F, a controlled foreign affiliate of C, a taxable Canadian corporation, F earns foreign accrual property income ("FAPI") during its 1990 taxation year and, before the end of that year, pays a dividend to C out of its taxable surplus computed (pursuant to Reg. 5901(2)) as of the end of its 1990 taxation year (which falls within C's 1990 taxation year.)
In finding that the addition for the 1990 FAPI under s. 92(1)(a) occurred “before the dividend” for s. 91(5)(b)(i) purposes, the Directorate stated:
Since the taxation year referred to in [s. 92(1)(a)] is that of the taxpayer resident in Canada, it is our view that in retroactively computing the ACB of a share of a foreign affiliate held by that taxpayer as at any particular time during that taxation year, (including a point in time before the end of the taxation year of the foreign affiliate), an amount equal to the amount which by reason of subsection 91(1) of the Act is required to be included in computing income of the taxpayer in respect of such share for the year, would be added. Accordingly, in the circumstances you have described, in computing the deduction under subsection 91(5) available to C in respect of the dividend from F, the subparagraph 95(1)(b)(i) amount at a time immediately before the dividend would include the amount required to be included in income in respect of the shares of F by reason of subsection 91(1) in computing C's income for the 1990 taxation year.