Eligible Capital Expenditure v. Expense

Administrative Policy

27 January 2011 External T.I. 2010-0380081E5 - Trailing commissions

In response to a query as to whether a payment made for the transfer of brokerage clients in respect of whom trailer commissions were being received would be a deductible payment, CRA stated:

Costs incurred for the creation or the expansion of a commercial structure are considered to be on capital account as this type of expenditure gives rise to an asset of an enduring nature. A capital outlay to acquire a customer list for use in a business of a taxpayer in most cases qualifies as an eligible capital expenditure.

Customer Lists


The Queen v. Farquhar Bethune Insurance Ltd., 82 DTC 6239, [1982] CTC 282 (FCA)

A payment of $75,000, made for a list of a general insurance operator's clientele in the area of fire and casualty insurance and his agreement not to compete in the fire and casualty area for three years, was characterized as being made for "the enlargement of the respondent's income-earning structure by the addition of a significant amount of annual premium volume and the elimination of a competitor in the fire and casualty insurance business", and thus was a capital expenditure whose deduction was prohibited by s. 18(1)(b). [C.R.: 14(5)(b)(i)]

Aliments CA-MO Foods Inc. v. The Queen, 80 DTC 6043, [1980] CTC 75 (FCTD)

"So far as the purchase of a customer list is concerned, there is a long and nearly consistent line of authority holding that such an expense is on capital account." The sum of $60,000 paid by the purchaser for a customer list and an undertaking of the seller not to compete, was a capital expenditure. "The fact that the buyer had to invest considerable effort in order to make use of its purchase did not thereby transform the nature of the transaction."