Budget and Economic Statement Implementation Act, 2007 (S.C. 2007, c. 35)
Full Document:
Assented to 2007-12-14
21. (1) Paragraph (b) of the definition “excluded security” in subsection 80(1) of the Act is replaced by the following:
(b) a share issued by the corporation to the person under the terms of the debt, where the debt was a bond, debenture or note listed on a designated stock exchange in Canada and the terms for the conversion to the share were not established or substantially modified after the later of February 22, 1994 and the time that the bond, debenture or note was issued;
(2) Subsection (1) applies on and after the day on which this Act is assented to.
22. (1) Paragraph 85(1.1)(i) of the Act is replaced by the following:
(i) a NISA Fund No. 2, if that property is owned by an individual.
(2) Subsection (1) applies to the balance in a NISA Fund No. 2 to the extent that that blance consists of contributions made to the fund, and amounts earned on those contributions, in the 2008 and subsequent taxation years.
23. (1) Paragraph (a) of the definition “public corporation” in subsection 89(1) of the Act is replaced by the following:
(a) a corporation that is resident in Canada at the particular time if at that time a class of shares of the capital stock of the corporation is listed on a designated stock exchange in Canada,
(2) Subsection (1) applies on and after the day on which this Act is assented to.
24. (1) Section 91 of the Act is amended by adding the following after subsection (5):
Marginal note:Deduction of dividend by shareholder
(5.1) Where in a taxation year a corporation resident in Canada receives a dividend on a share of the capital stock of a corporation that was at any time a foreign affiliate of the corporation and subsection (5) does not apply in respect of that dividend, there may be deducted, in respect of such portion of the dividend as is prescribed to have been paid out of the taxable surplus of the affiliate, in computing the corporation’s income for the year, the lesser of
(a) the amount, if any, by which that portion of the dividend exceeds the amount, if any, deductible in respect of the dividend under paragraph 113(1)(b), and
(b) the amount, if any, by which
(i) the total of all amounts required under subparagraph 92(1)(a)(ii) to be added in computing the adjusted cost base to the taxpayer of the share before the dividend was so received by the corporation
exceeds
(ii) the total of all amounts required under paragraph 92(1)(b) to be deducted in computing the adjusted cost base to the taxpayer of the share before the dividend was so received by the taxpayer.
Marginal note:Deduction of dividend by member of partnership
(5.2) Where in a taxation year a corporation is deemed under section 93.1 to have received a dividend from a foreign affiliate, there may be deducted, in respect of such portion of the dividend as is prescribed to have been paid out of the taxable surplus of the affiliate, in computing the corporation’s income for the year, the lesser of
(a) the amount, if any, by which that portion of the dividend exceeds the amount, if any, deductible in respect of the dividend under paragraph 113(1)(b), and
(b) the amount, if any, by which
(i) the total of all amounts required under subparagraph 53(1)(e)(xiv) to be added in computing the adjusted cost base to the taxpayer of the partnership interest that are reasonably attributable to a share in respect of which the dividend was paid
exceeds
(ii) the total of all amounts required under subparagraph 53(2)(c)(xiii) to be deducted in computing the adjusted cost base to the taxpayer of the partnership interest that are reasonably attributable to a share in respect of which the dividend was paid.
Marginal note:Deduction of capital gain by member of partnership
(5.3) Where in a taxation year a taxpayer is a member of a partnership, there may be deducted from the taxpayer’s income for the taxation year an amount equal to the lesser of
(a) ½ the amount of the taxpayer’s specified proportion (within the meaning of paragraph 18.2(10)(b)) of any capital gain that is attributable to a disposition by the partnership of a share of the capital stock of a corporation, and
(b) the amount, if any, by which
(i) the total of all amounts required under subparagraph 53(1)(e)(xiv) to be added in computing the adjusted cost base to the taxpayer of its interest in the partnership that are reasonably attributable to the share
exceeds
(ii) the total of all amounts required under subparagraph 53(2)(c)(xiii) to be deducted in computing the adjusted cost base to the taxpayer of the partnership interest that are reasonably attributable to the share.
(2) Subsection (1) applies after 2011.
25. (1) Subsection 92(1) of the Act is replaced by the following:
Marginal note:Adjusted cost base of share of foreign affiliate
92. (1) In computing, at any time in a taxation year, the adjusted cost base to a taxpayer resident in Canada of any share owned by the taxpayer of the capital stock of a foreign affiliate of the taxpayer,
(a) there shall be added in respect of that share
(i) any amount included in respect of that share under subsection 91(1) or (3) in computing the taxpayer’s income for the year or any preceding taxation year (or that would have been required to have been so included in computing the taxpayer’s income but for subsection 56(4.1) and sections 74.1 to 75 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952), and
(ii) the taxable earnings base adjustment (as defined in subsection 18.2(1)) of the taxpayer in respect of the share for the year or any preceding taxation year; and
(b) there shall be deducted in respect of that share
(i) any amount deducted by the taxpayer under subsection 91(2) or (4), and
(ii) any dividend received by the taxpayer before that time, to the extent of the amount deducted by the taxpayer, in respect of the dividend, under subsection 91(5) or (5.1)
in computing the taxpayer’s income for the year or any preceding taxation year (or that would have been deductible by the taxpayer but for subsection 56(4.1) and sections 74.1 to 75 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada,1952).
(2) Subsection (1) applies after 2011.
26. (1) The definitions “active business”, “controlled foreign affiliate”, “income from an active business” and “income from property” in subsection 95(1) of the Act are replaced by the following:
“active business”
« entreprise exploitée activement »
“active business” of a foreign affiliate of a taxpayer means any business carried on by the foreign affiliate other than
(a) an investment business carried on by the foreign affiliate,
(b) a business that is deemed by subsection (2) to be a business other than an active business carried on by the foreign affiliate, or
(c) a non-qualifying business of the foreign affiliate;
“controlled foreign affiliate”
« société étrangère affiliée contrôlée »
“controlled foreign affiliate”, at any time, of a taxpayer resident in Canada, means
(a) a foreign affiliate of the taxpayer that is, at that time, controlled by the taxpayer, or
(b) a foreign affiliate of the taxpayer that would, at that time, be controlled by the taxpayer if the taxpayer owned
(i) all of the shares of the capital stock of the foreign affiliate that are owned at that time by the taxpayer,
(ii) all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with the taxpayer,
(iii) all of the shares of the capital stock of the foreign affiliate that are owned at that time by the persons (each of whom is referred to in this definition as a “relevant Canadian shareholder”), in any set of persons not exceeding four (which set of persons shall be determined without ref-erence to the existence of or the absence of any relationship, connection or action in concert between those persons), who
(A) are resident in Canada,
(B) are not the taxpayer or a person described in subparagraph (ii), and
(C) own, at that time, shares of the capital stock of the foreign affiliate, and
(iv) all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with any relevant Canadian shareholder;
“income from an active business”
« revenu provenant d’une entreprise exploitée activement »
“income from an active business” of a foreign affiliate of a taxpayer for a taxation year includes the foreign affiliate’s income for the taxation year that pertains to or is incident to that active business but does not include
(a) the foreign affiliate’s income from property for the taxation year,
(b) the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate, or
(c) the foreign affiliate’s income from a non-qualifying business of the foreign affiliate for the taxation year;
“income from property”
« revenu de biens »
“income from property” of a foreign affiliate of a taxpayer for a taxation year includes the foreign affiliate’s income for the taxation year from an investment business and the foreign affiliate’s income for the taxation year from an adventure or concern in the nature of trade, but does not include
(a) the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate, or
(b) the foreign affiliate’s income for the taxation year that pertains to or is incident to
(i) an active business of the foreign affiliate, or
(ii) a non-qualifying business of the foreign affiliate;
(2) The portion of the definition “excluded property” in subsection 95(1) of the Act before paragraph (a) of that definition and paragraphs (a) to (c) of that definition are replaced by the following:
“excluded property”
« bien exclu »
“excluded property”, at a particular time, of a foreign affiliate of a taxpayer means any property of the foreign affiliate that is
(a) used or held by the foreign affiliate principally for the purpose of gaining or producing income from an active business carried on by it,
(b) shares of the capital stock of another foreign affiliate of the taxpayer where all or substantially all of the fair market value of the property of the other foreign affiliate is attributable to property, of that other foreign affiliate, that is excluded property,
(c) property 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)), or
(c.1) property arising under or as a result of an agreement that
(i) provides for the purchase, sale or exchange of currency, and
(ii) either
(A) can reasonably be considered to have been made by the affiliate to reduce its risk, with respect to an amount that was receivable under an agreement that relates to the sale of excluded property or with respect to an amount that was receivable and was a property described in paragraph (c), of fluctuations in the value of the currency in which the amount receivable was denominated, or
(B) can reasonably be considered to have been made by the affiliate to reduce its risk, with respect to any of the following amounts, of fluctuations in the value of the currency in which that amount was denominated:
(I) an amount that was payable under an agreement that relates to the purchase of property that (at all times between the time of the acquisition of the property and the particular time) is excluded property of the affiliate,
(II) an amount of indebtedness, to the extent that the proceeds derived from the issuance or incurring of the indebtedness can reasonably be considered to have been used to acquire property that (at all times between the time of the acquisition of that property and the particular time) is excluded property of the affiliate, or
(III) an amount of indebtedness, to the extent that the proceeds derived from the issuance or incurring of the indebtedness can reasonably be considered to have been used to repay the outstanding balance of
1. an amount that, immediately before the time of that repayment, is described by subclause (I),
2. an amount of indebtedness of the affiliate that, immediately before the time of that repayment, is described by subclause (II), or
3. an amount of indebtedness of the affiliate that, immediately before the time of that repayment, is described by this subclause,
(3) The portion of the description of A in the definition “foreign accrual property income” in subsection 95(1) of the Act before paragraph (a) is replaced by the following:
- A
- is the amount that would, if section 80 did not apply to the affiliate for the year or a preceding taxation year, be the total of all amounts, each of which is the affiliate’s income for the year from property, the affiliate’s income for the year from a business other than an active business or the affiliate’s income for the year from a non-qualifying business of the affiliate, in each case that amount being determined as if each amount described in clause (2)(a)(ii)(D) that was paid or payable, directly or indirectly, by the affiliate to another foreign affiliate of the taxpayer or of a person with whom the taxpayer does not deal at arm’s length were nil where an amount in respect of the income derived by the other foreign affiliate from that amount that was paid or payable to it by the affiliate was added in computing its income from an active business, other than
(4) The description of D in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:
- D
- is the total of all amounts, each of which is the affiliate’s loss for the year from property, the affiliate’s loss for the year from a business other than an active business of the affiliate or the affiliate’s loss for the year from a non-qualifying business of the affiliate, in each case that amount being determined as if there were not included in the affiliate’s income any amount described in any of paragraphs (a) to (d) of the description of A and as if each amount described in clause (2)(a)(ii)(D) that was paid or payable, directly or indirectly, by the affiliate to another foreign affiliate of the taxpayer or of a person with whom the taxpayer does not deal at arm’s length were nil where an amount in respect of the income derived by the other foreign affiliate from that amount that was paid or payable to it by the affiliate was added in computing its income from an active business,
(5) The description of E in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:
- E
- is the amount of the affiliate’s allowable capital losses for the year from dispositions of property (other than excluded property) that can reasonably be considered to have accrued after its 1975 taxation year,
(6) The portion of the definition “investment business” in subsection 95(1) of the Act before paragraph (a) is replaced by the following:
“investment business”
« entreprise de placement »
“investment business” of a foreign affiliate of a taxpayer means a business carried on by the foreign affiliate in a taxation year (other than a business deemed by subsection (2) to be a business other than an active business carried on by the foreign affiliate and other than a non-qualifying business of the foreign affiliate) the principal purpose of which is to derive income from property (including interest, dividends, rents, royalties or any similar returns or substitutes for such interest, dividends, rents, royalties or returns), income from the insurance or reinsurance of risks, income from the factoring of trade accounts receivable, or profits from the disposition of investment property, unless it is established by the taxpayer or the foreign affiliate that, throughout the period in the taxation year during which the business was carried on by the foreign affiliate,
(7) Subparagraph (a)(i) of the definition “investment business” in subsection 95(1) of the Act is replaced by the following:
(i) a business carried on by it as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws
(A) of each country in which the business is carried on through a permanent establishment (as defined by regulation) 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,
(B) of the country in which the business is principally carried on, or
(C) if the affiliate is related to a non-resident corporation, of the country under whose laws that non-resident corporation is governed and any of exists, was (unless that non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, or
(8) The definition “investment business” in subsection 95(1) of the Act is amended by striking out the word “and” at the end of paragraph (a) and by replacing paragraph (b) with the following:
(b) either
(i) the affiliate (otherwise than as a member of a partnership) carries on the business (the affiliate being, in respect of those times, in that period of the year, that it so carries on the business, referred to in paragraph (c) as the “operator”), or
(ii) the affiliate carries on the business as a qualifying member of a partnership (the partnership being, in respect of those times, in that period of the year, that the affiliate so carries on the business, referred to in paragraph (c) as the “operator”), and
(c) the operator employs
(i) more than five employees full time in the active conduct of the business, or
(ii) the equivalent of more than five employees full time in the active conduct of the business taking into consideration only
(A) the services provided by employees of the operator, and
(B) the services provided outside Canada to the operator by any one or more persons each of whom is, during the time at which the services were performed by the person, an employee of
(I) a corporation related to the affiliate (otherwise than because of a right referred to in paragraph 251(5)(b)),
(II) in the case where the operator is the affiliate,
1. a corporation (referred to in this subparagraph as a “providing shareholder”) that is a qualifying shareholder of the affiliate,
2. a designated corporation in respect of the affiliate, or
3. a designated partnership in respect of the affiliate, and
(III) in the case where the operator is the partnership described in subparagraph (b)(ii),
1. any person (referred to in this subparagraph as a “providing member”) who is a qualifying member of that partnership,
2. a designated corporation in respect of the affiliate, or
3. a designated partnership in respect of the affiliate,
if the corporations referred to in subclause (B)(I) and the designated corporations, designated partnerships, providing shareholders or providing members referred to in subclauses (B)(II) and (III) receive compensation from the operator for the services provided to the operator by those employees the value of which is not less than the cost to those corporations, partnerships, shareholders or members of the compensation paid or accruing to the benefit of those employees that performed the services during the time at which the services were performed by those employees;
(9) Subsection 95(1) of the Act is amended by adding the following in alphabetical order:
“eligible trust”
« fiducie admissible »
“eligible trust”, at any time, means a trust, other than a trust
(a) created or maintained for charitable purposes,
(b) governed by an employee benefit plan,
(c) described in paragraph (a.1) of the definition “trust” in subsection 108(1),
(d) governed by a salary deferral arrangement,
(e) operated for the purpose of administering or providing superannuation, pension, retirement or employee benefits, or
(f) where the amount of income or capital that any entity may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity of, or the failure by any entity to exercise, a discretionary power;
“entity”
« entité »
“entity” includes an association, a corporation, a fund, a natural person, a joint venture, an organization, a partnership, a syndicate and a trust;
“exempt trust”
« fiducie exonérée »
“exempt trust”, at a particular time in respect of a taxpayer resident in Canada, means a trust that, at that time, is a trust under which the interest of each beneficiary under the trust is, at all times that the interest exists during the trust’s taxation year that includes the particular time, a specified fixed interest of the beneficiary in the trust, if at the particular time
(a) the trust is an eligible trust,
(b) there are at least 150 beneficiaries each of whom holds a specified fixed interest, in the trust, that has a fair market value of at least $500, and
(c) the total of all amounts each of which is the fair market value of an interest as a beneficiary under the trust held by a specified purchaser in respect of the taxpayer is not more than 10% of the total fair market value of all interests as a beneficiary under the trust;
“income from a non-qualifying business”
« revenu provenant d’une entreprise non admissible »
“income from a non-qualifying business” of a foreign affiliate of a taxpayer resident in Canada for a taxation year includes the foreign affiliate’s income for the taxation year that pertains to or is incident to that non-qualifying business, but does not include
(a) the foreign affiliate’s income from property for the taxation year, or
(b) the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate;
“non-qualifying business”
« entreprise non admissible »
“non-qualifying business” of a foreign affiliate of a taxpayer at any time means a business carried on by the foreign affiliate through a permanent establishment in a jurisdiction that, at the end of the foreign affiliate’s taxation year that includes that time, is a non-qualifying country, other than
(a) an investment business of the foreign affiliate, or
(b) a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate;
“non-qualifying country”
« pays non admissible »
“non-qualifying country” at any time means a country or other jurisdiction with which
(a) Canada neither has a tax treaty at that time nor has, before that time, signed an agreement that will, on coming into effect, be a tax treaty,
(b) Canada does not have a comprehensive tax information exchange agreement that is in force and has effect at that time, and
(c) Canada has, more than 60 months before that time, either
(i) begun negotiations for a comprehensive tax information exchange agreement (unless that time is before 2014 and Canada was, on March 19, 2007, in the course of negotiating a comprehensive tax information exchange agreement with that jurisdiction), or
(ii) sought, by written invitation, to enter into negotiations for a comprehensive tax information exchange agreement (unless that time is before 2014 and Canada was, on March 19, 2007, in the course of negotiating a comprehensive tax information exchange agreement with that jurisdiction);
“specified fixed interest”
« participation fixe désignée »
“specified fixed interest”, at any time, of an entity in a trust, means an interest of the entity as a beneficiary under the trust if
(a) the interest includes, at that time, rights of the entity as a beneficiary under the trust to receive, at or after that time and directly from the trust, income and capital of the trust,
(b) the interest was issued by the trust, at or before that time, to an entity, in exchange for consideration and the fair market value, at the time at which the interest was issued, of that consideration was equal to the fair market value, at the time at which it was issued, of the interest,
(c) the only manner in which any part of the interest may cease to be the entity’s is by way of a disposition (determined without reference to paragraph (i) of the definition “disposition” in subsection 248(1) and paragraph 248(8)(c)) by the entity of that part, and
(d) no amount of income or capital of the trust that any entity may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity of, or the failure by any entity to exercise, a discretionary power;
“specified purchaser”
« acheteur déterminé »
“specified purchaser”, at any time, in respect of a particular taxpayer resident in Canada, means an entity that is, at that time,
(a) the particular taxpayer,
(b) an entity resident in Canada with which the particular taxpayer does not deal at arm’s length,
(c) a foreign affiliate of an entity described in any of paragraphs (a) and (b) and (d) to (f),
(d) a trust (other than an exempt trust) in which an entity described in any of paragraphs (a) to (c) and (e) and (f) is beneficially interested,
(e) a partnership of which an entity described in any of paragraphs (a) to (d) and (f) is a member, or
(f) an entity (other than an entity described in any of paragraphs (a) to (e)) with which an entity described in any of paragraphs (a) to (e) does not deal at arm’s length;
(10) Paragraph 95(2)(a) of the Act is replaced by the following:
(a) in computing the income or loss from an active business for a taxation year of a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the year or that is a controlled foreign affiliate of the taxpayer throughout the year, there shall be included any income or loss of the particular foreign affiliate for the year from sources in a country other than Canada that would otherwise be income or loss from property of the particular foreign affiliate for the year to the extent that
(i) the income or loss
(A) is derived by the particular foreign affiliate from activities that can reasonably be considered to be directly related to active business activities carried on in a country other than Canada by
(I) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, or
(II) a life insurance corporation that is resident in Canada throughout the year and that is
1. the taxpayer,
2. a person who controls the taxpayer,
3. a person controlled by the taxpayer, or
4. a person controlled by a person who controls the taxpayer, and
(B) would be included in computing the amount prescribed to be the earnings or loss, from an active business carried on in a country other than Canada, of
(I) that other foreign affiliate referred to in subclause (A)(I) if the income were earned by it, or
(II) the life insurance corporation referred to in subclause (A)(II) if that life insurance corporation were a foreign affiliate of the taxpayer and the income were earned by it,
(ii) the income or loss is derived from amounts that were paid or payable, directly or indirectly, to the particular foreign affiliate or a partnership of which the particular foreign affiliate was a member
(A) by a life insurance corporation that is resident in Canada and that is the taxpayer, a person who controls the taxpayer, a person controlled by the taxpayer or a person controlled by a person who controls the taxpayer, to the extent that those amounts that were paid or payable were for expenditures that are deductible in a taxation year of the life insurance corporation by the life insurance corporation in computing its income or loss for a taxation year from carrying on its life insurance business outside Canada and are not deductible in computing its income or loss for a taxation year from carrying on its life insurance business in Canada,
(B) by
(I) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, to the extent that those amounts that were paid or payable are for expenditures that were deductible by that other foreign affiliate in computing the amounts prescribed to be its earnings or loss for a taxation year from an active business (other than an active business carried on in Canada), or
(II) a partnership of which another foreign affiliate of the taxpayer (in respect of which other foreign affiliate the taxpayer has a qualifying interest throughout the year) is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which that other foreign affiliate was a member of the partnership, to the extent that those amounts that were paid or payable are for expenditures that are deductible by the partnership in computing that other foreign affiliate’s share of any income or loss of the partnership, for a fiscal period, that is included in computing the amounts prescribed to be that other foreign affiliate’s earnings or loss for a taxation year from an active business (other than an active business carried on in Canada),
(C) by a partnership of which the particular foreign affiliate is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which the particular foreign affiliate was a member of the partnership, to the extent that those amounts that were paid or payable are for expenditures that are deductible by the partnership in computing the partic-ular foreign affiliate’s share of any income or loss of the partnership, for a fiscal period, that is included in computing the amounts prescribed to be the particular foreign affiliate’s earnings or loss for a taxation year from an active business (other than an active business carried on in Canada), or
(D) by another foreign affiliate (referred to in this clause as the “second affiliate”) of the taxpayer — in respect of which the taxpayer has a qualifying interest throughout the year — to the extent that the amounts are paid or payable by the second affiliate, in respect of any particular period in the year,
(I) under a legal obligation to pay interest on borrowed money used for the purpose of earning income from property, or
(II) on an amount payable for property acquired for the purpose of gaining or producing income from property
where
(III) the property is, throughout the particular period, excluded property of the second affiliate that is shares of the capital stock of a corporation (referred to in this clause as the “third affiliate”) which is, throughout the particular period, a foreign affiliate (other than the particular foreign affiliate) of the taxpayer in respect of which the taxpayer has a qualifying interest,
(IV) the second affiliate and the third affiliate are resident in the same country for each of their taxation years (each of which taxation years is referred to in subclause (V) as a “relevant taxation year” of the second affiliate or of the third affiliate, as the case may be) that end in the year, and
(V) in respect of each of the second affiliate and the third affiliate for each relevant taxation year of that affiliate, either
1. that affiliate is subject to income taxation in that country in that relevant taxation year, or
2. the members or shareholders of that affiliate (which, for the purpose of this sub-subclause, includes a person that has, directly or indi-rectly, an interest, or for civil law a right, in a share of the capital stock of, or in an equity interest in, the affiliate) at the end of that relevant taxation year are subject to income taxation in that country on, in aggregate, all or substantially all of the income of that affiliate for that relevant taxation year in their taxation years in which that relevant taxation year ends,
(iii) the income or loss is derived by the particular foreign affiliate from the factoring of trade accounts receivable acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year to the extent that the accounts receivable arose in the course of an active business carried on in a country other than Canada by that other foreign affiliate,
(iv) the income or loss is derived by the particular foreign affiliate from loans or lending assets acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, to the extent that the loans or lending assets arose in the course of an active business carried on in a country other than Canada by that other foreign affiliate,
(v) the income or loss is derived by the particular foreign affiliate from the disposition of excluded property that is not capital property, or
(vi) the income or loss is derived by the particular foreign affiliate under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the particular foreign affiliate to reduce
(A) its risk — with respect to an amount that increases the amount required by this paragraph to be included in computing the particular foreign affiliate’s income for a taxation year from an active business or that decreases the amount required by this paragraph to be included in computing the particular foreign affiliate’s loss for a taxation year from an active business — of fluctuations in the value of the currency in which the amount was denominated, or
(B) its risk — with respect to an amount that decreases the amount required by this paragraph to be included in computing the particular foreign affiliate’s income for a taxation year from an active business or that increases the amount required by this paragraph to be included in computing the particular foreign affiliate’s loss for a taxation year from an active business — of fluctuations in the value of the currency in which the amount was denominated;
(11) Subparagraphs 95(2)(a.1)(i) and (ii) of the Act are replaced by the following:
(i) it is reasonable to conclude that the cost to any person of the property (other than property that is designated property) is relevant in computing the income from a business carried on by the taxpayer or by a person resident in Canada with whom the taxpayer does not deal at arm’s length or is relevant in computing the income from a business carried on in Canada by a non-resident person with whom the taxpayer does not deal at arm’s length, and
(ii) the property was neither
(A) manufactured, produced, grown, extracted or processed in the country
(I) 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
(II) in which the affiliate’s business is principally carried on, nor
(B) an interest in real property, or a real right in an immovable, located in, or a foreign resource property in respect of, the country
(I) 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
(II) in which the affiliate’s business is principally carried on,
(12) Paragraph 95(2)(b) of the Act is replaced by the following:
(b) the provision, by a foreign affiliate of a taxpayer, of services or of an undertaking to provide services
(i) is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, to the extent that the amounts paid or payable in consideration for those services or for the undertaking to provide services
(A) are deductible, or can reasonably be considered to relate to amounts that are deductible, in computing the income from a business carried on in Canada, by
(I) any taxpayer of whom the affiliate is a foreign affiliate, or
(II) another taxpayer who does not deal at arm’s length with
1. the affiliate, or
2. any taxpayer of whom the affiliate is a foreign affiliate, or
(B) are deductible, or can reasonably be considered to relate to an amount that is deductible, in computing the foreign accrual property income of a foreign affiliate of
(I) any taxpayer of whom the affiliate is a foreign affiliate, or
(II) another taxpayer who does not deal at arm’s length with
1. the affiliate, or
2. any taxpayer of whom the affiliate is a foreign affiliate, and
(ii) is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, to the extent that the services are, or are to be, performed by
(A) any taxpayer of whom the affiliate is a foreign affiliate,
(B) another taxpayer who does not deal at arm’s length with
(I) the affiliate, or
(II) any taxpayer of whom the affiliate is a foreign affiliate,
(C) a partnership any member of which is a person described in clause (A) or (B), or
(D) a partnership in which any person or partnership described in any of clauses (A) to (C) has, directly or indirectly, a partnership interest;
(13) Paragraph 95(2)(g) of the Act is replaced by the following:
(g) income earned, a loss incurred or a capital gain or capital loss realized, as the case may be, in a taxation year by a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the taxation year or a particular foreign affiliate of a taxpayer that is a controlled foreign affiliate of the taxpayer throughout the taxation year, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, is deemed to be nil if it is earned, incurred or realized in reference to any of the following sources:
(i) a debt obligation that was owing to
(A) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year (which other foreign affiliate is referred to in this paragraph as a “qualified foreign affiliate”) by the particular affiliate, or
(B) the particular affiliate by a qualified foreign affiliate,
(ii) the redemption, cancellation or acquisition of a share of the capital stock of, or the reduction of the capital of, the particular affiliate or a qualified foreign affiliate (which particular affiliate or which qualified foreign affiliate is referred to in this subparagraph as the “issuing corporation”) by the issuing corporation, or
(iii) the disposition to a qualified foreign affiliate of a share of the capital stock of another qualified foreign affiliate;
(g.01) any income, loss, capital gain or capital loss, derived by a foreign affiliate of a taxpayer under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the foreign affiliate to reduce its risk (with respect to any source, any particular income, gain or loss determined in reference to which is deemed by paragraph (g) to be nil) of fluctuations in the value of currency, is, to the extent of the absolute value of the particular income, gain or loss, deemed to be nil;
(g.02) in applying subsection 39(2) for the purpose of this subdivision (other than sections 94 and 94.1), the gains and losses of a foreign affiliate of a taxpayer in respect of excluded property are to be computed in respect of the taxpayer separately from the gains and losses of the foreign affiliate in respect of property that is not excluded property;
(g.03) if at any time a particular foreign affiliate referred to in paragraph (g) is a member of a partnership or a qualified foreign affiliate referred to in that paragraph is a member of a partnership,
(i) in applying this paragraph, where a debt obligation is owing at that time by a debtor to the partnership of which the particular foreign affiliate is a member, the debt obligation is deemed to be owing at that time by the debtor to the particular foreign affiliate in the proportion that the particular foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,
(ii) in applying this paragraph, where a debt obligation is owing at that time to a creditor by the partnership of which the particular foreign affiliate is a member, the debt obligation is deemed to be owing at that time to the creditor by the particular foreign affiliate in the proportion that the particular foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,
(iii) in applying paragraph (g) and this paragraph, where a debt obligation is owing at that time by a debtor to the partnership of which the qualified foreign affiliate is a member, the debt obligation is deemed to be owing at that time by the debtor to the qualified foreign affiliate in the proportion that the qualified foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,
(iv) in applying paragraph (g) and this paragraph, where a debt obligation is owing at that time to a creditor by the partnership of which the qualified foreign affiliate is a member, the debt obligation is deemed to be owing at that time to the creditor by the qualified foreign affiliate in the proportion that the qualified foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation, and
(v) in computing the particular foreign affiliate’s income or loss from a partnership, any income earned, loss incurred or capital gain or capital loss realized, as the case may be, by the partnership — in respect of the portion of a debt obligation owing to or owing by the partnership that is deemed by any of subparagraphs (i) to (iv) to be a debt obligation owing to or owing by the particular foreign affiliate (referred to in this subparagraph as the “allocated debt obligation”) — because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, that is attrib-utable to the allocated debt obligation is deemed to be nil to the extent that paragraph (g) would, if the rules in subparagraphs (i) to (iv) were applied, have applied to the particular foreign affiliate, to deem to be nil the income earned, loss incurred or capital gain or capital loss realized, as the case may be, by the particular foreign affiliate in respect of the allocated debt obligation, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency;
(14) Paragraph 95(2)(i) of the Act is replaced by the following:
(i) any income, gain or loss of a foreign affiliate of a taxpayer or of a partnership of which a foreign affiliate of a taxpayer is a member (which foreign affiliate or partnership is referred to in this paragraph as the “debtor”), for a taxation year or fiscal period of the debtor, as the case may be, is deemed to be income, a gain or a loss, as the case may be, from the disposition of an excluded property of the debtor, if the income, gain or loss is
(i) derived from the settlement or extinguishment of a debt of the debtor all or substantially all of the proceeds from which
(A) were used to acquire property, if at all times after the time at which the debt became debt of the debtor and before the time of that settlement or extinguishment, the property (or property substituted for the property) was property of the debtor and was, or would if the debtor were a foreign affiliate of the taxpayer be, excluded property of the debtor,
(B) were used at all times to earn income from an active business carried on by the debtor, or
(C) were used by the debtor for a combination of the uses described in clause (A) or (B),
(ii) derived from the settlement or extinguishment of a debt of the debtor all or substantially all of the proceeds from which were used to settle or extinguish a debt referred to in subparagraph (i) or in this subparagraph, or
(iii) derived under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the debtor to reduce its risk, with respect to a debt referred to in subparagraph (i) or (ii), of fluctuations in the value of the currency in which the debt was denominated;
(15) Subparagraph 95(2)(l)(iii) of the Act is replaced by the following:
(iii) the business is carried on by the affiliate as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws
(A) of each country in which the business is carried on through a permanent establishment (as defined by regulation) 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,
(B) of the country in which the business is principally carried on, or
(C) if the affiliate is related to a non-resident corporation, of the country under whose laws that non-resident corporation is governed and any of exists, was (unless that non-resident corporation was continued in any ju-risdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, and
(16) Subsection 95(2) of the Act is amended by striking out the word “and” at the end of paragraph (l) and by adding the following after paragraph (m):
(n) in applying paragraphs (a) and (g) and subsections (2.2) and (2.21), in applying paragraph (b) of the description of A in the formula in the definition “foreign accrual property income” in subsection (1) and in applying paragraph (d) of the definition “exempt earnings”, and paragraph (c) of the definition “exempt loss”, in subsection 5907(1) of the Regulations, a non-resident corporation is deemed to be, at any time, a foreign affiliate of a particular corporation resident in Canada, and a foreign affiliate of the particular corporation in respect of which the particular corporation has a qualifying interest, if at that time
(i) the non-resident corporation is a foreign affiliate of another corporation that is resident in Canada and that is related (otherwise than because of a right referred to in paragraph 251(5)(b)) to the particular corporation, and
(ii) that other corporation has a qualifying interest in respect of the non-resident corporation;
(o) a particular person is a qualifying member of a partnership at a particular time if, at that time, the particular person is a member of the partnership and
(i) throughout the period, in the fiscal period of the partnership that includes the particular time, during which the member was a member of the partnership, the particular person is, on a regular, continuous and substantial basis
(A) actively engaged in those activities, of the principal business of the partnership carried on in that fiscal period by the partnership, that are other than activities connected with the provision of or the acquisition of funds required for the operation of that principal business, or
(B) actively engaged in those activities, of a particular business carried on in that fiscal period by the particular person (otherwise than as a member of a partnership) that is similar to the principal business carried on in that fiscal period by the partnership, that are other than activities connected with the provision of or the acquisition of funds required for the operation of the particular business, or
(ii) throughout the period, in the fiscal period of the partnership that includes the particular time, during which the particular person was a member of the partnership
(A) the total of the fair market value of all partnership interests in the partnership owned by the particular person was equal to or greater than 1% of the total of the fair market value of all partnership interests in the partnership owned by all members of the partnership, and
(B) the total of the fair market value of all partnership interests in the partnership owned by the particular person or persons (other than trusts) related to the particular person was equal to or greater than 10% of the total of the fair market value of all partnership interests in the partnership owned by all members of the partnership;
(p) a particular person is a qualifying shareholder of a corporation at any time if throughout the period, in the taxation year of the corporation that includes that time, during which the particular person was a shareholder of the corporation
(i) the particular person owned 1% or more of the issued and outstanding shares (having full voting rights under all circumstances) of the capital stock of the corporation,
(ii) the particular person, or the particular person and persons (other than trusts) related to the particular person, owned 10% or more of the issued and outstanding shares (having full voting rights under all circumstances) of the capital stock of the corporation,
(iii) the total of the fair market value of all the issued and outstanding shares of the capital stock of the corporation owned by the particular person is 1% or more of the total fair market value of all the issued and outstanding shares of the capital stock of the corporation, and
(iv) the total of the fair market value of all the issued and outstanding shares of the capital stock of the corporation owned by the particular person or by persons (other than trusts) related to the particular person is 10% or more of the total fair market value of all the issued and outstanding shares of the capital stock of the corporation;
(q) in applying paragraphs (o) and (p),
(i) where interests in any partnership or shares of the capital stock of any corporation (which interests or shares are referred to in this subparagraph as “equity interests”) are, at any time, property of a particular partnership or are deemed under this paragraph to be, at any time, property of the particular partnership, the equity interests are deemed to be owned at that time by each member of the particular partnership in a proportion equal to the proportion of the equity interests that
(A) the fair market value, at that time, of the member’s partnership interest in the particular partnership
is of
(B) the fair market value, at that time, of all members’ partnership interests in the particular partnership, and
(ii) where interests in a partnership or shares of the capital stock of a corporation (which interests or shares are referred to in this subparagraph as “equity interests”) are, at any time, property of a non-discretionary trust (within the meaning assigned by subsection 17(15)) or are deemed under this paragraph to be, at any time, property of such a non-discretionary trust, the equity interests are deemed to be owned at that time by each beneficiary under that trust in a proportion equal to that proportion of the equity interests that
(A) the fair market value, at that time, of the beneficiary’s beneficial interest in the trust
is of
(B) the fair market value, at that time, of all beneficial interests in the trust;
(r) in applying paragraph (a) and in applying paragraph (d) of the definition “exempt earnings”, and paragraph (c) of the definition “exempt loss”, in subsection 5907(1) of the Regulations, a partnership is deemed to be, at any time, a partnership of which a foreign affiliate — of a particular corporation resident in Canada and in respect of which foreign affiliate the particular corporation has a qualifying interest — is a qualifying member, if at that time
(i) a particular foreign affiliate — of another corporation that is resident in Canada and that is related (otherwise than because of a right referred to in paragraph 251(5)(b)) to the particular corporation — is a member of the partnership,
(ii) that other corporation has a qualifying interest in respect of the particular foreign affiliate, and
(iii) the particular foreign affiliate is a qualifying member of the partnership;
(s) in applying the definition “investment business” in subsection (1), a particular corporation is, at any time, a designated corporation in respect of a foreign affiliate of a taxpayer, if at that time
(i) a qualifying shareholder of the foreign affiliate or a person related to such a qualifying shareholder is a qualifying shareholder of the particular corporation,
(ii) the particular corporation
(A) is controlled by a qualifying shareholder of the foreign affiliate, or
(B) would be controlled by a particular qualifying shareholder of the foreign affiliate if the particular qualifying shareholder of the foreign affiliate owned each share of the capital stock of the particular corporation that is owned by a qualifying shareholder of the foreign affiliate or by a person related to a qualifying shareholder of the foreign affiliate, and
(iii) the total of all amounts each of which is the fair market value of a share of the capital stock of the particular corporation owned by a qualifying shareholder of the foreign affiliate or by a person related to a qualifying shareholder of the foreign affiliate is greater than 50% of the total fair market value of all the issued and outstanding shares of the capital stock of the particular corporation;
(t) in applying the definition “investment business” in subsection (1) in respect of a business carried on by a foreign affiliate of a taxpayer in a taxation year, a particular partnership is, at any time, a designated partnership in respect of the foreign affiliate of the taxpayer, if at that time
(i) the foreign affiliate or a person related to the foreign affiliate is a qualifying member of the particular partnership, and
(ii) the total of all amounts — each of which is the fair market value of a partnership interest in the particular partnership held by the foreign affiliate, by a person related to the foreign affiliate or (where the foreign affiliate carries on, at that time, the business as a qualifying member of another partnership) by a qualifying member of the other partnership — is greater than 50% of the total fair market value of all partnership interests in the particular partnership owned by all members of the particular partnership;
(u) if any entity is (or is deemed by this paragraph to be) a member of a particular partnership that is a member of another partnership,
(i) the entity is deemed to be a member of the other partnership for the purpose of
(A) subparagraph (ii),
(B) applying the reference, in paragraph (a), to “a member” of a partnership,
(C) paragraphs (a.1) to (b), (g.03) and (o), and
(D) paragraphs (b) and (c) of the definition “investment business” in subsection (1), and
(ii) in applying paragraph (g.03), the entity is deemed to have, directly, rights to the income or capital of the other partnership, to the extent of the entity’s direct and indirect rights to that income or capital;
(v) in applying paragraph (p),
(i) where shares of the capital stock of any corporation (referred to in this paragraph as the “issuing corporation”) are, at any time, owned by a corporation (referred to in this paragraph as the “holding corporation”) or are deemed under this paragraph to be, at any time, owned by a corporation (referred to in this paragraph as the “holding corporation”), those shares are deemed to be owned at that time by each shareholder of the holding corporation in a proportion equal to the proportion of those shares that
(A) the fair market value, at that time, of the shares of the capital stock of the issuing corporation that are owned by the shareholder
is of
(B) the fair market value, at that time, of all the issued and outstanding shares of the capital stock of the issuing corporation, and
(ii) a person who is deemed by subparagraph (i) to own, at any time, shares of the capital stock of a corporation is deemed to be, at that time, a shareholder of the corporation;
(w) where a foreign affiliate of a corporation resident in Canada carries on an active business in more than one country,
(i) where the business is carried on in a country other than Canada, it is deemed to carry on that business in that country only to the extent that the profit or loss from that business can reasonably be attributed to a permanent establishment situated in that country, and
(ii) where the business is carried on in Canada, it is deemed to carry on that business in Canada only to the extent that the income from the active business is subject to tax under this Part;
(x) the loss from an active business, from a non-qualifying business or from property (as the case may be) of a foreign affiliate of a taxpayer resident in Canada for a taxation year is the amount of that loss, if any, that is computed by applying the provisions in this subdivision with respect to the computation of income from the active business, from the non-qualifying business or from property (as the case may be) of the foreign affiliate for the taxation year with any modifications that the circumstances require;
(y) in determining — for the purpose of paragraph (a) and for the purpose of applying subsections (2.2) and (2.21) for the purpose of applying that paragraph — whether a non-resident corporation is, at any time, a foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest, where interests in any partnership or shares of the capital stock of any corporation (which interests or shares are referred to in this paragraph as “equity interests”) are, at that time, property of a particular partnership or are deemed under this paragraph to be, at any time, property of the particular partnership, the equity interests are deemed to be owned at that time by each member of the particular partnership in a proportion equal to the proportion of the equity interests that
(i) the fair market value, at that time, of the member’s partnership interest in the particular partnership
is of
(ii) the fair market value, at that time, of all members’ partnership interests in the particular partnership; and
(z) where a particular foreign affiliate of a taxpayer — in respect of which the taxpayer has a qualifying interest or that is a controlled foreign affiliate of the taxpayer — is a member of a partnership, the particular foreign affiliate’s foreign accrual property income or loss in respect of the taxpayer for a taxation year shall not include any income or loss of the partnership to the extent that the income or loss
(i) is attributable to the foreign accrual property income or loss of a foreign affiliate of the partnership that is also a foreign affiliate of the taxpayer (referred to in this paragraph as the “second foreign affiliate”) in respect of which the taxpayer has a qualifying interest or that is a controlled foreign affiliate of the taxpayer, and
(ii) is, because of paragraph (a) as applied in respect of the taxpayer, included in computing the income or loss from an active business of the second foreign affiliate for a taxation year.
(17) Section 95 of the Act is amended by adding the following after subsection (2):
Rules for the definition “controlled foreign affiliate”
(2.01) In applying paragraph (b) of the definition “controlled foreign affiliate” in subsection (1) and in applying this subsection,
(a) shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, another corporation are deemed to be, at that time, owned by, or property of, as the case may be, each shareholder of the other corporation in the proportion that
(i) the fair market value at that time of the shares of the capital stock of the other corporation that, at that time, are owned by, or are property of, the shareholder
is of
(ii) the fair market value at that time of all the issued and outstanding shares of the capital stock of the other corporation;
(b) shares of the capital stock of a corporation that are, or are deemed by this subsection to be, at any time, property of a partnership, are deemed to be, at that time, owned by, or property of, as the case may be, each member of the partnership in the proportion that
(i) the fair market value at that time of the member’s partnership interest in the partnership
is of
(ii) the fair market value at that time of all partnership interests in the partnership;
(c) shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, a non-discretionary trust (within the meaning assigned by subsection 17(15)) other than an exempt trust (within the meaning assigned by subsection (1)) are deemed to be, at that time, owned by, or property of, as the case may be, each beneficiary of the trust in the proportion that
(i) the fair market value at that time of the beneficiary’s beneficial interest in the trust
is of
(ii) the fair market value at that time of all beneficial interests in the trust; and
(d) all of the shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, a particular trust (other than an exempt trust within the meaning assigned by subsection (1) or a non-discretionary trust within the meaning assigned by subsection 17(15)) are deemed to be, at that time, owned by, or property of, as the case may be,
(i) each beneficiary of the particular trust at that time, and
(ii) each settlor (within the meaning assigned by subsection 17(15)) in respect of the particular trust at that time.
Marginal note:Rule against double-counting
(2.02) In applying the assumption in paragraph (b) of the definition “controlled foreign affiliate” in subsection (1) in respect of a taxpayer resident in Canada to determine whether a foreign affiliate of the taxpayer is at any time a controlled foreign affiliate of the taxpayer, nothing in that paragraph or in subsection (2.01) is to be read or construed as requiring an interest, or for civil law a right, in a share of the capital stock of the foreign affiliate of the taxpayer owned at that time by the taxpayer to be taken into account more than once.
(18) Paragraph 95(2.1)(c) of the Act is replaced by the following:
(c) the affiliate entered into the agreements in the course of a business carried on by the affiliate, if
(i) the business is carried on by the affiliate principally in a country (other than Canada) and principally with persons with whom the affiliate deals at arm’s length, and
(ii) the business activities of the affiliate are regulated in that country; and
(19) Subsection 95(2.2) of the Act is replaced by the following:
Marginal note:Rule re subsection (2)
(2.2) For the purpose of subsection (2), other than paragraph (2)(f), a non-resident corporation that is not a foreign affiliate of a taxpayer in respect of which the taxpayer had a qualifying interest throughout a particular taxation year is deemed to be a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout that particular taxation year if
(a) a person or partnership has, in that particular taxation year, acquired or disposed of shares of the capital stock of that non-resident corporation or of any other corporation and, because of that acquisition or disposition, that non-resident corporation becomes or ceases to be a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest, and
(b) at the beginning of that particular taxation year or at the end of that particular taxation year, the non-resident corporation is a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest.
Marginal note:Rule re subsection (2.2)
(2.21) Subsection (2.2) does not apply for the purpose of paragraph (2)(a) in respect of any income or loss referred to in that paragraph, of a particular foreign affiliate of the taxpayer, to the extent that that income or loss can reasonably be considered to have been realized or to have accrued before the earlier of
(a) the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest, and
(b) the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of another person resident in Canada in respect of which the other person resident in Canada had a qualifying interest, where
(i) the taxpayer is a corporation,
(ii) the taxpayer did not exist at the beginning of the taxation year,
(iii) the particular affiliate became a foreign affiliate of the taxpayer in the taxation year because of a disposition, in the taxation year, of shares of the capital stock of the particular affiliate to the taxpayer by the other person resident in Canada, and
(iv) the other person resident in Canada was, immediately before that disposition, related to the taxpayer.
(20) Paragraph 95(2.3)(b) of the Act is replaced by the following:
(b) the sale or exchange was made by the affiliate in the course of a business conducted principally with persons with whom the affiliate deals at arm’s length, if
(i) the business is principally carried on in the country (other than Canada) 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, or
(ii) the affiliate is a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities and the activities of the business are regulated
(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 (as defined by regulation) in that country,
(B) under the laws of the country (other than Canada) in which the business is principally carried on, or
(C) if the affiliate is related to a corporation, under the laws of the country under the laws of which that related corporation is governed and any of exists, was (unless that related corporation was continued in any ju-risdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union; and
(21) Paragraph 95(2.4)(a) of the Act is replaced by the following:
(a) the income is derived by the affiliate in the course of a business conducted principally with persons with whom the affiliate deals at arm’s length carried on by it as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws
(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 (as defined by regulation) in that country,
(ii) of the country in which the business is principally carried on, or
(iii) if the affiliate is related to a corporation, of the country under the laws of which that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, and
(22) Section 95 of the Act is amended by adding the following after subsection (2.4):
Marginal note:Application of paragraph (2)(a.3)
(2.41) Paragraph (2)(a.3) does not apply to a foreign affiliate of a taxpayer resident in Canada in respect of the foreign affiliate’s income for a taxation year derived, directly or indirectly, from indebtedness of persons resident in Canada or from indebtedness in respect of businesses carried on in Canada (referred to in this subsection as the “Canadian indebtedness”) if
(a) the taxpayer is, at the end of the foreign affiliate’s taxation year
(i) a life insurance corporation resident in Canada, the business activities of which are subject by law to the supervision of the Superintendent of Financial Institutions or a similar authority of a province, or
(ii) a corporation resident in Canada that is a subsidiary controlled corporation of a corporation described in subparagraph (i);
(b) the Canadian indebtedness is used or held by the foreign affiliate, throughout the period in the taxation year that that Canadian indebtedness was used or held by the foreign affiliate, in the course of carrying on a business (referred to in this subsection as the “foreign life insurance business”) that is a life insurance business carried on outside Canada (other than a business deemed by paragraph (2)(a.2) to be a separate business other than an active business), the activities of which are regulated
(i) under the laws of the country under whose laws the foreign affiliate is governed and any of exists, was (unless the foreign affiliate was continued in any jurisdiction) formed or organized, or was last continued, and
(ii) under the laws of the country, if any, in which the business is principally carried on;
(c) more than 90% of the gross premium revenue of the foreign affiliate for the taxation year in respect of the foreign life insurance business was derived from the insurance or reinsurance of risks (net of reinsurance ceded) in respect of persons
(i) that were non-resident at the time at which the policies in respect of those risks were issued or effected, and
(ii) that were at that time dealing at arm’s length with the foreign affiliate, the taxpayer and all persons that were related at that time to the foreign affiliate or the taxpayer; and
(d) it is reasonable to conclude that the foreign affiliate used or held the Canadian indebtedness
(i) to fund a liability or reserve of the foreign life insurance business, or
(ii) as capital that can reasonably be considered to have been required for the foreign life insurance business.
Marginal note:Exception re paragraph (2)(a.3)
(2.42) If, at any time in a taxation year of a foreign affiliate of a taxpayer referred to in paragraph (2)(a.3), a life insurance corporation resident in Canada is the taxpayer referred to in paragraph (2)(a.3) or is a person who controls, or is controlled by, such a taxpayer, a particular indebtedness or a particular lease obligation of the life insurance corporation is, for the purposes of that paragraph, deemed, at that time, not to be an indebtedness or a lease obligation of a person resident in Canada, to the extent of the portion of the particular indebtedness or lease obligation that can reasonably be considered to have been issued by the life insurance corporation to the foreign affiliate
(a) in respect of the life insurance corporation’s life insurance business carried on outside Canada; and
(b) not in respect of
(i) the life insurance corporation’s life insurance business carried on in Canada, or
(ii) any other use.
(23) The definition “indebtedness” in subsection 95(2.5) of the Act is replaced by the following:
“indebtedness”
« dette »
“indebtedness” does not include obligations of a particular person under agreements with non-resident corporations providing for the purchase, sale or exchange of currency where
(a) the agreements are swap agreements, forward purchase or sale agreements, forward rate agreements, futures agreements, options or rights agreements, or similar agreements,
(b) the particular person is a bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities resident in Canada, the business activities of which are subject by law to the supervision of a regulating authority in Canada such as the Superintendent of Financial Institutions or a similar authority of a province,
(c) the agreements are entered into by the non-resident corporation in the course of a business conducted principally with persons with whom the non-resident corporation deals at arm’s length, if
(i) the business is principally carried on in the country (other than Canada) 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, or
(ii) the non-resident corporation is a foreign affiliate of the particular person, or of a person related to the particular person, and
(A) the non-resident corporation is a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, and
(B) the activities of the business are regulated
(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 (as defined by regulation) in that country,
(II) under the laws of the country (other than Canada) in which the business is principally carried, or
(III) if the affiliate is related to a corporation, under the laws of the country under the laws of which a corporation related to the non-resident corporation is governed and any of exists, was (unless that related corporation was continued in any ju-risdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the Eu-ropean Union, and
(d) the terms and conditions of such agreements are substantially the same as the terms and conditions of similar agreements made by persons dealings at arm’s length;
(24) Subsection 95(3) of the Act is amended by striking out the word “or” at the end of paragraph (a) and by adding the following after paragraph (b):
(c) the transmission of electronic signals or electricity along a transmission system located outside Canada; or
(d) the manufacturing or processing outside Canada, in accordance with the taxpayer’s specifications and under a contract between the taxpayer and the affiliate, of tangible property, or for civil law corporeal property, that is owned by the taxpayer if the property resulting from the manufacturing or processing is used or held by the taxpayer in the ordinary course of the taxpayer’s business carried on in Canada.
(25) Section 95 of the Act is amended by adding the following after subsection (3):
Marginal note:Designated property — subparagraph (2)(a.1)(i)
(3.1) Designated property referred to in subparagraph (2)(a.1)(i) is property that is described in the portion of paragraph (2)(a.1) that is before subparagraph (i) that is
(a) property that was sold to non-resident persons other than the affiliate, or sold to the affiliate for sale to non-resident persons, and
(i) that
(A) was — in the course of carrying on a business in Canada — manufactured, produced, grown, extracted or processed in Canada by the taxpayer, or by a person with whom the taxpayer does not deal at arm’s length, or
(B) was — in the course of a business carried on by a foreign affiliate of the taxpayer outside Canada — manufactured or processed from tangible property, or for civil law corporeal property, that, at the time of the manufacturing or processing, was owned by the taxpayer or by a person related to the taxpayer and used or held by the owner in the course of carrying on a business in Canada, if the manufacturing or processing was in accordance with the specifications of the owner of that tangible or corporeal property and under a contract between that owner and that foreign affiliate,
(ii) that was acquired, in the course of carrying on a business in Canada, by a purchaser from a vendor, if
(A) the purchaser is the taxpayer or is a person resident in Canada with whom the taxpayer does not deal at arm’s length, and
(B) the vendor is a person
(I) with whom the taxpayer deals at arm’s length,
(II) who is not a foreign affiliate of the taxpayer, and
(III) who is not a foreign affiliate of a person resident in Canada with whom the taxpayer does not deal at arm’s length, or
(iii) that was acquired by a purchaser from a vendor, if
(A) the purchaser is the taxpayer or is a person resident in Canada with whom the taxpayer does not deal at arm’s length,
(B) the vendor is a foreign affiliate of
(I) the taxpayer, or
(II) a person resident in Canada with whom the taxpayer does not deal at arm’s length, and
(C) that property was manufactured, produced, grown, extracted or processed in the country
(I) under whose laws the vendor is governed and any of exists, was (unless the vendor was continued in any jurisdiction) formed or organized, or was last continued, and
(II) in which the vendor’s business is principally carried on; or
(b) property that is an interest in real property, or a real right in an immovable, located in, or a foreign resource property in respect of, the country
(i) 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
(ii) in which the affiliate’s business is principally carried on.
(26) The definitions “active business”, “income from an active business” and “income from property” in subsection 95(1) of the Act, as enacted by subsection (1), subsections (3), (4), and (6), the definitions “income from a non-qualifying business”, “non-qualifying business” and “non-qualifying country” in subsection 95(1) of the Act, as enacted by subsection (9), and paragraphs 95(2)(w) and (x) of the Act, as enacted by subsection (16), apply in respect of taxation years, of a foreign affiliate of a taxpayer, that begin after 2008.
(27) The definition “controlled foreign affiliate” in subsection 95(1) of the Act, as enacted by subsection (1), applies to taxation years, of a foreign affiliate of a taxpayer, that begin after 1995, except that
(a) for taxation years, of a foreign affiliate of a taxpayer, that begin after 2002 and on or before February 27, 2004, the definition “controlled foreign affiliate” in subsection 95(1) of the Act, as enacted by subsection (1), is to be read as follows:
- “controlled foreign affiliate”
“controlled foreign affiliate”, at any time, of a taxpayer resident in Canada, means
(a) a foreign affiliate of the taxpayer that is, 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
(b) a foreign affiliate of the taxpayer that would, at that time, be controlled by the taxpayer if the taxpayer owned
(i) all of the shares of the capital stock of the foreign affiliate that are owned at that time by the taxpayer,
(ii) all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with the taxpayer,
(iii) all of the shares of the capital stock of the foreign affiliate that are owned at that time by the persons (each of whom is referred to in this definition as a “relevant Canadian shareholder”), in any set of persons not exceeding four (which set of persons shall be determined without ref-erence to the existence of or the absence of any relationship, connection or action in concert between those persons), who
(A) are resident in Canada,
(B) are not the taxpayer or a person described in subparagraph (ii), and
(C) own, at that time, shares of the capital stock of the foreign affiliate, and
(iv) all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with any relevant Canadian shareholder;
(b) for taxation years, of a foreign affiliate of a taxpayer, that begin after 1995 and before 2003, the definition “controlled foreign affiliate” in subsection 95(1) of the Act, as enacted by subsection (1), is to be read as follows:
- “controlled foreign affiliate”
“controlled foreign affiliate”, at any time of a taxpayer resident in Canada, means a foreign affiliate of the taxpayer that
(a) is, 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
(b) would, 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), and
(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;
(28) Subject to subsection (46), subsections (2) and (14) apply to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002, except that paragraph 95(2)(i) of the Act, as enacted by subsection (14), shall, in respect of settlements and extinguishments of debt held by a foreign affiliate of the taxpayer that occur in those taxation years and before October 2, 2007, be read as follows:
(i) any gain or loss determined in accordance with subsection 39(2) of a foreign affiliate of a taxpayer is deemed to be a gain or loss, as the case may be, from the disposition of an excluded property if the gain or loss is
(i) derived from the settlement or extinguishment of a debt all or substantially all of the proceeds from which were used at all times to acquire excluded property or to earn income from an active business or for a combination of those uses, or
(ii) derived under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the affiliate to reduce its risk, with respect to a debt referred to in subparagraph (i), of fluctuations in the value of the currency in which the debt was denominated;
(29) Subsection (5) applies in respect of taxation years, of a foreign affiliate of a taxpayer, that end on or after December 20, 2002.
(30) Subject to subsection (46), subsections (7), (15), (18) and (20) to (23) apply to taxation years, of a foreign affiliate of a taxpayer, that begin after 1999.
(31) Subject to subsection (46), subsection (8) applies to taxation years, of a foreign affiliate of a taxpayer, that end after 1999.
(32) Subject to subsection (45), subsection (11) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002.
(33) The definition “entity” in subsection 95(1) of the Act, as enacted by subsection (9), applies in respect of taxation years, of a foreign affiliate of a taxpayer, that begin after 1994.
(34) The definitions “eligible trust”, “exempt trust”, “specified fixed interest” and “specified purchaser” in subsection 95(1) of the Act, as enacted by subsection (9), apply after February 27, 2004, except that, after February 27, 2004 and before October 2, 2007, the definition “specified purchaser” in subsection 95(1) of the Act, as enacted by subsection (9), shall be read as follows:
- “specified purchaser”
“specified purchaser”, at any time in respect of a particular taxpayer resident in Canada, means a person or partnership that is, at that time,
(a) the particular taxpayer;
(b) a taxpayer resident in Canada with which the particular taxpayer does not deal at arm’s length;
(c) a foreign affiliate of a person described in paragraph (a) or (b);
(d) a non-resident person with which a person described in any of paragraphs (a) to (c) does not deal at arm’s length;
(e) a trust (other than an exempt trust) in which a person or partnership described in any of paragraphs (a) to (d) and (f) is beneficially interested; and
(f) a partnership of which a person or partnership described in any of paragraphs (a) to (e) is a member.
(35) Subject to subsection (46), subsection (10) and paragraph 95(2)(z) of the Act, as enacted by subsection (16), apply to taxation years, of a foreign affiliate of a taxpayer, that end after 1999. However,
(a) subject to paragraph (b), paragraph 95(2)(a) of the Act, as enacted by subsection (10), shall, for taxation years, of a foreign affiliate of a taxpayer, that end after 1999 and begin before 2009, be read as follows:
(a) in computing the income or loss from an active business for a taxation year of a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the year or that is a controlled foreign affiliate of the taxpayer throughout the year, there shall be included any income or loss of the particular foreign affiliate for that year from sources in a country other than Canada that would otherwise be income or loss from property of the particular foreign affiliate for the year to the extent that
(i) the income or loss
(A) is derived by the particular foreign affiliate from activities that can reasonably be considered to be directly related to active business activities carried on in a country other than Canada by
(I) another corporation
1. that is a non-resident corporation to which the particular foreign affiliate and the taxpayer are related throughout the year, or
2. that is a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, or
(II) a life insurance corporation that is resident in Canada throughout the year and that is
1. the taxpayer,
2. a person who controls the taxpayer,
3. a person controlled by the taxpayer, or
4. a person controlled by a person who controls the taxpayer, and
(B) would be included in computing the amount prescribed to be the earnings or loss, from an active business carried on in a country other than Canada, of
(I) the non-resident corporation referred to in sub-subclause (A)(I)1 or the life insurance corporation referred to in subclause (A)(II), if that non-resident corporation or that life insurance corporation were a foreign affiliate of the taxpayer and the income were earned by it, or
(II) the foreign affiliate referred to in sub-subclause (A)(I)2, if the income were earned by it,
(ii) the income or loss is derived from amounts that were paid or payable, directly or indirectly, to the particular foreign affiliate or a partnership of which the particular foreign affiliate was a member
(A) by
(I) a non-resident corporation to which the particular foreign affiliate and the taxpayer are related throughout the year, or
(II) a partnership of which a non-resident corporation to which the particular foreign affiliate and the taxpayer are related throughout the year is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which that non-resident corporation was a member of the partnership
to the extent that those amounts that were paid or payable are for expenditures that would, if the non-resident corporation or the partnership were a foreign affiliate of the taxpayer, be deductible by it in computing the amounts prescribed to be its earnings or loss for a taxation year from an active business (other than an active business carried on in Canada),
(B) by
(I) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, or
(II) a partnership of which another foreign affiliate of the taxpayer — in respect of which other foreign affiliate the taxpayer has a qualifying interest throughout the year or to which other foreign affiliate the particular foreign affiliate and the taxpayer are related throughout the year — is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which that other foreign affiliate was a member of the partnership
to the extent that those amounts that were paid or payable are for expenditures that were deductible by the other foreign affiliate or would (if the partnership were a foreign affiliate of the taxpayer) be deductible by the partnership in computing the amounts prescribed to be its earnings or loss for a taxation year from an active business (other than an active business carried on in Canada),
(C) by a partnership of which the particular foreign affiliate is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which the particular foreign affiliate was a member of the partnership, to the extent that those amounts that were paid or payable were for expenditures that would, if the partnership were a foreign affiliate of the taxpayer, be deductible in computing the amounts prescribed to be its earnings or loss for a taxation year from an active business (other than an active business carried on in Canada),
(D) by another foreign affiliate (referred to in this clause as the “second affiliate”) of the taxpayer — in respect of which the taxpayer has a qualifying interest throughout the year or to which the particular foreign affiliate and the taxpayer are related throughout the year — to the extent that the amounts are paid or payable by the second affiliate, in respect of any particular period in the year,
(I) under a legal obligation to pay interest on borrowed money used for the purpose of earning income from property, or
(II) on an amount payable for property acquired for the purpose of gaining or producing income from property
where
(III) the property is, throughout the particular period, excluded property of the second affiliate that is shares of the capital stock of a corporation (referred to in this clause as the “third affiliate”) which is, throughout the particular period, a foreign affiliate (other than the particular foreign affiliate) of the taxpayer in respect of which the taxpayer has a qualifying interest or to which the particular foreign affiliate and the taxpayer are related,
(IV) the second affiliate and the third affiliate are resident in the same country for each of their taxation years (each of which taxation years is referred to in subclause (V) as a “relevant taxation year” of the second affiliate or of the third affiliate, as the case may be) that end in the year, and
(V) in respect of each of the second affiliate and the third affiliate for each relevant taxation year of that affiliate, either
1. that affiliate is subject to income taxation in that country in that relevant taxation year, or
2. the members or shareholders of that affiliate (which, for the purpose of this sub-subclause, includes a person that has, directly or indi-rectly, an interest, or for civil law a right, in a share of the capital stock of, or in an equity interest in, the affiliate) at the end of that relevant taxation year are subject to income taxation in that country on, in aggregate, all or substantially all of the income of that affiliate for that relevant taxation year in their taxation years in which that relevant taxation year ends, or
(E) by a life insurance corporation that is resident in Canada and that is the taxpayer, a person who controls the taxpayer, a person controlled by the taxpayer or a person controlled by a person who controls the taxpayer, to the extent that those amounts that were paid or payable were for expenditures that are deductible by the life insurance corporation in computing its income or loss for a taxation year from carrying on its life insurance business outside Canada and are not deductible in computing its income or loss for a taxation year from carrying on its life insurance business in Canada,
(iii) the income or loss is derived by the particular foreign affiliate from the factoring of trade accounts receivable acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from a non-resident corporation to which the particular foreign affiliate and the taxpayer are related throughout the year to the extent that the accounts receivable arose in the course of an active business carried on in a country other than Canada by the non-resident corporation,
(iv) the income or loss is derived by the particular foreign affiliate from loans or lending assets acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from a non-resident corporation to which the particular foreign affiliate and the taxpayer are related throughout the year to the extent that the loans or lending assets arose in the course of an active business carried on in a country other than Canada by the non-resident corporation,
(v) the income or loss is derived by the particular foreign affiliate from the disposition of excluded property that is not capital property, or
(vi) the income or loss is derived by the particular foreign affiliate under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the particular foreign affiliate to reduce
(A) its risk — with respect to an amount that increases the amount required by this paragraph to be included in computing the particular foreign affiliate’s income for a taxation year from an active business or that decreases the amount required by this paragraph to be included in computing the particular foreign affiliate’s loss for a taxation year from an active business — of fluctuations in the value of the currency in which the amount was denominated, or
(B) its risk — with respect to an amount that decreases the amount required by this paragraph to be included in computing the particular foreign affiliate’s income for a taxation year from an active business or that increases the amount required by this paragraph to be included in computing the particular foreign affiliate’s loss for a taxation year from an active business — of fluctuations in the value of the currency in which the amount was denominated;
(b) if a taxpayer so elects in writing and files the election 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 is assented to,
(i) subclauses 95(2)(a)(ii)(D)(III) to (V) of the Act, as enacted by subsection (10), as required to be read by paragraph (a), also apply to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000, except that the references in those subclauses, as those subclauses apply to those taxation years of a foreign affiliate of a taxpayer, to “particular foreign affiliate” shall be read as references to “particular affiliate”; and
(ii) where the taxpayer has not validly made the election provided by subsection (46), clauses 95(2)(a)(ii)(A) to (C) and (E) of the Act, as enacted by subsection (10), as required to be read by paragraph (a), also apply to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000, except that the references in those clauses 95(2)(a)(ii)(A) to (C), as those clauses apply to those taxation years of a foreign affiliate of a taxpayer, to “particular foreign affiliate” shall be read as references to “particular affiliate” and
(A) subclause (II) of that clause 95(2)(a)(ii)(A) shall be read as follows:
(II) a partnership of which a non-resident corporation to which the particular affiliate and the taxpayer are related throughout the year is a member and of which that non-resident corporation is not a specified member at any time in a fiscal period of the partnership that ends in the year
(B) subclause (II) of that clause 95(2)(a)(ii)(B) shall be read as follows:
(II) a partnership of which another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year is a member and of which that other foreign affiliate is not a specified member at any time in a fiscal period of the partnership that ends in the year
(C) that clause 95(2)(a)(ii)(C) shall be read as follows:
(C) by a partnership of which the particular affiliate is a member and of which the particular affiliate is not a specified member at any time in a fiscal period of the partnership that ends in the year, to the extent that those amounts that were paid or payable were for expenditures that would be, if the partnership were a foreign affiliate of the taxpayer, deductible in a taxation year in computing the amounts prescribed to its earnings or loss from an active business carried on by it outside Canada,
(36) Subsection (12) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002, except that, in applying paragraph 95(2)(b) of the Act, as enacted by subsection (12), to taxation years, of a foreign affiliate of the taxpayer, that begin after December 20, 2002 and before February 28, 2004, that paragraph shall be read as follows:
(b) the provision, by a foreign affiliate of a taxpayer, of services or of an undertaking to provide services is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, if
(i) the amount paid or payable in consideration for those services or for the undertaking to provide those services
(A) is deductible, or can reasonably be considered to relate to an amount that is deductible, in computing the income from a business carried on in Canada, by
(I) any taxpayer of whom the affiliate is a controlled foreign affiliate, or
(II) another person who is related to any taxpayer of whom the affiliate is a controlled foreign affiliate, or
(B) is deductible, or can reasonably be considered to relate to an amount that is deductible, in computing the foreign accrual property income of a controlled foreign affiliate of
(I) any taxpayer of whom the affiliate is a controlled foreign affiliate, or
(II) another person who is related to any taxpayer of whom the affiliate is a controlled foreign affiliate, or
(ii) the services are, or are to be, performed by
(A) any taxpayer of whom the affiliate is a controlled foreign affiliate and who is an individual resident in Canada, or
(B) another person who is related to any taxpayer of whom the affiliate is a controlled foreign affiliate and who is an individual resident in Canada;
(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) of the Act, as enacted by subsection (13), shall be read as follows:
(g) income earned, a loss incurred or a capital gain or capital loss realized, as the case may be, in a taxation year by a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the taxation year or that is a controlled foreign affiliate of the taxpayer throughout the taxation year, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, is deemed to be nil if it is earned, incurred or realized in reference to any of the following sources:
(i) a debt obligation that was owing to
(A) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year or any other non-resident corporation to which the particular affiliate and the taxpayer are related throughout the year (which other foreign affiliate or other non-resident corporation is referred to in this paragraph as a “qualified foreign corporation”), or
(B) the particular affiliate by a qualified foreign corporation,
(ii) the redemption, cancellation or acquisition of a share of the capital stock of, or the reduction of the capital of, the particular affiliate or a qualified foreign corporation (which particular affiliate or which qualified foreign affiliate is referred to in this subparagraph as the “issuing corporation”) by the issuing corporation, or
(iii) the disposition to a qualified foreign corporation of a share of the capital stock of another qualified foreign corporation;
(38) Subject to subsection (46), paragraphs 95(2)(n) and (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 taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act is assented to, 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.
(39) Subject to subsection (46), paragraphs 95(2)(o) and (q) of the Act, as enacted by subsection (16), apply to taxation years that end after 1999.
(40) Paragraph 95(2)(u) of the Act, as enacted by subsection (16), applies in respect of 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 taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act is assented to, paragraph 95(2)(u) of the Act, as enacted by subsection (16), applies in respect of taxation years, of all foreign affiliates of the taxpayer, that begin after 1994.
(41) Subsection (17) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after February 27, 2004.
(42) Subsection 95(2.2) of the Act, as enacted by subsection (19), applies to taxation years, of a foreign affiliate of a taxpayer, that end after 1999. However,
(a) subsection 95(2.2) of the Act, as enacted by subsection (19), shall be read as follows for taxation years, of a foreign affiliate of a taxpayer, that end after 1999 and begin before 2009:
(2.2) For the purpose of subsection (2), other than paragraph (2)(f),
(a) a non-resident corporation that was not a foreign affiliate of a taxpayer in respect of which the taxpayer had a qualifying interest throughout a particular taxation year shall be deemed to be a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest throughout that year where
(i) a person or partnership has, in that year, acquired or disposed of shares of the capital stock of that non-resident corporation or any other corporation and, because of that acquisition or disposition, that non-resident corporation became or ceased to be a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest, and
(ii) at the beginning of that year or at the end of that year, the non-resident corporation was a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest; and
(b) a non-resident corporation that was not related to a taxpayer or to a taxpayer and a foreign affiliate of the taxpayer, as the case may be, throughout a particular taxation year is deemed to be related to the taxpayer or to the taxpayer and the foreign affiliate of the taxpayer throughout that year if
(i) a person or partnership has, in that year, acquired or disposed of shares of the capital stock of the non-resident corporation or any other corporation and, because of that acquisition or disposition, the non-resident corporation became (or would have become, if paragraph 251(5)(b) did not apply to rights contained in the agreement under which the person acquired the shares), or ceased to be, a non-resident corporation that was related to the taxpayer or to the taxpayer and the foreign affiliate of the taxpayer, and
(ii) at the beginning, or at the end, of that year, the non-resident corporation was related to the taxpayer or to the taxpayer and the foreign affiliate of the taxpayer.
(b) if a taxpayer elects in writing and files the election 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 is assented to, 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:
(2.2) For the purpose of subsection (2), other than paragraph (2)(f),
(a) a non-resident corporation that was not a foreign affiliate of a taxpayer in respect of which the taxpayer had a qualifying interest throughout a particular taxation year shall be deemed to be a foreign affiliate of a taxpayer in respect of which the taxpayer had a qualifying interest throughout that year where
(i) a person has, in that year, acquired or disposed of shares of the capital stock of that non-resident corporation or any other corporation and, because of that acquisition or disposition, that non-resident corporation became or ceased to be a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest, and
(ii) at the beginning of that year or at the end of that year, the non-resident corporation was a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest; and
(b) a non-resident corporation that was not related to a taxpayer or to a taxpayer and a foreign affiliate of the taxpayer, as the case may be, throughout a particular taxation year is deemed to be related to the taxpayer or to the taxpayer and the foreign affiliate of the taxpayer throughout that year if
(i) a person has, in that year, acquired or disposed of shares of the capital stock of the non-resident corporation or any other corporation and, because of that acquisition or disposition, the non-resident corporation became (or would have become, if paragraph 251(5)(b) did not apply to rights contained in the agreement under which the person acquired the shares), or ceased to be, a non-resident corporation that was related to the taxpayer or to the taxpayer and the foreign affiliate of the taxpayer, and
(ii) at the beginning, or at the end, of that year, the non-resident corporation was related to the taxpayer or to the taxpayer and the foreign affiliate of the taxpayer.
(43) Subsection 95(2.21) of the Act, as enacted by subsection (19), applies to taxation years, of a foreign affiliate of a taxpayer, that end after 1999. However,
(a) for taxation years, of a foreign affiliate of a taxpayer, that end after 1999 and begin before 2009, subsection 95(2.21) of the Act, as enacted by subsection (19), is to be read as follows:
(2.21) Subsection (2.2) does not apply for the purpose of paragraph (2)(a) in respect of any income or loss referred to in that paragraph, of a particular foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the taxation year of the particular affiliate or to which the taxpayer is related throughout the taxation year, to the extent that that income or loss can reasonably be considered to have been realized or to have accrued
(a) before the earlier of
(i) the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest or to which the taxpayer is related, and
(ii) the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of another person resident in Canada in respect of which the other person resident in Canada had a qualifying interest or to which the other person resident in Canada is related, where
(A) the taxpayer is a corporation,
(B) the taxpayer did not exist at the beginning of the taxation year,
(C) the particular affiliate became a foreign affiliate of the taxpayer in the taxation year because of a disposition, in the taxation year, of shares of the capital stock of the particular affiliate to the taxpayer by the other person resident in Canada, and
(D) the other person resident in Canada was, immediately before that disposition, related to the taxpayer; or
(b) before the earlier of
(i) the time at which a non-resident corporation (other than the particular affiliate), or a foreign affiliate of the taxpayer (other than the particular affiliate), referred to in paragraph (2.2)(a) became, as determined without reference to subsection (2.2),
(A) a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest, or
(B) related to the taxpayer and to the particular affiliate, and
(ii) the time at which a non-resident corporation (other than the particular affiliate), or a foreign affiliate of the taxpayer (other than the particular affiliate), referred to in paragraph (2.2)(a) became, as determined without reference to subsection (2.2), a foreign affiliate, of another person resident in Canada, in respect of which the other person resident in Canada had a qualifying interest (or became, as determined without reference to subsection (2.2), related to the other person resident in Canada and to the particular affiliate), where
(A) the taxpayer is a corporation,
(B) the taxpayer did not exist at the beginning of the taxation year,
(C) the particular affiliate became a foreign affiliate of the taxpayer in the taxation year because of a disposition, in the taxation year, of shares of the capital stock of the particular affiliate to the taxpayer by the other person resident in Canada, and
(D) the other person resident in Canada was, immediately before that disposition, related to the taxpayer.
(b) if a taxpayer makes a valid election under paragraph (42)(b) in respect of all its foreign affiliates, subsection 95(2.21) of the Act, as enacted by subsection (19), being read in the manner described in paragraph (a), also applies to taxation years, of all its foreign affiliates, that begin after 1994 and end before 2000.
(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 taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act is assented to, that subsection 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 taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act is assented to, subsections (11) and (25) apply to taxation years, of all its foreign affiliates, that begin after 1994.
(46) If a taxpayer so elects in writing and files the election 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 is assented to,
(a) paragraphs (a), (c) and (c.1) of the definition “excluded property” in subsection 95(1) of the Act, as enacted by subsection (2), subsection (8), paragraphs 95(2)(g.01) and (g.02) of the Act, as enacted by subsection (13), paragraph 95(2)(i) of the Act, as enacted by subsection (14), paragraphs 95(2)(o) to (t) and (z) of the Act, as enacted by subsection (16), subsections (18) and (22) and paragraph 95(3)(d) of the Act, as enacted by subsection (24), apply to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994;
(b) subparagraph 95(2)(a)(i) of the Act, as enacted by subsection (10), read in the manner described in paragraph (35)(a) but read without reference to sub-subclause 95(2)(a)(i)(A)(I)2 of the Act, subclause 95(2)(a)(i)(B)(II) of the Act and the word “or” at the end of subclause 95(2)(a)(i)(B)(I) of the Act, also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000;
(c) clauses 95(2)(a)(ii)(A) to (C) and (E) of the Act and subparagraphs 95(2)(a)(v) and (vi) of the Act, all as enacted by subsection (10), read in the manner described in paragraph (35)(a), also apply to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000, except that the references to “income or loss” in that subparagraph 95(2)(a)(v) and that portion of subparagraph 95(2)(a)(vi) before clause (A) of that subparagraph 95(2)(a)(vi), as those subparagraphs apply to those taxation years of a foreign affiliate of the taxpayer, shall be replaced by a reference to “income”;
(d) paragraph 95(2)(g) of the Act, as enacted by subsection (13), being read in the manner described in subsection (37), also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and before December 21, 2002; and
(e) paragraph 95(2)(i) of the Act, as enacted by subsection (14), as required by subsection (28) to be read, in respect of settlements and extinguishments of debt held by a foreign affiliate of the taxpayer that occur before October 2, 2007 in taxation years, of the foreign affiliate of the taxpayer, that begin after December 20, 2002, also applies in respect of settlements and extinguishments of debt held by a foreign affiliate of the taxpayer that occur in taxation years, of the foreign affiliate of the taxpayer, that begin after 1994 and before December 21, 2002.
(47) If a taxpayer has made what would, but for this subsection, be a valid election under subsection (46) and the taxpayer has, on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day that is the third anniversary of the day on which this Act is assented to, 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.
(48) Notwithstanding subsections 152(4) to (5) of the Act, any assessment of a taxpayer’s tax, interest and penalties payable under the Act for any taxation year shall be made that is necessary to take an election referred to in any of subsections (35), (38), (40), (42) and (44) to (46), or a revocation referred to in subsection (47), into account.
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