CRA confirms that a CFA taxation year is determined under foreign tax law

CRA has confirmed that the taxation year of a foreign affiliate for purposes of the foreign affiliate rules normally is the taxation year of the foreign affiliate under the taxation laws of its country of residence.  Accordingly, an intra-group transfer of the holding company for subsidiaries in a particular foreign country to another non-resident company in the group will not cause a short taxation year.  This is so even though this transfer results in the transferee company becoming the company which prepares consolidated tax returns (albeit, still on a calendar year basis) for that foreign country.

In the old days, you could not get CRA to rule on completed transactions.  In this ruling, the proposed transaction is the filing of the foreign group consolidation election (i.e., a foreign tax law election) - everything else was a completed transaction.

Neal Armstrong.  Summary of 2012 Ruling 2012-0449941R3 under s. 95(1) - taxation year.