Bill C-48

Income Tax Amendments Act, 2000

24. (1) Paragraph 53(2)(a) of the Income Tax Amendments Act, 2000 is replaced by the following:

(a) in respect of transfers that occur after 1999 and before 2007, for the purpose of subsection 73(1) of the Act, as enacted by subsection (1), the residence of a transferee trust shall be determined without reference to section 94 of the Act, as it reads in its application to taxation years that end before 2007;

(2) Subsection (1) is deemed to have come into force on June 14, 2001.

25. (1) Subsection 80(19) of the Act is replaced by the following:

(19) Subsections (1) to (4) apply to the 2000 and subsequent taxation years except that, in respect of transfers after 1999 and before 2007, for the purposes of subsection 107(1) of the Act, as amended by this section, the residence of a transferee trust shall be determined without reference to section 94 of the Act, as it read in its application to taxation years that end before 2007.

(2) Subsection (1) is deemed to have come into force on June 14, 2001.

Income Tax Conventions Interpretation Act

26. (1) The Income Tax Conventions Interpretation Act is amended by adding the following after section 4.2:

(2) Subsection (1) is deemed to have come into force on March 5, 2010.

Income Tax Regulations

27. (1) Section 202 of the Income Tax Regulations is amended by adding the following after subsection (6):

(2) Subsection (1) applies to amounts paid or credited after August 27, 2010.

28. (1) Section 5909 of the Regulations and the heading before it are repealed.

(2) Subsection (1) applies to trust taxation years that end after 2006.

PART 2

AMENDMENTS IN RESPECT OF FOREIGN AFFILIATES: SURPLUS RULES AND OTHER TECHNICAL AMENDMENTS

Income Tax Act

29. (1) Paragraph 53(1)(d) of the Income Tax Act is replaced by the following:

(d) if the property is a share of the capital stock of a foreign affiliate of the taxpayer, any amount required by section 92 to be added in computing the adjusted cost base to the taxpayer of the share;

(2) Subsection (1) is deemed to have come into force on December 21, 2002.

30. (1) Subparagraph 88(1)(d)(ii) of the Act is replaced by the following:

(ii) in no case shall the amount so designated in respect of any such capital property exceed the amount, if any, by which the fair market value of the property at the time the parent last acquired control of the subsidiary exceeds the total of

(A) the cost amount to the subsidiary of the property immediately before the winding-up, and

(2) Subparagraph 88(1)(d)(iii) of the French version of the Act is replaced by the following:

(3) Section 88 of the Act is amended by adding the following after subsection (1.7):

(4) Subsections (1) and (2) apply in respect of windings-up that begin, and amalgamations that occur, after February 27, 2004.

(5) Subsection (3) is deemed to have come into force on December 19, 2009.

31. (1) Section 92 of the Act is amended by adding the following after subsection (1):

(2) Subsection (1) is deemed to have come into force on December 19, 2009.

32. (1) Paragraph 93(1)(b) of the Act is replaced by the following:

(b) if subsection 40(3) applies to the disposing corporation or disposing affiliate, as the case may be, in respect of the share, the amount deemed by that subsection to be the gain of the disposing corporation or disposing affiliate, as the case may be, from the disposition of the share is, except for the purposes of paragraph 53(1)(a), deemed to be equal to the amount, if any, by which

(i) the amount deemed by that subsection to be the gain from the disposition of the share determined without reference to this paragraph

exceeds

(ii) the elected amount.

(2) Subparagraph 93(1.2)(a)(ii) of the Act is replaced by the following:

(ii) if subsection (1.3) applies, the prescribed amount

(3) Subsection 93(3) of the Act is amended by striking out “and” at the end of paragraph (a), by adding “and” at the end of paragraph (b) and by adding the following after paragraph (b):

(4) Section 93 of the Act is amended by adding the following after subsection (5.1):

(5) Subsection (1) applies in respect of elections made in respect of dispositions that occur after December 18, 2009.

(6) Subsection (2) applies in respect of elections made under subsection 93(1.2) of the Act in respect of dispositions that occur after November 1999.

(7) Subsections (3) and (4) are deemed to have come into force on December 19, 2009.

33. (1) The description of F in the definition “foreign accrual property income” in subsection 95(1) of the Act is replaced by the following:

(2) Clause (a)(i)(A) of the definition “investment business” in subsection 95(1) of the Act is replaced by the following:

(A) of each country in which the business is carried on through a permanent establishment in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,

(3) Subsection 95(1) of the Act is amended by adding the following in alphabetical order:

(4) Clause 95(2)(l)(iii)(A) of the Act is replaced by the following:

(A) of each country in which the business is carried on through a permanent establishment in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,

(5) Clause 95(2.3)(b)(ii)(A) of the Act is replaced by the following:

(A) under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment in that country,

(6) Subparagraph 95(2.4)(a)(i) of the Act is replaced by the following:

(i) of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued and of each country in which the business is carried on through a permanent establishment in that country,

(7) Subclause (c)(ii)(B)(I) of the definition “indebtedness” in subsection 95(2.5) of the Act is replaced by the following:

(I) under the laws of the country under whose laws the non-resident corporation is governed and any of exists, was (unless the non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued and under the laws of each country in which the business is carried on through a permanent establishment in that country,

(8) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after November 1999.

(9) Subsections (2) to (7) apply to taxation years of a foreign affiliate of a taxpayer that begin after 1999.

34. (1) Subparagraph 152(4)(b)(i) of the Act is replaced by the following:

(i) is required under subsection (6) or (6.1), or would be so required if the taxpayer had claimed an amount by filing the prescribed form referred to in the subsection on or before the day referred to in the subsection,

(2) Subsection 152(6.1) of the Act is replaced by the following:

(6.1) If

(a) a taxpayer has filed for a particular taxation year the return of income required by section 150,

(b) the amount included in computing the taxpayer’s income for the particular year under subsection 91(1) is subsequently reduced because of a reduction in the foreign accrual property income of a foreign affiliate of the taxpayer for a taxation year (referred to in this paragraph as the “claim year”) of the affiliate that ends in the particular year, if the reduction in that foreign accrual property income is

(i) attributable to a foreign accrual property loss (within the meaning assigned by subsection 5903(3) of the Income Tax Regulations) of the affiliate for a taxation year of the affiliate that ends in a subsequent taxation year of the taxpayer, and

(ii) included in the description of F in the definition “foreign accrual property income” in subsection 95(1) in respect of the affiliate for the claim year, and

(c) the taxpayer has filed with the Minister, on or before the filing-due date for that subsequent taxation year, a prescribed form amending the return,

the Minister shall reassess the taxpayer’s tax for any relevant taxation year (other than a taxation year preceding the particular year) in order to take into account the reduction in the amount included under subsection 91(1) in computing the income of the taxpayer for the particular year.

(3) Subsections (1) and (2) apply to taxation years that begin after November 1999.

35. (1) The portion of paragraph 161(7)(a) of the Act before subparagraph (i) is replaced by the following:

(a) the tax payable under this Part and Parts I.3, VI and VI.1 by the taxpayer for the year is deemed to be the amount that it would be if the consequences of the deduction, reduction or exclusion of the following amounts were not taken into consideration:

(2) Paragraph 161(7)(a) of the Act is amended by striking out “and” at the end of subparagraph (x) and by adding the following after subparagraph (xi):

(3) Subparagraph 161(7)(b)(iii) of the Act is replaced by the following:

(iii) if an amended return of the taxpayer’s income for the year or a prescribed form amending the taxpayer’s return of income for the year was filed under subsection 49(4) or 152(6) or (6.1) or paragraph 164(6)(e), the day on which the amended return or prescribed form was filed, and

(4) Subsections (1) to (3) apply to taxation years that begin after December 18, 2009.

36. (1) Subsection 164(5) of the Act is amended by striking out “or” at the end of paragraph (h.2), by adding “or” at the end of paragraph (h.3), and by adding the following after paragraph (h.3):

(2) Paragraph 164(5)(k) of the Act is replaced by the following:

(k) if an amended return of a taxpayer’s income for the year or a prescribed form amending the taxpayer’s return of income for the year was filed under paragraph (6)(e) or subsection 49(4) or 152(6) or (6.1), the day on which the amended return or prescribed form was filed, and

(3) Subsections (1) and (2) apply to taxation years that begin after December 18, 2009.

37. (1) The portion of subsection 256(7) of the Act before paragraph (a) is replaced by the following:

(7) For the purposes of this subsection, of subsections 10(10), 13(21.2) and (24), 14(12) and 18(15), sections 18.1 and 37, subsection 40(3.4), the definition “superficial loss” in section 54, section 55, subsections 66(11), (11.4) and (11.5), 66.5(3) and 66.7(10) and (11), section 80, paragraph 80.04(4)(h), subsections 85(1.2), 88(1.1) and (1.2) and 110.1(1.2), sections 111 and 127 and subsection 249(4) and of subsection 5905(5.2) of the Income Tax Regulations,

(2) Subsection (1) is deemed to have come into force on December 19, 2009.

38. (1) The portion of subparagraph 261(5)(h)(i) of the Act before clause (A) is replaced by the following:

(i) the references in section 95 (other than paragraph 95(2)(f.15)) and the references in regulations made for the purposes of section 95 or 113 to

(2) The portion of subsection 261(15) of the Act before paragraph (a) is replaced by the following:

(15) For the purposes of determining the amount that may be deducted, in respect of a particular amount that arises in a taxation year (referred to in this subsection as the “later year”) of a taxpayer, under section 111 or subsection 126(2), 127(5), 181.1(4) or 190.1(3) in computing the taxpayer’s Canadian tax results for a taxation year (referred to in this subsection as the “current year”) that ended before the later year, and for the purposes of determining the amount by which the amount included under subsection 91(1) for the current year is reduced because of a reduction referred to in paragraph 152(6.1)(b) in respect of the later year,

(3) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after December 18, 2009.

(4) Subsection (2) is deemed to have come into force on December 14, 2007.

Budget and Economic Statement Implementation Act, 2007

39. (1) The read-as text in paragraph 26(27)(b) of the Budget and Economic Statement Implementation Act, 2007 is replaced by the following:

“controlled foreign affiliate”, at any time of a taxpayer resident in Canada, means a foreign affiliate of the taxpayer that

(a) is, at that time, controlled

(i) by the taxpayer,

(ii) by the taxpayer and not more than four other persons resident in Canada, or

(iii) by not more than four persons resident in Canada, other than the taxpayer, or

(b) would, at that time, be controlled by the taxpayer if the taxpayer owned

(i) each share of the capital stock of a corporation that is owned at that time by the taxpayer and each share of the capital stock of a corporation that is owned at that time by any of not more than four other persons resident in Canada,

(ii) each share of the capital stock of a corporation that is owned at that time by any of not more than four persons resident in Canada (other than the taxpayer), or

(iii) each share of the capital stock of a corporation that is owned at that time by the taxpayer and each share of the capital stock of a corporation that is owned at that time by any person with whom the taxpayer does not deal at arm’s length;

(2) The portion of paragraph 26(35)(b) of the Act before subparagraph (i) is replaced by the following:

(b) if a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007,

(3) The portion of subsection 26(37) of the English version of the Act before the read-as text is replaced by the following:

(37) Subject to subsection (46), paragraphs 95(2)(g) to (g.03) of the Act, as enacted by subsection (13), apply to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002, except that, for taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002 and before 2009, paragraph 95(2)(g.03) of the Act, as enacted by subsection (13), is to be read as if the references in that paragraph to “qualified foreign affiliate” were references to “qualified foreign corporation” and paragraph 95(2)(g) of the Act, as enacted by subsection (13), is to be read as follows:

(4) Subsection 26(38) of the Act is replaced by the following:

(38) Subject to subsection (46), paragraphs 95(2)(n), (p), (r) to (t), (v) and (y) of the Act, as enacted by subsection (16), apply to taxation years, of a foreign affiliate of a taxpayer, that end after 1999. However, if a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007, paragraph 95(2)(n) of the Act, as enacted by subsection (16), applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994.

(5) Subsection 26(40) of the Act is replaced by the following:

(40) Paragraph 95(2)(u) of the Act, as enacted by subsection (16), applies to taxation years, of foreign affiliates of a taxpayer, that end after 1999. However, if a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007, paragraph 95(2)(u) of the Act, as enacted by subsection (16), applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994.

