7 December 1999 External T.I. 1999-0012425 - Depreciable Property

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Corporation transfers depreciable property to an affiliated corp. Any loss is denied pursuant to 13(21.2). Can the loss be triggered when the corps are no longer affiliated?

Position: Yes

Reasons: When affiliation ends that is sufficient to invoke the triggering event, and no disposition is required by the original transferee.

TEI Question XXII - Subsection 13(21.2)

December 7, 1999
992951

Where a corporation ("Aco") transfers depreciable property to an affiliated corporation ("Bco"), any loss to Aco arising from the transfer is denied pursuant to subsection 13(21.2) of the Act. Subsequently, Bco's affiliation with Aco is terminated and Bco continues to own the property.

Question:

Can the denied loss be recognized by Aco at the time when Bco is no longer affiliated with Aco?

Response:

Subsection 13(21.2) of the Act sets out rules that will apply, where, in general terms, a corporation, trust or partnership would otherwise realize a terminal loss on a disposition of depreciable property to an affiliated person. The rules serve to defer the recognition of that terminal loss (by deeming the property to be owned by the transferor) until the earliest of several possible triggering events, one being that the property is no longer held by a person who is affiliated with the initial transferor. Once the property has left the affiliated population, the initial transferor may be able to recognize the deferred loss.

The legislation for this triggering event reads "... the transferor is deemed to own a property ... until the time ... after the particular time, (A) at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns or has a right to acquire the transferred property ..." (subparagraph 13(21.2)(e)(iii)).

The technical notes of the Department of Finance describe this triggering event as being "a subsequent disposition of the property to a person that is neither the transferor nor a person affiliated with the transferor".

It is our opinion that if the affiliation between Aco and Bco ends, this is sufficient to invoke the triggering event and no disposition by Bco is required. As such, immediately after the time following a 30-day period throughout which Aco and Bco are not affiliated, the deeming provision no longer applies to Aco. Accordingly, the provisions of subsection 20(16) (terminal losses) may have application in the taxation year for which Aco is no longer deemed to own the property.