Transactions
With a view to Profitco, which is an indirect wholly-owned Canadian subsidiary of a non-resident public company (“Parent”), utilizing the non-capital losses (including potentially carrying them back to a prior year) of Lossco, which is a direct wholly-owned Canadian subsidiary of Parent, Profitco transferred Class 12 property on a s. 85(1) rollover basis to Lossco in consideration for redeemable preferred shares of Lossco, then Lossco transferred the properties back to Profitco in consideration for redeemable preferred shares of Profitco having a paid-up capital equaling their redemption amount, with a joint s. 85(1) election being made at the estimated FMV of the properties, so that Lossco realized recapture of depreciation. The two preferred shareholdings were then redeemed for notes, and the notes set off.
Rulings
Including re application of s. 55(3)(a) exception to the deemed dividend received by Profitco and s. 245(2). The CRA summary stated:
The proposed subject transaction conforms with the CRA's policy to not apply subsection 55(2) of the Act to internal reorganizations within a related group for loss consolidation purposes and recognizing that property retains its character on a rollover transaction between related parties is consistent with the CRA’s position in CRA View 2014-0553731I7 that depreciable property should retain its character on wind-up.