CRA indicates that shares designated under s. 7(1.31) are not excluded from being identical properties for superficial-loss purposes

On January 1, 2021, an employee acquired one share of the employer with an FMV of $60, resulting in a benefit under s. 7(1)(a) of $60. On December 1, 2021, the employee acquired three shares with an FMV and resulting benefit of $80 per share. On December 15, 2021, the employee sold three shares for $70 per share and, pursuant to s. 7(1.31), identified the three shares acquired on December 1 as those disposed of so that it had a capital loss of $30. On January 1, 2022, the employee acquired one share with an FMV and resulting benefit of $50.

In finding that the superficial loss rule applied to such loss, CRA noted that ss. 7(1.3) and 7(1.31) may dictate the ordering of dispositions, but do not deem identical properties to not be identical. Furthermore, s. 47(3)(b) (deeming securities to which s. 7(1.31) applied not to be identical for s. 47(1) cost-averaging purposes), did not apply for superficial loss purposes.

However, applying the longstanding CRA administrative formula (SL = (Least of S, P and B)/S x L)), even though the superficial loss under s. 40(2)(g)(i) was the full $30 loss, it was reduced under the formula to $20, i.e., the number of shares held at the end of the 61-day period was two-thirds of the number of shares disposed of.

Neal Armstrong. Summary of 20 October 2025 External T.I. 2023-0972451E5 under s. 7(1.31).