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ARTICLE · 30 SEPTEMBER 2022

Proposed Amendments To The Foreign Affiliate Rules

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On August 9, 2022, the Department of Finance ("Finance") released details of proposed changes to the Income Tax Act.

CanadaTax
Victoria Rodrigues
Victoria Rodrigues
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Introduction

On August 9, 2022, the Department of Finance ("Finance") released details of proposed changes to the Income Tax Act (the "ITA"). A number of the proposed changes impact the rules relating to "foreign affiliates" as defined by the ITA. The most significant proposed changes are summarized below.

1. Expansion of anti-avoidance rules for foreign affiliate share exchanges and foreign mergers

Finance has proposed amendments to the anti-avoidance rule in subsection 85.1(4) of the ITA in respect of foreign affiliate share-for-share exchanges, and amendments to the anti-avoidance rule in subsection 87(8.3) in respect of foreign mergers.

In general, subsection 85.1(3) of the ITA permits a taxpayer to transfer shares of one foreign affiliate (a "subject affiliate") to another foreign affiliate (an "acquiring affiliate") on a tax-deferred "rollover" basis, provided the taxpayer receives at least one share of the acquiring affiliate.

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