Subsection 40(1) - General rules
Cases
Abrametz v. Canada, 2009 DTC 5828, 2009 FCA 111
The taxpayer would have established that he realized a capital loss if he had established the following:
- a fellow shareholder ("Paulhus") of the...
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| Tax Topics - Income Tax Act - Section 39 - Subsection 39(12) | 89 |
Administrative Policy
Calculating and reporting your capital gains and losses
Use the exchange rate that was in effect on the day of the transaction or, if there were transactions at various times throughout the year, you...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(2) | 33 |
Paragraph 40(1)(a)
Administrative Policy
28 April 2008 External T.I. 2007-0243711E5 F - Gains et pertes sur change
Regarding a requested clarification of the second part of paragraph 13 of IT-95R regarding the realization of a foreign exchange gain or loss on...
Subparagraph 40(1)(a)(i)
Cases
Martin v. Canada, 2015 FCA 204
The taxpayer's employment at his brokerage employer was terminated. He was unable to find replacement employment or to establish his own financial...
Gaynor v. The Queen, 91 DTC 5288, [1991] 1 CTC 470 (FCA)
In rejecting a submission that the capital gain realized by the taxpayer from the purchase and sale in U.S. dollars of U.S. securities should be...
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| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Amount | 62 |
The Queen v. Demers, 86 DTC 6411, [1986] 2 CTC 321 (FCA)
Although the price stipulated in the agreement for the sale of shares of a corporation ("Chibougamau") was $7,800,000, the agreement also provided...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition | 130 |
See Also
Giguère v. Agence du revenu du Québec, 2018 QCCQ 874
The taxpayer received fraudulent advances from a corporation (Groupe Norbourg) managed by her husband. She used the money to purchase a property...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i) | fraudulent advance did not qualify as a loan | 202 |
Rio Tinto Alcan Inc. v. The Queen, 2016 TCC 172, aff'd 2018 FCA 124
The taxpayer ("Alcan"), a Canadian public company, incurred fees on capital account respecting its butterfly spin-off of a subsidiary holding a...
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| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Legal and other Professional Fees | investment dealer fees incurred respecting the advisability of making hostile takeover were fully deductible under s. 9 | 417 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) | investment dealer fees re advisability of making hostile takeover were fully deductible | 529 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(cc) | legal fees incurred in securing regulatory approval for a hostile bid related to the bidder's business of earning income from shares and interaffiliate sales | 182 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(g) | takeover bid circular costs did not qualify | 102 |
| Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Eligible Capital Expenditure | fees incurred in order to acquire shares were excluded/butterfly expenses excluded as taxpayer was not in the business of implementing corporate reorganizations | 365 |
| Tax Topics - Income Tax Act - Section 169 - Subsection 169(2.1) | raising general question of deductibility of fees and listing s. 20(1)(e) did not satisfy s. 165(1.11) | 246 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e) | failure to advance evidence showing allocation of fees to share consideration | 139 |
| Tax Topics - Statutory Interpretation - French and English Version | finding common meaning of 2 versions of s. 20(1)(bb) | 108 |
Brosamler Estate v. The Queen, 2012 DTC 1193 [at 3493], 2012 TCC 204 (Informal Procedure)
he estate of a deceased German resident sold three rental properties in BC. The estate added probate and legal fees that were paid in...
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| Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base | probate fees added to cost | 154 |
Dubois c. La Reine, 2007 DTC 1534, 2007 TCC 461 (Informal Procedure)
The taxpayer had to pay an amount in settlement of the damages claim of the vendor and incurred related legal expenses as a result of a...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Start-Up and Liquidation Costs | 100 | |
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Contract or Option Cancellation | 94 | |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition | legal expenses incurred re cancellation of purchase may be loss from disposition | 90 |
| Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) - Paragraph 4(1)(a) | 152 |
Avis Immobilièn G.M.B.H. v. The Queen, 94 DTC 1039, [1994] 1 CTC 2204 (TCC)
The taxpayer, which was a corporation resident in West Germany, borrowed deutschemarks ("DM") from a German bank to help finance the acquisition...
Capcount Trading v. Evans, [1993] BTC 3 (C.A.)
A capital loss of a British company from the disposal of shares of a Canadian company was to be determined by computing the difference between the...
Campbellton Enterprises Ltd. v. MNR, 90 DTC 1869, [1990] 2 CTC 2413 (TCC)
A bonus equal to three months' interest which the taxpayer paid in order to discharge a mortgage upon the sale of a rental property was deductible...
Samson Estate v. MNR, 90 DTC 1150, [1990] 1 CTC 2223 (TCC)
Professional fees incurred in seeking the cancellation of a zoning by-law were found to have been incurred in order to more easily dispose of the...
Bentley v. Pike, [1981] T.R. 17 (HCJ.)
Mrs. Bentley was considered under the Finance Act 1965 to have acquired, on her father's death in 1967, a 1/6 share of real property situate in...
Administrative Policy
7 October 2022 APFF Financial Strategies and Instruments Roundtable Q. 3, 2022-0943261C6 F - Average Exchange Rate
Can an average exchange rate be used in computing the gains or losses from the disposition of capital property? CRA responded:
As a general rule,...
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| Tax Topics - Income Tax Act - Section 261 - Subsection 261(1) - Relevant Spot Rate | circumscribed acceptance of using average exchange rates | 257 |
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(1.1) | use of average exchange rate under s. 39(1.1) is permitted | 36 |
22 January 2020 External T.I. 2014-0559281E5 F - T5008
The T5508 Guide states:
Report only the total proceeds in box 21. Do not deduct any expenses from the proceeds… .
Respecting the application...
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| Tax Topics - Income Tax Act - Section 49 - Subsection 49(1) | writing of call option (with deemed nil ACB) is reported as having nil “cost” on T5008 | 99 |
| Tax Topics - Income Tax Regulations - Regulation 230 - Subsection 230(2) | “cost” of call options closed out by writer is nil, not the cost of offsetting call option purchase/cost re short sale is the FMV of the borrowed shares | 351 |
| Tax Topics - Income Tax Act - Section 9 - Computation of Profit | cost of short sale is FMV of borrowed shares | 59 |
15 October 2015 Internal T.I. 2014-0527041I7 F - Disposition de biens
In the course of a discussion not based on a repetition of the applicable facts, CRA stated:
...Avis Immobilien GMBH ... [found that] "for the...
15 September 2015 External T.I. 2015-0583221E5 F - Redemption by a cooperative of its own shares
Is a gain realized by a cooperative corporation, on the redemption of its own preferred shares, taxable? CRA responded:
[N]o provision of the Act...
S4-F2-C1 - Deductibility of Fines and Penalties
1.22 If a fine or penalty (such as a mortgage prepayment penalty) is incurred in connection with the disposition of a capital property, the fine...
10 June 2013 STEP Round Table Q. 10, 2013 0480411C6 (Brosamler decision)
CRA considers Brosamler Estate to be confined to "a very specific fact situation," noting that the legal and probate fees in issue would have been...
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| Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base | 75 |
11 January 2013 External T.I. 2012-0436771E5 - Sale of a business
The sole shareholder of Aco is required under the terms of the share sale agreement to repay, in full, at closing, a bank loan owing by Aco and an...
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| Tax Topics - Income Tax Act - Section 18 - Subsection 18(9.1) | penalty paid by shareholder | 85 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e) | continued deduction where debt settlement by shareholder rather than taxpayer | 24 |
15 November 2012 External T.I. 2012-0461291E5 F - Frais judiciaires pour clarifier une servitude
A taxpayer who owned both a lakeside lot on which the taxpayer had a cottage and an adjoining lot (the "second lot") on which there was an...
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| Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base | no comment on whether legal costs to avoid expanded easement were ACB addition | 78 |
24 April 2012 Internal T.I. 2011-0400671I7 F - Honoraires professionnels
A law firm (Advisor B) that was acting for both the purchasers and vendors (Mr. B and Corporation D) of shares of Corporation A was paid an agreed...
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| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Start-Up and Liquidation Costs | fees incurred by individual before intention to form a corp did not qualify as pre-incorporation expenses | 486 |
| Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) | meaning of “benefit” | 164 |
4 September 2007 Internal T.I. 2007-0237791I7 F - Gain et perte sur taux de change
The taxpayer had a US dollar bank account into which it deposited US dollars from its sales and from which it lent US dollars to affiliates (in...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(g) - Subparagraph 40(2)(g)(ii) | s. 40(2)(g)(ii) extended to FX losses on non-interest-bearing loan to parent | 25 |
7 June 2007 External T.I. 2007-0228831E5 F - Pénalité au rachat d'une obligation
When a bondholder requested an early repayment of its bonds, it was required to pay a premium that was withheld first from any accrued but unpaid...
29 July 2004 Internal T.I. 2003-0023761I7 F - Contrat de SWAP d'équité
After concluding that the payment, on the termination of an equity swap, by the taxpayer of the swap termination payment gave rise to a capital...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Loss v. Loss | loss on equity swap entered into in monetization transaction was on capital account | 163 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition | termination of equity swap contract entailed the disposition of property | 67 |
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Futures/Forwards/Hedges | equity swap was to hedge the risk under a capital borrowing, so that loss on closing out the swap was on capital account | 358 |
22 January 2004 External T.I. 2003-0006191E5 F - Frais et montant reçus lors de poursuite
A broker was sued for his alleged mismanagement of the portfolios (held on capital account) of a holding corporation, its principal shareholder...
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| Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) | legal fees paid by corporation in suit by it and its shareholder and his RRSP should be allocated pro rata to them even though the joint incremental costs were minimal | 190 |
| Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition - Paragraph (f) | damages received for portfolio mismanagement could be proceeds under para. (f) | 87 |
11 December 2003 External T.I. 2003-0015975 F - calcul du gain/perte sur disposition
Under a Court-approved proposal to avoid the bankruptcy of a corporation, when Mr. A sold his shares of the corporation, he was required to pay a...
5 November 2003 Internal T.I. 2003-0037977 F - FRAIS POUR ANNULER UNE OFFRE D'ACHAT
An individual rescinded his agreement to purchase an immovable that he had initially intended to acquire for the purpose of renting it out, and...
8 September 2003 Internal T.I. 2003-0010407 F - Gains et pertes sur change étranger
The Directorate indicated that an article, stating that the way to compute the capital gain on the disposition of shares of a US corporation was...
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| Tax Topics - Income Tax Act - Section 39 - Subsection 39(2) | s. 39(2) applies to interest on US mortgage | 201 |
9 June 2003 Internal T.I. 2003-001330
Legal fees incurred, following the disposition by the taxpayers of a property, in a dispute as to the amount of the final payment due to the...
31 January 2003 External T.I. 2002-0161555 F - VENTE D'UN IMMEUBLE LOCATIF
The taxpayer signed an agreement with the tenant in which the taxpayer undertook to pay the tenant the rent paid over the past 12 months if he...
17 July 2001 External T.I. 2001-0068355 F - DEDUCTION D'UN BONI A UN EMPLOYE
Regarding whether a performance bonus paid to an employee based on the appreciation in value of a capital property that the employer disposed of...
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| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Oversight or Investment Management | investment performance bonus to be deductible would need to be incurred as part of the activity of managing the investments | 93 |
21 October 1993 Income Tax Severed Letter 9325325 - Mortgage Pay-out Penalties
Where penalty payments are made in order to pay off a mortgage, or reduce the interest rate on a mortgage, prior to the sale of the mortgaged...
26 January 1993 Memorandum (Tax Window, No. 28, p. 15, ¶2399)
Legal fees incurred by a taxpayer in a year subsequent to the sale of a capital property in order to collect the proceeds of disposition will not...
91 CR - Q.29
Where a landlord makes an inducement payment outside the ordinary course of its business to facilitate the sale of a building by increasing the...
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| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Timing | 12 |
18 November 1991 Memorandum (Tax Window, No. 11, p. 19, ¶1537)
S.40(1)(a)(i) may reduce the taxpayer's capital gain on the sale of shares where under the agreement the taxpayer is required to use a portion of...
89 C.M.TC - "Leasing Costs"
"payments made in contemplation of the sale of the property, i.e., to bring the property to full occupancy to enhance the sellling price ... are...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Contract or Option Cancellation | 40 |
Subparagraph 40(1)(a)(iii)
Cases
Pineo v. The Queen, 86 DTC 6322, [1986] 2 CTC 71 (FCTD)
The reserve was not available in respect of a demand promissory note received by the vendors as partial consideration for the sale of shares of a...
The Queen v. Derbecker, 84 DTC 6549, [1984] CTC 606 (FCA)
In S.40(1)(a)(iii)(A), "the words 'due to him' look only to the taxpayer's entitlement to enforce payment and not to whether or not he has...
Neder v. The Queen, 82 DTC 6022, [1981] CTC 501 (FCA)
Where a taxpayer has been reassessed so as to include in his income a taxable capital gain, a S.40(1)(a)(iii) reserve is not available to the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Fair Market Value - Land | 66 |
See Also
Alguire v. The Queen, 95 DTC 532 (TCC)
In 1981, the taxpayer sold the shares of a corporation owned by him to his mother for $600,000 under an oral agreement that she would pay him when...
Administrative Policy
S4-F7-C1 - Amalgamations of Canadian Corporations
1.95 A person entitled to a reserve under paragraph 20(1)(n), subparagraph 40(1)(a)(iii) or subparagraph 44(1)(e)(iii) in respect of an amount...
24 February 2014 External T.I. 2013-0505391E5 F - Clause de earnout renversé
CRA confirmed its position in 2000-0051115 that:
Where the cost recovery method is not used and the sale price of a property is not certain at the...
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| Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g) | no capital gains reserve on reverse earn-out for a share sale | 230 |
7 October 2013 Internal T.I. 2013-0504081I7 F - Interaction between 55(2) and 40(1)(a)(iii)
Vendor sold blocks of shares in the capital of a corporation (the “Purchaser”) to the Purchaser, with the purchase price being payable over a...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 55 - Subsection 55(2) | s. 40(1)(a)(iii) reserve available where redemption proceeds payable on earnout basis | 173 |
| Tax Topics - General Concepts - Payment & Receipt | distinction between promissory note as conditional or absolute payment | 249 |
16 November 2001 External T.I. 1999-0009295 - Reserve deemed capital gain
Decision summary 55-066 dated 29 November 29 1985 addressed whether a shareholder could claim a reserve under s. 40(1)(a)(iii) when its shares...
20 September 2001 Internal T.I. 2001-0091517 F - CHOIX LORS DE DISPOSITION DE BIA
The Directorate indicated that there is nothing in s. 14(1.01) limiting the application of the deeming rules provided in ss. 14(1.01)(a) to (c),...
17 November 1999 External T.I. 9901265 - 97(1) AND A RESERVE
"[W]here and individual transfers property to a partnership under subsection 97(2) of the Act and receives, in addition to a partnership interest...
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| Tax Topics - Income Tax Act - Section 97 - Subsection 97(2) | 112 |
31 March 1995 External T.I. 9430115 - interest in a family farm partnership & capital gains RESERVE
A reserve may not be claimed where an individual transfers property to a partnership pursuant to s. 97(1) and receives as consideration a...
93 C.R. - Q. 41
Re whether changes to the terms of a take back note or mortgage result in loss of the reserve.
10 October 1991 T.I. (Tax Window, No. 11, p. 14, ¶1515)
Where the original due date on a vendor take-back mortgage or promissory note is extended by agreement, the entitlement of the vendor to continue...
21 August 1991 T.I. (Tax Window, No. 8, p. 6, ¶1403)
The entitlement of a vendor to claim a reserve where a promissory note was accepted only as evidence of the purchaser's obligation for the unpaid...
14 February 1991 T.I. (Tax Window, Prelim. No. 3, p. 12, ¶1119)
A vendor take-back mortgage, whose scheduled payments of principal are substantially deferred due to the financial difficulty of the purchaser,...
IT-236R2 "Reserves - Dispositions of Capital Property"
IT-436R "Reserves - Where Promissory Notes are Included in Disposal Proceeds"
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| Tax Topics - General Concepts - Payment & Receipt | 43 |
Articles
Smith, "Corporate Restructuring Issues: Public Corporations", 1990 Corporate Management Tax Conference Report, pp. 6:6-6:8: discussion of claiming of reserve by vendor under a take-over bid.
Clause 40(1)(a)(iii)(C)
Administrative Policy
24 July 2001 External T.I. 2001-006547 F - RESERVE POUR GAIN EN CAPITAL
No capital gains reserve was available to a taxpayer who disposed of real estate in exchange for shares of a public corporation which could not be...
Paragraph 40(1)(b)
Administrative Policy
18 August 2014 External T.I. 2014-0540361E5 F - CDA and the deeming rules of 40(3.6) or 112(3)
A corporation's capital dividend accounts will not be reduced by a loss on the redemption of shares held by it where such loss is deemed to be nil...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account | no capital loss for CDA purposes where ss. 112(3) and 40(3.6) stop-loss rules apply | 128 |
Subsection 40(2) - Limitations
Paragraph 40(2)(a)
Subparagraph 40(2)(a)(ii)
Administrative Policy
18 May 2004 External T.I. 2004-0069691E5 F - Incorporation des professionnels
Each of the partners, all individuals, in a partnership (a SENC) transfers their interest therein to the same corporation and each becomes a...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 98 - Subsection 98(3) - Paragraph 98(3)(b) | WIP subject to s. 34 election is tranferred at nil | 149 |
| Tax Topics - Income Tax Act - Section 34 | insolvency practice carried on by accountants does not qualify as accountancy | 79 |
| Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(2) | s. 249.1(2) not engaged by virtue only of no income being allocated to the partner | 236 |
Paragraph 40(2)(b)
Cases
Cassidy v. Canada, 2011 FCA 271
The taxpayer sold his six-acre rural property after it was rezoned for residential use as a result of an application made on behalf of owners of...
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| Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (e) | 251 |
The Queen v. Joyner, 88 DTC 6459, [1988] 2 CTC 280 (FCTD)
In 1972, 14 acres of land which the taxpayer had acquired in 1965 was prohibited, by virtue of an Order in Council passed pursuant to the...
The Queen v. Yates, 83 DTC 5158, [1983] CTC 105 (FCTD), aff'd 86 DTC 6296 [1986] 2 CTC 46 (FCA)
It was held that the gain from the disposition of a portion of a principal residence was completely exempt since "it was not argued that, by its...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 54 - Principal Residence | 60 |
See Also
Francoeur v. Agence du revenu du Québec, 2016 QCCQ 11906
Aubé, J found that an entrepreneur who had followed a pattern of building and selling residences, realized a capital gain eligible for the...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate | somewhat quick flip by a builder was eligible for the principal residence exemption | 343 |
Cassidy v. The Queen, 2010 DTC 1336 [at 4287], 2010 TCC 471
The taxpayer sold his six-acre rural property after it was rezoned for residential use as a result of an application made on behalf of owners of...
Administrative Policy
11 October 2019 APFF Roundtable Q. 2, 2019-0812611C6 F - Résiliation d'un bail - Lease cancellation
A tenant had been annually renewing a lease of a condo since the time the condo was first leased in July 2013. The condo was sold in February...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(z) | s. 20(1)(z) applies notwithstanding s. 18(1)(a) but is subject to source rule in s. 20(1) preamble | 193 |
| Tax Topics - Income Tax Act - Section 54 - Principal Residence | lease termination payment received by tenant was eligible for principal residence exemption | 116 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) | s. 20(1)-preamble source rule applied | 148 |
5 October 2018 APFF Financial Strategies and Instruments Roundtable Q. 11, 2018-0761571C6 F - Missing info on disposition of principal residence
CRA has summarized the detailed filing requirements for reporting a principal residence disposition and making the designation. CRA also...
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| Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (c) | CRA is only waiving penalties for late-filed principal residence dispositions for 2017 and 2016 returns | 355 |
6 October 2017 APFF Roundtable Q. 3, 2017-0709011C6 F - Désignation d’un bien comme résidence principale
On page 2 of Schedule 3 of the return for the year of disposition of a principal residence, if the individual checks the box for Case 1, would...
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| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) | no loss of bonus year if standard designation |
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| Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (c) | an individual accessing the “+1” rule on a principal residence disposition need not complete Form 2091 | 253 |
17 October 2014 Internal T.I. 2014-0546091I7 F - Indemnités lors d'une négociation de gré à gré
An individual who purchased a residential property received indemnity payments from the vendor, pursuant to a negotiated indemnity clause, to...
S1-F3-C2 - Principal Residence
No designation before ordinary habitation
2.29 If a taxpayer acquires land in one tax year and constructs a housing unit on it in a subsequent...
7 October 2016 APFF Roundtable Q. 2, 2016-0652841C6 F - Changement partiel d’usage - immeuble locatif et résidentiel
S1-F3-C2 “Principal Residence” para. 2.7 states that a housing unit includes a unit in a duplex. However, in 2011-0417471E5, CRA indicated...
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| Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(c) | switch between which triplex units used for personal/ family rental or 3rd-party rental did not trigger change of use | 249 |
| Tax Topics - Income Tax Act - Section 54 - Principal Residence | triplex contained separate housing units | 151 |
7 October 2016 APFF Roundtable Q. 3, 2016-0652851C6 F - Annulation d'une promesse d'achat sur une maison
As a result of breach of a puchaser's obligation to purchase a personal residence, the individual vendor received $50,000 in damages from the...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(b) | no capital loss for damages paid for breach of purchase obligation | 73 |
10 June 2016 External T.I. 2015-0590371E5 F - Résidence principale - stationnement
Where a parking space was acquired as part of the purchase of a residential condo unit, the parking space can thereafter form part of the condo...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (e) | a parking space can form part of a condo housing unit | 241 |
13 March 2013 External T.I. 2012-0473291E5 F - Société de personnes - maison détruite par le feu
The Taxpayer was a partner of a partnership carrying on a farming business and owning more than half a hectare of land on which there was a...
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| Tax Topics - Income Tax Act - Section 44 - Subsection 44(5) - Paragraph 44(5)(a.1) | replacement property generally is expected to have the same material characteristics | 159 |
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(c) | s. 40(2)(c) unavailable re disposition of building only from fire | 111 |
5 October 2012 Roundtable, 2012-0453961C6 F - Copropriété indivise (50-50) d'un triplex
An individual held a triplex equally with his father in undivided co-ownership and also lived in one of the equally sized units as his principal...
23 January 2008 External T.I. 2007-0237251E5 F - Résidence principale - Destruction d'un triplex
A taxpayer owns a triplex that was completely destroyed in a fire. He ordinarily inhabited part of the triplex as his principal residence before...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (e) | garage remaining after destruction of triplex by fire was part of the contiguous land | 171 |
25 July 2007 External T.I. 2007-0224601E5 F - Application de l'alinéa 40(2)b)
A taxpayer acquired a residence and the subjacent land in 20X1, ordinarily inhabited it for three years, then in 20X4, demolished it without...
23 May 2007 External T.I. 2006-0215721E5 F - Application de l'alinéa 40(2)b)
A taxpayer acquired a cottage and the subjacent land in 1998, and ordinarily inhabited the cottage until 2002, when he demolished it and built a...
11 May 2007 External T.I. 2006-0214351E5 F - Transfert d'un droit de propriété
A and his wife B, had been undivided owners of a duplex since 1999, and lived in one of the units with their daughter C, while the other was...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property | an occupied unit in a co-owned duplex can be designated as a principal residence | 97 |
6 December 2006 External T.I. 2006-0152101E5 F - Disposition d'un domaine résiduel
A farmer disposes of his principal residence to a family farm corporation while retaining a life estate in it until he and his spouse die.
CRA...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 43.1 - Subsection 43.1(2) - Paragraph 43.1(2)(b) | ACB addition to residual interest in farm principal residence disposed of to family farm corporation | 233 |
4 March 2003 External T.I. 2002-0150985 F - TRANSFERT-RESIDENCE PRINCIPALE
CCRA indicated that the principal residence deduction could be utilized on a transfer of the residence by the individual to a wholly-owned...
11 April 1995 External T.I. 9507405 - 40(2)(B)
A non-resident who disposes of his principal residence can reduce the amount of the resulting capital gain by virtue of the fact that the...
16 February 1995 Mississauga Breakfast Seminar, Q. 4
Discussion of interaction between capital gains election under s. 110.6(19) and claiming of principal residence exemption for some (but not all)...
88 C.R. - Q.55
The taxpayer is not required to review his use and enjoyment of the property on a year by year basis respecting the half-hectare test.
80 C.R. - Q.24
Where a taxpayer purchased a vacant lot and later constructed his principal residence on it, the denominator will include the years that he owned...
Paragraph 40(2)(c)
Administrative Policy
13 March 2013 External T.I. 2012-0473291E5 F - Société de personnes - maison détruite par le feu
The Taxpayer was a partner of a partnership carrying on a farming business and owning more than half a hectare of land on which there was a...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) | partner can use the principal residence exemption re gain allocated by partnership from disposition of personally-used principal residence, including following s. 44 deferral | 263 |
| Tax Topics - Income Tax Act - Section 44 - Subsection 44(5) - Paragraph 44(5)(a.1) | replacement property generally is expected to have the same material characteristics | 159 |
Paragraph 40(2)(e)
See Also
Plant National Ltd. v. MNR, 89 DTC 401 (TCC)
As a consequence of the disposition by the taxpayer of voting preference shares of a corporation ("Enterprises") to Enterprises, Enterprises...
Administrative Policy
12 May 1992 Memorandum 921006 (May 1993 Access Letter, p. 194, ¶C38-156)
Because there is only a deemed disposition under s. 50(1)(a) and not an actual disposition, s. 40(2)(e) does not apply to a loss arising under s....
25 March 1991 T.I. (Tax Window, No. 1, p. 7, ¶1170)
The word "person" in s. 40(2)(e) includes "persons". Accordingly, if X Co. is controlled by Mr. X and Mrs. X together, s. 40(2)(e) will apply to a...
10 January 1990 T.I. (June 1990 Access Letter, ¶1257)
s. 40(2)(e) generally will not apply to the winding-up or liquidation of a foreign affiliate provided that under the relevant foreign corporate...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 84 - Subsection 84(9) | 58 |
86 C.R. - Q.22
The phrase "was controlled" means controlled at the time of the disposition.
Paragraph 40(2)(e.1)
Administrative Policy
2014 Ruling 2013-0479701R3 - Transfer of US dollar loan
Current structure
Holdco2, which is wholly-owned by Mr. X (a Canadian resident), made seven non-interest-bearing demand U.S-dollar loans...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(2) | amendment of non-interest bearing loan to be interest-bearing | 34 |
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(g) - Subparagraph 40(2)(g)(ii) | s. 40(2)(e.1) trumped s. 40(2)(g)(ii) so that US Loan ACB preserved | 122 |
| Tax Topics - Income Tax Act - Section 80.01 - Subsection 80.01(3) | S. 40(2)(e.1) trumped s. 40(2)(g)(ii) so that US Loan ACB preserved | 207 |
2012 Ruling 2011-0426051R3 - Debt Restructuring
Opco is a Canadian resource company whose liabilities far exceed the value of its assets. It is the indirect subsidiary of a foreign parent and...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 80.01 - Subsection 80.01(4) | ATR-66 debt tuck-under and wind-up transactions | 354 |
Articles
Mike J. Hegedus, "Paragraph 40(2)(e.1) Versus Subparagraph 40(2)(g)(ii): Potential Conflict?", Resource Sector Taxation (Federated Press), Vol. IX, No. 4, 2014, p.684.
2013-0479701R3 may not have dealt with conflict between s. 40(2))(g)(ii) and s. 40(2)(e.1) (pp. 686-7)
In the third and most recent ruling, the...
Paragraph 40(2)(f)
Administrative Policy
S3-F9-C1 - Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime
Lottery Schemes
1.17 Paragraph 40(2)(f) specifies that no taxable capital gain or allowable capital loss results from the disposition of a chance...
Paragraph 40(2)(g)
Administrative Policy
7 October 2021 APFF Roundtable Q. 15, 2021-0901051C6 F - Exemption pour résidence principale
An individual held vacant land from 1990 to 1999 and then occupied a new home constructed thereon as the individual’s principal residence from...
28 January 2002 External T.I. 2002-0116635 F - REEE-REGLE D'ATTRIB. ET PERT NULLE
In finding that s. 40(2)(g) does not apply where a taxpayer transfers property to an RESP, CCRA stated:
[A] capital loss that a taxpayer may...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 74.3 - Subsection 74.3(1) - Paragraph 74.3(1)(a) | s. 74.1(2) does not apply where a taxpayer transfers property to an RESP | 106 |
Subparagraph 40(2)(g)(ii)
Cases
Service v. Canada, 2005 DTC 5281, 2005 FCA 163
The taxpayer, who was a minority shareholder of a corporation ("Homage") engaged in a condominium development project, lent money directly to...
Rich v. Canada, 2003 DTC 5115, 2003 FCA 38
In finding that the taxpayer was entitled to recognize a business investment loss on an interest-bearing loan made by him to a company ("DSM")...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(c) | 159 | |
| Tax Topics - Statutory Interpretation - Business Judgment | 68 | |
| Tax Topics - General Concepts - Purpose/Intention | subordinate purpose sufficient | 45 |
Byram v. R, 99 DTC 5117, [1999] 2 CTC 149 (FCA)
The taxpayer was able to deduct losses sustained on interest-free loans made by him to a U.S. operating company of which he was initially a direct...
Cadillac Fairview Corp. v. R., 99 DTC 5121, [1999] 3 CTC 353 (FCA)
he taxpayer was unable to recognize a capital loss in respect of its guarantees of bank loans made to real estate partnerships in which fifth-tier...
Bosa Bros. Construction Ltd. v. The Queen, 96 DTC 6193 (FCTD)
Interest-free advances that the taxpayer made to its U.S. subsidiary were found not to have been made to earn income (e.g., acquiring a product or...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Onus | 132 | |
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property | depreciable property where CCA had been claimed and allowed | 111 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(p) - Subparagraph 20(1)(p)(ii) | interest-free advances to US sub by developer | 35 |
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate | sale of stratified title property 1 year later on capital account/ secondary intention re ill-affordable property | 210 |
Brown v. The Queen, 96 DTC 6091 (FCTD)
The taxpayer made interest-free loans to a real estate corporation owned by him and others that were used to fund the corporation's obligations to...
Smith v. The Queen, 93 DTC 5351, [1993] 2 CTC 257 (FCA)
No deduction was available under s. 50(1)(a) in respect of a loan made by a corporation to an affiliate in the absence of any evidence that the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) | benefit concurred in by taxpayer was not taxable under s. 56(2) as it was taxable to the recipient | 241 |
The Queen v. Lalonde, 84 DTC 6159 (FCTD), aff'd 89 DTC 5286 (FCA)
Two doctors made interest-free advances to a non-profit corporation which had been established to construct and operate an old-age home. Since...
See Also
Fiducie Immobilière JP v. The King, 2022 TCC 7
The appellant, a non-testamentary discretionary trust, made non-interest bearing loans to two companies (“Roseau” and “Spec”) which were...
Coveley v. The Queen, 2014 DTC 1041 [at 2771], 2013 TCC 417, aff'd 2014 FCA 281
The taxpayers ("Michael and Solbyung"), were a married couple employed by a technology research corporation ("cStar"), and Solbyung was also a...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 50 - Subsection 50(1) | bad debt claim, but business as usual | 120 |
Audet v. The Queen, 2012 DTC 1208 [at 3556], 2012 TCC 162 (Informal Procedure)
The taxpayer, a certified general accountant, guaranteed a loan to one of his clients ("Cuisine Gourmet"), for which he became liable to pay...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Legal and other Professional Fees | fee to recover capital proceeds | 152 |
MacCallum v. The Queen, 2011 DTC 1225 [at 1308], 2011 TCC 316
A corporation owned by the taxpayer and his wife wholly owned a trucking corporation ("D & N"), and his son wholly owned a small business...
Scott v. The Queen, 2010 TCC 401, 2010 DTC 1273 [at 3910]
The taxpayer made a loan to a corporation owned by his son and daughter-in-law, whose business failed. Boyle J. allowed the loss because, while...
Alessandro v. The Queen, 2007 DTC 1373, 2007 TCC 411
The taxpayer had satisfied the burden of showing that loans advanced by her to a corporation of which she was only an indirect shareholder but for...
Daniels v. The Queen, 2007 DTC 883, 2007 TCC 179
The taxpayer and his brother used money borrowed by them from the Royal Bank of Canada to purchase debentures from a Canadian-controlled private...
Kyriazakos v. The Queen, 2007 DTC 373, 2007 TCC 66
Non-interest bearing advances that the taxpayer had made to a corporation after she had sold its shares to a friend were found not to have been...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 50 - Subsection 50(1) | no attempt to collect was reasonable | 132 |
Toews v. The Queen, 2005 DTC 1359, 2005 TCC 597
The recognition of a loss realized by the taxpayer on a non-interest bearing loan made by him to a company owned by a family trust was denied...
Proulx-Drouin v. The Queen, 2005 DTC 487, 2005 TCC 116
When the taxpayer paid under her guarantee of debts owing by her husband's corporation, she became a creditor of the corporation by subrogation....
Bernier v. The Queen, 2004 DTC 3235, 2004 TCC 376
The taxpayer was entitled to recognize under s. 39(2) capital losses incurred in a Bahamian margin account when U.S.-dollar margin loans were...
Joncas v. The Queen, 2004 DTC 2315, 2005 TCC 647 (Informal Procedure)
Interest-bearing advances made by the taxpayer to a cooperative corporation of which he was a member were found to have been made for the primary...
MacKay v. The Queen, 2003 DTC 748 (TCC)
After a corporation of which the taxpayer was a significant shareholder entered into a period of financial difficulty, the taxpayer followed the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(c) | 119 |
Gordon v. The Queen, 96 DTC 1554, [1996] 3 CTC 2229 (TCC)
The taxpayer caused two related corporations ("Grandview" and "Formete") to advance funds on behalf of a corporation ("Engineering") owned by the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(12) | 85 |
Burns v. The Queen, 94 DTC 1370, [1994] 1 CTC 2364 (TCC)
Five siblings, including the taxpayer, loaned money on a non-interest bearing basis to a corporation ("WFC") as part of transactions that resulted...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 50 - Subsection 50(1) | 111 |
National Developments Ltd. v. The Queen, 94 DTC 1061 (TCC)
The taxpayer, which was a significant shareholder of a Minnesota corporation ("K-Tel") agreed along with another major shareholder ("Tri-State")...
W.F. Botkin Construction Ltd. v. The Queen, 93 DTC 448, [1993] 1 CTC 2765 (TCC)
The purchase price for the sale of the taxpayer's business to a corporation owned by the children of the taxpayer's shareholder was financed by...
Glass v. MNR, 92 DTC 1759 (TCC)
Pursuant to a written agreement with the existing shareholders, the taxpayer purchased 25% of the shares of a land development corporation for...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) | 97 | |
| Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base | 104 |
Madaline v. MNR, 91 DTC 1451, [1991] 2 CTC 2658 (TCC)
A loss on a guarantee given by the taxpayer of a loan to his son's business was not made for the purpose of gaining or producing income but,...
O'Blenes v. MNR, 90 DTC 1068, [1990] 1 CTC 2171 (TCC)
At the time that the taxpayer guaranteed amounts owing by a corporation of which her husband was the shareholder and officer, "she was not...
Business Art Inc. v. MNR, 86 DTC 1842, [1987] 1 CTC 2001 (TCC)
Interest-free loans which the taxpayer made to a U.K. subsidiary, which had been established to purchase supplies in the U.K. for resale to the...
Administrative Policy
14 June 2017 External T.I. 2016-0666411E5 - Negative returns on investments
A Canadian-resident taxpayer purchases a negative yield bond for $102 and will receive $100 when it matures in five years. The bond does not pay...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Loans and Financing Charges | negative interest is deductible under s. 9 if there is a reasonable expectation of receiving (positive) interest | 152 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i) | negative interest not a contra to positive interest | 150 |
S4-F8-C1 - Business Investment Losses
1.46 ... Where a shareholder provides a guarantee or loan to a corporation in order to provide it capital, a clear connection will generally exist...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Small Business Corporation | "substantially" and "principally" | 38 |
| Tax Topics - Income Tax Act - Section 50 - Subsection 50(1) | End of year references taxpayer | 343 |
| Tax Topics - Income Tax Act - Section 50 - Subsection 50(1.1) | 247 | |
| Tax Topics - Income Tax Act - Section 50 - Subsection 50(1) - Paragraph 50(1)(a) | Proactive collection efforts | 157 |
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(9) | Example | 182 |
| Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) | Limitation on BIL carryback | 96 |
16 June 2016 Internal T.I. 2015-0597971I7 F - Perte réputée nulle - loss deemed nil
Mrs. A, F1 and F2 held, as co-owners, a building whose sole tenant was Corporation, which was owned by Mrs. A. F1 and F2 advanced sums (the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(c) | BIL potentially could be recognized on a non-interest bearing loan made to a corporation in which the taxpayer had no equity | 0 |
2014 Ruling 2013-0479701R3 - Transfer of US dollar loan
Holdco2, which is wholly-owned by a Canadian resident individual, made a non-interest-bearing demand U.S-dollar loans (the "US Loan") to the ...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(2) | amendment of non-interest bearing loan to be interest-bearing | 34 |
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(e.1) | s. 40(2)(e.1) trumped s. 40(2)(g)(ii) so that US Loan ACB preserved | 207 |
| Tax Topics - Income Tax Act - Section 80.01 - Subsection 80.01(3) | S. 40(2)(e.1) trumped s. 40(2)(g)(ii) so that US Loan ACB preserved | 207 |
6 May 2014 Internal T.I. 2014-0524651I7 - Loss on conversion
Canco indirectly controlled ULC which was the sole member (holding common membership units) of LLC. ULC also held non-interest-bearing Notes...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 51 - Subsection 51(1) | s. 51 applies where issuer had a cash redemption override | 208 |
| Tax Topics - Income Tax Act - Section 51 - Subsection 51(1) | conversion not under Note terms | 185 |
8 July 2013 Internal T.I. 2012-0434991I7 F - Déductibilité d'une perte
As a sideline activity to the practice of his profession, Mr. A and his partners made loans, an activity which required little time in comparison...
| Other locations for this summary | |
|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(g) - Subparagraph 40(2)(g)(ii) | per jurisprudence on guarantees, taxpayer’s reason for assuming an obligation (to protect an interest-bearing investment) must be examined |
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(p) - Subparagraph 20(1)(p)(ii) | ordinary business requirement looks to the presence of an organized and continuous system | 251 |
6 December 2012 External T.I. 2012-0463431E5 F - Application of subparagraph 40(2)(g)(ii)
Creditor and Debtor were wholly-owned subsidiaries of the same parent. Creditor made interest-free loans (the "Debts") to Debtor, and subsequently...
2012 Ruling 2010-0386201R3 - Tower structure capitalized by interest-free loans
Existing structure
Canco, which is a privately-owned taxable Canadian corporation, holds a US limited liability limited partnership ("LLLP")...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(i) | non-interest-bearing loans is made for income producing purposes: generating dividends | 890 |
4 September 2007 Internal T.I. 2007-0237791I7 F - Gain et perte sur taux de change
CRA found that any FX loss realized on a USD loan to the taxpayer’s parent would be denied under s. 40(2)(g)(ii).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) | USD loan to parent no longer represented money on deposit, so that funds movement generated FX gain or loss | 269 |
21 June 2007 Internal T.I. 2007-0239681I7 F - perte sur prêts irrécouvrables
In 1999, an individual, Mr. A, acquired shares of a small business corporation (the "Corporation") through his RRSP, and subsequently, personally...
9 June 2005 Internal T.I. 2005-0122511I7 F - Créance irrécouvrable dans une OSBL
Before finding that a loss on an interest-bearing loan made by a director of a not-for-profit organization to the NPO that became a bad debt when...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(c) - Subparagraph 39(1)(c)(iv) | loss on interest-bearing loan made by a director to an NPO qualified as BIL if NPO qualified as SBC | 108 |
22 January 2004 Internal T.I. 2003-0047561I7 F - Effet de la délégation puis de la subrogation
The taxpayer sold an immovable to a purchaser who assumed a mortgage on the property. The purchaser subsequently defaulted, and the mortgagee sold...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 42 | payment under covenant of vendor regarding mortgage assumed by purchaser, who defaulted on its assumed obligation, did not generate a s. 42 loss | 168 |
14 January 2004 External T.I. 2003-003875
CRA has accepted the decision in Byram so that, in its view, when the debtor is a wholly-owned subsidiary of the taxpayer, a clear nexus between...
18 December 2003 Internal T.I. 2003-0044007 F - OPTION D'ACHAT D'ACTIONS RACHETEES
The taxpayer surrendered his stock options to his arm’s-length employer for consideration that was payable partly up front and partly in...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(b) | full option surrender consideration included under s. 7(1)(b) even though a portion thereof never paid | 170 |
| Tax Topics - Income Tax Act - Section 54 - Capital Property | employee stock option surrender proceeds were not from the disposition of capital property | 84 |
24 September 2003 Internal T.I. 2003-0184097 F - perte au titre de placement
CCRA accepted the correctness of Byram in finding that, since a shareholder made a non-interest bearing loan the a corporation with the...
21 November 2001 Internal T.I. 2001-0094527 F - PERTE REPUTEE NULLE-BRYAN
In finding that a non-interest bearing loan made by the individual shareholder likely satisfied s. 40(2)(g)(ii) in light of Byram, the Directorate...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 50 - Subsection 50(1) - Paragraph 50(1)(a) | no partial bad debt recognition under s. 50(1)(a) | 64 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(27) | s. 248(27) does not permit partial debt write-off under s. 50(1)(a) | 75 |
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(c) - Subparagraph 39(1)(c)(ii) | settlement of corporate debt under a bankruptcy proposal did not entail disposition of the debt to the corporation | 89 |
| Tax Topics - Income Tax Act - Section 251 - Subsection 251(2) - Paragraph 251(2)(b) - Subparagraph 251(2)(b)(i) | shareholder continued to control “his” corporation while it was being administered by a bankruptcy trustee pending approval of a proposal | 83 |
| Tax Topics - Income Tax Act - Section 116 - Subsection 116(5) | settlement under bankruptcy proposal of debt did not entail a disposition of that debt to the corporation | 50 |
7 June 2001 Internal T.I. 2000-0060747 F - PROPOSITION CONCORDATAIRE - PTPE
The Shareholder made various non-interest-bearing advances to a Canadian-controlled private corporation (the Corporation), whose creditors...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition - Paragraph (b) - Subparagraph (b)(ii) | discharge of unsecured debt owing to debtor’s shareholder under bankruptcy proposal was a disposition | 125 |
17 December 1996 Internal T.I. 9634547 - DISPOSITION OF EMPLOYMENT BONUS NOTES
A loss realized by an employee from the disposition of notes received by him from his employer in lieu of a cash bonus would not be subject to the...
Halifax Round Table, February 1994, Q. 1
A loss realized by a shareholder of a small business corporation on the sale of a non-interest bearing loan to an arm's length party may be...
23 December 1993 Income Tax Severed Letter 9317905 - Allowable Business Investment Loss
Discussion of when a shareholder can recognize a capital loss on a non-interest bearing loan owing to her by the corporation where the shareholder...
91 C.R. - Q.35
Where a holding company is required to have an interest-free debt owing to it by Opco settled for an amount less than its ACB as a condition to...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(c) | 26 |
21 August 1991 T.I. (Tax Window, No. 8, p. 22, ¶1397)
A director's loss under s. 227.1 will be non-deductible by virtue of s. 40(2)(g).
12 September 1990 T.I. (Tax Window, Prelim. No. 1, p. 10, ¶1016)
Where A transferred a non-interest-bearing debt at a loss to its affiliate, B, and B then sold the debt in an arm's length transaction, the loss...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(f.1) | 50 |
15 September 89 Memorandum (February 1990 Access Letter, ¶1105)
The position in IT-445 respecting interest-free loans is still supportable. The Business Art case, in which a Canadian corporation was allowed to...
1 September 89 T.I. (February 1990 Access Letter, ¶1106)
Where a wife guaranteed for no consideration a bank loan to her husband's corporation in which she was not a shareholder, she was unable to claim...
22 Aug. 89 T.I. (Jan. 90 Access Letter, ¶1078)
In light of the Canada Safeway and DWS cases, RC does not accept that when a shareholder incurs a debt to his corporation he does so to indirectly...
81 C.R. - Q.4
Guidelines in the case of a guarantee granted a lender by a sole shareholder of the borrower for no compensation.
IT-239R2 "Deductibility of Capital Losses from Guaranteeing Loans for Inadequate Consideration and from Loaning Funds at less than a Reasonable Rate of Interest in Non-arm's Length Circumstances"
6. Where a taxpayer has loaned money at less than a reasonable rate of interest to a Canadian corporation of which he is a shareholder, or to its...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 246 - Subsection 246(1) | 48 | |
| Tax Topics - Income Tax Act - Section 80 - Subsection 80(1) | 0 | |
| Tax Topics - Income Tax Act - Section 80 - Subsection 80(5) | 0 |
IT-390 "Unit Trusts - Cost of Rights and Adjustments to Cost Base"
A capital loss arising when additional units are issued in settlement of a unit holder's right to receive a distribution of a capital gain of the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 52 - Subsection 52(6) | 317 |
Articles
Reid, "Capital and Non-Capital Losses", 1990 Conference Report, c. 16
Discussion of deductibility of losses arising from amounts paid under guarantees.
Subparagraph 40(2)(g)(iii)
Administrative Policy
7 October 2016 APFF Financial Strategies and Instruments Roundtable Q. 4, 2016-0651791C6 F - Choix 45(2) et (3) - immeuble à logements
At civil law, land and building are a single property (although this rule is overridden for CCA/recapture purposes). Consequently, if a duplex...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 45 - Subsection 45(3) | invalidity of s. 45(3) elections on duplex units applied only for changes of use after February 21, 2012 | 185 |
| Tax Topics - Income Tax Act - Section 54 - Personal-Use Property | land underlying duplex used 40% personally is not personal-use property | 233 |
| Tax Topics - Income Tax Regulations - Regulation 1102 - Regulation 1102(2) | Reg. 1102(2) deems building to be separate from land and does not bifurcate the land | 176 |
Subparagraph 40(2)(g)(iv)
Clause 40(2)(g)(iv)(B)
Administrative Policy
7 May 2003 External T.I. 2003-0182755 F - Superficial Loss on Shares
The taxpayer’s spouse realized a capital loss on transferring her shares, with an accrued capital loss, for cash proceeds equaling their FMV,...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 54 - Superficial Loss | transactions for sale by individual to her husband circumvented s. 40(2)(g)(i) through the sale by him back to her RRSP, and could be GAARable | 274 |
Subsection 40(3) - Deemed gain where amounts to be deducted from adjusted cost base exceed cost plus amounts to be added to adjusted cost base
Administrative Policy
30 October 2014 External T.I. 2013-0488881E5 - Upstream Loan
Where Canco receives a s. 90(9)(a) notional dividend as a result of a loan from a 2nd tier FA (FA2), it will not be credited for s. 90(9)...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(28) | no double inclusion following FA creditor wind-up | 60 |
| Tax Topics - Income Tax Act - Section 90 - Subsection 90(6) | no double inclusion following FA creditor wind-up or for 2nd loan in series | 121 |
| Tax Topics - Income Tax Act - Section 90 - Subsection 90(9) | notional election and double taxation issues | 1332 |
| Tax Topics - Income Tax Regulations - Regulation 5901 - Subsection 5901(1.1) | notional Reg. 5901(1.1) election | 30 |
| Tax Topics - Income Tax Regulations - Regulation 5901 - Subsection 5901(2) - Paragraph 5901(2)(a) | 90-day rule unavailable | 28 |
| Tax Topics - Income Tax Regulations - Regulation 5901 - Subsection 5901(2) - Paragraph 5901(2)(b) | notional Reg. 5901(2)(b) election | 31 |
| Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(1) - Underlying Foreign Tax | notional UFT disproportionate election | 37 |
8 October 2010 Roundtable, 2010-0373461C6 F - Retrait d'une société de personnes
Where a general partner whose units have a negative ACB has his units redeemed equally over the course of five years, 20% of the negative ACB will...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 100 - Subsection 100(2) | negative ACB realized pro rata under s. 100(2) as portion of the units are redeemed each year | 201 |
| Tax Topics - Income Tax Act - Section 43 - Subsection 43(1) | all the partner’s units are a single property | 81 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property | partnership unit is not separate property from other units | 57 |
Rulings Directorate Discussion and Position Paper on Motion Picture Films and Video Tapes as Tax Shelters, Version 29/3/93 930501 (C.T.O. "Motion Picture Films - C.C.A.")
Discussion in Appendix of techniques for postponement of realization of negative ACB by investors in film limited partnership. RC also states that...
Articles
Melanie Huynh, Eric Lockwood, "Foreign Affiliates and Adjusted Cost Base", 2007 Canadian Tax Journal, Issue No. 1
Effect of negative ACB gains on CFA shares that are excluded property
- Canco, wholly-owns CFA 1, which wholly-owns CFA 2. A Canadian dollar (but...
