As a result of the taxpayer’s acquisition of eligible capital property from a non-arm’s length transferor prior to January 1, 2017, the amount otherwise added to the taxpayer’s cumulative eligible capital was reduced by variable A.1 in s. 14(5), CEC definition until such time that the particular ECP is subsequently disposed of to an arm’s-length (“AL”) person. Under the proposed transitional rule in draft s. 13(37), is such grind restored where the property is sold after January 1, 2017 to an AL person? CRA responded:
[P]roposed paragraph 13(37)(a) provides that the total capital cost of Class 14.1 at the beginning of January 1, 2017 is 4/3 of the amount that would be the CEC pool balance at the beginning of January 1, 2017; plus 4/3 of the amount of deductions taken that have not been recaptured; less 4/3 of any negative CEC pool balance at the beginning of January 1, 2017. …
[F]or capital gains purposes there is no upward adjustment (for the amount of the former grind to the CEC pool) to the cost or capital cost of the Class 14.1 property where such property is sold to an AL person after January 1, 2017.
…[W]e have referred this matter…for [Finance’s] consideration in the finalization of the proposed legislation.