In 2012-0456221R3, CRA ruled that s. 69(5) applied to the winding-up of a Newco so that s. 40(3.6) did not deny the capital loss from the resulting disposition to a spousal testamentary trust of its Newco shares, which it had acquired, after the death of its beneficiary, in exchange for shares of a corporation held by that trust before such death. Furthermore, in 2013-0480361C6, CRA confirmed that s. 129(1.2) could not be applied.
After confirming the continued validity of 2012-0456221R3, CRA stated:
Generally, where, in light of the facts and circumstances of a particular situation, post mortem planning is undertaken primarily to prevent the application of the loss limitation rule in subsection 40(3.6) to limit double taxation and, to the extent that the integration principle is respected, i.e., a corresponding tax is ultimately paid by the Trust on the deemed dividend received, the CRA would be of the view that the specific anti-avoidance rule in subsection 129(1.2) should not apply in those circumstances. Consequently [ 2013-0480361C6] … is still valid.