CFC income is defined as "foreign accrual property income" (FAPI) under the Canadian Income Tax Act (Act). In the most general terms, FAPI includes income from property such as interest, dividends, rents, royalties or any similar returns or substitutes (as well as income from singular ventures). Capital gains from the disposition of non-"excluded property" i.e. property not connected to an active business are also included.  FAPI income is computed by applying the Act as if the CFA were a resident of Canada.

More specifically:
• FAPI includes income from property as well as income from an "investment business" (i.e. a business whose principal purpose is to earn income from property sources and other specifically enumerated types of passive income). Unless one of the exceptions to investment business are met (please refer to our responses to Q1.7 in column G), income derived from property, the insurance or reinsurance of risk, the factoring of trade accounts receivable, or the disposition of "investment property" is included in FAPI.

• Excluded property generally refers to property used principally in carrying on active business. It also includes foreign affiliate shares of which more than 90% of the value is attributable to active business assets.

• Income from a "non-qualifying business" is also FAPI.  Non-qualifying business generally refers to active business carried on in a non-qualifying country. In general terms,  a country is a non-qualifying country if it has not entered into a tax convention or a tax information exchange agreement with Canada within 5 years after being invited to do so.

• The Canadian CFC rules contain an extensive set of other provisions that apply for the purpose of determining FAPI. For example, there are rules that (1)  recharacterize certain property income as active business income, (2) recharacterize as FAPI certain otherwise active business income that is considered to be base-eroding, (3) provide rollovers for reorganizational transactions, and (4) deem certain gains and losses to be nil.