CRA considered that the s. 93(2.01) stop loss rule applied where Canco made a contribution of capital to a foreign subsidiary (FA2) of its shares of a non-resident Finco subsidiary (FA1) which had paid dividends out of its deemed active business income to Canco – so that s. 93(2.01) denied a subsequent capital loss realized on an arm’s length sale of the FA2 shares to the extent of such dividends. This was so even though the contribution did not entail any exchange of property and even though the FA1 shares likely would never have generated an accrued loss (with CRA observing in its oral comments that “there is no purpose test inherent in subsections 93(2) and (2.01), and other similar rules.)
CRA stated:
[W]e may be prepared to develop administrative solutions to the extent this could result in double-counting, or the same dividends being counted, or producing two or more losses.