29 January 1987 Income Tax Severed Letter 5-2524 - [Prepaid Expenses as Asset Eligible for Section 85 Rollover]

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.

Your File: PBS/397-7483

R.A. Primeau (613) 957-2127

January 29, 1987

Dear Sirs

Re: Prepaid Expenses as Asset Eligible for Section 85 Rollover

This is in reply to your letter of November 21, 1986.

Notwithstanding Revenue Canada's position in paragraph 20 of Information Circular 76-19R, it is your opinion that a prepaid expense would be property that qualifies for a rollover under section 85 of the income Tax Act (the "Act") if two conditions are met:

1) the prepaid expense can be considered to be a right, and 2) a cost amount is affixed to this right.

The specific types of property for which an election under section 85 of Act can be made are named in that section, and in our opinion a prepaid expense could not be any one of them. That is, a prepaid expense would not be

a) a capital property, as defined in paragraph 54(b) of the Act,

b) a Canadian resource property, as defined in paragraph 66(15)(c) of the Act,

c) a foreign resource property, as defined in paragraph 66(15)(f) of the Act,

d) an eligible capital property, as defined in paragraph 54(d) of the Act, or

e) an inventory, as defined in subsection 248(1) of the Act.

We therefore cannot agree that a prepaid expense would qualify for a section 85 rollover.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch