CRA finds that a transfer-pricing increase to eligible capital property proceeds results in a CDA increase effective to the disposition time

CRA found that where a s. 247(1) transfer pricing adjustment was to be made to increase the proceeds of an inter-affiliate disposition of eligible capital property, the resulting increase in the capital dividend account of the disposing Canadian private corporation was effective to the time of the disposition. This contradicts 2001-0115265 F, which noted that because the amount to be "included in income by virtue of paragraph 14(1)(b)...cannot be determined until the end of the taxation year... a corporation cannot include an amount in its CDA, respecting a disposition of goodwill ... until the end of the taxation year during which such disposition took place," and is incorrect. What CRA meant to say was that the transfer pricing adjustment will have the same effect on the CDA as if it were received at the time of the disposition.

I heard that historically the biggest source of business for the CRA/Justice rectification committee has been CCPCs which immediately pay capital dividends out of the non-taxable portion of gains from eligible capital property rather than waiting until the beginning of the next year.

Neal Armstrong. Summaries of 19 December 2013 T.I. 2013-0490751I7 under s. 89(1) – capital dividend account and s. 247(8).