Suncor Energy – Federal Court of Appeal finds that, to effect the s. 13(31) continuity rule, the transferee of depreciable property is deemed to have taxation years before its formation

In approximate terms, s. 13(27)(b) deems the available-for-use rules to be satisfied once two actual taxation year ends have passed following the acquisition of the depreciable property. In this regard, s. 13(31)(a) deems a property acquired in a non-arm's length transfer to have been acquired when it was acquired by the transferor.

The Crown effectively asserted that the s. 13(31) continuity rule did not work where the transferee had been newly formed, as it did not have any taxation years that could be counted from the time of the original acquisition of the depreciable property by the transferor to the time of formation of the transferee. In rejecting that position, Webb J.A. stated that “[i]t is a necessary implication of the deemed acquisition of property at a particular time [pursuant to s. 13(31)] that such time must occur during a taxation year” and that “[o]therwise, the time period in paragraph 13(27)(b) would never commence” so that “the purpose of subsection 13(31) of the Act [, which] is to provide for continuity of ownership between non-arm’s-length parties when applying the rule in paragraph 13(27)(b)” would not be met.

Support for this proposition included that the s. 13(31) rule, by virtue of s. 13(31)(b), extended to depreciable properties transferred on a butterfly, for which the transferee corporations are typically Newcos - which contradicted the Crown's view that Newcos could not benefit under the s.13(27)(b) rule by reference to the time of the depreciable property’s acquisition by the non-arm's length transferor.

Neal Armstrong. Summaries of Suncor Energy Inc. v. Canada, 2026 FCA 33 under s. 13(31) and Statutory Interpretation – Interpretation provisions.