F is the amount, if any, included under subsection 14(1) in computing the taxpayer's income as a result of the disposition, and

    G is the amount, if any, deemed under subsection 14(1) to be a taxable capital gain of the taxpayer as a result of the disposition;

(2) The portion of subsection 85(2.1) of the Act before the formula in paragraph (a) is replaced by the following:

Computing paid-up capital

(2.1) Where subsection (1) or (2) applies to a disposition of property (other than a disposition of property to which section 84.1 or 212.1 applies) to a corporation by a person or partnership (in this subsection referred to as the ``taxpayer''),

    (a) in computing the paid-up capital in respect of any particular class of shares of the capital stock of the corporation at the time of, and at any time after, the issue of shares of the capital stock of the corporation in consideration for the disposition of the property, there shall be deducted an amount determined by the formula

(3) The portion of paragraph 85(4)(b) of the Act before subparagraph (i) is replaced by the following:

    (b) in computing the adjusted cost base to the taxpayer of all shares of any particular class of the capital stock of the corporation owned by the taxpayer immediately after the disposition, there shall be added that proportion of the amount, if any, by which

(4) Subsection (1) applies to the disposition of property to a corporation occurring after the beginning of its first taxation year that begins after June 1988.

(5) Subsection (2) applies to dispositions occurring after November 21, 1985 and, notwithstanding subsections 152(4) to (5) of the Act, such assessments and determinations in respect of any taxation year may be made as are consequential on the application of subsection (2) to dispositions occurring before 1993.

(6) Subsection (3) applies

    (a) in the case of a corporation, to dispositions by it of property occurring after the beginning of its first taxation year that begins after June 1988; and

    (b) in any other case, to dispositions of property in respect of a business occurring after the beginning of the first fiscal period, that begins after 1987, of the business.

37. (1) Paragraph 85.1(2)(a) of the Act is replaced by the following:

    (a) the vendor and purchaser were, immediately before the exchange, not dealing with each other at arm's length (otherwise than because of a right referred to in paragraph 251(5)(b) that is a right of the purchaser to acquire the exchanged shares);

(2) Subsection (1) applies to exchanges occurring after December 21, 1992.

38. (1) Section 86 of the Act is amended by adding the following after subsection (2):

Computation of paid-up capital

(2.1) Where subsection (1) applies to a disposition of shares of the capital stock of a corporation (in this subsection referred to as the ``exchange''), in computing the paid-up capital in respect of a particular class of shares of the capital stock of the corporation at any particular time that is the time of, or any time after, the exchange,

    (a) there shall be deducted the amount determined by the formula

(A - B) x C
A

    where

    A is the total of all amounts each of which is the increase, if any, as a result of the exchange, in the paid-up capital in respect of a class of shares of the capital stock of the corporation, computed without reference to this subsection as it applies to the exchange,

    B is the amount, if any, by which the paid-up capital in respect of the old shares exceeds the fair market value of the consideration (other than shares of the capital stock of the corporation) given by the corporation for the old shares on the exchange, and

    C is the increase, if any, as a result of the exchange, in the paid-up capital in respect of the particular class of shares, computed without reference to this subsection as it applies to the exchange; and

    (b) there shall be added an amount equal to the lesser of

      (i) the amount, if any, by which

        (A) the total of all amounts deemed by subsection 84(3), (4) or (4.1) to be a dividend on shares of that class paid by the corporation before the particular time

      exceeds

        (B) the total that would be determined under clause (A) if this Act were read without reference to paragraph (a), and

      (ii) the total of all amounts required by paragraph (a) to be deducted in respect of that particular class of shares before the particular time.

(2) Subsection 86(3) of the Act is replaced by the following:

Application

(3) Subsections (1) and (2) do not apply in any case where subsection 85(1) or (2) applies.

(3) Subsection (1) applies to exchanges occurring after August 1992, other than an exchange occurring after August 1992 and before December 21, 1992 where the corporation issuing shares on the exchange so elects in writing and files the election with the Minister of National Revenue before the end of the sixth month after the month in which this Act is assented to.

(4) Subsection (2) applies to reorganizations that begin after December 21, 1992.

39. (1) Subsection 87(1.2) of the Act is replaced by the following:

New corporation continuation of a predecessor

(1.2) Where there has been an amalgamation of corporations described in paragraph (1.1)(a) or of 2 or more corporations each of which is a subsidiary wholly-owned corporation of the same person, the new corporation shall, for the purposes of section 29 of the Income Tax Application Rules, subsection 59(3.3) and sections 66, 66.1, 66.2, 66.4 and 66.7, be deemed to be the same corporation as, and a continuation of, each predecessor corporation, except that this subsection shall not affect the determination of any predecessor corporation's fiscal period, taxable income or tax payable.

(2) Subsection 87(1.4) of the Act is replaced by the following:

Definition of ``subsidiary wholly-owned corporation''

(1.4) Notwithstanding subsection 248(1), for the purposes of this subsection and subsections (1.1), (1.2) and (2.11), ``subsidiary wholly-owned corporation'' of a person (in this subsection referred to as the ``parent'') means a corporation all the issued and outstanding shares of the capital stock of which belong to

    (a) the parent;

    (b) a corporation that is a subsidiary wholly-owned corporation of the parent; or

    (c) any combination of persons each of which is a person described in paragraph (a) or (b).

(3) Paragraph 87(2)(j.3) of the Act is replaced by the following:

Employee benefit plans, etc.

    (j.3) for the purposes of paragraphs 12(1)(n.1), (n.2) and (n.3) and 20(1)(r), (oo) and (pp), section 32.1, paragraph 104(13)(b) and Part XI.3, the new corporation shall be deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(4) Paragraph 87(2)(j.6) of the Act is replaced by the following:

Continuing corporation

    (j.6) for the purposes of paragraphs 12(1)(t) and (x), subsections 12(2.2) and 13(7.1), (7.4) and (24), paragraphs 13(27)(b) and (28)(c), subsections 13(29) and 18(9.1), paragraphs 20(1)(e), (e.1) and (hh), sections 20.1 and 32, paragraph 37(1)(c), subsection 39(13), subparagraphs 53(2)(c)(vi) and (h)(ii), paragraph 53(2)(s), subsections 53(2.1), 66(11.4), 66.7(11) and 152(4.3), the determination of D in the definition ``undepreciated capital cost'' in subsection 13(21) and the determination of L in the definition ``cumulative Canadian exploration expense'' in subsection 66.1(6), the new corporation shall be deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(5) Subsections (1) and (2) apply to amalgamations occurring after December 21, 1992.

(6) Subsection (3) applies to taxation years that end after December 21, 1992.

(7) Subsection (4) applies after January 1990, and

    (a) in applying paragraph 87(2)(j.6) of the Act after 1987 and before February 1990, it shall be read as including a reference to paragraph 20(1)(e.1) of the Act; and

    (b) in applying paragraph 87(2)(j.6) of the Act, as enacted by subsection (4), after January 1990 and before 1994, it shall be read as if the reference in it to ``sections 20.1 and 32'' were ``section 32''.

40. (1) Paragraph 88(1)(d.2) of the Act is replaced by the following:

    (d.2) in determining, for the purposes of this paragraph and paragraphs (c) and (d), the time that a taxpayer last acquired control of the subsidiary, where control of the subsidiary was acquired from a person or group of persons (in this paragraph referred to as the ``vendor'') with whom the taxpayer was not (otherwise than because of a right referred to in paragraph 251(5)(b)) dealing at arm's length, the taxpayer shall be deemed to have last acquired control at the earlier of the time that the vendor last acquired control (within the meaning that would be assigned by subsection 186(2) if the reference therein to ``another corporation'' were read as ``a person'' and the references therein to ``the other corporation'' were read as ``the person'') of the subsidiary and the time that the vendor was deemed by this subsection to have last acquired control, except that in determining the time that a particular person or group of persons last acquired control of a corporation where at any time control of the corporation is acquired by the particular person or group of persons because of a bequest or an inheritance of shares of the capital stock of the corporation, for the purposes of this paragraph and subsection 186(2) in its application to this paragraph, the particular person or group of persons shall be deemed at that time, and at any time before that time, to have dealt at arm's length with the person who bequeathed the shares, or from whom the shares were inherited, and each other person who is related to that person;

(2) Subclause 88(1)(e.3)(ii)(C)(I) of the Act is replaced by the following:

          (I) where the subsidiary carried on a particular business in the course of which a property was acquired, or an expenditure was made, before that time in respect of which an amount was included in computing the subsidiary's investment tax credit for its taxation year in which it was wound up, and the parent carried on the particular business throughout the particular year, the amount, if any, by which the total of all amounts each of which is the parent's income for the particular year from the particular business, or the parent's income for the particular year from any other business substantially all the income of which was derived from the sale, leasing, rental or development of properties or the rendering of services similar to the properties sold, leased, rented or developed, or the services rendered, as the case may be, by the subsidiary in carrying on the particular business before that time, exceeds the total of the amounts, if any, deducted for the particular year under paragraph 111(1)(a) or (d) by the parent in respect of a non-capital loss or a farm loss, as the case may be, for a taxation year in respect of the particular business

(3) Subsection (1) applies to windings-up that begin after December 20, 1991.

(4) Subsection (2) applies to windings-up that begin after December 21, 1992.

41. (1) Section 88.1 of the Act is repealed.

(2) Subsection (1) applies after 1992 except that

    (a) where a corporation elects in accordance with paragraph 111(4)(a), subsection (1) applies to the corporation from the corporation's time of continuation (within the meaning assigned by that paragraph); and

    (b) where a corporation elects in accordance with paragraph 111(4)(b), subsection (1) applies to the corporation only after the corporation was granted the articles of continuance or similar constitutional documents in respect of which the election was made.

42. (1) The definition ``Canadian corporation'' in subsection 89(1) of the Act is replaced by the following:

``Canadian corporation''
« société canadienne »

``Canadian corporation'' at any time means a corporation that is resident in Canada at that time and was

      (a) incorporated in Canada, or

      (b) resident in Canada throughout the period that began on June 18, 1971 and that ends at that time,

    and, for greater certainty, a corporation formed at any particular time by the amalgamation or merger of, or by a plan of arrangement or other corporate reorganization in respect of, 2 or more corporations (otherwise than as a result of the acquisition of property of one corporation by another corporation, pursuant to the purchase of the property by the other corporation or as a result of the distribution of the property to the other corporation on the winding-up of the corporation) is a Canadian corporation because of paragraph (a) only if

      (c) that reorganization took place under the laws of Canada or a province, and

      (d) each of those corporations was, immediately before the particular time, a Canadian corporation;

(2) Subparagraph (b)(iii) of the definition ``paid-up capital'' in subsection 89(1) of the Act is replaced by the following:

        (iii) where the particular time is after March 31, 1977, an amount equal to the paid-up capital in respect of that class of shares at the particular time, computed without reference to the provisions of this Act except subsections 51(3) and 66.3(2) and (4), sections 84.1 and 84.2, subsections 85(2.1), 85.1(2.1), 86(2.1), 87(3) and (9), 128.1(2) and (3), 138(11.7), 192(4.1) and 194(4.1) and section 212.1,

(3) Subsection (2) applies to determinations of paid-up capital after August 1992 except that, in applying subparagraph (b)(iii) of the definition ``paid-up capital'' in subsection 89(1) of the Act, as enacted by subsection (2), before 1993, it shall be read without reference to ``128.1(2) and (3)''.

43. (1) Subparagraph 95(2)(h)(i) of the Act is replaced by the following:

      (i) the redemption, cancellation or acquisition of a share of the capital stock of, or the reduction of the capital of, another foreign affiliate of the taxpayer, or

(2) Subsection (1) applies to redemptions, cancellations, acquisitions and reductions occurring after December 21, 1992.

44. (1) Section 96 of the Act is amended by adding the following after subsection (7):

Foreign partnerships

(8) For the purposes of this Act, where at a particular time a person resident in Canada becomes a member of a partnership, or a person who is a member of a partnership becomes resident in Canada, and immediately before the particular time no member of the partnership is resident in Canada, the following rules apply for the purpose of computing the partnership's income for fiscal periods ending after the particular time:

    (a) where, at or before the particular time, the partnership held depreciable property of a prescribed class (other than taxable Canadian property),

      (i) no amount shall be included in determining the amounts for any of A, C, D and F to I in the definition ``undepreciated capital cost'' in subsection 13(21) in respect of the acquisition or disposition before the particular time of the property, and

      (ii) where the property is the partnership's property at the particular time, the property shall be deemed to have been acquired, immediately after the particular time, by the partnership at a capital cost equal to the lesser of its fair market value and its capital cost to the partnership otherwise determined;

    (b) in the case of the partnership's property that is inventory (other than inventory of a business carried on in Canada) or non-depreciable capital property (other than taxable Canadian property) of the partnership at the particular time, its cost to the partnership shall be deemed to be, immediately after the particular time, equal to the lesser of its fair market value and its cost to the partnership otherwise determined;

    (c) any loss in respect of the disposition of a property (other than inventory of a business carried on in Canada or taxable Canadian property) by the partnership before the particular time shall be deemed to be nil; and

    (d) where 4/3 of the cumulative eligible capital in respect of a business carried on at the particular time outside Canada by the partnership exceeds the total of the fair market value of each eligible capital property in respect of the business at that time, the partnership shall be deemed to have, immediately after that time, disposed of an eligible capital property in respect of the business for proceeds equal to the excess and to have received those proceeds.

Idem

(9) For the purpose of applying subsection (8), where it can reasonably be considered that one of the main reasons that there is a member of the partnership who is resident in Canada is to avoid the application of that subsection, the member shall be deemed not to be resident in Canada.

(2) Subsection (1) applies to a particular partnership where a person or partnership becomes a member of the particular partnership after December 21, 1992, or where a member of the particular partnership becomes resident in Canada after August 30, 1993, except that before May 1994, subsection 96(8) of the Act, as enacted by subsection (1), shall be read without reference to paragraph (d).

45. (1) Paragraph 98.1(1)(a) of the Act is replaced by the following: