Income Tax Regulations — 5908
5908 (1) For the purposes of this subsection, subsections (2) to (7), paragraph 5902(2)(b) and section 5905, if at any time shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada are, based on the assumptions contained in paragraph 96(1)(c) of the Act, owned by a partnership, or are deemed under this subsection to be owned by a partnership, each member of the partnership is deemed to own at that time the number of shares of that class that is determined by the formula A × B/C where A is the number of shares of that class that are so owned or so deemed owned by the partnership; B is the fair market value of the member’s interest in the partnership at that time; and C is the fair market value of all members’ interests in the partnership at that time. (2) For the purposes of subsections (4) and 5905(1), (5) and (7.1), if a person is deemed by subsection (1) to own at a particular time a different number of shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada (which shares so deemed owned are referred to in this subsection as “affiliate shares”) than the person was deemed by that subsection to have owned immediately before the particular time, the number of affiliate shares equal to that difference is deemed to be (a) disposed of, at the particular time, by the person, when that person is deemed to own fewer affiliate shares at the particular time than immediately before it; and (b) acquired by, at the particular time, the person, when that person is deemed to own more affiliate shares at the particular time than immediately before it. (3) For the purposes of subsection (2), (a) if a partnership of which a person is a member at any time does not own, and (but for this subsection) is not deemed by subsection (1) to own, any shares of a class of the capital stock of the foreign affiliate at that time, subsection (1) is deemed to have applied in respect of the person and to have deemed the person to own, because of subsection (1) in respect of the partnership, no shares of that class at that time; and (b) if a corporation resident in Canada or a foreign affiliate of such a corporation disposes of or acquires its entire interest in a partnership that, based on the assumptions contained in paragraph 96(1)(c) of the Act, owns shares of a class of the capital stock of a non-resident corporation, the corporation resident in Canada or the foreign affiliate, as the case may be, is deemed at the time that is immediately after the disposition or immediately before the acquisition, as the case may be, to own, because of subsection (1) in respect of the partnership, no shares of that class. (4) For the purposes of subsection 5905(5), if at any time a corporation resident in Canada (referred to in this subsection as the “disposing corporation”) disposes of shares of a class of the capital stock of a foreign affiliate of the disposing corporation and, as a consequence of the same transaction or event (other than one to which neither paragraph (2)(a) nor paragraph (2)(b) applies) that caused the disposition, a taxable Canadian corporation with which the disposing corporation is not, at that time, dealing at arm’s length acquires shares of that class, the disposing corporation is, at that time, deemed to have disposed of, to the taxable Canadian corporation, the number of the shares of that class that is determined by the formula A × B where A is the number of shares of that class disposed of by the disposing corporation; and B is (a) if the taxable Canadian corporation acquires, because of paragraph (2)(b), shares of that class, the fraction determined by the formula C/D where C is the number of shares of that class that is deemed by that paragraph to be acquired by the taxable Canadian corporation as a result of the transaction or event, and D is the total of all amounts each of which is the number of shares of that class that is deemed by that paragraph to be