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Unformatted text preview: ate to be income from an active business if (1) the income is directly related to an active business carried on by another foreign affiliate in which the Canadian shareholder has a qualifying interest and (2) the amount would be included in computing the earnings or loss from an active business carried on by this other foreign affiliate if the income were earned by it.
The intention of the Department of Finance is apparently to require a more direct connection between the active business income of a paying affiliate and the amount to be recharacterized.40 The 1995 Amendments to the Income Tax Act: Explanatory Notes 41 states that for subparagraph 95(2)(a)(i) to apply, 40 see brian J. arnold, “an analysis of the 1994 amendments to the FaPi and Foreign affiliate rules” (1994) vol. 42, no. 4 Canadian Tax Journal 993-1036, at 1015. 41 Canada, Department of Finance, Amendments to the Income Tax Act: Explanatory Notes (Ottawa: Department of Finance, February 1995), subclause 46(4). i nternational tax planning n 103 [t]here must be a link between the foreign activ...
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