Property

Can the “used principally” requirement in s. 110.6(1.3)(a)(ii)(A)(II) (potentially relevant for the property qualifying as a “qualified farm or fishing property” for capital gains deduction purposes) be met where an individual owns a 70 acre parcel of land of which 25 acres is workable farmland and 45 acres is forest?

CRA indicated that where in a particular year, more than 50% of a particular property is being used for some purpose other than farming (or fishing) or is otherwise vacant or idle, generally speaking, such non-farming use would result in the entire property not being considered as being used principally in the business of farming in Canada for the year. However, if the unusable portion was not suitable for any use, then it may be excluded from the “used principally” determination.

Before so concluding, CRA stated:

Notwithstanding the comments made in Otteson, it is our view that the determination of whether a property is being used principally by a taxpayer in carrying on a farming or fishing business in Canada for purposes of subsection 110.6(1.3) of the Act must be made on a property-by-property basis. Once so determined, the entire property would either qualify or not, as the case may be.

A CCPC (ABC Inc.) owns a building, 65% of which is used in its manufacturing business, and the remaining 35% is leased to a third party. CRA referenced (subpara. (b)(ii)) of the definition of “income” in s. 129(4), which assimilates to income from an active business, property income from property used or held principally for the purpose of gaining or producing income from that business., and stated:

[T]here are arguments to support the contention that the building used 65% by ABC Inc. in its manufacturing activities could be a property used or held primarily to earn income from its manufacturing business for the purposes of subparagraph (b)(ii) … . In such case, the rental income of ABC Inc. would qualify as "income of the corporation for the year from an active business" within the meaning of subsection 125(7).

A U.S.-dollar loan owing to an affiliated trust is repaid on its maturity, thereby resulting in an s. 39(2) FX loss to the borrower. The trust promptly relends those U.S.-dollar to the borrower. Is the s. 39(2) loss (which is deemed to be a loss from the disposition of foreign currency) suspended under s. 40(3.4) (or is it a superficial loss under s. 40(2)(g)(i), if the borrower is an individual)?

CRA indicated that the issue here is whether the U.S. dollars received by the borrower under the new loan are identical property to the foreign currency that it was deemed to have disposed of under s. 39(2), and noted that under the "property" definition in s. 248(1), “money could constitute property unless a contrary intention is evident” – but then stated:

However, the CRA's position is not to consider money to be identical property for the purposes of subparagraph 40(2)(g)(i) or subsections 40(3.3) and (3.4) in a circumstance such as this where a taxpayer sustains a loss under subsection 39(2).

Therefore, no suspended (or superficial) loss.

A husband and wife equally own a partnership which for some time has been holding land which as to 80% was used in the farming business and as to 20% was used for their residence (with the residence not being legally severable). CRA indicated that because under the Quebec Civil Code “an owner of an immovable (for example, a piece of land) is the owner by accession to all structures and works located on the immovable,” the land was to be treated as one indivisible property for purposes of determining under the “interest in a family farm or fishing partnership” definition whether the land was used principally (over 50%) in a Canadian farming business.

Before going on to find that the change-of-use rules should be applied to a duplex on a global basis, CRA stated:

[A]n immovable is normally considered to be a single and sole property unless it is legally subdivided into two or more separate properties.

In finding that cash is property for purposes of s. 55(2.1)(b), CRA stated:

Property is defined in subsection 248(1) as including money, unless a contrary intention is evident. As explained above, the scheme of subsection 55(2) is to consider cash as property.

CRA indicated that cash is property for s. 55 purposes.

Before considering the treatment under ss. 69(1)(b)(ii) and s. 69(1)(c) of a gift of a real estate property that is charged with a hypothec, CRA stated:

[A]n immovable is normally considered as a single and unique property at least where such property is not the object of a legal partition into two or more distinct properties.

See summary under s. 69(1)(b).

CRA stated "an interest in a partnership held by a taxpayer [is] a single property, regardless of the composition of that interest," but then added in light of the Act's part-disposition rules:

[A] part or fraction of an interest in a partnership held by a taxpayer as capital property could, in turn, be regarded as capital property, because it is property the disposition of which results in a capital gain or loss for the taxpayer. Thus, a part or fraction of the partnership interest would be an eligible property [under s.] 85(1.1)(a).

