Income Tax Regulations — (a)
exempt loss , of a foreign affiliate of a corporation for a taxation year of the affiliate, means, subject to subsection (2.02), the total of all amounts each of which is (a) the amount by which the capital losses of the affiliate for the year (other than capital losses included in computing the amount, at any time in the year, of the particular affiliate’s hybrid surplus, or hybrid deficit, in respect of the particular corporation) exceed the total of (i) the amount of the allowable capital losses for the year referred to in the description of E in the definition foreign accrual property income in subsection 95(1) of the Act, (ii) the amount of the allowable capital losses for the year referred to in subparagraphs (c)(i), (e)(i) and (f)(iv) of the definition net loss , and (iii) the portion of any income or profits tax refunded by the government of a country for the year to the affiliate that can reasonably be regarded as tax refunded in respect of the amount by which the capital losses of the affiliate for the year exceed the total of the amounts referred to in subparagraphs (i) and (ii), (a.1) the total of all amounts each of which is the portion of an eligible capital expenditure of the affiliate, in respect of a business of the affiliate, that was not included at any time in the affiliate’s cumulative eligible capital in respect of the business, if (i) the business (A) is not an active business (as defined in subsection 95(1) of the Act), or (B) is an active business (as defined in subsection 95(1) of the Act) the affiliate’s earnings from which for the year are determined under subparagraph (a)(iii) of the definition earnings , and (ii) in computing its income for the year, the affiliate has deducted an amount described in paragraph 24(1)(a) of the Act for the year in respect of the business, (b) where the year is the 1975 or any preceding taxation year of the affiliate, the total of all amounts each of which is (i) the affiliate’s net loss for the year from an active business carried on by it in a country, or (ii) the amount, if any, for the year by which (A) the amount determined under the description of D in the definition foreign accrual property income in subsection 95(1) of the Act for the year exceeds (B) the amount determined under the description of A in the definition foreign accrual property income in subsection 95(1) of the Act for the year, (c) where the year is the 1976 or any subsequent taxation year of the affiliate and the affiliate is, throughout the year, resident in a designated treaty country, (i) the affiliate’s net loss for the year from an active business carried on by it in Canada or a designated treaty country, or (ii) the amount by which (A) the affiliate’s loss for the year from an active business to the extent determined under subparagraph (d)(ii) of the definition exempt earnings in respect of the year with any modifications that the circumstances require exceeds (B) the portion of any income or profits tax refunded by the government of a country for the year to the affiliate that can reasonably be regarded as tax that was refunded in respect of the amount determined under clause (A), or (d) where the year is the 1976 or any subsequent taxation year of the affiliate, each amount that is included in the affiliate’s exempt loss for the year because of subsection (10); ( perte exonérée )