But for s. 94(3), a Canadian corporation (ACo) would have realized a capital loss of $1 million on the liquidation and dissolution of a wholly-owned non-resident subsidiary (FA1) which, in turn, held FA2 and FA3.After the Directorate found that s. 94(3) applied to deny the loss and add it to the ACB to ACo of the shares of FA2 and FA3, it then considered the question:
If the portion of such denied loss added to the ACB of the FA2 shares under s. 93(4)(b) was $50,000 (resulting in ACo’s ACB of the FA2 shares becoming $100,000 (as otherwise determined under s. 88(3)) + $50,000 = $150,000), would the s. 93(2.01) rules determine ACo’s loss on the disposition of the FA2 shares?
The Directorate responded:
“Yes”. Absent the subsection 93(2.01) loss limitation rule, ACo would have an otherwise determined (capital) loss of $40,000 (i.e. $110,000 - $150,000) arising on its disposition of its FA2 shares … . [P]aragraph 93(2)(a) mandates the application of subsection 93(2.01), and the $40,000 loss is limited by the exempt dividends previously paid on the FA2 shares or on shares for which the FA2 shares were substituted.