,canada ,rev5ue ,ag5cy #a ,9come ,tax ,te*nical ,news ,numb] #cf ,july #bg1 #bjjg ,9 ,? ,issue ,p>agraph #ie7#f77b7 ,! ,9come ,tax ,te*nical ,news is produc$ 0! ,legislative ,policy & ,regulatory ,a6airs ,bran*4 ,x is provid$ = 9=m,n purposes only & does n replace ! law4 ,if y h any -;ts or su7es;ns ab ! matt]s 4cuss$ 9 ? public,n1 pl1se s5d !m to3 ,9come ,tax ,rul+s ,directorate ,legislative ,policy & ,regulatory ,a6airs ,bran* ,canada ,rev5ue ,ag5cy ,ottawa ,,on ,k#a;,a #j;,l#e #a  ,te*nical news a#a ,! ,9come ,tax ,te*nical ,news c 2 f.d on ! ,canada ,rev5ue ,ag5cy ,9t]net site at _+www.cra.gc.ca_:4 ,p>agraph #ie7#f77b7 ,! purpose ( ? >ticle is 6provide guid.e ) respect 6! 9t]pret,n & applic,n ( p>agraph #ie7#f77b7 (! ,9come ,tax ,act 7! 8,act074 ,p>agraph #ie7#f77b7 (! ,act is an anti-avoid.e rule t prev5ts ! avoid.e ( tax 0m1ns (! acquisi;n or 4posi;n ( %>es4 ,m specific,y1 x applies ": a p]son or "pn]%ip acquires or 4poses ( %>es (! capital /ock (a corpor,n or 9t]e/s 9 a "pn]%ip1 ei directly or 9directly1 & x c r1sonably 2 3sid]$ t ! pr9cipal purpose =! acquisi;n or 4posi;n is 6p]mit a p]son 6avoid1 reduce or def] ! pay;t ( tax or any o!r am.t t wd o!rwise 2 paya# "u ! ,act 7ref]r$ 6in ? >ticle z a 8tax b5efit074 ,": ! provi.n applies1 ! acquisi;n or 4posi;n is deem$ n 6h tak5 place1 & ": ! %>es or #b  ,p>agraph #ie7#f77b7 b#a "pn]%ip 9t]e/s 7 unissu$ immly 2f ! acquisi;n1 ^? %>es or "pn]%ip 9t]e/s >e deem$ n 6h be5 issu$4 ,! rule does n apply =! purposes ( sec;n #ij (! ,act4 ,sec;n #ij simply 9cludes 9 ! 9come (a taxpay] resid5t 9 ,canada a divid5d rcvd 0! taxpay] on a %>e (a non-resid5t corpor,n [n$ 0! taxpay]4 ,! ^ws ( p>agraph #ie7#f77b7 >e broad & cd 2 3sid]$ 6apply 6a wide range ( transac;ns4 ,9 ord] 65sure t ! rule is appli$ only 9 ! appropriate circum/.es & 9 a 3si/5t mann]1 all propos$ reassess;ts 9volv+ p>agraph #ie7#f77b7 w 2 review$ 0! ,canada ,rev5ue ,ag5cy 7! 8,,cra07 at ,h1dqu>t]s4 ,pr9cipal ,purpose ,! pr9cipal purpose ( an acquisi;n or 4posi;n is 6be det]m9$ objectively f ! facts & circum/.es surr.d+ t transac;n4 ,! p]son t makes ! acquisi;n or 4posi;n does n h 6be ! p]son t 5joys ! tax #c  ,pr9cipal ,purpose c#a b5efit4 ,acly1 :5 det]m9+ ! pr9cipal purpose ( an acquisi;n or 4posi;n made 0a memb] (a gr\p ( p]sons1 s* purpose may 2 det]m9$ 6be a tax b5efit 5joy$ 0any memb] ( t gr\p4 ,= example1 ev5 ?\< a purpose (! p]son mak+ a %>e acquisi;n may 2 6e>n a return on t 9ve/;t1 if a tax b5efit is 5joy$ 0ano!r p]son 0virtue (! %>e acquisi;n1 ! acquisi;n may n"e!.s 2 3sid]$ 6h be5 made pr9cip,y =! purpose ( cr1t+ ! tax b5efit4 ,examples ,! examples 2l illu/rate ! approa* t ,,cra w take 9 c]ta9 situ,ns4 ,s9ce ! examples >e g5]al 9 nature1 9 apply+ ! 9t]pretive -;ts 6specific situ,ns1 ! foll[+ %d 2 kept 9 m9d3 --,! li/ ( examples is n an exhau/ive li/ ( situ,ns ": ! ,,cra w or w n apply p>agraph #ie7#f77b74 --,p>agraph #ie7#f77b7 applies =! purposes ( subdivi.n ;i 7o!r #d  ,pr9cipal ,purpose d#a ?an sec;n #ij74 ,! def9i;n (! t]m 8=eign a6iliate0 9 subsec;n #bdh7#a7 7: applies = purposes (! ,act7 ref]s 6! def9i;n ( t t]m 9 subsec;n #ie7#a7 9 subdivi.n ;i4 ,?us1 p>agraph #ie7#f77b7 may 2 9vok$ =! purposes ( any provi.n (! ,act t ref]s 6! t]m 8=eign a6iliate01 )! result t a corpor,n wd n 2 f.d 6be a =eign a6iliate =! purposes (! provi.n 9 "q4 --------------------------------------#b --,in a4i;n 6p>agraph #ie7#f77b71 ! ,,cra al may 3sid] ! applic,n (! g5]al anti-avoid.e rule 70,,gaar07 9 subsec;n #bde7#b7 or ! transf] pric+ rules 9 subsec;n #bdg7#b7 (! ,act1 dep5d+ on ! facts4 #e  ,pr9cipal ,purpose a#b ,transcrib]'s note3 7,! foll[+ 0 set-up 9 a fl[*>t 9 ! pr9t v].n4 ,! d[nw>d >r[s >e replac$ 0! ^ws 8goes to07 ,example #a--,transitory ,=eign ,a6iliate ,/atus ,,xc-o goes to ,f9co ,loan goes to ,,fa ,opco ,,xc-o #aa@3p goes to ,,fa ,opco ,canco goes to ,,fa ,opco #f  ,pr9cipal ,purpose b#b ,? example is deriv$ f ! ,de"p;t ( ,f9.e ,explanatory ,notes 6p>agraph #ie7#f77b74 ,details h be5 a4$ 6demon/rate ! mann] 9 : ! ,,cra wd asc]ta9 ! pr9cipal purpose (! %>e acquisi;n4 ,a ,canadian multin,nal corpor,n 78,canco07 [ns all (! %>es 9 a =eign a6iliate op]at+ -pany 78,,fao-pco071 resid5t & c>ry+ on an active busi;s 9 a c.try t has a tax tr1ty ) ,canada 78,c.try ;,a874 ,,fao-pco has only "o class ( %>es \t/&+4 ,,fao-pco requires 4#ejj million 9 new f9anc+ = use 9 xs active busi;s4 ,,xc-o is ano!r corpor,n resid5t 9 ,canada t is n relat$ 6,canco4 ,,xc-o is prep>$ 6l5d 6,,fao-pco4 ,,xc-o 9corporates a =eign a6iliate 78,f9co07 9 a second c.try t has a tax tr1ty ) ,canada 78,c.try ;,b87 & 9ve/s 4#ejj million ( xs surplus ca% #g  ,pr9cipal ,purpose c#b subscrib+ = all (! %>es ( ,f9co4 ,f9co does n c>ry on an active busi;s 7z def9$ 9 subsec;n #ie7#a7 (! ,act74 ,f9co uses ! 4#ejj million ca% deriv$ f ,,xc-o 6make a t5-ye> loan 6,,fao- pco4 ,! loan be>s 9t]e/ at a rate ( #f@3p p] annum1 & is repaya# 9 full at ! 5d ( ye> t54 ,,xc-o pur*ases #aa@3p (! \t/&+ %>es ( ,,fao-pco f ,canco = fair m>ket value 3sid],n1 : at t "t is 4#ejj1jjj4 ,x is agre$ t s* %>es ( ,,fao-pco >e 6be sold 0,,xc-o back 6,canco = 4#ijj1jjj at ! 5d ( ye> t54 ,x is n anticipat$ t ,,fao-pco w pay any mat]ial divid5ds dur+ ! p]iod ! %>es >e held 0,,xc-o4 ,,xc-o's f$]al tax rate 9 ,canada is #ca@3p4 ,! 