Income Tax Act — I-3.3 212.3
ection (7) in computing the paid-up capital in respect of a class of shares of the capital stock of a particular corporation and, at a time subsequent to the investment time, there is a reduction of paid-up capital referred to in subparagraph (b)(i) or a receipt of property referred to in the description of A in subparagraph (b)(ii), then the paid-up capital in respect of the class is to be increased, immediately before the subsequent time, by the lesser of (a) the amount, if any, by which (i) the total of all amounts deducted, before the subsequent time, under paragraph (2)(b) or subsection (7), in respect of the investment, in computing the paid-up capital in respect of the class exceeds (ii) the total of all amounts added under this subsection, in respect of the investment, to the paid-up capital in respect of the class before the time that is immediately before the subsequent time, and (b) an amount that (i) if the investment is described in paragraph (10)(a), (b) or (f), the paid-up capital in respect of the class is reduced at the subsequent time as part of or because of a distribution of property by the particular corporation and the property (in this paragraph referred to as the “distributed shares”) is shares of the capital stock of the subject corporation or shares of the capital stock of a foreign affiliate of the particular corporation that were substituted for shares of the capital stock of the subject corporation, is equal to the amount determined by the formula A/B where A is (A) if the investment is described in paragraph (10)(b), the portion of the fair market value, immediately before the subsequent time, of the distributed shares that can reasonably be considered to relate to the contribution of capital that is the investment, and (B) if the investment is described in paragraph (10)(a) or (f), the lesser of (I) the portion of the fair market value, immediately before the subsequent time, of the distributed shares that can reasonably be considered to relate to the shares (in this paragraph referred to as the “acquired shares”) of the capital stock of the subject corporation that were acquired on the investment (other than any portion described in clause (A)), and (II) the proportion of the amount determined under subparagraph (a)(i) that the amount determined under subclause (I) is of the fair market value, immediately before the subsequent time, of the acquired shares, or the portion of the fair market value of shares that were substituted for the acquired shares that can reasonably be considered to relate to the acquired shares, and B is (A) if the particular corporation is, immediately after the dividend time, a qualifying substitute corporation in respect of the CRIC, the particular corporation’s equity percentage (as defined in subsection 95(4)) in the CRIC immediately after the dividend time, and (B) in any other case, 100%, and (ii) in any other case, is equal to the amount determined by the formula A × B/C where A is the amount that is equal to the fair market value of property that (A) the particular corporation demonstrates has been received at the subsequent time by it or by a corporation resident in Canada that was not dealing at arm’s length with the particular corporation at that time (either of which is in this subparagraph referred to as the “recipient corporation”) (I) as proceeds from the disposition of the acquired shares, or other shares to the extent that the proceeds from the disposition of those other shares can reasonably be considered to relate to the acquired shares or to shares of the capital stock of the subject corporation in respect of which an investment described in paragraph (10)(b) was made, (II) as a reduction of paid-up capital or dividend in respect of a class of shares of the capital stock of the subject corporation or the portion, of a reduction of paid-up capital or dividend in respect of a class of shares of the capital stock of a foreign affiliate of the particular co