Income Tax Regulations — 5907
ction, deemed to have been disposed of and reacquired by the operator in the same manner and for the same amounts as if that paragraph applied for the purposes of this section. (3) For the purposes of this Part, any corporation that was, on January 1, 1972, a foreign affiliate of a taxpayer shall be deemed to have become a foreign affiliate of the taxpayer on that day. (4) For the purposes of this Part, government of a country includes the government of a state, province or other political subdivision of that country. (5) For the purposes of this section, each capital gain, capital loss, taxable capital gain or allowable capital loss of a foreign affiliate of a taxpayer from the disposition of property is to be computed in accordance with the rules set out in subsection 95(2) of the Act. (5.01) For the purposes of subsection (6), if any capital gain, capital loss, taxable capital gain or allowable capital loss referred to in subsection (5), or any capital loss referred to in subparagraph (iii) of the description of B in the definition hybrid surplus in subsection (1), of a foreign affiliate of a corporation is required to be computed in Canadian currency and the currency referred to in subsection (6) is not Canadian currency, the amount of the gain or loss is to be converted from Canadian currency into the currency referred to in subsection (6) at the rate of exchange prevailing on the date of disposition of the property. (5.1) Notwithstanding subsection (5), if, under the income tax laws of a country other than Canada that are relevant in computing the earnings of a foreign affiliate of a taxpayer resident in Canada from an active business carried on by it in a country, no gain or loss is recognized in respect of a disposition (other than a disposition to which subsection (9) applies) by the affiliate of a capital property used or held principally for the purpose of gaining or producing income from an active business to a person or partnership (in this subsection referred to as the “transferee”) that was, at the time of the disposition, a designated person or partnership in respect of the taxpayer, for the purposes of this section, (a) the affiliate’s proceeds of disposition of the property shall be deemed to be an amount equal to the aggregate of the adjusted cost base to the affiliate of the property immediately before the disposition and any outlays and expenses to the extent they were made or incurred by the affiliate for the purpose of making the disposition; (b) the cost to the transferee of the property acquired from the affiliate shall be deemed to be an amount equal to the affiliate’s proceeds of disposition, as determined under paragraph (a); and (c) the transferee shall be deemed to have acquired the property on the date that it was acquired by the affiliate. (6) All amounts referred to in subsections (1) and (2) shall be maintained on a consistent basis from year to year in the currency of the country in which the foreign affiliate of the corporation resident in Canada is resident or any currency that the corporation resident in Canada demonstrates to be reasonable in the circumstances. (7) For the purposes of this Part, the amount of any stock dividend paid by a foreign affiliate of a corporation resident in Canada on a share of a class of its capital stock shall be deemed to be nil. (7.1) [Repealed, 2013, c. 34, s. 85] (8) For the purposes of computing the various amounts referred to in this section, (a) the first taxation year of a foreign affiliate, of a corporation resident in Canada, that is formed as a result of a foreign merger (within the meaning assigned by subsection 87(8.1) of the Act) is deemed to have commenced at the time of the merger, and a taxation year of a predecessor corporation (within the meaning assigned by subsection 5905(3)) that would otherwise have ended after that time is deemed to have ended immediately before that time; and (b) if subsection 91(1.2) of the Act applies at any particul