8 July 2015 External T.I. 2014-0550641E5 - Absorptive merger-exchange of shares -- summary under Subsection 87(8.2)

In the case of an absorptive merger of FA2 into FA1 (as the survivor) where FA2 ceases to exist and its shares are cancelled, s. 87(8.2)(f) deems the cancelled shares to have been exchanged by the Canadian shareholder (Canco) for purposes of the foreign merger definition in s. 87(8.1), so that the requirement in s. 87(8.1)(c) of that definition - that there be such a share exchange - is satisfied. CRA concluded that the deemed exchange rule in s. 87(8.2)(f) also applies for purposes of the application of s. 87(4) to a foreign merger so that the ACB of the cancelled shares of FA2 is deemed to be added to the cost to Canco of its shares of the survivor (FA1).