CRA indicates that a simultaneous absorptive merger of FA3 (held by FA2) and FA2 (held by FA1) into FA1 would result in a disposition of the FA2 shares

Three wholly-owned stacked subsidiaries of Canco (FA1 holding FA2 holding FA3) effect a foreign merger under which FA2 and FA3 simultaneously merge into FA1, with FA1 as the survivor. FA2 and FA3 simultaneously cease to exist on the merger, resulting in the shares of FA2 and FA3 being cancelled.

CRA indicated that para. (n) of the s. 248(1) “disposition” definition (“Paragraph N”) would NOT deem there to be no disposition of the FA2 shares on the merger. The problem was the requirement in s. (iii)(B) of Paragraph N that “the disposing corporation [FA1] receives no consideration for the share [of FA2] other than property that was, immediately before the merger, owned by the issuing corporation [FA2] and that, on the merger, becomes property of the new corporation [FA1].” CRA stated:

[T]he shares of FA2 and FA3 would be cancelled simultaneously and, thus, FA1 would simultaneously receive property of both FA2 and FA3 on the Merger. [Thus] the property of FA3 would be received by FA1 as consideration for the shares of FA2. Since the property of FA3 would not be owned by FA2 immediately before the Merger, Paragraph N would not apply.

Neal Armstrong. Summary of 15 September 2017 External T.I. 2017-0709331E5 under s. 248(1) - disposition - para. (n).