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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Is a royalty for "know-how" an "eligible property" under 85(1.1) ?
Position TAKEN:
No. It must be either capital property or eligible capital property.
Reasons FOR POSITION TAKEN:
No specific provision for royalties other than for resource property.
Revenue Canada Round Table
Canadian Petroleum Tax Society
June 2, 1994
Question 20
Royalties: Subsection 85(1.1)
For purposes of subsection 85(1.1), that being eligible property for purposes of a tax-deferred rollover under subsection 85(1), why does the Department distinguish between a royalty which would constitute a paragraph 85(1.1)(c) item and a royalty for such things as technical or proprietary "know-how" ? In other words, why would a royalty in respect of "know-how" not be eligible for a tax-deferred rollover whereas a natural resource royalty on a Canadian resource property would be eligible for a tax-deferred rollover ?
Department's Position
A Canadian resource property is an eligible property by virtue of paragraph 85(1.1)(c). A Canadian resource property includes a rental or royalty in respect of petroleum and natural gas, a rental or royalty in respect of a mineral resource and a right to either such rental or royalty by virtue of subparagraphs 66(15)(c)(iv), (v) and (vii), respectively. Thus, the provisions of subsection 85(1) are specifically available in respect of a transfer of a royalty on a Canadian resource property.
On the other hand, in order for a right to royalty income in respect of "know-how" to qualify as an eligible property, it must be either a capital property or an eligible capital property, the determination of which depends on the facts and circumstances of a particular situation. The right to receive income where there is no underlying right to the property that may create this income would not be regarded as a capital property. (See Evans v. M.N.R. 60 DTC 1047 (S.C.C.) and Asamera Oil (Indonesia) Limited v. The Queen 73 DTC 5274 (F.C.-T.D.))
Author: D. Yuen
File: 941084
Date: June 6, 1994
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