In Year X , Canco buys a non-depreciable capital property from its non-resident parent (Forco) for $10,000,000, sells the property for $15,000,000 to an arm’s length buyer in Year X+7 and in Year X+9 (which is still open for reassessment), CRA on audit determines that an arm’s length purchase price of the property in Year X (which now is statute-barred) would have been $1,000,000.
Can the Minister make an adjustment to the property’s adjusted cost base pursuant to s.247(2) even though the non-arm’s length purchase was made in Year X? Can the Minister reassess Canco so as to increase its capital gain for the Year X+7 taxation year? CRA responded:
[T]here is no impediment to assessing the higher capital gains tax in Year X+7. …[T]he “mid-amble” of subsection 247(2) contemplates an adjustment to any amount for any taxation year of Canco, and not just the year in which the transaction arises. This view is based on an approach whereby the amount initially adjusted under subsection 247(2) is the “adjusted cost base” (“ACB”) of the property in Year X which would then lead to a consequential increase to the capital gain in Year X+7.
Thus, a tax attribute, such as the ACB of a capital property, which was reported by Canco as being higher than the arm’s length price as a result of a non-arm’s length transaction that took place in a taxation year that is statute-barred, can, in our view, be adjusted for the purposes of reassessing a non-statute-barred taxation year, in this case the Year X+7 taxation year.