(6) The portion of paragraph 26(42)(b) of the Act before the read-as text is replaced by the following:

(b) if a taxpayer elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007, subsection 95(2.2) of the Act, as enacted by subsection (19), also applies to taxation years, of all its foreign affiliates, that begin after 1994 and end before 2000, as though subsection 95(2.2) of the Act, as enacted by subsection (19), read as follows:

(7) Subsections 26(44) and (45) of the Act are replaced by the following:

(44) Subject to subsection (46), subsection (24) applies to the 2001 and subsequent taxation years of a foreign affiliate of a taxpayer. However, if a taxpayer elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007, subsection (24) applies to taxation years, of all its foreign affiliates, that begin after 1994.

(45) Subsection (25) applies to taxation years, of a foreign affiliate of a taxpayer, that begin after December 20, 2002. However, if a taxpayer elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007, subsections (11) and (25) apply to taxation years, of all its foreign affiliates, that begin after 1994.

(8) The portion of subsection 26(46) of the Act before paragraph (a) is replaced by the following:

(46) If a taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the day that is 18 months after the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2007,

(9) Subsection 26(47) of the Act is replaced by the following:

(47) If a taxpayer has made what would, but for this subsection, be a valid election under any of paragraph (35)(b), subsections (38) and (40), paragraph (42)(b) and subsections (44) to (46) and the taxpayer has, on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes December 14, 2010, filed with the Minister of National Revenue a notice in writing to revoke the election, the election is deemed, otherwise than for the purpose of this subsection, never to have been made.

(10) Subsection 26(48) of the Act is replaced by the following:

(48) Any assessment of a taxpayer’s tax, interest and penalties payable under the Act for any taxation year that ends before December 14, 2007 and would, in the absence of this subsection, be precluded because of subsections 152(4) to (5) of the Act shall be made to the extent necessary to take into account any of the following:

(a) an election made by the taxpayer under any of subsections (35), (38), (40), (42) and (44) to (46), a revocation referred to in subsection (47) or any provision of this section in respect of which an election is made under any of those subsections by the taxpayer; or

(11) Subsections (1) to (10) are deemed to have come into force on December 14, 2007.

Income Tax Regulations

40. (1) Subsection 5900(3) of the Income Tax Regulations is replaced by the following:

(3) For the purposes of subsection 91(5) of the Act, if a person resident in Canada (other than a corporation) receives a dividend on a share of any class of the capital stock of a foreign affiliate of the person, the dividend is prescribed to have been paid out of the affiliate’s taxable surplus.

(2) Subsection (1) applies in respect of dividends received after November 1999.

41. (1) Subsections 5902(1) to (3) of the Regulations are replaced by the following:

(2) Paragraph 5902(6)(b) of the Regulations is replaced by the following:

(b) the amount that would reasonably be expected to have been received in respect of the share if the particular affiliate had at that time paid dividends, on all shares of its capital stock, the total of which was equal to the amount determined under subparagraph (1)(a)(i) to be its net surplus in respect of the corporation for the purposes of the election.

(3) Subsections (1) and (2) apply in respect of elections made in respect of dispositions that occur after December 18, 2009. However, in applying subsection 5905(5.6) of the Regulations, as enacted by subsection 44(6), the portion of subsection 5902(1) of the Regulations before its subparagraph (a)(ii), as enacted by subsection (1), applies after December 18, 2009.

42. (1) Section 5903 of the Regulations is replaced by the following:

(2) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after November 1999, except that

(a) the reference to “20 taxation years” in paragraph 5903(1)(a) of the Regulations, as enacted by subsection (1), is, in respect of foreign accrual property losses for the foreign affiliate’s taxation years that end in taxation years of the taxpayer that end

(i) before March 23, 2004, to be read as “seven taxation years”, and

(ii) after March 22, 2004 and before 2006, to be read as “10 taxation years”;

(b) subsection 5903(2) of the Regulations, as enacted by subsection (1), is, in its application to taxation years that begin before 2001, to be read without reference to its paragraph (b);

(c) paragraph 5903(3)(a) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

(a) where, at the end of the year, the affiliate is a controlled foreign affiliate of a person or partnership that is, at the end of the year, a relevant person or partnership in respect of the taxpayer, the amount, if any, by which

(i) the total of the amounts determined for D and E in the formula in the definition “foreign accrual property income” in subsection 95(1) of the Act in respect of the affiliate for the year

exceeds

(ii) the total of the amounts determined for A, B and C in that formula in that definition in respect of the affiliate for the year; and

(d) subsection 5903(4) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

(4) In computing under subsection (3) the affiliate’s foreign accrual property loss for a taxation year, if the affiliate or another corporation has received a payment described in subsection 5907(1.3) from another foreign affiliate of the taxpayer and any portion of the payment can reasonably be considered to relate to a loss or portion of a loss of the affiliate for the year described in the description of D or E in the definition “foreign accrual property income” in subsection 95(1) of the Act, the amount of the loss or portion of the loss is deemed to be nil.

(e) subsection 5903(6) of the Regulations, as enacted by subsection (1), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

(6) In this section, a “relevant person or partnership”, in respect of a taxpayer, at any time means

(a) the taxpayer;

(b) any person with whom the taxpayer was not dealing at arm’s length;

(c) any person with whom the taxpayer would not have been dealing at arm’s length if the person had been in existence after the taxpayer came into existence;

(d) any predecessor corporation (within the meaning assigned by subsection 87(1) of the Act) of a person described in any of paragraphs (a) to (c); or

(e) any predecessor corporation (within the meaning assigned by paragraph 87(2)(l.2) of the Act) of a person described in any of paragraphs (a) to (c).

(f) section 5903 of the Regulations, as enacted by subsection (1), is, in its application to taxation years that begin on or before December 18, 2009, to be read without reference to its subsection (7).

43. (1) Paragraph 5904(3)(a) of the Regulations is replaced by the following:

(a) the net surplus of a foreign affiliate of a person resident in Canada is, in respect of that person, to be computed as if that person were a corporation resident in Canada;

(2) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that begin after November 1999.

44. (1) Subsection 5905(1) of the Regulations is replaced by the following:

(2) Subsection 5905(2) of the Regulations is repealed.

(3) Subsections 5905(3) and (4) of the Regulations are replaced by the following:

(4) Subsection 5905(5) of the Regulations is replaced by the following:

(5) Subsections 5905(5.11) to (5.13) of the Regulations, as enacted by subsection (4), are repealed.

(6) Section 5905 of the Regulations is amended by adding the following in numerical order:

(7) Subsection 5905(6) of the Regulations is repealed.

(8) Section 5905 of the Regulations is amended by adding the following after subsection (7):

(9) Subsection 5905(8) of the Regulations is repealed.

(10) Subsection 5905(9) of the Regulations is repealed.

(11) Subsection (1) applies in respect of acquisitions and dispositions that occur after December 18, 2009.

(12) Subsection (2) applies in respect of redemptions, acquisitions and cancellations that occur after December 18, 2009.

(13) Subsection (3) applies in respect of mergers or combinations that occur after December 18, 2009.

(14) Subsections 5905(5) and (5.1) of the Regulations, as enacted by subsection (4), and subsection (7) apply in respect of dispositions and amalgamations that occur, and windings-up that begin, after December 18, 2009.

(15) Subsections 5905(5.11) and (5.12) of the Regulations, as enacted by subsection (4), apply in respect of an amalgamation that occurs, or a winding-up that begins, after February 27, 2004, except that, if subsection 5905(6) of the Regulations applies in respect of the amalgamation or winding-up, then the portion of subsection 5905(5.12) of the Regulations, as so enacted, before its paragraph (a) is to be read as follows:

(5.12) If this subsection applies, the following rules apply for the purposes of subsections (5) and (6):

(16) Subsection 5905(5.13) of the Regulations, as enacted by subsection (4), applies in respect of windings-up that begin, and amalgamations that occur, after February 27, 2004.

(17) Subsection (5) applies in respect of acquisitions of control that occur after December 18, 2009, except if the acquisition of control results from an acquisition of shares made under an agreement in writing entered into before December 18, 2009.

(18) Subsections 5905(5.2) to (5.4) of the Regulations, as enacted by subsection (6), apply in respect of acquisitions of control that occur after December 18, 2009, except if the acquisition of control results from an acquisition of shares made under an agreement in writing entered into before December 18, 2009.

(19) Subsections 5905(5.5) and (5.6) of the Regulations, as enacted by subsection (6), are deemed to have come into force on December 19, 2009.

(20) Subsection (8) applies where a share of the capital stock of a foreign affiliate of a corporation is acquired by, or otherwise becomes property of, a person after December 18, 2009.

(21) Subsection (9) applies in respect of dispositions that occur after December 18, 2009.

(22) Subsection (10) applies in respect of issuances that occur after December 18, 2009.

45. (1) Subsection 5906(2) of the Regulations is replaced by the following:

(2) The expression “permanent establishment” means

(2) Subsection (1) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999 except that, for taxation years of the affiliate that end on or before December 18, 2009, the portion of paragraph 5906(2)(b) of the Regulations, as enacted by subsection (1), before its subparagraph (i) is to be read as follows:

(b) for the purposes of subdivision i of Division B of Part I (other than the definitions “excluded income” and “excluded revenue” in subsection 95(2.5)) of the Act,

46. (1) The definition “loss” in subsection 5907(1) of the Regulations is replaced by the following:

“loss”, of a foreign affiliate of a taxpayer resident in Canada for a taxation year of the affiliate from an active business, means

(a) in the case of an active business carried on by it in a country, the amount of its loss for the year from the active business carried on in the country computed by applying the provisions of paragraph (a) of the definition “earnings” respecting the computation of earnings from that active business carried on in that country, with any modifications that the circumstances require, and

(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 is required under paragraph 95(2)(a) of the Act to be included in computing the affiliate’s income or loss from an active business for the year; (gains)

(3) Subparagraph (a)(ii) of the definition “exempt earnings” in subsection 5907(1) of the Regulations is replaced by the following:

(ii) the amount of the taxable capital gains for the year referred to in subparagraphs (c)(i), (d)(iii), (e)(i) and (f)(iv) of the definition “net earnings”, and

(4) The definition “exempt earnings” in subsection 5907(1) of the Regulations is amended by adding the following after paragraph (a):

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

(6) Subparagraph (a)(ii) of the definition “exempt loss” in subsection 5907(1) of the Regulations is replaced by the following:

(ii) the amount of the allowable capital losses for the year referred to in subparagraphs (c)(i), (d)(iii), (e)(i) and (f)(iv) of the definition “net loss”, and

(7) The definition “exempt loss” in subsection 5907(1) of the Regulations is amended by adding the following after paragraph (a):

(8) Paragraph (c) of the definition “exempt loss” in subsection 5907(1) of the Regulations is replaced by the following:

(9) Paragraphs (b) and (c) of the definition “exempt surplus” in subsection 5907(1) of the Regulations are replaced by the following:

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

(i) the opening exempt surplus, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),

(11) The description of A in the definition “exempt surplus” in subsection 5907(1) of the Regulations is amended by striking out “or” at the end of subparagraph (vi) and by adding the following after that subparagraph:

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

(i) the opening exempt deficit, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (c),

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

(14) The definition “net earnings” in subsection 5907(1) of the Regulations is amended by striking out “and” at the end of paragraph (c) and by adding the following after paragraph (d):

(15) The definition “net loss” in subsection 5907(1) of the Regulations is amended by striking out “and” at the end of paragraph (c) and by adding the following after paragraph (d):

(16) Subparagraphs (b)(iii) to (v) of the definition “taxable earnings” in subsection 5907(1) of the Regulations are replaced by the following:

(iii) the affiliate’s earnings for the year as determined under paragraph (b) of the definition “earnings” minus the portion of any income or profits tax paid to the government of a country for a year by the affiliate that can reasonably be regarded as tax in respect of those earnings, or

(iv) to the extent not included under subparagraph (ii), the affiliate’s net earnings for the year determined under paragraphs (c) to (f) of the definition “net earnings”,

(17) Subparagraphs (b)(iii) and (iv) of the definition “taxable loss” in subsection 5907(1) of the Regulations are replaced by the following:

(18) Paragraphs (b) and (c) of the definition “taxable surplus” in subsection 5907(1) of the Regulations are replaced by the following:

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

(i) the opening taxable surplus, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),

(20) The description of A in the definition “taxable surplus” in subsection 5907(1) of the Regulations is amended by adding the following after subparagraph (iv):

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

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

(23) The definition “underlying foreign tax” in subsection 5907(1) of the Regulations is amended by adding “and” at the end of paragraph (a) and by replacing paragraphs (b) and (c) with the following:

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

(i) the opening underlying foreign tax, if any, of the subject affiliate in respect of the corporation as determined under section 5905, at the time established in paragraph (b),

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

(26) Paragraph (b) of the definition “underlying foreign tax applicable” in subsection 5907(1) of the Regulations is replaced by the following:

(27) Paragraph (b) of the definition “whole dividend” in subsection 5907(1) of the Regulations is replaced by the following:

(b) where a whole dividend is deemed by subparagraph 5902(1)(a)(ii) to have been paid at the same time on shares of more than one class of an affiliate’s capital stock, for the purpose only of that subparagraph, the whole dividend deemed to have been paid at that time on the shares of a class of the affiliate’s capital stock is deemed to be the total of all amounts each of which is a whole dividend deemed to have been paid at that time on the shares of a class of the affiliate’s capital stock, and

(28) The portion of the definition “gains exonérés” in subsection 5907(1) of the French version of the Regulations before paragraph (a) is replaced by the following:

(29) The portion of paragraph (a) of the definition “gains exonérés” in subsection 5907(1) of the French version of the Regulations after subparagraph (iii) is replaced by the following:

(30) Subsection 5907(1.02) of the Regulations is repealed.

