2007 Ruling 2007-0219811R3 - Non Arm's Length Transfer of 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.

Principal Issues: Whether subsection 1102(14) of the Regulations will apply to the distribution of depreciable property to the partners on the dissolution of a partnership

Position: Yes

Reasons: Where depreciable property is transferred in a non arm's length transaction, subsection 1102(14) deems the property to satisfy all of the criteria necessary to be included in the particular class

XXXXXXXXXX 								2007-021981

XXXXXXXXXX, 2007

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the additional information and submissions provided in your subsequent correspondence.

Preliminary Matters

To the best of your knowledge and that of the taxpayer involved, none of the issues involved in this ruling request is:

(a) in an earlier return of the taxpayer or any related person;

(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or any related person;

(c) under objection by the taxpayer or any related person;

(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; and

(e) the subject of a ruling previously considered by the Directorate.

DEFINITIONS

Unless otherwise indicated, in this ruling request:

(a) "Act" means the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp), as amended as at the date hereof;

(b) "Amalco" means the corporation to be formed by the amalgamation of the Corporation and GP as described in paragraph 11 below;

(c) "CBCA" means the Canada Business Corporations Act;

(d) "CCA" means capital cost allowance, as that term is used in the Act and Regulations.

(e) "Corporation" means XXXXXXXXXX;

(f) "CRA" means the Canada Revenue Agency;

(g) "depreciable property" has the meaning assigned by subsection 13(21) of the Act;

(h) "GP" means XXXXXXXXXX;

(i) "LP" means XXXXXXXXXX;

(j) "Project" means the XXXXXXXXXX, an integrated oil sands project XXXXXXXXXX;

(k) "Property" means the property held by LP and that is included in Class 41 as more fully described in paragraph 5 below;

(l) "public corporation" has the meaning assigned by subsection 89(1) of the Act;

(m) "Regulations" means the Income Tax Regulations (Consolidated Regulations of Canada, c. 945), as amended as at the date hereof;

(n) XXXXXXXXXX;

(o) XXXXXXXXXX;

(p) "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act;

(q) "undepreciated capital cost" has the meaning assigned by subsection 13(21) of the Act; and

(r) XXXXXXXXXX.

Our understanding of the facts, proposed transactions and purposes of the proposed transactions is as follows:

FACTS

1. The Corporation is governed by the CBCA and it is a taxable Canadian corporation and a public corporation. The Business Number of the Corporation is XXXXXXXXXX. The Corporation files its annual income tax return at the XXXXXXXXXX Tax Centre and its Tax Services Office is XXXXXXXXXX. The taxation year of the Corporation ends on XXXXXXXXXX of each year.

2. The Corporation owns XXXXXXXXXX% of the issued and outstanding shares of GP. The Corporation is the limited partner of LP and holds a XXXXXXXXXX% interest in LP.

3. GP is governed by the CBCA and it is a taxable Canadian corporation. GP files its annual income tax return at the XXXXXXXXXX Taxation Centre and its Tax Services Office is XXXXXXXXXX. The taxation year of GP ends on XXXXXXXXXX of each year. GP is the general partner of LP, and holds a XXXXXXXXXX% interest in LP.

4. LP is a limited partnership that subsists under the laws of XXXXXXXXXX. The fiscal year of LP ends on XXXXXXXXXX of each year. XXXXXXXXXX.

5. LP holds XXXXXXXXXX depreciable property relating to the Project, including depreciable property that has been included in Class 41 of Schedule II to the Regulations by virtue of paragraph (a) thereof (the "Property"). XXXXXXXXXX Subject to the available-for-use rules in subsections 13(26) to (31) of the Act, the Property would be included in the undepreciated capital cost of depreciable property of a separate Class 41 by virtue of subsection 1101(4c) of the Regulations and would be eligible for accelerated CCA in accordance with paragraph 1100(1)(y) of the Regulations.

6. XXXXXXXXXX.

7. XXXXXXXXXX.

8. XXXXXXXXXX.

9. XXXXXXXXXX.

PROPOSED TRANSACTIONS

10. LP will be dissolved pursuant to subsection 98(3) of the Act, and a XXXXXXXXXX% undivided interest in the Property will be distributed to the Corporation and a XXXXXXXXXX% undivided interest in the Property will be distributed to GP.

11. Immediately following the end of the Corporation's XXXXXXXXXX taxation year, GP will be amalgamated with the Corporation to form Amalco pursuant to the relevant provisions of the CBCA and in accordance with the provisions of subsection 87(1) of the Act, such that the provisions of paragraph 87(2)(d) of the Act will apply for purposes of determining the capital cost and undepreciated capital cost of the Property to Amalco.

PURPOSE OF PROPOSED TRANSACTIONS

XXXXXXXXXX. The purpose of the proposed transactions is to simplify the structure of the Corporation's business group.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purposes of the proposed transactions, we confirm the following:

A. Subsection 1102(14) of the Regulations will apply to the transfer of the undivided interest in the Property by LP to each of the Corporation and GP on the dissolution of LP as described in paragraph 10 above, so that any such property that is depreciable property of a prescribed class or a separate prescribed class immediately before the transfer will be deemed to be property of that same prescribed class or separate prescribed class, as the case may be, of the Corporation or GP, as the case may be.

B. By virtue of subsection 1102(14) of the Regulations, each property which immediately before the amalgamation described in paragraph 11 above, is depreciable property of a prescribed class or separate prescribed class of either the Corporation or GP and which is acquired by Amalco on the amalgamation described in paragraph 11 above, will be depreciable property of the same prescribed class or separate prescribed class, as the case may be, of Amalco.

C. Provided that any depreciable property included in the Property will, pursuant to Ruling B above, be included in a separate prescribed class that is described in subsection 1101(4c) of the Regulations, paragraph 1100(1)(y) of the Regulations will apply to Amalco in respect of such property.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued by CRA on May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed by XXXXXXXXXX.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

COMMENTS

Nothing in this ruling should be construed as implying that the CRA has agreed to or reviewed:

(a) the determination of the fair market value or cost amount of any property referred to herein;

(b) whether any particular depreciable property referred to herein is property included in Class 41 pursuant to paragraph (a) thereof; or

(c) any other tax consequences relating to the facts or proposed transactions, other than those specifically described in the rulings given above.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch