Budget 2012: Changes To The Tax Rules For Partnerships

Denial of section 88 "bump" on partnership interests

Section 88 of the Income Tax Act (Canada) (the "Tax Act") applies on an acquisition of control of one taxable Canadian corporation (the "Subsidiary") by another taxable Canadian corporation (the "Parent") to permit the Parent to increase (or "bump") the tax cost of certain assets owned by the Subsidiary at the time of the acquisition of control upon a subsequent winding-up of the Subsidiary into, or a vertical amalgamation of the Subsidiary with, the Parent. In simplified terms and subject to certain limitations, the "bump" permits the Parent to translate its acquisition cost of the shares of the Subsidiary into tax cost of assets acquired from the Subsidiary on the subsequent winding-up or amalgamation of the Subsidiary.