27 October 1995 Internal T.I. 9527537 - PRICE ADJUSTMENT CLAUSE

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: non-disclosure of price adjustment clause

Position: effect depends on facts

Reasons:

October 27, 1995

	Penticton Tax Services Office	Income Tax Rulings and 	                                                    Interpretations
	Attention: Mike Saulnier 	Directorate
           Client Services Section    T. Harris
		                           		957-2114

Price Adjustment Clauses

This is in response to your facsimile of October 19, 1995 wherein you requested clarification of the comments in paragraph 1 of Interpretation Bulletin IT-169. In particular, you have been asked by an accountant in your region as to the effectiveness of a price adjustment clause where the parties to the agreement have not notified the Department of the existence of the arrangement as set out in paragraph 1(b) of IT-169.

Although IT-169 indicates that the existence of the price adjustment clause must be disclosed in a letter filed with the taxpayers' returns, the Department has stated in its response to Question 58 of the Revenue Canada Round Table at the 1990 Conference of the Canadian Tax Foundation that the failure to notify the Department of the existence of a price adjustment clause when filing a tax return will not, in and by itself, preclude the Department from accepting the price adjustment clause as valid. However, the administrative relief described in IT-169 will only apply where there is evidence of a bona fide intention of the parties to transfer property at fair market value and of their efforts to arrive at that value by a fair and reasonable method.

Consequently, in our view a "yes" answer to the question concerning price adjustment clauses on form T2057 will constitute acceptable notification of the existence of the price adjustment clause for purposes of paragraph 1(b) of the IT. Whether the Department will apply its administrative practice concerning price adjustment clauses in other circumstances will depend on the facts of the given situation.

We trust our comments will be of assistance. We have also attached copies of our responses to two round table questions on the subject of price adjustment clauses for your information.

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch