In addition to having acquired 45,300 chicken quota units from its shareholders (so as to engage a basis grind under s. 14(3) because it did not deal with them at arm’s length and they had claimed the capital gains deduction), the corporation had acquired 20,000 chicken quota units from an arm's length person in 1997 at a price of $21 per unit. The Corporation now disposes of 15,300 units. CRA indicated that a pro-rata method for determining the source (and thus the tax basis) of the units that had been disposed of produces a reasonable result, stating:
[I]n order to determine the source of the 15,300 units that are sold by the taxpayer to a person with whom the taxpayer is dealing at arm's length, the CRA is of the view that the pro rata method, whereby the 15,300 units sold are derived from both the 45,300 units acquired from the person with whom the taxpayer is not dealing at arm's length and the 20,000 units acquired from the person with whom the taxpayer is dealing at arm's length, is a reasonable method in light of the purpose of section 14. In other words, 10,614 units will be derived from the 45,300 units initially acquired while 4,686 units will be derived from units acquired thereafter.