Income Tax Regulations — 5905
he Minister in respect of the particular acquired affiliate; and (b) not to be the amount, if any, actually designated under subclause (7.2)(a)(ii)(B)(I). (7.5) Subsection (7.6) applies if (a) subsection (7.2) applies; (b) the deficit affiliate, or any other foreign affiliate of the corporation in which the deficit affiliate has, immediately before the acquisition time, an equity percentage (which percentage has, for the purposes of this subsection, the meaning assigned by subsection 95(4) of the Act and which deficit affiliate or other affiliate is referred to in subsection (7.6) as the “direct holder”), has, immediately before the acquisition time, a direct equity percentage (within the meaning assigned by that subsection 95(4)) in any other foreign affiliate (referred to in paragraph (c) and subsection (7.6) as the “subject affiliate”) of the corporation; and (c) the subject affiliate is the acquired affiliate or has, immediately before the acquisition time, an equity percentage in the acquired affiliate. (7.6) Subject to paragraph 5908(11)(c), for the purposes of paragraph 92(1.1)(a) of the Act, if this subsection applies, there shall be added, in computing on and after the adjustment time (a) the direct holder’s adjusted cost base of a share of the capital stock of the subject affiliate, the amount determined by the formula A × B where A is the amount determined under paragraph (7.2)(a) in respect of the acquired affiliate, and B is the percentage that would, if the direct holder were resident in Canada, be the direct holder’s surplus entitlement percentage in respect of the acquired affiliate immediately before the acquisition time if the direct holder owned only the share; and (b) the subordinate affiliate’s adjusted cost base of a share of the capital stock of the acquired affiliate, the amount determined by the formula C × D where C is the amount determined under paragraph (7.2)(a) in respect of the acquired affiliate, and D is the percentage that would, if the subordinate affiliate were resident in Canada, be the subordinate affiliate’s surplus entitlement percentage in respect of the acquired affiliate immediately before the acquisition time if the subordinate affiliate owned only the share. (7.7) For the purposes of paragraph 93(3)(c) of the Act, if an amount (referred to in this subsection and subsection 5908(12) as the “adjustment amount”) is required by subsection 92(1.1) of the Act to be added in computing, on or after the adjustment time, the adjusted cost base of a share of the capital stock of a foreign affiliate of a corporation resident in Canada, (a) where paragraph 92(1.1)(a) of the Act applies, the prescribed amount is the adjustment amount; and (b) where paragraph 92(1.1)(b) of the Act applies, the prescribed amount is the amount determined under subsection 5908(12). (8) and (9) [Repealed, 2013, c. 34, s. 44] (10) For the purposes of this section, the surplus entitlement at any time of a share owned by a corporation resident in Canada of the capital stock of a foreign affiliate of the corporation in respect of a particular foreign affiliate of the corporation is the portion of (a) the amount that would have been received on the share if the foreign affiliate had at that time paid dividends the aggregate of which on all shares of its capital stock was equal to the amount that would be its net surplus in respect of the corporation at that time assuming that (i) each other foreign affiliate of the corporation in which the foreign affiliate had an equity percentage had immediately before that time paid a dividend equal to its net surplus in respect of the corporation immediately before the dividend was paid, and (ii) any dividend referred to in subparagraph (i) that would be received by another foreign affiliate was received by such other foreign affiliate immediately before any such dividend that it would have paid, that may reasonably be considered to relate to (b) the amount that would be the net surplu