1 June 1990 Income Tax Severed Letter ACC9527 - Capital Gain Reserve - Promissory Note Transferred to Wholly-owned Corporation

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.

June 1990
                                                  900937
                                                  M. Vallée

                                                  EACC 9527

Question 12

An individual sells capital property taking back, as conditional payment of the unpaid balance of the purchase price, a five-year promissory note from the purchaser enabling the individual to claim a reasonable capital gain reserve under subparagraph 40(1)(a)(iii) of the Act. The individual subsequently transfers the promissory note to his wholly-owned corporation, taking back a five-year promissory note from the corporation. Is the individual still entitled to claim a reserve under subparagraph 40(1)(a)(iii)?

Department's Position

As indicated in paragraph 7 of Interpretation Bulletin IT-436R , it is generally our view that where a vendor disposes of a noted receivable from a purchaser of a capital property to a third party in consideration for a promissory note of that third party, a capital gains reserve under subparagraph 40(1)(a)(iii) is no longer available because there is no longer anything due to the vendor from the purchaser in the original transaction.