CRA finds that the fix in s. 87(8.2)(f) for absorptive mergers (where no shares are issued) also indirectly extends to the s. 87(4) basis adjustment rules

In the case of an absorptive merger of FA2 into FA1 (as the survivor) where FA2 ceases to exist and its shares are cancelled, s. 87(8.2)(f) deems the cancelled shares to have been exchanged by the Canadian shareholder (Canco) for purposes of the foreign merger definition in s. 87(8.1), so that the requirement in s. 87(8.1)(c) of that definition - that there be such a share exchange - is satisfied. However, s. 87(8.2)(f) does not explicitly deem there to be such a share exchange for purposes of s. 87(4), which deems shares of Amalco acquired in exchange for shares of a predecessor to have been acquired at a cost equal to the exchanged shares’ ACB. However, also note that s. 87(8) provides that the s. 87(4) rules apply to a foreign merger (so that this effect quite arguably is one of the purposes of the foreign merger definition).

Not surprisingly, CRA has concluded that the deemed exchange rule in s. 87(8.2)(f) also applies for purposes of the application of s. 87(4) to a foreign merger so that, for example, the ACB of the cancelled shares of FA2 is deemed to be added to the cost to Canco of its shares of the survivor (FA1).

Neal Armstrong. Summary of 8 July 2015 T.I. 2014-0550641E5 under s. 87(4).