9come taxes pd on ! 9t]e/ 9come 0,f9co 6! gov]n;t ( ,c.try ;,b w 2 negligi#4 ,no )hold+ tax applies 9 ei ,c.try ;,a or ,c.try ;,b4 #h  ,pr9cipal ,purpose d#b ,at issue is ,,xc-o's pr9cipal purpose = acquir+ #aa@3p (! %>es ( ,,fao-pco4 ,analysis ,abs5t ,,xc-o's pur*ase (! %>es ( ,,fao-pco1 ! 9t]e/ 9come e>n$ 0,f9co f ! loan 6,,fao-pco wd 2 =eign a3rual prop]ty 9come 78,,fapi071 & wd 2 9clud$ 9 ! 9come ( ,,xc-o & tax$ "u ,"p ,i (! ,act at a rate ( #ca@3p4 ,h["e1 z a result (! acquisi;n (! %>es ( ,,fao-pco1 subp>agraph #ie7#b77a77;ii7 applies 6deem ! 9t]e/ 9come e>n$ 0,f9co 6be active busi;s 9come4 ,"!=e1 ! ,"p ,i tax sav+s ( ,,xc-o deriv$ directly f ! %>e 9ve/;t 9 ,,fao-pco is 4#ic million 7i4e4 4#ejj1jjj1jjj "ts #.jf "ts #aj "ts #.ca7 ov] ! t]m (! loan4 ,on ! o!r h&1 ! fix$ return f s* %>e 9ve/;t is only 4#djj1jjj 7i4e4 4#ijj1jjj m9us 4#ejj1jjj74 ,acly1 ! ,,cra wd 3clude t ! pr9cipal purpose =! acquisi;n (! %>es ( ,,fao-pco 0,,xc-o 0 #i  ,pr9cipal ,purpose e#b 6reduce ! tax o!rwise paya# 0,,xc-o4 ,"!=e1 p>agraph #ie7#f77b7 applies 6deem s* %>es n 6h be5 acquir$ )! result t ,,fao-pco is n a =eign a6iliate ( ,,xc-o4 ,any 9t]e/ 9come pd 0,,fao-pco 6,f9co wd 2 ,,fapi 6,f9co1 & wd 2 9clud$ 9 ! 9come ( ,,xc-o & tax$ "u ,"p ,i (! ,act4 ,transcrib]'s note3 7,! foll[+ 0 set-up 9 a fl[*>t 9 ! pr9t v].n4 ,! d[nw>d >r[s >e replac$ 0! ^ws 8goes to07 ,example #b--,=eign ,a6iliate ,f9anc+ ,debt goes to ,canco goes to ,f9co ,loan goes to #aj  ,pr9cipal ,purpose f#b ,debt goes to ,canco goes to ,,fa ,opco ,a ,canadian multin,nal corpor,n 78,canco07 [ns all (! %>es 9 a =eign a6iliate op]at+ -pany 78,,fao-pco071 resid5t & c>ry+ on an active busi;s 9 a c.try t has a tax tr1ty ) ,canada 78,c.try ,a074 ,,fao-pco requires 4#ejj million 9 new f9anc+ = use 9 xs active busi;s4 ,canco borr[s 4#ejj million f a ?ird-"py l5d]1 repaya# 9 full at ! 5d ( ye> t54 ,9t]e/ on ! ?ird-"py debt is paya# annu,y at #f@3p4 --------------------------------------#c ,canco 9corporates a =eign a6iliate 78,f9co07 9 a second c.try t has a tax tr1ty ) ,canada 78,c.try ;,b07 & 9ve/s 4#ejj million subscrib+ = all (! %>es ( ,f9co4 ,f9co does n c>ry on #aa  ,pr9cipal ,purpose a#c busi;s4 ,f9co uses ! 4#ejj million ca% deriv$ f ,canco 6make a loan 6,,fao- pco4 ,! loan be>s 9t]e/ at a rate ( #f.a@3p p] annum1 & is repaya# 9 full at ! 5d ( ye> t54 ,! 9come taxes pd on ! 9t]e/ 9come 0,f9co 6! gov]n;t ( ,c.try ;,b w 2 negligi#4 ,f9co w pay xs e>n+s 6,canco annu,y 9 ! =m ( divid5ds 9 ord] 6fund ,canco's 9t]e/ pay;ts 6! ?ird "py l5d]4 ,no )hold+ tax applies 9 ei ,c.try ,a or ,c.try ,b4 ,canco al c>ries on busi;s1 & has hi/oric,y e>n$1 & is expect$ 63t9ue 6e>n1 taxa# 9come 9 excess ( 4#ajj million annu,y f s* busi;s4 ,canco's f$]al tax rate 9 ,canada is #ca@3p4 ,at issue is ,canco's pr9cipal purpose = acquir+ ! %>es ( ,f9co4 #ab  ,pr9cipal ,purpose b#c ,analysis ,s9ce ,canco's acquisi;n (! %>es ( ,f9co is a qualify+ use = purposes ( p>agraph #bj7#a77c7 (! ,act1 ,canco is a# 6deduct 9 -put+ xs 9come lia# 6tax 9 ,canada ! 9t]e/ pd 6! ?ird-"py l5d] "u t p>agraph4 ,! tax b5efit 6,canco is 4#ic million 7i4e4 4#ejj1jjj1jjj "ts #.jf "ts #aj "ts #.ca74 ,canco's net return 2f tax on ! %>es ( ,f9co is 4#e million 7i4e4 4#ejj1jjj1jjj "ts 7#.jfa m9us #.jf7 "ts #aj74 ,9 a4i;n1 ,canco may pr(it f a4i;nal divid5ds on xs %>es ( ,,fao- pco & f an 9cr1se 9 ! value ( xs 9ve/;t 9 ,,fao-pco z a result ( e>n+s g5]at$ f ! a4i;nal 4#ejj million f9anc+4 ,s9ce ? a4i;nal return f ! %>es ( ,,fao-pco _c r1sonably 2 quantifi$1 ! ,,cra w a3ept t ! pr9cipal purpose ( ,canco's 9ve/;t 9 ! %>es ( ,f9co 0 n 6reduce tax o!rwise paya# 0,canco1 & p>agraph #ac  ,pr9cipal ,purpose c#c #ie7#f77b7 w n apply 6deem s* %>es n 6h be5 acquir$4 ,transcrib]'s note3 7,! foll[+ 0 set-up 9 a fl[*>t 9 ! pr9t v].n4 ,! d[nw>d >r[s >e replac$ 0! ^ws 8goes to07 ,example #c--,9direct ,f9anc+ ,) ,pref]r$ ,debt ,debt goes to ,canco goes to ,f9co ,pref]r$ ,%>es goes to ,=eign ,opco ,=eign ,p>5t goes to ,canco goes to #ad  ,pr9cipal ,purpose d#c ,f9co ,pref]r$ ,%>es goes to ,=eign ,opco ,=eign ,p>5t goes to ,=eign ,opco ,a non-resid5t multin,nal corpor,n 78,=eign ,p>5t07 [ns ! %>es (a ,canadian resid5t corpor,n 78,canco07 &a non-resid5t op]at+ -pany 78,=eign ,opco074 ,=eign ,opco is resid5t & c>ry+ on an active busi;s 9 a c.try t has a tax tr1ty ) ,canada 78,c.try ;,a874 ,=eign ,opco requires 4#ejj million 9 new f9anc+ = use 9 xs active busi;s4 ,canco borr[s 4#ejj million f a ?ird-"py l5d]1 repaya# 9 full at ! 5d ( ye> t54 ,9t]e/ on ! ?ird-"py debt is paya# annu,y at #f@3p4 #ae  ,pr9cipal ,purpose e#c ,canco 9corporates a =eign a6iliate 78,f9co07 9 a second c.try t has a tax tr1ty ) ,canada 78,c.try ;,b87 & 9ve/s 4#ejj million subscrib+ = all (! %>es ( ,f9co4 ,f9co does n c>ry on an active busi;s 7z def9$ 9 subsec;n #ie7#a7 (! ,act74 ,f9co uses ! 4#ejj million ca% deriv$ f ,canco 6buy redeema# retracta# pref]r$ %>es 9 ,=eign ,opco1 ) an annual divid5d rate ( #f.a@3p4 ,! 9come taxes pd on ! divid5d 9come on ! pref]r$ %>es 0,f9co 6! gov]n;t ( ,c.try ;,b w 2 negligi#4 ,! pref]r$ %>e acquisi;n 0,f9co causes ,=eign ,opco 62come a =eign a6iliate ( ,canco4 ,f9co w pay xs e>n+s 6,canco annu,y 9 ! =m (a divid5d 9 ord] 6fund ,canco's 9t]e/ pay;ts 6! ?ird "py l5d]4 ,no )hold+ tax applies 9 ei ,c.try ;,a or ,c.try ;,b4 ,canco al c>ries on busi;s 9 ,canada1 & has hi/oric,y e>n$1 & is expect$ 63t9ue 6e>n1 taxa# 9come 9 #af  ,pr9cipal ,purpose f#c excess ( 4#ajj million annu,y f s* busi;s4 ,canco's f$]al tax rate 9 ,canada is #ca@3p4 ,at issue is ,canco's pr9cipal purpose = acquir+ ! %>es ( ,f9co directly1 &/or ! pref]r$ %>es ( ,=eign ,opco 9directly4 --------------------------------------#d ,analysis ,9 ! abv >range;t1 ,canco acquires ! %>es ( ,f9co directly1 &! pref]r$ %>es ( ,=eign ,opco 9directly "? ,f9co4 ,s9ce ,canco's acquisi;n (! %>es ( ,f9co is a qualify+ use =! purposes ( p>agraph #bj7#a77c7 (! ,act1 ,canco is a# 6deduct 9 -put+ xs 9come lia# 6tax 9 ,canada ! 9t]e/ pd 6! ?ird-"py l5d] "u t p>agraph4 ,! tax b5efit 6,canco f ! 9t]e/ deduc;n is 4#ic million 7i4e4 4#ejj1jjj1jjj "ts #.jf "ts #aj "ts #.ca74 #ag  ,pr9cipal ,purpose a#d ,canco's net return 2f taxes on ! %>es ( ,f9co is 4#e million 7i4e4 4#ejj1jjj1jjj "ts 7#.jfa m9us #.jf7 "ts #aj74 ,h["e1 ,canco does n rcv divid5ds directly f ,=eign ,opco or o!rwise pr(it f an 9cr1se 9 ! value ( ,=eign ,opco z a result ( e>n+s g5]at$ f ! a4i;nal 4#ejj million f9anc+ 9 ,=eign ,opco4 ,acly1 ! ,,cra wd 3clude t ! pr9cipal purpose =! acquisi;n (! %>es ( ,f9co directly1 &! %>es ( ,=eign ,opco 9directly1 0,canco 0 6reduce ! tax o!rwise paya# 0,canco4 ,"!=e1 p>agraph #ie7#f77b7 applies 6deem ! %>es ( ,f9co &! pref]r$ %>es ( ,=eign ,opco n 6h be5 acquir$1 )! result t nei ,f9co nor ,=eign ,opco w 2 a =eign a6iliate ( ,canco4 ,any divid5d rcvd 0,canco f ,f9co wd 2 9clud$ 9 ! 9come ( ,canco & tax$ "u ,"p ,i (! ,act4 #ah  ,pr9cipal ,purpose b#d ,transcrib]'s note3 7,! foll[+ 0 set-up 9 a fl[*>t 9 ! pr9t v].n4 ,! d[nw>d >r[s >e replac$ 0! ^ws 8goes to07 ,example #d--,abuse ( subsec;n #he.a7#c7 ,buy] ,canco goes to ,,fa#a ,canco goes to ,,fa#b ,a ,canadian corpor,n 78,canco07 [ns %>es 9 two =eign a6iliates ,,fa#a & ,,fa#b4 ,canco wants 6sell &a non- resid5t >m's l5g? buy] 78,buy]07 wants 6buy ! %>es ( ,,fa#b1 hav+ a fair m>ket value ( 4#a million & nom9al adju/$ co/ base4 ,all or sub/anti,y all (! prop]ty ( ,,fa#b is #ai  ,pr9cipal ,purpose c#d exclud$ prop]ty1 z t t]m is def9$ 9 subsec;n #ie7#a7 (! ,act4 ,,fa#b has no exempt or taxa# surplus4 ,canco's f$]al tax rate is #ca@3p4 ,buy] goes to ,=co ,canco goes to ,,fa#a ,pfd ,%>es goes to ,=co ,canco goes to ,,fa#a goes to ,,fa#b #bj  ,pr9cipal ,purpose d#d ,buy] 9corporates ,=co1 3tribut+ 4#a million 9 equ;y4 ,,fa#a subscribes = pref]r$ %>es ( ,=co be>+ a #f@3p annual divid5d rate1 9ve/+ 4#aj1jjj 9 s* %>es & "!by mak+ ,=co a =eign a6iliate ( ,canco4 ,canco rolls xs %>es ( ,,fa#b 6,,fa#a us+ subsec;n #he.a7#c7 (! ,act4 ,,fa#a sells ! %>es ( ,,fa#b 6,=co = 4#a million ca%4 ,! ga9 on ! 4posi;n (! ,,fa#b %>es is n ,,fapi 6,canco 2c ! %>es ( ,,fa#b >e exclud$ prop]ty4 ,subsec;n #he.a7#d7 does n apply 6d5y ! applic,n ( #he.a7#c7 2c ,=co is a =eign a6iliate ( ,canco4 ,buy] goes to ,=co goes to ,,fa#b #ba  ,pr9cipal ,purpose e#d ,canco ,,fa#a goes to ,pfd ,%>es goes to ,=co goes to ,,fa#b ,analysis ,simil> 6,example #a abv1 a ,canadian corpor,n acquir$ 5 %>es ( an o!rwise unrelat$ =eign corpor,n s t ! =eign corpor,n wd 2come a =eign a6iliate (! ,canadian corpor,n 9 ord] 6take advantage ( c]ta9 provi.ns 9 ! ,act4 --------------------------------------#e ,9 ! curr5t example1 ,,fa#a acquir$ pref]r$ %>es ( ,=co1 an o!rwise unrelat$ =eign corpor,n1 s t ,=co wd 2come a =eign a6iliate ( ,canco4 ,? r5d]$ subsec;n #he.a7#d7 (! ,act 9applica# s t ! capital ga9 on ! 4posi;n (! ,,fa#b %>es wd n 2 #bb  ,pr9cipal ,purpose a#e recogniz$ on ! transf] 0,canco1 "!by sav+ ,canco f$]al taxes ( 4#aee1jjj 7i4e4 4#a1jjj1jjj "ts #.ej "ts #.ca74 ,s9ce ! annual divid5ds on ! pref]r$ %>es am.t 6only 4#fjj p] ye>1 x is r1sona# 63sid] t ! pr9cipal purpose =! acquisi;n (! pref]r$ %>es ( ,=co 0 6reduce ,"p ,i taxes t wd o!rwise h be5 paya# 0,canco on ! ga9 f ! >m's l5g? sale (! ,,fa#b %>es4 ,"!=e1 p>agraph #ie7#f77b7 applies 6deem ! pref]r$ %>es ( ,=co n 6h be5 acquir$ )! result t ,=co is n a =eign a6iliate ( ,,fa#a4 ,s9ce ! 4posi;n (! ,,fa#b %>es 6,=co is a 4posi;n 6an >m's l5g? p]son t is n a =eign a6iliate ( ,canco1 ,canco _c use subsec;n #he.a7#c7 (! ,act on ! transf] (! ,,fa#b %>es 6,,fa#a 0virtue ( subsec;n #he.a7#d74 ,"!=e ! transf] takes place at fair m>ket value1 #bc  ,pr9cipal ,purpose b#e result+ 9 a 4#a million capital ga9 6,canco4 ,transcrib]'s note3 7,! foll[+ 0 set-up 9 a fl[*>t 9 ! pr9t v].n4 ,! d[nw>d >r[s >e replac$ 0! ^ws 8goes to07 ,example #e--,9cr1se 9 ,exempt ,surplus ,canco #ajj@3p ,,fmv 4#a1jjj goes to ,,fa#a #ajj@3p ,,fmv 4#a1jjj goes to ,,fa#b #ajj@3p ,,fmv 4#a1jjj goes to ,,fa#c ,,es 4#ejj #bd  ,pr9cipal ,purpose c#e ,a ,canadian corpor,n 78,canco07 [ns #ajj@3p (a =eign a6iliate 78,,fa#a071 : [ns #ajj@3p ( ano!r =eign a6iliate ( ,canco 78,,fa#b071 : [ns #ajj@3p ( ano!r =eign a6iliate ( ,canco 78,,fa#c074 ,! fair m>ket value (! %>es ( ea* ( ,,fa#a1 ,,fa#b & ,,fa#c is 4#a1jjj4 ,! exempt surplus ( ,,fa#c is 4#ejj4 ,all ! %>es h a nom9al adju/$ co/ base4 ,canco is 3templat+ an >m's l5g? sale (! %>es ( ,,fa#a4 ,if ! sale took place immly1 "! wd 2 a capital ga9 ( 4#ejj assum+ a subsec;n #ic7#a7 elec;n ( 4#ejj4 ,,fa#a 9corporates a :olly [n$ subsidi>y 78,,fa#d07 & transf]s xs %>es ( ,,fa#b 6,,fa#d 9 ex*ange = %>e 3sid],n4 ,p>agraph #ie7#b77c7 (! ,act applies 6! transac;n4 ,a 8relevant co/ base0 claim ( 4#ejj &a subsec;n #ic7#a7 elec;n ( 4#ejj >e made 0,canco4 ,"u ! curr5t ,9come ,tax ,regul,ns 7! 8,regul,ns071 ? #be  ,pr9cipal ,purpose d#e cr1tes an exempt deficit 9 ,,fa#b ( 4#ejj1 & exempt surplus 9 ,,fa#a ( 4#ejj4 ,transcrib]'s note3 7,! foll[+ 0 set-up 9 a fl[*>t 9 ! pr9t v].n4 ,! d[nw>d >r[s >e replac$ 0! ^ws 8goes to07 ,canco goes to ,,fa#a ,,es 4#ejj goes to ,,fa#d goes to ,,fa#b ,,$ 74#ejj7 goes to ,,fa#c ,,es 4#ejj ,,fa#b is 4solv$4 ,p>agraph #ie7#b77e4#a7 & subsec;n #bf  ,pr9cipal ,purpose e#e #eije7#g7 (! ,regul,ns apply 6! 4solu;n4 ,! exempt deficit 9 ,,fa#b c1ses 6exi/ pursuant 6curr5t ,regul,ns4 ,canco goes to ,,fa#a ,,es 4#ejj goes to ,,fa#d goes to ,,fa#c ,,es 4#ejj ,canco sells ! %>es ( ,,fa#a 6an >m's l5g? "py = 4#a1jjj & makes a subsec;n #ic7#a7 elec;n = 4#a1jjj 6deem ! full proce$s 6be a divid5d4 --------------------------------------#f ,! deem$ divid5d ( 4#a1jjj is fully deducti# 0,canco "u sec;n #aac (! ,act4 #bg  ,pr9cipal ,purpose a#f ,analysis ,canco has manufactur$ an a4i;nal 4#ejj ( exempt surplus 6%elt] a capital ga94 ,! 4posi;n (! %>es ( ,,fa#b 6,,fa#d 0 c>ri$ \ pr9cip,y 9 ord] 6cr1te >tificial exempt surplus4 ,x is r1sona# 63sid] t ! pr9cipal purpose =! 4posi;n (! %>es ( ,,fa#b 0 6reduce ,"p ,i taxes t wd o!rwise h be5 paya# 0,canco on ! ga9 f ! >m's l5g? sale (! ,,fa#a %>es4 ,! ,febru>y #bg1 #bjjd proposals 6am5d subsec;ns #eije7#g71 7#g.c7 & 7#h7 (! ,regul,ns w prev5t ! cre,n ( >tificial exempt surplus on ! transf] ( %>es )9 a gr\p ( =eign a6iliates & on =eign a6iliate 4solu;ns = transac;ns t o3ur af ,decemb] #bj1 #bjjb4 ,p>agraph #ie7#f77b7 w apply 6s* 4posi;ns & 4solu;ns tak+ place on or 2f ,decemb] #bj1 #bjjb4 ,! 4posi;n (! %>es ( ,,fa#b 6,,fa#d 0,,fa#a &! 4posi;n (! %>es ( ,,fa#b 0,,fa#d >e deem$ n #bh  ,pr9cipal ,purpose b#f 6h tak5 place s* t ! exempt surplus )9 ! *a9 rema9s at 4#ejj4 ,:5 ,canco sells ! %>es ( ,,fa#a & makes a subsec;n #ic7#a7 elec;n1 ! am.t (! divid5d t w 2 \ ( exempt surplus w 2 limit$ 64#ejj4 ,canco w h a 4#ejj capital ga94 #bjjg ,budget ,z "p ( xs ,m>* #ai1 #bjjg ,budget1 ! ,de"p;t ( ,f9.e ta#d a ,notice ( ,ways & ,m1ns ,mo;n t proposes 6re/rict ! deduc;n ( 9t]e/ exp5se 9curr$ 0corpor,ns resid5t 9 ,canada relat+ 69ve/;ts 9 =eign a6iliates4 ,! proposals 7 am5d$ 0,f9.e's ,news ,rel1se #bjjg-jda on ,may #ad1 #bjjg4 ,z (! date (! public,n ( ? ,9come ,tax ,te*nical ,news1 draft legisl,n has n be5 rel1s$4 #bi