4 August 2000 Internal T.I. 2000-0038827 - Fishing licence; ECE; class 14

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: Whether full amount paid to acquire fishing licences, where probability but not certainty of renewal, is cost of a class 14 asset?

Position: No

Reasons: Bulk of payment represents eligible capital property, not cost of Class 14 asset

August 10, 2000

	Vancouver Tax Services Office	Partnerships Section
	Appeals Division	Denise Dalphy
(613) 957-9231
	Attention: Julisa Cheng
	2000-003882

XXXXXXXXXX
Classification of payment - Fishing licences

This is in response to your memorandum dated July 17, 2000, where you requested our opinion on a reassessment issued by the Vancouver Tax Services Office.

Facts

1. In the XXXXXXXXXX taxation year, the taxpayer paid $XXXXXXXXXX for XXXXXXXXXX licences.

2. The licences carried with them the probability that the Department of Fisheries and Oceans would renew the licences.

Issue

What is the proper classification for income tax purposes of this payment.

Conclusion and Analysis

The full amount of the payment is not part of the cost of a Class 14 property, but may be deducted as an eligible capital expenditure.

The above situation cannot be distinguished from the case, D. Chapman & Co. Ltd. (68 DTC 552). In Chapman, the issue was the classification of amounts paid for carrier licences in acquiring a number of trucking businesses. The licences could be transferred with the approval of the Commissioner (of the Public Utilities Commission) and although the licences expired on the last day of February each year, there was a probability they would be renewed. The Minister permitted the deduction of an amount that represented the prorated value of the unexpired portion of the licences but disallowed the bulk of the payments [in the case of one licence, from November 5, 1958 to the end of February 1959, an amount of $351.14 out of a payment of $4,000 "for the licence"]. The Court held that the bulk of the payment was made in respect of a reasonable expectation that renewals of the licences would be granted, and that no part of this portion of the payments represented the cost of a Class 14 property. The Court stated:

" ... The amounts originally claimed by the appellant as deductions represented amounts laid out by it to acquire an intangible enduring advantage of a capital nature, and the greater part of the said amounts was unquestionably and admittedly paid for the privilege and opportunity of expanding the appellant's operations into new territory by the acquisition of the several businesses purchased and the resultant recognition of its right to operate them in future in their already-established areas of service.

[Amounts not deductible]

The conclusion is inescapable that the expenditures under scrutiny were made for the privilege of assuming the status of the purchased companies before the Public Utilities Commission of the province in respect of applications for renewal of licences, the approval of which licences had already been established in earlier years to the satisfaction of the said Commission, with the reasonable expectation that such renewals would be granted and that the appellant would thereby be enabled to expand its business into the corresponding areas to whatever extent it desired. No part of the moneys so expended was in respect of depreciable property nor was any part of it otherwise deductible under any of the provisions of the Income Tax Act.

The appellant has not established that any amount was paid out by it which could be said to be properly attributable to the unexpired terms of the various trucking licences of the vendors other than such amounts as the Minister of National Revenue has already consented to attribute thereto."

The case, Michael Buston (93 DTC 1048) may be cited to you in support of expensing the amounts paid in respect of licences. The Department did not appeal this decision, and it is only to be considered as a precedent in the same situation. Because the Department of Fisheries and Oceans revised their policies on the transfer of fishing licences in 1991, Buston should have limited application. [See FAS Seafood Producers Ltd. 98 DTC 2034 for a fact situation similar to XXXXXXXXXX, where the Court determined that the payment relating to the acquisition of a fishing licence in the 1992 taxation year must be capitalized]

Finally, it is our view that the above result is fair. Since the taxpayer was paying for something which he expected to have an enduring benefit [See Metropolitan Taxi Ltd., Aallcann Wood Suppliers Inc., 94 DTC 1475], it would be unjust to claim the whole amount in one taxation year.

Please contact the writer at 957-9231 if we can be of further assistance.

Paul Lynch
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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