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.
5-912099
Dear Sirs:
Re: Purchase of Contracts
We are writing in reply to your letter of July 22, 1991 in which you requested our comments with respect to IT-92R2 entitled `Income of Contractors'.
You have described a scenario in which during the course of a taxation year a contractor acquires a contract in progress from another contractor who is unable to complete it. Under the terms of the arrangement the purchasing contractor assumes the vending contractor's position relating to that contract subject to a balancing payment for the difference between the value the assets acquired and the obligations assumed. The purchaser acquires the vendor's accounts receivable, unbilled costs and holdbacks and assumes the vendor's related accounts payable and holdback obligations.
It is your view that for purposes of computing the purchaser's taxable income for taxation years preceding completion of the acquired contract, the purchaser's taxable income should be completed on the same basis as if he had commenced the contract and in accordance with IT-92R2. This assumes that the contract is partially completed at the date of its acquisition and that the life of the contract is in excess of two years. Our Comments
In our view, the comments in paragraph 17 and 18 of IT-92R2 would apply in this scenario and would result in the vendor reporting income on the contract equal to the balancing payment made by the purchaser. On the other hand, the purchaser would be entitled to deduct the balancing payment as a cost of earning contract income. The purchaser would then compute his taxable income as though he had commenced the contract from the date of acquisition.
We trust that these comments will be of assistance.
Yours truly,
G. Thornley for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1991
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1991
Email this Content