| 922290 | |
| 24(1) | S. Leung |
| (613)957-2115 |
Attention: 19(1)
August 26, 1992
Dear Sirs:
Re: Paragraph 88(1)(d) of the Income Tax Act (the "Act")
We are writing in response to your letter of July 31, 1992 wherein you requested our confirmation that paragraph 88(1)(d) of the Act would apply to permit a corporation (hereinafter referred to as the "parent company") to increase the adjusted cost base, to the extent allowed under that paragraph, of certain property distributed to it on the winding-up of its subsidiary pursuant to the provisions of subsection 88(1) of the Act. You indicated that the property in question was a non-depreciable capital property of the subsidiary at the time the parent company last acquired control of the subsidiary. However, the property may become inventory to the subsidiary prior to the subsidiary being wound-up.
Our Comments
The situation outlined in your letter appears to involve actual proposed transactions and identifiable taxpayers. Consequently, we would like to bring your attention to paragraph 21 of Information Circular 70-6R2, dated September 28, 1990, issued by Revenue Canada, Taxation wherein it was stated that when a requested interpretation relates to a contemplated transaction, a taxpayer should request an advance income tax ruling rather than an opinion. The procedures for requesting an advance income tax ruling are set out in paragraph 15 of the said circular. However, we are able to provide you with the following general comments.
It is the Department's interpretation that the words "... and thereafter without interruption until such time as it was distributed to the parent on the winding-up ..." found in paragraph 88(1)(d) of the Act relate only to the ownership of the property by the subsidiary, and not to its nature as capital property to the subsidiary. Accordingly, it is the Department's view that paragraph 88(1)(d) merely requires that a property be a capital property to the subsidiary at the time that the parent last acquired control of the subsidiary and that the property be owned by the subsidiary continuously from the time that control was last acquired until the distribution to the parent on the winding-up. It does not require that the property be capital property to the subsidiary continuously from the time that control was last acquired until the distribution to the parent on the winding-up.
These comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and, therefore, as described in paragraph 21 of Information Circular 70-6R2 are not binding on the Department.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch