Technical Tax Amendments Act, 2012 (S.C. 2013, c. 34)
Full Document:
Assented to 2013-06-26
C.R.C., c. 945Income Tax Regulations
40. (1) Subsection 5900(3) of the Income Tax Regulations is replaced by the following:
(3) For the purposes of subsection 91(5) of the Act, if a person resident in Canada (other than a corporation) receives a dividend on a share of any class of the capital stock of a foreign affiliate of the person, the dividend is prescribed to have been paid out of the affiliate’s taxable surplus.
(2) Subsection (1) applies in respect of dividends received after November 1999.
41. (1) Subsections 5902(1) to (3) of the Regulations are replaced by the following:
5902. (1) If at any time a dividend (such time and each such dividend, respectively, referred to in this subsection and subsection (2) as the “dividend time” and an “elected dividend”) is, by virtue of an election made under subsection 93(1) of the Act by a corporation in respect of a disposition, deemed to have been received on a share (each such share referred to in this subsection as an “elected share”) of a class of the capital stock of a particular foreign affiliate of the corporation, the following rules apply:
(a) for the purposes of subsection 5900(1), in applying the provisions of subsection 5901(1),
(i) the particular affiliate’s exempt surplus or exempt deficit, taxable surplus or taxable deficit, underlying foreign tax and net surplus, in respect of the corporation at the dividend time, are deemed to be those amounts that would otherwise be determined immediately before the dividend time if
(A) each other foreign affiliate of the corporation in which the affiliate had an equity percentage (within the meaning assigned by subsection 95(4) of the Act) at the dividend time had, immediately before the time that is immediately before the dividend time, paid a dividend equal to its net surplus in respect of the corporation, determined immediately before the time the dividend was paid, and
(B) any dividend referred to in clause (A) that any other foreign affiliate would have received had been received by it immediately before any such dividend that it would have paid, and
(ii) the particular affiliate is deemed to have paid a whole dividend at the dividend time on the shares of that class of its capital stock in an amount determined by the formula
A × B
where
- A
- is the total of all amounts each of which is the amount of an elected dividend, and
- B
- is the greater of
(A) one, and
(B) the quotient determined by the formula
C/D
where
- C
- is the amount of the particular affiliate’s net surplus determined under subparagraph (a)(i), and
- D
- is the greater of
(I) one unit of the currency in which the amount determined for C is expressed, and
(II) the amount that would have been received on the elected shares if the particular affiliate had at the dividend time paid dividends, on all shares of its capital stock, the total of which was equal to the amount of its net surplus referred to in subparagraph (a)(i); and
(b) subject to paragraph 5905(5)(c), there is to be included, at the dividend time,
(i) under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) in computing the particular affiliate’s exempt surplus or exempt deficit, as the case may be, in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the portion of any elected dividend that is prescribed by paragraph 5900(1)(a) to have been paid out of the exempt surplus of the particular affiliate,
(ii) under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1) in computing the particular affiliate’s taxable surplus or taxable deficit, as the case may be, in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the portion of any elected dividend that is prescribed by paragraph 5900(1)(b) to have been paid out of the taxable surplus of the particular affiliate, and
(iii) under subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1) in computing the particular affiliate’s underlying foreign tax in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the amount prescribed by paragraph 5900(1)(d) to be the foreign tax applicable to such portion of any elected dividend as is prescribed by paragraph 5900(1)(b) to have been paid out of the taxable surplus of the particular affiliate.
(2) In this section,
(a) for the purpose of paragraph (1)(a),
(i) in determining the exempt surplus or exempt deficit, the taxable surplus or taxable deficit, the underlying foreign tax and the net surplus of a particular foreign affiliate of a taxpayer resident in Canada in which any other foreign affiliate of the taxpayer has an equity percentage (within the meaning assigned by subsection 95(4) of the Act), no amount shall be included in respect of any distribution that would be received by the particular affiliate from that other affiliate, and
(ii) if any foreign affiliate of a corporation resident in Canada has issued shares of more than one class of its capital stock, the amount that would be paid as a dividend on the shares of any class is the portion of its exempt surplus or exempt deficit and its taxable surplus (including underlying foreign tax applicable) or taxable deficit (and thus net surplus) that, in the circumstances, would reasonably be expected to have been paid on all the shares of that class; and
(b) the specified adjustment factor in respect of a disposition is the percentage determined by the formula
A/B
where
- A
- is
(i) if the elected dividend is received by the corporation, 100 per cent, and
(ii) if the elected dividend is received by another foreign affiliate of the corporation, the surplus entitlement percentage of the corporation in respect of the other affiliate immediately before the dividend time, and
- B
- is the surplus entitlement percentage of the corporation in respect of the particular affiliate immediately before the dividend time.
(2) Paragraph 5902(6)(b) of the Regulations is replaced by the following:
(b) the amount that would reasonably be expected to have been received in respect of the share if the particular affiliate had at that time paid dividends, on all shares of its capital stock, the total of which was equal to the amount determined under subparagraph (1)(a)(i) to be its net surplus in respect of the corporation for the purposes of the election.
(3) Subsections (1) and (2) apply in respect of elections made in respect of dispositions that occur after December 18, 2009. However, in applying subsection 5905(5.6) of the Regulations, as enacted by subsection 44(6), the portion of subsection 5902(1) of the Regulations before its subparagraph (a)(ii), as enacted by subsection (1), applies after December 18, 2009.
42. (1) Section 5903 of the Regulations is replaced by the following:
5903. (1) For the purposes of the description of F in the definition “foreign accrual property income” in subsection 95(1) of the Act, subject to subsection (2), the prescribed amount for the year (referred to in this subsection and subsection (2) as the “particular year”) is the total of all amounts each of which is a portion designated for the particular year by the taxpayer of the foreign accrual property loss of the affiliate for a taxation year of the affiliate that is
(a) one of the 20 taxation years of the affiliate that immediately precede the particular year; or
(b) one of the three taxation years of the affiliate that immediately follow the particular year.
(2) For the purposes of this subsection and subsection (1),
(a) a portion of a foreign accrual property loss of the affiliate for any taxation year of the affiliate may be designated for the particular year only to the extent that the foreign accrual property loss exceeds the total of all amounts each of which is a portion, of the foreign accrual property loss, designated by the taxpayer for a taxation year of the affiliate that precedes the particular year;
(b) no portion of the affiliate’s foreign accrual property loss for a taxation year of the affiliate is to be designated for the particular year until the affiliate’s foreign accrual property losses for the preceding taxation years referred to in paragraph (1)(a) have been fully designated; and
(c) if any person or partnership that was, at the end of a taxation year (referred to in this paragraph as the “relevant loss year”) of the affiliate, a relevant person or partnership in respect of the taxpayer designates for a taxation year (referred to in this paragraph as the “relevant claim year”) of the affiliate a particular portion of the affiliate’s foreign accrual property loss for the relevant loss year, there is deemed to have been designated for the relevant claim year by the taxpayer the portion of that loss that is the greater of
(i) the particular portion, and
(ii) the greatest of the portions of that loss that are so designated by any other relevant persons or partnerships in respect of the taxpayer.
(3) For the purposes of this section, and subject to subsection (4), “foreign accrual property loss” of the affiliate for a taxation year of the affiliate means
(a) if, at the end of the year, the affiliate is a controlled foreign affiliate of a person or partnership that is, at the end of the year, a relevant person or partnership in respect of the taxpayer, the amount, if any, by which
(i) the total of the amounts determined for D, E, G and H in the formula in the definition “foreign accrual property income” in subsection 95(1) of the Act in respect of the affiliate for the year
exceeds
(ii) the total of the amounts determined for A to C in that formula in that definition in respect of the affiliate for the year; and
(b) in any other case, nil.
(4) In computing under subsection (3) the affiliate’s foreign accrual property loss for a taxation year, if the affiliate or another corporation receives a payment described in subsection 5907(1.3) from a non-resident corporation that is, at the time of the payment, a foreign affiliate of a relevant person or partnership in respect of the taxpayer and any portion of the payment can reasonably be considered to relate to a loss or portion of a loss of the affiliate for the year described in the description of D or E in the definition “foreign accrual property income” in subsection 95(1) of the Act, the amount of the loss or portion of the loss is deemed to be nil.
(5) For the purpose of this section,
(a) if there is a foreign merger (within the meaning assigned by subsection 87(8.1) of the Act) of two or more foreign affiliates of a taxpayer resident in Canada in respect of each of which the taxpayer’s surplus entitlement percentage immediately before the merger is not less than 90 per cent to form one corporate entity in respect of which the taxpayer’s surplus entitlement percentage immediately after the merger is not less than 90 per cent, the corporate entity is deemed to be the same corporation as, and a continuation of, each of those predecessor affiliates; and
(b) if there is a liquidation and dissolution of a foreign affiliate of a taxpayer resident in Canada in respect of which the taxpayer’s surplus entitlement percentage immediately before the liquidation and dissolution is not less than 90 per cent into another foreign affiliate of the taxpayer in respect of which the taxpayer’s surplus entitlement percentage immediately before and immediately after the liquidation and dissolution is not less than 90 per cent, the other affiliate is deemed to be the same corporation as, and a continuation of, that predecessor affiliate.
(6) In this section, a “relevant person or partnership” in respect of the taxpayer, at any time, means the taxpayer or a person (other than a designated acquired corporation of the taxpayer), or a partnership, that is at that time
(a) a person (other than a partnership) that is resident in Canada and does not, at that time, deal at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act) with the taxpayer;
(b) an antecedent corporation of a relevant person or partnership in respect of the taxpayer;
(c) a partnership a member of which is at that time a relevant person or partnership in respect of the taxpayer under this subsection; or
(d) where paragraph (1)(b) is being applied, a corporation of which the taxpayer is an antecedent corporation.
(7) For the purposes of paragraphs (6)(a) to (d),
(a) if a person or partnership (referred to in this paragraph as the “relevant person”) is not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act) with another person or partnership (referred to in this paragraph as the “particular person”) at a particular time, the relevant person is deemed to have existed and not to have dealt at arm’s length with the particular person, nor with each antecedent corporation (other than a designated acquired corporation of the particular person) of the particular person, throughout the period that began when the particular person or the antecedent corporation, as the case may be, came into existence and that ends at the particular time; and
(b) where paragraph (1)(b) is being applied, if a corporation of which a particular person (other than a designated acquired corporation of the corporation) is an antecedent corporation is not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act) with another person or partnership at any time, the particular person is deemed to exist and not to be dealing at arm’s length with the other person or the partnership, as the case may be, at that time.
(2) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after November 1999, except that
(a) the reference to “20 taxation years” in paragraph 5903(1)(a) of the Regulations, as enacted by subsection (1), is, in respect of foreign accrual property losses for the foreign affiliate’s taxation years that end in taxation years of the taxpayer that end
(i) before March 23, 2004, to be read as “seven taxation years”, and
(ii) after March 22, 2004 and before 2006, to be read as “10 taxation years”;
(b) subsection 5903(2) of the Regulations, as enacted by subsection (1), is, in its application to taxation years that begin before 2001, to be read without reference to its paragraph (b);
(c) paragraph 5903(3)(a) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:
(a) where, at the end of the year, the affiliate is a controlled foreign affiliate of a person or partnership that is, at the end of the year, a relevant person or partnership in respect of the taxpayer, the amount, if any, by which
(i) the total of the amounts determined for D and E in the formula in the definition “foreign accrual property income” in subsection 95(1) of the Act in respect of the affiliate for the year
exceeds
(ii) the total of the amounts determined for A, B and C in that formula in that definition in respect of the affiliate for the year; and
(d) subsection 5903(4) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:
(4) In computing under subsection (3) the affiliate’s foreign accrual property loss for a taxation year, if the affiliate or another corporation has received a payment described in subsection 5907(1.3) from another foreign affiliate of the taxpayer and any portion of the payment can reasonably be considered to relate to a loss or portion of a loss of the affiliate for the year described in the description of D or E in the definition “foreign accrual property income” in subsection 95(1) of the Act, the amount of the loss or portion of the loss is deemed to be nil.
(e) subsection 5903(6) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:
(6) In this section, a “relevant person or partnership”, in respect of a taxpayer, at any time means
(a) the taxpayer;
(b) any person with whom the taxpayer was not dealing at arm’s length;
(c) any person with whom the taxpayer would not have been dealing at arm’s length if the person had been in existence after the taxpayer came into existence;
(d) any predecessor corporation (within the meaning assigned by subsection 87(1) of the Act) of a person described in any of paragraphs (a) to (c); or
(e) any predecessor corporation (within the meaning assigned by paragraph 87(2)(l.2) of the Act) of a person described in any of paragraphs (a) to (c).
(f) section 5903 of the Regulations, as enacted by subsection (1), is, in its application to taxation years that begin on or before December 18, 2009, to be read without reference to its subsection (7).
- Date modified: