Income Tax Act — I-3.3 88
on 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. 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. 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 (that is a share of the capital stock of another foreign affiliate of the taxpayer) 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. 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)