New Foreign Affiliate Capital Distribution Elections: QROCs and Regulation 5901(2)(B) Dividends

Abstract

The Canadian Department of Finance has proposed new tax elections that will provide Canadian taxpayers with greater flexibility to manage foreign affiliate distributions. Under Regulation 5901(2)(b), taxpayers may elect to treat foreign affiliate dividends as "pre-acquisition surplus" dividends (effectively as capital distributions) that grind adjusted cost base, before dipping into surplus balances. The article discusses some of the tax planning implications of these proposals for Canadian taxpayers with foreign affiliate groups.

Keywords: foreign affiliate, dividends, capital distributions

JEL Classification: K34