CRA rules on a Canadian profitco using the NCLs of a non-resident affiliate from its Cdn. branch business through a continuance and amalgamation transaction

CRA ruled on transactions involving a Canadian “profitco” ULC (Canco1), held by a non-resident ultimate parent (Parent) through a long chain of intermediate non-resident corporations, utilizing the non-capital losses (NCLs) of another non-resident subsidiary of the ultimate parent (co1), which was held through a separate chain of non-resident subsidiaries of Parent and which had incurred its NCLs through carrying on a Canadian branch business through a Canadian permanent establishment.

To effect this result, co1 is first continued into Canada as a ULC. This triggers a deemed disposition and reacquisition of its property, thereby allowing co1 to file an election under s. 128.1(2)(b) so as to step up the PUC of its shares.

The co1 shares (which are not taxable Canadian property) are then transferred multiple times within the non-resident group, so as to end up being held by the immediate non-resident parent of Canco1 (Foreignco3).

Foreignco3 contributes the co1 shares to Canco1 in exchange for high-PUC preferred shares.

Canco1 and co1 vertically amalgamate to form Amalco.

The CRA rulings include that:

• The NCLs of co1 continue to exist following its continuance into Canada and become those of Amalco pursuant to s. 87(2.1).
• The PUC of the preferred shares issued by Canco1 to Foreignco3, in compliance with s. 212.1(1.1)(b), reflects not only the historic legal stated capital of the co1 shares but also the amount of the PUC elective bump under s. 128.1(2)(b) of those shares.

Neal Armstrong. Summary of 2024 Ruling 2024-1024021R3, as amended by 2025 Ruling 2025-1055391R3 under s. 87(2.1).