22 December 1994 External T.I. 9418865 - EFFECTIVE DATE VS. CLOSING DATE

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.

		941886

XXXXXXXXXX A.A. Cameron

Attention: XXXXXXXXXX

December 22, 1994

Dear Sirs:

Re: "Effective Date" and "Closing Date"

This is in reply to your letter of June 20, 1994 wherein you requested a technical interpretation concerning Revenue Canada's position regarding the use of the "effective date", rather than the "closing date", as the transaction date to record the sale (or purchase) of oil and gas properties in Canada for purposes of the Income Tax Act (the "Act"). We apologize for the delay in responding to your letter.

You have described a hypothetical situation wherein:

- the purchase and sale agreement stipulates both an effective and a closing date;

- the terms of the agreement are such that the beneficial ownership and assumption of liabilities relating to these properties pass to the purchaser on the effective date, except for a few minor liabilities, which pass on the closing date; and

- there are no conditions precedent to be met under the purchase and sale agreement and all that is required prior to closing is the usual due diligence and completion of appropriate documentation.

Our Comments

Revenue Canada's position with regard to this hypothetical situation is the same as that stated in response to question # 25 at the roundtable of the 1991 Canadian Petroleum Tax Society ("CPTS") conference as follows:

In this situation, the transfer is not legally effective until the closing date, and the vendor is legally liable to report the income between the effective date and the closing date. However, there have been instances where the Department has administratively accepted that the transfer occurred on the effective date where:

- both parties to the transaction agree that the effective date should be used;

- no significant tax benefit arises from the use of this date.

However, if either party does not wish to use this date, the Department will tax the vendor on this income.

At the 1994 CPTS conference, in response to question # 19, Revenue Canada stated that the above noted position remains unchanged.

The foregoing comments represent our general views with respect to the subject matter. In accordance with paragraph 21 of Information Circular 70-6R2 the comments expressed herein do not constitute an advance income tax ruling and consequently are not binding on Revenue Canada.

Yours truly,

for A/Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Policy and Legislation Branch