Income Tax Regulations — 5905
icit, in respect of the corporation at that time, the total of the exempt deficit and the taxable deficit; (b) if the affiliate has an exempt deficit and no taxable deficit, in respect of the corporation at that time, the amount of the exempt deficit; and (c) if the affiliate has a taxable deficit and no exempt deficit, in respect of the corporation at that time, the amount, if any, by which the taxable deficit exceeds the affiliate’s exempt surplus in respect of the corporation at that time. (6) [Repealed, 2013, c. 34, s. 44] (7) If at any time there has been a liquidation and dissolution of a foreign affiliate (referred to in this subsection as the “dissolved affiliate”) of a corporation resident in Canada that is a designated liquidation and dissolution (within the meaning assigned by subsection 95(1) of the Act) of the dissolved affiliate, each other foreign affiliate of the corporation that had a direct equity percentage (within the meaning assigned by subsection 95(4) of the Act) in the dissolved affiliate immediately before that time is, for the purposes of computing its exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, and underlying foreign tax, in respect of the corporation, deemed to have received dividends immediately before that time the total of which is equal to the amount it might reasonably have expected to receive if the dissolved affiliate had, immediately before that time, paid dividends on all shares of its capital stock the total of which was equal to the amount of its net surplus in respect of the corporation immediately before that time, determined on the assumption that the taxation year of the dissolved affiliate that otherwise would have included that time had ended immediately before that time. (7.1) Subsection (7.2) applies if (a) a foreign affiliate (referred to in this subsection and subsections (7.2) to (7.6) as the “deficit affiliate”) of a corporation resident in Canada has an exempt deficit, in respect of the corporation, at a particular time; and (b) at the time (referred to in this paragraph and subsections (7.2) to (7.6) as the “acquisition time”) that is immediately after the particular time, shares of the capital stock of a foreign affiliate (referred to in this subsection and subsections (7.2) to (7.6) as an “acquired affiliate”) of the corporation in which the deficit affiliate has, at the particular time, an equity percentage (within the meaning assigned by subsection 95(4) of the Act) are acquired by, or otherwise become property of, (i) the corporation, or (ii) another foreign affiliate of the corporation, in the case where the percentage that would, if the deficit affiliate were resident in Canada, be the deficit affiliate’s surplus entitlement percentage in respect of the acquired affiliate immediately after the acquisition time is less than the percentage that would, if the deficit affiliate were so resident, be its surplus entitlement percentage in respect of the acquired affiliate at the particular time. (7.2) If this subsection applies, there is to be included, (a) at the time (referred to in this subsection and subsections (7.6) and (7.7) and 5908(11) and (12) as the “adjustment time”) that is immediately before the time that is immediately before the time that is immediately before the acquisition time, under subparagraph (v) of the description of B in the definition exempt surplus in subsection 5907(1) in computing an acquired affiliate’s exempt surplus or exempt deficit in respect of the corporation, the amount, if any, equal to the lesser of (i) the amount determined by the formula A/B where A is the deficit affiliate’s exempt deficit in respect of the corporation immediately before the acquisition time, and B is the percentage that would, if the deficit affiliate were resident in Canada, be the deficit affiliate’s surplus entitlement percentage in respect of the acquired affiliate immediately be