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:
How is a capital gain on the disposition of capital property by an Indian taxed if the property was used for part of its life to generate exempt income?
Position:
Prorate the exemption based on the proportion of time the asset was used to generate exempt income.
Reasons:
This is a reasonable approach.
March 29, 1996
Vancouver Tax Services Office HEADQUARTERS
J. D. Brooks
957-2103
Attention: Graham Shand
Section 471-17
942130
Indian Fisherman - Capital Gains
This is in reply to your memorandum of August 19, 1994 in which you queried how the Indian Act exemption should apply in a specific fact situation. We apologize for the delay in replying to you. As you are aware, the Williams case has required significant time and effort to try to determine its ramifications.
Facts
A status Indian operated a fishing business for 20 years until the time of his death. For 17 of those years, the business was operated from a reserve and the Indian's income therefrom was considered to be tax exempt by virtue of paragraph 87(b) of the Indian Act and paragraph 81(1)(a) of the Income Tax Act.
Your View
It is your view that it would be reasonable to allow a prorated exemption of the capital gains arising on the disposition of the business assets upon the taxpayer's death. Thus, 17/20 of the capital gains would be exempt from taxation.
Our View
We agree that your proposal is a reasonable application of the Indian Act under the circumstances.
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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