CRA rules on the application of the half-year rule exception on s. 98(5) wind-ups

2022-0941241R3 concerned the successive wind-ups of two “subsidiary” general partnerships as a result of the parent winding-up under s. 88(1) the two corporate subsidiaries, each of which had been a partner with the parent.

Now, CRA provided a supplementary ruling that, provided that (the 364-day rule in) Reg. 1100(2.2)(f) was satisfied (or as per Reg. 1100(2.2)(g), the Reg. 1100(2.2) exception applied to the transferor partnership), the half-year rule in Reg. 1100(2) did not apply by virtue of Reg. 1100(2.2) to the depreciable property acquired by the parent on the two partnership wind-ups.

Apparently, the point is that the transfer of depreciable property of each subsidiary partnership to the remaining partner (the parent) by operation of law entailed the acquisition of property by the parent from a person with whom the parent was not dealing at arm’s length “at the time the property was acquired,” i.e., the parent is considered, as required by Reg. 1100(2.2)(e), to not be dealing at arm’s length with a person (the partnership, being a person for income-computation purposes) that, as a substantive matter, disappears at the moment in question. (The underlying ruling stated, for instance, that: “For greater certainty, there will not be any time interval between the time of the cessation of Partnership D’s existence and the time that all property of Partnership D is distributed to ParentCo.”)

Neal Armstrong. Summary of 2024 Ruling 2024-1008661R3 under Reg. 1100(2.2)(e).