• 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):

  • (h.4) the reduction of the amount included under subsection 91(1) for the year because of a reduction referred to in paragraph 152(6.1)(b) in the foreign accrual property income of a foreign affiliate of the taxpayer for a taxation year of the affiliate that ends in the year,

• (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:

  • Marginal note:Acquiring control

    (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:

  • Marginal note:Amounts carried back

    (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.

2007, c. 35Budget 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”

  “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

    • (b) subsection 10(3) or any provision of this section (other than any provision referred to in paragraph (a) in respect of which the taxpayer has made an election referred to in paragraph (a)), if the taxpayer

      • (i) elects in writing in respect of all of its foreign affiliates that this subsection apply in respect of that provision, and

      • (ii) files that election with the Minister of National Revenue on or before the day that is six months after the day on which the Technical Tax Amendments Act, 2012 receives royal assent.

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

C.R.C., c. 945Income Tax Regulations

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

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

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

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

  • 5902. (1) If at any time a dividend (such time and each such dividend, respectively, referred to in this subsection and subsection (2) as the “dividend time” and an “elected dividend”) is, by virtue of an election made under subsection 93(1) of the Act by a corporation in respect of a disposition, deemed to have been received on a share (each such share referred to in this subsection as an “elected share”) of a class of the capital stock of a particular foreign affiliate of the corporation, the following rules apply:

    • (a) for the purposes of subsection 5900(1), in applying the provisions of subsection 5901(1),

      • (i) the particular affiliate’s exempt surplus or exempt deficit, taxable surplus or taxable deficit, underlying foreign tax and net surplus, in respect of the corporation at the dividend time, are deemed to be those amounts that would otherwise be determined immediately before the dividend time if

        • (A) each other foreign affiliate of the corporation in which the affiliate had an equity percentage (within the meaning assigned by subsection 95(4) of the Act) at the dividend time had, immediately before the time that is immediately before the dividend time, paid a dividend equal to its net surplus in respect of the corporation, determined immediately before the time the dividend was paid, and

        • (B) any dividend referred to in clause (A) that any other foreign affiliate would have received had been received by it immediately before any such dividend that it would have paid, and

      • (ii) the particular affiliate is deemed to have paid a whole dividend at the dividend time on the shares of that class of its capital stock in an amount determined by the formula

        A × B

        where

        A

        is the total of all amounts each of which is the amount of an elected dividend, and

        B

        is the greater of

        • (A) one, and

        • (B) the quotient determined by the formula

          C/D

          where

          C

          is the amount of the particular affiliate’s net surplus determined under subparagraph (a)(i), and

          D

          is the greater of

          • (I) one unit of the currency in which the amount determined for C is expressed, and

          • (II) the amount that would have been received on the elected shares if the particular affiliate had at the dividend time paid dividends, on all shares of its capital stock, the total of which was equal to the amount of its net surplus referred to in subparagraph (a)(i); and

    • (b) subject to paragraph 5905(5)(c), there is to be included, at the dividend time,

      • (i) under subparagraph (v) of the description of B in the definition “exempt surplus” in subsection 5907(1) in computing the particular affiliate’s exempt surplus or exempt deficit, as the case may be, in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the portion of any elected dividend that is prescribed by paragraph 5900(1)(a) to have been paid out of the exempt surplus of the particular affiliate,

      • (ii) under subparagraph (v) of the description of B in the definition “taxable surplus” in subsection 5907(1) in computing the particular affiliate’s taxable surplus or taxable deficit, as the case may be, in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the portion of any elected dividend that is prescribed by paragraph 5900(1)(b) to have been paid out of the taxable surplus of the particular affiliate, and

      • (iii) under subparagraph (iii) of the description of B in the definition “underlying foreign tax” in subsection 5907(1) in computing the particular affiliate’s underlying foreign tax in respect of the corporation an amount equal to the product obtained when the specified adjustment factor in respect of the disposition is multiplied by the total of all amounts each of which is the amount prescribed by paragraph 5900(1)(d) to be the foreign tax applicable to such portion of any elected dividend as is prescribed by paragraph 5900(1)(b) to have been paid out of the taxable surplus of the particular affiliate.

  • (2) In this section,

    • (a) for the purpose of paragraph (1)(a),

      • (i) in determining the exempt surplus or exempt deficit, the taxable surplus or taxable deficit, the underlying foreign tax and the net surplus of a particular foreign affiliate of a taxpayer resident in Canada in which any other foreign affiliate of the taxpayer has an equity percentage (within the meaning assigned by subsection 95(4) of the Act), no amount shall be included in respect of any distribution that would be received by the particular affiliate from that other affiliate, and

      • (ii) if any foreign affiliate of a corporation resident in Canada has issued shares of more than one class of its capital stock, the amount that would be paid as a dividend on the shares of any class is the portion of its exempt surplus or exempt deficit and its taxable surplus (including underlying foreign tax applicable) or taxable deficit (and thus net surplus) that, in the circumstances, would reasonably be expected to have been paid on all the shares of that class; and

    • (b) the specified adjustment factor in respect of a disposition is the percentage determined by the formula

      A/B

      where

      A

      is

      • (i) if the elected dividend is received by the corporation, 100 per cent, and

      • (ii) if the elected dividend is received by another foreign affiliate of the corporation, the surplus entitlement percentage of the corporation in respect of the other affiliate immediately before the dividend time, and

      B

      is the surplus entitlement percentage of the corporation in respect of the particular affiliate immediately before the dividend time.

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

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

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