CRA finds that active business assets distributed on a non-QLAD liquidation of FA do not generate FAPI

On the liquidation of a foreign affiliate which is not a qualifying liquidation and dissolution, there is a deemed disposition on the liquidating distribution (i) under s. 88(3)(a) of shares which are excluded property for their relevant cost base and (ii) under s. 88(3)(b) of other property for its fair market value.  Can the second category include property which is excluded property by virtue of being used in an active business given that such use arguably has ceased at the very moment of its distribution?

Yes.  CRA indicated that it can qualify as excluded property if it was used in the active business immediately before its distribution, in which case gains from its deemed disposition at fair market value will not give rise to foreign accrual property income.

Neal Armstrong.  Summary of 17 July 2014 T.I. 2014-0536331E5 under s. 88(3).