Current suppression-election rule (pp. 5-6)
- The suppression election under s. 88(3.3) allowed a taxpayer to reduce the capital gain otherwise to be realized on the disposition of a share of a liquidating affiliate, upon a qualifying liquidation and dissolution, by electing lower proceeds of disposition on particular distributed capital properties of the liquidating affiliate.
- It is proposed, effective for distributions occurring on or after August 9, 2022, that the distributed capital property for which the election may be made be limited solely to shares of another FA of the taxpayer.
Amendment reducing effectiveness of election (p. 6)
- This amendment is expected to substantially reduce the effectiveness of the election.
- The concern expressed in the Explanatory Notes - that the current rules allowed the accrued gain from the acquisition of shares or debt of a Canadian-resident corporation to be deferred indefinitely while still allowing a Canadian-resident corporation to have use of the underlying property (eliminated altogether through a subsequent reorganization) – might have been addressed more narrowly by requiring that the capital property be foreign capital property.
Current pack and sale transaction rule (p. 6)
- Reg. 5907(2.01) overrides the non-recognition rules in Regs. 5907(5.1) and 5907(2)(f ) and (j), so that where an FA’s assets are packaged for sale and the conditions set out in Reg. 5907(2.01)(a) are met (including the disposition to an arm’s-length person, within 90 days, of the shares of another FA received as consideration for the packaged assets), surplus recognition on any unrealized value on the packaged assets is allowed.
Amendment requiring that share consideration be of the receiving FA (p. 6)
- An amendment to Reg. 5907(2.01)(a) adds a requirement that the shares received by the disposing affiliate as consideration for the packaged assets be shares of the receiving affiliate.
Amendment to accommodate assumption of ordinary-course debt (p. 6)
- A second amendment allows the consideration received to include “the assumption by the other affiliate of a debt or other obligation owing by the particular affiliate that arose in the ordinary course of the business of the particular affiliate to which the affiliate property relates.”
- This reflects a delayed reaction to 2014-0550451E5, which found that the requirement for relief under the current version, that the "only consideration received in respect of" the drop-down is shares of the new foreign affiliate, will not be satisfied if the new foreign affiliate assumes any liabilities of the transferor FA as part of the purchase.
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