CRA rules on the continuity of reserves on a s. 98(5) wind-up

The s. 98(5) wind-up rules are largely missing the detailed continuity rules contained in the s. 87 amalgamation rules. CRA has ruled that on such a winding-up, there is a flow-through of the s. 20(1)(m) and (n) reserves to the successor former partner (termed, the “proprietor”), and a continued ability of the proprietor to deduct unamortized prepaid expenses under s. 18(9), as well as there being an ability to make a s. 20(24) election between the partnership and the proprietor. Interest on debt assumed by the proprietor was ruled to be deductible to the same extent as before the wind-up. No employee income will be triggered by the assumption by the proprietor of DSUs and RSUs.

Neal Armstrong. Summaries of 2015 Ruling 2015-0601441R3 under s. 20(1)(m), s. 20(1)(n), s. 20(24), s. 18(9), s. 20(1)(c)(ii), s. 6(1)(i), s. 34.2(11) and s. 98(5).