I-3 - Taxation Act

Section 572.2.2 Disposition versions

2021-06-02

572.2.2. The rules set out in the second paragraph apply in respect of a particular foreign affiliate of a taxpayer for a taxation year of the foreign affiliate, for the purpose of determining an amount to be included or deducted, in respect of the year, by the taxpayer in computing the taxpayer’s income under section 580 or 583, respectively, if, at any time in the year,

(a)  the taxpayer holds a property that is a tracking interest in respect of the particular foreign affiliate; and

(b)  shares of a class of the capital stock of the particular foreign affiliate (in the second paragraph referred to as a “tracking class”) the fair market value of which can reasonably be considered to be determined by reference to the tracked property and activities in respect of the tracking interest are held by the taxpayer or a foreign affiliate of the taxpayer.

The rules to which the first paragraph refers are as follows:

(a)  the tracked property and activities of the particular foreign affiliate are deemed to be property and activities of a corporation not resident in Canada that is separate from the particular foreign affiliate and not to be property or activities of the particular foreign affiliate;

(b)  any income, losses or gains for the year in respect of the property and activities described in subparagraph a are deemed to be income, losses or gains of the separate corporation and not of the particular foreign affiliate;

(c)  all rights and obligations of the particular foreign affiliate in respect of the property and activities described in subparagraph a are deemed to be rights and obligations of the separate corporation and not of the particular foreign affiliate;

(d)  the separate corporation is deemed to have, at the end of the year, 100 issued and outstanding shares of a single class of its capital stock which have full voting rights under all circumstances;

(e)  each shareholder of the particular foreign affiliate is deemed to own, at the end of the year, that number of shares of the separate corporation that is equal to the product obtained by multiplying 100 by the amount that would be the aggregate participating percentage (as defined in section 580.1) of that shareholder in respect of the particular foreign affiliate for the year if

i.  the particular foreign affiliate were a controlled foreign affiliate of that shareholder at the end of the year,

ii.  the only shares of the capital stock of the particular foreign affiliate issued and outstanding at the end of the year were shares of tracking classes in respect of the tracked property and activities, and

iii.  the only income, losses or gains of the particular foreign affiliate for the year were those referred to in subparagraph b; and

(f)  any amount included or deducted by the taxpayer in computing the taxpayer’s income under section 580 or 583, respectively, in respect of shares of the separate corporation is deemed to be an amount so included or deducted by the taxpayer in respect of shares of tracking classes held by the taxpayer or a foreign affiliate of the taxpayer, as the case may be.

2021, c. 14, s. 46.