13 October 1998 External T.I. 9808665 - SALE OF CONDOMINIUM UNITS.

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:

What is the Department's current position with respect to the timing of the recognition of income from the sale of condominium units?

Position:

Position expressed in Income Tax Technical News No. 8 dated September 30, 1996

Reasons:

XXXXXXXXXX 5-980866

Attention: XXXXXXXXXX

October 13, 1998

Dear Sir/Madam:

Re: Recognition of Income From the Sale of Condominium Units

This is in reply to your letter dated March 27, 1998 wherein you requested the Department's current position with respect to the timing of the recognition of income from the sale of condominium units. We apologize for the delay in responding to your letter.

As expressed in Revenue Canada's Income Tax Technical News No. 8 dated September 30, 1996, the Department's current position on this matter is as follows:

Proceeds of Sale of a Condominium - First Closing Date or Second Closing Date

It is common practice for condominium developers to allow purchasers to occupy condominium units prior to the registration of the building under the relevant condominium statute. This practice generally involves two closings: one at the time the purchaser occupies the unit and another at the time of registration of the building.

In response to Question 25 of the 1987 Round Table of the Canadian Tax Foundation Annual Conference, the Department stated that income should be reported in accordance with accepted commercial practice as used in computing income for financial statement purposes, provided that practice is legally permissible and not contrary to a specific provision in the Income Tax Act. The Department further stated that, in the absence of convincing arguments to the contrary, income from the sale of the condominiums should be reported at the first closing.

Further to the decision in 141224 Canada Ltd. v. The Queen, 95 DTC 385, [1995] 1 C.T.C. 2947, the Department is now of the view that if the vendor does not have the right to the payment of the sale price before the second closing date, the amounts do not have the characteristics of revenue and, therefore, these amounts will not be taxable until they are legally receivable. This new interpretation will take effect as of the date of this Newsletter.

If the seller has a legal right to receive the proceeds at the first closing date, the Department is still of the view that income from the sale of the condominiums should be reported at the first closing date.

As indicated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, this opinion is not a ruling and accordingly, is not binding on the Department.

We trust our comments will be of assistance to you.

Marc Vanasse, CA
for the Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch