20 April 1995 External T.I. 9509185 - PRODUCTION AND USE

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:

Proceeds of disposition are calculated on production and use. How much is on account of capital and how much is income?

Position TAKEN:

Refer to IT-462 par 5.

Reasons FOR POSITION TAKEN:

		5-950918
XXXXXXXXXX		Franklyn S. Gillman

Attention: XXXXXXXXXX

April 20, 1995

Dear Sirs:

Re: Paragraph 12(1)(g) of the Income Tax Act (the"Act")

This is in reply to your letter dated March 27, 1995 wherein you requested clarification as to the application of paragraph 12(1)(g) of the Act.

Revenue Canada's views on payments based on production or use are stated in Interpretation Bulletin IT-462. In particular, paragraph 5 of IT-462 provides the rules to be applied when calculating what portion of the proceeds of disposition of property is income and what portion of the proceeds of disposition of property is on account of capital. The situations described in subparagraphs 5(b), 5(c) and 5(d) of IT-462 provide examples of where sections 14 and 38 of the Act would apply to a portion of the proceeds of disposition of property and paragraph 12(1)(g) of the Act would apply to the balance of the proceeds of disposition of property.

It is a question of fact whether proceeds received from a particular transaction would be considered to be as a result of income or capital. This determination can only be made after a full analysis of the transaction, including a review of the relevant documents.

These opinions are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case. As stated in paragraph 21 of Information Circular 70-6R2 written opinions are not advance rulings and, accordingly, are not binding on the Department.

We trust these comments will be of assistance.

Yours truly,

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