10 August 1990 Ministerial Letter 901308 F - Deemed Capital Gain

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.

August 10, 1990

Dear Sirs:

This is in reply to your letter of June 15, 1990 requesting a technical interpretation regrading the interaction of subsection 14(1), subsection 14(4) and subsection 25(1) of the Income Tax Act (the Act) in circumstances whereby eligible capital property has been disposed of by an individual to a newly incorporated company pursuant to the rules in section 85 of the Act.

You are particularly concerned about which year a deemed capital gain, arising in the circumstance of your example, should be reported.  In your view it is not clear whether the gain should be reported in the calendar year in which the subsection 25(1) extended fiscal period is deemed to have ended or in the calendar year in which the disposition actually occurred.

From the information you have supplied, it would appear that you are describing a proposed transaction involving a specific taxpayer which according to Information Circular 70-6R, would more appropriately be the subject of an advance income tax ruling.  We are, however, prepared to offer the following general comments.

With respect to your concern, it is our general view that, by virtue of the interaction between subsection 14(4) and paragraph 25(3)(b) of the Act, the deemed taxable capital gain should be included in income in the calendar year in which the deemed fiscal period ends pursuant to subsection 25(1) of the Act.

These comments represent our opinion of the law as it applies generally.  As indicated paragraph 24 of Information Circular 70-6R dated December 18, 1978, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada, Taxation.

We trust the foregoing comments will be of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch