It may be unclear as to whether maximum CCA should be treated as having been claimed for pre-acquisition taxation years of an LLC under Reg. 5907(2.03)

US LLC acquired depreciable property in 2015 for use in its active business, and then on January 1, 2022, its shares were acquired by a Canadian taxpayer (Acquireco).

Reg. 5907(1)(a)(iii) generally provide that earnings from an active business of an LLC foreign affiliate of a taxpayer resident in Canada shall be computed as if if the business was carried on in Canada and the LLC was resident in Canada; and Reg. 5907(2.03) generally provides that its income or loss from that business for a particular taxation year shall be computed on the basis that for that year and “any” preceding taxation year ending after August 19, 2011. it claimed the maximum CCA and other deductions in computing its income from the business.

Under the above wording, it might seem that the maximum CCA should be treated under Reg. 5907(2.03) as having been claimed in the prior years, thereby increasing the earnings for 2021 and subsequent years. However, it is suggested that it could be argued that no CCA should be considered to be claimed for the pre-acquisition period, given inter alia that prior to the acquisition, US LLC was not a foreign affiliate of Acquireco and, therefore, never claimed depreciation in computing income with respect to Acquireco.

Neal Armstrong. Summary of Nakul Kohli and Simon Townsend, “Computing UCC for Newly Acquired LLCs,” Canadian Tax Focus, Vol. 13, No. 1, February 2023, p. 9 under Reg. 5907(2.03).