When a Canadian company (Canco) receives a pre-acquisition surplus dividend (Pre-Acq Dividend) from a foreign affiliate (FA), s. 92(2) reduces Canco’s tax basis (ACB) in the FA shares.  However, this ACB adjustment does not apply if Canco holds FA through a partnership and the Pre-Acq Dividend is received by the partnership.  Rather, the Pre-Acq dividend is accounted for: (1) under s. 92(5) and s. 92(6) as a deemed gain to Canco when the partnership sells the shares of FA; or (2) under s. 92(4) as additional proceeds to Canco when Canco sells its partnership interest.  In 2014-0526751C6, the CRA confirmed that these rules are automatically engaged even where the disposition (sale) of the FA shares (or the partnership interest) occurs under a rollover provision in an internal restructuring – such as under s. 85(1) or s. 85.1.