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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
The interaction of subsections 87(2)(e.1), 88(1)(e.2) and 40(3.1) where a subsidiary which holds a partnership interest which is an excluded interest is wound-up into its parent.
Position:
The winding-up should not result in the application of 40(3.1).
Reasons:
Reading of the law.
XXXXXXXXXX 980579
F. Francis
Attention: XXXXXXXXXX
November 4, 1998
Dear Sirs:
This is in reply to your letter of March 3, 1998, wherein you requested a technical interpretation of the application of paragraphs 87(2)(e.1) and 88(1)(e.2) of the Income Tax Act (the “Act”) to the following hypothetical situation:
1 . Subco is a wholly-owned subsidiary of Parentco, a taxable Canadian corporation for purposes of the Act.
2. Subco has an interest in a limited partnership which has a negative adjusted cost base.
3. The limited partnership interest is an “excluded interest” as defined in subsection 40(3.15) of the Act.
4. Parentco wants to wind-up Subco and to utilize Parentco losses against Subco income.
It is our view that, by virtue of paragraphs 87(2)(e.1) and 88(1)(e.2) of the Act, the cost of the partnership interest to Parentco will be deemed to be the amount that is the cost to Subco and Parentco will be deemed to be the same corporation as and a continuation of Subco in respect of the partnership interest. Consequently, provided that the conditions in subsection 40(3.15) of the Act continue to apply to the partnership interest, the winding-up of Subco into Parentco under subsection 88(1) of the Act should not, in and of itself, result in the application of subsection 40(3.1) of the Act.
We trust our comments will be of assistance to you. However, as noted in paragraph 22 of Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996, our comments are not binding on the Department.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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