P. Mason (613) 957-2109
June 12, 1987
Dear Sirs:
Re: Paragraph 20(1)(z.1)
This is in reply to your letter of April 24, 1987 concerning the application of subsections 20(1)(z.1) and 88(l)(e.2) Vol. the Income Tax Act (Canada) (the "Act") to a specific example.
In the situation you described, Corporation A is being wound-up, pursuant to the provisions of subsection 88(1) of the Act into its parent, Corporation B. After the distribution of property to Corporation B, but before the formal dissolution of Corporation A, Corporation B sells a real property, which was distributed to it by Corporation A, to a person who deals at arm's length with each of Corporations A and B. Corporation A's taxation year during which its assets were distributed to Corporation B ends after the sale and before the formal dissolution of Corporation A. You have asked which of Corporation A or Corporation B may claim a deduction under paragraph 20(1)(z.1) of the Act in respect of a lease cancellation payment made by Corporation A in a prior taxation year in respect of the real property.
The situation which you described appears to relate to an actual contemplated transaction. Assurance as to the consequences of specific contemplated transactions can only be given in response to a request for an advance income tax ruling. If you wish to request a binding commitment with respect to an actual proposed transaction with facts similar to those submitted, an advance income tax ruling application should be submitted. The procedure for requesting an advance income tax ruling is outlined in Information Circular 70-6R, published by Revenue Canada, Taxation ("RCT") on December 18, 1978. Although we are unable to provide any binding assurance here with respect to your queries, we have stated our observations below.
In our opinion, provided the real property in your example was disposed of by Corporation B to a person with whom both Corporation A and Corporation B deal at arm's length, and at a time which was both before the end of Corporation A's taxation year during which its assets were distributed to Corporation B on the winding-up and the time when Corporation A was wound-up, Corporation A would be entitled to a deduction under paragraph 20(1)(z.1) for that taxation year. If Corporation A did not claim the deduction under subsection 20(1)(z.1) for that taxation year, such deduction would not be available to either Corporation A or Corporation B for any other taxation year.
As noted in paragraph 24 of Information Circular 70-6R, any written or verbal opinions provided are not rulings and are not binding upon RCT in respect of any taxpayer.
Yours truly,
for Director General Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch