15 August 1990 Ruling 74801 F - Cape Breton Investment Tax Credit Program

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.

SUBJECT: Cape Breton Investment Tax Credit (CBITC) Program - Date of Acquisition of Property-Foreign Exchange Rate

This is in reply to your Memorandum dated March 13, 1990 whereby you requested our opinion concerning the determination of the date of acquisition of certain equipment and the treatment of variations in exchange rates in respect of part of the purchase price paid before the date of acquisition of the equipment.

Date of Acquisition

In our opinion, the law as to the determination of the date of acquisition is fairly represented by and summarized in IT-50R. 

Essentially, the issue in respect of the particular case here under consideration is the date at which the seller and buyer intended that title to the equipment passed to the buyer, having regard to the fact that the equipment was not in existence on the date the agreement of sale was entered into, but was to be (and was) subsequently manufactured by the seller.

As stated in paragraph 6 of IT-50R:

     "...property can pass and acquisition take place only if the asset is in existence and, even then, only if it is a "specific asset", i.e. one that is capable of being identified as the object of the contract."

Furthermore, as further indicated by IT-50R, not only must the asset be theoretically capable of being identified as the object of the contract, it must in fact have been so identified.

It is submitted that in the case here under consideration, 24(1)

So far as we can determine from the materials you provided to us, 24(1)

Variation in Exchange Rate Before Date of Acquisition

So far as we have been able to determine, there is no case law or statutory guidance as to the treatment of variations in the exchange rate before the date of acquisition of the property.

It appears that paragraph 3 of IT-174R was based on the decision of the Tax Appeal Board in Cockshutt Farm Equipment of Canada Ltd. v. M.N.R. 66 DTC 544.  However, this case dealt with changes in exchange rates in respect of unpaid purchase price of property that occurred after the date of acquisition of the property.

In our opinion, payments made in a foreign currency on account of the purchase price of property prior to the acquisition thereof should be added to the capital cost of the property utilizing the exchange rate on the date of the payment, not on the subsequent date of acquisition.  Only in this way can the full, actual, historic cost of the property in Canadian dollars be reflected and accounted for.

While we do not expect that the outcome of the appeal will affect our opinion as to the treatment of variations in exchange rates occurring prior to the date of acquisition, we note that the decision of the Federal Court Trial Division in Gaynor v. M.N.R. 88 DTC 6394 has been appealed by the taxpayer to the Federal Court of Appeal.

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