A loan is made by a controlled foreign affiliate of a taxpayer to the taxpayer immediately before the dissolution of the affiliate. Does the loan amount increase the taxpayer's proceeds of disposition of the shares of the foreign affiliate under s. 88(3)? CRA responded:
[T]the non-share property of a foreign affiliate of a taxpayer would include any rights that the foreign affiliate has as a creditor of the taxpayer. In circumstances where a loan receivable is distributed to the taxpayer on the dissolution of the foreign affiliate, we would consider it to be disposed of to, and received by, the taxpayer whether or not the obligation to pay is extinguished as a result of the taxpayer acquiring the loan receivable (see, in this respect, paragraph 69(5)(b) and proposed subparagraph 88(3)(b)(ii) which deem a shareholder of a dissolving corporation to have acquired the property distributed or appropriated to the shareholder). Accordingly, it is our view that the fair market value of the loan receivable would be included in the taxpayer's proceeds of disposition of the shares of the dissolving affiliate under both the current and proposed versions of subsection 88(3).