Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Dear Sirs:
Re: Subparagraph 91(5)(b)(i) of the Income Tax Act (the "Act")
This is in response to your letter of March 1, 1990. You enquired about a deduction available pursuant to the above provision in a hypothetical situation. The hypothetical fact pattern you have presented is as follows:
- 1. F is a controlled foreign affiliate of C, a taxable Canadian corporation.
- 2. During its 1990 taxation year, F earns foreign accrual property income ("FAPI").
- 3. Before the end of its 1990 taxation year, F pays a dividend to C, which dividend is deemed to be paid out of the taxable surplus of F computed as of the end of its 1990 taxation year pursuant to subsection 5901(2) of the Regulations to the Act.
- 4. The dividend includes FAPI earned by F during its 1990 taxation year.
- 5. The date of dividend payment and F's 1990 year end both fall within C's 1990 taxation year.
- 6. C does not dispose of or acquire any shares of F during F's 1990 taxation year.
Paragraph 92(1)(a) of the Act provides that in computing, at any time in a taxation year, the adjusted cost base ("ACB") to a taxpayer resident in Canada of any share owned by him in the capital stock of a foreign affiliate of the taxpayer, there shall be added any amount required to be included in respect of that share by reason of subsection 91(1) in computing his income for the year. Since the taxation year referred to in the provision is that of the taxpayer resident in Canada, it is our view that in retroactively computing the ACB of a share of a foreign affiliate held by the taxpayer as at any particular time during that taxation year, (including a point in time before the end of the taxation year of the foreign affiliate), an amount equal to the amount which by reason of subsection 91(1) of the Act is required to be included in computing income of the taxpayer in respect of such share for the year, would be added. Accordingly, in the circumstances you have described, in computing the deduction under subsection 91(5) available to C in respect of the dividend from F, the subparagraph 95(1)(b)(k) amount at a time immediately before the dividend would include the amount required to be included in income in respect of the shares of F by reason of subsection 91(1) in computing C's income for the 1990 taxation year.
We trust this is the information you require.
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© Her Majesty the Queen in Right of Canada, 1990
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© Sa Majesté la Reine du Chef du Canada, 1990
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