25 June 2018 Internal T.I. 2017-0737151I7 - Application of paragraph 40(3.5)(c) -- summary under Subsection 33(2)

Subject to exceptions, if a capital loss realized on the transfer by Canco of shares of a controlled foreign affiliate is suspended under s. 40(3.4), the loss will cease to be suspended when that CFA is wound-up. One of such exceptions is in s. 40(3.5)(c)(i), which effectively provides that there is no de-suspension if the CFA is merged such that there is a corporation formed on the merger (which then is deemed to own the CFA’s shares). CRA found that s. 40(3.5)(c)(i) applies if the CFA is wound-up into its three shareholders, having regard to ss. 33(2) and 3(1) of the Interpretation Act