Principal Issues: In a particular situation, Aco holds all of the issued and outstanding shares of the capital stock of Bco. Both corporations are TCCs and CCPCs. On January 1, 20X0 Aco becomes indebted to Bco in the amount of US$1,000,000. On January 1, 20X0, the US dollar is at par with the Canadian dollar. On January 1, 20X5, control of Aco (and of Bco) is acquired. No election is made under subsection 256(9) with respect of the acquisition of control. The exchange rate in effect immediately before the acquisition of control is US$1 = CAN$1.10. On the same day, Aco and Bco are amalgamated to form Amalco. No specific time of amalgamation is shown on the certificate of amalgamation. Whether Aco’s deemed loss, pursuant to subsection 111(12), impacts the computation of the cost amount of the debt, for Aco, for the purposes of subsection 80.01(3).
Position: No.
Reasons: In the particular situation, the debt is deemed to have been settled immediately before the time that is immediately before the amalgamation by a payment made by the debtor and received by the creditor of an amount equal to the creditor’s cost amount. As such, there is no tax consequence for both Aco and Bco. However, as the debt would not have been outstanding immediately before the amalgamation (which is also immediately before the acquisition of control), subsection 111(12) is not applicable in the particular situation.
