CRA states that it will deny s. 113 deductions if there is insufficient documentation to support the FA’s surplus computations

The CRA position noted at 5 May 2019 IFA Roundtable Q.9, 2019-0798761C6 is that “[i]f complete surplus computations are not provided to the CRA, the current CRA general practice is to deny the deduction under subsection 113(1)” (even if the shares of the foreign affiliate had sufficient ACB (a.k.a., pre-acquisition surplus) to cover any deficiencies in its other surplus). At the 2022 IFA Roundtable, CRA went further and stated:

If documentation is not available to accurately support surplus account calculations at the time surplus is utilized, any deduction claimed based on surplus account balances will be denied and other adjustments may also be required. …

CRA went on to list various types of documentation that it “may” require, depending on the circumstances, including non-consolidated financial statements, minute books, and tax returns of the FA and supporting documentation illuminating the nature of its business and income and related to its transactions.

Neal Armstrong. Summary of 17 May 2022 IFA Roundtable, Q.5, under s. 113(1)(d).