CRA confirms that the s. 40(3.6) stop-loss rules should not apply to a CFA winding-up

In 2014-0538591I7, CRA indicated that s. 40(3.6) did not apply to deny a loss realized on the winding-up of a controlled foreign affiliate because (1) s. 69(5)(d) specifically ousts the application of s. 40(3.6) respecting property (the CFA’s shares) disposed of on a winding-up, and (2) it is unlikely that under the foreign corporate law the CFA would be considered to still exist immediately after that disposition.

CRA now recognizes that the first point was wrong, as s. 88(3) by its terms "operates notwithstanding subsection 69(5)," but stands by the second point, stating "we would expect that, under the foreign corporate law, the CFA would cease to exist and its shares would simultaneously be cancelled when the CFA was wound-up."

Neal Armstrong. Summary of 12 January 2015 Memo 2014-0560421I7 under s. 40(3.6).