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Cases
Hickman Motors Ltd. v. The Queen, 97 DTC 5363, [1997] 2 S.C.R. 336
On the winding-up of its wholly-owned subsidiary, the taxpayer received heavy equipment that had been used in the subsidiary's leasing business. Five days later, the taxpayer transferred these assets to a newly formed subsidiary.
In finding that the taxpayer possessed a source of business income related to the equipment for which capital cost allowance could be claimed, L'Heureux-Dubé J. noted that "where machinery is rented out, the essential core operations may at times be limited to accepting rental revenue and assuming the business risk and other obligations". In addition, given that the taxpayer at all times carried on a car leasing business, the acquired equipment related to a business of the taxpayer of making a profit generally out of machines (be they heavy equipment or automobiles).
See Also
Thibeault v. The Queen, 2015 CCI 271
In finding that the taxpayer was precluded by the preamble to s. 20(1) from deducting CCA respecting boats which he no longer was leasing, D’Auray J noted (at para. 82) that he had admitted that there was no link between the revenues generated by a sale by him in the year of boating permits and the boats in question.
Administrative Policy
22 June 2015 Memorandum 2014-0553731I7 - Deduction of Terminal Loss - Wind-up
A corporation ("Parentco") received depreciable property of its subsidiary on a s. 88(1) winding-up with no intention of using the property for an income–producing purpose (it was kept idle) - and a number of years later, sold the property at a loss.In light of Reg. 1102(14), which deemed the property to belong to the same prescribed class as when it was held in the subsidiary, and the somewhat conflicting reasons in Hickman, CRA concluded that the property retained its character as depreciable property in the hands of Parentco. Furthermore, keeping the property idle did not constitute a change of use under s. 13(7)(a), so that the terminal loss was not realized until the year of the sale. CRA then referred to the analysis in Hickman of the preamble to s. 20(1), and stated:
Parentco will not meet the requirements set out above as Parentco did not acquire the Property for the purpose of earning income and held the Property without earning income from the Property and, accordingly, Parentco is not entitled to claim CCA on the Property.
See summaries under Reg. 1102(14) and s. 13(7)(a).
2012 Memorandum 2010-0384681I7 -
the applicable-to-source test in the preamble "requires that expenses described in paragraphs 20(1)(a) - (ww) of the Act must be prorated between a taxpayer's sources of incomes and its activities, if any, which do not constitute a source of income."
2003 Ruling 2003-001372 -
Favourable rulings given with respect to transactions for the transfer of losses of a parent public corporation to its profitable subsidiary accomplished by way of the profitable subsidiaries borrowing money on an interest-bearing basis from the parent, using the borrowed money to subscribe for preferred shares of a newly-incorporated sister company which advances the proceeds on an interest-free basis to the parent.
7 March 2001 Memorandum 2001-007215
A taxpayer will be entitled to deduct over time the entire amount of the cost of depreciable property notwithstanding that such property, subsequent to its acquisition, becomes no longer available for use in the business.
2000 Ruling 2000-003896 -
Depreciable assets transferred on a rollover basis to a wholly-owned subsidiary which then amalgamated were acquired by it for the purpose of gaining or producing income given that they are held for a period of 10 days to earn income.
5 June 1997 Memorandum 7-970472 -
After referring, with respect to a question as to the deductibility of issue expenses incurred for special warrants, to the requirements in the preamble to s. 20(1), RC stated "that is, there must be a clear connection between the amount sought to be deducted and the issuance of the shares.