporation that is immediately after the acquisition a foreign affiliate of the taxpayer from a partnership of which the taxpayer, or a corporation resident in Canada with which the taxpayer was not dealing at arm’s length at the time the share was acquired, was a member (each such person referred to in this subsection as the “member”) at any time during any fiscal period of the partnership that began before the acquisition,

  • (a) that portion of any amount required by subsection 92(1) to be added to the adjusted cost base to the partnership of the share of the capital stock of the foreign affiliate equal to the amount included in the income of the member because of subsection 96(1) in respect of the amount that was included in the income of the partnership because of subsection (1) or (3) in respect of the foreign affiliate and added to that adjusted cost base, and

  • (b) that portion of any amount required by subsection 92(1) to be deducted from the adjusted cost base to the partnership of the share of the capital stock of the foreign affiliate equal to the amount by which the income of the member from the partnership under subsection 96(1) was reduced because of the amount deducted in computing the income of the partnership under subsection (2), (4) or (5) and deducted from that adjusted cost base

  is deemed to be an amount required by subsection 92(1) to be added or deducted, as the case may be, in computing the adjusted cost base to the taxpayer of the share.

• Marginal note:Disposition of a partnership interest

  (4) Where a corporation resident in Canada or a foreign affiliate of a corporation resident in Canada has at any time disposed of all or a portion of an interest in a partnership of which it was a member, there shall be added, in computing the proceeds of disposition of that interest, the amount determined by the formula

  (A – B) × (C / D)

  where

  A

  is the amount, if any, by which

  • (a) the total of all amounts each of which is an amount that was deductible under paragraph 113(1)(d) by the member from its income in computing its taxable income for any taxation year of the member that began before that time in respect of any portion of a dividend received by the partnership, or would have been so deductible if the member were a corporation resident in Canada,

  exceeds

  • (b) the total of all amounts each of which is the portion of any income or profits tax paid by the partnership or the member of the partnership to a government of a country other than Canada that can reasonably be considered as having been paid in respect of the member’s share of the dividend described in paragraph (a);

  B

  is the total of

  • (a) the total of all amounts each of which was an amount added under this subsection in computing the member’s proceeds of a disposition before that time of another interest in the partnership, and

  • (b) the total of all amounts each of which was an amount deemed by subsection (5) to be a gain of the member from a disposition before that time of a share by the partnership;

  C

  is the adjusted cost base, immediately before that time, of the portion of the member’s interest in the partnership disposed of by the member at that time; and

  D

  is the adjusted cost base, immediately before that time, of the member’s interest in the partnership immediately before that time.

• Marginal note:Deemed gain from the disposition of a share

  (5) Where a partnership has, at any time in a fiscal period of the partnership at the end of which a corporation resident in Canada or a foreign affiliate of a corporation resident in Canada was a member, disposed of a share of the capital stock of a corporation, the amount determined under subsection (6) in respect of such a member is deemed to be a gain of the member from the disposition of the share by the partnership for the member’s taxation year in which the fiscal period of the partnership ends.

• Marginal note:Formula

  (6) The amount determined for the purposes of subsection (5) is the amount determined by the formula

  A – B

  where

  A

  is the amount, if any, by which

  • (a) the total of all amounts each of which is an amount that was deductible under paragraph 113(1)(d) by the member from its income in computing its taxable income for a taxation year in respect of any portion of a dividend received by the partnership on the share in a fiscal period of the partnership that began before the time referred to in subsection (5) and ends in the member’s taxation year, or would have been so deductible if the member were a corporation resident in Canada,

  exceeds

  • (b) the total of all amounts each of which is the portion of any income or profits tax paid by the partnership or the member to a government of a country other than Canada that can reasonably be considered as having been paid in respect of the member’s share of the dividend described in paragraph (a); and

  B

  is the total of all amounts each of which is an amount that was added under subsection (4) in computing the member’s proceeds of a disposition before the time referred to in subsection (5) of an interest in the partnership.