Principal Issues: Will the election in proposed subparagraph 13(38)(d)(iii) apply where a taxpayer disposes of a business whose only intangible asset is internally-generated goodwill with no cost and its year end straddles January 1, 2017?
Position: No
Reasons: See response
2016 CTF Annual Conference
CRA Roundtable
Question 13: ECE/Class 14.1
Proposed subparagraph 13(38)(d)(iii), contained in the Notice of Ways and Means Motion tabled on October 21, 2016 (formerly subsection 13(37)(d)(iii)), provides that if no taxation year of a taxpayer ends immediately before January 1, 2017, and such taxpayer would have had a particular amount included in computing the taxpayer’s income from a business for the particular year because of paragraph 14(1)(b) (as that paragraph applied immediately before that day), the taxpayer will be able to elect that an amount equal to the particular amount is to be included in computing the taxpayer's income from its business for the particular year. One of the conditions set out in the preamble of proposed subsection 13(38) is that this subsection will apply only if a taxpayer has incurred an eligible capital expenditure (ECE) in respect of a business before January 1, 2017. In a situation where a taxpayer has disposed of all of its business in a straddle year but before January 1, 2017, and the intangible business assets disposed of only include internally generated goodwill with no cost, will the CRA consider that subparagraph 13(38)(d)(iii) can apply in this context although the taxpayer has not incurred an ECE in respect of a business before January 1, 2017?
CRA Response:
Where a taxpayer’s only intangible asset is internally-generated goodwill with no cost, that taxpayer cannot be said to have made or incurred an ECE in respect of the business. As such, the taxpayer would not meet the requirements of the election in subparagraph 13(38)(d)(iii). It is our understanding that this result is consistent with tax policy.
Andrea Ryer/Michael Cooke
2016-066972
November 29, 2016