2023 Ruling 2022-0941241R3 - Internal reorganization: subs and partnerships -- summary under Subsection 88(1)

Background and preliminary transactions

After preliminary transactions (including the sale by Partnerships C and D of Canadian resource properties (CRP) to ParentCo for cash consideration so as to reduce the balances in their successor CCEE (deductible in accordance with s. 66.7(3)) and CCOGPE (deductible in accordance with s. 66.7(5)) to minimize the risk that s. 66.7(16) would apply as a consequence of CRP transfers to ParentCo on the winding-up of those Partnerships):

1. ParentCo and its historic subsidiary SubCo will be the only partners of the general partnership, Partnership C;
2. The partners of another general partnership, Partnership D will be Partnership C, ParentCo and SubCo's newly-incorporated subsidiary, NewCo2.
3. SubCo is currently in disputes (entailing litigation) with CRA regarding the results of multiple audits, and it is not expected that these disputes will be resolved prior to the implementation of the proposed transactions.

Proposed transactions

1. Various intercompany balances will be settled in cash or by set-off (including after 2 below).
2. SubCo will, by written resolution of its directors, commence proceedings for its winding-up and in connection therewith all of its property and liabilities (including its shares of NewCo2 and its partnership interest in Partnership C) will be distributed to and assumed by ParentCo, effective the date of such resolution. SubCo will have no activity, other than dealing with the tax disputes, and will acquire no assets, between such effective date of the winding-up and its dissolution in 8 below.
3. As a result of the transfer by SubCo to ParentCo of its partnership interest in Partnership C, and the filing of the Declaration of Dissolution indicating the dissolution of Partnership C on the same date as the above written resolution, Partnership C will cease to exist as a matter of law and ParentCo will become the sole owner of all of the property of Partnership C (including the interest in Partnership D).
4. Immediately thereafter ParentCo will carry on alone the business that was the business of Partnership C and, in connection therewith, receive income from former Partnership C property and receive its share of partnership distributions from Partnership D.
5. No earlier than one week after the steps 2, NewCo2 will, by written resolution of its directors, commence proceedings for its winding-up and in connection therewith all of its property and liabilities (including its partnership interest in Partnership D) will be distributed to and assumed by to ParentCo effective the date of such resolution. NewCo2 will have no activity, other than dealing with the tax disputes, and will acquire no assets, between such effective date of the winding-up and its dissolution in 8 below..
6. As a result of the transfer by NewCo2 to ParentCo of its partnership interest in Partnership D, and the filing of the Declaration of Dissolution indicating the dissolution of Partnership D on the same date as the above written resolution, Partnership D will cease to exist as a matter of law and ParentCo will become the sole owner of all of the property of Partnership D. (including the interest in Partnership D).
7. Immediately thereafter ParentCo will carry on alone the business that was the business of Partnership D and, in connection therewith, receive income from former Partnership D property and receive its share of partnership distributions from Partnership D.
8. As soon as possible after settlement or conclusion of the disputes with CRA, ParentCo will pass special resolutions to formally dissolve SubCo and NewCo2.
9. Where there are applicable excesses, ParentCo will make designations under s. 98(5)(c) respecting common shares of a public company and land of Partnership C or D but not, for greater certainty, the partnership interest in Partnership D of Partnership D; and ParentCo will make an election under s. 80.01(4)(c) in respect of any balance owing between NewCo2 and ParentCo.

Additional Information

ParentCo expects to earn income from the CRP transferred to it by Partnerships C and Partnership D, as described in (iii) above, that is at least equal to the amount of the successor CCDE and successor CCOGPE related to that CRP that may have otherwise been stranded pursuant to s. 66.7(16) as a result of the partnerships’ dissolution.

Rulings

• S. 88(1) will apply to the winding-up of SubCo as described in 2 and 8, and to the winding-up of NewCo in 5 and 8 so that inter alia, pursuant to s. 88(1)(a.2), Subco will be deemed not to have disposed of its interest in Partnership C, and NewCo2 will be deemed not to have disposed of its interest in Partnership D.
• To the extent that Partnerships C and D cease to exist by operation of law upon the winding-up of SubCo into ParentCo, as described in 3, 4 and 9 and the winding-up of NewCo2 into ParentCo, as described in 6, 7, and 9, and provided that, within 3 months of each partnership ceasing to exist, ParentCo carries on alone the business of each such partnership using all the property of each such partnership that it received as proceeds of disposition for its interest in each such partnership, in the course of carrying on those businesses, the provisions of s. 98(5) will apply; and for greater certainty, the CRP will have a cost amount of nil.