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.
5-942437
XXXXXXXXXX Marc Ton-That
Attention: XXXXXXXXXX
August 2, 1995
Dear Sirs:
Re: 20(1)(n) reserve
This is in reply to your letter of September 14, 1994 wherein you requested our opinion on whether section 245 of the Income Tax Act (the "Act") would apply to the following situation:
A corporation (the "vendor") sells at fair market value a real estate property, which constitutes inventory, to a related corporation (the "recipient") for a purchase price payable over a certain period of time such that the vendor would be able to claim a reserve under paragraph 20(1)(n) of the Act. The recipient would subsequently sell the property to an arm's-length person. The purpose of the sale of the property by the vendor to the recipient is to enable the vendor to spread the gain over a period of 3 years in order to maximize the use of the small business deduction.
One could question whether the sale of the property by the vendor to the recipient in the above-described situation would be legally effective, i.e. whether the recipient would be viewed as having obtained the beneficial ownership of the property or whether it would be construed as an agent for the vendor in the sale of the property to the arm's-length purchaser, particularly where the purchaser has been identified prior to the transfer of the property by the vendor to the recipient.
If it is found that the transfer of the property to the recipient is legally effective, we would consider the application of subsection 245(2) where the purchaser has been identified prior to the transfer of the property by the vendor to the recipient and the vendor deducts a reserve that it could not have deducted had it sold the property directly to the purchaser. Please refer to paragraph 24 of the Information Circular 88-2.
As stated in paragraph 21 of Information Circular 70-6R2 dated September 28, l990, the opinions expressed in this letter are not rulings and are consequently not binding on the Department.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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