Bill C-43

Income Tax Regulations

78. (1) Subsection 102(6) of the Income Tax Regulations and the heading before it are replaced by the following:

(6) Despite subsection (1), no amount shall be deducted or withheld in the year by an employer from an amount determined in accordance with subparagraph 110(1)(f)(iii), (iv) or (v) of the Act.

(2) Subsection (1) applies to amounts paid on or after July 12, 2013.

79. Subsection 300(2) of the Regulations is replaced by the following:

(2) For the purposes of this section, if the continuance of the annuity payments under a contract depends in whole or in part on the survival of an individual,

(a) the total of the payments expected to be made under the contract is

(i) in the case of a contract that provides for equal payments and does not provide for a guaranteed period of payment, to be equal to the product obtained by multiplying the total of the annuity payments expected to be received throughout a year under the contract by the complete expectations of life determined

(A) using the table of mortality known as the 1971 Individual Annuity Mortality Table as published in Volume XXIII of the Transactions of the Society of Actuaries, if the annuity rates in respect of the contract were fixed and determined before 2017, and

(I) annuity payments under the contract commenced before 2017, or

(II) on December 31, 2016, the contract would be a prescribed annuity contract if paragraph 304(1)(c) were read without reference to its subparagraph (i) and the contract cannot be terminated other than on the death of an individual on whose life payments under the contract are contingent, and

(B) in any other case, using the table of mortality known as the Annuity 2000 Basic Table as published in the Transactions of Society of Actuaries, 1995–96 Reports, and

(ii) in any other case, to be calculated in accordance with subparagraph (i) with such modifications as the circumstances may require;

(b) the age of the individual on any particular date as of which a calculation is being made is

(i) if the life insured was determined by the insurer that issued the contract to be a substandard life at the time the contract was issued and the Annuity 2000 Basic Table as published in the Transactions of Society of Actuaries, 1995–96 Reports applies to determine the total of the payments expected to be made under the contract, the age that is equal to the total of the age used for the purpose of determining the annuity rate under the policy at the date of issue of the contract and the number determined by subtracting the calendar year in which the contract was issued from the calendar year in which the particular date occurs, and

(ii) in any other case, determined by subtracting the calendar year of the ind-ividual’s birth from the calendar year in which the particular date occurs; and

(c) if, in the event of the death of the individual before the annual payments total a stated sum, the contract provides that the unpaid balance of the stated sum is to be paid in a lump sum or instalments, then for the purpose of determining the expected term of the contract, the contract is deemed to provide for the continuance of the payments under the contract for a minimum term certain equal to the nearest whole number of years required to complete the payment of the stated sum.

80. (1) Clause 304(1)(c)(iii)(A) of the Regulations is replaced by the following:

(A) is

(I) an individual other than a trust,

(II) a trust described in paragraph 104(4)(a) of the Act (in this paragraph referred to as a “specified trust”),

(III) a trust that is a qualified disability trust (as defined in subsection 122(3) of the Act) for the taxation year in which the annuity is issued, or

(IV) if the annuity is issued before 2016, a trust that is a testamentary trust at the time the annuity is issued,

(2) Subsubclauses 304(1)(c)(iv)(B)(II)2 and 3 of the Regulations are replaced by the following:

2. in the case of a qualified disability trust, for the life of an individual who is an electing beneficiary (as defined in subsection 122(3) of the Act) of the trust for the taxation year in which the annuity is issued,

3. in the case of a trust (other than a qualified disability trust or specified trust) where the annuity is issued before October 24, 2012, for the life of an individual who is entitled to receive income from the trust, and

4. in the case of a trust (other than a qualified disability trust or specified trust) where the annuity is issued after October 23, 2012, for the life of an individual who was entitled when the contract was first held to receive all of the trust’s income that is from an amount received by the trust on or before the individual’s death as a payment under the annuity,

(3) Subclause 304(1)(c)(iv)(C)(III) of the Regulations is replaced by the following:

(III) if the holder is a qualified disability trust, an individual who is an electing beneficiary of the trust for the taxation year in which the annuity is issued, and

(IV) if the holder is a trust (other than a qualified disability trust or specified trust) and the annuity is issued before 2016, the individual who was the youngest beneficiary under the trust when the contract was first held,

(4) Subclause 304(1)(c)(iv)(E)(IV) of the Regulations is replaced by the following:

(IV) if the holder is a trust, other than a specified trust, and the contract is first held after October 2011, on the earlier of

1. the time at which the trust ceases to be a testamentary trust, and

2. the death of the individual referred to in subclause (B)(II) or (C)(III) or (IV), as the case may be, in respect of the trust, and

(5) Subsections (1) to (4) apply to the 2016 and subsequent taxation years.

81. (1) Paragraph 306(1)(b) of the Regulations is replaced by the following:

(b) assuming that the terms and conditions of the policy do not change from those in effect on the last policy anniversary of the policy at or before that time and, where necessary, making reasonable assumptions about all other factors (including, in the case of a participating life insurance policy within the meaning assigned by subsection 138(12) of the Act, the assumption that the amounts of dividends paid will be as shown in the dividend scale),

(i) if the policy is issued before 2017, it is reasonable to expect that the condition in paragraph (a) will be met on each policy anniversary of the policy on which the policy could remain in force after that time and before the endowment date of the exemption test policies issued in respect of the policy, and

(ii) if the policy is issued after 2016, it is reasonable to expect — without reference to any automatic adjustments under the policy that may be made after that time to ensure that the policy is an exempt policy and, where applicable, making projections using the most recent values that are used to calculate the accumulating fund in respect of the policy or in respect of each exemption test policy issued in respect of a coverage under the policy, as the case may be — that the condition in paragraph (a) will be met on the policy’s next policy anniversary;

(2) Subsections 306(3) and (4) of the Regulations are replaced by the following:

(3) For the purposes of this section and section 307,

(a) in the case of a life insurance policy issued before 2017 or at a particular time determined under subsection 148(11) of the Act, a separate exemption test policy is deemed, subject to subsection (7), to be issued in respect of the life insurance policy

(i) on the date of issue of the life insurance policy, and

(ii) on each policy anniversary (that ends before the particular time, if any, determined under subsection 148(11) of the Act in respect of the policy) of the life insurance policy on which

(A) the amount of the benefit on death under the life insurance policy

exceeds

(B) 108% of the amount of the benefit on death under the life insurance policy on the later of the life insurance policy’s date of issue and the date of the life insurance policy’s preceding policy anniversary, if any; and

(b) in the case of a life insurance policy issued after 2016 (including, for greater certainty, at a particular time determined under subsection 148(11) of the Act in respect of the policy), a separate exemption test policy is deemed, subject to subsection (7), to be issued in respect of each coverage under the life insurance policy

(i) unless the particular time when the policy is issued is determined under subsection 148(11) of the Act and the coverage was issued before the particular time, on the date of

(A) issue of the life insurance policy, if the coverage is issued before the first policy anniversary of the life insurance policy,

(B) issue of the coverage, if the coverage is issued on a policy anniversary of the life insurance policy, or

(C) the life insurance policy’s preceding policy anniversary, if the coverage is issued on any date that is after the policy’s first policy anniversary and that is not a policy anniversary,

(ii) on each policy anniversary of the life insurance policy (except that, if a particular time when the policy is issued has been determined under subsection 148(11) of the Act, only on a policy anniversary that ends at or after the particular time) on which

(A) the amount of the benefit on death under the coverage on that policy anniversary

exceeds

(B) 108% of the amount of the benefit on death under the coverage, on the later of the coverage’s date of issue and the date of the life insurance policy’s preceding policy anniversary (or, if there is no preceding policy anniversary, the coverage’s date of issue), and

(iii) on each policy anniversary of the life insurance policy (except that, if a particular time when the policy is issued has been determined under subsection 148(11) of the Act, only on a policy anniversary that ends at or after the particular time) —except to the extent that another exemption test policy has been issued on that date under this subparagraph in respect of a coverage under the life insurance policy — on which

(A) the amount by which the fund value benefit under the life insurance policy on that policy anniversary exceeds the fund value benefit under the life insurance policy on the life insurance policy’s preceding policy anniversary (or, if there is no preceding policy anniversary, the date of issue of the policy)

exceeds

(B) the amount by which

(I) 8% of the amount of the benefit on death under the life insurance policy on the life insurance policy’s preceding policy anniversary (or, if there is no preceding policy anniversary, the date of issue of the policy)

exceeds

(II) the total of all amounts each of which is, in respect of a coverage under the policy, the lesser of

1. the amount by which the amount of the benefit on death under the coverage on that policy anniversary exceeds the amount of the benefit on death under the coverage on the later of the coverage’s date of issue and the date of the life insurance policy’s preceding policy anniversary (or, if there is no preceding policy anniversary, the coverage’s date of issue), and

2. 8% of the amount of the benefit on death under the coverage on the later of the coverage’s date of issue and the date of the life insurance policy’s preceding policy anniversary (or, if there is no preceding policy anniversary, the coverage’s date of issue).

