21 March 1989 Income Tax Severed Letter 7-3671 - [Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation Subsection 85(1)]

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.

MAR 21 1989

Specialty Rulings Directorate R. Langevin 957-2138

Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation Subsection 85(1) of the Act

This is in reply to your memorandum dated February 14, 1989, requesting our views on whether or not a deferred cash purchase ticket should be characterized as an account receivable for the purposes of subsection 85(1) of the Act.

We have reviewed the Farming Income Tax Guide for 1988 at pages 4 and 5. The Department has there stated that receipt of a cash purchase ticket implies that a sale has taken place. Moreover, a taxpayer is considered to have received payment at the time of receipt of the ticket regardless of when the ticket is presented for payment. This suggests that a cash purchase ticket is a form of settlement of a debt which in turn implies that it cannot be an account receivable.

In the case of a deferred cash purchase ticket, a cash purchase ticket is issued, however, the ticket will provide for payment on an agreed upon date that is after the end of the year of delivery of grain. Consequently, a taxpayer is permitted to include the amount indicated on the ticket in income in the year following delivery of grain to the extent that payment is deferred to that year. However, upon acceptance of the deferred cash purchase ticket, the debt is effectively settled. Indeed, subsection 76(4) implies that a cash purchase ticket is another "form of settlement". If it is the case that both a cash purchase ticket and a deferred cash purchase ticket are forms of settlement of a debt, then such tickets could not be considered as receivables in respect of a debt. Settlement of a debt implies extinguishment or payment of the debt.

In the interests of maintaining a consistent position as regards both cash purchase tickets and deferred cash purchase tickets, it is our view that if the Department is to take the position, as it has, that a taxpayer is considered to receive payment regardless of the time of the payment upon receipt of a cash purchase ticket, it follows that a deferred cash purchase ticket can not be considered a receivable due to the fact that payment is made in the year following delivery of grain. The better view is that both deferred cash purchase tickets and cash purchase tickets are accepted in satisfaction of a debt and entitle the holder co payment and, accordingly, should not be treated as accounts receivable. It proceeds from this that deferred cash purchase tickets would not be receivables eligible for the transfer pursuant to subsection 85(1) of the Act.

B.W. Dath Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch