| 921872 | |
| 24(1) | S. Leung |
| (613)957-2115 |
Attention: 19(1)
August 17, 1992
Dear Sirs:
Re: Loss Utilization and subsection 245(2) of the Income Tax Act (the "Act")
We are writing in response to your letter of June 15, 1992 wherein you requested our view as to whether subsection 245(2) of the Act would be applied to the following hypothetical situation outlined in your letter.
The Hypothetical Situation
1. A parent corporation has non-capital losses available for carryforward which will expire shortly. It, therefore, proposes to sell certain assets with unrealized capital gains and/or potential capital cost allowance recapture at fair market value to its wholly-owned subsidiary in order to utilize these non-capital losses.
2. The subsidiary would, on an ongoing basis, use the transferred assets so acquired to earn business income or income from property.
Our Comments
The situation described in your letter appears to involve actual proposed transactions. Confirmation as to the tax consequences of seriously contemplated transactions will only be given in the context of an advance income tax ruling. The procedures for making a request for an advance income tax ruling are outlined in Information Circular 70-6R2, dated September 28, 1990, issued by Revenue Canada, Taxation. However, we can offer the following general comments.
It is our view that subsection 245(2) of the Act would generally not be applied to a situation where a corporation sells assets at fair market value to a related corporation in order to utilize losses of the vendor which would otherwise expire and the vendor has no intention of reacquiring such assets. Although the sale may be an avoidance transaction as defined in subsection 245(3) of the Act, it may reasonably be considered that the sale transaction, in and by itself, would not result directly or indirectly in a misuse of the provisions of the Act or an abuse having regard to the provisions of the Act read as a whole.
The above comments are not rulings and are provided in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch