8 January 2013 External T.I. 2012-0469691E5 - Term deposits as capital property

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a term deposit or a GIC can be a capital property of the taxpayer.

Position: Depends.

Reasons: Question of fact.

XXXXXXXXXX
2012-046969
Lata Agarwal, CMA, MBA

January 8, 2013

Dear XXXXXXXXXX

Re: Definition of "capital property"

This is in response to your correspondence dated November 8, 2012, wherein you have requested our opinion on whether the term deposits or guaranteed income certificates (GICs) are considered capital property or near cash assets for the purposes of subsection 80(9) of the Income Tax Act ("Act"). The term deposits in your scenario carry a fixed interest rate and a maturity period ranging from one to five years.

Our Comments

As the situation described in your correspondence appears to involve a completed transaction, a determination of the related tax implications would require a careful review of all relevant facts of the specific transaction. Such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year. Notwithstanding the foregoing, we are prepared to provide the following general comments that may be of assistance.

Section 54 of the Act defines the term, "capital property" of a taxpayer to mean:

(a) Any depreciable property of the taxpayer, and

(b) Any property (other than depreciable property), any gain or loss from the disposition of which would, if the property were disposed of, be a capital gain or a capital loss, as the case may be, of the taxpayer.

It is a question of fact whether a property is acquired and used on account of income or as a capital asset (in which case its disposition could result in either a capital gain or a capital loss to the taxpayer). In general, it is conceivable to consider the short term GICs and deposits of a taxpayer with terms of agreements such as described by you, as part of cash or near cash assets. Nonetheless, a determination in this regard would involve, in addition to the nature of the property, consideration of all other relevant factors including the intention and the conduct of the taxpayer in respect of the particular property. In this regard, CRA publications, IT-459, Adventure or concern in the nature of trade, and IT-479R, Transactions in securities, available at CRA website, http://www.cra-arc.gc.ca/menu-eng.html, also could provide you with some relevant information.

We trust that these comments will be of assistance.

Yours truly,

Michael Cooke, C.P.A., C.A.
Manager
Business and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch