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:
Confirmation of calculation of deemed proceeds resulting from application of paragaph 13(21)(b).
Position:
In agreement with client's calculation of deemed proceeds.
Reasons:
Calculation reflects wording of the Act.
960855
XXXXXXXXXX A.M. Brake
Attention: XXXXXXXXXX
May 28, 1996
Dear Sirs:
Re: Subsection 13(21.1) of the Income Tax Act (the "Act")
This is in reply to your letter of March 1, 1996 wherein you outlined a fact situation and provided a calculation of deemed proceeds based on your understanding of the workings of paragraph 13(21.1)(b) of the Act. Your fact situation can be summarized as follows:
1. Land and building (depreciable property) were purchased in 1981 for $80,000 with $20,000 being allocated to land and the remainder of $60,000 to the building.
2. Since the land is to be put to some other purpose, the building now being destroyed has a undepreciated capital cost ("UCC") of $60,000 and a fair market value of $2,000.
3. The current fair market value of the land is $70,000.
Your interpretation of the application of paragraph 13(21.1)(b) is that it results in deemed proceeds calculated as follows:
Paragraph 13(21.1)(b) deems the proceeds of disposition to be:
The aggregate of:
(i) the proceeds otherwise determined Nil
plus
(ii) 1/4 of the greater of:
(A) UCC of building $60,000
or
(B) Excess of FMV over (i) amount ($2,000-nil) = $2,000
The (ii) amount is, therefore, $15,000 (1/4 of $60,000) which when added to the (i) amount of nil results in deemed proceeds of $15,000.
You state that the taxpayer would otherwise be entitled to a terminal loss of $60,000 if it were not for paragraph 13(21.1)(b) of the Act and that the loss has been reduced by $15,000 because of the application of that provision as it relates to your example.
We agree with your calculation of the deemed proceeds of disposition of $15,000 as calculated under 13(21.1)(b) of the Act thus reducing the otherwise deductible terminal loss of $60,000 to $45,000.
These comments are given in accordance with the practice of providing opinions referred to in paragraph 21 of Information Circular 70-6R2 and are not binding on Revenue Canada.
We trust our comments will be of assistance to you.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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