A dairy farming partnership transfers its business to a newly-incorporated corporation. Some of its milk quotas (which can be identified by the number assigned by the Quebec Federation of Dairy Producers when they were awarded, do not qualify as for the capital gains deduction since they were acquired less than two years previously. Can the disposition be structured so that the s. 14(1.01) election is used for the quotas eligible for the capital gains deduction and the s. 85(2) rollover is used for the quotas that are not eligible for that deduction? CRA responded:
[E]ven though quotas are generally considered fungible assets that are difficult to identify in a partial sale … within this set of fungible goods, it is possible to have separate groups with their own tax characteristics. …
[I]t is possible to structure the transaction so that, in the first place, the quotas eligible for the capital gains deduction can be identified and transferred with a utilization of the election under subsection 14(1.01) and, second, all non-qualified quotas are transferred free of tax under subsection 85(2).