CRA confirms that previously having incurred trivial ECE may generate better ECP transitional results

The elective transitional rule in s. 13(8)(d) applies to a corporation that disposed of eligible capital property in calendar 2016, where the gain was included in a taxation year that straddled 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.

At the 2016 CTF Annual Conference, Q13, CRA indicated that this transitional rule is unavailable where a taxpayer’s only intangible asset was internally-generated goodwill with no cost – so that the taxpayer could not be said to have made or incurred an ECE in respect of the business, thereby ousting the election.

CRA has now confirmed the flip side of the coin: even a trivial previous ECE expenditure respecting the business, such as incorporation expense, will eliminate this particular issue.

Neal Armstrong. Summary of 27 March 2017 External T.I. 2016-0680141E5 under s. 13(38)(d)(iii).