Finance acknowledges a drafting deficiency in the relevant cost base rules where FAPI under $5,000

Transfers under ss. 88(3) and 95(2)(c), (d.1) and (e) can be elected under para. (b) of the “relevant cost base” definition in s. 95(4) to occur at up to fair market value rather than on a tax deferred basis where the transferring foreign affiliate is an eligible controlled foreign affiliate (ECFA). To be an ECFA the taxpayer’s participating percentage must be not less than 90%. The participating percentage of a taxpayer in a controlled foreign affiliate is deemed to be nil if the FAPI for the year is less than $5,000, which means that in such cases the FA does not qualify as an ECFA.

Finance acknowledged that this anomaly arises from a drafting error, and that it is considering whether or not to correct this deficiency.

Neal Armstrong. Summary of 16 May 2018 Finance Roundtable, Q.8 under s. 95(4) - eligible controlled foreign affiliate.