4 June 1987 Income Tax Severed Letter

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.

XXXX                            5-2740
                                 M. Carsley 
                                 (613) 957-2117

Attention: XXXX

June 4, 1987

Dear Sirs:

This is in reply to your letter of January 8, 1987 in which you requested our opinion on how an amount is determined under subparagraph 808(2)(g)(i) of the Income Tax Regulations (the "Regulations").

In the hypothetical situation you set out in your letter, Company Y, a company not resident in Canada, operates a branch in Canada in which its only asset is inventory. Co Y transfers the property to Co X, a taxable Canadian corporation, pursuant to subsection 85(1) of the Income tax Act (the "Act"). The amount elected is $1 in excess of the cost amount of the inventory. The consideration received by Co Y for the transfer includes a note receivable from Co X and shares of Co X.

At the end of the taxation year in which Co Y transfers the inventory, it will include in income the amount it had deducted the previous year pursuant to paragraph 2XXXX(h) of the Act by virtue of paragraph 2XXXX(b) of the Act. Co Y can claim a deduction pursuant to paragraph 2XXXX(h) of the Act for an amount equal to the cost amount to Co Y of the note receivable by virtue of subparagraph 808(2)(g)(i) of the Regulations. The amount included in computing Co Y's income is the elected amount being the deemed proceeds used to determine any gain or loss realized for income tax purposes (i.e. an amount included in computing Co Y's income for the year). The fact that no amount or an amount less than the cost amount of the debt was included in Co Y's income for tax purposes is not relevant in determining if an amount is included under subparagraph 808(2)(g)(i) of the Regulations.

We trust this information will be of assistance to you.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch