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: (1) When is a debt considered settled or extinguished? (2) Can an annual fishing license be transferred to a corporation under 85(1)?
Position TAKEN: (1) Question of Fact. (2) Yes
Reasons FOR POSITION TAKEN:(1) all agreements and correspondence would have to be looked at before a decision could be made (2) The license is eligible property but inconclusive as to whether it would constitute eligible capital property or Class 14 depreciable property.
950324
XXXXXXXXXX M.P. Sarazin
(613) 957-2118
Attention: XXXXXXXXXX
May 26, 1995
Dear Sirs:
This is in reply to your letter dated January 26, 1995 wherein you requested our opinions regarding the tax consequences pertaining to the proposed transactions described in the following two factual situations.
Unless otherwise stated all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act").
Situation I
A fisherman has a substantial loan (the "Loan") owing to the Provincial Government. The fisherman will transfer his boat to his son for an amount equal to its fair market value which is significantly less than the outstanding balance of the Loan. The son will borrow an amount equal to the fair market value of the boat from the Provincial Government and the funds will be paid to the fisherman. The fisherman will then use the funds to make a payment on the Loan. The Provincial Government will delete the remaining outstanding balance of the Loan from its books. You are of the view that since the Provincial Government would not be giving up its legal rights to pursue collection of the remainder of the Loan then subsection 80(1) of the Act could not be applied until the Provincial Government loses its legal rights to collect the balance of the Loan under the appropriate statutes.
Situation II
Each year fishermen can apply to the Department of Fisheries and Oceans (the "DFO") for a license that will give the fisherman a right to fish during that particular year. The non-transferable fishing licenses are issued at the discretion of the DFO. A particular fisherman is considering transferring his fishing business to a corporation owned by him or his son. Since the DFO does not allow a corporation to own a fishing license, the fisherman will retain legal ownership of the fishing license but he will transfer the right to use the fishing license to the transferee. You are of the view that the transferee would, in fact, be considered to own the fishing license and the Department should treat the transfer of the right to use the fishing license as a disposition for purposes of the Act thereby allowing the fisherman and the transferee to elect under the provisions of subsection 85(1) of the Act with respect to the disposition. Alternatively, the fisherman could lease (for a long period of time) the right to use the fishing license to the transferee thereby resulting in a disposition of his fishing license for purposes of the Act.
It appears that the interpretations you seek relate to proposed transactions to be undertaken by specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for a particular taxpayer with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information circular. Nevertheless, we can offer the following general comments.
The determination of whether or not a particular arrangement would result in a debt being "settled or extinguished" for the purposes of subsection 80(1) of the Act or in an obligation being "settled or extinguished" for the purposes of proposed subsection 80(2) found in subsection 27.(1) of Bill C-70 An Act to amend the Income Tax Act, the Income Tax Application Rules and related Acts which received First Reading in the House of Commons on February 16, 1995 is a question of common law. We regret that it is not possible to provide further comments regarding such a determination without a detailed review of all the relevant documentation.
In light of the decision in Smith v. Humchitt Estate, (1990) B.C.L.R. (2d) 361 (B.C.S.C.), it would appear that a fishing license is considered personal property of the fisherman to whom it is issued by the DFO and the fishing license only exists until its expiry date which is generally one year from its date of issue. Consequently, a fisherman who receives a fishing license from the DFO will acquire personal property with a limited life. Whether an agreement results in the disposition by a fisherman of his rights under the fishing license is a question of fact which can only be determined subsequent to a review of all of the facts. Where there is in fact a disposition of the rights under a fishing license, the Department has generally taken the view that such rights would constitute either eligible capital property or depreciable property included in Class 14 of Schedule II of the Income Tax Regulations and, consequently, the disposition of such rights would be eligible for transfer under the provisions of subsection 85(1) of the Act.
The above comments are provided in accordance with the guidelines set out in paragraph 21 of information circular 70-6R2.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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