29 June 1990 Ministerial Letter ACC9478 F - Allowable Outlay and Expenses

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.

Subject: Allowable Outlay and Expenses - Subparagraph 40(1)(a)(i)

This will reply to your memo of June 8, 1990 in which you request an opinion on the deductibility of an amount paid by a vendor who was required to make a payment to a third party in order to allow him to dispose of a property. 24(1) In our research of this matter we were unable to find a precedent that fits squarely into the circumstances of this case.  The closest would be the situation where a mortgage penalty was paid in order to prepay a mortgage in contemplation of the sale of the related property.  We have conceded that such a penalty is allowable under subparagraph 40(1)(a)(i).

A strict interpretation of the words "made or incurred by him for the purpose of making the disposition" leads us to the conclusion that the   24(1)   was made for the purpose of making the disposition.  Presumably in this case if the payment had not been made the sale of the property would have been jeopardized, so the payment was made in order to complete the sale.  It would appear that our only other recourse is to consider the provisions of section 67 and whether the amount was reasonable in the circumstances.

If the sale had taken place and then the individual had sued the vendor, following which a    24(1)    settlement payment was made, we would agree in those circumstances that the payment was made for the purpose of the disposition.  It would have been made as a result of the disposition.

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch