Non-arm's length transactions

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Non-arm's length transactions

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When you acquire rental property in a non-arm's length transaction, there are special rules for determine the property's capital cost. These special rules do not apply if you get the property because of someone's death.

If you pay more for the rental property than the seller paid for the same rental property, calculate the capital cost as follows:

Capital cost calculation (Non-arm's length transaction)

1. The seller's cost or capital cost

$ Blank space for dollar value
Line 1

2. The seller's proceeds of disposition

$ Blank space for dollar value
Line 2

3. Amount from line 1

$ Blank space for dollar value
Line 3

4. Line 2 minus line 3 (if negative, enter "0")

$ Blank space for dollar value
Line 4

5. Enter any capital gains deductions claimed for the amount on line 4

$ Blank space for dollar value
× 2
$ Blank space for dollar value
Line 5

6. Line 4 minus line 5 (if negative, enter "0")

$ Blank space for dollar value
× 1/2
$ Blank space for dollar value
Line 6

7. Capital cost: line 1 plus line 6

$ Blank space for dollar value
Line 7

Enter this amount in Column 3 - Cost of additions in the year of either Part B or Part C, whichever applies. Do not include the cost of the related land, instead include on line 9923 in Part F of Form T776, Statement of Real Estate Rentals.

You can also buy depreciable property in a non-arm's length transaction from a corporation or from an individual who is not resident in Canada, or from a partnership with no partners who are individuals resident in Canada or with no partners that are other partnerships.

If you pay more for the rental property than the seller paid for the same rental property, calculate the capital cost as follows:

Capital cost calculation (Non-arm's length - Non-resident transaction)

1. The seller's cost or capital cost

$ Blank space for dollar value
Line 1

2. The seller's proceeds of disposition

$ Blank space for dollar value
Line 2

3. Amount from line 1

$ Blank space for dollar value
Line 3

4. Line 2 minus line 3 (if negative, enter "0")

$ Blank space for dollar value
× 1/2
$ Blank space for dollar value
Line 4

5. Capital cost: line 1 plus line 4

$ Blank space for dollar value
Line 5

Enter this amount in Column 3 - Cost of additions in the year of either Part B or Part C, whichever applies. Do not include the cost of the related land. Include the cost of the related land on line 9923 in Part F of Form T776, Statement of Real Estate Rentals.

If you buy depreciable property in a non-arm's length transaction and pay less for it than the seller paid, your capital cost is the same amount as the seller paid. We consider you to have deducted as CCA the difference between what you paid and what the seller paid.

Example

Teresa bought a refrigerator from her father Roman for $400 to use in her rental operation. Roman originally paid $1,000 for the refrigerator and was using it in his rental operations. Since the amount Teresa paid is less than the amount Roman paid, we consider Teresa's cost to be $1,000. We also consider that Teresa has deducted CCA in the amount of $600 in the past ($1,000 - $400).

  • In Part B Teresa enters $1,000 in Column 3, Total cost.
  • In Part A she enters $400 in Column 3 as the addition for the current tax year.

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Date modified:
2017-01-03