Principal Issues: [TaxInterpretations translation] At what point does a non-arm's length relationship have to be established in order for a taxpayer to fall within the description of A.1 of the definition of CEC in subsection 14(5) of the Act under the December 20, 2002 Legislative Proposals (re-enacted on February 27, 2004)?
Position: The transferor must not be dealing at arm's length with the taxpayer at the time the eligible capital property is acquired.
Reasons: Application of the Act.
XXXXXXXXXX 2004-006788
N. Deslandes, CGA
September 21, 2004
Dear Sir,
Subject: Application of subsection 14(5) of the Income Tax Act
This is in response to your facsimile of March 22, 2004, in which you requested our opinion on the above subject. We apologize for the delay in responding to your request.
You asked us when non-arm's length status must be established for a taxpayer to fall within the definition of "cumulative eligible capital" in the December 20, 2002 Legislative Proposals to subsection 14(5) of the Income Tax Act (the "Act"). These proposed amendments were reiterated in the February 27, 2004 Legislative Proposals.
Our Comments:
We are of the view that the proposed description of A.1 applies in calculating the "cumulative eligible capital" where the transferor does not deal at arm's length with the taxpayer at the time of the acquisition of the eligible capital by the taxpayer to the extent that the eligible capital was not disposed of before the particular time.
These comments are not advance income tax rulings and do not bind the Canada Revenue Agency with respect to any particular factual situation.
We hope that these comments are of assistance.
Best regards,
Ghislaine Landry, CGA
Manager
Individuals, Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate