The trial judge had found that the stop-loss rule in s. 40(3.4) did not apply to the disposition by the taxpayer of shares of a subsidiary ("PII") at a loss to another newly-incorporated subsidiary because within 30 days of that disposition, the two subsidiaries were amalgamated - on the basis that the presumption in s. 40(3.5)(c) only applied if subsections 40(3.3) and (3.4) had already been applied, whereas here not all the conditions of s. 40(3.3) had been met (because the shares of the transferee corporation had to cease to exist as a result of the amalgamation within the 30 day period).
In reversing this decision, Nadon, J.A. stated (at para. 30) that the word "apply" meant "'pertain', 'relate', 'concern', 'deal with'" so that s. 40(3.5) did not require the three conditions of s. 40(3.3) be met before the presumptions in s. 40(3.5)(c) applied. Accordingly, because s. 40(3.5)(c) deemed the transferee subsidiary to continue to exist, the stop-loss rule in s. 40(3.4) applied.