In response to a more general question, CRA constructed the following simple numerical example. Mr X (a resident individual) inherited the Property (an oil and gas property) in 1992, its fair market value was $1 million, and sells the Property (his only Canadian resource property) to an arm’s length third party in 2018 for its FMV of $1.5 million, bearing closing costs of $15,000, and without having claimed any deductions respecting any CRP since 1992. CRA then stated:
When Mr. X died he would have been deemed to have disposed of the Property for proceeds of disposition of $1 million, in accordance with paragraph 70(5.2)(a) and the Taxpayer would have been deemed to have acquired the Property at a cost of $1 million pursuant to paragraph 70(5.2)(b). As noted above, such cost would have been a COGPE to the Taxpayer with the result that the Taxpayer’s CCOGPE balance would have been $1 million immediately after Mr. X’s death. Because the Taxpayer did not claim any deductions in respect of the Property or any other CRP, such CCOGPE balance would have remained at $1 million until the time of the sale of the Property by the Taxpayer.
Upon the sale of the Property by the Taxpayer in 2018, the Taxpayer’s CCOGPE balance will be reduced by $1,485,000 pursuant to element “F” of that definition, which is the difference between the $1.5 million proceeds of disposition and the $15,000 of selling expenses. Assuming there are no other adjustments to the Taxpayer’s CCOGPE balance during 2018, the Taxpayer would have a CCOGPE balance of negative ($485,000) at the end of 2018. This negative amount is deducted from the Taxpayer’s CCDE balance, which, based on the assumptions set out above and assuming there are no other adjustments to the Taxpayer’s CCDE during 2018, will result in the Taxpayer having a negative CCDE balance of ($485,000) at the end of 2018. Therefore, in 2018, the Taxpayer will have an income inclusion of $485,000.