20 August 1991 Income Tax Severed Letter 910466 F - Inducement Payments, Paragraph 12(1)(x) of the Act.

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: Inducement Payments, Paragraph 12(1)(x) of the Act

This is in reply to our memorandum of February 13 1991 concerning lease inducement payments (paragraph 12(1)(x) of the Act).

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You have not asked to comment on the basis of reporting these amounts by the partnership and partners but on whether or not the elections under subsection 53(2.1) and 13(7.4) of the Act are available or if the amounts must be reported under paragraph 12(1)(x).

The District Office believes that the election is not available for the following reasons:

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     (b)

     (c)   Both subsection 13(7.4) and 53(2.1) incorporate the phrase  "...where a taxpayer has... received an amount that would....be included in income under paragraph 12(1)(x) in respect of the cost of a property (or a depreciable property) acquired by him....".  The word "amount" has to meet two requirements, namely, that it would be included in income under paragraph 12(1)(x) and that it is in respect of the cost of a property or depreciable property the taxpayer acquires.

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The meaning of "cost of property" as used in subsection 53(2.1) of the Act was discussed at length and the conclusion was that the transaction was one that fit within the provisions of subsection 53(2.1) of the Act.  The taxpayer's representatives believe that this transaction falls within the spirit and intent of these provisions of the law.

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However, such an election should be made when filing the tax relevant year.  It would be an administrative decision to be made Taxation Programs Branch as to whether such an election might be allowed on the reassessment of the taxpayers' returns.

We were unable to uncover any information concerning alleged informal discussions of these issue.  In any event, there is no basis for ignoring the proper tax treatment based on the actual facts and documents as provided.

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch