It may be preferable for an FA held by a partnership with a Canadian corporate partner to make QROC distributions (where possible under local law) rather than pay s. 113(1)(d) dividends
Where a foreign affiliate paid a dividend to a partnership out of its pre-acquisition surplus in respect of which a Canadian corporate partner (the CRIC) claimed a s. 113(1)(d) deduction, a subsequent disposition by the CRIC of its partnership interest will result in s. 92(4) adding a matching amount to the proceeds of disposition, even where that disposition was a rollover transaction. However, a qualifying return of capital (QROC) election may be used to avoid this anomaly if the FA operates in a jurisdiction in which the relevant corporate law allows for a return of capital.
The QROC distribution effects an immediate reduction in the partnership’s ACB in the shares of FA, and there is a reduction in CRIC's ACB in the partnership interest when there is a further distribution to it. S. 92(4) does not apply to a subsequent disposition of the partnership interest because there was no s. 113(1)(d) deduction.
Similar issues apply to a disposition by a partnership of its shares in the FA regarding the operation of ss. 92(5) and (6). Again, tax-deferred internal reorganizations may not be possible without having made a QROC election.
Neal Armstrong. Summary of Ben Cen, “Planning for FA Distributions Paid Through a Partnership,” Canadian Tax Focus, Vol. 10, No. 2, May 2020, p. 6 under s. 92(4).