(31) Section 5907 of the Regulations is amended by adding the following after subsection (1.01):

(32) Subparagraph 5907(1.1)(b)(ii) of the Regulations is replaced by the following:

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

(A) in respect of the primary 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, as the case may be, of the secondary affiliate shall, at the end of the year to which the loss or the tax credit relates, be deducted from the exempt surplus or added to the exempt deficit, as the case may be, of the primary affiliate, and

(II) 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, as the case may be, of the secondary affiliate shall, at the end of the year to which the loss or the tax credit relates, be deducted from the taxable surplus or added to the taxable deficit, as the case may be, of the primary affiliate and be added to the underlying foreign tax of the primary affiliate, and

(B) in respect of the secondary affiliate, the amount is deemed to be a refund to the secondary 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,

(33) The portion of subsection 5907(1.3) of the Regulations before paragraph (a) is replaced by the following:

(1.3) For the purpose of paragraph (b) of the definition “foreign accrual tax” in subsection 95(1) of the Act and subject to subsection (1.4),

(34) Section 5907 of the Regulations is amended by adding the following after subsection (1.3):

(35) Subsections 5907(2.7) and (2.8) of the Regulations are replaced by the following:

(36) Subsection 5907(5) of the Regulations is replaced by the following:

(5) For the purposes of this section, each capital gain, capital loss, taxable capital gain or allowable capital loss of a foreign affiliate of a taxpayer from the disposition of property shall be computed in accordance with the rules set out in subsection 95(2) of the Act and, for the purposes of subsection (6), if any such gain or loss is required to be computed in Canadian currency, the amount of such gain or loss shall be converted from Canadian currency into the currency referred to in subsection (6) at the rate of exchange prevailing on the date of disposition of the property.

(37) Subsection 5907(6) of the Regulations is replaced by the following:

(6) All amounts referred to in subsections (1) and (2) shall be maintained on a consistent basis from year to year in the currency of the country in which the foreign affiliate of the corporation resident in Canada is resident or any currency that the corporation resident in Canada demonstrates to be reasonable in the circumstances.

(38) Subsection 5907(12) of the Regulations is repealed.

(39) Subject to section 50, subsections (1) and (2) apply to taxation years of a foreign affiliate of a taxpayer that end after 1999.

(40) Subsections (3), (6) and (14) to (16) apply in respect of dispositions of property that occur after December 18, 2009.

(41) Subject to section 50, subsection (4) applies to taxation years of a foreign affiliate of a taxpayer that begin after December 20, 2002, except that the description of A in paragraph (a.1) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection (4), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read without reference to its subparagraph (iii).

(42) Subject to section 50, subsection (5) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999, except that

(a) the portion of paragraph (d) of the definition “exempt earnings” in subsection 5907(1) of the Regulations before its subparagraph (i), as enacted by subsection (5), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

(d) where the year is the 1976 or any subsequent taxation year of the particular affiliate and the particular affiliate is resident in a designated treaty country,

(b) subclause (d)(ii)(E)(II) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection (5), is, in its application to taxation years of the foreign affiliate that begin after 2008 and on or before June 18, 2010, to be read as follows:

(II) that income would be required to be so included if paragraph (c) of the definition “excluded property” in subsection 95(1) of the Act were read as follows:

(c) property all or substantially all of the income from which is deemed, or would be deemed, if there were income from the property, to be income from an active business by paragraph (2)(a) (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph (2)(a) if that paragraph were read without reference to its subparagraph (v)) that is derived from amounts payable by payers who are, or would be, if they were foreign affiliates of the taxpayer, entitled to deduct the amounts in computing their exempt earnings or exempt loss, as defined in subsection 5907(1) of the Income Tax Regulations, for a taxation year,

(c) subject to paragraph (d), subparagraph (d)(ii) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection (5), is, in its application to taxation years of the foreign affiliate that end after 1999 and begin before 2009, to be read as follows:

(ii) the particular affiliate’s earnings for the year from an active business to the extent that they derive from

(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)(I) 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 foreign affili-ate referred to in sub-subclause 95(2)(a)(i)(A)(I)2 of the Act, be included in computing the exempt earnings or exempt loss of that foreign affiliate for a taxation year, or

(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)(I) of the Act, be included in computing the exempt earnings or exempt loss of the life insurance corporation for a taxation year,

(B) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(A) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that would be deductible in computing the exempt earnings or exempt loss for a taxation year of the non-resident corporation or the partnership, as the case may be, referred to in that clause if it were a foreign affiliate of the particular corporation,

(C) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(B) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that

(I) are deductible in computing the exempt earnings or exempt loss, for a taxation year, of the other foreign affiliate referred to in that clause, or

(II) would be deductible in computing the exempt earnings or exempt loss, for a taxation year, of the partnership referred to in that clause if the partnership were a foreign affiliate of the particular corporation,

(D) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(C) of the Act to the extent that the amounts paid or payable referred to in that clause are for expenditures that would be deductible in computing the exempt earnings or exempt loss, for a taxation year, of the partnership referred to in that clause if the partnership were a foreign affiliate of the particular corporation,

(E) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(D) of the Act if

(I) the country referred to in subclause 95(2)(a)(ii)(D)(IV) of the Act is a designated treaty country, and

(II) that income would be required to be so included if paragraph (c) of the definition “excluded property” in subsection 95(1) of the Act were read as follows:

(c) property all or substantially all of the income from which is deemed, or would be deemed if there were income from the property, to be income from an active business by paragraph (2)(a) (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph (2)(a) if that paragraph were read without reference to its subparagraph (v)) that is derived from amounts payable by payers who are, or would be, if they were foreign affiliates of the taxpayer, entitled to deduct the amounts in computing their exempt earnings or exempt loss, as defined in subsection 5907(1) of the Income Tax Regulations, for a taxation year,

(F) income that is required to be included in computing the particular affiliate’s income or loss from an active business for the year under clause 95(2)(a)(ii)(E) of the Act where the income is derived from amounts that are paid or payable by the life insurance corporation referred to in that clause and are for expenditures that would, if that life insurance corporation were a foreign affiliate of the particular corporation, be deductible in computing its exempt earnings or exempt loss for a taxation year,

(G) 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)(iii) of the Act to the extent that the trade accounts receivable referred to in that subparagraph arose in the course of an active business carried on by the non-resident corporation referred to in that subparagraph the income or loss from which would be included in computing its exempt earnings or exempt loss for a taxation year if it were a foreign affiliate of the particular corporation,

(H) 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)(iv) of the Act to the extent that the loans or lending assets referred to in that subparagraph arose in the course of an active business carried on by the non-resident corporation referred to in that subparagraph the income or loss from which would be included in computing its exempt earnings or exempt loss for a taxation year if it were a foreign affiliate of the particular corporation,

(I) 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)(v) of the Act, where all or substantially all of its income, from the property described in that subparagraph, is, or would be if there were income from the property, income from an active business (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph 95(2)(a) of the Act if that paragraph were read without reference to its subparagraph (v) and, for greater certainty, excludes income arising as a result of the disposition of the property) that is included in computing its exempt earnings or exempt loss for a taxation year, or

(J) 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)(vi) of the Act, where the agreement for the purchase, sale or exchange of currency referred to in that subparagraph can reasonably be considered to have been made by the particular affiliate to reduce its risk with respect to an amount of income or loss that is included in computing its exempt earnings or exempt loss for a taxation year, or

(d) subclause (d)(ii)(E)(II) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as set out in the read-as text contained in paragraph (c), is, in its application to taxation years of the foreign affiliate that end after 1999 and begin before December 21, 2002, to be read as follows:

(II) that income would be required to be so included if paragraph (c) of the definition “excluded property” in subsection 95(1) of the Act were read without reference to amounts receivable referred to in that paragraph (c), where the interest on the amounts is not, or would not be if interest were payable on the amounts, deductible in computing the debtor’s exempt earnings or exempt loss for a taxation year,

(43) Subsections (7), (31), (36) and (37) apply to taxation years of a foreign affiliate of a taxpayer that begin after December 18, 2009.

(44) Subject to section 50, subsection (8) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999, except that the portion of paragraph (c) of the definition “exempt loss” in subsection 5907(1) of the Regulations before subparagraph (i), as enacted by subsection (8), is, in its application to taxation years of the foreign affiliate that begin on or before December 18, 2009, to be read as follows:

(c) where the year is the 1976 or any subsequent taxation year of the affiliate and the affiliate is resident in a designated treaty country,

(45) Subsections (9), (10), (12), (13), (18), (19) and (21) to (25) are deemed to have come into force on December 1, 1999.

(46) Subsections (11) and (20) apply where a share of the capital stock of a foreign affiliate of a corporation is acquired by, otherwise becomes property of, or is disposed of by, a person after December 20, 2002.

(47) Subject to section 50, subsection (17) applies to taxation years of a foreign affiliate of a taxpayer that end after 1999, except that, in respect of dispositions of property that occur before December 18, 2009, subparagraph (b)(iv) of the definition “taxable loss” in subsection 5907(1) of the Regulations, as enacted by subsection (17), is to be read as follows:

(iv) to the extent not included under subparagraph (ii), the affiliate’s net loss for the year determined under paragraphs (c) and (d) of the definition “net loss”,

(48) Subsection (26) applies in respect of whole dividends paid on the shares of a class of the capital stock of a foreign affiliate of a corporation after December 18, 2009.

(49) Subsection (27) applies to elections made in respect of dispositions that occur after December 18, 2009.

(50) Subsections (28) and (29) apply to taxation years of a foreign affiliate of a taxpayer that begin after December 20, 2002.

(51) Subsections (30) and (35) apply to taxation years of a foreign affiliate of a taxpayer that begin after 2008.

(52) Subsection (32) applies in respect of payments made after December 20, 2002.

(53) Subsections (33) and (34) apply to taxation years of a foreign affiliate of a taxpayer that begin after November 1999.

(54) Subsection (38) is deemed to have come into force on December 19, 2009.

47. (1) The Regulations are amended by adding the following after section 5907:

(2) Subsections 5908(1) and (2) of the Regulations, as enacted by subsection (1), apply to taxation years of a foreign affiliate of a taxpayer that begin after November 1999, except that those subsections, as so enacted, are, in their application to acquisitions, dispositions, redemptions, cancellations, foreign mergers, amalgamations and issuances that occur, and windings-up that begin, on or before December 18, 2009, to be read as follows:

5908. (1) In determining,

(a) for the purposes of this Part (other than section 5904), the equity percentage at any time of a person in a corporation,

(b) for the purposes of this section and section 5905, the surplus entitlement at any time of a share owned by a corporation resident in Canada of the capital stock of a foreign affiliate of the corporation in respect of a particular foreign affiliate of the corporation, and

(c) for the purposes of this Part and the definition “surplus entitlement percentage” in subsection 95(1) of the Act, the surplus entitlement percentage at any time of a corporation resident in Canada in respect of a particular foreign affiliate of the corporation,

if at any time shares of a class of the capital stock of a corporation are owned by a partnership or are deemed under this subsection to be owned by a partnership, those shares are deemed to be owned at that time by each member of the partnership in a proportion equal to the proportion of all such shares that

(d) the fair market value of the member’s interest in the partnership at that time

is of

(e) the fair market value of all members’ interests in the partnership at that time.

(2) For the purposes of this section and section 5905, if the number of shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada deemed by subsection 93.1(1) of the Act to be owned by a person at a particular time is different from the number so deemed immediately before the particular time,

(a) where the number of shares of that class deemed to be owned by the person has decreased, the person is deemed to have disposed of, at the particular time, the number of shares of that class equal to the amount of the decrease;

(b) where the number of shares of that class deemed to be owned by the person has increased, the person is deemed to have acquired, at the particular time, the number of shares of that class equal to the amount of the increase;

(c) a person (referred to in this paragraph as the “seller”) that is deemed by paragraph (a) to have disposed of, at a particular time, shares of a class of the foreign affiliate’s capital stock is deemed to have disposed of those shares to the persons (referred to in this paragraph as the “acquirers”) deemed in paragraph (b) to have acquired shares of that class at that time and the number of shares of that class deemed to have been acquired at that time by a particular acquirer from the seller shall be determined by the formula

A × B/C

where

A      is the number of shares of that class acquired by the particular acquirer at that time,

B      is the number of shares of that class disposed of by the seller at that time, and

C      is the number of shares of that class acquired by all acquirers at that time; and

(d) persons (referred to in this paragraph as the “acquirers”) that are deemed by paragraph (b) to have acquired, at a particular time, shares of a class of the foreign affiliate’s capital stock are deemed to have acquired those shares from a person (referred to in this paragraph as the “seller”) deemed in paragraph (a) to have disposed of shares of that class at that time and the number of shares of that class deemed to have been disposed of by the seller to a particular acquirer at that time shall be determined by the formula

A × B/C

where

A      is the number of shares of that class disposed of by the seller,

B      is the number of shares of that class acquired by the particular acquirer at that time, and

C      is the number of shares of that class disposed of by all sellers at that time.

(3) Subsections 5908(3) to (5) of the Regulations, as enacted by subsection (1), apply to taxation years of a foreign affiliate of a taxpayer that begin after December 18, 2009.

(4) Subsections 5908(6) and (7) of the Regulations, as enacted by subsection (1), apply in respect of acquisitions of control that occur after December 18, 2009, except if the acquisition of control results from an acquisition of shares made under an agreement in writing entered into before December 18, 2009.

(5) Subsection 5908(8) of the Regulations, as enacted by subsection (1), applies to elections made under subsection 93(1.2) of the Income Tax Act in respect of dispositions that occur after November 1999.

(6) Subsection 5908(9) of the Regulations, as enacted by subsection (1), applies for taxation years of a foreign affiliate of a taxpayer that begin after November 1999 except that, for the foreign affiliate’s taxation years that end on or before August 27, 2010, that subsection 5908(9) is to be read as follows:

(9) For the purposes of this section and paragraph 5907(2.7)(b), if any corporation is (or is deemed by this subsection to be) a member of a particular partnership that is a member of another partnership, the corporation is deemed to be a member of the other partnership.

(7) Subsection 5908(10) of the Regulations, as enacted by subsection (1), is deemed to have come into force on December 19, 2009.

(8) Subsections 5908(11) and (12) of the Regulations, as enacted by subsection (1), apply where a share of the capital stock of a foreign affiliate of a corporation is acquired by, or otherwise becomes property of, a person after December 18, 2009.

48. (1) The Regulations are amended by adding the following in numerical order:

(2) Subsection (1) applies in respect of production tax amounts that become receivable by the government of a taxing country in taxation years of a taxpayer’s foreign affiliate that begin after the date (referred to in this subsection as the “application date”) that is the earlier of December 31, 2002 and the designated date. The designated date is the later of

(a) December 31, 1994; and

(b) any date that the taxpayer designates in writing for the purpose of this subsection, if the designation is filed with the Minister of National Revenue on or before the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent.

However, in their application to taxation years of the foreign affiliate that begin after the application date and on or before December 18, 2009, subsections 5910(2) and (3) of the Regulations, as enacted by subsection (1), are to be read as follows:

(2) The percentage determined under this subsection for the particular year is 40 per cent.

(3) The amount determined under this subsection in respect of the business for the particular year is the amount that would, if the definition “earnings” in subsection 5907(1) were read without reference to its subparagraphs (a)(i) and (ii), be the foreign affiliate’s earnings from the business in the taxing country for the particular year.

49. (1) The portion of section 8201 of the Regulations before paragraph (a) is replaced by the following:

8201. For the purposes of subsection 16.1(1), the definition “outstanding debts to specified non-residents” in subsection 18(5), subsection 112(2), the definition “qualified Canadian transit organization” in subsection 118.02(1), subsections 125.4(1) and 125.5(1), the definition “taxable supplier” in subsection 127(9), subparagraph 128.1(4)(b)(ii), paragraphs 181.3(5)(a) and 190.14(2)(b), the definition “Canadian banking business” in subsection 248(1) and paragraph 260(5)(a) of the Act, a “permanent establishment” of a person or partnership (either of whom is referred to in this section as the “person”) means a fixed place of business of the person, including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse if the person has a fixed place of business and, where the person does not have any fixed place of business, the principal place at which the person’s business is conducted, and

(2) Subsection (1) applies to taxation years that end after 2008, except that, for taxation years that end before December 19, 2009, the portion of section 8201 of the Regulations before paragraph (a), as enacted by subsection (1), is to be read as follows:

8201. For the purposes of subsection 16.1(1), the definition “outstanding debts to specified non-residents” in subsection 18(5), the definitions “excluded income” and “excluded revenue” in subsection 95(2.5), subsection 112(2), the definition “qualified Canadian transit organization” in subsection 118.02(1), subsections 125.4(1) and 125.5(1), the definition “taxable supplier” in subsection 127(9), subparagraph 128.1(4)(b)(ii), paragraphs 181.3(5)(a) and 190.14(2)(b), the definition “Canadian banking business” in subsection 248(1) and paragraph 260(5)(a) of the Act, a “permanent establishment” of a person or partnership (either of whom referred to in this section as the “person”) means a fixed place of business of the person, including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse if the person has a fixed place of business and, where the person does not have any fixed place of business, the principal place at which the person’s business is conducted, and

50. (1) If a taxpayer has elected under subsection 26(46) of the Budget and Economic Statement Implementation Act, 2007,

(a) subsections 46(1), (2) and (8) (with the portion of paragraph (c) of the definition “exempt loss” in subsection 5907(1) of the Regulations before subparagraph (i) being read in the manner described in subsection 46(44)) also apply to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000;

(b) subsection 46(4) (with paragraph (a.1) of the definition “exempt earnings” in subsection 5907(1) of the Regulations being read in the manner described in subsection 46(41)) also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and on or before December 20, 2002;

(c) subparagraph (d)(ii) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection 46(5) and being read in the manner described in paragraph 46(42)(c), but without reference to paragraph 46(42)(d), also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000, except that, for those taxation years,

(i) clause (A) of that subparagraph (d)(ii), as so read, is to be read without reference to its subclause (II),

(ii) if the taxpayer has not elected under paragraph 26(35)(b) of that Act, clause (E) of that subparagraph (d)(ii), as so read, is to be read as if it also contained a subclause (I.1) that read as follows:

(I.1) the shares of a foreign affiliate (referred to in this subclause as the “non-qualifying affiliate”) that is not resident and subject to income taxation in a designated treaty country are not considered relevant for the purpose of determining whether shares of the third affiliate that is referred to in clause 95(2)(a)(ii)(D) of the Act are excluded property unless the shares of the third affiliate would not have been excluded property if the shares of all such non-qualifying affiliates were not excluded property, and

(iii) each reference to “income or loss” in clauses (H) and (I) of that subparagraph (d)(ii), as so read, is to be replaced by a reference to “income”; and

(d) subsection 46(17) (with subparagraph (b)(iv) of the definition “taxable loss” in subsection 5907(1) of the Regulations being read in the manner described in subsection 46(47)) also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000.

(2) If a taxpayer has not elected under subsection 26(46) of the Budget and Economic Statement Implementation Act, 2007 but has elected under paragraph 26(35)(b) of that Act, subparagraph (d)(ii) of the definition “exempt earnings” in subsection 5907(1) of the Regulations, as enacted by subsection 46(5) and being read in the manner described in paragraphs 46(42)(c) and (d), also applies to taxation years, of all foreign affiliates of the taxpayer, that begin after 1994 and end before 2000.

51. Subject to section 52, if a corporation resident in Canada elects in writing under this section in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the corporation’s filing-due date for the corporation’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 following rules apply:

(a) if there is an election (referred to in this section as a “designated section 93 election”) made by the corporation under subsection 93(1) or (1.2) of the Income Tax Act in respect of a disposition of shares (referred to in this section as the “designated shares”) of the capital stock of a foreign affiliate of the corporation that occurs after December 20, 2002 and before December 19, 2009, other than a disposition that is required to be made under an agreement in writing made by the vendor before December 21, 2002,

(i) section 92 of that Act is, in respect of the designated shares, to be read as if it also contained the following subsections:

(1.2) Subsection (1.4) applies to a holder of a share (referred to in this subsection and subsections (1.3) and (1.4) as the “relevant share”) of a foreign affiliate (referred to in subsection (1.3) as the “relevant foreign affiliate”) of a particular corporation resident in Canada in computing at any time (referred to in this subsection and subsection (1.3) as the “computation time”) the adjusted cost base to the holder of the relevant share, if, at the computation time, there is a specified section 93 election related to the relevant share.

(1.3) An election made by the particular corporation resident in Canada under subsection 93(1) or (1.2), as the case may be, in respect of a share of a particular foreign affiliate of the particular corporation that is disposed of at a time (referred to in this subsection and subsection (1.4) as the “election time”) before the computation time is, at the computation time, a specified section 93 election related to the relevant share if

(a) the particular foreign affiliate has, at the election time, an equity percentage in the relevant foreign affiliate;

(b) the relevant foreign affiliate was, at the election time, a foreign affiliate of the particular corporation;

(c) throughout the period that begins at the election time and ends at the computation time,

(i) the holder held the relevant share, and

(ii) the holder was

(A) a foreign affiliate of the particular corporation,

(B) a foreign affiliate of a corporation resident in Canada that was related to the particular corporation,

(C) a partnership of which a foreign affiliate of the particular corporation was a member, or

(D) a partnership of which a foreign affiliate, of a corporation resident in Canada that was related to the particular corporation, was a member;

(d) the relevant share was, at the election time, excluded property of the holder (or would have been, at the election time, excluded property of the holder if the holder had been a foreign affiliate of the particular corporation); and

(e) the relevant share is, at the computation time, excluded property of the holder (or would have been, at the computation time, excluded property of the holder if the holder had been a foreign affiliate of the particular corporation or of a corporation resident in Canada that is related to the particular corporation).

(1.4) If this subsection applies, for the purposes of computing, at any time after the election time, the exempt surplus or deficit, the taxable surplus or deficit, and the underlying foreign tax, of the holder, in respect of the particular corporation resident in Canada or in respect of any other person that would, at the time after the election time, be a designated person in respect of the particular corporation, the following rules apply in determining the adjusted cost base to the holder of the relevant share:

(a) there shall be added, to the adjusted cost base to the holder of the relevant share, the amount prescribed in respect of the relevant share in respect of the specified section 93 election, and

(b) there shall be deducted, from the adjusted cost base to the holder of the relevant share, the amount prescribed in respect of the relevant share in respect of the specified section 93 election.

(1.5) For the purposes of subsection (1.4), a designated person, in respect of a particular corporation, at any time means

(a) any person with whom the particular corporation was not dealing at arm’s length;

(b) any person with whom the particular corporation would not have been dealing at arm’s length if the person had been in existence after the particular corporation came into existence;

(c) any predecessor corporation (within the meaning assigned by subsection 87(1)) of a person described in paragraph (a) or (b); or

(d) any predecessor corporation (within the meaning assigned by paragraph 87(2)(l.2)) of a person described in paragraph (a) or (b).

(ii) subsection 5902(1) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

5902. (1) If, at a particular time, one or more shares (each of which is referred to in this subsection as a “disposed share”) of a class (referred to in this subsection as the “specified class”) of the capital stock of a particular foreign affiliate of a corporation resident in Canada are disposed of by a particular shareholder of the particular foreign affiliate and, because of an election made under subsection 93(1) of the Act in respect of that disposition, a dividend is deemed under subsection 93(1) of the Act to have been received on a disposed share at the time (referred to in this subsection and section 5905 as the “dividend time”) that is immediately before the particular time, the following rules apply:

(a) the amount of the particular foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, (in this subsection referred to as the “consolidated exempt surplus” in respect of the corporation resident in Canada) at the time (in this section and in section 5905 referred to as the “calculation time”) that is immediately before the dividend time, is deemed to be the amount that would be its exempt surplus, in respect of the corporation resident in Canada, at the calculation time if

(i) the particular foreign affiliate and each other foreign affiliate of the corporation resident in Canada in which the particular foreign affiliate had, at the calculation time, an equity percentage (each of which other foreign affiliates is referred to in this section as a “subsidiary affiliate”) had (except for the purpose of determining consolidated net surplus in respect of the corporation resident in Canada in subparagraph (iii)), at the calculation time, no amount of exempt deficit, taxable surplus or taxable deficit, in respect of the corporation resident in Canada,

(ii) the amount of the exempt surplus, in respect of the corporation resident in Canada, of the particular foreign affiliate were, immediately before the calculation time, increased by the total of all amounts each of which is an amount equal to the particular foreign affiliate’s proportionate share of the amount that would be the exempt surplus, in respect of the corporation resident in Canada, of a subsidiary affiliate in which it has, immediately before the calculation time, a direct equity percentage if that exempt surplus were, immediately before the calculation time, determined in the following manner:

(A) the exempt surplus, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate’s proportionate share of the exempt surplus of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate has, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

(B) the exempt surplus, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate’s exempt surplus in respect of the corporation resident in Canada,

(iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the “calculating foreign affiliate”) of the corporation resident in Canada, of the exempt surplus, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the “providing foreign affiliate”) of the corporation resident in Canada in which the calculating foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

A/B

where

A      is the amount of dividends that would be received, at that time, by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such a consolidated net surplus, in respect of the corporation resident in Canada, its consolidated exempt surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

B      is the amount of the providing foreign affiliate’s consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated exempt surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

(iv) in determining, under this paragraph, the particular foreign affiliate’s consolidated exempt surplus, in respect of the corporation resident in Canada,

(A) no amount were included, directly or indirectly, in respect of the exempt surplus, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

(B) no amount were included, directly or indirectly, in respect of the exempt surplus, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

(b) the amount of the particular foreign affiliate’s exempt deficit, in respect of the corporation resident in Canada, (in this subsection referred to as the “consolidated exempt deficit” in respect of the corporation resident in Canada) at the calculation time, is deemed to be the amount that would be its exempt deficit, in respect of the corporation resident in Canada, at that time, if

(i) the particular foreign affiliate and each subsidiary affiliate had (except for the purpose of determining consolidated net surplus, in respect of the corporation resident in Canada, in subparagraph (iii)), at the calculation time, no amount of exempt surplus, taxable surplus or taxable deficit, in respect of the corporation resident in Canada,

(ii) the amount of the exempt deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate, were, immediately before the calculation time, increased by the total of all amounts each of which is an amount equal to the particular foreign affiliate’s proportionate share of the exempt deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which the particular foreign affiliate has, immediately before the calculation time, a direct equity percentage if that exempt deficit were, immediately before the calculation time, determined in the following manner:

(A) the exempt deficit, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate’s proportionate share of the exempt deficit of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate has, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

(B) the exempt deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate’s exempt deficit in respect of the corporation resident in Canada,

(iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the “calculating foreign affiliate”) of the corporation resident in Canada, of the exempt deficit, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the “providing foreign affiliate”) of the corporation resident in Canada in which the calculating foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

A/B

where

A      is the amount of dividends that would be received by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its exempt deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

B      is the amount of the providing foreign affiliate’s consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated exempt deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

(iv) in determining, under this paragraph, the particular foreign affiliate’s consolidated exempt deficit, in respect of the corporation resident in Canada,

(A) no amount were included, directly or indirectly, in respect of the exempt deficit, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

(B) no amount were included, directly or indirectly, in respect of the exempt deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

(c) the amount of the particular foreign affiliate’s taxable surplus and underlying foreign tax, in respect of the corporation resident in Canada, (referred to, respectively, in this subsection as the “consolidated taxable surplus”, and “consolidated underlying foreign tax”, in respect of the corporation resident in Canada) at the calculation time, is deemed to be the amount that would be its taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, at that time, if

(i) the particular foreign affiliate and each subsidiary affiliate had (except for the purpose of determining consolidated net surplus, in respect of the corporation resident in Canada, in subparagraph (iii)), at the calculation time, no amount of exempt surplus, exempt deficit or taxable deficit, in respect of the corporation resident in Canada,

(ii) the amount of the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the particular foreign affiliate, were, immediately before the calculation time, increased by an amount equal to the total of all amounts each of which is the particular foreign affiliate’s proportionate share of the taxable surplus, or underlying foreign tax, as the case may be, in respect of the corporation resident in Canada, of a subsidiary affiliate in which the particular foreign affiliate has, immediately before the calculation time, a direct equity percentage if that taxable surplus and underlying foreign tax were, immediately before the calculation time, determined in the following manner:

(A) the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate’s proportionate share of the taxable surplus, or underlying foreign tax, respectively, of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate had, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

(B) the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate’s taxable surplus, and underlying foreign tax, respectively, in respect of the corporation resident in Canada,

(iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the “calculating foreign affiliate”) of the corporation resident in Canada, of the taxable surplus, or underlying foreign tax, as the case may be, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the “providing foreign affiliate”) of the corporation resident in Canada in which the particular foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

A/B

where

A      is the amount of dividends that would be received, at that time, by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

B      is the amount of the providing foreign affiliate’s consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable surplus (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

(iv) in determining, under this paragraph, the particular foreign affiliate’s consolidated taxable surplus, and consolidated underlying foreign tax, in respect of the corporation resident in Canada,

(A) no amount were included, directly or indirectly, in respect of the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

(B) no amount were included, directly or indirectly, in respect of the taxable surplus, and underlying foreign tax, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

(d) the amount of the particular foreign affiliate’s taxable deficit, in respect of the corporation resident in Canada, (in this subsection referred to as the “consolidated taxable deficit” in respect of the corporation resident in Canada) at the calculation time is deemed to be the amount that would be its taxable deficit, in respect of the corporation resident in Canada, at that time if

(i) the particular foreign affiliate and each subsidiary affiliate had (except for the purpose of determining consolidated net surplus, in respect of the corporation resident in Canada, in subparagraph (iii)), at the calculation time, no amount of exempt surplus, exempt deficit or taxable surplus, in respect of the corporation resident in Canada,

(ii) the amount of the taxable deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate, were, immediately before the calculation time, increased by the total of all amounts each of which is an amount equal to the particular foreign affiliate’s proportionate share of the taxable deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which the particular foreign affiliate has, immediately before the calculation time, a direct equity percentage if that taxable deficit were, immediately before the calculation time, determined in the following manner:

(A) the taxable deficit, in respect of the corporation resident in Canada, of the subsidiary affiliate, were increased by the subsidiary affiliate’s proportionate share of the taxable deficit of a foreign affiliate of the corporation resident in Canada in which the subsidiary affiliate had, immediately before the time that is immediately before the calculation time, a direct equity percentage, and

(B) the taxable deficit, in respect of the corporation resident in Canada, of a subsidiary affiliate in which another subsidiary affiliate has a direct equity percentage, were increased because of this subparagraph before the increase in that other subsidiary affiliate’s taxable deficit in respect of the corporation resident in Canada,

(iii) for the purpose of subparagraph (ii), the proportionate share, at any time, of a foreign affiliate (referred to in this subparagraph as the “calculating foreign affiliate”) of the corporation resident in Canada, of the taxable deficit, in respect of the corporation resident in Canada, of another foreign affiliate (referred to in this subparagraph as the “providing foreign affiliate”) of the corporation resident in Canada in which the calculating foreign affiliate has a direct equity percentage were equal to the proportion determined by the following formula:

A/B

where

A      is the amount of dividends that would be received, at that time, by the calculating foreign affiliate from the providing foreign affiliate if, at that time, the providing foreign affiliate had paid dividends on all of its shares and the total of those dividends were equal to its consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

B      is the amount of the providing foreign affiliate’s consolidated net surplus (determined using the provisions of this subsection on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, or, where it does not have such consolidated net surplus, its consolidated taxable deficit (determined in accordance with this paragraph on the assumption that the providing foreign affiliate were the particular foreign affiliate), in respect of the corporation resident in Canada, at that time, and

(iv) in determining, under this paragraph, the particular foreign affiliate’s consolidated taxable deficit, in respect of the corporation resident in Canada,

(A) no amount were included, directly or indirectly, in respect of taxable deficit, in respect of the corporation resident in Canada, of the particular shareholder, of the particular foreign affiliate, that disposed of the disposed share, and

(B) no amount were included, directly or indirectly, in respect of the taxable deficit, in respect of the corporation resident in Canada, of the particular foreign affiliate or any subsidiary affiliate more than once;

(e) for the purpose of applying subsection 5901(1) to subsection 5900(1), and for the purpose of paragraph (f),

(i) the particular foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate’s consolidated exempt surplus, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate’s consolidated exempt deficit, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

(ii) the particular foreign affiliate’s exempt deficit in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate’s consolidated exempt deficit, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate’s consolidated exempt surplus, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

(iii) the particular foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate’s consolidated taxable surplus, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate’s consolidated taxable deficit, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

(iv) the particular foreign affiliate’s taxable deficit, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which the particular foreign affiliate’s consolidated taxable deficit, in respect of the corporation resident in Canada, exceeds the amount of the particular foreign affiliate’s consolidated taxable surplus, in respect of the corporation resident in Canada, at that time (or, if there is no such excess, nil),

(v) the particular foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount of the particular foreign affiliate’s consolidated underlying foreign tax, in respect of the corporation resident in Canada, at that time, and

(vi) the particular foreign affiliate’s consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount, if any, by which

(A) the total of the particular foreign affiliate’s consolidated exempt surplus, in respect of the corporation resident in Canada, at that time, and the particular foreign affiliate’s consolidated taxable surplus, in respect of the corporation resident in Canada, at that time,

exceeds

(B) the total of the particular foreign affiliate’s consolidated exempt deficit, in respect of the corporation resident in Canada, at that time, and the particular foreign affiliate’s consolidated taxable deficit, in respect of the corporation resident in Canada, at that time;

(f) the attributed net surplus in respect of a disposed share of the specified class in respect of the particular foreign affiliate’s consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time, is deemed to be equal to the amount that would be received by the holder of the disposed share, in respect of the disposed share, at the dividend time, if the particular foreign affiliate paid a dividend, at that time, on all of its shares, the total of which was equal to the amount of its consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time;

(g) for the purpose of applying subsection 5901(1) to subsection 5900(1), the amount of the whole dividend paid by the particular foreign affiliate, at the dividend time, on the shares of the specified class is deemed to be equal to the amount obtained when the total of all amounts each of which is an amount deemed by subsection 93(1) of the Act to have been received as a dividend on a disposed share of the specified class is multiplied by the greater of

(i) one, and

(ii) the amount determined by the formula

A/B

where

A      is the amount determined, under subparagraph (e)(vi), to be the amount of the particular foreign affiliate’s consolidated net surplus in respect of the corporation, immediately before the dividend time, and

B      is the greater of

(A) one, and

(B) the total of all amounts each of which is the amount determined, under paragraph (f), to be the amount of the attributed net surplus, in respect of a disposed share of the specified class, in respect of the particular foreign affiliate’s consolidated net surplus, in respect of the corporation resident in Canada, immediately before the dividend time; and

(h) for the purposes of paragraphs (a) to (d), the consolidated net surplus, at any time, in respect of a corporation resident in Canada, of a particular foreign affiliate of the corporation resident in Canada, is the amount that would be determined in paragraph (e) in respect of the particular foreign affiliate if the reference in that paragraph to “immediately before the dividend time” were read as a reference to “at any time”.

(iii) section 5902 of the Regulations is, in respect of the designated section 93 election, to be read without reference to its subsection (2),

(iv) subsection 5902(3) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

(3) If a corporation resident in Canada elects, under subsection 93(1) of the Act, in respect of the disposition of a share of the capital stock of a foreign affiliate of the corporation, no adjustment, other than an adjustment referred to in subsection 5905(2), (4), (6) or (8), may be made to the foreign affiliate’s

(a) exempt surplus in respect of the corporation;

(b) exempt deficit in respect of the corporation;

(c) taxable surplus in respect of the corporation;

(d) taxable deficit in respect of the corporation; or

(e) underlying foreign tax in respect of the corporation.

(v) subsection 5902(6) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

(6) The amount designated in an election deemed by subsection 93(1.1) of the Act to have been made under subsection 93(1) of the Act is prescribed to be the amount that is the lesser of

(a) the capital gain, if any, otherwise determined in respect of the disposition of the share, and

(b) the amount of attributed net surplus (as determined under paragraph (1)(f)) in respect of the share.

(b) in respect of acquisitions that occur after February 27, 2004 and before December 19, 2009, subsection 5905(1) of the Regulations is to be read as follows:

5905. (1) If, at any time, other than in the course of a transaction to which subsection (2) or (5) applies, a corporation resident in Canada or a foreign affiliate of such a corporation acquires in any manner whatever shares of the capital stock of another corporation that was, immediately after that time, a foreign affiliate of the corporation (in this subsection referred to as the “acquired affiliate”) and as a result of that acquisition the surplus entitlement percentage of the corporation in respect of the acquired affiliate and in respect of any other foreign affiliate of the corporation resident in Canada (the acquired affiliate and each such other foreign affiliate each being referred to in this subsection as the “particular relevant foreign affiliate”), increases, the following rules apply:

(a) for the purposes of this Part, the amount of the exempt surplus or exempt deficit, the taxable surplus or taxable deficit, and the underlying foreign tax, in respect of the corporation, of the particular relevant foreign affiliate is (unless subsection (8) applies to the particular relevant foreign affiliate because of the acquisition of the shares) to be, at that time, adjusted to become the proportion of that amount, determined without making this adjustment, that

(i) the surplus entitlement percentage, immediately before that time, of the corporation in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year of the particular relevant foreign affiliate that otherwise would have included that time had ended immediately before that time

is of

(ii) the surplus entitlement percentage, immediately after that time, of the corporation in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year of the particular relevant foreign affiliate that otherwise would have included that time had ended immediately after that time; and

(b) for the purposes of applying the definitions “exempt deficit”, “exempt surplus”, “taxable deficit”, “taxable surplus” and “underlying foreign tax” in subsection 5907(1), the adjusted amounts determined under paragraph (a) are deemed to be the opening exempt deficit, opening exempt surplus, opening taxable deficit, opening taxable surplus and opening underlying foreign tax, as the case may be, of the particular relevant foreign affiliate, in respect of the corporation.

(c) in respect of dispositions in respect of which a designated section 93 election was made,

(i) subsection 5905(2) of the Regulations is to be read as follows:

(2) If at any time (referred to in this subsection as the “disposition time”) a particular foreign affiliate of a corporation resident in Canada redeems, acquires or cancels (other than a redemption, an acquisition or a cancellation in respect of which an adjustment has previously been made under this subsection or subsection (1) as it read prior to November 13, 1981) in any manner whatever (otherwise than by way of a winding-up) one or more shares (referred to in this subsection and subsections (16) to (23) as “disposed shares”) of any class of its capital stock, the following rules apply:

(a) if, because of an election made by the corporation under subsection 93(1) of the Act in respect of the disposition of the disposed shares, a dividend (referred to in this subsection and subsections (18) and (21) as the “disposition dividend”) is deemed to have been received on the disposed shares, by the corporation or by another foreign affiliate of the corporation, for the purpose of the adjustment required by paragraph (b),

(i) in computing the exempt surplus, in respect of the corporation resident in Canada, of the particular foreign affiliate or of another foreign affiliate (the particular foreign affiliate and each such other foreign affiliate being referred to in this subsection and subsections (16) to (23) as the “particular relevant foreign affiliate”) of the corporation resident in Canada in which the particular foreign affiliate has an equity percentage at the time (referred to in this subsection and subsections (16) to (22) as the “balance adjustment time”) that is immediately before the disposition time, there is to be included, under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1), the total of

(A) the amount of the exempt surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) the amount of the exempt deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) the amount of the taxable deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(ii) in computing the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1), the total of

(A) an amount equal to the taxable surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) an amount equal to the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) an amount equal to the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(iii) in computing the particular relevant foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1), the total of

(A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for B in the formula is nil)

A/B × C × D

where

A      is the portion of the particular relevant foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, that may reasonably be considered to have been included in computing the particular foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,

B      is the particular foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,

C      is the portion, of the particular foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition), that is prescribed, by paragraph 5900(1)(d), to be applicable to the portion of the whole dividend (as determined, under paragraph 5902(1)(g), in respect of the disposition dividend in respect of the disposed shares) paid on shares of the specified class that is prescribed, by paragraph 5900(1)(c), to have been paid out of the particular foreign affiliate’s consolidated taxable surplus, in respect of the corporation resident in Canada, and

D      is the specified adjustment factor in respect of the particular relevant foreign affiliate, and

(B) the amount of the underlying foreign tax reduction in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares,

(iv) in computing the particular relevant foreign affiliate’s exempt deficit, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1), an amount equal to the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time, and

(v) in computing the particular relevant foreign affiliate’s taxable deficit, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iv.1) of the description of A in the definition “taxable surplus” in subsection 5907(1), an amount equal to the taxable deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time;

(b) the amount, at the balance adjustment time, of exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate is to be adjusted to become the proportion of that amount, determined without making this adjustment, that

(i) the surplus entitlement percentage, at the balance adjustment time, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included that time, had ended immediately before that time

is of

(ii) the surplus entitlement percentage, immediately after the time of the disposition, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included the balance adjustment time, had ended at the time of the disposition; and

(c) for the purposes of applying the definitions “exempt deficit”, “exempt surplus”, “taxable deficit”, “taxable surplus” and “underlying foreign tax”, in subsection 5907(1), the amounts determined under paragraph (b), in respect of the particular relevant foreign affiliate, in respect of the corporation resident in Canada, are deemed to be the opening exempt deficit, opening exempt surplus, opening taxable deficit, opening taxable surplus and opening underlying foreign tax, as the case may be, of the particular relevant foreign affiliate, in respect of the corporation resident in Canada.

(ii) subsection 5905(4) of the Regulations is to be read as follows:

(4) For the purpose of subsection (3),

(a) if, at any time, a foreign affiliate of a corporation resident in Canada disposes of one or more shares (referred to in this subsection and subsections (16) to (23) as the “disposed shares”) of a class of the capital stock of a predecessor corporation and the foreign affiliate is, because of an election made under subsection 93(1) of the Act, deemed to have received a dividend (referred to in this subsection and subsections (18) and (21) as the “disposition dividend”) on the disposed shares, for the purposes of the adjustments required by paragraphs (b) and (3)(b),

(i) in computing the exempt surplus, in respect of the corporation resident in Canada, of each predecessor corporation and of each other foreign affiliate of the corporation resident in Canada in which a predecessor foreign affiliate has an equity percentage (the particular predecessor corporation and each such other foreign affiliate being referred to in this subsection and subsections (16) to (23) as the “particular relevant foreign affiliate”) at the time (referred to in this subsection and subsections (16) to (22) as the “balance adjustment time”) that is immediately before the foreign merger, there is to be included under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1), the total of

(A) an amount equal to the exempt surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) an amount equal to the exempt deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) an amount equal to the taxable deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(ii) in computing the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1), the total of

(A) an amount equal to the taxable surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) an amount equal to the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) an amount equal to the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(iii) in computing the particular relevant foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1), the total of

(A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for B in the formula is nil)

A/B × C × D

where

A      is the portion of the amount of the particular relevant foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, of the particular predecessor corporation that issued the disposed shares, in respect of the disposition,

B      is the amount of the consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, of the particular predecessor corporation that issued the disposed shares, in respect of the disposition,

C      is the total of all amounts each of which is the amount, determined by paragraph 5900(1)(d), to be the amount of foreign tax applicable to the portion of the disposition dividend prescribed to have been paid out of the taxable surplus of the issuing foreign affiliate, that relates to a disposed share, in respect of the disposition, and

D      is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate of the corporation resident in Canada, of the foreign affiliate of the corporation resident in Canada that disposed of the disposed shares, in respect of the disposition of the disposed shares, and

(B) the amount of the underlying foreign tax reduction in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares,

(iv) in computing the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included, under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1), an amount equal to the exempt deficit, in respect of the corporation resident in Canada, immediately before that time, of the particular relevant foreign affiliate, and

(v) in computing the particular relevant foreign affiliate’s taxable deficit, in respect of the corporation resident in Canada, at the balance adjustment time, there is to be included, under subparagraph (iv.1) of the description of A in the definition “taxable surplus” in subsection 5907(1), an amount equal to the taxable deficit, in respect of the corporation resident in Canada, immediately before that time, of the particular relevant foreign affiliate; and

(b) the amount, at the balance adjustment time, of exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate is to be adjusted to become the proportion of that amount, determined without making that adjustment, that

(i) the surplus entitlement percentage, at the balance adjustment time, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate that otherwise would have included that time, had ended immediately before that time

is of

(ii) the surplus entitlement percentage, immediately after the time of the disposition, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included the balance adjustment time, had ended at the time of the disposition.

(iii) the portion of subsection 5905(5) of the Regulations between paragraphs (c) and (d) is to be read as follows:

the following rules apply for the purposes of this Part in respect of the particular affiliate and each other foreign affiliate of the predecessor corporation in which the particular affiliate has an equity percentage (the particular affiliate and each such other foreign affiliate each being referred to in subsections (16) to (23) as the “particular relevant foreign affiliate”):

(iv) subsection 5905(6) of the Regulations is to be read as follows:

(6) For the purpose of subsection (5), the following rules apply:

(a) if paragraph (5)(a) applies and the predecessor corporation is, because of an election made under subsection 93(1) of the Act, deemed to have received a dividend (referred to in this subsection and subsections (18) and (21) as the “disposition dividend”) on one or more of the shares (each of which is referred to in this subsection and subsections (16) to (23) as a “disposed share”) of the particular foreign affiliate (referred to in this subsection as the “issuing foreign affiliate”) disposed of, at that time, for the purpose of the adjustment required by paragraph (b),

(i) in computing the exempt surplus, in respect of the predecessor corporation, of a particular relevant foreign affiliate at the time (referred to in this subsection and subsections (16) to (22) as the “balance adjustment time”) that is immediately before the disposition time, the following rules apply:

(A) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and the issuing foreign affiliate has, at that time, an amount of consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed share that is equal to or greater than the amount of its consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, there is to be included under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) the amount determined by the formula

A/B × C/D

where

A      is the portion of the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the predecessor corporation, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,

B      is the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,

C      is the portion, of the disposition dividend that is, because of an election made under subsection 93(1) of the Act in respect of the disposition of the disposed shares, deemed to be received on the disposed shares by the person that disposed of the disposed shares, that is prescribed by paragraph 5900(1)(a) to have been paid out of the issuing foreign affiliate’s exempt surplus, in respect of the predecessor corporation, and

D      is the surplus entitlement percentage of the predecessor corporation in respect of the particular relevant foreign affiliate at the balance adjustment time, determined on the assumption that the disposed shares were the only shares owned by the predecessor corporation at that time,

(B) if the amount determined, in respect of the particular relevant foreign affiliate, for either B or D in the formula in clause (A) is nil, the amount determined, in respect of the particular relevant foreign affiliate, by that formula is deemed to be nil,

(C) there is to be included under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time if

(I) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and

(II) the issuing foreign affiliate has, at that time, an amount of consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed share that is equal to or greater than the amount of its consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

(D) there is to be included under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) an amount equal to the particular relevant foreign affiliate’s taxable deficit allocation in respect of the disposed shares,

(ii) in computing the taxable surplus, in respect of a predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, the following rules apply:

(A) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada, and the issuing foreign affiliate has, at that time, an amount of consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition that is equal to or greater than the amount of the issuing foreign affiliate’s consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, there is to be included under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1) the amount determined by the formula

A/B × C/D

where

A      is the portion of the amount of the particular relevant foreign affiliate’s taxable surplus, in respect of the predecessor corporation, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,

B      is the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition of the disposed shares,

C      is the portion, of the disposition dividend that is, because of an election made under subsection 93(1) of the Act in respect of the disposition of the disposed shares, deemed to be received on the disposed shares by the person that disposed of the disposed shares, that is prescribed by paragraph 5900(1)(b) to have been paid out of the issuing foreign affiliate’s taxable surplus, in respect of the predecessor corporation, and

D      is the surplus entitlement percentage of the predecessor corporation in respect of the particular relevant foreign affiliate at the balance adjustment time, determined on the assumption that the disposed shares were the only shares owned by the predecessor corporation at that time,

(B) if the amount determined, in respect of the particular relevant foreign affiliate for either B or D in the formula in clause (A) is nil, the amount determined, in respect of the particular relevant foreign affiliate, by that formula is deemed to be nil,

(C) there is to be included, under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1), the amount of particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, if

(I) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada, and

(II) the issuing foreign affiliate has, at that time, an amount of consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition that is equal to or greater than the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

(D) there is to be included in subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1) an amount equal to the particular relevant foreign affiliate’s exempt deficit allocation in respect of the disposed shares,

(iii) in computing the underlying foreign tax, in respect of the predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1) the total of

(A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for either B or D in the formula is nil)

A/B × C/D

where

A      is the portion of the amount of the particular relevant foreign affiliate’s underlying foreign tax, in respect of the predecessor corporation, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition,

B      is the amount of the issuing foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the predecessor corporation, in respect of the disposition,

C      is the total of all amounts each of which is the amount, determined by paragraph 5900(1)(d), to be the amount of foreign tax applicable to the portion of the disposition dividend prescribed to have been paid out of the taxable surplus of the issuing foreign affiliate, that relates to a disposed share, in respect of the disposition, and

D      is the surplus entitlement percentage of the predecessor corporation in respect of the particular relevant foreign affiliate at the balance adjustment time, determined on the assumption that the disposed shares were the only shares owned by the predecessor corporation at that time, and

(B) the amount determined by the formula

A × (B + C)/D

where

A      is the underlying foreign tax, in respect of the particular predecessor corporation, at the balance adjustment time, of the particular relevant foreign affiliate in respect of the disposition of the disposed shares,

B      is the amount determined under clause (ii)(C) in respect of the particular relevant foreign affiliate, in respect of the predecessor corporation, in respect of the disposition of the disposed shares,

C      is the exempt deficit allocation, in respect of the predecessor corporation, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares, and

D      is the taxable surplus in respect of the predecessor corporation, at the balance adjustment time, of the particular relevant foreign affiliate,

(iv) in computing the exempt deficit, in respect of the predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1) an amount equal to the exempt deficit, in respect of the predecessor corporation, of the partic-ular relevant foreign affiliate, immediately before that time, and

(v) in computing the taxable deficit, in respect of the predecessor corporation, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iv.1) of the description of A in the definition “taxable surplus” in subsection 5907(1) an amount equal to the taxable deficit, in respect of the predecessor corporation, of the partic-ular relevant foreign affiliate, immediately before that time; and

(b) the exempt surplus or the exempt deficit, the taxable surplus or the taxable deficit and the underlying foreign tax in respect of a predecessor corporation (within the meaning assigned by subsection (5)) and in respect of the acquiring corporation (within the meaning assigned by subsection (5)) of a particular relevant foreign affiliate is, at the balance adjustment time, to be adjusted to become the proportion of the amount of the surplus, deficit or underlying foreign tax determined without reference to this paragraph that

(i) the surplus entitlement percentage, immediately before the time of the latest of the transactions referred to in paragraphs (5)(a), (b) and (c), of the predecessor corporation or the acquiring corporation, as the case may be, in respect of the particular relevant foreign affiliate, determined on the assumptions

(A) that the taxation year of the partic-ular relevant foreign affiliate that otherwise would have included the balance adjustment time had ended immediately before that time, and

(B) if the transaction is a disposition referred to in paragraph (5)(a), that the shares referred to in that paragraph were the only shares owned by the predecessor corporation at the balance adjustment time

is of

(ii) the surplus entitlement percentage, immediately after the time of the latest of the transactions referred to in paragraphs (5)(a), (b) and (c), of the predecessor corporation or the acquiring corporation, as the case may be, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year of the particular relevant foreign affiliate that otherwise would have included that time had ended immediately after that time.

(v) subsection 5905(8) of the Regulations is to be read as follows:

(8) If, at any time, a dividend (referred to in this subsection and subsections (18) and (21) as the “disposition dividend”) is, because of an election made by a corporation resident in Canada under subsection 93(1) of the Act, deemed to have been received on one or more shares (each of which is referred to in this subsection and subsections (16) to (23) as a “disposed share”) of a class of the capital stock of a particular foreign affiliate (referred to in this subsection as the “issuing foreign affiliate”) of the corporation resident in Canada that were disposed (which disposition is referred in this subsection and subsections (16) to (23) as the “disposition”) to the corporation resident in Canada or to another corporation that was, immediately after the disposition, a foreign affiliate of the corporation resident in Canada, the following rules apply:

(a) for the purpose of the adjustment required by paragraph (b),

(i) in computing the exempt surplus, in respect of the corporation resident in Canada, of the issuing foreign affiliate or another foreign affiliate of the corporation resident in Canada in which the issuing foreign affiliate has an equity percentage (the issuing foreign affiliate and each such other foreign affiliate each being referred to in this subsection and subsections (16) to (23) as the “particular relevant foreign affiliate”) at the time (referred to in this subsection and subsections (16) to (22) as the “balance adjustment time”) that is immediately before the time of the disposition, there is to be included under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1), the total of

(A) an amount equal to the exempt surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) an amount equal to the exempt deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) an amount equal to the taxable deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(ii) in computing the taxable surplus, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1) the total of

(A) an amount equal to the taxable surplus reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(B) an amount equal to the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares, and

(C) an amount equal to the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposed shares,

(iii) in computing the underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1) the total of

(A) the amount determined by the formula (which is deemed to be nil, if, in respect of the particular relevant foreign affiliate, the value determined for B in the formula is nil)

A/B × C × D

where

A      is the portion of the amount of the particular relevant foreign affiliate’s underlying foreign tax, in respect of the corporation resident in Canada, at the balance adjustment time, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,

B      is the amount of the issuing foreign affiliate’s consolidated underlying foreign tax (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition,

C      is the total of all amounts each of which is the amount, determined by paragraph 5900(1)(d), to be the amount of foreign tax applicable to the portion of the disposition dividend prescribed to have been paid out of the taxable surplus of the issuing foreign affiliate, that relates to a disposed share, in respect of the disposition, and

D      is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate of the corporation resident in Canada, of the foreign affiliate of the corporation resident in Canada that disposed of the disposed shares, in respect of the disposition of the disposed shares, and

(B) the amount of the underlying foreign tax reduction in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, in respect of the disposition of the disposed shares,

(iv) in computing the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (vi.1) of the description of A in the definition “exempt surplus” in subsection 5907(1), an amount equal to the exempt deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time, and

(v) in computing the taxable deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, at the balance adjustment time, there is to be included under subparagraph (iv.1) of the description of A in the definition “taxable surplus” in subsection 5907(1), an amount equal to the taxable deficit, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate, immediately before that time;

(b) the amount, at the balance adjustment time, of exempt surplus, exempt deficit, taxable surplus, taxable deficit and underlying foreign tax, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate is to be adjusted to become the proportion of that amount, determined without making this adjustment, that

(i) the surplus entitlement percentage, at the balance adjustment time, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate that otherwise would have included that time, had ended immediately before that time

is of

(ii) the surplus entitlement percentage, immediately after the time of the disposition, of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, determined on the assumption that the taxation year, of the particular relevant foreign affiliate, that otherwise would have included the balance adjustment time, had ended at the time of the disposition; and

(c) for the purposes of applying the definitions “exempt deficit”, “exempt surplus”, “taxable deficit”, “taxable surplus” and “underlying foreign tax”, in subsection 5907(1), the amounts determined under paragraph (b) are deemed to be the opening exempt deficit, opening exempt surplus, opening taxable deficit, opening taxable surplus, and opening underlying foreign tax, as the case may be, of the particular relevant foreign affiliate, in respect of the corporation resident in Canada.

(vi) section 5905 of the Regulations is to be read as if it also contained the following subsections:

(16) The exempt deficit allocation, of a particular relevant foreign affiliate in respect of a corporation resident in Canada, in respect of disposed shares of the particular foreign affiliate of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the “issuing foreign affiliate”) is, if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada and the issuing foreign affiliate has, at that time, an amount of consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of its consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

(a) the amount determined by the formula

1/E × [(A – B) × C/D]

where

A      is the amount of the issuing foreign affiliate’s consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

B      is the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C      is the portion of the amount of the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, immediately before the disposition of the disposed shares, that can reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

D      is the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

E      is

(i) subject to subparagraph (ii), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that would be determined under subsections 5905(10) to (13) at the balance adjustment time if the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

(ii) if the particular relevant foreign affiliate is the issuing foreign affiliate, 1; and

(b) if the amount determined, in respect of the particular relevant foreign affiliate, for the description of D or E in the formula in paragraph (a) is nil, nil.

(17) The exempt deficit reduction, in respect of a corporation resident in Canada, of a particular relevant foreign affiliate of the corporation resident in Canada, in respect of disposed shares, is

(a) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the “issuing foreign affiliate”) has, at the balance adjustment time, consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of its consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

(i) the amount determined by the formula

A/B × C/D

where

A      is the portion of the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

B      is the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C      is the amount of the issuing foreign affiliate’s consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

D      is

(A) subject to clause (B), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that, under subsections 5905(10) to (13), would be determined, at the balance adjustment time, where the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

(B) where the particular relevant foreign affiliate is the issuing foreign affiliate, 1, and

(ii) if the value determined, in respect of the particular relevant foreign affiliate, for the description of any of A, B or D in the formula in subparagraph (i) is nil, nil; and

(b) the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time, if

(i) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus, in respect of the corporation resident in Canada, and

(ii) the issuing foreign affiliate has, at that time, an amount of consolidated exempt deficit (as determined under paragraph 5902(1)(b)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares that is equal to or greater than the amount of its consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares.

(18) The exempt surplus reduction in respect of a corporation resident in Canada, of a particular relevant foreign affiliate in respect of disposed shares is

(a) the amount determined by the formula

A/B × C × D

where

A      is the portion of the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the consolidated exempt surplus, in respect of the corporation resident in Canada, (as determined under paragraph 5902(1)(a)) of the partic-ular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (referred to in this subsection as the “issuing foreign affiliate”), in respect of the disposition of the disposed shares,

B      is the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C      is the portion of the disposition dividend that is, because of an election made under subsection 93(1) of the Act in respect of the disposition of the disposed shares, received on the disposed shares by the person that disposed of those shares and that is prescribed by paragraph 5900(1)(a) to have been paid out of the issuing foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, and

D      is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, of the person that disposed of the disposed shares;

(b) if the amount determined, in respect of the particular relevant foreign affiliate, for either of A or B, in the formula in paragraph (a) is nil, nil; and

(c) if an amount is determined, in respect of the particular relevant foreign affiliate, under paragraph (17)(b), nil.

(19) The taxable deficit allocation, of a particular relevant foreign affiliate of a corporation resident in Canada, in respect of disposed shares of the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the “issuing foreign affiliate”) is, if the partic-ular relevant foreign affiliate has, at the balance adjustment time, an amount of exempt surplus in respect of the corporation resident in Canada and the issuing foreign affiliate has, at that time, an amount of consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

(a) the amount determined by the formula

1/E × [(A – B) × C/D]

where

A      is the amount of the issuing foreign affiliate’s consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

B      is the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C      is the portion of the amount of the particular relevant foreign affiliate’s exempt surplus, in respect of the corporation resident in Canada, immediately before the disposition of the disposed shares, that may reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

D      is the amount of the issuing foreign affiliate’s consolidated exempt surplus (as determined under paragraph 5902(1)(a)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

E      is

(i) subject to subparagraph (ii), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that would be determined under subsections 5905(10) to (13) at the balance adjustment time, where the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

(ii) where the particular relevant foreign affiliate is the issuing foreign affiliate, 1; and

(b) where the amount determined, in respect of the particular relevant foreign affiliate, for the description of D or E in the formula in paragraph (a) is nil, nil.

(20) The taxable deficit reduction, in respect of a corporation resident in Canada, of a particular relevant foreign affiliate of the corporation resident in Canada, in respect of disposed shares, is

(a) if the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus, in respect of the corporation resident in Canada, and the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the “issuing foreign affiliate”) has, at the balance adjustment time, consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, that exceeds the amount of the issuing foreign affiliate’s consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

(i) the amount determined by the formula

A/B × C/D

where

A      is the portion of the amount of the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

B      is the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C      is the amount of the issuing foreign affiliate’s consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, and

D      is

(A) subject to clause (B), the surplus entitlement percentage, of the issuing foreign affiliate, in respect of the particular relevant foreign affiliate, that would be determined under subsections 5905(10) to (13) at the balance adjustment time where the issuing foreign affiliate were the corporation resident in Canada referred to in those subsections and the particular relevant foreign affiliate were the particular foreign affiliate referred to in those subsections, and

(B) where the particular relevant foreign affiliate is the issuing foreign affiliate, 1, and

(ii) where the amount determined, in respect of the particular relevant foreign affiliate, for the description of A, B or D in the formula in subparagraph (i) is nil, nil; and

(b) the amount of the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, if

(i) the particular relevant foreign affiliate has, at the balance adjustment time, an amount of taxable surplus in respect of the corporation resident in Canada, and

(ii) the issuing foreign affiliate has, at that time, an amount of consolidated taxable deficit (as determined under paragraph 5902(1)(d)), in respect of the corporation resident in Canada, in respect of the disposition that is equal to or greater than the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares.

(21) The taxable surplus reduction, in respect of a corporation resident in Canada, of a particular relevant foreign affiliate, in respect of disposed shares, is

(a) the amount determined by the formula

A/B × C × D

where

A      is the portion of the amount of the particular relevant foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, at the balance adjustment time, that can reasonably be considered to have been included in computing the amount of the consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares, of the particular foreign affiliate, of the corporation resident in Canada, that issued the disposed shares (in this subsection referred to as the “issuing foreign affiliate”),

B      is the amount of the issuing foreign affiliate’s consolidated taxable surplus (as determined under paragraph 5902(1)(c)), in respect of the corporation resident in Canada, in respect of the disposition of the disposed shares,

C      is the portion, of the disposition dividend that is, because of an election made under subsection 93(1) of the Act, in respect of the disposition of the disposed shares, received on the disposed shares by the person that disposed of those shares and that is prescribed by paragraph 5900(1)(b) to have been paid out of the issuing foreign affiliate’s taxable surplus, in respect of the corporation resident in Canada, and

D      is the specified adjustment factor, in respect of the corporation resident in Canada, in respect of the particular relevant foreign affiliate, of the person that disposed of the disposed shares;

(b) if the amount determined, in respect of the particular relevant foreign affiliate, for the description of A or B in the formula in paragraph (a) is nil, nil; and

(c) if an amount is determined, in respect of the particular relevant foreign affiliate, under paragraph (20)(b), nil.

(22) The underlying foreign tax reduction in respect of the corporation resident in Canada, of a particular relevant foreign affiliate of the corporation resident in Canada, in respect of the disposition of the disposed shares, is the amount determined by the following formula:

A × (B + C)/D

where

A      is the underlying foreign tax in respect of the corporation resident in Canada, at the balance adjustment time, of the particular relevant foreign affiliate;

B      is the taxable deficit reduction, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate of the corporation resident in Canada, in respect of the disposition of the disposed shares;

C      is the exempt deficit allocation, in respect of the corporation resident in Canada, of the particular relevant foreign affiliate of the corporation resident in Canada, in respect of the disposition of the disposed shares; and

D      is the taxable surplus in respect of the corporation resident in Canada of the particular relevant foreign affiliate, at the balance adjustment time.

(23) The specified adjustment factor, in respect of a corporation resident in Canada, in respect of a particular relevant foreign affiliate of the corporation resident in Canada, of the person that disposed of disposed shares, in respect of the disposition of the disposed shares, is the amount determined by the formula

A/B

where

A      is

(a) where the corporation resident in Canada disposed of the disposed shares, 100 per cent, and

(b) where another foreign affiliate of the corporation resident in Canada disposed of the disposed shares, the surplus entitlement percentage of the corporation resident in Canada in respect of that other foreign affiliate, immediately before the disposition of the disposed shares; and

B      is the surplus entitlement percentage of the corporation resident in Canada in respect of the particular relevant foreign affiliate, immediately before the disposition of the disposed shares.

(d) if there is a designated section 93 election,

(i) the Regulations are, in respect of the designated shares, to be read as if they also contained the following section:

5905.1 (1) The amount prescribed for the purpose of paragraph 92(1.4)(a) of the Act, in respect of a relevant share referred to in that paragraph, in respect of a specified section 93 election related to the relevant share, is the lesser of

(a) the amount, if any, by which the fair market value of the relevant share, at the election time, exceeds the adjusted cost base, at the time of the disposition, of the relevant share to the holder, and

(b) the amount determined by the following formula:

A/C × (C – B)

where

A      is the amount that would, if the relevant share was the disposed share and the relevant affiliate was the disposed affiliate in respect of the specified section 93 election, be determined under paragraph 5902(1)(f) to be the attributed net surplus in respect of the relevant share in respect of the specified section 93 election,

B      is the amount that would be determined under subparagraph 5902(1)(e)(vi) to be the consolidated net surplus in respect of the relevant affiliate, if

(i) the relevant foreign affiliate was the disposed affiliate referred to in subsection 5902(1),

(ii) the relevant share was the disposed share referred to in subsection 5902(1) that was disposed of, immediately following the disposition of the disposed shares to which the specified section 93 election applied, and

(iii) before that determination, in respect of the relevant foreign affiliate and each foreign affiliate of the particular corporation resident in Canada in which the relevant foreign affiliate had an equity percentage, the adjustments that are required by section 5905 to be made, in respect of the whole dividend referred to in paragraph 5902(1)(g) in respect of the specified section 93 election were made, and

C      is the amount that would be determined under subparagraph 5902(1)(e)(vi) to be the consolidated net surplus in respect of the relevant affiliate in respect of the specified section 93 election, if the relevant foreign affiliate was the disposed foreign affiliate referred to in subsection 5902(1) and the relevant share was the disposed share referred to in subsection 5902(1).

(2) The amount prescribed for the purpose of paragraph 92(1.4)(b) of the Act, in respect of a relevant share referred to in that paragraph, in respect of a relevant specified section 93 election related to the relevant share, is the lesser of

(a) the amount, if any, by which the adjusted cost base, at the time of the disposition, of the relevant share to the holder exceeds the fair market value of the relevant share, at the election time, and

(b) the amount determined by the following formula:

A/C × (C – B)

where

A      is the amount that would be determined to be the attributed net surplus in respect of the relevant share under paragraph 5902(1)(f) in respect of the specified section 93 election, if

(i) the relevant share was the disposed share, and the relevant foreign affiliate was the disposed foreign affiliate, in respect of the specified section 93 election, and

(ii) the consolidated net surplus in respect of the relevant foreign affiliate was the amount, if any, determined, in respect of the relevant foreign affiliate, under the description of C,

B      is the amount, if any, by which the total that would be determined under clause 5902(1)(e)(vi)(B) exceeds the total that would be determined under clause 5902(1)(e)(vi)(A), in respect of the relevant foreign affiliate, if

(i) the relevant foreign affiliate was the disposed affiliate referred to in subsection 5902(1),

(ii) the relevant share was the disposed share referred to in subsection 5902(1) that was disposed of immediately following the disposition of the disposed shares to which the specified section 93 election applied, and

(iii) before that determination, in respect of the relevant foreign affiliate and each foreign affiliate of the partic-ular corporation resident in Canada in which the relevant foreign affiliate had an equity percentage, the adjustments that are required by section 5905 to be made, in respect of the whole dividend referred to in paragraph 5902(1)(g) in respect of the specified section 93 election, were made, and

C      is the amount, if any, by which the total that would be determined under clause 5902(1)(e)(vi)(B) exceeds the total that would be determined under clause 5902(1)(e)(vi)(A), in respect of the relevant affiliate in respect of the specified section 93 election, if the relevant foreign affiliate was the disposed foreign affiliate referred to in subsection 5902(1) and the relevant share was the disposed share referred to in subsection 5902(1).

(3) If the amount determined in each of the formulae in paragraphs (1)(b) and (2)(b) in respect of the relevant share referred to in paragraph 92(1.4)(a) of the Act is nil, the amount determined for B in the formula in paragraph (1)(b) in respect of the relevant affiliate is greater than nil and the amount determined for C in the formula in paragraph (2)(b) in respect of the relevant affiliate is greater than nil, the amount prescribed for the purpose of paragraph 92(1.4)(a) of the Act, in respect of the relevant share referred to in that paragraph, in respect of a specified section 93 election related to the relevant share, is the lesser of

(a) the amount, if any, by which the fair market value of the relevant share, at the election time, exceeds the adjusted cost base, at the time of the disposition, of the relevant share to the holder, and

(b) the amount that would, if the relevant share was the disposed share and the relevant affiliate was the disposed affiliate in respect of the specified section 93 election, be determined under paragraph 5902(1)(f) to be the attributed net surplus in respect of the relevant share if the consolidated net surplus of the relevant foreign affiliate were the amount determined for B in the formula in paragraph (1)(b).

(ii) paragraph (b) of the definition “whole dividend” in subsection 5907(1) of the Regulations is, in respect of the designated section 93 election, to be read as follows:

(b) where a whole dividend is deemed by paragraph 5902(1)(g) to have been paid at the same time on shares of more than one class of the capital stock of an affiliate, for the purpose only of that paragraph, the whole dividend deemed to have been paid at that time on the shares of a class of the capital stock of the affiliate is deemed to be the total of all amounts each of which is a whole dividend deemed to have been paid at that time on the shares of a class of the capital stock of the affiliate, and

(iii) paragraph 5908(8)(c) of the Regulations, as enacted by subsection 47(1), is, in respect of the designated section 93 election, to be read as follows:

(c) the prescribed amount for the purposes of subparagraph 93(1.2)(a)(ii) of the Act is the lesser of

(i) the taxable capital gain, if any, of the particular affiliate otherwise determined in respect of the disposition, and

(ii) the amount that is one-half of the amount referred to in paragraph 5902(6)(b).

52. (1) Subsection (2) applies if

(a) a corporation has made an election under section 51;

(b) the corporation has made an election under subsection 93(1) or (1.2) of the Income Tax Act in respect of a disposition of a share of the capital stock of a foreign affiliate of the corporation that occurs after December 20, 2002 and on or before February 27, 2004 (other than a disposition required to be made under an agreement in writing made by a vendor on or before December 20, 2002), or in respect of a disposition that occurs after February 27, 2004 and that is required to be made under an agreement in writing made by a vendor after December 20, 2002 and before February 28, 2004; and

(c) the corporation elects in writing under this paragraph to apply subsection (2) in respect of all of its foreign affiliates and files the election with the Minister of National Revenue on or before the day that is the later of the corporation’s filing-due date for the corporation’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.

(2) If this subsection applies, section 51 does not apply in respect of dispositions referred to in paragraph (1)(b) and the Regulations are, in respect of the dispositions, to be read as if section 5902 of the Regulations also contained the following subsection:

(6.1) If an election under subsection 93(1) of the Act is made at any time by a particular corporation resident in Canada in respect of a share of the capital stock of a foreign affiliate (in this subsection referred to as the “particular affiliate”) of the particular corporation that is disposed of to the particular corporation, to another corporation resident in Canada with which the particular corporation does not deal at arm’s length or to another foreign affiliate of the particular corporation, the amount of the particular affiliate’s exempt surplus or exempt deficit, taxable surplus or taxable deficit, underlying foreign tax and net surplus in respect of the particular corporation at that time is to be determined under paragraph (1)(a) as if the amount of any dividend referred to in subparagraph (1)(a)(i) or (ii) were nil.