II, s. 66](b)where the corporation is, by virtue of subsection 84(2), deemed to have paid at the particular time a dividend (in this paragraph referred to as the “winding-up dividend”) on shares of any class of its capital stock, the following rules apply:(i)such portion of the winding-up dividend as does not exceed the corporation’s capital dividend account immediately before that time or capital gains dividend account immediately before that time, as the case may be, shall be deemed, for the purposes of an election in respect thereof under subsection 83(2), 131(1) (as that subsection applies for the purposes of section 130) or 133(7.1), as the case may be, and where the corporation has so elected, for all other purposes, to be the full amount of a separate dividend,(ii)the portion of the winding-up dividend equal to the lesser of the corporation’s pre-1972 capital surplus on hand immediately before that time and the amount by which the winding-up dividend exceeds(A)the portion thereof in respect of which the corporation has made an election under subsection 83(2), or(B)the portion thereof in respect of which the corporation has made an election under subsection 133(7.1),as the case may be, shall be deemed not to be a dividend,(iii)notwithstanding the definitiontaxable dividendin subsection 89(1), the winding-up dividend, to the extent that it exceeds the total of the portion thereof deemed by subparagraph 88(2)(b)(i) to be a separate dividend for all purposes and the portion deemed by subparagraph 88(2)(b)(ii) not to be a dividend, shall be deemed to be a separate dividend that is a taxable dividend, and(iv)each person who held any of the issued shares of that class at the particular time shall be deemed to have received that proportion of any separate dividend determined under subparagraph 88(2)(b)(i) or 88(2)(b)(iii) that the number of shares of that class held by the person immediately before the particular time is of the number of issued shares of that class outstanding immediately before that time, and(c)for the purpose of computing the income of the corporation for its taxation year that includes the particular time, paragraph 12(1)(t) shall be read as follows:“12(1)(t)the amount deducted under subsection 127(5) or 127(6) in computing the taxpayer’s tax payable for the year or a preceding taxation year to the extent that it was not included under this paragraph in computing the taxpayer’s income for a preceding taxation year or is not included in an amount determined under paragraph 13(7.1)(e) or 37(1)(e) or subparagraph 53(2)(c)(vi) or 53(2)(h)(ii) or the amount determined for I in the definitionundepreciated capital costin subsection 13(21) or L in the definitioncumulative Canadian exploration expensein subsection 66.1(6);”.Definition ofpre-1972 capital surplus on hand(2.1)For the purposes of subsection 88(2),pre-1972 capital surplus on handof a particular corporation at a particular time means the amount, if any, by which the total of(a)the corporation’s 1971 capital surplus on hand on December 31, 1978 within the meaning of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read on that date,(b)the total of all amounts each of which is an amount in respect of a capital property of the corporation owned by it on December 31, 1971 and disposed of by it after 1978 and before the particular time, equal to the amount, if any, by which the lesser of its fair market value on valuation day (within the meaning assigned by section 24 of theIncome Tax Application Rules) and the corporation’s proceeds of disposition of that capital property exceeds its actual cost to the corporation determined without reference to theIncome Tax Application Rulesother than subsections 26(15), (17) and (21) to (27) of that Act,(c)where before the particular time a subsidiary (to the winding-up of which the rules in subsection 88(1) applied) of the particular corporation has been wound up after 1978, an amount equal to the pre-1972 capital surplus on hand of the subsidiary immediately before the commencement of the winding-up, and(d)where the particular corporation is a new corporation formed as a result of an amalgamation (within the meaning of section 87) after 1978 and before the particular time, the total of all amounts each of which is an amount in respect of a predecessor corporation, equal to the predecessor corporation’s pre-1972 capital surplus on hand immediately before the amalgamationexceeds(e)the total of all amounts each of which is an amount in respect of a capital property (other than depreciable property) of the corporation owned by it on December 31, 1971 and disposed of by it after 1978 and before the particular time equal to the amount, if any, by which its actual cost to the corporation determined without reference to theIncome Tax Application Rules, other than subsections 26(15), (17) and (21) to (27) of that Act, exceeds the greater of the fair market value of the property on valuation day (within the meaning assigned by section 24 of that Act) and the corporation’s proceeds of disposition of the property.Marginal note:Determination of pre-1972 capital surplus on hand(2.2)For the purposes of determining the pre-1972 capital surplus on hand of any corporation at a particular time after 1978, the following rules apply:(a)an amount referred to in paragraphs 88(2.1)(b) and 88(2.1)(e) in respect of the corporation shall be deemed to be nil, where the property disposed of is(i)a share of the capital stock of a subsidiary, within the meaning of subsection 88(1), that was disposed of on the winding-up of the subsidiary where that winding-up commenced after 1978,(ii)a share of the capital stock of another Canadian corporation that was controlled, within the meaning assigned by subsection 186(2), by the corporation immediately before the disposition and that was disposed of by the corporation after 1978 to a person with whom the corporation was not dealing at arm’s length immediately after the disposition, other than by a disposition referred to in paragraph 88(2.2)(b), or(iii)subject to subsection 26(21) of theIncome Tax Application Rules, a share of the capital stock of a particular corporation that was disposed of by the corporation after 1978, on an amalgamation, within the meaning assigned by subsection 87(1), where the corporation controlled, within the meaning assigned by subsection 186(2), both the particular corporation immediately before the amalgamation and the new corporation immediately after the amalgamation; and(b)where another corporation that is a Canadian corporation owned a capital property on December 31, 1971 and subsequently disposed of it to the corporation in a transaction to which section 85 applied, the other corporation shall be deemed not to have disposed of that property in the transaction and the corporation shall be deemed to have owned that property on December 31, 1971 and to have acquired it at an actual cost equal to the actual cost of that property to the other corporation.Marginal note:Actual cost of certain depreciable property(2.3)For the purpose of subsection 88(2.1), the actual cost of the depreciable property that was acquired by a corporation before the commencement of its 1949 taxation year that is capital property referred to in that subsection shall be deemed to be the capital cost of that property to the corporation (within the meaning assigned by section 144 of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read in its application to the 1971 taxation year).Marginal note:Liquidation and dissolution of foreign affiliate(3)Notwithstanding subsection 69(5), if at any time a taxpayer receives a property (referred to in this subsection as the “distributed property”) from a foreign affiliate (referred to in this subsection as the “disposing affiliate”) of the taxpayer on a liquidation and dissolution of the disposing affiliate and the distributed property is received in respect of shares of the capital stock of the disposing affiliate that are disposed of on the liquidation and dissolution,(a)subject to subsections (3.3) and (3.5), the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the taxpayer for proceeds of disposition equal to the relevant cost base (within the meaning assigned by subsection 95(4)) to the disposing affiliate of the distributed property in respect of the taxpayer, immediately before that time, if(i)the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate, or(ii)the distributed property is a share of the capital stock of another foreign affiliate of the taxpayer that was, immediately before that time, excluded property (within the meaning assigned by subsection 95(1)) of the disposing affiliate;(b)if paragraph (a) does not apply to the distributed property, the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the taxpayer for proceeds of disposition equal to the distributed property’s fair market value at that time;(c)the distributed property is deemed to have been acquired, at that time, by the taxpayer at a cost equal to the amount determined under paragraph (a) or (b) to be the disposing affiliate’s proceeds of disposition of the distributed property;(d)each share (referred to in paragraph (e) and subsections (3.3) and (3.4) as a “disposed share”) of a class of the capital stock of the disposing affiliate that is disposed of by the taxpayer on the liquidation and dissolution is deemed to be disposed of for proceeds of disposition equal to the amount determined by the formulaA/BwhereAis the total of all amounts each of which is the net distribution amount in respect of a distribution of distributed property made, at any time, in respect of the class, andBis the total number of issued and outstanding shares of the class that are owned by the taxpayer during the liquidation and dissolution; and(e)if the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate, any loss of the taxpayer in respect of the disposition of a disposed share is deemed to be nil.Marginal note:Qualifying liquidation and dissolution(3.1)For the purposes of subsections (3), (3.3) and (3.5), aqualifying liquidation and dissolutionof a foreign affiliate (referred to in this subsection as the “disposing affiliate”) of a taxpayer means a liquidation and dissolution of the disposing affiliate in respect of which the taxpayer elects in accordance with prescribed rules and(a)the taxpayer owns not less than 90% of the issued and outstanding shares of each class of the capital stock of the disposing affiliate throughout the liquidation and dissolution; or(b)both(i)the percentage determined by the following formula is greater than or equal to 90%:A/BwhereAis the amount, if any, by which(A)the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate to the taxpayer in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliateexceeds(B)the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the taxpayer in consideration for a property referred to in clause (A), andBis the amount, if any, by which(A)the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate to a shareholder of the disposing affiliate in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliateexceeds(B)the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by a shareholder of the disposing affiliate in consideration for a property referred to in clause (A), and(ii)at the time of each distribution of property by the disposing affiliate in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate, the taxpayer holds shares of that capital stock that would, if an annual general meeting of the shareholders of the disposing affiliate were held at that time, entitle it to 90% or more of the votes that could be cast under all circumstances at the meeting.Marginal note:Net distribution amount(3.2)For the purposes of the description of A in paragraph (3)(d),net distribution amountin respect of a distribution of distributed property means the amount determined by the formulaA – BwhereAis the cost to the taxpayer of the distributed property as determined under paragraph (3)(c), andBis the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the taxpayer in consideration for the distribution of the distributed property.Marginal note:Suppression election(3.3)For the purposes of paragraph (3)(a), if the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate and the taxpayer would, in the absence of this subsection and, for greater certainty, after taking into account any election under subsection 93(1), realize a capital gain (the amount of which is referred to in subsection (3.4) as the “capital gain amount”) from the disposition of a disposed share, the taxpayer may elect, in accordance with prescribed rules, that distributed property that was, immediately before the disposition, capital property of the disposing affiliate be deemed to have been disposed of by the disposing affiliate to the taxpayer for proceeds of disposition equal to the amount claimed (referred to in subsection (3.4) as the “claimed amount”) by the taxpayer in the election.Marginal note:Conditions for subsection (3.3) election(3.4)An election under subsection (3.3) in respect of distributed property disposed of in the course of the liquidation and dissolution is not valid unless(a)the claimed amount in respect of each distributed property does not exceed the amount that would, in the absence of subsection (3.3), be determined under paragraph (3)(a) in respect of the distributed property; and(b)the amount determined by the following formula does not exceed the total of all amounts each of which is the capital gain amount in respect of a disposed share:A – BwhereAis the total of all amounts that would, in the absence of subsection (3.3), be determined under paragraph (3)(a) to be the proceeds of disposition of a distributed property in respect of which an election under subsection (3.3) is made by the taxpayer, andBis the total of all amounts each of which is the claimed amount in respect of a distributed property referred to in the description of A.Marginal note:Taxable Canadian property(3.5)For the purposes of paragraph (3)(a), the distributed property is deemed to have been disposed of by the disposing affiliate to the taxpayer for proceeds of disposition equal to the adjusted cost base of the distributed property to the disposing affiliate immediately before the time of its disposition, if(a)the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate;(b)the distributed property is, at the time of its disposition, taxable Canadian property (other than treaty-protected property) of the disposing affiliate that is a share of the capital stock of a corporation resident in Canada; and(c)the taxpayer and the disposing affiliate have jointly elected in accordance with prescribed rules.Marginal note:Amalgamation deemed not to be acquisition of control(4)For the purposes of paragraphs (1)(c), (c.2), (d) and (d.2) and, for greater certainty, paragraphs (c.3) to (c.8) and (d.3),(a)subject to paragraph 88(4)(c), control of any corporation shall be deemed not to have been acquired because of an amalgamation;(b)any corporation formed as a result of an amalgamation shall be deemed to be the same corporation as, and a continuation of, each predecessor corporation; and(c)in the case of an amalgamation described in subsection 87(9), control of a predecessor corporation that was not controlled by the parent before the amalgamation shall be deemed to have been acquired by the parent immediately before the amalgamation.
(a)subject to paragraphs 88(1)(a.1) and 88(1)(a.3), each property (other than an interest in a partnership) of the subsidiary that was distributed to the parent on the winding-up shall be deemed to have been disposed of by the subsidiary for proceeds equal to(i)in the case of a Canadian resource property, a foreign resource property or a right to receive production (as defined in subsection 18.1(1)) to which a matchable expenditure (as defined in subsection 18.1(1)) relates, nil, and(ii)[Repealed, 1994, c. 7, Sch