Section 80.1 — Income Tax Act: Expropriation assets acquired as compensation for, or as consideration for sale of, foreign property taken by or sold to foreign issuer

Where in a taxation year ending coincidentally with or after December 31, 1971 a taxpayer resident in Canada has acquired any bonds, debentures, mortgages, hypothecary claims, notes or similar obligations (in this section referred to as “expropriation assets”) issued by the government of a country other than Canada or issued by a person resident in a country other than Canada and guaranteed by the government of that country, as compensation for shares owned by the taxpayer of the capital stock of a foreign affiliate of the taxpayer that carried on business in that country, or all or substantially all of the property used by the taxpayer in carrying on business in that country, (which shares or property, as the case may be, are referred to in this section as “foreign property”), taken, after June 18, 1971, from the taxpayer by the issuer under the authority of a law of that country, or as consideration for the sale of foreign property sold, after June 18, 1971, by the taxpayer to the issuer, if the sale was, by a law of that country, expressly required to be made, or the sale was made after notice or other manifestation of an intention to take the foreign property, if the taxpayer has so elected, in prescribed form and within prescribed time, in respect of all of the expropriation assets so acquired by the taxpayer, the following rule applies, namely, an amount in respect of each such expropriation asset, equal to the principal amount of the asset, or where the taxpayer has designated in the taxpayer’s election an amount in respect of the asset that is less than the principal amount thereof, the amount so designated, shall be deemed to be the cost to the taxpayer of the asset, and for the purpose of computing the taxpayer’s proceeds of disposition of the foreign property so taken or sold, the amount received by the taxpayer by virtue of the taxpayer’s acquisition of the asset, except that in no case may the taxpayer designate an amount in respect of any expropriation asset so that the taxpayer’s proceeds of disposition of the foreign property so taken or sold (computed having regard to the provisions of paragraph 80.1(1)(f)) are less than the cost amount to the taxpayer of the foreign property immediately before it was so taken or sold. Where a taxpayer has elected in prescribed form and within prescribed time in respect of all amounts (each of which is referred to in this section as an “interest amount”) received or to be received by the taxpayer as or on account of interest on all expropriation assets acquired by the taxpayer as compensation for, or as consideration for the sale of, foreign property taken by or sold to any particular issuer as described in subsection 80.1(1), the following rules apply in respect of each such asset so acquired by the taxpayer: in computing the taxpayer’s income for a taxation year from the asset, there may be deducted, in respect of each interest amount received by the taxpayer in the year on the asset, the lesser of the interest amount and the total of the amount required by paragraph 80.1(2)(b) to be added, by virtue of the receipt by the taxpayer of the interest amount, in computing the adjusted cost base to the taxpayer of the asset, and the greater of the adjusted cost base to the taxpayer of the asset immediately before the interest amount was so received by the taxpayer, and the adjusted principal amount to the taxpayer of the asset immediately before the interest amount was so received by the taxpayer, and there shall be included, in respect of each amount (in this paragraph referred to as a “capital amount”) received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of, any proceeds of disposition of the asset, or the principal amount of the asset, the amount, if any, by which the capital amount exceeds the greater of the adjusted cost base to the taxpayer of the asset immediately before the capital amount was received by the taxpayer and its adjusted principal amount to the taxpayer at that time; in computing, at any particular time, the adjusted cost base to the taxpayer of the asset, there shall be added, in respect of each interest amount received by the taxpayer on the asset before the particular time, an amount equal to the lesser of any income or profits tax paid by the taxpayer to the government of a country other than Canada in respect of the interest amount, and that proportion of the tax referred to in subparagraph 80.1(2)(b)(i) that the adjusted cost base to the taxpayer of the asset immediately before the interest amount was received by the taxpayer is of the amount, if any, by which the interest amount exceeds the tax referred to in that subparagraph, and there shall be deducted each interest amount received by the taxpayer on the asset before the particular time, and each amount received by the taxpayer before the particular time on account of the principal amount of the asset; the receipt by the taxpayer of an amount described in subparagraph 80.1(2)(b)(iv) in respect of the asset shall be deemed not to be a partial disposition thereof; and for the purposes of section 126, notwithstanding the definition non-business-income tax in subsection 126(7), the non-business-income tax paid by a taxpayer does not include any tax, or any portion thereof, the amount of which is required by paragraph 80.1(2)(b) to be added in computing the adjusted cost base to the taxpayer of the asset. For the purposes of subsection 80.1(2), where an interest amount on an expropriation asset and a capital amount with respect to that asset are received by a taxpayer at the same time, the interest amount shall be deemed to have been received by the taxpayer immediately before the capital amount. Where a foreign affiliate of a taxpayer resident in Canada would, on the assumption that the foreign affiliate were resident in Canada and its only foreign affiliates were corporations that were foreign affiliates of the taxpayer, be entitled to make an election under subsection 80.1(1) in respect of assets acquired by it that would, on that assumption, be expropriation assets of the foreign affiliate, and all or any of those assets are subsequently acquired by the taxpayer from the foreign affiliate as a dividend payable in kind, or as a benefit received from the foreign affiliate that would otherwise be required by subsection 15(1) to be included in computing the income of the taxpayer, if the taxpayer has so elected, in prescribed form and within prescribed time, in respect of all assets so acquired by the taxpayer from the foreign affiliate, the following rules apply in respect of each asset so acquired by the taxpayer: an amount equal to the principal amount of the asset, or where the taxpayer has designated in the taxpayer’s election an amount in respect of the asset that is less than the principal amount thereof, the amount so designated, shall be deemed to be, notwithstanding subsection 52(2), the cost to the taxpayer of the asset, and the amount of the dividend or benefit, as the case may be, received by the taxpayer by virtue of the acquisition by the taxpayer of the asset; where the asset was so acquired as such a benefit and the taxpayer has designated in the election a class of shares as described in this paragraph in respect of the asset, the amount of the benefit shall be deemed to have been received by the taxpayer as a dividend from the foreign affiliate in respect of such class of shares of the capital stock thereof as the taxpayer has designated in the election, and not to be an amount required by subsection 15(1) to be included in computing the taxpayer’s income; in computing the taxable income of the taxpayer for the taxation year in which the taxpayer acquired the asset, there may be deducted from the taxpayer’s income for the year the amount, if any, by which the amount received by the taxpayer as a dividend by virtue of the acquisition by the taxpayer of the asset exceeds the total of amounts deductible in respect of the dividend under sections 91 and 113 in computing the taxpayer’s income or taxable income, as the case may be, for the year; there shall be deducted in computing the adjusted cost base to the taxpayer of each share of the capital stock of the foreign affiliate that is a share of a class in respect of which an amount was received by the taxpayer as a dividend by virtue of the acquisition by the taxpayer of the asset, the quotient obtained by dividing the amount, if any, deducted by the taxpayer under paragraph (c) in respect of the dividend by the number of shares of that class owned by the taxpayer immediately before that amount was received by the taxpayer as a dividend; any capital loss of the taxpayer from the disposition, after the time when the asset was so acquired by the taxpayer, of a share of the capital stock of the foreign affiliate shall be deemed to be nil; and where the taxpayer has so elected in prescribed form and within prescribed time, subsection (2) applies as if the asset were an expropriation asset acquired by the taxpayer as compensation for foreign property taken by a particular issuer as described in subsection (1). Where a foreign affiliate of a taxpayer resident in Canada would, on the assumption that the foreign affiliate were resident in Canada and its only foreign affiliates were corporations that were foreign affiliates of the taxpayer, be entitled to make an election under subsection 80.1(1) in respect of assets acquired by it that would, on that assumption, be expropriation assets of the foreign affiliate, and all or any of those assets are subsequently acquired by the taxpayer from the foreign affiliate as consideration for the settlement or extinguishment of a capital property of the taxpayer that was a debt payable by the foreign affiliate to the taxpayer or any other obligation of the foreign affiliate to pay an amount to the taxpayer (which debt or other obligation is referred to in this subsection as the “obligation”), if the taxpayer has so elected, in prescribed form and within prescribed time, in respect of all of the assets so acquired by the taxpayer from the foreign affiliate, the following rules apply in respect of each such asset so acquired by the taxpayer: paragraph 80.1(4)(a) applies in respect of the asset as if subparagraph 80.1(4)(a)(iv) were read as follows: the taxpayer’s proceeds of the disposition of the obligation settled or extinguished by virtue of the acquisition by the taxpayer of the asset;”; where the taxpayer has designated in the taxpayer’s election a class of shares as described in this paragraph in respect of the asset, the amount, if any, by which the cost to the taxpayer of the asset (computed having regard to paragraph (a) and paragraph (4)(a)) exceeds the amount of the obligation settled or extinguished by virtue of the acquisition by the taxpayer of the asset shall be deemed to have been received by the taxpayer as a dividend from the foreign affiliate in respect of such class of shares of the capital stock thereof as the taxpayer has designated in the election, and the taxpayer’s gain, if any, from the disposition of the obligation shall be deemed to be nil; the taxpayer’s loss, if any, from the disposition of the obligation shall be deemed to be nil; and paragraphs (4)(c) to (f) apply in respect of the asset. Where a foreign affiliate of a taxpayer resident in Canada would, on the assumption that the foreign affiliate were resident in Canada and its only foreign affiliates were corporations that were foreign affiliates of the taxpayer, be entitled to make an election under subsection 80.1(1) in respect of assets acquired by it that would, on that assumption, be expropriation assets of the foreign affiliate, and all or any of those assets are subsequently acquired by the taxpayer from the foreign affiliate, on the winding-up, discontinuance or reorganization of the business of the foreign affiliate, or as consideration for the redemption, cancellation or acquisition by the foreign affiliate of shares of its capital stock, if the taxpayer has so elected, in prescribed form and within prescribed time, in respect of all of the assets so acquired by the taxpayer from the foreign affiliate, subsection (1) applies in respect of each such asset, or in respect of all amounts received or to be received by the taxpayer as or on account of interest on all of the assets so acquired by the taxpayer from the foreign affiliate, subsection (2) applies in respect of each such asset, as if the assets were expropriation assets acquired by the taxpayer as consideration for the sale of foreign property that consisted of shares of the capital stock of the foreign affiliate owned by the taxpayer immediately before the assets were so acquired and that was sold to a particular issuer as described in subsection (1). In this section, adjusted principal amount to a taxpayer of an expropriation asset at any particular time means the amount, if any, by which the total of the principal amount of the asset and, in respect of each interest amount received by the taxpayer on the asset before the particular time, the lesser of the tax referred to in subparagraph (2)(b)(i) in respect of that interest amount and the proportion determined under subparagraph (2)(b)(ii) in respect thereof, exceeds the total of each amount received by the taxpayer before the particular time as an interest amount on the asset and each amount received by the taxpayer before the particular time as, on account or in lieu of payment of, or in satisfaction of, the principal amount of the asset. For the purposes of this section, the adjusted principal amount, at any particular time, of an expropriation asset or of any asset assumed for the purposes of this section to be an expropriation asset shall be computed in the currency in which the principal amount of the asset is, under the terms thereof, payable, except that for greater certainty, for the purposes of paragraph (2)(a), the adjusted principal amount at any particular time of such an asset is its adjusted principal amount at that time computed as provided in this subsection but expressed in Canadian currency. For the purposes of Subdivision C and subsection (2),

and in applying subsections (7) and (8) for those purposes, where two or more expropriation assets that were issued by the government of a country other than Canada, or issued by a person resident in a country other than Canada and guaranteed by the government of that country at the same time, or as compensation for, or consideration for the sale of, the same foreign property, have been acquired by a taxpayer and the taxpayer has so elected, in prescribed form and within prescribed time, in respect of all of the expropriation assets that were so issued or guaranteed by the government of that country and acquired by the taxpayer before the making of the election, all of those expropriation assets shall be considered to be a single expropriation asset that was issued or guaranteed by the government of that country and acquired by the taxpayer.