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.
If an s. 247(3) penalty otherwise is applicable due to an absence of reasonable efforts to determine an arm’s length transfer price for the purchase in Year X, does it apply to the adjustment in Year X or in Year X+7, and if it applies to the “transfer pricing capital adjustment” (“TPCA”) in Year X, is it statute-barred? CRA responded:
[A] TPCA, representing the reduction of the ACB of the capital property acquired by Canco in Year X, can be made at any time in respect of Canco’s Year X taxation year. Also, since the increased income amount resulting from the capital gain realized in Year X+7 would be exactly the same as the amount of the TPCA, there would be no separate TPIA in respect of the Year X+7 taxation year. [A s. 247(3)] penalty… assessed now in respect of Canco’s Year X acquisition…is assessed under Part XVI.1…and is not in any way constrained by the limitation periods set out in subsection 152(4) in respect of assessments of Canco under Part I. Thus, an initial assessment under subsection 247(3) can be made at any time. However, pursuant to subsection 247(11), any additional assessment under subsection 247(3) for the year of the TPCA (Year X) would be subject to restriction based on an application of subsection 152(4) with respect to Year X and Part XVI.1. …
[T]he only significance of the fact that the penalty is assessable in respect of Year X and not Year X+7 is… the de minimis rule in paragraph 247(3)(b)… .