CRA indicates that draft s. 13(42)(a) operates to avoid double taxation on an arm’s length sale of a Class 14.1 property where a NAL transferor previously claimed a capital gains exemption

Where, prior to 2017, an addition to a taxpayer’s CEC was reduced based on a non-arm’s length transferor realizing a gain for which the capital gains exemption was claimed, there will be an upward adjustment under draft s. 13(42)(a) based on this amount where there is an arm’s length sale after January 1, 2017 of what now is a Class 14.1 property – so that effectively (unlike a previous version of the draft legislation) a double recognition of capital gain would appear to be avoided.

Neal Armstrong. Summary of 9 November 2016 External T.I. 2016-0664451E5 under s. 13(42)(a).