I-3 - Taxation Act

Section 591 Disposition versions

2015-10-21

591. The amount of a particular loss sustained by a vendor that is a particular corporation resident in Canada or a foreign affiliate of the particular corporation is determined in accordance with the rules set out in the second paragraph where

(a)  the particular corporation has a particular loss, determined without reference to this chapter, from the disposition by it at any time (in this section referred to as the “disposition time”) of a share (in this section referred to as the “affiliate share”) of the capital stock of a foreign affiliate of the particular corporation; or

(b)  the foreign affiliate of the particular corporation has a particular loss, determined without reference to this chapter, from the disposition by it at any time (in this section referred to as the “disposition time”) of a share (in this section referred to as the “affiliate share”) of the capital stock of another foreign affiliate of the particular corporation that is not excluded property.

Where a particular loss is a loss referred to in subparagraph a or b of the first paragraph, the amount of the particular loss is deemed to be equal to the greater of

(a)  the amount determined by the formula

A-(B-C); and

(b)  the lesser of

i.  the portion of the particular loss, determined without reference to this chapter, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and

ii.  the amount determined in respect of the vendor that is

(1)  if the particular loss is a capital loss, the amount of a gain (other than a specified gain) that was realized within 30 days before or after the disposition time by the vendor and that is described in the fourth paragraph, or that is a capital gain realized within 30 days before or after the disposition time by the vendor under an agreement described in the fifth paragraph, or

(2)  in any other case, the amount of a gain (other than a specified gain or a capital gain) that was realized within 30 days before or after the disposition time by the vendor and that is included in computing the income of the vendor for the taxation year that includes the time the gain was realized, if the gain meets any of the conditions of the sixth paragraph.

In the formula in subparagraph a of the second paragraph,

(a)  A is the amount of the particular loss determined without reference to this chapter;

(b)  B is the aggregate of all amounts each of which is an amount received before the disposition time, in respect of a tax-exempt dividend on the affiliate share or on a share for which the affiliate share was substituted, by

i.  the particular corporation,

ii.  another corporation that is related to the particular corporation,

iii.  a foreign affiliate of the particular corporation, or

iv.  a foreign affiliate of another corporation that is related to the particular corporation; and

(c)  C is the total of

i.  the aggregate of all amounts each of which is the amount by which a loss (determined without reference to this chapter), from a previous disposition by a corporation, or a foreign affiliate described in subparagraph b, of the affiliate share or a share for which the affiliate share was substituted, was reduced under subparagraph a of the second paragraph in respect of tax-exempt dividends referred to in subparagraph b,

ii.  the aggregate of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this chapter) of a corporation or a foreign affiliate described in subparagraph b, from a previous disposition by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under subparagraph a of the second paragraph of section 591.1 in respect of tax-exempt dividends referred to in subparagraph b,

iii.  the aggregate of all amounts each of which is the amount by which a loss (determined without reference to this chapter), from a previous disposition by a corporation, or a foreign affiliate described in subparagraph b, of an interest in a partnership, was reduced under subparagraph a of the second paragraph of section 591.2 in respect of tax-exempt dividends referred to in subparagraph b, and

iv.  the aggregate of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this chapter) of a corporation or a foreign affiliate described in subparagraph b, from a previous disposition by a partnership of an interest in another partnership, was reduced under subparagraph a of the second paragraph of section 591.3 in respect of tax-exempt dividends referred to in subparagraph b.

The gain to which subparagraph 1 of subparagraph ii of subparagraph b of the second paragraph refers is a gain that

(a)  is deemed under section 262 to be a capital gain of the vendor for the taxation year that includes the time the gain was realized from the disposition of currency other than Canadian currency; and

(b)  is in respect of the settlement or extinguishment of a foreign currency debt that

i.  was issued or incurred by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor,

ii.  was, at all times at which it was a debt obligation of the vendor, owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and

iii.  could reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share.

The agreement to which subparagraph 1 of subparagraph ii of subparagraph b of the second paragraph refers is an agreement that

(a)  was entered into by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation;

(b)  provides for the purchase, sale or exchange of currency; and

(c)  can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share.

The conditions to which subparagraph 2 of subparagraph ii of subparagraph b of the second paragraph refers in respect of a gain referred to in that subparagraph 2 are the following:

(a)  the gain is in respect of the settlement or extinguishment of a foreign currency debt that

i.  was issued or incurred by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor,

ii.  was, at all times at which it was a debt obligation of the vendor, owing to a person or partnership that dealt, at all times during which it was outstanding, at arm’s length with the particular corporation, and

iii.  can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share; and

(b)  the gain is provided for in an agreement described in the fifth paragraph.

1972, c. 23, s. 452; 1993, c. 16, s. 235; 1997, c. 3, s. 71; 2004, c. 8, s. 120; 2015, c. 21, s. 196.

2006-03-01

591. Where a corporation resident in Canada has a loss from the disposition by it at any time of a share of the capital stock of a corporation that is a foreign affiliate of the corporation, in this section referred to as the “affiliate share”, or a foreign affiliate of a corporation resident in Canada has a loss from the disposition by it at any time of a share of the capital stock of another foreign affiliate of the corporation resident in Canada that is not excluded property, in this section also referred to as the “affiliate share”, the amount of the loss is deemed to be the amount determined by the formula

A − (B − C).

In the formula provided for in the first paragraph,

(a)  A is the amount of the loss determined without reference to this section;

(b)  B is the aggregate of all amounts each of which is an amount received before that time, in respect of a tax-exempt dividend on the affiliate share or on a share for which the affiliate share was substituted, by

i.  the corporation resident in Canada,

ii.  a corporation related to the corporation resident in Canada,

iii.  a foreign affiliate of the corporation resident in Canada, or

iv.  a foreign affiliate of a corporation related to the corporation resident in Canada; and

(c)  C is the aggregate of

i.  the aggregate of all amounts each of which is the amount by which a loss, determined without reference to this chapter, from another disposition at or before that time by a corporation or foreign affiliate described in subparagraph b of the affiliate share or a share for which the affiliate share was substituted, was reduced under this section in respect of the tax-exempt dividends referred to in subparagraph b,

ii.  4/3 of the aggregate of all amounts each of which is the amount by which an allowable capital loss, determined without reference to this chapter, of a corporation or foreign affiliate described in subparagraph b for a taxation year that ended before 28 February 2000, from a previous disposition by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under section 591.1 in respect of the tax-exempt dividends referred to in subparagraph b,

iii.  the product obtained by multiplying the aggregate of all amounts each of which is the amount by which an allowable capital loss, determined without reference to this chapter, of a corporation or foreign affiliate described in subparagraph b for a taxation year that includes 28 February 2000 or 17 October 2000 or that began after 28 February 2000 and ended before 17 October 2000, from a previous disposition by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under section 591.1 in respect of the tax-exempt dividends referred to in subparagraph b, by the fraction that is the reciprocal of the fraction in paragraphs a to d of section 231.0.1 that applies to the corporation or foreign affiliate for the year,

iv.  twice the aggregate of all amounts each of which is the amount by which an allowable capital loss, determined without reference to this chapter, of a corporation or foreign affiliate described in subparagraph b for a taxation year that began after 17 October 2000, from a previous disposition by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under section 591.1 in respect of the tax-exempt dividends referred to in subparagraph b,

v.  the aggregate of all amounts each of which is the amount by which a loss, determined without reference to this chapter, from a disposition at or before that time by a corporation or foreign affiliate described in subparagraph b of an interest in a partnership, was reduced under section 591.2 in respect of the tax-exempt dividends referred to in subparagraph b,

vi.  4/3 of the aggregate of all amounts each of which is the amount by which an allowable capital loss, determined without reference to this chapter, of a corporation or foreign affiliate described in subparagraph b for a taxation year that ended before 28 February 2000, from a disposition at or before that time by a partnership of an interest in another partnership, was reduced under section 591.3 in respect of the tax-exempt dividends referred to in subparagraph b,

vii.  the product obtained by multiplying the aggregate of all amounts each of which is the amount by which an allowable capital loss, determined without reference to this chapter, of a corporation or foreign affiliate described in subparagraph b for a taxation year that includes 28 February 2000 or 17 October 2000 or that began after 28 February 2000 and ended before 17 October 2000, from a disposition at or before that time by a partnership of an interest in another partnership, was reduced under section 591.3 in respect of the tax-exempt dividends referred to in subparagraph b, by the fraction that is the reciprocal of the fraction in paragraphs a to d of section 231.0.1 that applies to the corporation or foreign affiliate for the year, and

viii.  twice the aggregate of all amounts each of which is the amount by which an allowable capital loss, determined without reference to this chapter, of a corporation or foreign affiliate described in subparagraph b for a taxation year that began after 17 October 2000, from a disposition at or before that time by a partnership of an interest in another partnership, was reduced under section 591.3 in respect of the tax-exempt dividends referred to in subparagraph b.

1972, c. 23, s. 452; 1993, c. 16, s. 235; 1997, c. 3, s. 71; 2004, c. 8, s. 120.