13 October 1983 Income Tax Severed Letter 5-5363 - []

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.

XXXX K.H. Major (613) 995-1787

October 13, 1983

Dear XXXX

This is in reply to your letter of August 11, 1983 concerning the application of paragraph 5907(2)(f) of Income Tax Regulations (the Regulations) in the case of a complete liquidation of a U.S. corporation under the provisions of section 337 of the Internal Revenue Code (the Code).

You have advised us that under section 337 of the Code, if a plan of complete liquidation is adopted by a U.S. corporation, and within twelve months of the adoption of the plan the net assets of the corporation are distributed in complete liquidation, generally no gain or loss is recognized for U.S. tax purposes by the liquidating corporation from the sale of its assets during such twelve-month period.

In your view in the case where the U.S. corporation carries on its active business entirely in the U.S. and is a foreign affiliate of one or more Canadian corporations, the gains which are excluded from U.S. taxation by virtue of section 337 of the Code should be added to the amount of earnings determined under clause 5907(1)(a)(i)(A) of the Regulations pursuant to paragraph 5907(2)(f) of the Regulations.

We were able to determine that all gains are not excluded by virtue of section 337 of the Code. For example the exemption does not include inventories unless substantially all inventory is sold in bulk to one buyer and is not replaced and if section 1245 of the Code or section 1250 of the Code properties are sold, the section 1245 or section 1250 of the Code gain (recaptured depreciation on some assets) must be recognized by the corporation.

However, it is our opinion that to the extent that the gains on the sale of business assets (other than those which are capital property to the U.S. Corporation within the meaning of paragraph 54(b) of the Income Tax Act, but including goodwill) are excluded from U.S. Taxation by virtue of section 337 of the Code, they should be added to the amount of earnings determined under clause 5907(1)(a)(i)(A) of the Regulations by virtue of paragraph 5907(2)(f) of the Regulations.

In the case of the disposition of capital property in the above situation it is our view that the capital gains will be determined under the provisions of subsection 5907(5) of the Regulations and that such gains should be included in exempt earnings by virtue of subparagraph 5907(1)(b)(i) of the Regulations.

We trust that this information will be of assistance to you.

Yours truly,

for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch