CRA indicates that the opening UCC for used depreciable property of an acquired LLC for the first year of computing its FAPI was the lesser of UCC and FMV

A US LLC, which was formed in 2017 by a regarded US corporation, acquired and used appreciable assets in carrying on its active business in the US from 2017 and all subsequent years. All the membership interests in the LLC were acquired at arm's length by an affiliate of a Canadian resident corporation on January 1, 2024.

The earnings of the LLC were required under s. (a)(iii) of the definition of “earnings” in Reg. 5907(1) to be computed on Canadian principles and, pursuant to Reg. 5907(2.03), with the claiming of maximum deductions. Would the undepreciated capital cost (UCC) of the LLC's depreciable property be determined on January 1, 2024 by being reduced by notional CCA deductions for the prior years?

CRA indicated that for the purposes of computing the income of US LLC under Part I of the Act, and for the purposes of determining its earnings under Reg. 5907(1), the opening balance of UCC for 2024 would be the lesser of capital cost and fair market value.

Neal Armstrong. Summary of 28 May 2025 IFA Roundtable, Q.6 under Reg. 5907(2.03).