7 November 1991 Income Tax Severed Letter - Transfer of property — timing of income

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.

TRANSFER OF PROPERTY - TIMING OF INCOME

QUESTION

A taxpayer purchases the assets of a business from an arm's-length vendor and the completion of the transaction is subject to a condition precedent. In response to Question 70 at the 1987 Revenue Canada Round Table, Revenue Canada stated that, in this situation, income earned between the effective date and the closing date would be income of the vendor.

Would Revenue Canada's response be different if the vendor and purchaser enter into a legally binding agency agreement for the period appointing the vendor as the purchaser's agent? Would the answer be the same if no condition precedent existed?

ANSWER

The Department's position remains as stated in our response given in 1987. As a disposition will not occur for tax purposes until the condition precedent is satisfied, any income arising prior to the transfer would not belong to the purchaser irrespective of an agreement appointing the vendor as the purchaser's agent for this period. Any agreement purporting to give retroactive effect to the transfer is not effective for tax purposes. The date of disposition of property sold is the date that beneficial ownership is intended to pass to the purchaser and the time that the vendor has an absolute but not necessarily immediate right to be paid.

Provided that the vendor is entitled to payment and beneficial ownership has been transferred, any income earned in the period between the effective and closing dates must be recognized by the purchaser.