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.
We are writing in response to your letter of January 5, 1983 wherein you requested our interpretation of the treatment of costs incurred on a wind up to which subsection 88(1) applies.
You have asked us what the appropriate tax treatment is for
- (a) costs incurred by the parent that relate directly to the wind up?
- (b) costs incurred by the parent that relate indirecly to the wind up?
- (c) costs incurred by the subsidiary that relate directly to the wind up?
- (d) costs incurred by the subsidiary that relate indirectly to the wind up?
It is not possible for us to state the appropriate tax treatment for all the different costs which may be incurred in connection with a winding up. We can only respond in general terms.
Costs incurred by a parent that relate directly or indirectly to the wind up and that do not have the characteristics of normal current period costs would be capital in nature. Such costs would not be deductible by virtue of paragraph 18(1)(b). However, such costs would be eligible capital expenditures if they meet the requirements of paragraph 14(5)(b) as explained in paragraph 2 of IT-143R. One of those requirements is that the expenditures must be in respect of a business and for the purpose of producing income from the business. It would depend on the circumstances as to whether the expenditures were incurred in respect of a business and for the purpose of earning income from a business. A primary factor in this regard would be whether the subsidiary carried on a business at the time of winding up. If it did, the costs would normally be considered to be eligible capital expenditures.
Costs incurred by a subsidiary that relate directly or indirectly to the wind up would generally no' be incurred for the purpose of earning income from a business and therefore would not be deductible.
We trust these comments will be of assistance to you.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1983
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1983
Email this Content