Technical Tax Amendments Act, 2012 (S.C. 2013, c. 34)
Full Document:
Assented to 2013-06-26
43. (1) Paragraph 5904(3)(a) of the Regulations is replaced by the following:
(a) the net surplus of a foreign affiliate of a person resident in Canada is, in respect of that person, to be computed as if that person were a corporation resident in Canada;
(2) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after November 1999.
44. (1) Subsection 5905(1) of the Regulations is replaced by the following:
5905. (1) If, at any time, there is an acquisition or a disposition of shares of the capital stock of a particular foreign affiliate of a corporation resident in Canada and the surplus entitlement percentage of the corporation in respect of the particular foreign affiliate or any other foreign affiliate (the particular affiliate and those other affiliates being referred to individually in this subsection as a “relevant affiliate”) of the corporation in which the particular affiliate has an equity percentage (within the meaning assigned by subsection 95(4) of the Act) changes, for the purposes of the definitions “exempt surplus”, “taxable surplus” and “underlying foreign tax” in subsection 5907(1), each of the opening exempt surplus or opening exempt deficit, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, as the case may be, of the relevant affiliate in respect of the corporation is, except where the acquisition or disposition occurs in a transaction to which paragraph (3)(a) or subsection (5) or (5.1) applies, the amount determined at that time by the formula
A × B/C
where
- A
- is the amount of that surplus, deficit or tax, as the case may be, as otherwise determined at that time;
- B
- is the corporation’s surplus entitlement percentage immediately before that time in respect of the relevant affiliate; and
- C
- is the corporation’s surplus entitlement percentage immediately after that time in respect of the relevant affiliate.
(2) Subsection 5905(2) of the Regulations is repealed.
(3) Subsections 5905(3) and (4) of the Regulations are replaced by the following:
(3) If at any time (referred to in this subsection as the “merger time”) a foreign affiliate (referred to in this subsection as the “merged affiliate”) of a corporation resident in Canada has been formed as a result of a foreign merger (within the meaning assigned by subsection 87(8.1) of the Act) of two or more corporations (referred to individually in this subsection as a “predecessor corporation”), the following rules apply:
(a) for the purposes of the definitions “exempt surplus”, “taxable surplus” and “underlying foreign tax” in subsection 5907(1), as they apply in respect of the merged affiliate,
(i) the merged affiliate’s opening exempt surplus, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the exempt surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the exempt deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time,
(ii) the merged affiliate’s opening exempt deficit, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the exempt deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the exempt surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time,
(iii) the merged affiliate’s opening taxable surplus, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the taxable surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the taxable deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time,
(iv) the merged affiliate’s opening taxable deficit, in respect of the corporation, shall be the amount, if any, by which the total of all amounts each of which is the taxable deficit of a predecessor corporation, in respect of the corporation, immediately before the merger time exceeds the total of all amounts each of which is the taxable surplus of a predecessor corporation, in respect of the corporation, immediately before the merger time, and
(v) the merged affiliate’s opening underlying foreign tax in respect of the corporation shall be the total of all amounts each of which is the underlying foreign tax of a predecessor corporation, in respect of the corporation, immediately before the merger time;
(b) for the purposes of paragraph (a),
(i) each of the exempt surplus or exempt deficit, taxable surplus or taxable deficit and underlying foreign tax, in respect of the corporation, of each predecessor corporation immediately before the merger time is deemed to be the amount determined by the formula
A × B/C
where
- A
- is the amount of that surplus, deficit or tax, as the case may be, as otherwise determined,
- B
- is the surplus entitlement percentage of the corporation immediately before the merger time in respect of the predecessor corporation, and
- C
- is the percentage that would be the surplus entitlement percentage of the corporation immediately after the merger time in respect of the merged affiliate if the merged affiliate’s net surplus were the total of all amounts each of which is the net surplus of a predecessor corporation immediately before the merger time, but
(ii) the values for A, B and C in the formula in subparagraph (i) shall take into account the application of paragraph 5902(1)(b) and subsection 5907(8) in respect of the merger; and
(c) in respect of any foreign affiliate (other than a predecessor corporation) of the corporation in which a predecessor corporation had an equity percentage (within the meaning assigned by subsection 95(4) of the Act) immediately before the merger time, for the purposes of subsection (1), there is deemed to be an acquisition or a disposition of shares of the capital stock of that affiliate at the merger time.
