Canco carries on a life insurance business in Canada, and also through a foreign branch with clients in the foreign country. The income of FA, which is wholly-owned by Canco and resident in that county, from its own insurance business carried on that country is solely "income from an active business."
Would s. 95(2)(a.1) deem FA's income from the sale of property (that had been used in its business) to Canco's foreign insurance branch to be income from a business other than an active business if the particular property were subsequently sold by Canco's foreign branch to a person with whom Canco deals at arm's length, so that ss. 138(2) and (9) excluded the resultant income, gain or loss from Canco's income? CRA responded:
[I]f subsections 138(2) and (9) apply to exclude the income, gain or loss arising from the disposition of the property, previously acquired by Canco's foreign insurance branch from FA, from Canco's income from an insurance business for the purposes of Part I… the cost of such property would not be "relevant in computing the income from a business carried on by" Canco for the purposes of paragraph 95(2)(a.1). Accordingly, paragraph 95(2)(a.1) would not apply to FA's income from the sale of the property to Canco.