Would a maple syrup production quota allocated to a maple sugar bush by an authority be considered property for tax purposes. After referencing s. 8.1 of the Interpretation Act, CRA stated:

If it is determined that the maple syrup production quota is property under civil law, the maple syrup production quota will also be considered property for the purposes of the Act.

A s. 70(6) election cannot be made in respect of a fractional interest in a property For these purposes each share of a corporation, and all of the taxpayer's interest in a partnership, constitutes a single property of the taxpayer. As each share is a separate property, a s. 70(6.2) election can be made for any number of the deceased taxpayer's shares; whereas it cannot be made with respect to a portion of the deceased taxpayer's partnership interest.

A taxpayer inhabited as a principal residence a unit of a taxpayer-owned duplex and integrates that unit, through major renovations, with the other unit in the duplex that was, before those renovations, rented to third parties.

CRA indicated that “An immovable is normally considered to be a single property unless it is legally subdivided into two or more separate properties,” so that, in this situation, the partial change-in-use rule in s. 45(1)(c) would be considered to apply.

A future income tax asset is not "property" within the meaning of variable A of s. 89(8) as it does not represent a "right" - unless the corporation has a right to receive a refund of the tax.

Before finding that Quebec lands that had been devised to a widow by her farmer husband, who used only part of the lands in his farming business, should be analyzed on a cadastral lot-by-lot basis, respecting meeting the tests in s. 110.6(1.3)(c)(ii), so that only those lots that had been used by deceased husband in farming so qualified, the Directorate stated:

[C]adastral lots are considered, for the purposes of the Act, to be separate real property … . Consequently, the determination of the status of the land, i.e., whether or not it can be considered to be property used principally in the business of farming, must be made on a lot-by-lot basis.

A deceased person held an interest in a family farm partnership. In the course of finding that the executor could not elect to have s. 70(6) apply to only a portion of the partnership interest, CRA noted that “a partnership interest, even if it is represented by the holding of units with or without identical rights, constitutes a single property of the partner,” and a s. 70(6.2) election could not be made respecting only a portion of a property.

This contrasted with qualified small business corporation shares, for which the election could and was required to be made in respect of a particular number of shares: “each share represents a property in itself.”

CRA applied the statement in IT-120R6, para. 3, that a unit in a duplex is a property that can be designated as a taxpayer's principal residence, to find that where a duplex is co-owned by a husband and wife, the one unit occupied by them can be designated as their principal residence – but when their daughter moves into the 2^nd unit (until then, a rental unit) and acquires a co-ownership interest in the whole property, they will be able to designate either of the two units as their principal residence, but not both.

In connection with finding that a gift of a non-exclusive software licence was a gift of property, CRA stated:

In Manrell, the Court went on to determine that, with the exception of paragraph (d) (which is not relevant to this case), the definition in subsection 248(1) does not have the effect of giving the word "property" a meaning that differs from its ordinary meaning.

As an incentive for the sale of exempt life insurance policies (having a savings and investment component) a life insurance brokers would pay to clients purchasing the policies an amount equal to the first-year’s commission earned by the broker from the life insurance company.

Before finding that such incentive payments were includable in the income of such clients under s. 12(1)(x) (absent any election made under s, 12(2.2) respecting the premiums paid) given inter alia that they were received by such clients “in the course of earning income from … property,” namely, acquiring and holding the policies, CRA cited La Capitale (98 DTC 6215) (also regarding an insurance policy) for the proposition that "’property’ in the Act includes practically any type of economic interest” and indicated that “the Policyholder holds property for the purposes of the Act.”

Where part of an immovable was distributed to the spouse of the deceased, and the other interests in the immovable were distributed to the children, CCRA indicated that the s. 70(6) rollover applied to the interest distributed to the spouse.

An artist recovered damages pursuant to s. 34(2) of the Copyright Act for the infringement of his moral rights respecting the partial destruction of one of his works that he previously had sold. CCRA found that such moral rights constituted property (notwithstanding the somewhat restrictive interpretation given to “property” in Manrell), 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.

A partnership, holding mutual fund trust (MFT) units, was dissolved such that each CCPC received a pro rata undivided interest in each such investment and with an s. 98(3) election being made for this to occur on a rollover basis, following which there was a partition (such that each CCPC now held divided interests in each of the to their previous undivided interests therein.) CCRA indicated regarding the partition of the MFT investments that an interest in a trust constitutes one property, even if described by reference to units.

Regarding an individual who sold his preferred units, but retained his common units, in a partnership, CCRA indicated that it regarded him as having had a single property, his partnership interest in the partnership, so that on the sale he was required under s. 43 to allocate a portion of the ACB of his single property to the sold units. CCRA stated:

[T]he characterization of Mr. X's units as preferred and common units does not result in the creation of separate property, but merely represents a means of sharing the partnership's profits and losses.

On the disposition by an individual of a cottage which is a personal-use property (“PUP”) but not his principal residence, he realizes a capital gain of $15,000, which is attributable to a $25,000 gain on the land, and a $10,000 loss on the building. This does not mean that he has realized a $25,000 gain on the land, and a $10,000 loss on the building (denied by s. 40(2)(g)(iii).) The Directorate stated:

Where a building constitutes depreciable property … [Reg. 1102(2)] has the effect of splitting the property into two for the purposes of the Act, namely the land and the building.

In the case of a cottage that is a PUP, we are of the view that the land and the building will remain one and the same property for tax purposes if they constitute one and the same property for legal purposes. … [Here] the taxpayer will realize a capital gain of $15,000 on the disposition … .

Ms. A is one of the three limited partners in a limited partnership (the "LP"). Her 33 units entitle her to 1/3 of the value of the shares, 3/4 of the value of the land and 1/3 of the value of the buildings held by the LP. The ACB of her interest in the LP is $500,000.

In order that Mr. X can purchase Ms. A's interest in such shares, the partnership agreement is amended to create three new classes of units with respective entitlements to the three types of property, so that Ms. A's units are exchanged for 33 units giving rights in shares, 72 units in land and 33 units in buildings.

CCRA indicated that all of a partner’s units are a single property, so that the disposition of one type of unit (here, the 33 share units) engaged s. 43(1) so as to require an allocation of the $500,000 ACB of the single property pursuant to s. 43(1).

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Before finding that receipt of “deferred salary,” pursuant to a right established by French legislation, as compensation for contribution to the family farm, was proceeds of disposition of a debt giving rise to capital gains taxation, CCRA noted that it was stipulated in the legislation to be a debt right that created a lien in the property of the estate and was further specified to be an asset of the farmer descendant for which he had a right of claim.

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).

The rights of a person to obtain a patent in respect of know-how represent property and, accordingly, can qualify as an eligible property under s. 85(1.1).

In considering the treatment of payments received by a shareholder pursuant to a non-competition agreement, the Department stated:

"Property is broadly defined in subsection 248(1) of the Act to include, '... a right of any kind whatever ...'. It is our view that where a taxpayer gives up his right to compete in a business under a contract that right would be a property for the purposes of the Act and any consideration received by the taxpayer for giving up such right would generally be on account of capital."

A milk quota represents a "right" of the individual farmer to produce and market milk and, therefore, represents "property" and an "eligible capital property" notwithstanding that the applicable regulations provide that the quota belongs to the provincial marketing board and that no person may transfer, assign or sell the quota to another person or receive payment for a quota from a producer.

RC cited Evans v. MNR, 60 DTC 1047, [1960] S.C.R. 391 and Asamera Oil (Indonesia) Ltd.,73 DTC 5274 (FCTD) after stating that "a right to receive income, in or by itself, would generally not be considered capital property", but went on to note that a different conclusion obtains where the taxpayer also owns the underlying property that gives rise to the rights to the income.

A contingent right to receive shares under an employee profit sharing plan would be a capital property the disposition of which to give rise to a capital loss or capital gain.

In finding that the right to accrued but undeclared dividends was not a separate eligible property from the preferred shares on which they had accrued, Revenue Canada stated:

The right to accrued cumulative dividends would be just one of the bundle of rights that would be attached to a particular share ... . The transfer or exchange of shares with the right to accrued cumulative dividends would not, in and by itself, result in the accrued cumulative dividends being paid or deemed to have been paid by the corporation.

A particular covenant that is a restriction against land and which runs with the land and is binding on the landlord and his successors in title, will qualify as property for purposes of s. 248(1).