Capital Property

See Also

Chagnon v. The Queen, 2011 DTC 1205 [at 1216], 2011 TCC 268

The taxpayer, a former president of a corporation, sought to deduct legal fees arising from his successful defence to an action, in which the corporation's shareholders attempted to recover the value of stock options that the taxpayer had accepted while allegedly knowing about a planned takeover bid for the corporation.

After noting (at para. 17) the question as to whether the action against the taxpayer sought to reclaim compensation paid or was a broader claim relating to alleged wrongdoing (insider trading), Boyle J. found that taxpayer's legal fees were spent to establish a right to salary or wages, and therefore deductible under s. 8(1)(b): "the claim against him related to the very issuance of the options to him upon his appointment as president and CEO."

Cormier v. MNR, 90 DTC 1167 (TCC)

On the sale of all the shares of a corporation the purchaser agreed to pay to the corporation's manager a "retirement allowance" equal to the amount which the corporation recovered in a claim against the City of Campbelton in excess of $50,000. Mogan J. found that, in fact, the manager had acquired an interest in the lawsuit and the "retirement allowance" of $36,950 which he received as a result of successfully pursuing this lawsuit was a capital gain "resulting from the disposition of his interest in the lawsuit".

Reed Estate v. MNR, 89 DTC 457 (TCC)

A principal residence was a "capital property" within the meaning of ss.54(b) and 80(1)(b), and its adjusted cost base accordingly was available for absorbing the amount of a debt forgiveness in favour of the taxpayer. "The formula in paragraph 40(2)(b) which may reduce to nil the capital gain from the disposition of a principal residence does not take away the character of 'capital property' from a principal residence."

Administrative Policy

6 October 2017 APFF Roundtable, Q.7

damges for breach of a purchaser's covenant were proceeds of a capital property

In 2016-0652851C6 F, as a result of breach of a purchaser's obligation to purchase a personal residence, the individual vendor received $50,000 in damages from the defaulted purchaser,. which CRA stated was proceeds of disposition of a promise giving rise to a capital gain of $50,000. However, in IT-365R2, para. 9 (archived), CRA states that where an amount of compensation is received respecting a particular asset that was not disposed of, that amount reduces the cost of the asset.

In confirming its earlier position, CRA stated:

Paragraph 9 of Interpretation Bulletin IT 365R2 essentially provides that "[w]here the amount of compensation relates to a particular asset that was not disposed of, the amount will serve to reduce the cost of that asset to the taxpayer." However, the CRA is of the view that the scope of this paragraph, which was written under the heading "Receipts in Respect of Non-Performance of Business Contracts" should be restricted to such a context.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A if damages relate to a particular asset of a business that was not disposed of, they will reduce the asset’s cost 96

13 June 2016 External T.I. 2016-0637031E5 - Capital property excludes ECP

definition of capital property effectively excludes eligible capital property

The distinction between a capital property (a property giving rise to a capital gain) and an eligible capital property (a property giving rise to an eligible capital amount) is circular: under ss. 14(1) and 14(5) - CEC-(E), an eligible capital amount is 1/2 of an amount receivable on capital account in respect of a business that is not included in computing a capital gain; and under s. 39(1)(a)(i), a capital gain does not include gain from the disposition of an eligible capital property.

When asked whether a capital property includes an eligible capital property, CRA did not directly discuss this circularity issue, and stated:

By virtue of subparagraph 39(1)(a)(i)…the gain from the disposition of an "eligible capital property" is excluded from the meaning of a taxpayer's “capital gain”... .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 98 - Subsection 98(5) concepts of capital property and eligible capital property do not overlap 101

21 December 2012 Internal T.I. 2009-0327221I7 - Paragraph 7(1)(e) - Death of a Taxpayer

After noting that a deceased employee would be deemed under s. 7(1)(e) to dispose of unexercised stock options at fair market value on death, CRA stated:

Where a deceased taxpayer's estate receives an employee stock option, we generally accept to apply paragraph 69(1)(c). Consequently, the option is deemed to have been acquired by the estate at a cost equal to its fair market value....In general, if an estate exercises an employee stock option, subparagraph 49(3)(b)(ii) will apply to add the adjusted cost base (ACB) of the option to the cost of the shares acquired under the option.

27 April 1998 TI 980014

A lump-sum payment received by the individual shareholder of a corporation upon a sale by that corporation of one of its business divisions and in consideration for a non-compete covenant given by the individual to the purchaser would be regarded as a capital gain arising on a disposition of "property" (the right of the individual to compete).

30 October 89 T.I. (March 1990 Access Letter, ¶1146)

The disposition of money in Canadian currency would not result in a capital gain or capital loss. Therefore, money is not a capital property for purposes of s. 80(1).