CRA considers that no accrued FX loss on a loan owing by a target to a sub is realized on an AOC where there is a same-day amalgamation and no time-stamping

CRA considers that where a Canadian target is indebted to a subsidiary under a U.S.-dollar loan with an accrued foreign exchange loss and it is amalgamated with the sub on the date of its acquisition then, assuming that the amalgamation is not time-stamped and no s. 256(9) election is made, that FX loss will disappear rather than being recognized under s. 111(12). The reasoning:

• Both the amalgamation and the acquisition of control are considered to occur at the same time (say, 12:01 am).
• The intercompany debt is deemed under s. 80.01(3) to be settled for its historic cost amount two moments before that time (say, 11:58 pm), so that no loss or gain is realized on the deemed settlement.
• FX losses under s. 111(12) are triggered only one moment before the acquisition of control (say, at 11:59 pm), and at that time the FX loss has already vanished.

Neal Armstrong. Summary of 2 August 2016 External T.I. 2014-0544941E5 Tr under s. 111(12).