Can a s. 111(4)(e) election be made respecting a pre-transition debt held immediately before an acquisition of control so as to realize a gain the year terminating immediately before the acquisition of control through the application of s. 261(10)? In explaining that 111(4) of the Act, including the election under paragraph 111(4)(e), cannot be applied in respect of the portion of the foreign exchange gain or loss realizable by virtue of s. 261(10) with respect to a "pre-transition debt" and that, in any event, s. 111(4) could not apply where a "pre-transition debt" is denominated in the same currency as the "functional currency," CRA stated:
[A] "pre-transition debt" denominated in a currency other than the "elected functional currency"… would be deemed, by virtue of subsection 261(9), to have been issued immediately before the taxpayer’s first "functional currency year" for the purposes of determining the amount of the taxpayer’s gain or loss, for a functional currency year of the taxpayer (other than gain or loss arising under subsection 261(10)), that is attributable to a fluctuation in the value of a currency. Thus, although the "pre-transition debt" is a "foreign currency debt" for purposes of subsection 111(12), only the fluctuation of the value of that currency vis-à-vis the "functional currency" from the time specified in subsection 261(9) until immediately before the acquisition of control would be subject to subsections 111(4) and (12).