Subsection 40(3.1) - Deemed gain for certain partners
See Also
Gladwin Realty Corporation v. The Queen, 2019 TCC 62, aff'd 2020 FCA 142
The taxpayer, a private real estate corporation, rolled a property under s. 97(2) into a newly-formed LP, with the LP then distributing to the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | using the CDA and negative ACB rules to generate “over-integration” was abusive | 594 |
| Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (a) | contrary to purpose of the capital dividend rules to fully exempt a capital gains distribution | 300 |
| Tax Topics - Income Tax Act - Section 123.3 | no CRA challenge to continuance to BVI to avoid s. 123.3 tax | 96 |
Administrative Policy
10 April 2024 External T.I. 2021-0919231E5 - Foreign tax allocation to a partner
Would the allocation of foreign tax by a partnership to a partner be regarded as a withdrawal by the particular partner that reduced the ACB of...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 53 - Subsection 53(2) - Paragraph 53(2)(c) - Subparagraph 53(2)(c)(v) | payment of withholding tax by a partnership “on behalf of its partners is an ACB-reducing distribution to them | 272 |
| Tax Topics - General Concepts - Payment & Receipt | payment by partnership of withholding tax treated as a distribution to its partners | 99 |
29 November 2022 CTF Roundtable Q. 1, 2022-0949781C6 - Loans Made by Limited Partnerships to Limited Partners
2016-0637341E5 stated that s. 53(2)(c)(v) is very broad and could in theory (depending on all relevant facts) apply to the amount of the loans...
7 October 2022 APFF Roundtable Q. 5, 2022-0947611C6 F - Limited Partnership and Loans
2016-0637341E5 indicated that s. 53(2)(c)(v) potentially could apply respecting the amount of loans made by a partnership to a limited partner....
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 53 - Subsection 53(2) - Paragraph 53(2)(c) - Subparagraph 53(2)(c)(v) | guarded acceptance of distributions of LP profits as loans, followed by set-off against draws in January | 377 |
27 June 2016 External T.I. 2016-0637341E5 F - Partnerships - Negative ACB
Rather than making current distributions of its cash flow to a limited partner, those sums are lent by the LP to the limited partner – then at...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 53 - Subsection 53(2) - Paragraph 53(2)(c) - Subparagraph 53(2)(c)(v) | loan advances to a limited partner may give rise to immediate s. 53(2)(c)(v) grind | 261 |
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.13) | retention of partnership profits not a contribution | 150 |
| Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(e) - Subparagraph 53(1)(e)(iv) | assumption of loan can be contribution, but not retained profits | 177 |
18 June 2014 External T.I. 2011-0417491E5 - Non-resident's partnership interest
A non-resident corporation (NRco) is deemed under s. 40(3.1)(a) to realize a gain in respect of its limited partnership interest in P, which is...
15 December 2010 External T.I. 2009-0349911E5 F - Calcul du PBR d'une participation dans une SEC
In February 2008, a limited partnership (“LP”) realized a capital gain, of which $100,000 was allocable to Limited Partner A, whose interest...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(e) - Subparagraph 53(1)(e)(i) | no ACB bump for gains realized in the year until Day 1 of following year | 98 |
Subsection 40(3.12) - Deemed loss for certain partners
Administrative Policy
2021 Ruling 2021-0895071R3 F - Partnership Reorganization
A limited partnership (Carry LP), that was owned directly or indirectly by two unrelated individuals (A and B) and their families, held a carry...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 98 - Subsection 98(3) | conversion of a carry to a straight-up interest | 476 |
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.3) | refusal to rule where shares received on LP s. 98(3) wind-up immediately sold to Carry LP owned by owners of former general partner | 345 |
3 July 2012 External T.I. 2012-0449701E5 - Subsection 40(3.12) and tiered ptnshps
As s. 40(3.12) is limited to corporations, individuals (other than trusts) and testamentary trusts:
[a]n election under subsection...
Articles
Joint Committee, "Response to Green case", 19 January 2018 Joint Committee Submission to Finance respecting the Green case
Desirability of extending relief from negative ACB gains
Although s. 40(3.12) is intended to address the problem of negative ACB arising from...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(e) | 186 |
Subsection 40(3.13)
Administrative Policy
27 June 2016 External T.I. 2016-0637341E5 F - Partnerships - Negative ACB
Rather than making current distributions of its cash flow to a limited partner, those sums are lent by the LP to the limited partner – then at...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 53 - Subsection 53(2) - Paragraph 53(2)(c) - Subparagraph 53(2)(c)(v) | loan advances to a limited partner may give rise to immediate s. 53(2)(c)(v) grind | 261 |
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.1) | loans by LP to partner potentially gave rise to negative ACB gain | 168 |
| Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(e) - Subparagraph 53(1)(e)(iv) | assumption of loan can be contribution, but not retained profits | 177 |
Subsection 40(3.14)
Paragraph 40(3.14)(a)
Administrative Policy
11 October 2013 APFF Roundtable, 2013-0495861C6 F - Question 20 - APFF Round Table
In the course of a general discussion, CRA stated:
In order not to qualify as a limited partner pursuant to paragraph 40(3.14)(a), it is...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Specified Member | specified member status determined re involvement in daily management or activities | 93 |
Articles
Lorenzo Bonanno, Guy Buckley, "Limited Liability Partnerships", Canadian Tax Highlights, Vol. 25, No. 2, February 2017, p. 7
Partial v. full-shield protection (p. 7)
Partial-shield protection limits liability from…liabilities….only…arising from the negligence of...
Geneviève C. Lille, Elizabeth J. Johnson, "Partnerships: An Update", 2010 Conference Report (Toronto: Canadian Tax Foundation, 2011), 36:1-62
2003 comfort letter indicating that “full shield” partnerships were intended to be caught (p. 36:16)
A comfort letter from the Department of...
Subsection 40(3.15) - Excluded interest
Administrative Policy
24 June 2014 External T.I. 2014-0524331E5 - definition of excluded interest
The Canadian "Partnership," which had operated its residential apartment building since 1988 without any expansion to or changes in its...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.16) | distribution not a qualifying use | 127 |
13 April 2004 External T.I. 2003-0052291E5 F - Participation exclue - Par. 40(3.15) de la Loi
A limited partnership formed before February 22, 1994 that generated business income from residential rental properties then entered into a...
22 May 1998 External T.I. 9806575 - EXCLUDED INTEREST
Where a partnership owns shares that are held for the purpose of earning income but out of which dividends are not declared in each year of their...
Subsection 40(3.16) - Amounts considered not to be substantial
Administrative Policy
24 June 2014 External T.I. 2014-0524331E5 - definition of excluded interest
The Canadian "Partnership," which had operated its residential apartment building since 1988 without any expansion to or changes in its...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.15) | 40% indebtedness increase to below original amount was "substantial" | 86 |
Subsection 40(3.3) - When subsection (3.4) applies
Administrative Policy
7 October 2022 APFF Financial Strategies and Instruments Roundtable Q. 4, 2022-0940941C6 - Stop-loss Rules
On March 15, 2022, a corporation disposes of all of its shares (being 2,000) of ABC Pubco, and realizes a capital loss of $10,000. On March 16,...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(f) | superficial loss allocated on a pooled basis to shares held at the end of the 61-day period by affiliated persons | 241 |
| Tax Topics - Income Tax Act - Section 54 - Superficial Loss | formula for prorating superficial loss is inapplicable where the number of shares held by affiliated persons has increased at the end of the 61-day period | 239 |
2021 Ruling 2021-0895071R3 F - Partnership Reorganization
A limited partnership (Carry LP), that was owned directly or indirectly by two unrelated individuals (A and B) and their families, held a carry...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 98 - Subsection 98(3) | conversion of a carry to a straight-up interest | 476 |
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.12) | no s. 40(3.12) ruling given re loss on fund LP wind-up | 380 |
6 October 2017 APFF Financial Strategies and Instruments Roundtable Q. 10, 2017-0705201C6 F - Capital loss - repayment of loan
On the repayment (on maturity) of a U.S.-dollar loan that had been received from an affiliated trust, the borrower sustains a foreign exchange...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property | foreign currency is not property for purposes of the suspended-loss rules | 184 |
3 February 2016 Internal T.I. 2015-0588791I7 - Meaning of substituted property
LLC1, which is wholly owned by a Canadian partnership, held 49.9% of the units in LLC3 - with a further 0.1% held by LLC2 (a wholly-owned...
6 January 2009 Internal T.I. 2008-0280111I7 - FX loss on disposition of cash
A Bermuda CFA (Forco) maintains U.S. dollar deposits and realizes FX losses when it uses such cash to pay a dividend or to make a loan. CRA...
2007 Ruling 2007-0245281R3 - windup of income trust on sale of assets:3rd party
This contemplated the winding-up of an income fund (the "Fund") following its acquisition by a "Bidco" in which the Fund sold its assets (mostly...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 53 - Subsection 53(2) - Paragraph 53(2)(h) - Subparagraph 53(2)(h)(i.1) | no ACB reduction for capital gains distribution by unit trust to bidco | 86 |
| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(21) | trustees making filings on behalf of terminated fund | 48 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) | assumed debt traceable to capital distribution | 97 |
| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) | realization and distribution of target MFT gain | 101 |
| Tax Topics - Income Tax Act - Section 80 - Subsection 80(1) | 90 | |
| Tax Topics - Income Tax Act - Section 80 - Subsection 80(5) | 90 |
21 March 2007 External T.I. 2004-0091061E5 - stop loss rules for depreciable property
After indicating that s. 13(21.2) would not apply to a transfer of depreciable property from a personal trust to a person affiliated with the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(21.2) | 49 |
4 April 2003 External T.I. 2002-0171635 F - PERTE APPARENTE
The suspended loss rules did not apply where a holding company sold its shares of a public corporation at a loss and, within 30 days of that sale,...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 54 - Superficial Loss | purchase within 30 days by daughter of share vendor did not engage the superficial loss rules | 46 |
| Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(a) | father and daughter not affiliated | 46 |
| Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(b) | corporation and daughter of its controlling shareholder not affiliated | 59 |
30 October 2001 External T.I. 2001-0100555 F - PERTE ET REER
Regarding the sale of shares of a public company by a corporation, wholly owned by an individual, to the individual's RRSP, prior to the addition...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(g) | an RRSP was not affiliated with its annuitant prior to s. 251.1(1)(g) | 72 |
Articles
Marc Ton-That, Rick McLean, "Navigating the Stop-Loss Rules", Corporate Structures and Groups, Vol. VI, No. 3, p. 324.
Subsection 40(3.4) - Loss on certain properties
Administrative Policy
27 October 2014 Internal T.I. 2014-0534981I7 F - Subsection 40(3.4)
Canco 1 ("C1") disposed of its interest in a partnership ("P") in its 2008 taxation year to a corporation ("C2") which was affiliated under s....
2 July 2014 External T.I. 2014-0529731E5 F - Stop-loss Rules
In Scenario 1, Investco acquires 1,000 common shares of Pubco on January 1, 201X and acquires a further 200 shares on December 15, 201X. Pubco...
28 November 2010 CTF Annual Roundtable Q. 8, 2010-0386311C6 - Subsection 40(3.4)
does the deemed existence of a partnership in the postamble to s. 40(3.4) apply for other purposes of the Act, e.g., subdivision j? CRA...
6 October 2011 External T.I. 2011-0399611E5 - Subsections 40(3.3) and 40(3.4)
After referring to 2001-008815, which indicated that a taxpayer was permitted to recognize 99% of its capital loss when it acquired 100 shares of...
2010 Conference Report CRA Round Table, Q. 8 [not carried forward to Income Tax Technical News, No. 44]
The postamble in s. 40(3.4) was added to ensure that a previously suspended loss of a partnership could be reported "at the later time set out...
30 October 2003 External T.I. 2003-0037465 F - Subsections 40(3.3) & 40(3.4)
A taxpayer described in s. 40(3.3)(a), which on January 1, 200X had held 100 common shares of Pubco for at least three months, acquired an...
18 March 2003 External T.I. 2003-0002915 F - Subsections 40(3.3) & 40(3.4)
On December 16, 2002, Holdco sold 200 of its 1,000 common shares of a public corporation to an unaffiliated person $1,500, realizing a capital...
4 July 2001 External T.I. 2001-0088155 - Subsection 40(3.4)
Respecting the situation where the taxpayer purchases 100 common shares of XYZ Co on January 1, 2001 and sells 99 shares on January 25, 2001...
Paragraph 40(3.4)(b)
Subparagraph 40(3.4)(b)(i)
Administrative Policy
30 April 2019 Internal T.I. 2019-0793481I7 - Application of Paragraph 40(3.4)(b)
ACo, a Canadian public corporation, held the shares of three controlled foreign affiliates (CCo, DCo and BCo directly. Shares (that were excluded...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.5) - Paragraph 40(3.5)(c) - Subparagraph 40(3.5)(c)(i) | a loss that was suspended under s. 40(3.5)(c)(i), can be de-suspended by winding-up the CFA referenced under s. 40(3.5)(c)(i) | 198 |
Subsection 40(3.5) - Deemed identical property
See Also
10737 Newfoundland Limited v. The Queen, 2011 DTC 1255 [at 1460], 2011 TCC 346
The taxpayer held shares of a Canadian corporation which, under their terms and a related agreement, were exchangeable on a one-for-one basis into...
Cascades Inc. v. The Queen, 2008 DTC 2387, 2007 TCC 730
The taxpayer transferred all its shares of a public company ("PII") of which it was the controlling shareholder to a wholly-owned subsidiary of...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Statutory Interpretation - Redundancy/reading in words | 48 |
Administrative Policy
14 March 2003 Internal T.I. 2003-0182977 F - 40(3.5)(c)
Where a public corporation ("Parentco") holding shares of a public corporation ("Subco") with an accrued loss, sells the shares to a...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.5) - Paragraph 40(3.5)(c) | deeming rule in s. 40(5)(c) applies for purposes of the preconditions in s. 40(3.3) as to whether s. 40(3.4) applies | 237 |
Articles
Carrie Smit, "Exchangeable Shares: Not Just Rights to Foreign Shares", CCH International Tax, No. 59, August 2011, p. 1
In discussing the 10737 Newfoundland case, notes that "the recognition of an exchangeable share as the particular property disposed of (as opposed...
Paragraph 40(3.5)(b)
Administrative Policy
26 January 2018 Internal T.I. 2017-0735771I7 - Application of paragraph 40(3.5)(c)
Canco realized a suspended loss when it contributed its shares of a controlled foreign affiliate (CCo) to another CFA (BCo), and then took the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.5) - Paragraph 40(3.5)(c) - Subparagraph 40(3.5)(c)(i) | a suspended loss on the sale of CFA1 to CFA2 was not de-suspended on s. 95(2)(e) wind-up of CFA1 into CFA2 | 478 |
| Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(e) | S. 95(2)(e) wind-up constructively resulted in formation of new corporation | 79 |
16 October 2009 Internal T.I. 2009-0337721I7 F - Perte lors de fusion étrangère
Holdco, a CCPC, received shares of the foreign merged corporation in replacement of its shares of a public American company, and elected in an...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 87 - Subsection 87(8) | claiming of capital loss in promptly-filed amended return would be accepted as an election | 223 |
Paragraph 40(3.5)(c)
Cases
Canada v. Cascades Inc., 2009 DTC 6122, 2009 FCA 135
The trial judge had found that the stop-loss rule in s. 40(3.4) did not apply to the disposition by the taxpayer of shares of a subsidiary ("PII")...
Administrative Policy
14 March 2003 Internal T.I. 2003-0182977 F - 40(3.5)(c)
Where a public corporation ("Parentco") holding shares of a public corporation ("Subco") with an accrued loss, sells the shares to a...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.5) | 111 |
Subparagraph 40(3.5)(c)(i)
Administrative Policy
4 October 2023 Internal T.I. 2020-0837811I7 F - Suspended loss
Aco (a taxable Canadian corporation) disposed of its shares of Cco (the “Subject Shares”) at a loss to a wholly-owned subsidiary of Aco (Bco)....
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(4) - Paragraph 251.1(4)(a) | corporation in its 2 capacities of transferor, and continuation of transferee, was affiliated with itself | 160 |
29 July 2020 Internal T.I. 2020-0852071I7 - Clarification of views noted in 2019-0793481I7
A Canadian corporation (ACo) realized a suspended loss when it contributed its shares (i.e., in a drop-down to which s. 85.1(3) did not apply) of...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(e) - Subparagraph 95(2)(e)(v) - Clause 95(2)(e)(v)(A) - Subclause 95(2)(e)(v)(A)(III) | a loss that was suspended under s. 40(3.5)(c)(i), could not be de-suspended by a DLAD winding-up of the CFA referenced under s. 40(3.5)(c)(i) | 496 |
30 April 2019 Internal T.I. 2019-0793481I7 - Application of Paragraph 40(3.4)(b)
Canco realized a suspended loss when it contributed its shares of a controlled foreign affiliate (CCo) to another CFA (BCo), and then took the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.4) - Paragraph 40(3.4)(b) - Subparagraph 40(3.4)(b)(i) | loss was de-suspended when CFA-formed-on-merger for purposes of s. 40(3.5)(c)(i) was wound-up | 387 |
25 June 2018 Internal T.I. 2017-0737151I7 - Application of paragraph 40(3.5)(c)
CCo was a non-resident private unlimited company and holding company whose ordinary shares were held by ACo (a Canadian-resident corporation that...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 33(2) | reference to merger to form one corporation included three | 110 |
26 January 2018 Internal T.I. 2017-0735771I7 - Application of paragraph 40(3.5)(c)
ACo, a Canadian public corporation, held the shares of three controlled foreign affiliates (CCo, DCo and BCo directly. Shares (that were excluded...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.5) - Paragraph 40(3.5)(b) | scope of s. 40(3.5)(b) extends to mergers and constructive formation of new entities | 443 |
| Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(e) | S. 95(2)(e) wind-up constructively resulted in formation of new corporation | 79 |
16 May 2018 IFA Roundtable Q. 5, 2018-0745501C6 - Meaning of “merged or combined” in 40(3.5)(c)(i)
Canco sold all the shares of FA to Canco’s wholly-owned subsidiary (Subco) and realized a capital loss that was suspended under s. 40(3.4). In...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 88 - Subsection 88(3) | s. 88(3) wind-up of CFA formed a new corporation | 173 |
Articles
Ian Bradley, Jonathan Bright, "The Stop-Loss Rules and Corporate Reorganizations – Interpretive Challenges", Canadian Tax Journal, (2019) 67:2, 383-410
Interpretation of "merger or combination" (pp. 391, 394, 396)
The CRA's interpretation of subparagraph 40(3.5)(c)(i) [in 2017-073715117] is based...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 33(2) | 106 |
Subsection 40(3.6) - Loss on shares
Cases
Canadian Imperial Bank of Commerce v. Canada, 2023 FCA 91
CIBC realized an FX loss of C$126.4 million in 2007 when shares of a US subsidiary for which it had subscribed US$1 billion approximately 11...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(2) | s. 40(3.6) applied to capital loss on shares before it was deemed to be an FX loss by s. 39(2) | 323 |
| Tax Topics - Statutory Interpretation - Double Taxation/Deduction (Presumption Against) | no intention to create 2 capital losses out of 1 | 80 |
| Tax Topics - Statutory Interpretation - Interpretation/Definition Provisions | deeming provision altered reality | 131 |
See Also
Canadian Imperial Bank of Commerce v. The Queen, 2021 TCC 71, aff'd 2023 FCA 91
The taxpayer (“CIBC”) subscribed US$1 billion on November 8, 2006 for 1,000 Class B common shares of a Delaware subsidiary (“DHI”) and on...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 39 - Subsection 39(2) | s. 39(2) historically applied only to FX gains or losses on liabilities and foreign currency dispositions | 275 |
| Tax Topics - General Concepts - Stare Decisis | statement not obiter if it is an essential part of the Court’s reasoning | 185 |
| Tax Topics - Statutory Interpretation - Prior Cases | presumption that Parliament enacts with a knowledge of the jurisprudence | 93 |
Administrative Policy
12 January 2015 Internal T.I. 2014-0560421I7 - FX losses on CFA wind-up
In 2014-0538591I7, the Directorate indicated that s. 40(3.6) did not apply to deny a loss realized on the winding-up of a controlled foreign...
10 October 2014 APFF Roundtable, 2014-0538241C6 F - 75(2) and definition of "earned income" in 146(1)
X, who is the sole beneficiary of a protective trust, holds voting shares of a corporation giving him control thereof, with the trust holding...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 146 - Subsection 146(1) - Earned Income | character preservation of s. 75(2) attributed income | 122 |
| Tax Topics - Income Tax Act - Section 75 - Subsection 75(2) | character preservation of attributed income/basis adjustment for denied capital loss at trust level | 446 |
15 August 2014 Internal T.I. 2014-0538591I7 - FX losses on CFA wind-up
A Canadian-resident corporation did not elect under s. 88(3.1) for the winding-up of its wholly-owned controlled foreign affiliate (CFA) to be a...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 93 - Subsection 93(2.01) | no reduction under s. 93(2.01)(a) if no exempt dividend | 132 |
23 April 2012 Internal T.I. 2012-0436921I7 - Capital Losses
The Canadian parent's shares of a US subsidiary were redeemed, and it claimed a capital loss under s. 39(2). CRA found that s. 40(3.6) and s....
9 January 2012 External T.I. 2011-0427461E5 F - Attribution Rules and Suspended Loss Rules
Ms. A and her spouse, Mr. B, each held 50% of the common shares of Opco, with Ms. A also holding Opco preferred shares with a paid-up capital...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 74.2 - Subsection 74.2(1) | stop-loss rule in s, 40(3.6) trumped s. 74.2(1) so that denied capital loss was added to transferee spouse’s common share ACB | 278 |
31 August 2005 Internal T.I. 2005-0134831I7 F - Capital Gains Exemption Strip
S. 84.1 did not apply to individuals transferring preferred shares – whose ACB previously had been stepped up by them under s. 110.6(2.1) - to...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(1) - Paragraph 84.1(1)(a) | s. 84.1 did not apply to transferring crystallized preferred shares’ ACB to common shares under s. 40(3.6)(b), with those shares exchanged for high-PUC prefs of new Holdcos for cash redemption | 565 |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | the use of s. 40(3.6)(b) for surplus-stripping purposes would be referred to the GAAR Committee | 122 |
16 January 2003 External T.I. 2002-0151025 - Subsection 40(3.6)
Where an estate of the deceased acquires a controlling bloc of shares of a corporation that was controlled by the deceased and the shares are then...
29 March 2001 External T.I. 2001-0074145 - Affiliated persons & stop loss rules
Where the shares of a corporation are owned equally by four trusts having the same corporate trustee, s. 40(3.6) will apply to deny a capital loss...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | 70 |
13 October 2000 Internal T.I. 2000-0031107 - Post Martem Estate Planning
"Subsection 40(3.6) will not generally apply where all the shares of a corporation held by an estate are disposed of to the corporation which,...
Articles
Steve Suarez, Pooja Samtani, "Using Exchangeable Shares in Inbound Canadian Transactions", 2007, 48:13, Tax Notes Int'l 1281 (The authors describe an "exchangeable share" as "a share of a Canadian corporation... that, together with some ancillary rights, replicates as closely as possible the economics (and to some extent the legal rights engaged by holders) of a share of another corporation.")
Kevin Wark, "Corporate-Owned Insurance: Revisiting Share Redemption Arrangements", CALU Report, August 2004.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) | 0 |
Subsection 40(3.61) - Exception — estate loss carried back
Administrative Policy
2021 Ruling 2021-0895631R3 - Post-mortem planning - Hybrid Pipeline
Preliminary transactions to pipeline transactions entailed the subject corporation (a portfolio investments company) using its CDA account (which...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 84 - Subsection 84(2) | 2-year pipeline transactions | 226 |
26 November 2020 STEP Roundtable Q. 5, 2020-0847181C6 - Subsections 40(3.61) and 164(6)
On the death of the taxpayer, he realized a $4.9 million capital gain under s. 70(5) on his common shares of PrivateCo. Capital gains were also...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) - Paragraph 164(6)(a) | s. 164(6)(a) applied before s. 40(3.61) so as to avoid iterative grind of s. 164(6) carryback amount | 276 |
2019 Ruling 2019-0822951R3 F - Post-mortem Hybrid Pipeline
Preliminarily to pipeline transactions, the CCPC that had been held by the deceased (ACo) will purchase for cancellation (in consideration for...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 84 - Subsection 84(2) | pipeline transaction for marketable securities company that includes full use of the ERDTOH/NERDTOH balances and s. 164(6) carryback | 438 |
11 October 2013 APFF Roundtable, 2013-0493651C6 F - Affiliated persons and de facto control
All the voting common shares of Opco (carrying on an active business) are held by a discretionary inter vivos trust which was settled by the uncle...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 256 - Subsection 256(5.1) | holding of relatively large note where debtor has a iliquid business could give rise to de facto control | 260 |
Subsection 40(4) - Disposal of principal residence to spouse or trust for spouse
See Also
Levatte Estate v. The Queen, 2019 TCC 177
The appellant was the estate of Mr. Levatte, who died in 1995, and devised a residential property (the “Lynnbrook property”) to a spousal...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 162 - Subsection 162(1) | penalty waived based on personal stress and the near miss | 148 |
Administrative Policy
5 November 2014 External T.I. 2014-0521891E5 F - Résidence principale et copropriété
Two common-law spouses ("A" and "B") purchased a condominium as their principal residence (the "Residence"). A's will provided that the Residence...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Ownership | whether a tacit co-ownership agreement is respected is a private law issue | 126 |
S1-F3-C2 - Principal Residence
Example re transfer to spousal trust
2.71 ...
Example 9
Mr. X was the sole owner of a house in Canada, which he had acquired in 1995. In 2000,...
30 May 2007 External T.I. 2006-0200271E5 F - Bien agricole et résidence principale
The correspondent’s mother died and, in her will, left all her property to her children, including a farm, on which there was a residence which...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 45 - Subsection 45(3) | no change of use when occupant of residence moved into a nursing home | 131 |
| Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1.3) - Paragraph 110.6(1.3)(c) | principally references over 50% of use | 52 |
24 April 2006 External T.I. 2006-0166041E5 F - Transfert de biens entre époux séparés
In 1991, the spouses jointly purchased an immovable ("Immovable1" located in Canada which was intended to serve as their principal residence upon...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 74.5 - Subsection 74.5(3) | separation judgment unnecessary for s. 74.5(3) election to avoid attribution | 290 |
1 September 1995 External T.I. 9507695 - PRINCIPAL RESIDENCE PROVISIONS
Where a transfer of a home has occurred as described in s. 70(6), the surviving spouse will not automatically lose her entitlement to designate...
14 July 1994 External T.I. 9405025 - GAIN ON PROPERTY TRANSFERRED FROM SPOUSE
Re application of ss.40(4) and (6) where a husband and wife jointly owned a cottage on December 31, 1971, husband in 1973 transferred his interest...
23 June 1992 T.I. 920894 (December 1992 Access Letter, p. 13, ¶C38-248)
Discussion of the availability of the principal residence exemption in various situations where a married couple own a house and a cottage...
7 March 1992 T.I. (Tax Window, No. 17, p. 7, ¶1786)
Re application of s. 40(4) and (6) where two properties each of which meet the definition of principal residence are owned in joint tenancy by...
Paragraph 40(4)(b)
Subparagraph 40(4)(b)(i)
Administrative Policy
30 September 2010 Internal T.I. 2010-0373901I7 F - Bigamie fiscale - transfert de biens au décès
The taxpayer lived with his spouse in Immovables A, but thereafter commenced to live separate and apart from her, but did not divorce from her,...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(a) | s. 70(6)(a) could apply simultaneously to the devise of House A to surviving spouse and of House B to surviving common-law partner | 103 |
Subsection 40(6.1)
Administrative Policy
S1-F3-C2 - Principal Residence
Example 7.1
Personal Trust C is a family trust, the beneficiaries of which are Mr. C, his spouse and their two children who were specified...
16 June 2017 External T.I. 2017-0698181E5 - New principal residence rules & trusts
The estate of Deceased Parent, that qualified as a graduated rate estate (GRE) with a fiscal period of July 1, 2016 to June 30, 2017, sold the...
Subsection 40(7) - Property in satisfaction of interest in trust
Administrative Policy
S1-F3-C2 - Principal Residence
Example re distribution of residence
2.67 ...
Example 8
A personal trust acquired a residential property on October 1, 2007 for $200,000. On...
89 C.R. - Q.25
The principle residence exemption is not available to a non-spouse trust on the disposition of a residential unit, regardless whether or not any...
Subsection 40(10)
Administrative Policy
7 October 2016 APFF Roundtable Q. 17, 2016-0652781C6 F - Functional currency and acquisition of control
CRA noted that where a taxpayer with an elected functional currency (e.g., the USD) has an accrued FX loss on a debt obligation owing in another...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 111 - Subsection 111(4) - Paragraph 111(4)(e) | FX gains or losses on pre-transition debts not affected | 229 |
| Tax Topics - Income Tax Act - Section 261 - Subsection 261(9) - Paragraph 261(9)(a) | exclusion of pre-transition debts from s. 111(4) | 98 |
Subsection 40(11)
Articles
Carrie Smit, "Foreign Currency Debts and Acquisitions of Control: Beware the Unexpected Gain", International Tax (Wolters Kluwer CCH), February 2017, No. 9, p. 6
If a restructuring of USD debt (with an accrued FX loss) of a Canadian debtor entails an acquisition of control of the debtor before the debt is...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 111 - Subsection 111(12) | 495 |
Subsection 40(12) - Donated flow-through shares
Administrative Policy
19 January 2018 External T.I. 2017-0683501E5 - Flow-Through Shares
A taxpayer subscribes cash for a publicly listed common share (the “Share”) of a resource company, and donates it to a qualified donee....
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 54 - Exemption Threshold | taxpayer with no flow-through shares has no exemption threshold | 194 |
| Tax Topics - Income Tax Act - Section 38.1 | general paraphrase | 316 |
16 October 2012 External T.I. 2012-0437911E5 - Donation of flow-through shares
The taxpayer had acquired units in two flow-through share partnerships. Approximately two years after the offerings, the LPs would transfer their...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 38.1 | 148 |
14 May 2012 External T.I. 2011-0426631E5 - Donation of Flow-through Shares
CRA was asked to consider transactions in which a limited partnership holding flow-through shares transferred those shares to a mutual fund...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 38.1 | 112 |