FA Finco (a foreign affiliate of Canadian Parent) lends to FA Holdco (a Delaware subsidiary of Canadian Parent), which uses the borrowed money to acquire all of the shares of FA Target, which are not excluded property. FA Target is merged into FA Opco (wholly-owned by FA Holdco), so that FA Holdco receives shares of the merged corporation (Mergeco), replacing its shares of FA Target and FA Opco. After the merger, substantially all of the property of Mergeco is excluded property.
Regarding the application of s. 95(2)(a)(ii)(D), CRA indicated that under the current use test, FA Holdco would appear to hold the Mergeco shares for the purpose of generating income therefrom (assuming that there was a prospect of dividends) and that, by assumption, the other tests in s. 95(2)(a)(ii)(B), including the Mergeco shares being excluded property and the “qualifying interest” tests, were met.