Technical Tax Amendments Act, 2012 (S.C. 2013, c. 34)
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Assented to 2013-06-26
PART 3AMENDMENTS IN RESPECT OF FOREIGN AFFILIATES: REORGANIZATIONS AND DISTRIBUTIONS AND OTHER TECHNICAL AMENDMENTS
R.S., c. 1 (5th Supp.)Income Tax Act
64. (1) Subparagraph 87(2)(u)(ii) of the Act is replaced by the following:
(ii) for the purposes of subsections 93(2.01), (2.11), (2.21) and (2.31), any exempt dividend received by the predecessor corporation on any such share is deemed to be an exempt dividend received by the new corporation on the share;
(2) Section 87 of the Act is amended by adding the following after subsection (8.1):
Marginal note:Absorptive mergers
(8.2) For the purposes of the definition “foreign merger” in subsection (8.1), if there is a merger or combination, otherwise than as a result of the distribution of property to one corporation on the winding-up of another corporation, of two or more non-resident corporations (each of which is referred to in this subsection as a “predecessor foreign corporation”), as a result of which one or more predecessor foreign corporations ceases to exist and, immediately after the merger or combination, another predecessor foreign corporation (referred to in this subsection as the “survivor corporation”) owns properties (except amounts receivable from, or shares of the capital stock of, any predecessor foreign corporation) representing all or substantially all of the fair market value of all such properties owned by each predecessor foreign corporation immediately before the merger or combination, then
(a) the merger or combination is deemed to be a merger or combination of the predecessor foreign corporations to form one non-resident corporation;
(b) the survivor corporation is deemed to be the non-resident corporation so formed;
(c) all of the properties of the survivor corporation immediately before the merger or combination that are properties of the survivor corporation immediately after the merger or combination are deemed to become properties of the survivor corporation as a consequence of the merger or combination;
(d) all of the liabilities of the survivor corporation immediately before the merger or combination that are liabilities of the survivor corporation immediately after the merger or combination are deemed to become liabilities of the survivor corporation as a consequence of the merger or combination;
(e) all of the shares of the capital stock of the survivor corporation that were outstanding immediately before the merger or combination that are shares of the capital stock of the survivor corporation immediately after the merger or combination are deemed to become shares of the capital stock of the survivor corporation as a consequence of the merger or combination; and
(f) all of the shares of the capital stock of each predecessor foreign corporation (other than the survivor corporation) that were outstanding immediately before the merger or combination and that cease to exist as a consequence of the merger or combination are deemed to be exchanged by the shareholders of each such predecessor corporation for shares of the survivor corporation as a consequence of the merger or combination.
(3) Subsection (1) applies if subsection 93(2.01) of the Act, as enacted by subsection 68(4), applies, except that, if that subsection 93(2.01) applies but subsection 93(2.11) of the Act, as enacted by subsection 68(4), does not apply, subparagraph 87(2)(u)(ii) of the Act, as enacted by subsection (1), is to be read as follows:
(ii) for the purposes of subsection 93(2.01), any exempt dividend received by the predecessor corporation on any such share is deemed to be an exempt dividend received by the new corporation on the share;
(4) Subsection (2) applies in respect of mergers or combinations in respect of a taxpayer that occur after 1994. However, subsection (2) does not apply in respect of all mergers or combinations in respect of the taxpayer that occur on or before August 19, 2011 if the taxpayer elects in writing under this subsection and files the election with the Minister of National Revenue on or before the day that is the later of the taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent.
65. (1) Subsection 88(3) of the Act is replaced by the following:
Marginal note:Liquidation and dissolution of foreign affiliate
(3) Notwithstanding subsection 69(5), if at any time a taxpayer receives a property (referred to in this subsection as the “distributed property”) from a foreign affiliate (referred to in this subsection as the “disposing affiliate”) of the taxpayer on a liquidation and dissolution of the disposing affiliate and the distributed property is received in respect of shares of the capital stock of the disposing affiliate that are disposed of on the liquidation and dissolution,
(a) subject to subsections (3.3) and (3.5), the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the taxpayer for proceeds of disposition equal to the relevant cost base (within the meaning assigned by subsection 95(4)) to the disposing affiliate of the distributed property in respect of the taxpayer, immediately before that time, if
(i) the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate, or
(ii) the distributed property is a share of the capital stock of another foreign affiliate of the taxpayer that was, immediately before that time, excluded property (within the meaning assigned by subsection 95(1)) of the disposing affiliate;
(b) if paragraph (a) does not apply to the distributed property, the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the taxpayer for proceeds of disposition equal to the distributed property’s fair market value at that time;
(c) the distributed property is deemed to have been acquired, at that time, by the taxpayer at a cost equal to the amount determined under paragraph (a) or (b) to be the disposing affiliate’s proceeds of disposition of the distributed property;
(d) each share (referred to in paragraph (e) and subsections (3.3) and (3.4) as a “disposed share”) of a class of the capital stock of the disposing affiliate that is disposed of by the taxpayer on the liquidation and dissolution is deemed to be disposed of for proceeds of disposition equal to the amount determined by the formula
A/B
where
- A
- is the total of all amounts each of which is the net distribution amount in respect of a distribution of distributed property made, at any time, in respect of the class, and
- B
- is the total number of issued and outstanding shares of the class that are owned by the taxpayer during the liquidation and dissolution; and
(e) if the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate, any loss of the taxpayer in respect of the disposition of a disposed share is deemed to be nil.
Marginal note:Qualifying liquidation and dissolution
(3.1) For the purposes of subsections (3), (3.3) and (3.5), a “qualifying liquidation and dissolution” of a foreign affiliate (referred to in this subsection as the “disposing affiliate”) of a taxpayer means a liquidation and dissolution of the disposing affiliate in respect of which the taxpayer elects in accordance with prescribed rules and
(a) the taxpayer owns not less than 90% of the issued and outstanding shares of each class of the capital stock of the disposing affiliate throughout the liquidation and dissolution; or
(b) both
(i) the percentage determined by the following formula is greater than or equal to 90%:
A/B
where
- A
- is the amount, if any, by which
(A) the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate to the taxpayer in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate
exceeds
(B) the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the taxpayer in consideration for a property referred to in clause (A), and
- B
- is the amount, if any, by which
(A) the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate to a shareholder of the disposing affiliate in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate
exceeds
(B) the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by a shareholder of the disposing affiliate in consideration for a property referred to in clause (A), and
(ii) at the time of each distribution of property by the disposing affiliate in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate, the taxpayer holds shares of that capital stock that would, if an annual general meeting of the shareholders of the disposing affiliate were held at that time, entitle it to 90% or more of the votes that could be cast under all circumstances at the meeting.
Marginal note:Net distribution amount
(3.2) For the purposes of the description of A in paragraph (3)(d), “net distribution amount” in respect of a distribution of distributed property means the amount determined by the formula
A – B
where
- A
- is the cost to the taxpayer of the distributed property as determined under paragraph (3)(c), and
- B
- is the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the taxpayer in consideration for the distribution of the distributed property.
Marginal note:Suppression election
(3.3) For the purposes of paragraph (3)(a), if the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate and the taxpayer would, in the absence of this subsection and, for greater certainty, after taking into account any election under subsection 93(1), realize a capital gain (the amount of which is referred to in subsection (3.4) as the “capital gain amount”) from the disposition of a disposed share, the taxpayer may elect, in accordance with prescribed rules, that distributed property that was, immediately before the disposition, capital property of the disposing affiliate be deemed to have been disposed of by the disposing affiliate to the taxpayer for proceeds of disposition equal to the amount claimed (referred to in subsection (3.4) as the “claimed amount”) by the taxpayer in the election.
Marginal note:Conditions for subsection (3.3) election
(3.4) An election under subsection (3.3) in respect of distributed property disposed of in the course of the liquidation and dissolution is not valid unless
(a) the claimed amount in respect of each distributed property does not exceed the amount that would, in the absence of subsection (3.3), be determined under paragraph (3)(a) in respect of the distributed property; and
(b) the amount determined by the following formula does not exceed the total of all amounts each of which is the capital gain amount in respect of a disposed share:
A – B
where
- A
- is the total of all amounts that would, in the absence of subsection (3.3), be determined under paragraph (3)(a) to be the proceeds of disposition of a distributed property in respect of which an election under subsection (3.3) is made by the taxpayer, and
- B
- is the total of all amounts each of which is the claimed amount in respect of a distributed property referred to in the description of A.
Marginal note:Taxable Canadian property
(3.5) For the purposes of paragraph (3)(a), the distributed property is deemed to have been disposed of by the disposing affiliate to the taxpayer for proceeds of disposition equal to the adjusted cost base of the distributed property to the disposing affiliate immediately before the time of its disposition, if
(a) the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate;
(b) the distributed property is, at the time of its disposition, taxable Canadian property (other than treaty-protected property) of the disposing affiliate that is a share of the capital stock of a corporation resident in Canada; and
(c) the taxpayer and the disposing affiliate have jointly elected in accordance with prescribed rules.
(2) Subsection (1) applies in respect of liquidations and dissolutions of foreign affiliates of a taxpayer that begin after February 27, 2004. However, if the taxpayer elects in writing under this subsection 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 taxpayer’s filing-due date for the taxpayer’s taxation year that includes the day on which this Act receives royal assent and the day that is one year after the day on which this Act receives royal assent,
(a) subsection 88(3) of the Act, as enacted by subsection (1), also applies to property received by the taxpayer after February 27, 2004 and before August 19, 2011 on a redemption, acquisition or cancellation of shares of the capital stock of, on a payment of a dividend by, or on a reduction of the paid-up capital of, a foreign affiliate of the taxpayer; and
(b) in respect of property described in paragraph (a) and property received by the taxpayer on a liquidation and dissolution of a foreign affiliate of the taxpayer that began after February 27, 2004 and before August 19, 2011,
(i) subsection 88(3) of the Act, as enacted by subsection (1), is to be read as follows:
(3) Notwithstanding subsection 69(5), if at any time a taxpayer receives a property (referred to in this subsection as the “distributed property”) from a foreign affiliate (referred to in this subsection as the “disposing affiliate”) of the taxpayer, on a liquidation and dissolution of the disposing affiliate, on a redemption, acquisition or cancellation of shares of the capital stock of the disposing affiliate, on a payment of a dividend by the disposing affiliate, or on a reduction of the paid-up capital of the disposing affiliate,
(a) subject to subsections (3.3) and (3.5), the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the taxpayer for proceeds of disposition equal to the relevant cost base (within the meaning assigned by subsection 95(4)) to the disposing affiliate of the distributed property in respect of the taxpayer, immediately before that time, if the distributed property
(i) was received on a liquidation and dissolution of the disposing affiliate that is a qualifying liquidation and dissolution of the disposing affiliate, or
(ii) was a share of the capital stock of another foreign affiliate of the taxpayer that was, immediately before that time, excluded property (within the meaning assigned by subsection 95(1)) of the disposing affiliate;
(b) if paragraph (a) does not apply to the distributed property, the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the taxpayer for proceeds of disposition equal to the distributed property’s fair market value at that time;
(c) the distributed property is deemed to have been acquired, at that time, by the taxpayer at a cost equal to the amount determined under paragraph (a) or (b) to be the disposing affiliate’s proceeds of disposition of the distributed property;
(d) if the taxpayer disposed of shares of the capital stock of the disposing affiliate on a liquidation and dissolution of the disposing affiliate (each such share being referred to in paragraph (f) and subsections (3.3) and (3.4) as a “disposed share”) or on a redemption, acquisition or cancellation of shares of the capital stock of the disposing affiliate, the taxpayer’s proceeds of disposition of the shares are deemed to be the amount determined by the formula
A – B
where
- A
- is the total of all amounts each of which is the cost to the taxpayer of a distributed property, as determined under paragraph (c), and
- B
- is the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the taxpayer because of the liquidation and dissolution or the redemption, acquisition or cancellation;
(e) if the taxpayer received the distributed property as a dividend or a reduction of paid-up capital, the amount of the dividend paid by the disposing affiliate or the amount of the reduction of the paid-up capital of the disposing affiliate, as the case may be, is deemed to be the amount determined by the formula
C – D
where
- C
- is the total of all amounts each of which is the cost to the taxpayer of a distributed property, as determined under paragraph (c), and
- D
- is the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the taxpayer because of the payment of the dividend or the reduction of paid-up capital; and
(f) if the distributed property was received on a liquidation and dissolution of the disposing affiliate that is a qualifying liquidation and dissolution of the disposing affiliate, any loss of the taxpayer in respect of the disposition of a disposed share is deemed to be nil.
(ii) section 88 of the Act is to be read without reference to its subsection (3.2), as enacted by subsection (1).
- Date modified: