CRA confirms no surplus calculations needed where FA of Canadian target is acquired by Forco through a Cdn. Buyco and then promptly bumped (under s. 88(1)(d)) and distributed to Forco

2011-0404521C6 indicated that in the situation where the Canadian target holding a foreign affiliate (FA) is wound up into the Canadian acquisition company (resulting in a "bump" to the ACB of the shares of FA under s. 88(1)(d)) and those shares of FA are then distributed by the acquisitionco to its foreign parent within a reasonable time of the acquisition of the Canadian target and before any dividends are received or deemed to be received by the Canadian target or the acquisitionco, the surplus balances of FA will be irrelevant. Accordingly, in these circumstances, CRA will not challenge the bump by raising the absence of a calculation of the tax-free surplus balance of FA.

After confirming this position, CRA stated that it was consistent with its position in 2019-0798761C6 and 2022-0928101C6 that, as a more general matter, surplus calculations were required, because in the above circumstances, the determination of Canco’s surplus balances was rendered “irrelevant for Canadian tax purposes upon that [FA] transfer.”

Neal Armstrong. Summary of 17 May 2023 IFA Roundtable, Q.8 under Reg. 5905(5.4).