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:
Whether the reduction in the eligible capital expenditure of a taxpayer that is required by subsection 14(3) of the Act is reversed where the taxpayer subsequently disposes of the eligible capital property to a non-arm's length person.
Position:
The reduction is reversed.
Reasons:
Subsection 14(3) provides that the reduction is reversed where the taxpayer subsequently disposes of the property. There is no requirement that the disposition be to an arm's length person.
5-952799
XXXXXXXXXX C. Chouinard
Attention: XXXXXXXXXX
January 15, 1996
Dear Sir:
Re: Subsection 14(3) of the Income Tax Act
We are writing in response to your letter of October 19, 1995, wherein you requested our comments regarding the application of subsection 14(3) of the Income Tax Act (the "Act") where eligible capital property has been transferred by a taxpayer ("A") to a non-arm's length person ("B"), who subsequently transfers the property to another non-arm's length person ("C").
In your view, in this situation, when B transfers the property to C, the reduction in B's eligible capital expenditure should be reversed, notwithstanding that B transfers the eligible capital property to a non-arm's length person. However, as you mention, the Department of Finance Technical Notes regarding subsection 14(3) of the Act and paragraph 18 of Interpretation Bulletin IT-123R5 indicate that B's reduction in eligible capital expenditure will only be reversed in a subsequent arm's length disposition. In your view, the wording of subsection 14(3) of the Act does not support these statements and the grind of the eligible capital expenditure should be reversed on a subsequent disposition, regardless of whether it is an arm's length or a non-arm's length disposition, to the extent that the proceeds exceed the eligible capital expenditure.
We have considered this matter and agree with your view that, where a taxpayer has acquired eligible capital property from a non-arm's length person and, as a result, his eligible capital expenditure has been reduced, the reduction in the eligible capital expenditure will be reversed on a subsequent disposition, regardless of whether the disposition is at arm's length.
Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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