Aco (a taxable Canadian corporation) disposed of its shares of Cco (the “Subject Shares”) at a loss to a wholly-owned subsidiary of Aco (Bco). There was then an amalgamation of Bco and Cco, to which s. 87(9) applied, resulting in Aco becoming the sole shareholder of Amalco. S. 40(3.5)(c)(i) deemed Amalco to own the Subject Shares for as long as it was affiliated with the transferor (Aco). Amalco was then wound-up into Aco (the "Winding-up") pursuant to s. 88(1), and dissolved. Aco argued that on the winding-up, Amalco (as a continuation of Bco, the transferee of the subject Shares) ceased to be affiliated with the transferor (Aco), so that this triggered the suspended loss pursuant to s. 40(3.4)(b)(i).
In rejecting this argument, the Directorate indicated that by virtue of s. 87(2)(g.4), Aco was considered following the Winding-up to be a continuation of Amalco, and to own the Subject Shares and, given that under s. 251.1(4)(a), a person is affiliated with itself, Aco as the transferor continued to be affiliated with the person (Aco in its capacity of a continuation of Amalco and Bco) who was the deemed owner of the Subject Shares.