29 August 1985 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.

DECISION SUMMARY

S. Parnanzone August 29, 1985

Merchandising, Manufacturing & Construction Section

            Section 14,

Reference: Paragraph 17 of IT-92R2

Issue:      Whether amounts paid for rights under contracts on the 
            acquisition of a business as a going concern at the 
            time the vendor ceased to carry on the business, are
            on account of capital or are deductible expenses of the 
            purchaser corporation.

Decision:   The amount paid is on account of capital (eligible 
            capital expenditure).

Rationale:  The courts have indicated that where a vendor sells its 
            business and in connection therewith assigns the rights 
            under contracts to the purchaser, the purchaser's conside-
            ration for the contract rights which are acquired 
            as part of the purchased business is treated as fixed 
            capital and not as a deductible expense. (The City
            of London Contract Corp. Ltd. v. Styles (1887) 2 Tax Cases 
            239; John Smith & Son v. Moore (1921) 2 A.C. 13). The 
            position in paragraph 17 of  IT-92R2
 applies to situations 
            where the acquisition of contract rights is part of 
            the ordinary income earning activity of the purchaser-
            taxpayer (Williams Brothers Canada Ltd. 82 DTC 1276)

Chief Merchandising, Manufacturing & Construction Section Corporate Rulings Division Corporate Rulings Directorate Legislation Branch