I-3 - Taxation Act

Section 591.3 Disposition versions

2020-09-24

591.3. The amount of a particular allowable capital loss sustained by a particular corporation resident in Canada or a foreign affiliate of the particular corporation is determined in accordance with the rules set out in the second paragraph where

(a)  the particular corporation has a particular allowable capital loss, determined without reference to this chapter, from the disposition at any time (in this section referred to as the “disposition time”) by a partnership (in this section and section 591.3.1 referred to as the “particular partnership”) of an interest in another partnership that has a direct or indirect right in shares (in this section referred to as the "affiliate shares") of the capital stock of a foreign affiliate of the particular corporation; or

(b)  the foreign affiliate of the particular corporation has a particular allowable capital loss, determined without reference to this chapter, from the disposition at any time (in this section referred to as the “disposition time”) by a partnership (in this section and section 591.3.1 referred to as the “particular partnership”) of an interest in another partnership that has a direct or indirect right in shares (in this section referred to as the “affiliate shares”) of the capital stock of a foreign affiliate of the particular corporation that would not be excluded property of the affiliate if the affiliate had owned the shares immediately before the disposition time.

Where a particular allowable capital loss is a loss referred to in subparagraph a or b of the first paragraph, the amount of the particular allowable capital loss is deemed to be equal to the greater of

(a)  the amount determined by the formula

A - (B - C); and

(b)  the lesser of

i.  the portion of the particular allowable capital loss, determined without reference to this chapter, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and

ii.  one-half of the amount determined in respect of the particular corporation or the foreign affiliate of the particular corporation that is the amount of a gain (other than a specified gain) that

(1)  was realized within 30 days before or after the disposition time by the particular partnership to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be, if the gain is described in the fourth paragraph, or

(2)  is a capital gain (to the extent that the capital gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) realized within 30 days before or after the disposition time by the particular partnership under an agreement described in the fifth paragraph.

In the formula in subparagraph a of the second paragraph,

(a)  A is the amount of the particular allowable capital loss determined without reference to this chapter;

(b)  B is one-half of the aggregate of all amounts each of which is an amount received before the disposition time, in respect of a tax-exempt dividend on affiliate shares or on shares for which the affiliate shares were substituted, by

i.  the particular corporation,

ii.  another corporation that is related to the particular corporation,

iii.  a foreign affiliate of the particular corporation, or

iv.  a foreign affiliate of another corporation that is related to the particular corporation; and

(c)  C is the total of

i.  the aggregate of all amounts each of which is one-half of the amount by which a loss (determined without reference to this chapter), from a previous disposition by a corporation, or a foreign affiliate described in subparagraph b, of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under subparagraph a of the second paragraph of section 591 in respect of tax-exempt dividends referred to in subparagraph b,

ii.  the aggregate of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this chapter), of a corporation or a foreign affiliate described in subparagraph b, from a previous disposition by a partnership of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under subparagraph a of the second paragraph of section 591.1 in respect of tax-exempt dividends referred to in subparagraph b,

iii.  the aggregate of all amounts each of which is one-half of the amount by which a loss (determined without reference to this chapter), of a corporation or a foreign affiliate described in subparagraph b, from a previous disposition by a corporation, or a foreign affiliate described in subparagraph b, of an interest in a partnership, was reduced under subparagraph a of the second paragraph of section 591.2 in respect of tax-exempt dividends referred to in subparagraph b, and

iv.  the aggregate of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this chapter), of a corporation or a foreign affiliate described in subparagraph b, from a previous disposition by a partnership of an interest in another partnership, was reduced under subparagraph a of the second paragraph in respect of tax-exempt dividends referred to in subparagraph b.

The gain to which subparagraph 1 of subparagraph ii of subparagraph b of the second paragraph refers is a gain that

(a)  is deemed under section 262 to be a capital gain of the particular partnership for the taxation year that includes the time the gain was realized from the disposition of currency other than Canadian currency; and

(b)  is in respect of the settlement or extinguishment of a foreign currency debt that

i.  was issued or incurred by the particular partnership within 30 days before or after the acquisition of the partnership interest by the partnership,

ii.  was, at all times at which it was a debt obligation of the particular partnership, owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and

iii.  could reasonably be considered to have been issued or incurred in relation to the acquisition of the partnership interest.

The agreement to which subparagraph 2 of subparagraph ii of subparagraph b of the second paragraph refers is an agreement that

(a)  was entered into by the particular partnership, within 30 days before or after the acquisition of the partnership interest by the particular partnership, with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation;

(b)  provides for the purchase, sale or exchange of currency; and

(c)  can reasonably be considered to have been entered into by the particular partnership for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the partnership interest.

2004, c. 8, s. 121; 2015, c. 21, s. 202; 2020, c. 16, s. 85.

2015-10-21

591.3. The amount of a particular allowable capital loss sustained by a particular corporation resident in Canada or a foreign affiliate of the particular corporation is determined in accordance with the rules set out in the second paragraph where

(a)  the particular corporation has a particular allowable capital loss, determined without reference to this chapter, from the disposition at any time (in this section referred to as the “disposition time”) by a partnership (in this section and section 591.3.1 referred to as the “particular partnership”) of an interest in another partnership that has a direct or indirect right or interest in shares (in this section referred to as the "affiliate shares") of the capital stock of a foreign affiliate of the particular corporation; or

(b)  the foreign affiliate of the particular corporation has a particular allowable capital loss, determined without reference to this chapter, from the disposition at any time (in this section referred to as the “disposition time”) by a partnership (in this section and section 591.3.1 referred to as the “particular partnership”) of an interest in another partnership that has a direct or indirect right or interest in shares (in this section referred to as the “affiliate shares”) of the capital stock of a foreign affiliate of the particular corporation that would not be excluded property of the affiliate if the affiliate had owned the shares immediately before the disposition time.

Where a particular allowable capital loss is a loss referred to in subparagraph a or b of the first paragraph, the amount of the particular allowable capital loss is deemed to be equal to the greater of

(a)  the amount determined by the formula

A - (B - C); and

(b)  the lesser of

i.  the portion of the particular allowable capital loss, determined without reference to this chapter, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and

ii.  one-half of the amount determined in respect of the particular corporation or the foreign affiliate of the particular corporation that is the amount of a gain (other than a specified gain) that

(1)  was realized within 30 days before or after the disposition time by the particular partnership to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be, if the gain is described in the fourth paragraph, or

(2)  is a capital gain (to the extent that the capital gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) realized within 30 days before or after the disposition time by the particular partnership under an agreement described in the fifth paragraph.

In the formula in subparagraph a of the second paragraph,

(a)  A is the amount of the particular allowable capital loss determined without reference to this chapter;

(b)  B is one-half of the aggregate of all amounts each of which is an amount received before the disposition time, in respect of a tax-exempt dividend on affiliate shares or on shares for which the affiliate shares were substituted, by

i.  the particular corporation,

ii.  another corporation that is related to the particular corporation,

iii.  a foreign affiliate of the particular corporation, or

iv.  a foreign affiliate of another corporation that is related to the particular corporation; and

(c)  C is the total of

i.  the aggregate of all amounts each of which is one-half of the amount by which a loss (determined without reference to this chapter), from a previous disposition by a corporation, or a foreign affiliate described in subparagraph b, of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under subparagraph a of the second paragraph of section 591 in respect of tax-exempt dividends referred to in subparagraph b,

ii.  the aggregate of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this chapter), of a corporation or a foreign affiliate described in subparagraph b, from a previous disposition by a partnership of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under subparagraph a of the second paragraph of section 591.1 in respect of tax-exempt dividends referred to in subparagraph b,

iii.  the aggregate of all amounts each of which is one-half of the amount by which a loss (determined without reference to this chapter), of a corporation or a foreign affiliate described in subparagraph b, from a previous disposition by a corporation, or a foreign affiliate described in subparagraph b, of an interest in a partnership, was reduced under subparagraph a of the second paragraph of section 591.2 in respect of tax-exempt dividends referred to in subparagraph b, and

iv.  the aggregate of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this chapter), of a corporation or a foreign affiliate described in subparagraph b, from a previous disposition by a partnership of an interest in another partnership, was reduced under subparagraph a of the second paragraph in respect of tax-exempt dividends referred to in subparagraph b.

The gain to which subparagraph 1 of subparagraph ii of subparagraph b of the second paragraph refers is a gain that

(a)  is deemed under section 262 to be a capital gain of the particular partnership for the taxation year that includes the time the gain was realized from the disposition of currency other than Canadian currency; and

(b)  is in respect of the settlement or extinguishment of a foreign currency debt that

i.  was issued or incurred by the particular partnership within 30 days before or after the acquisition of the partnership interest by the partnership,

ii.  was, at all times at which it was a debt obligation of the particular partnership, owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and

iii.  could reasonably be considered to have been issued or incurred in relation to the acquisition of the partnership interest.

The agreement to which subparagraph 2 of subparagraph ii of subparagraph b of the second paragraph refers is an agreement that

(a)  was entered into by the particular partnership, within 30 days before or after the acquisition of the partnership interest by the particular partnership, with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation;

(b)  provides for the purchase, sale or exchange of currency; and

(c)  can reasonably be considered to have been entered into by the particular partnership for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the partnership interest.

2004, c. 8, s. 121; 2015, c. 21, s. 202.

2006-03-01

591.3. Where a corporation resident in Canada has an allowable capital loss from a disposition at any time by a partnership of an interest in another partnership which has a direct or indirect interest in shares of the capital stock of a corporation that is a foreign affiliate of the corporation resident in Canada, in this section referred to as “affiliate shares”, or a foreign affiliate of a corporation resident in Canada has an allowable capital loss from a disposition at any time by a partnership of an interest in another partnership that has a direct or indirect interest in shares of the capital stock of a foreign affiliate of the corporation resident in Canada that would not be excluded property of the affiliate if the affiliate owned the shares immediately before the disposition, in this section also referred to as “affiliate shares”, the amount of the allowable capital loss is deemed to be the amount determined by the formula

A − (B − C).

In the formula provided for in the first paragraph,

(a)  A is the amount of the allowable capital loss determined without reference to this section;

(b)  B is the product obtained by multiplying the appropriate fraction described in the third paragraph by the aggregate of all amounts each of which is an amount received before that time in respect of a tax-exempt dividend on affiliate shares or on shares for which affiliate shares were substituted, by

i.  the corporation resident in Canada,

ii.  a corporation related to the corporation resident in Canada,

iii.  a foreign affiliate of the corporation resident in Canada, or

iv.  a foreign affiliate of a corporation related to the corporation resident in Canada; and

(c)  C is the aggregate of

i.  3/4 of the aggregate of all amounts each of which is the amount by which a loss, determined without reference to this chapter, of a corporation or foreign affiliate described in subparagraph b for a taxation year that ended before 28 February 2000, from another disposition at or before that time of affiliate shares or shares for which affiliate shares were substituted, was reduced under section 591 in respect of the tax-exempt dividends referred to in subparagraph b,

ii.  the product obtained by multiplying the aggregate of all amounts each of which is the amount by which the loss, determined without reference to this chapter, of a corporation or foreign affiliate described in subparagraph b for a taxation year that includes 28 February 2000 or 17 October 2000 or that began after 28 February 2000 and ended before 17 October 2000, from another disposition at or before that time of affiliate shares or shares for which affiliate shares were substituted, was reduced under section 591 in respect of the tax-exempt dividends referred to in subparagraph b, by the fraction that is the fraction in paragraphs a to d of section 231.0.1 that applies to the corporation or foreign affiliate for the year,

iii.  1/2 of the aggregate of all amounts each of which is the amount by which the loss, determined without reference to this chapter, of a corporation or foreign affiliate described in subparagraph b for a taxation year that began after 17 October 2000, from another disposition at or before that time of affiliate shares or shares for which affiliate shares were substituted, was reduced under section 591 in respect of the tax-exempt dividends referred to in subparagraph b,

iv.  the aggregate of all amounts each of which is the amount by which an allowable capital loss, determined without reference to this chapter, of a corporation or foreign affiliate described in subparagraph b, from a disposition at or before that time by a partnership of affiliate shares or shares for which affiliate shares were substituted, was reduced under section 591.1 in respect of the tax-exempt dividends referred to in subparagraph b,

v.  3/4 of the aggregate of all amounts each of which is the amount by which a loss, determined without reference to this chapter, for a taxation year that ended before 28 February 2000, from a disposition at or before that time by a corporation or foreign affiliate described in subparagraph b of an interest in a partnership, was reduced under section 591.2 in respect of the tax-exempt dividends referred to in subparagraph b,

vi.  the product obtained by multiplying the aggregate of all amounts each of which is the amount by which a loss, determined without reference to this chapter, for a taxation year that includes 28 February 2000 or 17 October 2000 or that began after 28 February 2000 and ended before 17 October 2000, from a disposition at or before that time by a corporation or foreign affiliate described in subparagraph b of an interest in a partnership, was reduced under section 591.2 in respect of the tax-exempt dividends referred to in subparagraph b, by the fraction that is the fraction in paragraphs a to d of section 231.0.1 that applies to the corporation or foreign affiliate for the year,

vii.  1/2 of the aggregate of all amounts each of which is the amount by which a loss, determined without reference to this chapter, for a taxation year that began after 17 October 2000, from a disposition at or before that time by a corporation or foreign affiliate described in subparagraph b of an interest in a partnership, was reduced under section 591.2 in respect of the tax-exempt dividends referred to in subparagraph b, and

viii.  the aggregate of all amounts each of which is the amount by which an allowable capital loss, determined without reference to this chapter, of a corporation or foreign affiliate described in subparagraph b, from a disposition at or before that time by a partnership of an interest in another partnership, was reduced under this section in respect of the tax-exempt dividends referred to in subparagraph b.

The appropriate fraction to which subparagraph b of the second paragraph refers is

(a)  where this section applies to a taxation year that ended before 28 February 2000, 3/4;

(b)  where this section applies to a taxation year that includes 28 February 2000 or 17 October 2000 or that began after 28 February 2000 and ended before 17 October 2000, the fraction that is the fraction in paragraphs a to d of section 231.0.1 that applies to the corporation or foreign affiliate described in that subparagraph b for the year; or

(c)  where this section applies to a taxation year that began after 17 October 2000, 1/2.

2004, c. 8, s. 121.