Principal Issues: Whether the Department of Finance (DOF) explanatory notes on subsections 87(8.4) and 87(8.5) contains an inconsistent statement?
Position: Yes, the particular statement should refer to subsections 87(4) and 87(8) rather than to subsections 87(8.4) and 87(8.5) in order to be technically accurate.
XXXXXXXXXX 2025-105373 Yannick Roulier
March 4, 2025
Dear XXXXXXXXXX:
Re: DOF Explanatory Notes on Subsections 87(8.4) & (8.5) – Inconsistent Statement
We are writing in reply to your email dated February 14, 2025, in which you suggested that a particular statement made in the Department of Finance’s explanatory notes seems to be inconsistent with a technical reading of the legislation.
The Department of Finance’s explanatory notes accompanying the introduction of subsection 87(8.4) and (8.5) (released by the Department of Finance in October of 2017, see under clause 24) indicated the following:
“New subsections 87(8.4) and (8.5) allow taxpayers to elect for dispositions of taxable Canadian property (“TCP”) that is shares of a corporation or an interest in a partnership or trust to occur on a tax-deferred (“rollover”) basis, where the disposition results from a foreign merger that meets certain conditions. A disposition of property by a merging foreign corporation on a foreign merger otherwise occurs on a taxable basis; the combined effect of subsections 87(8.4) and (8.5) is to provide tax-deferred rollover treatment in respect of a disposition of shares of a merging foreign corporation on a foreign merger, but not in respect of a disposition of property owned by the merging foreign corporations.”
[Our Emphasis]
We agree that the specific statement underlined above seems inconsistent with the legislation. In this respect, we note that a former version of these explanatory notes (released by the Department of Finance in September 2016, see under clause 15) was referring to subsections 87(4) and (8).
As such, it seems to us that the reference to subsections 87(8.4) and (8.5) is an inadvertent numbering error. It is our understanding that this statement should refer to subsections 87(4) and (8) in order to be technically accurate.
As always, if there is a conflict between the statute and the commentary, the statute is authoritative. Of course, one should consider whether there is an interpretation of the commentary which is consistent with the statute. In this case, your reading of the commentary, with which we agree, was that such a reconciliation was not possible.
We trust these comments clarify the matter and will be of some assistance.
Yours truly,
Charles Taylor
Section Manager
For Division Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch