40 (1) Where a corporation has a permanent establishment in Ontario, and, (a) the corporation has included in computing its income for the taxation year, (i) income that was derived from sources within a jurisdiction outside Canada in the form of dividends, interest, rents or royalties received in the year, or (ii) the amount by which, (A) the aggregate of that part of the corporation’s taxable capital gains for the taxation year from the disposition of property as may reasonably be considered to be income from a source within a jurisdiction outside Canada, exceeds, (B) the aggregate of such of the corporation’s allowable capital losses for the year from the disposition of property as may reasonably be considered to be a loss from a source within that jurisdiction outside Canada, hereinafter in this section referred to as “foreign investment income”; or (b) the corporation, having included in its income for the taxation year foreign investment income from sources within a jurisdiction outside Canada, also included income from a business carried on by it in that jurisdiction, hereinafter in this section referred to as “foreign business income”, and where, (c) for the purposes of subsection 126 (2) of the
Income Tax Act (Canada), (i) such foreign investment income has not been included as part of such foreign business income, (ii) such foreign investment income has been excluded from the calculation of gross revenue or any part thereof for the purpose of allocating taxable income to a jurisdiction outside Ontario in accordance with the regulations made under section 39, and (iii) where the corporation is a bank which has allocated any of its taxable income for the taxation year to a jurisdiction outside Canada under the regulations made under section 39, such foreign investment income has not been derived from loans and deposits of the bank’s permanent establishments in jurisdictions outside Canada used in the determination of such allocation; and (d) the corporation is entitled to a deduction under section 126 of the Income Tax Act (Canada), hereinafter in this section referred to as a “foreign tax credit”, with respect to any income or profits tax paid to such jurisdiction on such foreign investment income or on such foreign investment income and foreign business income, the corporation may deduct from the tax otherwise payable under this Part for the taxation year an amount equal to the lesser of, (e) the amount calculated using the formula, A × B × C in which, “A” is the amount of the foreign investment income, “B” is the specified basic rate of the corporation for the taxation year, as determined under subsection 38 (2), and “C” is the corporation’s Ontario allocation factor for the taxation year; (f) the amount determined by applying the Ontario allocation factor for the taxation year to the deficiency, if any, between, (i) that portion of the income or profits tax paid for the taxation year by the corporation to the jurisdiction outside Canada in respect of such foreign investment income, that was not deducted, by virtue of subsection 20 (12) of the Income Tax Act
(Canada) for the purposes of that Act or for the purposes of this Act by virtue of that subsection as made applicable by section 11 of this Act, in computing the corporation’s income for the year, and (ii) the foreign tax credit allowed for the taxation year in respect of such foreign investment income under subsection 126 (1) of the Income Tax Act (Canada).  R.S.O. 1990, c. C.40, s. 40 (1); 2000, c. 10, s. 3 (1); 2004, c. 16, s. 2 (2). Idem (2) For greater certainty, where the income of a corporation for a taxation year is in whole or in part from sources in more than one jurisdiction outside Canada, subsection (1) shall be read as providing for a separate deduction in respect of each jurisdiction outside Canada.  R.S.O. 1990, c. C.40, s. 40 (2); 2004, c. 16, s. 2 (2). Ontario allocation factor (3) For the purposes of this section, the Ontario allocation factor for the taxation year is the ratio that, (a) that portion of the corporation’s taxable income not deemed to have been earned in jurisdictions outside of Ontario for the purposes of section 39, is to, (b) the corporation’s taxable income.  R.S.O. 1990, c. C.40, s. 40 (3); 2004, c. 16, s. 2 (2). Idem (4) In this section, “foreign investment income”, of a corporation for a taxation year, does not include interest income attributable to a loan for any period in the year during which the loan was an “eligible loan” as defined in subsection 33.1 (1) of the Income Tax Act
(Canada).  R.S.O. 1990, c. C.40, s. 40 (4); 2004, c. 16, s. 2 (2). Calculation for banks (5) In calculating the amount of a deduction permitted to a bank under subsection (1) for a taxation year ending after April 30, 1992 and commencing before November 1, 1993, the amount determined under clause (1) (e) shall be deemed to be the amount otherwise determined under that clause for the taxation year plus an additional amount calculated according to the following formula: Q = 0.1 × T × A/B where: “Q” is the additional amount for the taxation year; “T” is the amount otherwise determined under clause (1) (e) for the taxation year without reference to this subsection; “A” is the number of days in the taxation year after April 30, 1992 and before November 1, 1993; and “B” is the total number of days in the taxation year. 1994, c. 14, s. 13; 2004, c. 16, s. 2 (2). Application provision, 2000 Budget (6) Clause (1) (e), as it is re-enacted by the Taxpayer Dividend Act, 2000, applies with respect to taxation years ending after May 1, 2000.  2000, c. 10, s. 3 (2); 2004, c. 16, s. 2 (2). Section Amendments with date in force (d/m/y) 1994, c. 14, s. 13 - 01/05/1992 2000, c. 10, s. 3 (1, 2) - 02/05/2000 2004, c. 16, s. 2 (2)
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