Standard Life has not changed CRA’s view that the fresh start rule can apply to a newly-acquired foreign affiliate

In 2014-0536581I7, CRA found that the fresh start rule can apply to bump the tax basis of the assets of a foreign corporation which is acquired by Canco and thereby becomes a foreign affiliate of Canco which is carrying on an investment business, even though s. 95(2)(k)(ii)(A) references a requirement that the “foreign affiliate” have also carried on that business in the preceding taxation year. CRA considered that this was merely a convenient way of referring to the corporation which now happens to be a foreign affiliate of Canco rather than implying that there was a requirement that it also have been a foreign affiliate of Canco in the preceding year.

In Standard Life, Pizzitelli J took essentially the opposite approach to the interpretation of a similar requirement under s. 138(11.3) – so that it was necessary for the taxpayer to qualify as an "insurer" in the preceding taxation year rather than only in the current year, in order for an asset bump to be available. When this point was raised with the Rulings Directorate, it stated:

[I]n accordance with the textual, contextual and purposive approach…we are of the view that there are substantial differences in interpreting the provisions of subsection 138(11.3) and paragraph 95(2)(k)… as applicable to the relevant facts in the Standard Life case and document 2014-053658. As a result, our conclusions previously reached in document 2014-053658 remain unchanged.

Neal Armstrong. Summary of 5 November 2015 Memo 2015-0585381I7 under s. 95(2)(k).