S. 40(2)(e.1) should have paramountcy over s. 40(2)(g)(ii)

If there is an intra-group transfer of a non-interest-bearing debt, there generally will be a preference for a resulting loss to be denied by s. 40(2)(e.1) (intra-group transfer) rather than s. 40(2)(g)(ii) (no income-producing purpose), because the denied loss can then be added back to the adjusted cost base of the debt under s. 53(1)(f.1) or (f.11). It is appropriate to consider that s. 40(2)(e.1) has paramountcy because "presumably, Parliament did not intend the debt parking rules to apply as a result of capital losses realized within the related group," and the ACB add-back protects against the application of those rules.

Although CRA has ruled on occasion that s. 40(2)(e.1) rather than s. 40(2))(g)(ii) applied, it is not clear that these are paramountcy rulings as the non-interest-bearing debt in question may have been considered to have been acquired for an income producing purpose (e.g., a loan from a shareholder).

Neal Armstrong. Summary of Mike J. Hegedus, "Paragraph 40(2)(e.1) Versus Subparagraph 40(2)(g)(ii): Potential Conflict?" Resource Sector Taxation, Vol. IX, No. 4, 2014, p.684 under s. 40(2)(e.1).