Income Tax Act — I-3.3 90
the affiliate is deemed to make a loan to the taxpayer immediately before the end of the particular year equal to the amount determined by the following formula, where all amounts referred to in the formula are to be determined using Canadian currency: A – B – C where A is 90% of the average of all amounts each of which is, in respect of a calendar month that ends in the particular year, the greatest total amount at any time in the month of the upstream deposits owing to the affiliate, B is the lesser of (i) the amount, if any, by which the affiliate’s excess liquidity for the particular year exceeds the average of all amounts each of which is, in respect of a calendar month that ends in the particular year, the greatest total amount at any time in the month of eligible Canadian indebtedness owing to the affiliate, and (ii) the amount determined for A, and C is the amount, if any, by which the amount determined for A for the immediately preceding year exceeds the amount determined for B for the immediately preceding year; and (b) if the formula in paragraph (a) would, in the absence of section 257, result in a negative amount for the particular year, (i) the taxpayer is deemed to repay immediately before the end of the particular year — in an amount equal to the absolute value of the negative amount and in the order in which they arose — loans made by the affiliate under paragraph (a) in a prior taxation year and not previously repaid, and (ii) the repayment is deemed to not be part of a series of loans or other transactions and repayments. Corporations: deduction for amounts included under subsection (6) or (12) (9) There may be deducted in computing the income for a taxation year of a corporation resident in Canada a particular amount, in respect of a specified amount included under subsection (6), or an amount included under subsection (12), in computing the corporation’s income for the taxation year in respect of a particular loan or indebtedness, if (a) the corporation demonstrates that the particular amount is the total of all amounts (not to exceed the amount so included) each of which would — if the specified amount in respect of the particular loan or indebtedness were, at the time (referred to in subparagraph (i) and subsection (11) as the “lending time”) the particular loan was made or the particular indebtedness was incurred, instead paid by the creditor affiliate, or the creditor partnership, as the case may be, to the corporation directly as part of one dividend, or indirectly as part of one or more dividends and, if applicable, partnership distributions — reasonably be considered to have been deductible, in respect of the payment, for the corporation’s taxation year in which the specified amount was included in its income under subsection (6), in computing (i) the taxable income of the corporation under any of (A) paragraph 113(1)(a), in respect of the exempt surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation, (B) paragraph 113(1)(a.1), in respect of the hybrid surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation, if the amount of that hybrid surplus is less than or equal to the amount determined by the formula [A × (B – 0.5)] + (C × 0.5) where A is the affiliate’s hybrid underlying tax in respect of the corporation at the lending time, B is the corporation’s relevant tax factor (within the meaning assigned by subsection 95(1)) for the corporation’s taxation year that includes the lending time, and C is the affiliate’s hybrid surplus in respect of the corporation at the lending time, (C) paragraph 113(1)(b), in respect of the taxable surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation, and (D) paragraph 113(1)(d), in respect of the pre-acquisition surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation to th