CRA concludes that a loss that was suspended under s. 40(3.5)(c)(i), can be de-suspended by winding-up the CFA referenced under s. 40(3.5)(c)(i)
Canco realized a suspended loss when it contributed its shares of a controlled foreign affiliate (CCo) to another CFA (BCo), and then took the position that such loss was de-suspended when CCo was then liquidated under s. 95(2)(e) into BCo. In 2017-0735771I7, Headquarters rejected this position on the basis that, for purposes of s. 40(3.5)(c)(i), Bco was a corporation “formed” on the “merger” of CCo with BCo – with the result that BCo was deemed to continue to own the shares of CCo with which it was affiliated, notwithstanding that CCo had, in fact, ceased to exist.
Headquarters was subsequently asked to consider the consequences of Canco dropping its shares of Bco under s. 85.1(3) into another Canco CFA (DCo) followed by the wind-up of BCo into DCo. Headquarters concluded that this resulted in the loss being de-suspended, stating:
Upon the completion of the liquidation of BCo, it would no longer be affiliated with ACo.
… Pursuant to subparagraph 40(3.4)(b)(i), the Suspended Loss will be deemed to be a capital loss of ACo immediately after the completion of the liquidation of BCo.
Neal Armstrong. Summary of 30 April 2019 Internal T.I. 2019-0793481I7 under s. 40(3.4)(b)(i).