13 January 1992 Administrative Letter 9133456 F - Bill C-18 Amendments - Successor Rules

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.

Successor Rules - Subsections 66.7(12) and (12.1)

This is in reply to your memorandum dated December 3, 1991 and the analysis attached thereto of a hypothetical situation involving the successor rules, namely, subsections 66.7(12) and (12.1) contained in Bill C-18 which received Royal Assent on December 17, 1991.

Our understanding of your concern is that, according to your interpretation, there would be a loss of deductions as a result of the operation of subsections 66.7(12) and (12.1).  In the hypothetical situation provided in your analysis, the "lost" amount of deductions is $126 of CDE.

We do not have any quarrel with your calculations of the "specified amount" of COGPE, CDE and CEE under the relevant paragraphs of subsection 66.7(12.1) at pages 2 to 7 of the analysis.  We do not agree however that the operation of these provisions result in any "lost" deductions.

It is our view that the "difference" of $126 of CDE mentioned in your reconciliation of CDE at the bottom of page 5 of your analysis would be available for deduction by the successor by virtue of paragraphs 66.7(4)(a) and 66.7(12)(c.1) and, as a consequence thereof, no amount of CDE of the original owner is "lost".

It should be noted that the amounts available to successors under the amended successor rules include, but are not restricted to, the amounts designated by the original owner under new clauses 66.7(12.1)(a)(i)(B), (b)(i)(B) and (c)(i)(B).  This is clearly demonstrated in Finance's example at pages 110 to 112 of the Explanatory Notes to Bill C-18 whereat the example assumes that no designations are made (see first paragraph on page 111), yet the rules operate to determine the amounts which will be available for deduction by the successor.

In reality, the CDE designation would probably not be made by the original owner as assumed in the hypothetical example if he wished to maximize his CDE claim for the year.  Note that the original owner would obtain the deduction of $180 which you suggested he should have (in the penultimate paragraph on page 7 of your analysis) if no designation was made. 

It is anticipated that an original owner would designate an amount of CDE, for example, that he wished a successor to have only if he was otherwise required to use his CDE to reduce an income inclusion resulting from subsection 66.2(1).  This is explained at pages 99 and 100 of the Explanatory Notes to Bill C-18.

If you have any questions or wish to discuss any of the above further, please contact the writer.

DirectorManufacturing Industries, Partnerships  and Trusts DivisionRulings Directorate