A non-resident corporation formed a Canadian “Acquireco,” which acquired all the shares of a public corporation, and then vertically amalgamated with that target to form the Taxpayer. During the first taxation year following the amalgamation, the Amalco (the Taxpayer) sold all the shares of a U.S. subsidiary (the “U.S. shares”) that had been held by the target to a non-resident affiliate. No s. 88(1)(d) designation was made as an outside appraisal showed no appreciation of the U.S. shares.
CRA issued a proposal letter to substantially increase the proceeds of disposition of the U.S. Shares pursuant to s. 247(2)(c). Upon receipt of the letter, the Taxpayer requested a late-filed designation to increase the cost of the U.S. Shares pursuant to ss. 88(1)(d) and 87(11) for the end of the first taxation year following the amalgamation (“year-end #1”). The proposed reassessment would be made beyond the normal reassessment period but within the extended s. 152(4)(b)(iii period. Folio S4-F7-C1, para. 1.40 indicated that CRA would not allow a late-filed designation in situations where the particular eligible property to be bumped was disposed of in a taxation year that was statute-barred. Did this policy apply here?
After quoting from Nassau Walnut to the effect that where the Minister changes the provision under which the taxpayer’s income is computed and the taxpayer then seeks a deduction under the new provision, that request “does not raise the spectre of retroactive tax planning,” the Directorate then stated that here:
[I]f the CRA has the ability to reassess the Taxpayer’s Part I income tax return for year-end #1 pursuant to subparagraph 152(4)(b)(iii) with respect to its disposition of the … US shares … the Taxpayer’s late-filed designation request could be considered.