A taxpayer sold, to an arm’s length farm corporation, the usufruct or right of use for the use of land together with the buildings thereon for a term of 25 years in consideration of $30,000 payable in 6 annual instalments. CRA noted that this gave rise to a deemed disposition to a trust under s. 248(3) and stated:
This trust will not be a personal trust because the corporation paid an amount to obtain this interest. Therefore, the corporation will be deemed to have a capital interest costing $30,000.
The cost of the interest will not be deductible in computing the income of the corporation when the shareholding is acquired or when the six annual instalments are paid. The corporation will take into account the amount paid to acquire the usufruct or right of use of the property when disposing of the capital interest, for example, when the usufruct or right of use of the property ends.