| 923407 | |
| 24(1) | John Chan |
| (613) 957-8975 |
Attention: 19(1)
December 3, 1992
Dear Sirs:
Re: Request for Technical Interpretation Disposition of Successor Properties
This is further to our recent telephone conversations and your request of November 12, 1992 for our views concerning a hypothetical situation described herein.
The hypothetical situation to which you referred is as follows:
1. In Year 1, a corporation ("A") which owns oil and gas properties (the "A properties") and has a Canadian oil and gas property expense ("COGPE") pool of $30, acquires control of another corporation ("B") which also owns oil and gas properties (the "B properties") and has its own COGPE pool of $10.
2. In Year 2, B is wound-up and after the wind-up, an unrelated corporation ("X") acquires control of A.
3. In Year 3, A sells the A properties for $10 and the B properties for $25 and there have been no additions nor claims from any of the COGPE pools up to the time of sale of the properties.
Our Comments
We do not share your view that the proceeds of disposition of the B properties can be sheltered with A's former COGPE pool of $30.
Upon A's acquisition of control of B in year 1, the B properties would become successored properties and deductions from B's COGPE pool would be streamed to income therefrom pursuant to the provisions of subsection 66.7(10).
Upon acquisition of A by X, it is our view that all of the properties of A would be deemed to have been acquired from an original owner pursuant to paragraph 66.7(10)(c). However, the A properties would be deemed to have been acquired from an original owner that is different from the original owner from which all of the B properties would be deemed to have been acquired. We do not share the view that paragraph 66.7(10)(c) should be interpreted to mean that all of the A properties and B properties are collectively deemed to have been acquired from a single original owner.
In the above hypothetical situation, the grind to A's COGPE pool pursuant to subparagraph 66.4(5)(b)(v) which would result from the disposition of the A properties and the B properties would occur as follows:
1. Proceeds of disposition of the A properties under clause 66.4(5)(b)(v)(A) would be $10. This amount would be reduced under clause 66.4(5)(b)(v)(B) by the lesser of the proceeds of disposition of $10 and the succesored COGPE pool in respect of the original owner from which the A properties were acquired, viz., A's COGPE pool of $30. Consequently, the clauses (A) and (B) amounts would both be $10 and there would be no grind to A's COGPE pool under paragraph 66.4(5)(b)(v) resulting solely from disposition of the A properties. Note that there would be $20 of successored COGPE remaining, which would effectively be lost since A would no longer have any income from the A properties.
2. Proceeds of disposition of the B properties under clause 66.4(5)(b)(v)(A) would be $25. This amount would be reduced under clause 66.4(5)(b)(v)(B) by the lesser of the proceeds of disposition of $25 and the succesored COGPE pool in respect of the original owner from which the B properties were acquired, viz., B's COGPE pool of $10. Consequently, the clauses (A) and (B) amounts would be $25 and $10, respectively, and there would be a grind to A's COGPE pool under paragraph 66.4(5)(b)(v) of $15 resulting from the disposition of the B properties.
These comments are merely the expressions of opinion of those Revenue Canada officials named herein and as such should not be construed as advance income tax rulings, nor are they binding on the Department. Our practice is to make this specific disclaimer in all instances in which we provide an opinion. We refer you in this respect to paragraphs 21 and 22 of Information Circular 70-6R2.
Yours truly,
Section ChiefResource Industries SectionManufacturing Industries, Partnerships and Trusts DivisionRulings Directorate