An Iceland “Sameignarfelag” (viewed by CRA as a partnership), which had been serving as a Finco to foreign affiliates in a Canadian multinational group, was wound up into its non-resident partners (NR1 and NR2, wholly-owned by Canco2). The interaffiliate loans had been giving rise to active business income to NR1 and NR2 under s. 95(2)(a)(ii)(B) and, thus, were excluded property. Even if the time of disposition by NR1 and NR2 of their partnership interests on the partnership wind-up were viewed as the time of the final partnership distribution rather than the subsequent time of formal dissolution of the partnership, by that time the partnership had disposed of its loans, so that the partnership interests at that time no longer qualified as excluded property.
Since the partnership interests were not excluded property at the time of their disposition on the winding-up, their ACB was to be computed in Canadian dollars under Reg. 5908(10), i.e., essentially it became irrelevant that for most of its life, the Icelandic partnership held excluded property for which the calculating currency of its partners was to be used. This, in turn, meant that NR1 and NR2 realized a capital loss for FAPI purposes on the partnership wind-up. In this regard, and after noting that amounts relevant to determining NR1’s exempt earnings would have been computed in relating to the loans in NR1’s calculating currency rather than Canadian dollars, CRA stated:
[A]djustments to ACB that may be the result of amounts that arose at a time while the property was excluded property will still need to be computed in Canadian currency, and if denominated in another currency, converted to Canadian currency at the relevant spot rate for the day the amount arose.