CRA finds that lacunae in the s. 87 rules do not deny the s. 22 election to an Amalco

Immediately after its formation, Amalco dropped the business of a predecessor down to a partnership under s. 97(2) – except that it used the s. 22 election for the transferred trade receivables. The Directorate found that as a technical matter the s. 22 election was not available – effectively because s. 87(2)(g), which deemed Amalco to be a continuation of the predecessor for purposes of the ss. 20(1)(l) and (p) reserve provisions, did not go further to deem the Amalco receivables to have been includible in its income. Furthermore, it was at least somewhat doubtful that Amalco carried on the predecessor’s business given that the drop-down occurred within minutes of the amalgamation.

The Directorate nonetheless concluded that the s. 22 election was valid as denying the election “runs against the legislative scheme of section 87.”

Neal Armstrong. Summary of 24 October 2017 Internal T.I. 2017-0719531I7 under s. 22(1).