Income Tax Act — I-3.3 88
n of pre-1972 capital surplus on hand (2.1) For the purposes of subsection 88(2), pre-1972 capital surplus on hand of a particular corporation at a particular time means the amount, if any, by which the total of (a) the corporation’s 1971 capital surplus on hand on December 31, 1978 within the meaning of the Income Tax Act , chapter 148 of the Revised Statutes of Canada, 1952, as it read on that date, (b) the total of all amounts each of which is an amount in respect of a capital property of the corporation owned by it on December 31, 1971 and disposed of by it after 1978 and before the particular time, equal to the amount, if any, by which the lesser of its fair market value on valuation day (within the meaning assigned by section 24 of the Income Tax Application Rules ) and the corporation’s proceeds of disposition of that capital property exceeds its actual cost to the corporation determined without reference to the Income Tax Application Rules other than subsections 26(15), (17) and (21) to (27) of that Act, (c) where before the particular time a subsidiary (to the winding-up of which the rules in subsection 88(1) applied) of the particular corporation has been wound up after 1978, an amount equal to the pre-1972 capital surplus on hand of the subsidiary immediately before the commencement of the winding-up, and (d) where the particular corporation is a new corporation formed as a result of an amalgamation (within the meaning of section 87) after 1978 and before the particular time, the total of all amounts each of which is an amount in respect of a predecessor corporation, equal to the predecessor corporation’s pre-1972 capital surplus on hand immediately before the amalgamation exceeds (e) the total of all amounts each of which is an amount in respect of a capital property (other than depreciable property) of the corporation owned by it on December 31, 1971 and disposed of by it after 1978 and before the particular time equal to the amount, if any, by which its actual cost to the corporation determined without reference to the Income Tax Application Rules , other than subsections 26(15), (17) and (21) to (27) of that Act, exceeds the greater of the fair market value of the property on valuation day (within the meaning assigned by section 24 of that Act) and the corporation’s proceeds of disposition of the property. Determination of pre-1972 capital surplus on hand (2.2) For the purposes of determining the pre-1972 capital surplus on hand of any corporation at a particular time after 1978, the following rules apply: (a) an amount referred to in paragraphs 88(2.1)(b) and 88(2.1)(e) in respect of the corporation shall be deemed to be nil, where the property disposed of is (i) a share of the capital stock of a subsidiary, within the meaning of subsection 88(1), that was disposed of on the winding-up of the subsidiary where that winding-up commenced after 1978, (ii) a share of the capital stock of another Canadian corporation that was controlled, within the meaning assigned by subsection 186(2), by the corporation immediately before the disposition and that was disposed of by the corporation after 1978 to a person with whom the corporation was not dealing at arm’s length immediately after the disposition, other than by a disposition referred to in paragraph 88(2.2)(b), or (iii) subject to subsection 26(21) of the Income Tax Application Rules , a share of the capital stock of a particular corporation that was disposed of by the corporation after 1978, on an amalgamation, within the meaning assigned by subsection 87(1), where the corporation controlled, within the meaning assigned by subsection 186(2), both the particular corporation immediately before the amalgamation and the new corporation immediately after the amalgamation; and (b) where another corporation that is a Canadian corporation owned a capital property on December 31, 1971 and subsequently disposed of it to the corporation in a transaction to which section 85 appl