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. 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. The FA2 shares were sold by ACo to a third party for cash of $110,000, and ACo under an s. 93(1) election designated $10,000 of the proceeds to be a dividend (based on its view that s. 93(4) did not apply). The Directorate stated:
[U]nder paragraph 93(1)(a), the “elected amount” cannot exceed the amount of the taxpayer’s otherwise determined gain. … ACo has no gain on the disposition of the FA2 shares, in which case ACo’s elected amount would become $ nil.