9 May 1996 ICAA Roundtable Q. 11, 9616800 - EFFECTIVE DATE AND 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.

Calgary TSO 1996 Round Table

17. Effective Dates

At the 1995 ICAA Revenue Canada Round Table, a question was asked regarding "effective" dates and "closing" dates. However, the question did not really address the type of situation that typically arises when the effective and closing dates are different.

Commonly, the following circumstances exist:

1.the effective date is selected for administrative ease, rather than being a date when the "deal is done" (sometimes the effective date is a time before negotiations had even commenced);

2.the conditions to be met prior to closing and after the effective date are typically such that the parties to the agreement can "back out" if the conditions are not met (often the conditions are simply "escape clauses", such as the need for "Board Approval");

3.usually there is a tax benefit to either the buyer or seller as a result of the effective date being viewed as the transaction date for tax purposes, rather than the closing date.

If any or all of these circumstances are present, would Revenue Canada's answer to Question 11 of the 1995 Round Table be any different?

Revised Response

The Department's position remains as stated in response to Question 11 at the 1995 ICAA Revenu Canada Round Table.

Generally speaking, if the purchase and sales agreement is absolute and the incidents of beneficial ownership of the property including possession, use and risk do pass to the purchaser on the effective date, the Department will accept that date as the disposition date to the seller and the acquisition date to the purchaser for tax purposes. An exception to this position would be where the reason for choosing the effective date offends the General Anti-Avoidance rule set out in section 245 of the Income Tax Act.

In the first circumstance described above, it appears the sale is not completed and presumably beneficial ownership does not pass to the purchaser on the effective date. Therefore, we will look to the closing date as being the date of disposition and acquisition.

The second circumstance appears to be referring to conditions precedent which must be met prior to beneficial ownership being transferred. Until the conditions precedent have been met, no disposition/acquisition will be considered to have been made. Alternatively, where the conditions referred to are in fact conditions subsequent, such that there is a binding purchase/sale on the effective date (i.e. beneficial ownership has been transferred, as described above) and the agreement provides for a nullification upon certain subsequent happenings, depending on the facts, it is possible that the disposition/acquisition will be viewed as occurring on the effective date.

In the third circumstance, we note that tax benefits, in and of themselves, will not be the determining factor as to when a disposition/acquisition has taken place. We would follow the general principles stated above.

Prepared by: Allan Nelson
Date: May 9, 1996
File: 961680