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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
DRAFT
TEI Conference
December 7, 1993
Question No. IX
ON-ARM'S-LENGTH PARTY PURCHASE AND SALE ARRANGEMENTS
In many transactions there may be an extended period of time, perhaps months, between the date when a person enters into a purchase (or sale) agreement and the final closing. Such an interval may occur in connection with both arm's- length and non-arm's length transactions. Assuming the purchase price reflects the fair market value of the property at the date of entering into the agreement but the property value depreciates by the time for closing the sale, will RC apply paragraph 69(1)(a) to the purchaser in a non- arm's length transaction to reduce the adjusted cost base? Similarly, if the sale price reflects the fair market value at the time of entering into the agreement and the property appreciates by the closing date, will RC apply paragraph 69(1)(b) to the vendor to increase the proceeds of disposition?
Department's Position
As a general rule, subsection 69(1) applies to all acquisitions and dispositions of property between persons who do not deal at arm's length. In the above situation, the Department would readjust the proceeds of disposition or the purchase price of property, as the case may be, in accordance with subsection 69(1). However, as set out in paragraph 5 of Interpretation Bulletin IT-405 , where it can be shown that the transfer of property occurred at an amount other than the fair market value by reason of an honest error and not by a deliberate attempt to evade or avoid tax, the Department may permit an adjustment in the amount of the proceeds of disposition or purchase price to reflect the amounts deemed by paragraph 69(1)(a) or 69(1)(b) to have been paid or received. The onus will be on either or both taxpayers, as the case may be, to substantiate a claim that the incorrect valuation was caused by an honest error.
Officer: Carole Chouinard File number: 5-933367 December 8, 1993
Applicable section of the Act: 69(1)
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