(4) Subsection 5905(5) of the Regulations is replaced by the following:
(5) If there is, at any time, a disposition by a corporation (referred to in this subsection as the “disposing corporation”) resident in Canada of any of the shares (referred to in this subsection as the “disposed shares”) of the capital stock of a particular foreign affiliate of the disposing corporation to a taxable Canadian corporation (referred to in this subsection as the “acquiring corporation”) with which the disposing corporation is not dealing at arm’s length,
(a) each of the opening exempt surplus or opening exempt deficit, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, in respect of the acquiring corporation, of the particular affiliate and of each foreign affiliate of the disposing corporation in which the particular affiliate has, immediately before that time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be the amount, if any,
(i) in the case of its opening exempt surplus, by which the total of its exempt surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its exempt deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,
(ii) in the case of its opening exempt deficit, by which the total of its exempt deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its exempt surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,
(iii) in the case of its opening taxable surplus, by which the total of its taxable surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its taxable deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time,
(iv) in the case of its opening taxable deficit, by which the total of its taxable deficit in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, exceeds the total of its taxable surplus in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time, and
(v) in the case of its opening underlying foreign tax, that is the total of its underlying foreign tax in respect of each of the disposing corporation and the acquiring corporation, determined immediately before that time;
(b) for the purpose of paragraph (a), each of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of the disposing corporation and the acquiring corporation, determined immediately before that time, is deemed to be the amount determined by the formula
A × B/C
where
- A
- is the amount of that surplus, deficit or tax, as the case may be, as determined without reference to this subsection but taking into account the application of subparagraph (c)(i), if applicable,
- B
- is the surplus entitlement percentage immediately before that time of the disposing corporation or the acquiring corporation, as the case may be, in respect of the affiliate, determined as if the disposed shares were the only shares owned by the disposing corporation immediately before that time, and
- C
- is the surplus entitlement percentage immediately after that time of the acquiring corporation in respect of the affiliate;
(c) if the disposing corporation makes an election under subsection 93(1) of the Act in respect of the disposed shares,
(i) for the purposes of paragraph (b), the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of the disposing corporation, as determined without reference to this subsection, immediately before that time, shall be adjusted in accordance with paragraph 5902(1)(b) as if the disposing corporation’s surplus entitlement percentage that is referred to in the description of B in paragraph 5902(2)(b) were determined as if the disposed shares were the only shares owned by the disposing corporation immediately before that time, and
(ii) no adjustment shall be made to the amount of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, or underlying foreign tax of an affiliate in respect of the disposing corporation under paragraph 5902(1)(b) other than for the purpose of paragraph (b); and
(d) for greater certainty, no adjustment shall be made under subsection (1) to the exempt surplus or exempt deficit, taxable surplus or taxable deficit, or underlying foreign tax of an affiliate in respect of the disposing corporation.
(5.1) If there is, at any time, an amalgamation within the meaning of subsection 87(1) of the Act and, as a result of the amalgamation, shares of the capital stock of a particular foreign affiliate of a predecessor corporation become property of the new corporation,
(a) each of the opening exempt surplus or opening exempt deficit, opening taxable surplus or opening taxable deficit, and opening underlying foreign tax, in respect of the new corporation, of the particular affiliate and of each foreign affiliate of the predecessor corporation in which the particular affiliate has, immediately before that time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be the amount, if any,
(i) in the case of its opening exempt surplus, by which the total of its exempt surplus in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its exempt deficit in respect of each predecessor corporation, determined immediately before that time,
(ii) in the case of its opening exempt deficit, by which the total of its exempt deficit in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its exempt surplus in respect of each predecessor corporation, determined immediately before that time,
(iii) in the case of its opening taxable surplus, by which the total of its taxable surplus in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its taxable deficit in respect of each predecessor corporation, determined immediately before that time,
(iv) in the case of its opening taxable deficit, by which the total of its taxable deficit in respect of each predecessor corporation, determined immediately before that time, exceeds the total of its taxable surplus in respect of each predecessor corporation, determined immediately before that time, and
(v) in the case of its opening underlying foreign tax, that is the total of its underlying foreign tax in respect of each predecessor corporation, determined immediately before that time; and
(b) for the purpose of paragraph (a), each of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of an affiliate in respect of a predecessor corporation, determined immediately before that time, is deemed to be the amount determined by the formula
A × B/C
where
- A
- is the amount of that surplus, deficit or tax, as the case may be, as determined without reference to this subsection,
- B
- is the predecessor corporation’s surplus entitlement percentage immediately before that time in respect of the affiliate, and
- C
- is the new corporation’s surplus entitlement percentage immediately after that time in respect of the affiliate.
(5.11) Subsection (5.12) applies if
(a) in the case of a winding-up, an amount has been designated, under paragraph 88(1)(d) of the Act by the corporation (referred to in this subsection and subsection (5.12) as the “parent corporation”) described in subsection 88(1) of the Act as the parent, in respect of
(i) shares of the capital stock of a corporation (referred to in this subsection and subsection (5.12) as the “particular affiliate”) that is, immediately before the winding-up, a foreign affiliate of the corporation (referred to in this subsection and subsection (5.12) as the “subsidiary corporation”) resident in Canada that is described in that subsection 88(1) as the subsidiary, or
(ii) an interest in a partnership that holds shares described in subparagraph (i); or
(b) in the case of an amalgamation, an amount has been designated, under paragraph 88(1)(d) of the Act by the corporation (referred to in this subsection and subsection (5.12) as the “parent corporation”) described in subsection 87(11) of the Act as the parent, in respect of
(i) shares of the capital stock of a corporation (referred to in this subsection and subsection (5.12) as the “particular affiliate”) that is, immediately before the amalgamation, a foreign affiliate of the corporation (referred to in this subsection and subsection (5.12) as the “subsidiary corporation”) resident in Canada that is described in that subsection 87(11) as the subsidiary, or
(ii) an interest in a partnership that holds shares described in subparagraph (i).
(5.12) If this subsection applies, the following rules apply for the purposes of subsections (5) and (5.1):
(a) each amount of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax, in respect of the subsidiary corporation, of the particular affiliate and of all foreign affiliates of the subsidiary corporation in which the particular affiliate has, immediately before the winding-up or the amalgamation, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be, immediately before the winding-up or the amalgamation, nil; and
(b) each amount (referred to individually in this paragraph as a “relevant balance”) of the exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax, in respect of the parent corporation, of the particular affiliate and of all foreign affiliates (referred to individually in this paragraph as a “lower-tier affiliate”) of the parent corporation in which the particular affiliate has, immediately before the winding-up or the amalgamation, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) is deemed to be, immediately before the winding-up or the amalgamation, the amount that would be determined to be the relevant balance if
(i) in addition to shares or partnership interests, if any, held by the parent corporation that are relevant in computing any relevant balance of the particular affiliate or of any lower-tier affiliate of the parent corporation, in respect of the parent corporation, any shares of the particular affiliate’s capital stock, and any interests in partnerships that hold such shares, that were held by the subsidiary corporation at any time in the period (referred to in this paragraph as the “control period”) that begins at the first time referred to in subparagraph 88(1)(d)(ii) of the Act and ends immediately before the winding-up or the amalgamation, that are relevant in computing any relevant balance of the particular affiliate or any lower-tier affiliate of the subsidiary corporation, in respect of the subsidiary corporation, were held by the parent corporation at the same time in the control period that they were held by the subsidiary corporation,
(ii) the parent corporation had acquired, at that first time, all the shares and partnership interests held, at that first time, by the subsidiary corporation that are relevant in computing any relevant balance of the particular affiliate or any lower-tier affiliate of the subsidiary corporation, in respect of the subsidiary corporation, and
(iii) where the subsidiary corporation acquired or disposed of any shares or partnership interests in the control period that are relevant in computing any relevant balance of the particular affiliate or of any lower-tier affiliate of the subsidiary corporation, in respect of the subsidiary corporation, the parent corporation is deemed to have acquired or disposed of, as the case may be, the shares or partnership interests at the same time they were acquired or disposed of by the subsidiary corporation.
(5.13) For the purposes of clause (B) of subparagraph 88(1)(d)(ii) of the Act, the prescribed amount is
(a) if the property described in that subparagraph is a share of the capital stock of a foreign affiliate of the subsidiary or if that property is an interest in a partnership that holds one or more such shares, the amount determined by the formula
A × B/C
where
- A
- is the total of all amounts each of which is the amount, if any, by which
(i) the amount of a dividend received, after the particular time at which the parent last acquired control of the subsidiary, on any share of the capital stock of the foreign affiliate (or any share of the capital stock of the foreign affiliate for which that share was substituted) held by the subsidiary or the partnership, as the case may be, immediately before the winding-up, that was deductible under paragraph 113(1)(a) or (b) of the Act in computing the taxable income of the subsidiary or of a corporation with which the subsidiary was not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act in respect of the foreign affiliate)
exceeds
(ii) the portion of that dividend that may reasonably be considered to have reduced the foreign affiliate’s exempt surplus or taxable surplus in respect of the subsidiary that arose after the particular time (determined as if a dividend were paid out of the foreign affiliate’s exempt surplus or taxable surplus, as the case may be, in respect of the subsidiary, in the reverse order to that in which that surplus of the foreign affiliate in respect of the subsidiary arose),
- B
- is the fair market value of the property immediately before the winding-up, and
- C
- is
(i) if the property is a share, the fair market value, immediately before the winding-up, of all of the shares of the capital stock of the foreign affiliate held by the subsidiary immediately before the winding-up, and
(ii) if the property is an interest in a partnership, the fair market value of the interest in the partnership immediately before the winding-up; and
(b) in any other case, nil.
(5) Subsections 5905(5.11) to (5.13) of the Regulations, as enacted by subsection (4), are repealed.
(6) Section 5905 of the Regulations is amended by adding the following in numerical order:
(5.2) If, at a particular time, control of a corporation resident in Canada has been acquired by a person or a group of persons and, at the particular time, the corporation owns shares of the capital stock of a foreign affiliate of the corporation, there shall be included — under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) in computing the affiliate’s exempt surplus or exempt deficit, as the case may be, in respect of the corporation at the time that is immediately before the particular time — the amount, if any, determined by the formula
(A + B – C)/D
where
- A
- is the amount determined by the formula
E × F
where
- E
- is the affiliate’s tax-free surplus balance in respect of the corporation, determined at the time (referred to in this subsection as the “relevant time”) that is immediately before the time that is immediately before the particular time, and
- F
- is the corporation’s surplus entitlement percentage in respect of the affiliate determined at the relevant time;
- B
- is the total of all amounts each of which is the corporation’s cost amount, determined at the particular time, of a share of the capital stock of the affiliate that is owned by the corporation at the particular time;
- C
- is the total of
(a) the fair market value, determined at the particular time, of all of the shares of the capital stock of the affiliate that are owned by the corporation at the particular time, and
(b) the amount, if any, determined under paragraph 5908(6)(b); and
- D
- is the corporation’s surplus entitlement percentage in respect of the affiliate determined at the relevant time.
(5.3) The cost amount of a share that is referred to in the description of B in subsection (5.2) shall be determined after taking into account the application of subsection 111(4) of the Act.
(5.4) For the purposes of clause (B) of subparagraph 88(1)(d)(ii) of the Act, the prescribed amount is
(a) if the property described in that subparagraph is a share of the capital stock of a foreign affiliate of the subsidiary, the amount determined by the formula
A × B
where
- A
- is the affiliate’s tax-free surplus balance, in respect of the subsidiary, determined at the time at which the parent last acquired control of the subsidiary, and
- B
- is the percentage that would be the subsidiary’s surplus entitlement percentage, determined at that time, in respect of the affiliate if at that time the subsidiary had owned no shares of the affiliate’s capital stock other than the share;
(b) if the property described in that subparagraph is an interest in a partnership, the amount determined by subsection 5908(7); and
(c) in any other case, nil.
(5.5) For the purposes of subsections (5.2), (5.4), (7.2) and (7.3), the “tax-free surplus balance” of a foreign affiliate of a corporation resident in Canada, in respect of the corporation, at any time, is the total of
(a) the amount, if any, by which the affiliate’s exempt surplus in respect of the corporation at that time exceeds the affiliate’s taxable deficit in respect of the corporation at that time; and
(b) the lesser of
(i) the amount, if any, determined by the formula
A × B
where
- A
- is the affiliate’s underlying foreign tax in respect of the corporation at that time, and
- B
- is the amount by which the corporation’s relevant tax factor (within the meaning assigned by subsection 95(1) of the Act), for the corporation’s taxation year that includes that time, exceeds one, and
(ii) the amount, if any, by which the affiliate’s taxable surplus in respect of the corporation at that time exceeds the affiliate’s exempt deficit in respect of the corporation at that time.
(5.6) For the purposes of subsection (5.5), the amounts of exempt surplus or exempt deficit, taxable surplus or taxable deficit, and underlying foreign tax of a foreign affiliate of a corporation resident in Canada, in respect of the corporation, at a particular time are those amounts that would be determined, at the particular time, under subparagraph 5902(1)(a)(i) if that subparagraph were applicable at the particular time and the references in that subparagraph to “the dividend time” were references to the particular time.
(7) Subsection 5905(6) of the Regulations is repealed.
(8) Section 5905 of the Regulations is amended by adding the following after subsection (7):
(7.1) Subsection (7.2) applies if
(a) a foreign affiliate (referred to in this subsection and subsections (7.2) to (7.6) as the “deficit affiliate”) of a corporation resident in Canada has an exempt deficit, in respect of the corporation, at a particular time; and
(b) at the time (referred to in this paragraph and subsections (7.2) to (7.6) as the “acquisition time”) that is immediately after the particular time, shares of the capital stock of a foreign affiliate (referred to in this subsection and subsections (7.2) to (7.6) as an “acquired affiliate”) of the corporation in which the deficit affiliate has, at the particular time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) are acquired by, or otherwise become property of,
(i) the corporation, or
(ii) another foreign affiliate of the corporation, in the case where the percentage that would, if the deficit affiliate were resident in Canada, be the deficit affiliate’s surplus entitlement percentage in respect of the acquired affiliate immediately after the acquisition time is less than the percentage that would, if the deficit affiliate were so resident, be its surplus entitlement percentage in respect of the acquired affiliate at the particular time.
(7.2) If this subsection applies, there is to be included,
(a) at the time (referred to in this subsection and subsections (7.6) and (7.7) and 5908(11) and (12) as the “adjustment time”) that is immediately before the time that is immediately before the time that is immediately before the acquisition time, under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) in computing an acquired affiliate’s exempt surplus or exempt deficit in respect of the corporation, the amount, if any, equal to the lesser of
(i) the amount determined by the formula
A/B
where
- A
- is the deficit affiliate’s exempt deficit in respect of the corporation immediately before the acquisition time, and
- B
- is the percentage that would, if the deficit affiliate were resident in Canada, be the deficit affiliate’s surplus entitlement percentage in respect of the acquired affiliate immediately before the acquisition time, and
(ii) the lesser of
(A) the acquired affiliate’s tax-free surplus balance in respect of the corporation immediately before the adjustment time, and
(B) either
(I) if there is more than one acquired affiliate, the amount designated by the corporation, in its return of income for the taxation year in which the taxation year of the acquired affiliate that includes the acquisition time ends, in respect of the acquired affiliate, or
(II) in any other case, the amount determined under clause (A);
(b) at the time that is immediately after the acquisition time, under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1) in computing the deficit affiliate’s exempt deficit in respect of the corporation, the total of all amounts each of which is the amount determined in respect of an acquired affiliate by the formula
C × D
where
- C
- is the amount determined under paragraph (a) in respect of the acquired affiliate, and
- D
- is the percentage that would, if the deficit affiliate were resident in Canada, be the deficit affiliate’s surplus entitlement percentage immediately before the acquisition time in respect of the acquired affiliate; and
(c) at the time that is immediately after the acquisition time, under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1) in computing the exempt surplus or exempt deficit of any other foreign affiliate (referred to in this paragraph and paragraph (7.6)(b) as a “subordinate affiliate”) of the corporation, in respect of the corporation, that has immediately before the acquisition time a direct equity percentage (within the meaning assigned by subsection 95(4) of the Act) in the acquired affiliate and in which, immediately before the acquisition time, the deficit affiliate does not have an equity percentage (within the meaning assigned by subsection 95(4) of the Act), the amount determined by the formula
E × F
where
- E
- is the amount determined under paragraph (a) in respect of the acquired affiliate, and
- F
- is the percentage that would, if the subordinate affiliate were resident in Canada, be the subordinate affiliate’s surplus entitlement percentage immediately before the acquisition time in respect of the acquired affiliate if the subordinate affiliate owned no shares of the capital stock of any corporation other than its shares of the capital stock of the acquired affiliate.
(7.3) Subsection (7.4) applies if
(a) the lesser of
(i) the deficit affiliate’s exempt deficit in respect of the corporation immediately before the acquisition time, and
(ii) the total of all amounts each of which is the amount, if any, that is the product obtained by multiplying
(A) the tax-free surplus balance immediately before the acquisition time in respect of the corporation of an acquired affiliate, and
(B) the surplus entitlement percentage of the corporation in respect of that acquired affiliate immediately before the acquisition time
exceeds
(b) the total of all amounts each of which is the amount, if any, that is the product obtained by multiplying
(i) the amount, if any, actually designated under subclause (7.2)(a)(ii)(B)(I) in respect of an acquired affiliate, and
(ii) the surplus entitlement percentage of the corporation in respect of that acquired affiliate immediately before the acquisition time.
(7.4) If this subsection applies, the amount designated by the corporation in respect of a particular acquired affiliate is deemed, for the purposes of subclause (7.2)(a)(ii)(B)(I),
(a) to be the amount determined by the Minister in respect of the particular acquired affiliate; and
(b) not to be the amount, if any, actually designated under subclause (7.2)(a)(ii)(B)(I).
(7.5) Subsection (7.6) applies if
(a) subsection (7.2) applies;
(b) the deficit affiliate, or any other foreign affiliate of the corporation in which the deficit affiliate has, immediately before the acquisition time, an equity percentage (which percentage has, for the purposes of this subsection, the meaning assigned by subsection 95(4) of the Act and which deficit affiliate or other affiliate is referred to in subsection (7.6) as the “direct holder”), has, immediately before the acquisition time, a direct equity percentage (within the meaning assigned by that subsection 95(4)) in any other foreign affiliate (referred to in paragraph (c) and subsection (7.6) as the “subject affiliate”) of the corporation; and
(c) the subject affiliate is the acquired affiliate or has, immediately before the acquisition time, an equity percentage in the acquired affiliate.
(7.6) Subject to paragraph 5908(11)(c), for the purposes of paragraph 92(1.1)(a) of the Act, if this subsection applies, there shall be added, in computing on and after the adjustment time
(a) the direct holder’s adjusted cost base of a share of the capital stock of the subject affiliate, the amount determined by the formula
A × B
where
- A
- is the amount determined under paragraph (7.2)(a) in respect of the acquired affiliate, and
- B
- is the percentage that would, if the direct holder were resident in Canada, be the direct holder’s surplus entitlement percentage in respect of the acquired affiliate immediately before the acquisition time if the direct holder owned only the share; and
(b) the subordinate affiliate’s adjusted cost base of a share of the capital stock of the acquired affiliate, the amount determined by the formula
C × D
where
- C
- is the amount determined under paragraph (7.2)(a) in respect of the acquired affiliate, and
- D
- is the percentage that would, if the subordinate affiliate were resident in Canada, be the subordinate affiliate’s surplus entitlement percentage in respect of the acquired affiliate immediately before the acquisition time if the subordinate affiliate owned only the share.
(7.7) For the purposes of paragraph 93(3)(c) of the Act, if an amount (referred to in this subsection and subsection 5908(12) as the “adjustment amount”) is required by subsection 92(1.1) of the Act to be added in computing, on or after the adjustment time, the adjusted cost base of a share of the capital stock of a foreign affiliate of a corporation resident in Canada,
(a) where paragraph 92(1.1)(a) of the Act applies, the prescribed amount is the adjustment amount; and
(b) where paragraph 92(1.1)(b) of the Act applies, the prescribed amount is the amount determined under subsection 5908(12).
(9) Subsection 5905(8) of the Regulations is repealed.
(10) Subsection 5905(9) of the Regulations is repealed.
(11) Subsection (1) applies in respect of acquisitions and dispositions that occur after December 18, 2009.
(12) Subsection (2) applies in respect of redemptions, acquisitions and cancellations that occur after December 18, 2009.
(13) Subsection (3) applies in respect of mergers or combinations that occur after December 18, 2009.
(14) Subsections 5905(5) and (5.1) of the Regulations, as enacted by subsection (4), and subsection (7) apply in respect of dispositions and amalgamations that occur, and windings-up that begin, after December 18, 2009.
(15) Subsections 5905(5.11) and (5.12) of the Regulations, as enacted by subsection (4), apply in respect of an amalgamation that occurs, or a winding-up that begins, after February 27, 2004, except that, if subsection 5905(6) of the Regulations applies in respect of the amalgamation or winding-up, then the portion of subsection 5905(5.12) of the Regulations, as so enacted, before its paragraph (a) is to be read as follows:
(5.12) If this subsection applies, the following rules apply for the purposes of subsections (5) and (6):
(16) Subsection 5905(5.13) of the Regulations, as enacted by subsection (4), applies in respect of windings-up that begin, and amalgamations that occur, after February 27, 2004.
(17) Subsection (5) applies in respect of acquisitions of control that occur after December 18, 2009, except if the acquisition of control results from an acquisition of shares made under an agreement in writing entered into before December 18, 2009.
(18) Subsections 5905(5.2) to (5.4) of the Regulations, as enacted by subsection (6), apply in respect of acquisitions of control that occur after December 18, 2009, except if the acquisition of control results from an acquisition of shares made under an agreement in writing entered into before December 18, 2009.
(19) Subsections 5905(5.5) and (5.6) of the Regulations, as enacted by subsection (6), are deemed to have come into force on December 19, 2009.
(20) Subsection (8) applies where a share of the capital stock of a foreign affiliate of a corporation is acquired by, or otherwise becomes property of, a person after December 18, 2009.
(21) Subsection (9) applies in respect of dispositions that occur after December 18, 2009.
(22) Subsection (10) applies in respect of issuances that occur after December 18, 2009.
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