16 October 1990 Ministerial Correspondence 901734 F - Inclusion of Options in "Eligible Capital Property" where Options not Capital Property to Holder

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.

October 16, 1990

Dear Sirs:

Re:  Request for Technical Interpretation Subsection 85(1.1) of the Income Tax Act (the "Act")     

We are responding to your letter, dated July 26, 1990, in which you requested our opinion on whether the definition of "eligible property" in subsection 85(1.1) of the Act includes options to acquire real property where such, options are not capital property to the option holder.

It is our opinion that options to acquire real property, where such options constitute inventory to the holder, would be considered to be "eligible property" within the meaning of subsection 85(1.1) by virtue of paragraph (f) thereof.

Although an argument could be made that an option to acquire real property, being an interest in real property, is also real property, and therefore cannot qualify as "eligible property" under paragraph (f) of the definition, the fact that paragraphs (a) and (b) and proposed paragraph (h) of subsection 85(1.1) each refer to "real property, an interest therein or an option in respect thereof", suggests that Parliament did not, for the purposes of subsection 85(1.1) of the Act, consider the term "real property" by itself to include an option in respect of real property. Accordingly, we are of the view that the exclusion for "real property" in paragraph 85(1.1)(f) of the Act does not operate to exclude an option to acquire real property.

It is not clear that this result is intended, so we will be advising the Department of Finance of our above-noted position.

We cannot comment on your view that an option can constitute inventory to the holder whether the holder of the option is a trader or dealer in real estate or is only engaged in an adventure in the nature of trade because this matter is currently before the courts (see Donald R. Bailey v. Minister of National Revenue, 90 DTC 1321, which is currently under appeal).

The foregoing expressions of opinion are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.

Yours truly,

for DirectorReorganizations and Non-resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch