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GAAR applied to deny partnership asset rollover

In Ceco Operations Ltd. (2006 TCC 256), the Tax Court of Canada applied the general anti avoidance rule (GAAR) to a partnership asset rollover. A sale of a business contemplated two years before the transactions was structured via a partnership with the purchaser in 1998. Ceco rolled business assets to the partnership under subsection 97(2) for cash and a partnership interest. The purchaser injected cash equal to the value of Ceco’s partnership interest and the partnership used the cash to invest in preferred shares of a company; that company and Ceco were owned indirectly by the same holding companies. The court said that the series of transactions was a patent abuse of subsection 97(2) and that GAAR applied to deny the partnership asset rollover.

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