Mr. X bequeathed all his property to his children including goodwill that he had generated over the years from his business, which his estate then sold for $100,000 to a non-arm’s length purchaser payable over 5 years at a rate of 20% per annum, subject to price adjustment. From year 1 to year 5, the estate claimed a reserve under subparagraph 40(1)(a)(iii) and reported an annual capital gain of $20,000. S. 12(1)(g) was inapplicable. After describing the application of s. 70(5.1) to the original bequest, CRA stated:
[T]he estate of Mr. X is deemed, under paragraph 70(5.1)(b), to have acquired a capital property at a cost equal to the deemed proceeds of disposition to Mr. X, being a cost of nil. Thus, when the estate disposed of goodwill for proceeds of disposition of $100,000, it realized a capital gain of $100,000.
… IT-169 … addresses situations where the CRA determines that the FMV is higher or lower than the price otherwise determined by the parties to an agreement. Consequently … this Bulletin does not apply in this situation.
[I]t is impossible … to comment as to its retroactive effect to the day of the initial transaction, since we do not have all the particulars … .
[I]f it were appropriate to retroactively adjust the sale price, the CRA could apply subsection 152(4.2) in respect of taxation years already assessed … [but the] taxpayer must satisfy the five conditions for the CRA to agree to a reassessment giving rise to a refund.