CRA finds that a depreciable property continues as such on a s. 88(1) winding-up irrespective of the parent’s purpose

Reg. 1102(1)(c) provides that depreciable property does not include a property which is not acquired for an income-producing purpose.  CRA dealt with the situation where a parent received depreciable property of its subsidiary on a s. 88(1) winding-up with no intention of using the property for an income–producing purpose (it was kept idle) - and a number of years later, sold the property at a loss.

In light of Reg. 1102(14), which deemed the property to belong to the same prescribed class as when it was held in the subsidiary, and the somewhat conflicting reasons in Hickman which nonetheless pointed in the same general direction, CRA concluded that the property retained its character as depreciable property in the hands of the parent.  Furthermore, keeping the property idle did not constitute a change of use under s. 13(7)(a), so that the terminal loss was not realized until the year of the sale.

Although it was depreciable property, the parent nonetheless was precluded from claiming CCA, in light of the income-producing purpose test in the preamble to s. 20(1) that was emphasized in Hickman.

Neal Armstrong.  Summaries of 22 June 2015 Memo 2014-0553731I7 under Reg. 1102(14), s. 13(7)(a) and s. 20(1).