(4) Subject to subsection (10), for the purpose of determining whether the condition in paragraph (1)(a) is met on a policy anniversary of a life insurance policy, each exemption test policy issued in respect of the life insurance policy, or in respect of a coverage under the life insurance policy, is deemed

(a) to have a benefit on death that is uniform throughout the term of the exemption test policy and that, subject to subsection (5), is equal to

(i) if the date on which the exemption test policy is issued is determined by subparagraph (3)(a)(i), the amount by which the amount on that policy anniversary of the benefit on death under the life insurance policy exceeds the total of all amounts each of which is the amount, if any, on that policy anniversary of the benefit on death under another exemption test policy issued on or before that policy anniversary in respect of the life insurance policy,

(ii) if the date on which the exemption test policy is issued is determined by subparagraph (3)(a)(ii), the amount of the excess referred to in that subparagraph on that date in respect of the life insurance policy,

(iii) if the date on which the exemption test policy is issued is determined by subparagraph (3)(b)(i), the amount determined by the formula

A + B – C

where

A      is the amount on that policy anniversary of the benefit on death under the coverage,

B      is

(A) if the benefit on death under the life insurance policy includes a fund value benefit on that policy anniversary, the portion of the fund value benefit on that policy anniversary that is equal to the lesser of

(I) the maximum amount of the fund value benefit that could be payable on that policy anniversary if no other coverage were offered under the life insurance policy and the life insurance policy were an exempt policy, and

(II) the amount by which the fund value benefit on that policy anniversary exceeds the total of all amounts each of which is the portion of the fund value benefit allocated to other coverages under the life insurance policy, and

(B) in any other case, nil, and

C      is the total of all amounts each of which is the amount, if any, on that policy anniversary of the benefit on death under another exemption test policy issued on or before that policy anniversary in respect of the coverage,

(iv) if the date on which the exemption test policy is issued is determined by subparagraph (3)(b)(ii), the amount of the excess referred to in that subparagraph on that date in respect of the coverage, and

(v) if the date on which the exemption test policy is issued is determined by subparagraph (3)(b)(iii), the lesser of

(A) the amount by which the amount determined under clause (3)(b)(iii)(A) exceeds the amount determined under clause (3)(b)(iii)(B) on that date in respect of the coverage, and

(B) the amount determined in respect of the coverage under subclause (A)(I) of the description of B in subparagraph (iii) on that date; and

(b) to pay the amount of its benefit on death on the earlier of

(i) if the life insurance policy

(A) is issued before 2017, the date of death of the individual whose life is insured under the life insurance policy, or

(B) is issued after 2016,

(I) if two or more lives are jointly insured under the coverage, the date at which the benefit would be payable as a result of the death of any of the lives, and

(II) in any other case, the date of death of the individual whose life is insured under the coverage, and

(ii) the exemption test policy’s endowment date.

(5) Subject to subsection (10), for the purpose of determining the amount of a benefit on death under an exemption test policy,

(a) if the exemption test policy is issued in respect of a life insurance policy issued before 2017 and at any time the amount of a benefit on death under the life insurance policy is reduced, a particular amount that is equal to the reduction is to be applied at that time to reduce the amount of the benefit on death under each exemption test policy issued before that time in respect of the life insurance policy (other than the exemption test policy the date of issue of which is determined under subparagraph (3)(a)(i)) in the order in which the dates of their issuance are proximate to that time, by an amount equal to the lesser of

(i) the portion, if any, of the particular amount not applied to reduce the benefit on death under one or more other such exemption test policies, and

(ii) the amount, immediately before that time, of the benefit on death under the relevant exemption test policy; and

(b) if the exemption test policy is issued in respect of a coverage under a life insurance policy issued after 2016 and at any time there is a particular reduction in the amount of a benefit on death under the coverage, or the portion, if any, of the fund value benefit referred to in clause (A) of the description of B in subparagraph (4)(a)(iii) in respect of the coverage, the amount of the benefit on death under each exemption test policy issued before that time in respect of the coverage (other than the exemption test policy the date of issue of which is determined under subparagraph (3)(b)(i)) is reduced at that time by an amount equal to the least of

(i) the particular reduction,

(ii) the amount, immediately before that time, of the benefit on death under the relevant exemption test policy, and

(iii) the portion, if any, of the particular reduction not applied to reduce the benefit on death under one or more other such exemption test policies issued on or after the date of issue of the relevant exemption test policy.

(6) Subsection (7) applies at any time in respect of a life insurance policy if

(a) that time is on its tenth or a later policy anniversary;

(b) the accumulating fund (computed without regard to any amount payable in respect of a policy loan) in respect of the policy at that time exceeds 250% of the accumulating fund (computed without regard to any amount payable in respect of a policy loan) in respect of the policy on its third preceding policy anniversary; and

(c) where that time is after 2016,

(i) the accumulating fund (computed without regard to any amount payable in respect of a policy loan) in respect of the policy at that time exceeds the total of all amounts each of which is

(A) if the policy is issued before 2017, 3/20 of the accumulating fund, at that time, in respect of an exemption test policy issued in respect of the policy, and

(B) if the policy is issued after 2016, 3/8 of the accumulating fund, at that time, in respect of an exemption test policy issued in respect of a coverage under the policy, and

(ii) subsection (7) did not apply on any of the policy’s six preceding policy anniversaries.

(7) If this subsection applies at any time in respect of a life insurance policy, each exemption test policy issued before that time in respect of the life insurance policy is at and after that time deemed to be issued (except for purposes of this subsection, paragraph (4)(a) and subsection (5))

(a) on the later of

(i) the date of the third preceding policy anniversary described in paragraph (6)(b) in respect of the policy, and

(ii) the date on which it was deemed by subsection (3) to be issued (determined immediately before that time); and

(b) not at any other time.

(8) A life insurance policy that would, in the absence of this subsection, cease (other than by reason of its conversion into an annuity contract) on a policy anniversary of the policy to be an exempt policy is deemed to be an exempt policy on that policy anniversary if

(a) had that policy anniversary occurred on the particular day that is 60 days after that policy anniversary, the policy would have been an exempt policy on the particular day; or

(b) the person whose life is insured under the policy dies on that policy anniversary or within 60 days after that policy anniversary.

(9) A life insurance policy (other than an annuity contract or deposit administration fund policy) issued before December 2, 1982 is deemed to be an exempt policy at all times from the date of its issue until the first time after December 1, 1982 at which

(a) a prescribed premium is paid by a taxpayer in respect of an interest, last acquired before December 2, 1982, in the policy; or

(b) an interest in the policy is acquired by a taxpayer from the person who held the interest continuously since December 1, 1982.

(10) If a particular time when a life insurance policy is issued has been determined under subsection 148(11) of the Act, in applying subsections (4) and (5) at or after the particular time to an exemption test policy issued before the particular time in respect of the policy,

(a) subparagraphs (4)(a)(iii) and (iv), and not subparagraph (4)(a)(i) or (ii), apply to the exemption test policy; and

(b) for greater certainty, paragraph (5)(b), and not paragraph (5)(a), applies to the exemption test policy.

82. (1) The portion of subsection 307(1) of the Regulations before paragraph (b) is replaced by the following:

307. (1) For the purposes of this Part and sections 12.2 and 148 of the Act, “accumulating fund”, at any particular time, means

(a) in respect of a taxpayer’s interest in an annuity contract (other than a contract issued by a life insurer), the amount that is the greater of

(i) the amount, if any, by which the cash surrender value of the taxpayer’s interest at that time exceeds the amount payable, if any, in respect of a loan outstanding at that time made under the contract in respect of the interest, and

(ii) the amount, if any, by which

(A) the present value at that time of future payments to be made out of the contract in respect of the taxpayer’s interest

exceeds

(B) the total of

(I) the present value at that time of future premiums to be paid under the contract in respect of the taxpayer’s interest, and

(II) the amount payable, if any, in respect of a loan outstanding at that time, made under the contract in respect of the taxpayer’s interest;

(2) The portion of subsection 307(1) of the Regulations after subparagraph (b)(ii) is replaced by the following:

is multiplied by

(iii) the taxpayer’s proportionate interest in the policy; and

(c) in respect of an exemption test policy,

(i) if the particular time is during the exemption test policy’s pay period, the amount determined by the formula

A × B/C

where

A      is the amount that would be determined under subparagraph (ii) in respect of the exemption test policy

(A) if the exemption test policy’s pay period is determined by subparagraph (b)(i) or (ii) of the definition “pay period” in section 310, on the first policy anniversary that is on or after the day on which the individual whose life is insured would, if the individual survived, attain the age of 105 years, as defined under the terms of the policy, and

(B) in any other case, on the exemption test policy’s policy anniversary represented by the adjectival form of the number of years in its pay period,

B      is the number of years since the exemption test policy was issued, and

C      is the number of years in the exemption test policy’s pay period,

(ii) if the particular time is after the exemption test policy’s pay period and before its endowment date, the amount that is the present value at the particular time of the future benefit on death under the exemption test policy, and

(iii) if the particular time is on or after the exemption test policy’s endowment date and the relevant life insurance policy is issued after 2016, the amount that is the benefit on death under the exemption test policy at the particular time.

(3) The portion of subsection 307(2) of the Regulations before subparagraph (a)(i) is replaced by the following:

(2) For the purposes of subsection (1), when computing the accumulating fund in respect of

(a) an interest described in paragraph (1)(a), the amounts determined under clauses (1)(a)(ii)(A) and (B) are to be computed using,

(4) Subparagraphs 307(2)(a)(i) and (ii) of the French version of the Regulations are replaced by the following:

(5) Paragraph 307(2)(b) of the Regulations is replaced by the following:

(b) an interest described in paragraph (1)(b) in respect of a life insurance policy issued before 2017 or an annuity contract, if an interest rate used for a period by a life insurer in computing the relevant amounts in paragraph 1403(1)(a) or (b) is determined under paragraph 1403(1)(c), (d) or (e), as the case may be, and that rate is less than an interest rate so determined for a subsequent period, the single rate that could, if it applied for each period, have been used in determining the premiums for the policy is to be used;

(6) The portion of paragraph 307(2)(c) of the Regulations before subparagraph (i) is replaced by the following:

(c) an exemption test policy issued in respect of a life insurance policy issued before 2017,

(7) The portion of subsection 307(2) of the Regulations after clause (c)(ii)(A) is replaced by the following:

(B) where, in respect of the life insurance policy, the particular period over which the amount determined under clause (B) of the description of A in subparagraph 1401(1)(c)(ii) does not extend to the exemption test policy’s endowment date, the weighted arithmetic mean of the interest rates used to determine the amount is to be used for the period that is after the particular period and before that date,

(iii) notwithstanding subparagraphs (i) and (ii), no rate of interest used for the purpose of determining the accumulating fund in respect of an exemption test policy issued in respect of the life insurance policy is to be less than

(A) if the life insurance policy is issued after April 1985, 4% per annum, and

(B) if the life insurance policy is issued before May 1985, 3% per annum, and

(iv) each amount of a benefit on death is to be determined net of any portion in respect of the benefit on death of the exemption test policy related to a segregated fund; and

(d) an exemption test policy issued in respect of a coverage under a life insurance policy issued after 2016,

(i) the rates of interest and mortality used and the age of the individual whose life is insured under the coverage are to be the same as those used in computing amounts under paragraph 1401(1)(c) in respect of the policy, and

(ii) each amount of a benefit on death is to be determined net of any portion in respect of the benefit on death of the exemption test policy related to a segregated fund.

(8) Subsections 307(3) and (4) of the Regulations are repealed.

(9) Subsection 307(5) of the Regulations is amended by adding “and” at the end of paragraph (a), by striking out “and” at the end of paragraph (b) and by repealing paragraph (c).

83. Subsections 308(1) and (1.1) of the Regulations are replaced by the following:

308. (1) For the purposes of subparagraph 20(1)(e.2)(ii) and paragraph (a) of the description of L in the definition “adjusted cost basis” in subsection 148(9) of the Act, the net cost of pure insurance for a year in respect of a taxpayer’s interest in a life insurance policy is

(a) if, determined at the end of the year, the policy was issued before 2017, the amount determined by the formula

A × (B – C)

where

A is the probability, computed on the basis of the rates of mortality under the 1969–75 mortality tables of the Canadian Institute of Actuaries published in Volume XVI of the Proceedings of the Canadian Institute of Actuaries, or on the basis described in subsection (1.1), that an individual who has the same relevant characteristics as the individual whose life is insured will die in the year,

B is the benefit on death in respect of the interest at the end of the year, and

C is the accumulating fund (determined without regard to any amount payable in respect of the policy loan) in respect of the interest at the end of the year or the interest’s cash surrender value at the end of the year, depending on the method regularly followed by the life insurer in computing amounts under this subsection; and

(b) if, determined at the end of the year, the policy was issued after 2016, the total of all amounts each of which is an amount determined in respect of a coverage in respect of the interest by the formula

A × (B – C)

where

A      is the probability, computed on the basis of the rates of mortality determined in accordance with paragraph 1401(4)(b), or on the basis described in subsection (1.2), that an individual whose life is insured under the coverage will die in the year,

B      is the benefit on death under the coverage in respect of the interest at the end of the year, and

C      is the amount determined by the formula

D + E

where

D      is the portion, in respect of the coverage in respect of the interest, of the amount that would be the present value, determined for the purposes of section 307, on the last policy anniversary that is on or before the last day of the year, of the fund value of the coverage if the fund value of the coverage were equal to the fund value of the coverage at the end of the year, and

E      is the portion, in respect of the coverage in respect of the interest, of the amount that would be determined, on that policy anniversary, for paragraph (a) of the description of C in the definition “net premium reserve” in subsection 1401(3) in respect of the coverage, if the benefit on death under the coverage, and the fund value of the coverage, on that policy anniversary were equal to the benefit on death under the coverage and the fund value of the coverage, respectively, at the end of the year.

(1.1) If premiums for a life insurance policy do not depend directly on smoking or sex classification, the probability referred to in paragraph (1)(a) may be determined using rates of mortality otherwise determined, provided that for each age for the policy, the expected value of the aggregate net cost of pure insurance, calculated using those rates of mortality, is equal to the expected value of the aggregate net cost of pure insurance, calculated using the rates of mortality under the 1969–75 mortality tables of the Canadian Institute of Actuaries published in Volume XVI of the Proceedings of the Canadian Institute of Actuaries.

(1.2) If premiums or costs of insurance charges for a coverage under a life insurance policy do not depend directly on smoking or sex classification, the probability referred to in paragraph (1)(b) may be determined using rates of mortality otherwise determined, provided that for each age for the coverage, the expected value of the aggregate net cost of pure insurance, calculated using those rates of mortality, is equal to the expected value of the aggregate net cost of pure insurance, calculated using the rates of mortality that would be calculated under paragraph (1)(b) in respect of the coverage using the mortality tables described in paragraph 1401(4)(b).

84. (1) The definition “benefit on death” in section 310 of the Regulations is replaced by the following:

“benefit on death” has the same meaning as in subsection 1401(3).

(2) Section 310 of the Regulations is amended by adding the following in alphabetical order:

“adjusted purchase price”, of a taxpayer’s interest in an annuity contract at any time, means, subject to subsections 300(3) and (4), the amount that would be determined at that time in respect of the interest under the definition “adjusted cost basis” in subsection 148(9) of the Act if the formula in that definition were read without reference to K.

“coverage”, under a life insurance policy,

(a) for the purposes of section 306, means all life insurance (other than a fund value benefit) under the policy in respect of a specific life, or two or more specific lives jointly insured; and

(b) for the purposes of sections 307 and 308, has the same meaning as in subsection 1401(3).

“endowment date”, of an exemption test policy, means

(a) where the exemption test policy is issued in respect of a life insurance policy issued before 2017, the later of

(i) 10 years after the date of issue of the life insurance policy, and

(ii) the first policy anniversary that is on or after the day on which the individual whose life is insured under the life insurance policy would, if the individual survived, attain the age of 85 years, as defined under the terms of the policy; and

(b) where the exemption test policy is issued in respect of a coverage under a life insurance policy issued after 2016,

(i) if two or more lives are jointly insured under the coverage, the date that would be determined under subparagraph (ii) using the equivalent single age, determined on the coverage’s date of issue and in accordance with accepted actuarial principles and practices, that reasonably approximates the mortality rates of those lives, and

(ii) in any other case, the later of

(A) the earlier of

(I) 15 years after the date of issue of the exemption test policy, and

(II) the first policy anniversary that is on or after the day on which the individual whose life is insured under the coverage would, if the individual survived, attain the age of 105 years, as defined under the terms of the policy, and

(B) the first policy anniversary that is on or after the day on which the individual whose life is insured under the coverage would, if the individual survived, attain the age of 90 years, as defined under the terms of the policy.

“fund value benefit” has the same meaning as in subsection 1401(3).

“fund value of a coverage” has the same meaning as in subsection 1401(3).

“pay period”, of an exemption test policy, means

(a) where the exemption test policy is issued in respect of a life insurance policy issued before 2017,

(i) if on the date of issue of the exemption test policy, the individual whose life is insured has attained the age of 66 years, as defined under the terms of the policy, but not the age of 75 years, as defined under the terms of the policy, the period that starts on that date and that ends after the number of years obtained when the number of years by which the age of the individual exceeds 65 years, as defined under the terms of the policy, is subtracted from 20,

(ii) if on the date of issue of the exemption test policy, the individual whose life is insured has attained the age of 75 years, as defined under the terms of the policy, the 10-year period that starts on that date, and

(iii) in any other case, the 20-year period that starts on the date of issue of the exemption test policy; and

(b) where the exemption test policy is issued in respect of a coverage under a life insurance policy issued after 2016,

(i) subject to subparagraph (ii), if the individual whose life is insured under the coverage would, if the individual survived, attain the age of 105 years, as defined under the terms of the policy, within the eight-year period that starts on the date of issue of the exemption test policy, the period that starts on that date and that ends on the first policy anniversary that is on or after the day on which the individual would, if the individual survived, attain the age of 105 years, as defined under the terms of the policy,

(ii) if two or more lives are jointly insured under the coverage and an individual of an age equal to the equivalent single age on the date of the issue of the coverage would, if the individual survived, attain the age of 105 years, as defined under the terms of the policy, within the eight-year period that starts on the date of issue of the exemption test policy, the period that starts on that date and that ends on the first policy anniversary that is on or after the day on which the individual would, if the individ-ual survived, attain the age of 105 years, as defined under the terms of the policy, and

(iii) in any other case, the eight-year period that starts on the date of issue of the exemption test policy.

85. (1) Subsection 1104(13) of the Regulations is amended by adding the following in alphabetical order:

“producer gas” means fuel the composition of which, excluding its water content, is all or substantially all non-condensable gases that is generated primarily from eligible waste fuel using a thermo-chemical conversion process and that is not generated using any fuels other than eligible waste fuel or fossil fuel.

(2) Paragraph 1104(17)(a) of the Regulations is replaced by the following:

(a) the property is included in Class 43.1 because of its subparagraph (c)(i) or is described in any of subparagraphs (d)(viii), (ix), (xi), (xiii), (xiv) and (xvi) of Class 43.1 and paragraph (a) of Class 43.2; and

(3) Subsection (1) is deemed to have come into force on February 11, 2014.

(4) Subsection (2) applies to property acquired after February 10, 2014.

86. (1) The portion of subsection 1401(1) of the Regulations before subparagraph (c.1)(i) is replaced by the following:

1401. (1) For the purposes of applying section 307 and subsection 211.1(3) of the Act at any time, the amounts determined under this subsection are,

(a) in respect of a deposit administration fund policy, the total of the insurer’s liabilities under the policy calculated in the manner that

(i) if the insurer is required to file an annual report with its relevant authority for a period that includes that time, is required to be used in preparing that report, and

(ii) in any other case, is required to be used in preparing its annual financial statements for the period that includes that time;

(b) in respect of a group term life insurance policy that provides insurance for a period not exceeding 12 months, the unearned portion of the premium paid by the policyholder for the policy at that time determined by apportioning the premium paid by the policyholder equally over the period to which that premium pertains;

(c) in respect of a life insurance policy, other than a policy referred to in paragraph (a) or (b), the greater of

(i) the amount determined by the formula

A – B

where

A      is

(A) if the policy is issued after 2016 and is not an annuity contract, the cash surrender value of the policy at that time determined without reference to surrender charges, and

(B) in any other case, the cash surrender value of the policy at that time, and

B      is the total of all amounts each of which is an amount payable at that time in respect of a policy loan in respect of the policy, and

(ii) the amount determined by the formula

A – (B + C)

where

A      is

(A) if the policy is issued after 2016 and is not an annuity contract, the net premium reserve in respect of the policy at that time, and

(B) in any other case, the present value at that time of the future benefits provided by the policy,

B      is

(A) if the policy is issued after 2016 and is not an annuity contract, nil, and

(B) in any other case, the present value at that time of any future modified net premiums in respect of the policy, and

C      is the total of all amounts each of which is an amount payable at that time in respect of a policy loan in respect of the policy;

(c.1) in respect of a group life insurance policy, the amount (other than an amount in respect of which a deduction may be claimed by the insurer under subsection 140(1) of the Act because of subparagraph 138(3)(a)(v) of the Act in computing the insurer’s income for its taxation year that includes that time) in respect of a dividend, refund of premiums or refund of premium deposits provided for under the terms of the policy that will be used by the insurer to reduce or eliminate a future adverse claims experience under the policy or that will be paid or unconditionally credited to the policyholder by the insurer or applied in discharge, in whole or in part, of a liability of the policyholder to pay premiums to the insurer, which is the least of

(2) Subparagraphs 1401(1)(c.1)(ii) and (iii) of the Regulations are replaced by the following:

(ii) 25% of the amount of the premium payable under the terms of the policy for the 12-month period ending at that time, and

(iii) the amount of the reserve or liability in respect of such a dividend, refund of premiums or refund of premium deposits that

(A) if the insurer is required to file an annual report with its relevant authority for a period that includes that time, is used in preparing that report, and

(B) in any other case, is used in preparing its annual financial statements for the period that includes that time; and

(3) Subparagraph 1401(1)(d)(iv) of the Regulations is replaced by the following:

(iv) an additional risk in respect of the conversion of a term policy or the conversion of the benefits under a group policy into another policy after that time,

(4) Subparagraph 1401(1)(d)(ix) of the Regulations is replaced by the following:

(ix) a benefit, risk or guarantee in respect of which an amount has been claimed under any other paragraph of this subsection by the insurer as a deduction in computing its income for its taxation year that includes that time,

(5) Subparagraph 1401(1)(d)(xi) of the Regulations is replaced by the following:

(xi) the reserve in respect of the benefit, risk or guarantee that

(A) if the insurer is required to file an annual report with its relevant authority for a period that includes that time, is used in preparing that report, and

(B) in any other case, is used in preparing its annual financial statements for the period that includes that time.

(6) Section 1401 of the Regulations is amended by adding the following after subsection (2):

(3) The following definitions apply in this section.

“benefit on death” includes the amount of an endowment benefit but does not include

(a) any additional amount payable as a result of accidental death; and

(b) where interest, if any, on an amount held on deposit by an insurer is included in computing the income of a policyholder for a taxation year, the amount held on deposit and interest on the deposit.

“coverage”, under a life insurance policy, means each life insurance (other than a fund value benefit) under the policy in respect of a specific life, or two or more specific lives jointly insured, and in respect of which a particular schedule of premium or cost of insurance rates applies. For greater certainty, each such insurance is a separate coverage.

“fund value benefit”, under a life insurance policy at any time, means a benefit under the policy the amount of which is the amount by which the fund value of the policy at that time exceeds the total of all amounts each of which is a fund value of a coverage under the policy at that time.

“fund value of a coverage”, under a life insurance policy at any time, means the total of all amounts each of which is the amount at that time of an investment account in respect of the policy that reduces the net amount at risk as determined for the purpose of calculating the cost of insurance charges for the coverage during the period over which those charges are incurred or would be incurred if they were to apply until the termination of the coverage.

“fund value of a policy”, at any time, means the total of all amounts each of which is the amount at that time of an investment account in respect of the policy and, for greater certainty,

(a) includes, where interest, if any, on an amount held on deposit by an insurer is not included in computing the income of a policyholder for a taxation year, the amount held on deposit and interest on the deposit; and

(b) excludes, where interest, if any, on an amount held on deposit by an insurer is included in computing the income of a policyholder for a taxation year, the amount held on deposit and interest on the deposit.

“future benefits to be provided”, in respect of a coverage under a life insurance policy at any time, means

(a) if there is a fund value of the coverage at that time, each benefit on death that would be payable under the coverage at a particular time after that time determined as if the amount of the benefit were equal to the amount by which the benefit on death at that time exceeds the fund value of the coverage at that time; and

(b) in any other case, each benefit on death payable under the coverage at a particular time after that time.

“future net premiums or cost of insurance charges”, in respect of a coverage at any time, means

(a) for the purposes of paragraph (a) of the description of C in the definition “net premium reserve” in this subsection, each amount determined by the formula

A × B/C

where

A      is future premiums or cost of insurance charges in respect of the coverage at that time,

B      is the present value at the date of issue of the coverage of future benefits to be provided in respect of the coverage on that date, and

C      is the present value at the date of issue of the coverage of future premiums or cost of insurance charges in respect of the coverage on that date; and

(b) for the purposes of paragraph (b) of the description of C in the definition “net premium reserve” in this subsection,

(i) each amount determined by the formula

A × (B + C)/(D + E)

where

A      is future premiums or cost of insurance charges in respect of the coverage at that time,

B      is the present value at the date of issue of the coverage of future benefits to be provided in respect of the coverage on the particular day that is one year after that date and, if the coverage has a fund value on that date, determined as if the fund value of the coverage were nil on that date,

C      is the present value at the date of issue of the coverage of future benefits to be provided in respect of the coverage on the particular day that is two years after that date and, if the coverage has a fund value on that date, determined as if the fund value of the coverage were nil on that date,

D      is the present value at the date of issue of the coverage of future premiums or cost of insurance charges in respect of the coverage on the particular day that is one year after that date and, if the coverage has a fund value on that date, determined as if the fund value of the coverage were nil on that date, and

E      is the present value at the date of issue of the coverage of future premiums or cost of insurance charges in respect of the coverage on the particular day that is two years after that date and, if the coverage has a fund value on that date, determined as if the fund value of the coverage were nil on that date, and

(ii) notwithstanding subparagraph (i), in respect of the second year of the coverage, the amount determined by the formula

(A + B)/2

where

A      is the amount determined under subparagraph (i), and

B      is the amount of a one-year term insurance premium or cost of insurance charge that would be payable in respect of the coverage if the benefit on death were equal to the amount by which the benefit on death at the end of the first year of the coverage exceeds the fund value of the coverage, if any, at the end of the first year of the coverage.

“future premiums or cost of insurance charges”, in respect of a coverage at any time, means

(a) if there is a fund value of the coverage at that time, each cost of insurance charge in respect of the coverage that would be incurred at a particular time after that time determined as if the net amount at risk under the coverage after that time were equal to the amount by which the benefit on death under the coverage at that time exceeds the fund value of the coverage at that time; and

(b) in any other case, each premium in respect of the coverage that is fixed and determined on the date of issue of the coverage that will become payable, or each cost of insurance charge in respect of the coverage that will be incurred, as the case may be, at a particular time after that time.

“interpolation time”, of a coverage, means the time that is the earlier of

(a) the time that is eight years after the date of issue of the coverage; and

(b) the first time at which no premiums are payable or cost of insurance charges are incurred, as the case may be, in respect of the coverage.

“net premium reserve”, in respect of a life insurance policy at any time, means the amount determined by the formula

A + B + C

where

A      is the total of all amounts, if any, each of which is the present value at that time of the fund value of a coverage under the policy at that time;

B      is the amount, if any, of the fund value benefit under the policy at that time; and

C      is

(a) in applying paragraph (1)(c) for the purposes of section 307, the total of all amounts each of which is, in respect of a coverage under the policy,

(i) if that time is at or after the interpolation time of the coverage, the amount determined by the formula

D – E

where

D      is the present value at that time of future benefits to be provided in respect of the coverage at that time, and

E      is the present value at that time of future net premiums or cost of insurance charges in respect of the coverage at that time, and

(ii) if that time is before the interpolation time of the coverage, the amount determined by the formula

F/G × (H – I)

where

F      is the number of years that the coverage has been in effect as of that time,

G      is the number of years that the coverage would have been in effect if that time were the interpolation time,

H      is the present value at the interpolation time of future benefits to be provided in respect of the coverage at the interpolation time and, if the coverage has a fund value at that time, determined as if the amount of the benefit on death under the coverage at the interpolation time were equal to the amount by which the benefit on death at that time exceeds the fund value of the coverage at that time, and

I      is the present value at the interpolation time of future net premiums or cost of insurance charges in respect of the coverage at the interpolation time and, if the coverage has a fund value at that time, determined as if the net amount at risk under the coverage after the interpolation time were equal to the amount by which the benefit on death at that time exceeds the fund value of the coverage at that time, and

(b) in applying paragraph (1)(c) for the purposes of subsection 211.1(3) of the Act, the total of all amounts each of which is, in respect of a coverage under the policy, the amount determined by the formula

J – K

where

J      is the present value at that time of future benefits to be provided in respect of the coverage at that time, and

K      is the present value at that time of future net premiums or cost of insurance charges in respect of the coverage at that time.

“policy anniversary” has the same meaning as in section 310.

(4) In applying paragraph (1)(c) for the purposes of section 307 in respect of a life insurance policy (other than an annuity contract) issued after 2016, the following rules apply:

(a) in computing present values

(i) an annual interest rate of 3.5% is to be used, and

(ii) mortality rates are to be used;

(b) in determining the mortality rates that apply to a life insured under a coverage under the policy,

(i) if a single life is insured under the coverage,

(A) the age that is to be used is the age of the life insured at the time at which the coverage was issued, or that which is attained on the birthday of the life insured nearest to the time at which the coverage was issued, depending on the method used by the insurer that issued the policy in determining the premium or cost of insurance rates in respect of the life insured,

(B) if the life insured was determined by the insurer that issued the policy to be a standard life at the time the coverage was issued, the Proposed CIA Mortality Tables, 1986–1992 included in the May 17, 1995 Canadian Institute of Actuaries Memorandum, extended to include select mortality rates from age 81 to age 90 developed using the methodology used by the Canadian Institute of Actuaries to derive select mortality rates from age 71 to age 80, applicable for an individual who has the same relevant characteristics as the life insured, are to be used, and

(C) if the life insured was determined by the insurer that issued the policy to be a substandard life at the time the coverage was issued, the mortality rates that apply are to be equal to, depending on the method used by the insurer for the purpose of determining the premium or cost of insurance rates in respect of the coverage,

(I) the lesser of one and the product of the rating attributed to the life by the insurer and the mortality rates that would be determined under clause (B) if the life were not a substandard life, or

(II) the mortality rates that would have been determined under clause (B) had the life insured been a standard life and the age of the life insured been the age used by the life insurer for the purpose of determining the premium or cost of insurance rates in respect of the coverage, and

(ii) if two or more lives are jointly insured under the coverage, the mortality rates to be used are those determined by applying the methodology used by the insurer that issued the policy to estimate the mortality rates of the lives jointly insured for the purpose of determining the premium or cost of insurance rates in respect of the coverage to the Proposed CIA Mortality Tables, 1986–1992 included in the May 17, 1995 Canadian Institute of Actuaries Memorandum, extended to include select mortality rates from age 81 to age 90 developed using the methodology used by the Canadian Institute of Actuaries to derive select mortality rates from age 71 to age 80; and

(c) in determining the net premium reserve in respect of the policy, the present value of future net premiums or cost of insurance charges is to be calculated as if a premium or cost of insurance charge payable or incurred on a policy anniversary were payable or incurred, as the case may be, one day after the policy anniversary.

(5) In applying paragraph (1)(c) for the purposes of subsection 211.1(3) of the Act in respect of a life insurance policy (other than an annuity contract)

(a) if the policy is issued after 2016,

(i) the rates of interest, mortality and lapses described in subsection 1403(1) are to be used in computing present values, determined as if

(A) subsections 1403(2) to (8) did not apply, and

(B) the reference to “premiums for the policy” in paragraph 1403(1)(e) were read as a reference to “premiums or cost of insurance charges in respect of a coverage under the policy”,

(ii) subparagraph (1)(c)(i) is to be read without reference to “determined without reference to surrender charges”, and

(iii) in determining the net premium reserve in respect of the policy, the present value of future net premiums or cost of insurance charges is to be calculated as if a premium or cost of insurance charge payable or incurred on a policy anniversary were payable or incurred, as the case may be, one day after the policy anniversary; and

(b) if the policy is issued before 2017 and at a particular time after 2016 life insur-ance — in respect of a life, or two or more lives jointly insured, and in respect of which a particular schedule of premium or cost of insurance rates applies — is converted (other than only because of a change in premium or cost of insurance rates) into another type of life insurance under the policy or is added to the policy, then that insurance is deemed to be a separate life insurance policy issued at the particular time unless

(i) the insurance is part of a rider deemed by subsection 211(2) of the Act to be a separate life insurance policy issued at the particular time, or

(ii) in the case of insurance added to the policy,

(A) the insurance is medically underwritten

(I) to obtain a reduction in the premium or cost of insurance rates under the policy, or

(II) before 2017, or

(B) the insurance is paid for with policy dividends or is reinstated.

87. The portion of subsection 1403(1) of the Regulations before paragraph (a) is replaced by the following:

1403. (1) Subject to subsections (2) and (3), for the purposes of applying paragraph 1401(1)(c) in respect of a life insurance policy issued before 2017 or an annuity contract, a modified net premium and an amount determined by paragraph 1401(1)(c) are to be computed

88. (1) Subparagraph (a)(iii) of the definition “earnings” in subsection 5907(1) of the Regulations is replaced by the following:

(iii) in any other case, the amount that would be the income from the active business for the year under Part I of the Act if the business were carried on in Canada, the affiliate were resident in Canada and the Act were read without reference to subsections 18(4), 80(3) to (12), (15) and (17) and 80.01(5) to (11) and sections 80.02 to 80.04,

(2) Paragraph (b) of the definition “earnings” in subsection 5907(1) of the Regulations is replaced by the following:

(b) in any other case, the total of all amounts each of which is an amount of income that would be required under paragraph 95(2)(a) or subsection 95(2.44) of the Act to be included in computing the affiliate’s income or loss from an active business for the year if that income were computed taking into account the rules in subsection (2.03); (gains)

(3) The portion of paragraph (a) of the definition “exempt earnings” in subsection 5907(1) of the Regulations after subparagraph (iii) is repealed.

(4) Clause (d)(ii)(A) of the definition “exempt earnings” in subsection 5907(1) of the Regulations is replaced by the following:

(A) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(i) of the Act and that would

(I) if earned by the other foreign affiliate referred to in subclause 95(2)(a)(i)(A)(I) or (IV) of the Act, be included in computing the exempt earnings or exempt loss of the other foreign affiliate for a taxation year,

(II) if earned by the life insurance corporation referred to in subclause 95(2)(a)(i)(A)(II) of the Act and based on the assumptions contained in subclause 95(2)(a)(i)(B)(II) of the Act, be included in computing the exempt earnings or exempt loss of the life insurance corporation for a taxation year, or

(III) if earned from the active business activities carried on by the particular affiliate, or the partner-ship referred to in subclause 95(2)(a)(i)(A)(III) of the Act, be included in computing the exempt earnings or exempt loss of the partic-ular affiliate for a taxation year,

(5) Subclause (d)(ii)(E)(I) of the definition “exempt earnings” in subsection 5907(1) of the Regulations is replaced by the following:

(I) the second and third affil-iates referred to in subclause 95(2)(a)(ii)(D)(IV) of the Act are each resident in a designated treaty country throughout their relevant taxation years (within the meaning assigned by that subclause), and

(6) Subparagraph (d)(ii) of the definition “exempt earnings” in subsection 5907(1) of the Regulations is amended by striking out “or” at the end of clause (H) and by adding the following after clause (I):

(J) an amount that is required to be included in computing the particular affiliate’s income from an active business for the year under subsection 95(2.44) of the Act if the amount is in respect of income that would, in the absence of paragraph 95(2)(a.3) of the Act, be income from an active business carried on by the particular affiliate in a designated treaty country, or

(7) Subparagraph (vi) of the description of A in the definition “exempt surplus” in subsection 5907(1) of the Regulations is replaced by the following:

(vi) an amount added to the exempt surplus of the subject affiliate or deducted from its exempt deficit in the period and before the particular time under subsection (1.092), (1.1) or (1.2),

(8) Subparagraph (vi) of the description of B in the definition “exempt surplus” in subsection 5907(1) of the Regulations is replaced by the following:

(vi) an amount, in the period and before the particular time, deducted from the exempt surplus of the subject affiliate or added to its exempt deficit under subsection (1.092), (1.1) or (1.2); (surplus exonéré)

(9) Subparagraph (v) of the description of A in the definition “hybrid surplus” in subsection 5907(1) of the Regulations is replaced by the following:

(v) an amount added to the hybrid surplus of the subject affiliate or deducted from its hybrid deficit in the period and before the particular time under subsection (1.092), (1.1) or (1.2), and

(10) Subparagraph (vii) of the description of B in the definition “hybrid surplus” in subsection 5907(1) of the Regulations is replaced by the following:

(vii) an amount deducted from the hybrid surplus of the subject affiliate or added to its hybrid deficit in the period and before the particular time under subsection (1.092), (1.1) or (1.2); (surplus hybride)

(11) Subparagraph (iv) of the description of A in the definition “hybrid underlying tax” in subsection 5907(1) of the Regulations is replaced by the following:

(iv) the amount by which the subject affiliate’s hybrid underlying tax is required to be increased in the period and before the particular time under subsection (1.092), (1.1) or (1.2),

(12) Subparagraph (iv) of the description of B in the definition “hybrid underlying tax” in subsection 5907(1) of the Regulations is replaced by the following:

(iv) the amount by which the subject affiliate’s hybrid underlying tax is required to be decreased in the period and before the particular time under subsection (1.092), (1.1) or (1.2); (montant intrinsèque d’impôt hybride)

(13) Subparagraph (iv) of the description of A in the definition “taxable surplus” in subsection 5907(1) of the Regulations is replaced by the following:

(iv) an amount added to the taxable surplus of the subject affiliate or deducted from its taxable deficit in the period and before the particular time under subsection (1.092), (1.1) or (1.2),

(14) Subparagraph (vi) of the description of B in the definition “taxable surplus” in subsection 5907(1) of the Regulations is replaced by the following:

(vi) an amount, in the period and before the particular time, deducted from the taxable surplus of the subject affiliate or added to its taxable deficit under subsection (1.092), (1.1) or (1.2); (surplus imposable)

(15) Subparagraph (v) of the description of A in the definition “underlying foreign tax” in subsection 5907(1) of the Regulations is replaced by the following:

(v) the amount by which the subject affiliate’s underlying foreign tax is required to be increased in the period and before the particular time under subsection (1.092), (1.1) or (1.2),

(16) Subparagraph (iv) of the description of B in the definition “underlying foreign tax” in subsection 5907(1) of the Regulations is replaced by the following:

(iv) the amount by which the subject affiliate’s underlying foreign tax is required to be decreased in the period and before the particular time under subsection (1.092), (1.1) or (1.2); (montant intrinsèque d’impôt étranger)

(17) The portion of subsection 5907(1.03) of the Regulations before paragraph (a) is replaced by the following:

(1.03) For the purposes of the description of A in the definition “underlying foreign tax” in subsection (1), income or profits tax paid in respect of the taxable earnings of a particular foreign affiliate of a particular corporation or in respect of a dividend received by the particular affiliate from another foreign affiliate of the particular corporation, and amounts by which the underlying foreign tax of the particular affiliate or any other foreign affiliate of the particular corporation is required under any of subsections (1.092), (1.1) and (1.2) to be increased, is not to include any income or profits tax paid, or amounts by which the underlying foreign tax would otherwise be so required to be increased, as the case may be, in respect of the foreign accrual property income of the particular affiliate for a taxation year of the particular affiliate if, at any time in the year, a specified owner in respect of the particular corporation is considered,

(18) Section 5907 of the Regulations is amended by adding the following after subsection (1.09):

(1.091) Subsection (1.092) applies in respect of income or profits tax paid by, or refunded to, a foreign affiliate (in this subsection and subsection (1.092) referred to as the “shareholder affiliate”) of a taxpayer for a taxation year of the shareholder affiliate in respect of its income or profits, or loss, as the case may be, and the income or profits, or loss, as the case may be, of another foreign affiliate (in this subsection and subsection (1.092) referred to as the “transparent affiliate”) of the taxpayer if

(a) the shareholder affiliate has an equity percentage in the transparent affiliate;

(b) the income or profits tax is paid to, or refunded by, a government of a country other than Canada; and

(c) under the income tax laws of the country referred to in paragraph (b), the shareholder affiliate, and not the transparent affiliate, is liable for that tax payable to, or entitled to that refund from, a government of that country for that year (otherwise than solely because the shareholder affiliate is part of a group of corporations that determines its liabilities for income or profits tax payable to the government of that country on a consolidated or combined basis).

(1.092) If this subsection applies in respect of income or profits tax paid by, or refunded to, a shareholder affiliate for a taxation year

(a) in respect of the shareholder affiliate,

(i) any such income or profits tax paid by the shareholder affiliate for the year is deemed not to have been paid and any such refund to the shareholder affiliate of income or profits tax otherwise payable by it for the year is deemed not to have been made,

(ii) any such income or profits tax that would have been payable by the shareholder affiliate for the year if the shareholder affiliate had no other taxation year and had not been liable for income or profits tax in respect of income or profits of the transparent affiliate is deemed to have been paid for the year,

(iii) to the extent that

(A) any such income or profits tax that would otherwise have been payable by the shareholder affiliate for the year on behalf of the shareholder affiliate and the transparent affiliate is reduced because of any loss of the shareholder affiliate for the year or any previous taxation year, the amount of such reduction is deemed to have been received by the shareholder affiliate as a refund for the year of the loss of income or profits tax in respect of the loss, and

(B) the shareholder affiliate receives, in respect of a loss of the shareholder affiliate for the year or a subsequent taxation year, a refund of income or profits tax otherwise payable for the year by the shareholder affiliate on behalf of the shareholder affiliate and the transparent affiliate, the amount of such refund is deemed to have been received by the shareholder affiliate as a refund for the year of the loss of income or profits tax in respect of the loss,

(iv) any such income or profits tax that would have been payable by the transparent affiliate for the year if the transparent affiliate had no other taxation year, had no income or profits other than those that are included in computing the income or profits of the shareholder affiliate under the income tax laws referred to in paragraph (1.091)(c) and had been liable, and no other person had been liable, for income or profits tax in respect of income or profits of the transparent affiliate is, at the end of the year,

(A) to the extent that such income or profits tax would otherwise have reduced the net earnings included in the exempt earnings of the transparent affiliate, to be deducted from the exempt surplus or added to the exempt deficit, as the case may be, of the shareholder affiliate,

(B) to the extent that such income or profits tax would otherwise have reduced the hybrid surplus or increased the hybrid deficit of the transparent affiliate,

(I) to be deducted from the hybrid surplus or added to the hybrid deficit, as the case may be, of the shareholder affiliate, and

(II) to be added to the hybrid underlying tax of the shareholder affiliate, and

(C) to the extent that such income or profits tax would otherwise have reduced the net earnings included in the taxable earnings of the transparent affiliate,

(I) to be deducted from the taxable surplus or added to the taxable deficit, as the case may be, of the shareholder affiliate, and

(II) to be added to the underlying foreign tax of the shareholder affiliate, and

(v) to the extent that the income or profits tax that would otherwise have been payable by the shareholder affiliate for the year on behalf of the shareholder affiliate and the transparent affiliate is reduced because of a loss of the transparent affiliate for the year or a previous taxation year, or to the extent that the shareholder affiliate receives, in respect of a loss of the transparent affiliate for the year or a subsequent taxation year, a refund of income or profits tax otherwise payable for the year by the shareholder affiliate on behalf of the shareholder affiliate and the transparent affiliate, the amount of such reduction or refund, as the case may be, is, at the end of the year of the loss,

(A) to the extent that such loss reduces the exempt surplus or increases the exempt deficit of the transparent affiliate, to be added to the exempt surplus or deducted from the exempt deficit, as the case may be, of the shareholder affiliate,

(B) to the extent that such loss reduces the hybrid surplus or increases the hybrid deficit of the transparent affiliate,

(I) to be added to the hybrid surplus or deducted from the hybrid deficit, as the case may be, of the shareholder affiliate, and

(II) to be deducted from the hybrid underlying tax of the shareholder affiliate, and

(C) to the extent that such loss reduces the taxable surplus or increases the taxable deficit of the transparent affiliate,

(I) to be added to the taxable surplus or deducted from the taxable deficit, as the case may be, of the shareholder affiliate, and

(II) to be deducted from the underlying foreign tax of the shareholder affiliate;

(b) where, because of the shareholder affiliate being responsible for paying, or claiming a refund of, income or profits tax for the year on behalf of the shareholder affiliate and the transparent affiliate,

(i) an amount is paid to the shareholder affiliate by the transparent affiliate in respect of the income or profits tax that would have been payable by the transparent affiliate for the year had it been liable, and no other person had been liable, for income or profits tax in respect of income or profits of the transparent affiliate,

(A) in respect of the transparent affiliate, the amount so paid is deemed to be a payment of such income or profits tax for the year, and

(B) in respect of the shareholder affiliate,

(I) such portion of the amount so paid as may reasonably be regarded as relating to an amount included in the exempt surplus or deducted from the exempt deficit of the transparent affiliate is, at the end of the year, to be added to the exempt surplus or deducted from the exempt deficit, as the case may be, of the shareholder affiliate,

(II) such portion of the amount so paid as may reasonably be regarded as relating to an amount included in the hybrid surplus or deducted from the hybrid deficit of the transparent affiliate is, at the end of the year, to be added to the hybrid surplus or deducted from the hybrid deficit, as the case may be, of the shareholder affiliate and deducted from the hybrid underlying tax of the shareholder affiliate, and

(III) such portion of the amount so paid as may reasonably be regarded as relating to an amount included in the taxable surplus or deducted from the taxable deficit of the transparent affiliate is, at the end of the year, to be added to the taxable surplus or deducted from the taxable deficit, as the case may be, of the shareholder affiliate and be deducted from the underlying foreign tax of the shareholder affiliate, or

(ii) an amount is paid by the shareholder affiliate to the transparent affiliate in respect of a reduction or refund, because of a loss or a tax credit of the transparent affiliate for a taxation year, of the income or profits tax that would otherwise have been payable by the shareholder affiliate for the year on behalf of the shareholder affiliate and the transparent affiliate,

(A) in respect of the shareholder affiliate,

(I) the portion of the amount so paid that can reasonably be regarded as relating to an amount deducted from the exempt surplus or included in the exempt deficit of the transparent affiliate is, at the end of the year to which the loss or the tax credit relates, to be deducted from the exempt surplus or added to the exempt deficit, as the case may be, of the shareholder affiliate,

(II) the portion of the amount so paid that can reasonably be regarded as relating to an amount deducted from the hybrid surplus or included in the hybrid deficit of the transparent affiliate is, at the end of the year of the loss, to be deducted from the hybrid surplus or added to the hybrid deficit, as the case may be, of the shareholder affiliate and added to the hybrid underlying tax of the shareholder affiliate, and

(III) the portion of the amount so paid that can reasonably be regarded as relating to an amount deducted from the taxable surplus or included in the taxable deficit of the transparent affiliate is, at the end of the year to which the loss or the tax credit relates, to be deducted from the taxable surplus or added to the taxable deficit, as the case may be, of the shareholder affiliate and be added to the underlying foreign tax of the shareholder affiliate, and

(B) in respect of the transparent affiliate, the amount is deemed to be a refund to the transparent affiliate, for the year to which the loss or the tax credit relates, of income or profits tax in respect of the loss or the tax credit; and

(c) for the purposes of paragraph (b), any amount paid by a particular transparent affiliate in respect of the shareholder affiliate to another transparent affiliate in respect of the shareholder affiliate in respect of any income or profits tax that would have been payable by the particular transparent affiliate for the year had it been liable, and no other person had been liable, for income or profits tax in respect of income or profits of the transparent affiliate is deemed to have been paid in respect of such tax by the particular transparent affiliate to the shareholder affiliate and to have been paid in respect of such tax by the shareholder affiliate to the other transparent affiliate.

(19) The portion of subsection 5907(1.1) of the Regulations before paragraph (a) is replaced by the following:

(1.1) For the purposes of this Part, if, under, the income tax laws of a country other than Canada, a group (in this subsection referred to as the “consolidated group”) of two or more foreign affiliates of a corporation resident in Canada determine their liabilities for income or profits tax payable to the government of that country for a taxation year on a consolidated or combined basis and one of the affiliates (in this subsection referred to as the “primary affiliate”) is responsible for paying, or claiming a refund of, such tax on behalf of itself and the other affiliates (in this subsection referred to as the “secondary affiliates”) that are members of the consolidated group, the following rules apply:

(20) Section 5907 of the Regulations is amended by adding the following after subsection (1.1):

(1.11) For the purposes of subsection (1.1), a non-resident corporation is deemed to be, at any time, a foreign affiliate of a particular corporation resident in Canada if at that time the non-resident corporation is a foreign affiliate of another corporation that is resident in Canada and is related (otherwise than because of a right referred to in paragraph 251(5)(b) of the Act) to the particular corporation.

(21) Section 5907 of the Regulations is amended by adding the following after subsection (1.11):

(1.12) Subsection (1.13) applies in respect of a particular foreign affiliate of a corporation resident in Canada that is a secondary affiliate (within the meaning assigned by subsection (1.1)) and in respect of a foreign affiliate of the corporation that is the primary affiliate (within the meaning assigned by subsection (1.1)) in respect of the particular affiliate if

(a) the particular affiliate has an equity percentage in another foreign affiliate (in this subsection and subsection (1.13) referred to as the “transparent affiliate”);

(b) under the income tax laws of the country referred to in subsection (1.1), if the partic-ular affiliate were not a member of a consolidated group, the particular affiliate, and not the transparent affiliate, would be liable for any tax payable to, or entitled to any refund from, a government of that country for that year in respect of the income or profits, or loss, as the case may be, for the year of the transparent affiliate; and

(c) the primary affiliate pays income or profits tax, or receives a refund, in respect of the income or profits, or loss, as the case may be, for the year of the transparent affiliate.

(1.13) If this subsection applies, then in respect of the particular foreign affiliate and the primary affiliate referred to in subsection (1.12)

(a) for the purposes of applying subparagraphs (1.1)(a)(iv) and (1.1)(b)(i), where any income or profits tax that would otherwise be payable by the particular affiliate for the year, if the particular affiliate had no other taxation year and were not a member of the consolidated group referred to in subsection (1.1), is increased because of income or profits of the transparent affiliate referred to in paragraph (1.12)(a),

(i) to the extent that the income or profits increases the net earnings included in the exempt earnings of the transparent affiliate,

(A) the amount of any such increase is deemed to have been included in the exempt surplus, or deducted from the exempt deficit, as the case may be, of the particular affiliate, and

(B) any such income or profits tax that would have been payable by the particular affiliate in respect of the income or profits is deemed to be income or profits tax that would otherwise have reduced the net earnings that are included in the exempt earnings of the particular affiliate,

(ii) to the extent that the income or profits increases the hybrid surplus or reduces the hybrid deficit of the transparent affiliate,

(A) the amount of the increase or reduction is deemed to have been included in the hybrid surplus, or deducted from the hybrid deficit, as the case may be, of the particular affiliate, and

(B) any such income or profits tax that would have been payable by the partic-ular affiliate in respect of the income or profits is deemed to be income or profits tax that would otherwise have reduced the hybrid surplus or increased the hybrid deficit, as the case may be, of the particular affiliate, and

(iii) to the extent that the income or profits increases the net earnings included in the taxable earnings of the transparent affiliate,

(A) the amount of any such increase is deemed to have been included in the taxable surplus, or deducted from the taxable deficit, as the case may be, of the particular affiliate, and

(B) any such income or profits tax that would have been payable by the partic-ular affiliate in respect of the income or profits is deemed to be income or profits tax that would otherwise have reduced the net earnings that are included in the taxable earnings of the particular affiliate; and

(b) for the purpose of applying subparagraphs (1.1)(a)(v) and (1.1)(b)(ii), to the extent that the income or profits tax that would otherwise have been payable by the primary affiliate for the year on behalf of the consolidated group is reduced because of a loss, for the year or a previous taxation year, of the transparent affiliate referred to in paragraph (1.12)(a), or to the extent that the primary affiliate receives, in respect of a loss of the transparent affiliate for the year or a subsequent taxation year, a refund of income or profits tax otherwise payable for the year by the primary affiliate on behalf of the consolidated group,

(i) such loss is deemed to be a loss of the particular affiliate,

(ii) to the extent that such loss reduces the exempt surplus or increases the exempt deficit of the transparent affiliate, such loss is deemed to reduce the exempt surplus or increase the exempt deficit, as the case may be, of the particular affiliate,

(iii) to the extent that such loss reduces the hybrid surplus or increases the hybrid deficit of the transparent affiliate, such loss is deemed to reduce the hybrid surplus or increase the hybrid deficit, as the case may be, of the particular affiliate, and

(iv) to the extent that such loss reduces the taxable surplus or increases the taxable deficit of the transparent affiliate, such loss is deemed to reduce the taxable surplus or increase the taxable deficit, as the case may be, of the particular affiliate.

(22) Section 5907 of the Regulations is amended by adding the following after subsection (1.2):

(1.21) Subsection (1.22) applies if

(a) a foreign affiliate of the taxpayer (in this subsection and subsection (1.22) referred to as the “shareholder affiliate”) has an equity percentage in another foreign affiliate (in this subsection and subsection (1.22) referred to as the “transparent affiliate”); and

(b) under the income tax laws of the country in which the shareholder affiliate is resident, the shareholder affiliate, and not the transparent affiliate, is liable for any tax payable to, or entitled to any refund from, a government of that country for that year in respect of the income or profits, or loss, as the case may be, for the year of the transparent affiliate.

(1.22) If this subsection applies, for the purpose of applying subsection (1.2), any loss of the transparent affiliate, to the extent that the loss is deducted in computing the income, profits or loss of the shareholder affiliate under an income tax law referred to in paragraph (1.21)(b),

(a) is deemed to be a loss of the shareholder affiliate; and

(b) is deemed to

(i) reduce the exempt surplus, or increase the exempt deficit, as the case may be, of the shareholder affiliate to the extent that it reduces the exempt surplus or increases the exempt deficit of the transparent affiliate,

(ii) reduce the hybrid surplus or increase the hybrid deficit, as the case may be, of the shareholder affiliate to the extent that it reduces the hybrid surplus or increases the hybrid deficit of the transparent affiliate, and

(iii) reduce the taxable surplus or increase the taxable deficit, as the case may be, of the shareholder affiliate to the extent that it reduces the taxable surplus or increases the taxable deficit of the transparent affiliate.

(23) Paragraphs 5907(1.3)(a) and (b) of the Regulations are replaced by the following:

(a) if under the income tax laws of the country in which the particular affiliate or a shareholder affiliate of the particular affiliate, as the case may be, referred to in that paragraph is resident, the particular affiliate, or shareholder affiliate, and one or more other corporations, each of which is resident in that country, determine their liabilities for income or profits tax payable to the government of that country for a taxation year on a consolidated or combined basis, then any amount paid by the particular affiliate, or shareholder affiliate, to any of those other corporations to the extent that the amount paid may reasonably be regarded as being in respect of income or profits tax that would otherwise have been payable by the particular affiliate, or shareholder affiliate, in respect of a particular amount that is included under subsection 91(1) of the Act in computing the taxpayer’s income for a taxation year of the taxpayer in respect of the particular affiliate, if the tax liability of the particular affiliate, or shareholder affiliate, and those other corporations had not been determined on a consolidated or combined basis, is prescribed to be foreign accrual tax applicable to the particular amount; and

(b) if, under the income tax laws of the country in which the particular affiliate or a shareholder affiliate of the particular affiliate, as the case may be, referred to in that paragraph is resident, the particular affiliate, or shareholder affiliate, deducts, in computing its income or profits subject to tax in that country for a taxation year, an amount in respect of a loss of another corporation (referred to in this paragraph and paragraph (1.6)(a) as the “loss transferor”) resident in that country (referred to in this paragraph and paragraph (1.6)(a) as the “transferred loss”), then any amount paid by the particular affiliate, or shareholder affiliate, to the loss transferor to the extent that the amount paid may reasonably be regarded as being in respect of income or profits tax that would otherwise have been payable by the particular affiliate, or shareholder affiliate, in respect of a particular amount that is included under subsection 91(1) of the Act in computing the taxpayer’s income for a taxation year of the taxpayer in respect of the particular affiliate, if the tax liability of the particular affiliate, or shareholder affiliate, had been determined without deducting the transferred loss, is prescribed to be foreign accrual tax appli-cable to the particular amount.

(24) Subsections 5907(1.5) and (1.6) of the Regulations are replaced by the following:

(1.5) If subsection (1.4) applied to reduce an amount that would, in the absence of subsection (1.4), be prescribed by subsection (1.3) to be foreign accrual tax applicable to an amount (referred to in this subsection as the “FAPI amount”) included under subsection 91(1) of the Act in computing the taxpayer’s income for a taxation year (referred to in subsection (1.6) as the “FAPI year”) of the taxpayer in respect of the particular affiliate referred to in paragraph (1.3)(a) or (b), then an amount equal to that reduction is, for the purposes of paragraph (b) of the definition “foreign accrual tax” in subsection 95(1) of the Act, prescribed to be foreign accrual tax applicable to the FAPI amount in the taxpayer’s taxation year that includes the last day of the designated taxation year, if any, of the particular affiliate or the shareholder affiliate referred to in paragraph (1.3)(a) or (b), as the case may be.

(1.6) For the purposes of subsection (1.5), the designated taxation year of the particular affiliate or the shareholder affiliate, as the case may be, is a particular taxation year of the particular affiliate, or the shareholder affiliate, if

(a) in the particular year, or in the taxation year of the particular affiliate or shareholder affiliate (referred to in this paragraph as the “PATY”) ending in the FAPI year and one or more taxation years of the particular affiliate (or shareholder affiliate) each of which follows the PATY and the latest of which is the particular year, all losses of the particular affiliate (or shareholder affiliate) and the other corporations referred to in paragraph (1.3)(a) — or of the particular affiliate, the loss transferor and each corporation that would have been permitted to deduct the transferred loss against its income under the income tax laws referred to in paragraph (1.3)(b) if the transferred loss had not been deducted by the particular affiliate and if the corporation had taxable income for its taxation years ending in the FAPI year in excess of the transferred loss — for their taxation years ending in the FAPI year would, on the assumption that the particular affiliate (or shareholder affiliate) and each of those other corporations had no foreign accrual property income for any taxation year, reasonably be considered to have been fully deducted (under the tax laws referred to in paragraph (1.3)(a) or (b)) against income (as determined under those tax laws) of the particular affiliate (or shareholder affiliate) or those other corporations;

(b) the taxpayer demonstrates that no other losses of the particular affiliate (or shareholder affiliate) or those other corporations for any taxation year were, or could reasonably have been, deducted under those tax laws against that income; and

(c) the last day of the particular year occurs in one of the five taxation years of the taxpayer that immediately follow the FAPI year.

(25) Subsection (1) applies in respect of taxation years of a foreign affiliate of a taxpayer that begin after July 12, 2013. However,

(a) if a taxpayer elects in writing under this paragraph in respect of all its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, subsection (1) applies in respect of taxation years of all foreign affiliates of the taxpayer that begin either after 1994 or after December 20, 2002, depending on which is specified by the taxpayer in the election;

(b) if a taxpayer elects in writing under this paragraph in respect of all its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, the amounts of exempt surplus, exempt deficit, taxable surplus, taxable deficit, underlying foreign tax and, if applicable, hybrid surplus, hybrid deficit and hybrid underlying tax, of all foreign affiliates of the taxpayer for applicable taxation years of the affiliates in which those amounts are relevant are to be determined as if subsection (1) applied in respect of taxation years of all foreign affiliates of the taxpayer that end after 1975; and

(c) for the purposes of paragraph (b), the applicable taxation years of the affiliates are

(i) if the taxpayer has not elected under paragraph (a), taxation years of all foreign affiliates of the taxpayer that begin after July 12, 2013, and

(ii) if the taxpayer has elected under paragraph (a), taxation years of all foreign affiliates of the taxpayer that begin either after 1994 or after December 20, 2002, depending on which is specified in the election made under that paragraph.

(26) Subsections (2) and (6) apply in respect of taxation years of a foreign affiliate of a taxpayer that begin after October 2012.

(27) Subsection (3) applies in respect of dispositions after 2012.

(28) Subsection (4) applies in respect of taxation years of a foreign affiliate of a taxpayer that begin after July 12, 2013. However, if the taxpayer elects under subsection 25(31),

(a) subsection (4) applies in respect of taxation years of all foreign affiliates of the taxpayer that end after 2007; and

(b) clause (d)(ii)(A) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection (4), is to be read as follows in respect of taxation years of foreign affiliates of the taxpayer that end after 2007 and begin before 2009:

(A) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under subparagraph 95(2)(a)(i) of the Act and that would

(I) if earned by the non-resident corporation referred to in sub-subclause 95(2)(a)(i)(A)(I)1 of the Act and based on the assumptions contained in subclause 95(2)(a)(i)(B)(II) of the Act, be included in computing the exempt earnings or exempt loss of the non-resident corporation for a taxation year,

(II) if earned by the other foreign affiliate referred to in sub-subclause 95(2)(a)(i)(A)(I)2 or subclause 95(2)(a)(i)(A)(IV) of the Act, be included in computing the exempt earnings or exempt loss of the other foreign affiliate for a taxation year,

(III) if earned by the life insurance corporation referred to in subclause 95(2)(a)(i)(A)(II) of the Act and based on the assumptions contained in subclause 95(2)(a)(i)(B)(II) of the Act, be included in computing the exempt earnings or exempt loss of the life insurance corporation for a taxation year, or

(IV) if earned from the active business activities carried on by the particular affiliate, or the partner-ship referred to in subclause 95(2)(a)(i)(A)(III) of the Act, be included in computing the exempt earnings or exempt loss of the partic-ular affiliate for a taxation year,

(29) Subsection (5) applies in respect of taxation years of a foreign affiliate of a taxpayer that end after July 12, 2013.

(30) Subsections (7), (8), (13) to (16), (18) and (21) to (24) apply in respect of taxation years of a foreign affiliate of a taxpayer that end after 2010. However, if a taxpayer elects in writing under this subsection in respect of all its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent, those subsections apply in respect of taxation years of all foreign affiliates of the taxpayer that end on or after July 12, 2013.

(31) Subsections (9) to (12) are deemed to have come into force on August 20, 2011. However, if a taxpayer elects under subsection (30), subsections (9) to (12) are instead deemed to have come into force, in respect of the taxpayer, on July 12, 2013.

(32) Subsection (17) applies to income or profits tax paid, amounts referred to in subsections 5907(1.1) and (1.2) of the Regulations and amounts referred to in subsection 5907(1.092) of the Regulations, as enacted by subsection (18), in respect of the income of a foreign affiliate of a corporation for taxation years of the foreign affiliate that end in taxation years of the corporation that end after March 4, 2010. However,

(a) if the taxpayer does not elect under subsection (30), for taxation years of the corporation that end before October 25, 2012, the portion of subsection 5907(1.03) of the Regulations before paragraph (a), as enacted by subsection (17), is to be read as follows:

(1.03) For the purposes of the description of A in the definition “underlying foreign tax” in subsection (1), income or profits tax paid in respect of the taxable earnings of a particular foreign affiliate of a corporation or in respect of a dividend received by the particular affiliate from another foreign affiliate of the corporation, and amounts by which the underlying foreign tax of the particular affiliate, or any other foreign affiliate of the corporation, is required under any of subsections (1.092), (1.1) and (1.2) to be increased, is not to include any income or profits tax paid, or amounts by which the underlying foreign tax would otherwise be so required to be increased, as the case may be, in respect of the foreign accrual property income of the particular affiliate that is earned during a period in which

(b) if the taxpayer elects under subsection (30), subsection (17) instead applies to income or profits tax paid, amounts referred to in subsections 5907(1.1) and (1.2) of the Regulations and amounts referred to in subsection 5907(1.092) of the Regulations, as enacted by subsection (18), in respect of the income of a foreign affiliate of a corporation for taxation years of the foreign affiliate that end in taxation years of the corporation that end on or after July 12, 2013.

(33) Subsections (19) and (20) apply in respect of taxation years of a foreign affiliate of a taxpayer that end after 2003.

89. (1) The definition “qualifying child” in subsection 9400(1) of the Regulations is replaced by the following:

“qualifying child” has the meaning assigned by subsection 122.8(1) of the Act. (“enfant admissible”)

(2) The portion of subsection 9400(2) of the Regulations before paragraph (a) is replaced by the following:

(2) For the purpose of the definition “eligible fitness expense” in subsection 122.8(1) of the Act, a prescribed program of physical activity is

(3) The portion of subsection 9400(3) of the Regulations before paragraph (a) is replaced by the following:

(3) For the purpose of the definition “eligible fitness expense” in subsection 122.8(1) of the Act, a prescribed program of physical activity is that portion of a program, which program does not meet the requirements of paragraph (2)(c) and is not part of a school’s curriculum, of a duration of eight or more consecutive weeks, offered to children by an organization in circumstances where a participant in the program may select amongst a variety of activities

(4) Subsection 9400(4) of the Regulations is replaced by the following:

(4) For the purpose of the definition “eligible fitness expense” in subsection 122.8(1) of the Act, a prescribed program of physical activity is that portion of a membership in an organization, which membership does not meet the requirements of paragraph (2)(d) and is not part of a school’s curriculum, of a duration of eight or more consecutive weeks that is the percentage of all the activities offered to children by the organization that are activities that include a significant amount of physical activity.

(5) Subsections (1) to (4) apply to the 2015 and subsequent taxation years.

90. (1) Clause (c)(i)(A) of Class 43.1 of Schedule II to the Regulations is replaced by the following:

(A) is used by the taxpayer, or by a lessee of the taxpayer, to generate electrical energy, or both electrical and heat energy, using only fuel that is eligible waste fuel, fossil fuel, producer gas, spent pulping liquor or any combination of those fuels, and

(2) Subparagraph (d)(ix) of Class 43.1 of Schedule II to the Regulations is replaced by the following:

(ix) equipment used by the taxpayer, or by a lessee of the taxpayer, for the sole purpose of generating heat energy, primarily from the consumption of eligible waste fuel, producer gas or a combination of those fuels and not using any fuel other than eligible waste fuel, fossil fuel or producer gas, including such equipment that consists of fuel handling equipment used to upgrade the combustible portion of the fuel and control, feedwater and condensate systems, and other ancillary equipment, but not including equipment used for the purpose of producing heat energy to operate electrical generating equipment, buildings or other structures, heat rejection equipment (such as condensers and cooling water systems), fuel storage facilities, other fuel handling equipment and property otherwise included in Class 10 or 17,

(3) Subparagraph (d)(xiv) of Class 43.1 of Schedule II to the Regulations is replaced by the following:

(xiv) property that is used by the taxpayer, or by a lessee of the taxpayer, primarily for the purpose of generating electricity using kinetic energy of flowing water or wave or tidal energy (otherwise than by diverting or impeding the natural flow of the water or by using physical barriers or dam-like structures), including support structures, control, conditioning and battery storage equipment, submerged cables and transmission equipment, but not including buildings, distribution equipment, auxiliary electricity generating equipment, property otherwise included in Class 10 and property that would be included in Class 17 if that class were read without reference to its subparagraph (a.1)(i),

(4) Paragraph (d) of Class 43.1 of Sched-ule II to the Regulations is amended by replacing “and” with “or” at the end of subparagraph (xv) and by adding the following after that subparagraph:

(xvi) equipment used by the taxpayer, or by a lessee of the taxpayer, primarily for the purpose of generating producer gas (other than producer gas that is to be converted into liquid biofuels or chemicals), including related piping (including fans and compressors), air separation equipment, storage equipment, equipment used for drying or shredding eligible waste fuel, ash-handling equipment, equipment used to upgrade the producer gas into biomethane and equipment used to remove non-combustibles and contaminants from the producer gas, but not including buildings or other structures, heat rejection equipment (such as condensers and cooling water systems), equipment used to convert producer gas into liquid biofuels or chemicals and property otherwise included in Class 10 or 17, and

(5) Subsections (1) to (4) apply to property acquired after February 10, 2014 that has not been used or acquired for use before February 11, 2014.

91. Any assessment of a taxpayer’s tax, interest and penalties payable under the Act for any taxation year that ends before the day on which this Act receives royal assent that would, in the absence of this section, be precluded because of the time references in subsection 152(4) of the Act is to be made to the extent necessary to take into account sections 5, 21 and 22, subsections 25(1), (3), (5), (12), (14) to (16), (22), (23), (26) to (28), (30) to (32), (34) and (37) to (42), sections 77 and 78 and subsections 88(1), (3) to (5), (7) to (25) and (27) to (33).

PART 2