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A Capital Idea: Using Capital Losses to Step Up Depreciable Tax Cost

February-3-2021

Lawyer Aida Kimiagar, Carrie Smit
Area Tax

Summary

Excerpt from “A Capital Idea: Using Capital Losses to Step Up Depreciable Tax Cost”, XVI(2) Corporate Structures and Groups (Federated Press) 3-5 (2020), Carrie Smit and Aida Kimiagar

Carrie Smit & Aida Kimiagar, Goodmans LLP discuss a recent CRA Views Document that may present an opportunity for corporations to apply capital losses to effectively increase the tax cost of depreciable property, including goodwill, trademarks or other intangible assets. In the ruling, through a series of transactions, a parent and subsidiary corporation were able to use their capital losses in order to step up the UCC of Class 14.1 property held by the parent corporation. This type of planning may only be advantageous in respect of depreciable property that has a relatively low capital cost, or where the UCC of the relevant class is sufficiently high, such that a transfer of the property will not cause the recognition of material recapture. As illustrated by the ruling, property that was formally classified as “eligible capital property” may now be considered for this type of planning since such property is not treated as Class 14.1 depreciable property.

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