Table of Contents. Volume 1. Table of Cases... C-1

Transcription

1 Table of Contents Volume 1 Table of Cases... C-1 Chapter 1: History and General Policy Considerations 1.1 Laying the Foundations: The Income War Tax Act of The Income War Tax Act of The Income Tax Act of The Income Tax Act of Reform Proposals The Carter Commission The White Paper Legislative Reform: Bill C The Budgets of More Recent Amendments The 1994 Federal Budget and Subsequent Developments The Auditor General s Report and The Public Accounts Committee The February 22, 1994 Budget Proposals Subsequent Proposals (1) June amendments (2) January 1995 amendments Additional Reading Chapter 2: Basic Concepts 2.1 Introduction Enity Classification Corporation Partnership (1) Common Law Partnerships (2) Quebec Partnerships (3) Delaware Partnerships Other Associations Residence in a Designated Treaty Country Equity Percentage Ownership of Shares TOC-1 (Foreign Affiliates) (December 2015)

2 2.4.2 Direct and Indirect Holdings Participating Percentage De Minimus Rule Where Only One Class Where More Than One Class Distribution Entitlement Distributions Actually Made Distributions That Could Reasonably be Made Tracking Shares Discretionary Dividends Non-Cumulative Preferred Shares Surplus Entitlement Percentage General Rules Surplus Entitlement Supporting Rules Qualifying Interest Foreign Affiliate Tax Attributes Additional Reading Chapter 3: Taxation of Foreign Affiliates Foreign Accrual Property Income and Income from an Active Business 3.1 Introduction Income From Property Relevant Jurisprudence Other Items Certain Dividends and Interest Payments Investment Business (1) Income from property Income from Insurance or Reinsurance of Risks Income from the Factoring of Receivables Profits from the Disposition of Investment Property (1) Shares of corporations (2) Interests in partnerships and trusts (3) Interests in funds or entities other than corporations, partnerships and trusts (4) Indebtedness or annuities (5) Commodities or commodities futures (6) Currency (7) Real estate (8) Canadian and foreign resource properties (9) Interests or options (10) Other property TOC-2

3 Table of Contents Exclusions (1) Type of business (2) Arm s length (3) Qualifying businesses (3)(a) Regulated businesses (3)(a)(i) Foreign bank (3)(a)(ii) Trust company (3)(a)(iii) Credit union (3)(a)(iv) Insurance corporation (3)(a)(v) Trader or dealer in securities or commodities (3)(a)(vi) Carried on as a financial institution (3)(a)(vii) Regulated (3)(b) Unregulated businesses (3)(b)(i) Real property or immovables (3)(b)(ii) Licensing property (3)(b)(iii) Lending of money (3)(b)(iv) Insurance or reinsurance of risks (3)(c) More than five employees Adventure or Concern in the Nature of Trade Trading or Dealing in Indebtedness Income From a Business Other Than an Active Business Income from the Sale of Property (1) General rule (2) Exceptions (2)(a) Property manufactured by Canadian business (2)(b) Property manufactured in the affiliate s home jurisdiction (2)(c) Currency transactions of financial institutions (3) De minimis rule (4) Incidental income (5) Indebtedness or lease obligations (6) Certain security transactions of Canadian-based banks Income from Insurance or Reinsurance (1) Status of affiliate (2) Type of risks (3) Payment or deductibility of premiums (4) De minimis exception (5) Incidental income (6) Insurance swaps Income From Indebtedness and Lease Obligations (1) General rule TOC-3 (Foreign Affiliates) (December 2015)

4 Taxation of Foreign Affiliates 3.3.3(2) Exceptions (2)(a) Specified deposits with prescribed financial institutions (2)(b) Property outside Canada (2)(c) Canadian PE income (2)(d) Recharacterized income (2)(e) Currency transactions of financial institutions (2)(f) Regulated affiliates with substantial market presence (2)(g) Life insurance sector (3) De minimis rule (4) Incidental income (5) Securities transactions between a Canadian-based bank and certain of its foreign affiliates (6) Excess liquidity loans to Canadian-based banks Income from Indebtedness and Lease Obligations of Certain Partnerships Income from Services Income from a Non-Qualifying Business Taxable Capital Gains Excluded Property (1) Property Used or Held to Gain Active Business Income (2) Shares of Foreign Affiliates (3) Amounts Receivable and Similar Assets Paragraphs 88(3)(a), 95(2)(c), (d) and (d.1) and Subparagraph 95(2)(e)(i) Gains Accrued After Section 80 Income Interests in Off-Shore Investment Fund Properties Deductions (1) FAPLs (2) FACLs Calculation Rules Paragraph 95(2)(f) Old Rule New Rules New Main Rule New Reading Rules New Carve-Out Rules New Calculating Currency Rules Foreign Resource Property Paragraph 96(2)(g) TOC-4

5 General Paragraph 95(2)(g.01) Former Paragraph 95(2)(g.02) Paragraph 95(2)(g.03) Paragraph 95(2)(g.04) Paragraph 95(2)(i) Fresh Start Rules Income From an Active Business Subparagraph 95(2)(a)(i) Subparagraph 95(2)(a)(ii) (1) Clause 95(2)(a)(ii)(A) (2) Clause 95(2)(a)(ii)(B) (2)(a) Multiple-tiered financing arrangements (2)(b) In a taxation year (2)(c) Transfer pricing issues (2)(d) Interest on borrowings to acquire partnership interests (2)(e) Alternative financing arrangements (3) Clause 95(2)(a)(ii)(C) (4) Clause 95(2)(a)(ii)(D) Subparagraphs 95(2)(a)(iii) to (vi) Taxable Earnings Avoidance Considerations Additional Reading Chapter 4: Imputation of Foreign Accural Property Income 4.1 Introduction Basic Attribution Reserves Deductions in Respect of Foreign Taxes Fiscally Transparent Entities RDTOH and CDA Additional Reading Chapter 5: Table of Contents Foreign Affiliate Distributions 5.1 Introduction Foreign Affiliate Distributions Pro Rata Distributions Qualifying Return of Capital (QROC) Upstream Loans (1) Introduction (2) Income Inclusions TOC-5 (Foreign Affiliates) (November 2016)

6 Taxation of Foreign Affiliates 5.2.3(3) Exceptions (4) Deductions Available in Respect of Income Inclusions (5) Examples Dividends From a Foreign Affiliate Deductions in Computing Taxable Income Complete Deduction Deductions Tied to Foreign Taxes (1) Taxable Surplus Dividend Deductions (2) Hybrid Surplus Dividend Deductions Deductions Replicating Cost Recovery Deductions Reflecting Transition from Pre-1976 System Exempt Dividends (1) Introduction (2) Loss Limitation on Disposition of Shares of a Foreign Affiliate (3) Losses Related to Foreign Currency Fluctuations (4) Dispositions by Partnerships of Affiliate Shares and Dispositions of Partnership Interests where the Partnership holds Affiliate Shares (5) Amounts Treated as Exempt Dividends where the Fill the Hole Rules Apply Determination of Surplus Exempt Surplus and Deficit (1) Determination Period (2) Components of Exempt Surplus and Deficit (2)(a) Opening Exempt Surplus (2)(b) Exempt Earnings (2)(b)(i) Capital Gains (2)(b)(ii) Dispositions of Eligible Capital Property (2)(b)(iii) Pre-1976 Net Earnings (2)(b)(iv) Pre-1976 Earnings from the Ppplication of Paragraph 95(2)(a) of the Act (2)(b)(v) Post-1975 Earnings from an Active Business Carried On (2)(b)(v)(A) Residence in a Designated Treaty Country (2)(b)(v)(B) Carrying on Business in Canada or a Designated Treaty Country (2)(b)(v)(C) Net Earnings from an Active Business Carried on in a Country (2)(b)(v)(C)(1) Paragraph 5907(1) earnings (a) (2)(b)(v)(C)(2) Subsection 5907(2) (2)(b)(v)(C)(3) Subsection 5907(2.01) TOC-6

7 5.4.1(2)(b)(v)(C)(4) Subsection 5907(2.02) (2)(b)(v)(C)(5) Subsection 5907(2.03) (2)(b)(v)(C)(6) Subsections 5907(2.1) to (2.6) (2)(b)(vi) Post-1975 Earnings from the Application of Paragraph 95(2)(a) of the Act (2)(b)(vii) Post-1975 Earnings from Pre-1976 Tax-Advantaged Foreign Investments (2)(c) Exempt Surplus Dividends and Foreign Tax Relief (2)(d) Taxable Dividends (2)(e) Positive Adjustment for Corporate Consolidation, Group Relief and Fiscally Transparent Entities (2)(e.1) Positive Adjustment for Fill the Hole Rules and Elective Transitional Rules Related to Abandoned Consolidated Net Surplus Regime (2)(f) Opening Exempt Deficit (2)(g) Exempt Loss (2)(g)(i) Capital Losses (2)(g)(ii) Dispositions of Eligible Capital Property (2)(g)(iii) Pre-1976 Net Losses (2)(g)(iv) Post-1975 Losses from an Active Business Carried On (2)(g)(v) Post-1975 Losses from Pre-1976 Tax-Advantaged Foreign Investments (2)(h) Tax Paid to Government (2)(i) Exempt Surplus Dividends Paid (2)(j) Adjustments Resulting from Reorganizations (2)(k) Negative Adjustments for Corporate Consolidation, Group Relief and Fiscally Transparent Entities Taxable Surplus and Deficit (1) Components of Taxable Surplus and Deficit (1)(a) Opening Taxable Surplus (1)(b) Taxable Earnings (1)(b)(i) Table of Contents Net Earnings from an Active Business Carried On in a Country (1)(b)(ii) Net Earnings in Respect of FAPI (1)(b)(iii) Earnings from the Application of Paragraph 95(2)(a) of the Act (1)(b)(iv) Net Earnings from Dispositions of Active Business Assets (1)(b)(v) Reclassified Earnings Under Subsection 5907(2.02) TOC-6.1 (Foreign Affiliates) (November 2016)

8 5.4.2(1)(b)(vi) Net Earnings from Dispositions of Foreign Affiliate Shares and Partnership Interests Before (1)(c) Taxable Surplus Dividends Received (1)(d) Positive Adjustment for Corporate Consolidation, Group Relief and Fiscally Transparent Entities (1)(d.1) Elective Transitional Rules Related to Abandoned Consolidated Net Surplus Regime (1)(e) Adjustment for Foreign Tax Relief Where Dividends Paid to Canadians (1)(f) Opening Taxable Deficit (1)(g) Taxable Loss (1)(g)(i) Taxation of Foreign Affiliates Net Losses from an Active Business Carried On in a Country (1)(g)(ii) Net Losses in Respect of FAPI (1)(g)(iii) Losses from the Application of Paragraph 95(2)(a) of the Act (1)(g)(iv) Net Losses from Dispositions of Active Business Assets (1)(g)(v) Net Losses from Dispositions of Foreign Affiliate Shares and Partnership Interests Before (1)(h) Tax in Respect of Taxable Surplus Dividends Received (1)(i) Taxable Surplus Dividends Paid (1)(j) Adjustments Resulting from Reorganizations (1)(k) Negative Adjustments for Corporate Consolidation, Group Relief and Fiscally Transparent Entities Hybrid Surplus and Deficit (1) Components of Hybrid Surplus and Deficit (1)(a) Opening Hybrid Surplus (1)(b) Capital Gains from Dispositions of Foreign Affiliate Shares (1)(c) Refunded Taxes (1)(d) Hybrid Surplus Dividends Received (1)(e) Positive Adjustment for Corporate Consolidation, Group Relief and Fiscally Transparent Entities (1)(f) Opening Hybrid Deficit (1)(g) Capital Losses from Dispositions of Foreign Affiliate Shares (1)(h) Capital Losses in the Course of the Liquidation and Dissolution of an Affiliate TOC-6.2

9 5.4.3(1)(i) Tax in Respect of Hybrid Surplus Dividends Received and in Respect of Capital Gains on Dispositions of Foreign Affiliate Shares (1)(j) Hybrid Surplus Dividends Paid (1)(k) Adjustments Resulting from Reorganizations (1)(l) Negative Adjustments for Corporate Consolidation, Group Relief and Fiscally Transparent Entities Order of Surplus Distributions General Ordering Rules Exceptions and Variations (1)(a) Elective Pre-Acquisition Surplus Dividend (1)(b) Elective Taxable Surplus Dividend (1)(c) Elective Taxable Over Hybrid Surplus Dividend (2) Current-Year Dividends (3) Dividends Received by an Individual (4) Deemed Dividends Resulting from Application of Subsection 93(1) Underlying Foreign Taxes Foreign Tax Prescribed to be Applicable Underlying Foreign Tax Applicable Underlying Foreign Tax Opening Underlying Foreign Tax Underlying Tax Paid on Taxable Earnings Underlying Tax on Taxable Surplus Dividends Received Carried Underlying Foreign Tax (1) Positive Adjustment for Corporate Consolidation, Group Relief and Fiscally Transparent Entities Underlying Tax Refunded by Reason of Taxable Loss Underlying Foreign Tax Paid Out (1) Adjustments Resulting from Reorganizations (2) Negative Adjustments for Corporate Consolidation, Group Relief and Fiscally Transparent Entities Underlying Foreign Tax Denial Rules (a) Table of Contents Subsections 5907(1.03) to (1.06) (Deduction Denied) (b) Subsections 5907(1.07) and (1.08) (Exceptions) (c) Examples Hybrid Tax Prescribed to be Applicable Hybrid Underlying Tax Applicable Hybrid Underlying Tax Opening Hybrid Underlying Tax Hybrid Underlying Tax Paid Carried Hybrid Underlying Tax TOC-6.3 (Foreign Affiliates) (December 2016)

10 5.6.16(1) Positive Adjustment for Corporate Consolidation, Group Relief and Fiscally Transparent Entities Hybrid Underlying Tax Refunded Hybrid Underlying Tax Paid Out (1) Adjustments Resulting from Reorganizations (2) Negative Adjustments of Corporate Consolidation, Group Relief and Fiscally Transparent Entities Corporate Consolidation, Group Relief and Fiscally Transparent Entities Consolidated Groups Group Relief Subsection 5907(1.3) Former Subsection 5907(7.1) Fiscally Transparent Entities Surplus and Safe Income Additional Reading Chapter 6: Taxation of Foreign Affiliates Foreign Affiliate Reorganizations 6.1 Introduction Non-Recognition Rules in the Act Rollover of Foreign Affiliate Shares Subsection 85.1(3) of the Act (1) General rule (2) Exception Paragraph 95(2)(c) of the Act Foreign Mergers First-Tier Mergers and Combinations (1) General (2) Options Lower-Tier Foreign Mergers Inside Dispositions Winding-up, Liquidation and Dissolution Dissolution of First-Tier Affiliate Lower-Tier Dissolutions Surplus and Other Adjustments Acquisition and Disposition of Shares in an Affiliate General Dispositions to Which Subsection 93(1) Applies (Continued on page TOC-7) TOC-6.4

11 6.6.2(1) General (2) Regulation (2)(a) Levitation of Accounts (2)(b) Dividend Gross Up (2)(c) Adjustment to Surplus Balances Non-Arm s Length Dispositions by a Corporation Resident in Canada Mergers and Combinations (1) Foreign Mergers (2) Domestic Amalgamations Winding-Up (1) Winding-Up of a First-Tier Affiliate (2) Winding-Up of a Lower-Tier Affiliate Blocking Deficit Rules (1) Purpose and Operation of the Rules (2) Surplus and Deficit Account Adjustments (3) ACB Adjustments (4) Tax-Free Surplus Balance Surplus Reset and Related Rules (1) Surplus Reset Rules (2) Paragraph 88(1)(d) Bump (3) Interaction of Regulations 5905(5.2) and (5.4) and Paragraphs 88(1)(d) and 95(2)(f.1) Alternative Reorganizations Conversation of U.S. Corporation into LLC Immigration of Foreign Affiliates Escision Transactions Additional Reading Chapter 7: Table of Contents Partnerships and the Foreign Affiliate Rules 7.1 General Technical Provisions Flow-Through of Surplus and Other Accounts (1) Dividends received through partnerships (2) Deemed dividends received through partnerships (3) Loss limitation rules (4) Pre-acquisition surplus dividends (5) Affiliate shares acquired from a partnership (6) FAPI attribution (7) Anti-avoidance (8) Concerns not addressed Administrative Practice TOC-7 (Foreign Affiliates) (October 2016)

12 Chapter 8: Tax Avoidance 8.1 Overview Subsection 95(6) and the GAAR Subsection 95(6) In General Administrative Developments on 95(6)(b) The Purpose Test in Paragraph 95(6)(b) GAAR In General Selected GAAR Jurisprudence (1) The Surplus Stripping Cases (2) The Second-Tier Finance Cases (3) The Treaty Shopping Cases Other Areas of Interest Chapter 9: Taxation of Foreign Affiliates Interest Deductibility Introduction Double-Dip Financing Arrangements and Section Brief History and Overview (1) Initial budget proposals (2) Revised proposals released May 14, Section General Terms of Limitation Specified Financing Expense (1) Borrowed money subparagraph 18.2(3)(a)(i) (2) Amounts payable for property subparagraph 18.2(3)(a)(ii) (3) Indirect tracing (4) Borrowed money (5) Amounts payable for property (6) Double-tracing (7) Income from subsequent loans Aggregate Double-Dip Income (1) General (2) Double-dip exempt earnings amount (3) Re-characterized exempt earnings income Foreign Accrual Tax (1) Actual taxes paid by the earning foreign affiliate or another affiliate (2) Deemed taxes paid by the earning foreign affiliate Participating Percentage Inter-Affiliate Loan (1) General (2) Exclusions TOC-8

13 Table of Contents 9.2.6(3) Netting of excess SFE and excess ADDI Partnership Structures Borrowed Money Used to Make Non-Interest-Bearing Loans Overview D.W.S. Corporation and Canada Safeway The remoteness Doctrine The indirect use Doctrine Shell Canada and Singleton Analogous Jurisprudence Administrative Practice Conclusions Volume 2 Reference Materials Income Tax Technical News... ITTN-i Department of Finance Comfort Letters... CL-i Status of Tax Treaties... STT-i Income Tax Act (selected sections)...l-i Income Tax Regulations (selected sections)... R-i Archived Material Basic Concepts (Archived)... ARCH-i Foreign Accrued Property Income and Income from Active Business (Archived) Introduction Income From Property Relevant Jurisprudence Other Items Certain Dividends and Interest Payments Investment Business (1) Income from property Income from Insurance or Reinsurance of Risks Income from the Factoring of Receivables Profits from the Disposition of Investment Property (1) Shares of corporations (2) Interests in partnerships and trusts (3) Interests in funds or entities other than corporations, partnerships and trusts (4) Indebtedness or annuities (5) Commodities or commodities futures (6) Currency TOC-9 (Foreign Affiliates) (October 2016)

14 Taxation of Foreign Affiliates 3.2.7(7) Real estate (8) Canadian and foreign resource properties (9) Interests or options (10) Other property Exclusions (1) Type of business (2) Arm s length (3) Qualifying businesses (3)(a) Regulated businesses (3)(a)(i) Foreign bank (3)(a)(ii) Trust company (3)(a)(iii) Credit union (3)(a)(iv) Insurance corporation (3)(a)(v) Trader or dealer in securities or commodities (3)(a)(vi) Carried on as a financial institution (3)(a)(vii) Regulated (3)(b) Unregulated businesses (3)(b)(i) Real estate (3)(b)(ii) Licensing property (3)(b)(iii) Lending of money (3)(b)(iv) Insurance or reinsurance of risks (3)(c) More than five employees Adventure or Concern in the Nature of Trade Trading or Dealing in Indebtedness Income From a Business Other Than an Active Business Income from the Sale of Property (1) General rule (2) Exceptions (2)(a) Property manufactured by Canadian business (2)(b) Property manufactured in the affiliate s home jurisdiction (2)(c) Currency transactions of financial institutions (3) De minimus rule (4) Incidental income Income from Insurance or Reinsurance (1) Status of affiliate (2) Type of risks (3) Payment or deductibility of premiums (4) De minimus exception (5) Incidental income Income From Indebtedness and Lease Obligations (1) General rule TOC-10

15 Table of Contents 3.3.3(2) Exceptions (2)(a) Specified deposits with prescribed financial institutions (2)(b) Property outside Canada (2)(c) Canada PE income (2)(d) Currency transactions of financial institutions (2)(e) Regulated affiliates with substantial market presence (2)(f) Life insurance sector (3) De minimus rule (4) Incidental income Income from Indebtedness and Lease Obligations of Certain Partnerships Income from Services Income from a Non-Qualifying Business Taxable Capital Gains Excluded Property (1) Property Used or Held to Gain Active Business Income (2) Shares of Foreign Affiliates (3) Amounts Receivable and Similar Assets Paragraphs 95(2)(c), (d) and (e) Gains Accrued After Section 80 Income Interests in Off-Shore Investment Fund Properties Deductions Calculation Rules Paragraph 95(2)(f) Old Rule New Rules New Main Rules New Reading Rules New Carve-Out Rules New Calculating Currency Rules Foreign Resource Property Paragraph 96(2)(g) Paragraph 95(2)(i) Transitional Rules Income From an Active Business Subparagraph 95(2)(a)(i) Subparagraph 95(2)(a)(ii) (1) Clause 95(2)(a)(ii)(A) (1)(a) Multiple-tiered financing arrangements TOC-11 (Foreign Affiliates) (October 2016)

16 Taxation of Foreign Affiliates 3.8.2(1)(b) In the year or a subsequent taxation year (1)(c) Not a specified member (1)(d) Exempt earnings (1)(e) Transfer pricing issues (1)(f) Interest on borrowings to acquire partnership interests (1)(g) Alternative financing arrangements (2) Clause 95(2)(a)(ii)(B) (3) Clause 95(2)(a)(ii)(C) (4) Clause 95(2)(a)(ii)(D) (4)(a) Exempt earnings (5) Clause 95(2)(a)(ii)(E) Subparagraphs 95(2)(a)(iii) and (iv) Taxable Earnings Avoidance Considerations Additional Reading Foreign Affiliate Distributions (Archived) Introduction Payments on a Reduction of Capital Dividends From a Foreign Affiliate Deductions in Computing Taxable Income Complete Deduction Deductions Tied to Foreign Taxes Deductions Replicating Cost Recovery Deductions Reflecting Transition from Pre-1976 System Exempt Dividends Determination of Surplus Exempt Surplus and Deficit (1) Determination period (2) Components of exempt surplus and deficit (2)(a) Opening exempt surplus (2)(b) Exempt earnings (2)(b)(i) Capital gains (2)(b)(ii) Pre-1976 net earnings (2)(b)(iii) Pre-1976 earnings from the application of paragraph 95(2)(a) of the Act (2)(b)(iv) Post-1975 earnings from an active business carried on (2)(b)(iv)(A) Residence in a designated treaty country (2)(b)(iv)(B) Carrying on business in Canada or a designated treaty country TOC-12

17 5.4.1(2)(b)(iv)(C) Net earnings from an active business carried on in a country (2)(b)(v) Post-1975 earnings from the application of paragraph 95(2)(a) of the Act (2)(b)(vi) Post-1975 earnings from pre-1976 tax-advantaged foreign investments (2)(c) Exempt surplus dividends and foreign tax relief (2)(d) Taxable dividends (2)(e) Positive adjustment for corporate consolidation and group relief (2)(f) Opening exempt deficit (2)(g) Exempt loss (2)(g)(i) Capital losses (2)(g)(ii) Pre-1976 net losses (2)(g)(iii) Post-1975 earnings from an active business carried on (2)(g)(iv) Post-1975 losses from pre-1976 tax-advantaged foreign investments (2)(h) Tax paid to government (2)(i) Exempt surplus dividends paid (2)(j) Adjustments resulting from reorganizations (2)(k) Negative adjustment for corporate consolidation and group relief Taxable Surplus and Deficit (1) Components of taxable surplus and deficit (1)(a) Opening taxable surplus (1)(b) Taxable earnings (1)(b)(i) Table of Contents Net earnings from an active business carried on in a country (1)(b)(ii) Net earnings in respect of FAPI (1)(b)(iii) Earnings from the application of paragraph 95(2)(a) of the Act (1)(b)(iv) Net earnings from dispositions of active business assets (1)(b)(v) Net earnings from dispositions of foreign affiliate shares and partnership interests (1)(c) Taxable surplus dividends received (1)(d) Corporate consolidation and group relief (1)(e) Adjustment for foreign tax relief where dividends paid to Canadians (1)(f) Opening taxable deficit (1)(g) Taxable loss TOC-13 (Foreign Affiliates) (October 2016)

18 Taxation of Foreign Affiliates 5.4.2(1)(g)(i) Net losses from an active business carried on in a country (1)(g)(ii) Net losses in respect of FAPI (1)(g)(iii) Net losses from dispositions of active business assets (1)(g)(iv) Net losses from dispositions of foreign affiliate shares and partnership interests (1)(h) Tax in respect of taxable surplus dividends received (1)(i) Taxable surplus dividends paid (1)(j) Adjustments resulting from reorganizations (1)(k) Corporate consolidation and group relief Order of Surplus Distributions General Rules Exceptions and Variations (1) Elective taxable surplus (2) Current-year dividends (3) Dividends received by an individual (4) Deemed dividends resulting from application of subsection 93(1) Underlying Foreign Tax Foreign Tax Prescribed to be Applicable Underlying Foreign Tax Applicable Underlying Foreign Tax Opening Underlying Foreign Tax Underlying Tax Paid on Taxable Earnings Underlying Tax on Taxable Surplus Dividends Received Carried Underlying Foreign Tax (1) Corporate consolidation and group relief Underlying Tax Refunded by Reason of Taxable Loss Underlying Foreign Tax Paid Out (1) Adjustments resulting from reorganizations (2) Corporate consolidations and group relief Corporate Consolidation and Group Relief Consolidated Groups Group Relief Subsection 5907(1.3) Subsection 5907(7.1) Interaction Between Subsections 95(2) and 5907(5) (1) General (2) Computation of FAl s exempt earnings and taxable earnings Surplus and Safe Income Additional Reading TOC-14

19 Table of Contents Foreign Affiliate Reorganizations (Archived) Introduction Non-Recognition Rules in the Act Rollover of Foreign Affiliate Shares Subsection 85.1(3) of the Act (1) General rule (2) Exception Paragraph 95(2)(c) of the Act Foreign Mergers First-Tier Mergers and Combinations Lower-Tier Foreign Mergers Inside Dispositions Winding-up, Liquidation and Dissolution Dissolution of First-Tier Affiliate Lower-Tier Dissolutions Paragraph 95(2)(e.1) Surplus and Other Adjustments Acquisition and Disposition of Shares in an Affiliate (1) Acquisitions (1)(a) Acquisitions by the relevant corporation or by an affiliate (1)(b) Acquisitions by a third party (2) Dispositions (2)(a) Share redemptions, acquisitions or cancellations (2)(b) Other dispositions to which subsection 93(1) applies (2)(c) Dispositions by a corporation resident in Canada to a taxable Canadian corporation Mergers and Combinations (1) Foreign mergers (2) Domestic amalgamations Winding-Up (1) Winding-up of a first-tier affiliate (2) Winding-up of a lower-tier affiliate (2)(a) Where paragraph 95(2)(e.1) applies (2)(b) Where paragraph 95(2)(e.1) does not apply (3) Domestic windings-up Alternative Reorganizations Conversion of U.S. Corporation into LLC Immigration of Foreign Affiliates Escision Transactions Additional Reading TOC-15 (Foreign Affiliates) (October 2016)

20 Taxation of Foreign Affiliates New Developments Tax Alert-Canada 2011 Issue No ND-1 Index... I-1 TOC-16