Double income inclusions can still arise under the revised stub period FAPI rules

If exceptions do not apply, a controlled foreign affiliate of a taxpayer is deemed under draft s. 91(1.2) of the revised stub period foreign accrual property income rules to have a deemed stub year-end in respect of the taxpayer and a corporation or a partnership that is connected to the taxpayer. However, because the deemed year-end extends only to connected corporations and partnerships, double income inclusion may still arise:

Assume that a Canco disposes of a CFA to a non-arm's-length Canadian individual who does not own the CFA before the transfer and who continues to own the CFA at the end of its normal year-end. In this case, the stub period FAPI is included twice: in the hands of both the Canco and the individual. Similar anomalies arise if the transferor is another individual instead of a Canco, or if the transferee is a trust, or if a partnership with non-corporate members is involved.

Neal Armstrong. Summary of Melanie Huynh and Paul Barnicke, "September 2016 FA Proposals," Canadian Tax Highlights, Vol. 24, No. 10, October 2016, p. 8 under s. 91(1.1).