14 November 2002 External T.I. 2002-0169725 - WINDINGUP AND BUMP

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 CCRA.

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

Principal Issues: Ordering of windings-up in a corporate chain. Does the order of the windings-up affect the availability of the bump?

Position: Yes it can.

Reasons: The law. The property of the subsidiary to be bumped by the parent must, among other requirements, have been continuously owned by the particular subsidiary without interruption since the parent last acquired control of the subsidiary.

XXXXXXXXXX 2002-016972

November 14, 2002

Dear XXXXXXXXXX:

Re: Paragraphs 88(1)(c) and (d)

This is in response to your letter dated October 16, 2002, wherein you requested our opinion on the application of the above noted provisions of the Income Tax Act ("the Act") to the fact situation described in your letter.

While we have not repeated the details of the particular situation described in your letter, your situation primarily concerns the availability of the bump where a taxpayer acquires control of a corporation as a result of the death of an individual and certain tax planning steps are undertaken that ultimately will require a series of windings-up of a chain of wholly-owned corporations under subsection 88(1). Specifically, your question is whether the bump to a property owned by the bottom-tier subsidiary is affected if the series of windings-up commences with the winding-up of the bottom-tier subsidiary and moves upwards in the chain or if the series of windings-up commences with the winding-up of the top-tier subsidiary and moves downward in the chain.

Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5 (IC-70-6R5) dated May 17, 2002. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's views must be made to your local Tax Services Office. Consequently, while we are unable to confirm your views we can offer the following general comments.

Paragraph 88(1)(c) provides, inter alia, that only capital property (that is not an ineligible property described in subparagraphs 88(1)(c)(iii) to (vi)) owned by the subsidiary at the time the parent last acquired control of the subsidiary and continuously thereafter without interruption is eligible to be "bumped". If a bottom-tier subsidiary is first wound up into its immediate parent (the "middle-tier subsidiary"), on a subsequent winding-up of the middle-tier subsidiary into its immediate parent the property acquired by the middle-tier subsidiary from the bottom-tier subsidiary would not be property described in paragraph 88(1)(c). Consequently, the ordering of a series of windings-up in a chain of wholly-owned corporations does affect the availability of the bump.

Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R5.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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