CRA takes expansive view of when a foreign affiliate in "involved" so as to extend the 4-year limitation period

CRA indicated that where a Canadian parent winds up a Canadian subsidiary and thereby receives that subsidiary's shares of a U.S. subsidiary, the U.S. subsidiary is "involved" in the transaction - so that this winding-up transaction can be reassessed within the extended period in s. 152(4)(b)(iii) (i.e., an extra three years).

CRA cited Shaw-Almex for the proposition that a non-resident affiliate may be "involved" in a transaction to which it is not a party - in that case, the repayment by a Canadian firm of a bank loan owing by a U.S. affiliate to a U.S. bank.  However, such U.S. affiliate also was a signatory to the agreement between the Canadian firm and the U.S. bank for the repayment of the loan, and its (insolvent) business was the matrix of the transaction.  It is far from clear that s. 152(4)(b)(iii) can be applied to the scenario addressed by CRA, in which the non-resident affiliate's "involvement" in the transaction is entirely passive (or, at most, perfunctory, if it approved the conveyance of the shares in its capital).

Scott Armstrong.  Summary of 22 March 2012 Interpretation 2011-0407731E5 under s. 152(4)(b)(iii).