2024-1008661R3 Internal reorganization: Half-year rule

Principal Issues: Supplementary Ruling to an internal reorganization including corporate wind-ups and partnership dissolutions. Principal issue in the supplementary ruling is: Does the half-year rule in subsection 1100(2) of the Regulations apply on the transfers of depreciable properties by the dissolving partnerships to the sole-proprietor (acquirer) as part of the Proposed Transactions in the primary ruling (2022-094124)?

Position: No; the half-year rule does not apply.

Reasons: Due to the applicability of the non-arm's length exception included in subsection 1100(2.2).

Author: XXXXXXXXXX
Section: Subsections 1100(2) and 1100(2.2) of the Regulations

XXXXXXXXXX                                                                         2024-100866

XXXXXXXXXX, 2024

Dear XXXXXXXXXX,

Re:     Advance Income Tax Ruling – Supplement to file 2022-094124
          XXXXXXXXXX. (Collectively referred to as the “Taxpayers”)

This letter is in response to your request for a supplemental ruling dated XXXXXXXXXX, wherein you requested an additional ruling in regards to the Proposed Transactions, as they were described in the advance income tax ruling dated XXXXXXXXXX (2022-094124) (referred to as the “Original Ruling”), on behalf of the above-referenced Taxpayers.

Unless otherwise stated, all capitalized terms used in this letter have the same meaning given to them in the Original Ruling, and, all references to paragraphs in this letter are references to the Paragraphs in the Original Ruling.

Additional Facts

1. On XXXXXXXXXX, a T5013 Partnership Information Return was filed for Partnership C’s fiscal period from XXXXXXXXXX. Partnership C reported CCA on Schedule 8 of $XXXXXXXXXX. The CCA claimed was the maximum allowable CCA as determined for the XXXXXXXXXX fiscal period (pro-rated by approximately XXXXXXXXXX for the deemed fiscal period end).

2. Partnership C’s UCC at the end of its XXXXXXXXXX fiscal period end was $XXXXXXXXXX.  

3. On XXXXXXXXXX, a T5013 Partnership Information Return was filed for Partnership D’s fiscal period from XXXXXXXXXX. Partnership D reported CCA on Schedule 8 of $XXXXXXXXXX. The CCA claimed was the maximum allowable CCA as determined for the XXXXXXXXXX fiscal period (pro-rated by approximately XXXXXXXXXX for the deemed fiscal period end).

4. Partnership D’s UCC at the end of its XXXXXXXXXX fiscal period end was $XXXXXXXXXX.

5. It is anticipated that ParentCo will claim the maximum allowable CCA during its XXXXXXXXXX taxation year end in respect of the depreciable properties transferred to it by Partnership C and Partnership D as described in Paragraphs 57 and 70, respectively, of the Original Ruling.

Rulings

Provided that the Facts, Additional Facts, Proposed Transactions, Additional Information and Purpose of the Proposed Transactions are accurate and constitute a complete disclosure of all relevant information, and provided that the Proposed Transactions have been completed in the manner described in the Original Ruling, the following ruling will be added to the Original Ruling:

Provided that the conditions specified in paragraphs 1100(2.2)(f) or (g) of the Regulations are satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount shall be included in determining an amount for element F in subsection 1100(2) of the Regulations in respect of each depreciable property of a prescribed class in Schedule II that ParentCo acquired from Partnership C and Partnership D on the transfers of property described in Paragraphs 57 and 70.

We hereby confirm that the rulings given in the Original Ruling continue to be binding on the CRA, subject to the conditions and limitations stated in the Original Ruling. For greater certainty, we confirm that the subsection 245(2) ruling (Ruling C of the Original Ruling) also continues to be binding on the CRA, in light of the changes made to the Original Ruling in this letter.

An invoice for our fees in connection with this supplemental ruling will be forwarded to you under separate cover.

Yours truly,

XXXXXXXXXX
Manager
for Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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