CRA confirms that a transitional rule for dispositions of eligible capital property does not extend to internally-generated goodwill

The elective transitional rule in s. 13(8)(d) is applicable if a corporation disposed of eligible capital property in calendar 2016, but the gain is included in a taxation year that straddles January 1, 2017. The taxpayer may elect under s. 13(38)(d)(iii) to maintain the effect of the s. 14(1)(b) inclusion. One of the conditions is that the taxpayer has incurred an eligible capital expenditure respecting a business before January 1, 2017. CRA stated:

Where a taxpayer’s only intangible asset is internally-generated goodwill with no cost, that taxpayer cannot be said to have made or incurred an ECE in respect of the business. As such, the taxpayer would not meet the requirements of the election in subparagraph 13(38)(d)(iii). It is our understanding that this result is consistent with tax policy.

Neal Armstrong. Summary of 29 November 2016 CTF Annual Roundtable, Q.13 under s. 13(38)(d).