CRA confirms that unpurchased goodwill must be valued as an asset used by an FA for purposes of determining if its shares are excluded property

The definition of "excluded property" of a foreign affiliate (FA1) includes shares of a foreign affiliate (FA2) of the taxpayer held by FA1 where all or substantially all of the fair market value of the property of FA2 is excluded property, such as property used or held by FA2 principally for the purpose of gaining or producing income from an active business carried on by it.

In this context (as well as in others such as the "small business corporation" definition), CRA considers that in this context goodwill which has been internally generated rather than purchased by a corporation qualifies as property that used by it – so that in the case of FA2, that goodwill should be taken into account in determining whether the shares of FA2 are "excluded property" of FA1. However, the requirement to determine whether such goodwill is satisfies the "principally" test may "require an apportionment of such use as between the active business of FA2 and the other activities of FA2."

Neal Armstrong.  Summary of 6 March 2015 Memo 2014-0549761I7 under s. 95(1) – excluded property.