The scope for a suppression election is being narrowed, and a defect in the pack and sale rule is being corrected

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. This amendment substantially reduces the effectiveness of the election.

Reg. 5907(2.01) potentially accommodates “pack and sale” transactions by allowing the recognition for surplus purposes of unrealized gain on a transfer from one foreign affiliate to another, newly incorporated, foreign affiliate where the shares of the new foreign affiliate are then promptly sold to a third party. A requirement for this relief is that the "only consideration received in respect of" the drop-down is shares of the new foreign affiliate.

2014-0550451E5 considered that this requirement will not be satisfied if the new foreign affiliate assumes any liabilities of the transferor FA as part of the purchase. In a delayed reaction to this interpretation, an amendment to Reg. 5907(2.01) will allow 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.”

Neal Armstrong. Summaries of Samantha D’Andrea, “Packing and Unpacking Proposed Amendments,” International Tax Highlights, Vol. 1, No. 2 November 2022, p. 6 under s. 88(3.3) and Reg. 5907(2.01).