Section 12.7 — Income Tax Act: Hybrid mismatch arrangements — definitions

The definitions in subsection 18.4(1) apply in this section. Subsection (3) applies in respect of a payment of which a taxpayer is a recipient if the payment arises under a hybrid mismatch arrangement; and there is a foreign deduction component of the hybrid mismatch arrangement. Subject to subsection 18.4(5), if this subsection applies in respect of a payment of which a taxpayer is a recipient, an amount equal to the hybrid mismatch amount in respect of the payment shall be included in computing the taxpayer’s income from the same source as the payment; and included in computing the taxpayer’s income for the last taxation year of the taxpayer that begins at or before the end of the first foreign taxation year of any entity in which an amount in respect of the payment, in the absence of any foreign expense restriction rule, would be —

or would reasonably be expected to be — deductible in computing relevant foreign income or profits of the entity.