13 September 1990 External T.I. 901560 F - Joint-venture Arrangement and Disposition of Property

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.

September 13, 1990

Dear Sirs:

Re: Joint-Venture Arrangement and Disposition of Property

The purpose of this letter is to provide to you our interpretation of the income tax implications of the joint-venture arrangement described in your letter of July 9, 1990.

Our understanding of the situation presented to us, is as follows:

1.     The taxpayer owns a parcel of land which he intends to develop into a commercial rental project.

2.     The taxpayer enters into a joint-venture arrangement in order to pursue development.

3.     The taxpayer exchanges his freehold interest in the land in return for an undivided interest in the land and specific commercial condominium units of the project.

Specifically you asked whether the arrangement described above would result in a disposition of the land for income tax purposes.

Our Comments

Subparagraph 54(c)(i) of the Income Tax Act defines a disposition as any transaction or event entitling a taxpayer to proceeds of disposition of property.  Subparagraph 54(c)(v) clarifies by adding that generally one must look only at changes in beneficial ownership.

In the situation presented by you a disposition of a portion of the taxpayer's property would indeed occur.  The developer acquires a beneficial interest in the property.  Accordingly, the taxpayer must have disposed of a portion of his original land holdings.  The ownership of the taxpayer's property can not be altered on a tax-free basis through a joint-venture arrangement.

Interpretation Bulletin IT-170R outlines the Department's position on the sale of property.  Disposition is generally considered to occur when title passes, as long as "beneficial ownership" is transferred.  The treatment of any resulting gain or loss will vary depending upon whether or not the land is considered to be capital property or inventory to the taxpayer.  This must be determined upon examining the facts of the case.

Interpretation Bulletin IT-490 outlines the Department's view of barter transactions and should be consulted when determining the proceeds of disposition or amount to be brought into income as a result of the disposition.  In particular paragraph 7 explains that:

     "In arm's length transactions, where an amount must be brought into income or treated as proceeds of disposition of capital property, that amount is the price which the taxpayer would normally have sold his property to a stranger."

Paragraph 8 continues:

     "Where the goods given up cannot readily be valued but the goods or services received can, the Department will normally accept the value of the latter as being the price at which the transaction took place if the parties were dealing at arm's length."

We hope these comments are of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch