2024 Ruling 2024-1008661R3 - Internal reorganization: Half-year rule

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Subsections 1100(2) and 1100(2.2) of the Regulations

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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.

Additional Facts

Rulings

Principal Issues: Supplementary Ruling to an internal reorganization including corporate wind-ups and partnership dissolutions. Principal issue in the supplementary ruling is: Does the half-year rule in subsection 1100(2) of the Regulations apply on the transfers of depreciable properties by the dissolving partnerships to the sole-proprietor (acquirer) as part of the Proposed Transactions in the primary ruling (2022-094124)?

Position: No; the half-year rule does not apply.

Reasons: Due to the applicability of the non-arm's length exception included in subsection 1100(2.2).

XXXXXXXXXX									  2024-100866

XXXXXXXXXX, 2024

Dear XXXXXXXXXX,

Re: Advance Income Tax Ruling – Supplement to file 2022-094124
XXXXXXXXXX. (Collectively referred to as the “Taxpayers”)

This letter is in response to your request for a supplemental ruling dated XXXXXXXXXX, wherein you requested an additional ruling in regards to the Proposed Transactions, as they were described in the advance income tax ruling dated XXXXXXXXXX (2022-094124) (referred to as the “Original Ruling”), on behalf of the above-referenced Taxpayers.

Unless otherwise stated, all capitalized terms used in this letter have the same meaning given to them in the Original Ruling, and, all references to paragraphs in this letter are references to the Paragraphs in the Original Ruling.

Additional Facts

1. On XXXXXXXXXX, a T5013 Partnership Information Return was filed for Partnership C’s fiscal period from XXXXXXXXXX. Partnership C reported CCA on Schedule 8 of $XXXXXXXXXX. The CCA claimed was the maximum allowable CCA as determined for the XXXXXXXXXX fiscal period (pro-rated by approximately XXXXXXXXXX for the deemed fiscal period end).

2. Partnership C’s UCC at the end of its XXXXXXXXXX fiscal period end was $XXXXXXXXXX.

3. On XXXXXXXXXX, a T5013 Partnership Information Return was filed for Partnership D’s fiscal period from XXXXXXXXXX. Partnership D reported CCA on Schedule 8 of $XXXXXXXXXX. The CCA claimed was the maximum allowable CCA as determined for the XXXXXXXXXX fiscal period (pro-rated by approximately XXXXXXXXXX for the deemed fiscal period end).

4. Partnership D’s UCC at the end of its XXXXXXXXXX fiscal period end was $XXXXXXXXXX.

5. It is anticipated that ParentCo will claim the maximum allowable CCA during its XXXXXXXXXX taxation year end in respect of the depreciable properties transferred to it by Partnership C and Partnership D as described in Paragraphs 57 and 70, respectively, of the Original Ruling.

Rulings

Provided that the Facts, Additional Facts, Proposed Transactions, Additional Information and Purpose of the Proposed Transactions are accurate and constitute a complete disclosure of all relevant information, and provided that the Proposed Transactions have been completed in the manner described in the Original Ruling, the following ruling will be added to the Original Ruling:

Provided that the conditions specified in paragraphs 1100(2.2)(f) or (g) of the Regulations are satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount shall be included in determining an amount for element F in subsection 1100(2) of the Regulations in respect of each depreciable property of a prescribed class in Schedule II that ParentCo acquired from Partnership C and Partnership D on the transfers of property described in Paragraphs 57 and 70.

We hereby confirm that the rulings given in the Original Ruling continue to be binding on the CRA, subject to the conditions and limitations stated in the Original Ruling. For greater certainty, we confirm that the subsection 245(2) ruling (Ruling C of the Original Ruling) also continues to be binding on the CRA, in light of the changes made to the Original Ruling in this letter.

An invoice for our fees in connection with this supplemental ruling will be forwarded to you under separate cover.

Yours truly,

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

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Summaries

Summary Under

Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.2) - Paragraph 1100(2.2)(e)

application of the half-year rule exception on s. 98(5) wind-up: parent was not dealing at arm’s length with the partnership at the moment of its dissolution

2022-0941241R3 concerned inter alia (i) two general partnerships: Partnership C between ParentCo and its wholly-owned subsidiary, SubCo; and Partnership D, between ParentCo, Partnership C, and NewCo2 (held by ParentCo and SubCo); (2) the successive windings-up by operation of law of Partnerships C and D as a consequence of the winding-up of SubCo, then NewCo2. CRA ruled inter alia as to the application of s. 98(5) to the two wind-ups.

Now, in 2024-1008661R3, CRA ruled 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), the half-year rule in Reg. 1100(2) did not apply by virtue of Reg. 1100(2.2) to the depreciable property acquired by ParentCo on the two partnership wind-ups.

Summary Under

Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c)

parent was not dealing at arm’s length with a subsidiary partnership at the instant of its dissolution by operation of law

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.”)

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2024 Ruling 2024-1008661R3 - Internal reorganization: Half-year rule

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Additional Facts

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