General potential triggering of stub year for controlled foreign affiliate (CFA) if disposition triggering change to surplus entitlement percentage (SEP) (p. 9)
[I]f there is an acquisition or disposition of shares of a foreign affiliate of the taxpayer that results in a change to the taxpayer's SEP in respect of the particular CFA, then there may be a deemed year end for the particular CFA at the "particular time" which is immediately before the acquisition or disposition….
No exclusion in s. 91(1.1)(b)(i) where different CFA’s with matching SEP changes or where increased SEP lands in NAL individual (p. 9)
[T]he first exception, under subparagraph 91(1.1)(b)(i), is where the decrease to the taxpayer's SEP in the particular CFA is matched by an increase to the SEP in the particular CFA of one or more taxpayers, each of which is a taxable Canadian corporation that does not deal at arm's length with the taxpayer immediately after the particular time. Two points[:]…First, the decrease and increase(s) must be in respect of the same particular CFA. Thus, if there is some sort of reorganization involving two particular CFAs and the taxpayer's SEP in one of them decreases but the taxpayer's (or a non-arm's length taxable Canadian corporation's) SEP in the other one increases, that does not fit within this exception even if the total amount of attributable FAPI remains unchanged. Moreover, this exception would apply only where the increased SEP lands in a non-arm's length taxable Canadian corporation - and thus would not apply where the other non-arm's length taxpayer is an individual or a trust or even a partnership, notwithstanding that the SEP decrease is to be "determined as if the taxpayer were a corporation resident in Canada"….
S. 91(1.1)(b)(iii) applicable if single disposition/acquisition (p. 10)
[T]he Explanatory Notes state that this exception [in s. 91(1.1)(b)(iii)] applies where the acquisition or disposition "is one of multiple in the year,…However, the statutory language does not seem to actually require multiple acquisitions or dispositions…
Stub period for CFA applies re NAL Cdn corps (p. 10)
[T]his deemed [s. 91(1.2)] year end applies… also in respect of each corporation or partnership that is "connected" to the particular taxpayer…[including, under s. 91(1.3)] a corporation… if, at or immediately after the particular time, it is resident in Canada and does not deal at arm's length with the taxpayer; and… a partnership… if, at or immediately after the particular time, the particular taxpayer or a non-arm's length corporation resident in Canada is, directly or indirectly through one or more partnerships, a member of the partnership.
Problematic exclusion of arm’s length taxpayers where s. 95(2)(f.1) carve-out is inapplicable (p. 11)
[T]here is no "stub-period end time" with respect to arm's length taxpayers, which can be problematic if the "carve-out" rule in paragraph 95(2)(f.1) is not applicable to them, as that could result in double FAPI attribution.
Need not be two dispositions for s. 91(1.4) to apply, and excluded property condition may be meaningless (p. 11)
Subsection 91(1.4) is designed to address among other things, duplicative FAPI attribution in the context of a multi-tiered structure, where FAPI may arise at the level of a FAPI-earning CFA, but also at the level of a higher-tier CFA because of a disposition of the lower-tier FAPI earning CFA. The Explanatory Notes include an example [to this effect.]…
[A]lthough [this] example…refers to a subsequent disposition of a lower-tier affiliate, it is not a condition of the rule that there be two dispositions. [fn 21: It should also be noted that subparagraph 91(1.4)(b)(ii) refers to the disposed of shares not being excluded property immediately after…the time the shares are disposed of. At this time, the shares arguably would not be property of the other controlled foreign affiliate so they could not be excluded property to it at that time, which makes this condition meaningless. …]
NAL ambiguity could invalidate s. 91(1.4) election (p. 12)
…[A]mbiguity in relation to factual non-arm's length relationships could result in an invalid election.
Potential relieving effect of s. 91(1.5) (p. 12)
Subsection 91(1.5) is designed to address the interaction of subsection 91(1.2) and the "carve-out" rule in paragraph 95(2)(f.1) where the latter is not applicable (mainly) in relation to an arm's length acquisition of an interest in a particular CFA because.it is already a foreign affiliate of the taxpayer (or other relevant person). …
[I]t is not clear why this measure is elective, since it is difficult to see a circumstance where this result would not be desirable from the perspective of the particular taxpayer,…
[T]his measure may, to some extent, be helpful in non-arm's length situations involving transfers (or other acquisitions and dispositions) involving corporations and individuals or trusts. As noted above, there is no exception (or automatic application of subsection 91(1.2)) where an SEP decrease to a corporation is matched by an SEP increase to a non-arm's length individual or trust, but this measure could perhaps at least eliminate the duplication of FAPI attribution.
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