Can the disposition of milk quotas occurring as part of the drop down of a dairy-farming business by a partnership under s. 85(2) be structured so that the s. 14(1.01) election is used for the quotas eligible for the capital gains deduction (i.e., those acquired more than two years previously) and the s. 85(2) rollover is used for the quotas that are not so eligible? 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).