22 October 2002 External T.I. 2002-0163825 - CAPITAL DIVIDEND ACCOUNT

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:

What is meaning of the phrase "at that time" in paragraph 14(1.01)(b) of the Income Tax Act?

Position:

The words "at that time" in paragraph (b) refers to the time enumerated in the preamble, that is, "any time in a taxation year, a taxpayer disposes of an eligible capital property". Therefore, when electing under this provision, a taxpayer will be deemed to have disposed of a capital property on the actual date of disposition of the eligible capital property, not on the date the return of income is filed for the taxation year.

Reasons:

As noted above.

XXXXXXXXXX 						2002-016382
							Randy Hewlett, B.Comm.
October 22, 2002

Dear XXXXXXXXXX:

Re: Paragraph 14(1.01)(b) of Income Tax Act (the Act)

We are writing in response to your letter dated September 13, 2002, wherein you requested our opinion on the meaning of the phrase "at that time" in paragraph 14(1.01)(b) of the Income Tax Act (the Act), as well as the implications for the calculation of the capital dividend account (CDA) as defined in subsection 89(1) of the Act.

When electing under subsection 14(1.01), you are concerned whether the date of deemed disposition is the actual date of disposition of the eligible capital property or the date when the return of income containing the election is filed for the taxation year.

Our Comments

As discussed with you on October 17, 2002 (Hewlett/XXXXXXXXXX), 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 70-6R5, Advance Income Tax Rulings. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office (TSO). However, we offer the following comments.

In part, subsection 14(1.01) of the Act states that:

Where, at any time in a taxation year, a taxpayer disposes of an eligible capital property ... and the taxpayer so elects under this subsection in the taxpayer's return of income for the year,

...

(b) the taxpayer is deemed to have disposed at that time of a capital property ...

(emphasis added)

In our view, the words "at that time" in paragraph (b) refers to the time enumerated in the preamble, that is, "any time in a taxation year, a taxpayer disposes of an eligible capital property". Therefore, when electing under this provision, a taxpayer will be deemed to have disposed of a capital property on the actual date of disposition of the eligible capital property, not on the date the return of income is filed for the taxation year. As discussed, we have no general comments to make on the CDA.

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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