Income Tax Regulations — 5907
ragraph (1.3)(a)  — or of the particular affiliate, the loss transferor and each corporation that would have been permitted to deduct the transferred loss against its income under the income tax laws referred to in paragraph (1.3)(b) if the transferred loss had not been deducted by the particular affiliate and if the corporation had taxable income for its taxation years ending in the FAPI year in excess of the transferred loss — for their taxation years ending in the FAPI year would, on the assumption that the particular affiliate (or shareholder affiliate) and each of those other corporations had no foreign accrual property income for any taxation year, reasonably be considered to have been fully deducted (under the tax laws referred to in paragraph (1.3)(a) or (b)) against income (as determined under those tax laws) of the particular affiliate (or shareholder affiliate) or those other corporations; (b) the taxpayer demonstrates that no other losses of the particular affiliate (or shareholder affiliate) or those other corporations for any taxation year were, or could reasonably have been, deducted under those tax laws against that income; and (c) the last day of the particular year occurs in one of the five taxation years of the taxpayer that immediately follow the FAPI year. (1.7) If the amount prescribed under paragraph (1.3)(a) or (b), or any portion of the amount, can reasonably be considered to be in respect of a capital loss of another corporation for a taxation year of the other corporation, then the amount so prescribed, as reduced by subsection (1.4), if applicable, shall be reduced to the extent that it can reasonably be considered to be in respect of the portion of that capital loss that would not be deductible by the particular affiliate in computing its foreign accrual property income for the year if the capital loss had been incurred by the particular affiliate. (2) In computing the earnings of a foreign affiliate of a taxpayer resident in Canada for a taxation year of the affiliate from an active business carried on by it in a country, there shall be added to the amount thereof determined under subparagraph (a)(i) or (ii) of the definition earnings in subsection (1) (in this subsection referred to as the “earnings amount”) such portion of the following amounts as was deducted or was not included, as the case may be, in computing the earnings amount, (a) any income or profits tax paid to the government of a country by the affiliate so deducted, (b) if established by the taxpayer, the amount by which any amount so deducted in respect of an expenditure made by the affiliate exceeds the amount, if any, by which (i) the amount of the expenditure exceeds (ii) the aggregate of all other deductions in respect of that expenditure made by the affiliate in computing the earnings amounts for preceding taxation years, (c) any loss of the affiliate referred to in the description of D in the definition foreign accrual property income in subsection 95(1) of the Act so deducted, (d) any capital loss of the affiliate in respect of the disposition of capital property so deducted (for greater certainty, capital property of the affiliate for the purposes of this paragraph includes all the property of the affiliate other than property referred to in subparagraph 39(1)(b)(i) or (ii) of the Act on the assumption for this purpose that the affiliate is a corporation resident in Canada), (e) any loss of the affiliate for a preceding or a subsequent taxation year so deducted, (f) any revenue, income or profit (other than an amount referred to in paragraph (f.1), (h) or (i)) of the affiliate derived in the year from such business carried on in that country to the extent that such revenue, income or profit (i) is not otherwise required to be included in computing the earnings amount of the affiliate for any taxation year by the income tax law that is relevant in computing that amount, and (ii) subject to subsections (2.01) and (2.011), does