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.
Principal Issues:
On a sale of a sports team, whether proceeds re players' contracts eligible capital amounts or capital proceeds.
Position TAKEN:
Amounts allocated to players' contracts treated as proceeds of disposition of capital property.
Reasons FOR POSITION TAKEN:
Mirror image test in subparagraph 14(5)(a)(iv) not met.
March 30, 1994
Toronto District Office 2W Head Office
Client Assistance Division Rulings Directorate
W. P. Guglich
Attention: D. Russo (613) 957-8953
940757
Disposition of Players' Contracts
This is in reply to your memorandum of March 23, 1994 wherein you requested our views as to whether, on the sale of a sports team, the vendors proceeds of disposition respecting the players' contracts would be an eligible capital ("EC") amount described in subparagraph 14(5)(a)(iv) of the Act or alternatively proceeds of disposition of a capital property.
As stated in paragraph 4 of IT-386R:
`Subparagraph 14(5)(a)(iv) has a "mirror image test" to determine whether an amount which a taxpayer has received or may become entitled to receive in connection with a business as a result of a disposition of property, is proceeds from the disposition of EC property resulting in an EC amount. The test is met where, if any payment had been made after 1971 by the taxpayer for that property, such payment would have qualified as an EC expenditure of the taxpayer under paragraph 14(5)(b) for the business. In other words, a taxpayer disposing of property in connection with a business looks in the mirror to see whether, if the taxpayer were instead purchasing the property, its cost would qualify as an EC expenditure of the taxpayer for the same business.'
The Department's position with respect to the purchaser of a sports team is that he is allowed to write off the amount allocated to the acquisition of the players' contracts over the estimated useful playing life of the players. As a result the mirror image test cannot be met and the vendor could not treat the proceeds respecting the players' contracts as an eligible capital amount. The amount allocated to players' contracts would be considered proceeds of disposition of a capital property.
The treatment of the portion of the proceeds allocated to players' contracts was discussed in a telephone conversation between our Division and Mr. Campbell during the week of March 18, 1994.
We trust our comments will be of assistance to you.
for Director
Business and General Division
Rulings Directorate
Legislative 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, 1994
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, 1994