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.
Question
Capital Cost Allowance - Half Year Rule on Non-Arm's Length Transfers
A and B are Canadian resident related corporations. The taxation year of both A and B end on December 31, 1990.
On January 1, 1990, A transferred a depreciable asset to B under section 85 of the Income Tax Act; the same asset was transferred back to A on July 1, 1990, again under section 85 of the Act. A originally acquired the asset in 1987.
Does Section 1100(2.2) of the Income Tax Regulations provide that the half year rule will be applied to A in computing its 1990 taxable income?
Department's Position
The half year rule does not apply to transactions which involve a non-arm's length acquisition of depreciable property (for example where section 85 of the Act may apply) where the transferor owned the property continuously from a day that was at least 364 days before the end of the transferee's taxation year in which the property was acquired. Note that this does not require the previous owner to have held the property for a year or more. The 364 day period is measured by counting back from the end of the transferee's taxation year. Thus, in your example, A would not be subject to the half year rule.
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