Proceeds of Disposition

Table of Contents

Proceeds of Disposition
Cases(6)
See Also(8)
Administrative Policy(10)
Paragraph (a)
See Also(2)
Administrative Policy(2)
Paragraph (b)
Administrative Policy(3)
Paragraph (d)
Cases(4)
See Also(3)
Administrative Policy(3)
Paragraph (e)
Administrative Policy(3)
Paragraph (f)
Administrative Policy(3)
Paragraph (g)
Cases(1)
Paragraph (j)
Administrative Policy(1)

Cases

Valley Equipment Limited v. Canada, 2008 DTC 6200, 2008 FCA 65

damages received in settlement of right to continue as a John Deere dealer represented an exchange of property

Damages received by the taxpayer (a John Deere dealer) in settlement of its action against John Deere for wrongful termination of its dealership agreement represented proceeds of disposition of capital property. After noting (at para. 13) that the relevant portions of the definition of proceeds of disposition were para. (a) ("the sale price of property") and para. (b) ("compensation for property unlawfully taken"), Noël JA stated (at paras. 16, 23, 32):

The Tax Court ... [held] that the rights of Valley Equipment under the Dealer Agreement constitute “property” ... , and that this right was unlawfully “taken” when the Dealer Agreement was unilaterally cancelled.. . It follows that upon payment of the judgment award, the appellant was in receipt of proceeds resulting from the disposition of property. ...

[T]he conclusion of the Tax Court Judge that the award was paid as compensation for the loss of the John Deere distributorship is in my view unassailable. ...

In consideration for the settlement payment, Valley Equipment abandoned its right to continue as a John Deere dealer. There was a mutual exchange of property which brings the matter squarely within paragraph 40(1)(a)... .

Mollinaro v. The Queen, 2000 DTC 6114 (FCA)

Pursuant to an agreement in which the taxpayer's holding company agreed to sell all the shares of a pizza manufacturing company ("Pizza Crust") to a corporate purchaser ("Catelli"), Catelli agreed to enter into an employment agreement with the taxpayer where he would be paid approximately $1.8 million over three years, of which he would be entitled to receive $1.5 million even if he died or was terminated for good reason.

Sexton J.A. rejected a submission of the taxpayer that the payment of $1.5 million was in substance proceeds of disposition of his capital interest in Pizza Crust. First, the taxpayer himself was owed no capital payment by Catelli. Second, given that the employment agreement had most of the terms of usual employment agreements and was seriously negotiated with lawyers and accountants representing the taxpayer, its substance was that of an employment agreement.

Bellingham v. The Queen, 96 DTC 6075, [1996] 1 CTC 187 (FCA)

An award of "additional interest" received by taxpayer pursuant to s. 66(4) of the Expropriation Act (Alberta) (a provision which required repayment of such amount in circumstances where an expropriating authority offered less than 80% of the amount ultimately awarded and the Expropriation Board was of the opinion that such lower figure was due to the fault of the expropriating authority) did not, by its nature, represent compensation for the land inventory that had been taken. Robertson J.A. found that the decision in E.R. Fisher v. The Queen, 86 DTC 6364 (FCTD) could no longer be considered good law and went on to state (at p. 6083) that "you cannot treat a non-compensatory receipt in the same manner as a compensatory one simply because both arise from the same transaction".

Robertson J.A. also found that the definition of "proceeds of disposition" did not have the effect of deeming proceeds of disposition of land inventory to be proceeds of disposition of a capital property and asserted that what then were ss.54(a)(iv) and (v) were added to the Act to counter the decision in Kicking Horse Forest Products Ltd. v. British Columbia (Minister of Finance), [1973] 6 WWR 343 (BCSC), affirmed [1974] 5 WWR 242 (BCCA), affirmed [1976] 1 S.C.R. 711 to the effect that an expropriation did not constitute a sale within the meaning of the Logging Tax Act (BC).

Prince Rupert Hotel (1957) Ltd. v. The Queen, 95 DTC 5227, [1995] 2 CTC 212 (FCA)

A lump sum settlement received by the taxpayer from its solicitors for their negligence in drafting partnership agreements in such a manner that it received a lower share of profits than had been negotiated did not represent proceeds of disposition of its partnership interests because its interests had not been sold or otherwise disposed of in return for the money, and because it received compensation for something it never had legally obtained (i.e., a larger share of profits) rather than for the loss or destruction of property it already had.

Pe Ben Industries Co. Ltd. v. The Queen, 88 DTC 6347, [1988] 2 CTC 120 (FCTD)

A payment made by Northern Alberta Railway ("NAR") to the taxpayer as compensation to the taxpayer for the termination by NAR of a major contract for the trucking by the taxpayer of goods and materials to a Syncrude plant represented proceeds of disposition of property. The reference in s. 54(c)(i) to "any transaction or event entitling a taxpayer to proceeds of disposition of the property" in the view of Strayer J. (at p. 6351) "would cover the payment made by NAR to the plaintiff, whether one regards it as payment pursuant to the contract or for termination of the contract". This view was reinforced by the reference in former s. 54(h)(iii) to "compensation for property destroyed" given "that the money paid by NAR to the plaintiff was for termination of any claim which the plaintiff might have against NAR under the contract which claim was thus 'destroyed'."

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 was $7,800,000, the agreement (in clause 3(t)) also provided that the vendors were required to use the sale proceeds to acquire from the corporation a debt owing to it by its subsidiary with a face amount of $1,402,225 but a fair market value of only $600,000 (the difference being $802,225). "This being the case, it logically follows that the sum of $7,800,000 represents not only the price of the shares but also of the undertaking by the sellers to pay the amounts referred to in clause 3(t). In determining the selling price of the shares, which under s. 54(h)(i) constitutes the proceeds of disposition, therefore, one must deduct from the agreed price of $7,800,000 the sum of $802,225" (p. 6412).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) fmv deficiency an outlay 204

See Also

656203 Ontario Inc. v. The Queen, 2003 DTC 405, 2003 TCC 264

The taxpayer had failed to show that the allocation of the Minister of amounts received by it in settlement of two actions brought against its insurance company following the destruction of its sawmill by fire as between replacement of lost income (fully taxable business income), proceeds of disposition of building and compensation for loss of goodwill (eligible capital amounts) was unreasonable. In response to a submission of the taxpayer that a portion of the damages were non-taxable punitive damages, Lamarre T.C.J. stated (at p. 414):

"Bearing in mind that punitive damages are normally awarded by a court for malicious and oppressive misconduct, it would be surprising if the Insurers would have voluntarily agreed to pay damages to the appellant on that basis."

Estate of Myrth May Stuart v. The Queen, 2003 DTC 329, 2003 TCC 171, aff'd supra.

An agreement for the sale by the deceased taxpayer of her home provided that the purchase would not be completed until 60 days after third reading by the Municipality of Surrey for a rezoning of the property, or such earlier date as the purchaser and vendor agreed to in writing.

In finding that the taxpayer disposed of the property in 1994, when third reading was received, rather than in 1992 when the agreement of purchase and sale was entered into, Rip T.C.J. noted that the requirement to obtain third reading depended entirely on the will of a third party and thus was a true condition precedent that could not be waived, as explained in Turney v. Zhilka, [1959] S.C.R. 578, and indicated (at p. 339) that it was only in 1994 that the taxpayer could enforce payment of the purchase price for the property, so that it was only in 1994 that she was entitled to any portion of the sale price.

BP Canada Energy Resources Co. v. The Queen, 2002 DTC 2110 (TCC)

The taxpayer, which was a Canadian natural gas producer, received a lump sum as compensation for the losses it was considered to have suffered as a result of the cancellation of long-term natural gas supply contracts it had entered into with one purchaser ("A&S"), with the result that it thereafter was to sell its natural gas under short-term gas supply contracts and under a continuation of modified versions of existing sales arrangements.

These lump sums were found to be proceeds of disposition of capital assets, namely, the long-term supply contract. The contracts formed a significant part of the structure of the taxpayer's business (representing over 13% of its sales) and their capital nature was fortified by the dedication under some of the contracts of the lands containing the gas reserves to be sold under such contracts.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Compensation Payments 195

Molstad Development Co. v. R., 97 DTC 913, [1997] 2 CTC 2360 (TCC)

After the taxpayer sold land inventory at a loss for proceeds less than the amount owing to the bank that had financed the property, and the bank then forgave the remaining amount owing after application of the sale proceeds. After finding that the gain of the taxpayer from the forgiveness was on capital account, Rip TCJ. stated (at p. 921) that "there is no authority in the Act to increase the proceeds of disposition by an amount equal to the forgiveness of a debt by a person who is not a party to the transaction of purchase and sale".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Forgiveness of Debt forgiveness of debt used to finance inventory 87

Wighton v. The Queen, 96 DTC 1310 (TCC)

The sum of $200,000 received by the taxpayer in settlement of his legal action to enforce his alleged right of first refusal in a commercial lease that had expired, was found to be proceeds of disposition given that all of the concerned parties at the time of settlement had taken the position that the taxpayer indeed had an interest in the real property.

Fielder v. Vedlynn Ltd., [1992] BTC 347 (Ch. D.)

The taxpayer sold shares with substantial accrued losses to eight subsidiaries for their fair market value and for the right to deferred payment of 7.5% of any capital losses if and when they were allowed by Revenue. Two days later, the taxpayer sold the shares of the subsidiaries to a purchaser for a cash purchase price equal to the shares' open market value and a guarantee by the purchaser of the subsidiaries' deferred payment obligation. Harman J. found (p. 361) that):

"The special commissioner was entirely entitled to reach the conclusion that there is no basis on which a separate and additional monetary value could be placed upon the guarantee as part of the consideration to be added to the undoubted monetary price paid which was the true open market price of the shares."

and went on to find that the guarantee clearly fell within s. 22(4)(b) of the Finance Act 1965 which deemed the disposal of an asset to be for consideration equal to the market value of the asset where the asset was acquired "wholly or partly for a consideration that cannot be valued".

Sénécal v. MNR, 93 DTC 1155, [1993] 2 CTC 2218 (TCC)

The taxpayer sold land to a corporation of which he was a minority shareholder for $90,000 in cash and a non-interest bearing promissory note for $15,000 payment of which was subordinated to the payment of the long-term debt of the corporation. In finding that the taxpayer had realized proceeds of disposition of $105,000 rather than $90,000 notwithstanding that the promissory note likely had no value, Rip, TCCJ. noted that there was no evidence that the property had a fair market value of less than $105,000, that "part of the consideration and satisfaction of the sale price was that the appellant accepted a promissory note, regardless of the fact that it had no market value" (p. 1160), and that s. 54(h)(i) expressly referred to the sale price of property that had been sold (which, in this case, was $105,000) and made no mention of the consideration paid to satisfy the sale price.

J.F. Burns Sand & Gravel v. MNR, 68 DTC 226 (TAB)

The taxpayer agreed to rent five acres of land for a period of three years at a rent of $1,600 per annum, and provided the lessee with the option of purchasing the land at any time before the expiry of the lease for a price of $16,000 minus 90% of all rentals previously paid. Mr. Weldon found that the exercise of the option at the end of the leased term did not have the effect of converting 90% of the rentals previously received into capital receipt, after asking (at p. 229):

"How can you spell out a sale transaction in a lease-option agreement where, by the very nature of the transaction, the Lessee thereunder was not committed to purchase anything"?

Administrative Policy

23 May 2013 External T.I. 2012-0472101E5 F - Emphytéose - disposition de terrain

building erected on land was the consideration for the emphyteutic grant
rev'd by 2013-0487791E5

A corporation ("Corp.") sold a vacant lot in its inventory to a municipality ("City") for a price of $X. City granted an emphyteusis to Corp. for a period of years, with Corp. being obligated to build a building. The building was rented back to City and, to reflect the selling price of $X to Corp., City agreed to pay an emphyteutic rent that was greater than it would have been if the land had been sold at fair market value. At the end of the emphyteusis, the building will become the property of City. CRA stated:

[T]he right of emphyteusis, which is an actual right, appears to be property under the Act. Consequently, when City granted the right of emphyteusis to Corp., this seems to be the disposition of a property for which the consideration - the improvements made to the land - is required to be provided to the owner at the end of the emphyteusis.

16 December 2008 External T.I. 2008-0279741E5 F - Renonciation au capital d'une fiducie

settlor’s renunciation of capital interest (but not income interest) prior to trustees’ exercise of discretion to distribute a capital gain would generate nil proceeds and not engage s. 56(2) or (4)

An individual transfers shares to a trust of which he is the trustee, and he, his wife and children are the capital and income beneficiary. In order to avoid the attribution of the capital gain to him under s. 75(2), which would eliminate any ability to split the gain among the other beneficiaries so as to benefit from the capital gain deduction, the individual may renounce his beneficial interest in the trust's capital a few days before the sale of the shares and resign as trustee. After discussing the potential for a valid renunciation to avoid the application of s. 75(2), CRA addressed queries as to any application of s. 56(2) or 56(4), and as to whether the renunciation gave rise to proceeds of disposition, and stated:

[I]f the renunciation of the trust's capital was legally valid and was not made to any person, the disposition of the individual's capital interest would not give rise to any tax consequences since the proceeds of disposition would be nil. Furthermore, it is our view that subsections 56(2) and (4) would not apply to such a valid renunciation made before the exercise of the trustees' discretion.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2) settlor’s valid renunciation of capital interest (but not income interest) prior to trustees’ exercise of discretion to distribute a capital gain would avoid application of s. 75(2)(a)(i) 199
Tax Topics - Income Tax Act - Section 248 - Subsection 248(9) - Disclaimer legally impossible for a beneficiary of a discretionary trust to partially renounce income from a specific trust property 262
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition - Paragraph (i) non-disposition distribution of non-taxable portion of trust capital gains avoids a gain under s. 107(2.1) 375
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) s. 69(1) does not apply to a renunciation of trust capital interest since no disposition "to" any person 44
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) s. 56(2) inapplicable to renunciation of capital interest in a trust 45
Tax Topics - Income Tax Act - Section 56 - Subsection 56(4) s. 56(4) inapplicable to disclaimer of capital interest in a trust 43

12 March 2002 Internal T.I. 2001-0094067 F - DEDOMMAGEMENT - TITRE DE PROPRIETE

damages received for use of a property contrary to the recipient’s co-ownership right were tax-free receipts

After his discovery that his separated common-law spouse (Madame) was selling a property in which he had a ½ co-ownership interest, Monsieur obtained a judgment requiring recognition through a deed of his co-ownership interest and a second judgment requiring her to account for her management of the property in the interim, which resulted in Monsieur receiving a lump-sum damages payment. In finding that the damages payment was not subject to taxation in the hands of Monsieur, the Directorate stated:

[T[he payment for damages received by the recipient is capital in nature. Furthermore, the recipient does not appear to have disposed of a right or property. The payment for damages cannot therefore represent proceeds of disposition causing a capital gain. The payment for damages would therefore be non-taxable capital in nature. The fact that the amount of compensation was assessed on the basis of the rental income generated by the immovable during the XXXXXXXXXX years does not mean that the amount of compensation is intended to replace income during those years. The terms of the XXXXXXXXXX judgment make no mention of this possibility.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) damages received for separated spouse’s unlawful use of taxpayer’s property were tax-free receipts 132
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Legal and other Professional Fees legal fees incurred in ownership dispute were capital expenditures 130

20 December 2002 Internal T.I. 2002-0147967 - TAX IMPLICATIONS CONTRACT TERMINATION

Damages received by two management advisors for terminations of their management advisory agreements with a REIT represented proceeds of disposition of capital properties (the agreements).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 6 - Subsection 6(3) - Paragraph 6(3)(e) 99
Tax Topics - Income Tax Act - Section 9 - Compensation Payments termination of advisory agreemment with external MFT manager gave rise to capital receipt 271

21 January 2002 External T.I. 2001-0078735 F - Droit de recevoir une somme

FMV of contingent right to deferred cash sales proceeds was included in proceeds, with subsequent gain or loss when the contingency was resolved

The shareholders of a Canadian-controlled private corporation (Xco) agreed to sell their Xco shares to a public corporation (Yco) in consideration for an upfront cash payment, and for shares of Yco received on an s. 85(1) rollover basis – but with a clause (the “Clause”) in the sale agreement providing that in one year’s time they would receive a further cash payment for each of their Yco shares equal to the deficiency in its trading price in one year’s time as compared to the portion of the sale price allocated to such shares.

CCRA indicated that the Clause was not a price-adjustment clause to which IT-169 could apply nor an earnout to which IT-426 could apply. Furthermore, s. 12(1)(g) did not apply as the amount to be paid pursuant to the Clause was not an amount dependent on the use of or production from property. Instead, the right to receive an amount pursuant to the Clause was a capital property, forming part of the non-share consideration that the vendors received on the disposition of their shares in Xco, the cost of which was determined pursuant to paragraph 85(1)(f).

When the right to receive this amount was settled (or cancelled), such property would be considered to have been disposed of, giving rise to a capital gain or capital loss.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g) s. 12(1)(g) inapplicable to contingent right to receive deferred cash sales proceeds to the extent the share consideration declined in value 220
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(f) s. 85(1)(f) applicable to contingent right to receive deferred cash sales proceeds to the extent the share consideration received under s. 85(1) declined in value 138

21 August 1995 External T.I. 9519755 - PROCEEDS OF DISPOSITION

In response to a question concerning s. 2 of the Partition of Property Act (B.C.), RC stated "if real property is jointly owned by three taxpayers, two of them may petition the court, pursuant to section 2 of the Partition Act, to have the property sold and the proceeds distributed, despite the fact that the third person dissents to the partition ... . [T]he proceeds of disposition received by the dissenting third party would be considered to be 'compensation for property taken under statutory authority' within the meaning of paragraph 54(c) ..."

24 March 1995 External T.I. 9507295 - SALE PRICE OF SHARES - CLOSING

Discussion whether an increase in the sale price of shares between the date of an agreement of sale and the closing date represents interest or an adjustment to the proceeds of disposition.

93 C.R. - Q. 42

Although specific references are made in the definition to the reduction in a liability to a mortgagee, this provision is not all-inclusive and a security arrangement containing provisions regarding the power to sell property that are similar to those found in mortgages will be treated in the same fashion.

5 April 1991 T.I. (Tax Window, No. 3, p. 6, ¶1268)

RC's assessing policy that under a farm-out it is not possible to ascertain the value of the consideration flowing between the parties and, therefore, the consideration for the disposition should be treated as being nil, does not apply to "widespread farm-outs" in which the farmee incurs CEE or CDE in respect of one property in order to earn an interest in a non-contiguous property.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 66 - Subsection 66(12.1) 49

89 C.R. - Q.7

Where a vendor of property is not in the business of dealing in the type of property to be sold, a forfeited deposit ordinarily will be a capital gain in the vendor's hands.

Paragraph (a)

See Also

Ritchie v. The Queen, 2018 TCC 113

signing bonus assimilated to proceeds under the signed contract

A farmer, who rented his farm to his corporation, received an early “signing bonus” of $255,790 from Enbridge for entering into an agreement with Enbridge by the stipulated deadline under which he granted an easement for a pipeline to Enbridge. The Agreement stipulated that the $255,790 was “an incentive for early signing of the easement agreement” rather than part of the (separately stipulated) compensation for the easement.

Notwithstanding this clause, D’Arcy J found that in substance, the “signing bonus” was part of the taxpayer’s proceeds of disposition for disposing on an interest in land (the granting of the easement) and, thus, gave rise to a capital gain.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) - Subpargraph 12(1)(x)(viii) an early signing bonus was part of the proceeds of disposition of the subject property 307

Deragon v. The Queen, 2015 TCC 294

sales proceeds reduced by subsequent price adjustment clause but included conditional sales proceeds

The taxpayer and two other trusts (the “vendors”) agreed effective May 1, 2004 to sell shares of various private companies (the “companies”) for a purchase price of $16 million minus long-term debts of the companies. $2 million of the sale price was receivable over three years provided that EBITDA of the companies was not less than 75% of the EBITDA for the fiscal year ending on January 31, 2003. A price adjustment clause provided for an increase or decrease in the sale price based on the increase or decrease in shareholders’ equity reflected in the balance sheet for the year ended January 31, 2004. In 2005, the parties realized that due to a failure to provide for accrued vacation pay and tax liabilities in the financial statements of the companies, the shareholders’ equity as at January 31, 2004 had decreased by $2.43 million.

After arduous negotiations, it was agreed on July 14, 2005 that the gross sale price would be reduced by $0.5 million to $15.5 million, that the conditional sale portion of the sale price would be increased by $1 million to $3 million and that the vendors would under stipulated conditions reimburse the following amounts to the purchaser: the sum of $1.5 million; a further sum of $0.5 million which theretofore had been held in trust for them; and the conditional sale amounts of $0.6 million per annum (i.e., $3 million in total). However, only a portion of these amounts was paid back by the vendors.

In confirming the Minister’s position before him that the vendors’ proceeds of disposition were based on the sale price as reduced only by the $0.5 million adjustment thereto under the Settlement Agreement (as contrasted to the taxpayer's position that its proceeds shuld be reduced to reflect an contingent obligation to refund a larger poriton of the sale price), Favreau J stated (at paras. 31-34):

[T]he conditional portion of the sale price for the shares was part of their proceeds of disposition.

…[T[he Settlement Agreement stipulated that, notwithstanding the adjustment clause, the total sale price of the shares would be $15,500,000 rather than $16,000,000. Consequently, the total sale price of the shares of $15,500,000 has become, following the adjustment, the maximum amount which can be received by the vendors from their sale of their shares.

The increase in the conditional sale balance from $2,000,000 to $3,000,000 and spread over five years rather than three years…did not impact on the total sale price of the shares as the conditional sale price was part of the total sale price of the shares… .

The $15,000,000 which the [vendors] were required to reimburse under the Settlement Agreement cannot detract from the total sale price of the share because it was contingent and dependent on the realization of the EBITDA condition respecting the companies.

He also noted that the taxpayer had relied on IT-462, para. 9 to avoid income treatment of the proceeds under s. 12(1)(g).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g) reverse earnout amounts included in proceeds 245
Tax Topics - General Concepts - Effective Date proceeds reduced by subsequent settlement pursuant to price adjustment clause 205

Administrative Policy

23 March 2011 Internal T.I. 2010-0389081I7 F - Disposition of a resource property

proceeds included full (undiscounted) deferred cash proceeds, but might exclude share consideration (with volatile market price) until issued

The Vendor sold a percentage interest in mineral claims (the “Mining Properties”) for consideration including deferred cash payments and shares to be issued by the public-company Purchaser, in each case, to be paid or issued over a four-year period.

After noting that a Dictionary definition of “sale price” included “Amount paid for a thing purchased,” the Directorate indicated that the full amount of the deferred cash payments (rather than discounted amounts) should be included in the Vendor’s proceeds of disposition under F in the definition of CCDE in s. 66.2(5). Turning to the deferred share issuance consideration, the Directorate noted that the shares’ market price could “fluctuate greatly,” and indicated that the TSO accordingly might:

conclude that such portion of the proceeds of disposition for the Mining Properties by the Vendor is not determinable prior to the date of issuance of the shares by the Purchaser and that such portion of the proceeds of disposition would be recognized for tax purposes at the times of their issuance … .

Words and Phrases
sale price
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 66.2 - Subsection 66.2(5) - cumulative Canadian development expense - Element F proceeds from mineral claims sale included undiscounted deferred cash proceeds, but might exclude share consideration until issued; purchaser’s CEE obligation excluded 390
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g) deferred share consideration potentially not recognized until issuance 103
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(b) full undiscounted amount of future cash consideration to be included as an amount receivable 209

30 July 2001 External T.I. 2001-0091655 F - Produit de Disposition pour Action

proceeds of disposition on share-for-share exchange were the stipulated fixed sale price rather than the FMV of the received shares, absent rollover treatment

The shareholders of Opco agreed to sell each Opco share for a sale price of $10, which was to be satisfied by the issuance of 5 shares of Pubco whose FMV at the time of the agreement was $2 per share. At the time of the closing of the sale, the FMV of a Pubco share had fallen to $1.80. In reversing its earlier position in 1999-0008445 F, CCRA concluded that the proceeds of disposition of an Opco share was $10, not $8. CCRA stated:

Where an agreement between parties specifically provides for a fixed sale (or purchase) price for a share and the seller accepts shares from the purchaser in full satisfaction of the sale price, the CCRA will generally consider the proceeds of disposition of the share to be the agreed sale price if no rollover provision (for example, sections 85 and 85.1) applies. …

This position is based on the definition of "proceeds of disposition" in section 54 … which specifically provides that the proceeds of disposition of a property include the sale price of property that has been sold, and on the relevant jurisprudence … .

Paragraph (b)

Administrative Policy

30 October 2024 Internal T.I. 2023-0996541I7 - Capital gain or loss in Mt. Gox insolvency

compensation for loss of bitcoin would give rise to a disposition governed by s. 44(2)

The Directorate indicated that if the taxpayer (contrary to its understanding of the facts) had been the beneficial owner of bitcoin held by a platform operator, compensation received by the taxpayer for the loss of such bitcoin through theft or loss would have given rise to a disposition whose timing was subject to s. 44(2).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 54 - Disposition - Paragraph (a) no disposition by platform users on its insolvency until they became entitled to payout 236

2 November 2023 APFF Roundtable Q. 9, 2023-0982911C6 - APFF - Congrès 2023 - Table ronde sur la fiscalité

damages for loss of bitcoin from fraud would be compensation for property unlawfully taken

Madame Y made a cash purchase of a bitcoin on a central exchange platform in order that she could ultimately pay for items online. Subsequently, in 2023, the exchange platform was the victim of fraud and Madame Y lost access to her bitcoin. In the course of discussing the character and timing of her loss, CRA indicated that although a loss from fraud usually arises when the loss is recognized, “where the taxpayer has received compensation for capital property unlawfully taken, the specific rules of subsection 44(2) apply to determine the time of disposition.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Loss v. Loss - Damages bitcoin loss from fraud might be capital loss, and timing of a loss could be governed by s. 44(2) 241
Tax Topics - Income Tax Act - Section 54 - Personal-Use Property bitcoin to be used for online purchases is not personal-use property 82

4 April 2002 External T.I. 2002-0123065 F - DOMMAGES-INTERETS

compensation received by Jews for property seized 60 years previously was a windfall rather than proceeds of disposition

Under a program established by the French government in 1999, victims of spoliation (or their heirs) as a result of the anti-Semitic legislation in force during the occupation of France could receive compensation for all property confiscated from them (e.g. jewellery, bank accounts), with the compensation amount depending on the value of the property that was stolen. CCRA stated:

The compensation received to compensate victims of spoliation relates to the loss of property in very specific circumstances. Although it may be possible to link the amount of compensation received to a particular property, and therefore consider it as proceeds from the disposition of the property, we are of the view that ... these amounts meet the criteria that normally indicate what is a windfall, in particular, the unexpected aspect of the payment received. Given the exceptional situation in which these assets were confiscated nearly 60 years ago, we are of the view that the amounts ...are excluded from total income for the purposes of calculating tax in Canada.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) annuities or capital sums paid to victims of anti-Semitic persecution were not income 114

Paragraph (d)

Cases

The Queen v. Shaw, 93 DTC 5121, [1993] 1 CTC 221 (F.C.A.)

The farm lands of the taxpayer were expropriated pursuant to the Expropriation Act (Alberta) in 1977. Following the settlement in 1986 of an action against the Province of Alberta, the taxpayer received the sum of $1,020,368 which was calculated as a replacement of interest income which the plaintiff would have earned if he had been paid the full value of his land at the time of the expropriation.

Because the character of this sum under the Expropriation Act was compensation for the government's failure to pay promptly the balance of the value of the land that had been taken, rather than compensation for the expropriation of the land, that sum also constituted interest for purposes of the Act rather than proceeds of disposition of the land. With respect to the finding of the Trial Judge that because s. 44(2)(a) deemed the taxpayer to have disposed of the land in 1996, therefore there was no interest that had accrued to the taxpayer prior to that date, the Court found that s. 44(2)(a) was merely a timing provision that did not recharacterize the nature of the sum received.

Damka Lumber & Development Ltd. v. The Queen, 90 DTC 6101, [1990] 1 CTC 127 (FCTD)

Although the taxpayer sold its property to an agent acting for an undisclosed principal (which was the Urban Transit Authority of British Columbia) in the belief that if it did not sell the property would be expropriated, it was not told that the British Columbia government or any government body which was behind the attempted acquisition would so expropriate and, in fact, the Urban Transit Authority did not at that time have statutory authority to expropriate. Accordingly, it had not received a "notice of intention".

Sani Sport Inc. v. The Queen, 87 DTC 5253, [1987] 1 CTC 411 (FCTD), aff'd 90 DTC 6230 (FCA)

Compensation in respect of expropriation proceedings by Hydro Quebec affecting the lands of the taxpayer in which it was carrying on a sports arena business, included, for purposes of s. 54(h)(iv), the compensation received by the taxpayer for damage to its business, in addition to the compensation received by it for the value of the land taken and the diminution in the value of the retained land.

E.R. Fisher Ltd. v. The Queen, 86 DTC 6364, [1986] 2 CTC 114 (FCTD)

An interest penalty which the taxpayer received pursuant to s. 33(3)(b) of the Expropriation Act as a result of the initial failure of the Crown to pay at least 90% of the amount which it finally paid in settlement of the taxpayer's claim for expropriation, was held to be part and parcel of the proceeds of disposition to the taxpayer of the expropriated property. "Without the expropriation of the Sparks Street property, there would have been no payment at all."

See Also

Drummond v. Brown, [1984] BTC 142 (C.A.)

S.22(3)(a) of the Finance Act 1965 subjected to capital gains tax "capital sums received by way of compensation for any kind of damage or injury to assets". Statutory compensation received by a tenant for losing a potential right to have his lease renewed was not compensation for the loss of any asset.

IRC v. Metrolands (Property Finance) Ltd., [1982] BTC 8032 (HL)

Property was characterized as having been "acquired compulsorily by an authority possessing compulsory powers" (s.45(4), Development Land Tax Act, 1976) notwithstanding that the expropriation procedure was initiated by the landowner serving a notice on the authority.

Choice Realty Corp. v. The Queen, 78 DTC 6415, [1978] CTC 613 (FCTD)

The taxpayer purchased lands on the basis that amounts payable to the vendor as a result of the expropriation of a portion of the lands would be credited against the purchase price. It was indicated in obiter dicta that the expropriation proceeds were a profit or capital gain realized by the taxpayer on the sale of the expropriated lands rather than a reduction in the average cost of the remaining lands.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(n) s. 20(1)(n) reserve not claimed in alternative until subsequent years was statute-barred 140
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate 123

Administrative Policy

5 March 2008 External T.I. 2007-0231831E5 F - Roulement de biens

court-directed sale by partition court does not generate proceeds under para. (d)

It was submitted that were two individuals (Mr. A nor Mr. B ) who are equal co-owners of two rental properties apply for partition and the court instead directs a sale of the two properties, that there is thereby a sale under statutory authority described in para. (d) of the definition of "proceeds of disposition" in ss. 54 and 13(21), so that the rollover in ss. 44(1) and 13(4) was available. In finding that the rollover was not available, CRA stated:

[S]ince neither Mr. A nor Mr. B can claim in this case to be able to "take" the other's property pursuant to the C.C.Q. - the court only being able to order the partition of the property or its sale - we believe that the proceeds of disposition resulting from an application for partition are neither compensation for property taken under statutory authority nor the amount of the sale price of the property sold to a person who has given notice of an intention to take it under statutory authority.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 44 - Subsection 44(1) - Paragraph 44(1)(a) court-directed sale of co-owned property as a substitute for partition is not a “taking” by either co-owner of the other’s property 240

7 October 1991 T.I. (Tax Window, No. 10, p. 23, ¶1505)

The expropriating authority of a foreign government may be considered to be a "statutory authority".

18 September 89 T.I. (February 1990 Access Letter, ¶1107)

Proceeds of disposition received from a partition or a licitation do not fall within ss.13(21)(d)(iv) or 54(h)(iv) because (under Quebec law) in a partition or a licitation a transfer of property will only happen if there is an agreement as to the compensation, or if the acquiring party outbids everyone including the owner.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition 92

Paragraph (e)

Administrative Policy

16 July 2020 Internal T.I. 2019-0817271I7 F - Indemnités reçues à la suite de la négociation

compensation for loss of value to lands left after the government agreed to purchase a portion thereof, would constitute proceeds of disposition of such remainder

A governmental authority will acquire a number of residential, commercial, forestry, agricultural and undeveloped properties for a construction project pursuant to privately-negotiated terms including a sales price and further sums agreed to be paid to the owners to compensate them for various losses suffered. In the course of a general discussion, CRA indicated that compensation received for loss of value to lands retained by the owners could be compensation in respect of injuriously affected property and, therefore, could be “proceeds of disposition” pursuant to para. (e) of the definition (if the remainder were capital property), in which case a reasonable portion of the ACB of the remainder would be required to be allocated to the disposed of portion pursuant to s. 43(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) compensation paid to land owners for their restoration of the portion of their lands not sold to the government would be a s. 12(1)(x) receipt 122
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(f) compensation for damages to depreciable property would be included under s. 12(1)(f) rather than under proceeds of disposition, but the related repaid expenses would be deductible 126

25 May 2001 Internal T.I. 2001-0085000 - Bituminous sands in-situ projects

Westcoast

CRA noted that notwithstanding the definition of "proceeds of disposition" (the receipt of which is deemed to give rise to a disposition):

"In the case of Westcoast Energy, the Crown withdrew its argument that the out-of-court settlement amount received by Westcoast constituted compensation for property injuriously affected or compensation for property damaged which would have the combined effect of reducing the undepreciated capital cost claim by Westcoast .... It is our view that the case of Westcoast Energy does not preclude CCRA to make the argument of injuriously affected or damaged property in another situation similar to that of Westcoast."

11 June 1996 External T.I. 9616545 - COMPENSATION FOR EXPROPRIATED LAND

Discussion of tax treatment of compensation received by property owners for the compulsory granting by them of right-of-way easements.

Paragraph (f)

Administrative Policy

4 March 2015 External T.I. 2014-0550761E5 F - 44(1) et disposition partielle

insurance proceeds received for destruction of part of building: compensation for property damaged rather than destroyed

Insurance proceeds received for the destruction of part of a building qualified as "compensation for property damaged" (para. (f) of the "proceeds of disposition" definition) rather than "compensation for property destroyed" (para. (c)), so that it was necessary for the destroyed property to qualify as a "former business property" in order for the replacement property rollover to potentially apply to the reinvestment of the insurance proceeds. See summary under s. 44(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(f) inclusion of insurance proceeds applied to building repair 116
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Former Business Property part of building treated as former business property 165
Tax Topics - Income Tax Act - Section 44 - Subsection 44(1) partial destruction of building 197

22 January 2004 External T.I. 2003-0006191E5 F - Frais et montant reçus lors de poursuite

damages received for portfolio mismanagement could be proceeds under para. (f)

A broker was sued for his alleged mismanagement of the portfolios (held on capital account) of a holding corporation, its principal shareholder and his RRSP under a combined suit of the corporation and the shareholder (the latter also claiming for his RRSP). CCRA stated:

[T]he compensation received for the loss realized on the disposition of the investments or their reduction in value could be compensation for property damaged so that such compensation could represent proceeds of disposition of capital property.

Locations of other summaries Wordcount
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 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) legal fees for successfully suing broker for portfolio mismanagement would reduce the resulting capital gain on receipt of the damages 138

10 April 2003 Internal T.I. 2002-0177767 F - INDEMNITE RECUE PAR UN ARTISTE

damages for infringement of an artist’s moral rights could be proceeds of disposition of a capital property
Also released under document number 2002-01777670.

An artist who sold title to one of his works, discovered several years later that the work has been partially destroyed by the new owner, and recovered damages pursuant to s. 34(2) of the Copyright Act for the infringement of his moral rights. CCRA found that such moral rights constituted property, so that the damages received by him constituted proceeds of disposition of such property giving rise to a capital gain if such gain was not otherwise included in income and the property was not eligible capital property.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property the moral rights of an artist were property 97

Paragraph (g)

Cases

Dunne v. The Queen, 96 DTC 6400 (FCTD)

After the taxpayer went into default on a MURB property, the mortgagee acquired the property in a public auction pursuant to its reserve bid (equal to all amounts owing by the taxpayers to the mortgagee) which proved to be substantially higher than the amount it was able to sell the property for in an arm's length sale approximately a year later. In finding that the taxpayers' proceeds of disposition was equal to the reserve bid amount, Rothstein J. found that under the laws of Newfoundland, the mortgagee would be considered to have acquired the property for an amount equal to the reserve bid and that such sale had the effect of extinguishing the taxpayer's liability to the mortgagee. The fact that the deed from the mortgagee as mortgagee to the mortgagee in its own right recited that the consideration of $1 clearly was irrelevant.

Paragraph (j)

Administrative Policy

84 C.R. - Q.46

S.54(h)(x) does not reduce the proceeds of disposition of property that is not capital property.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(28) 22

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