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: The income tax treatment of a pension surplus which is acquired by a corporation as part of the acquisition of another corporation's business.
Position: The pension surplus would be a capital outlay for which there is no deduction in the Income Tax Act.
Reasons: The pension surplus fits the legal meaning of a capital asset (i.e., an asset or advantage for the enduring benefit of trade) and is thus subject to paragraph 18(1)(b), and there is no other provision in the Act which allows a deduction for this type of asset.
XXXXXXXXXX J. Gibbons, CGA
2002-011883
February 18, 2002
Dear XXXXXXXXXX:
We are replying to your letter dated January 8, 2002, in which you requested our comments concerning the income tax treatment of a pension surplus which is acquired by a corporation as part of the acquisition of another corporation's business.
As requested, we have considered your question and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4. Thus, our comments are of a general nature only.
You provided the following example: A Canadian corporation ("Buyco") will acquire a business from another Canadian corporation ("Sellco") in an arm's length transaction. The legal agreement would list the assets to be purchased and their respective values as follows:
? Inventory $120
? Equipment $ 60
? Pension Surplus $ 20
? $200
You would like to know if Buyco can treat the $20 cost of the pension surplus as an "eligible capital expenditure" ("ECE") or whether it can be deducted under some other provision of the Income Tax Act.
In our view, the $20 paid by Buyco for the pension surplus would be a capital outlay by Buyco, for which there is no deduction in the Income Tax Act. This is based on the presumption that a pension surplus would likely be excluded from the definition of ECE by virtue of paragraph (f) of the definition of this term in subsection 14(5) of the Act.
We trust that these comments will be of assistance.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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