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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
What is the relevant date FMV has to be determined for purposes of the Income Tax Act in a situation where there is a sale of property to a non-arm's length person and the transaction date is contingent on a future event?
Position:
The date this contingency is met and both parties enter into an irrevocable contract of sale.
Reasons:
Paragraphs 18 and 19 of IT-285R2.
XXXXXXXXXX 2001-010411
Randy Hewlett, B.Comm.
November 29, 2001
Dear XXXXXXXXXX:
Re: Sale of Property To A Non-Arm's Length Person Where
The Date Of Sale Is Contingent On A Future Event
We are writing in response to your letter dated September 19, 2001, wherein you requested our opinion on the date fair market value (FMV) has to be determined for purposes of the Income Tax Act (the Act) in a situation where there is a sale of property to a non-arm's length person and the transaction date is contingent on a future event.
In the situation you describe, you intend on selling a rental property to a family member. The family member does not have sufficient funds for a deposit. Until such time as the family member raises the funds, you plan on renting the property to this person. You currently have a FMV that you would like to use, but wanted to know if that would be the proceeds of disposition (POD), or would the FMV at the time the deposit is raised be the POD.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
You correctly note in your letter that when there is a sale of property between two non-arm's length persons, the transaction must be at FMV. To determine the date on which a property is sold, and hence the appropriate FMV, it is necessary to examine the legal relationship that exists between the purchaser and the vendor. The basic rule is that property in respect of specific assets is sold at the time when parties to the contract intend it to pass, as evidenced by the terms of the contract, the conduct of the parties, and any other circumstances that may be relevant. For an unconditional contract of sale, the relevant date is usually when the contract is made. However, if the intention of the parties is not evident and there is a conditional contract of sale, the relevant date is normally when all the conditions have been satisfied.
In your situation there seems to be a conditional contract of sale, since the family member must raise sufficient funds for an initial deposit for the sale. This deposit may or may not be raised at a future date, therefore it is our view that the FMV of the property will likely have to be determined as of the date this contingency is met and both parties enter into an irrevocable contract of sale. However, since this is ultimately a legal question that can only be resolved by examining the actual terms of the contract, we suggest that you consult with your legal advisor if you need assistance in establishing the date of sale.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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