CRA confirms that a s. 40(1)(a)(iii) reserve can be claimed as a deduction from a s. 55(2) capital gain

In 1999-000929, CRA indicated that a capital gains reserve under s. 40(1)(a)(iii) generally could be claimed respecting a capital gain, resulting from the application of s. 55(2) to what otherwise would be a s. 84(3) deemed dividend, where the s. 84(3) dividend arose on the receipt of a promissory note (payable at future dates) made as a conditional rather than absolute payment.  On redacted facts, CRA has confirmed that the reserve also is available where the deemed dividend (to which s. 55(2) applied) arose as a result of the purchase for cancellation of shares for an unpaid (i.e., still owing) purchase price.

Neal Armstrong.  Summary of 7 October 2013 Memorandum 2013-0504081I7 F under s. 40(1)(a)(iii).