Principal Issues: TaxInterpretations translation]
Does the phrase “that would otherwise be the transferor’s proceeds of disposition of the transferred property” used in paragraph 13(21.2)(b) of the Act mean actual proceeds of disposition of a building or deemed proceeds of disposition under subsection 13(21.1) of the Act?
Position:
The proceeds of disposition of the building determined having regard to subsection 13(21.1) of the Act.
Reasons:
As stated in the preamble to subsection 13(21.1) of the Act, the rules in that subsection apply for the purposes of paragraph (a) of the description of F in the definition of “undepreciated capital cost” in subsection 13(21) and subdivision c of the Act. Subsection 13(21.2) is also a subsection that is relevant to computing proceeds of disposition for the purposes of paragraph (a) of the description of F in the definition of undepreciated capital cost.
September 18, 2000
Training and Apprenticeship Branch Headquarters 320 Queen St. Sylvie Labarre, CA 3rd floor, Tower A, Place de Ville (613) 957-8953 Ottawa ON K1A 0L5
Attention: André Dumais 2000-004364
Subsection 13(21.2) of the Income Tax Act
This is in response to your letter of August 22, 2000 regarding the expression “that would otherwise be the transferor’s proceeds of disposition of the transferred property” used in paragraph 13(21.2)(b) of the Income Tax Act (the “Act”).
A corporation sold land for $300,000 and a building for $200,000. The capital cost of the building was $300,000 and the undepreciated capital cost was $260,000. The corporation sold those assets to an affiliated corporation, which held them 30 days after the disposition. As a result of this sale, the corporation realized a capital gain of $50,000 and a terminal loss of $60,000. As a result of the application of subsection 13(21.1) of the Act, the capital gain became nil and the terminal loss became $10,000. Pursuant to subsection 13(21.1), the deemed proceeds of disposition of the building were $250,000.
Subsection 13(21.2) applies to this situation. You wish to know whether the expression “that would otherwise be the transferor’s proceeds of disposition of the transferred property” used in paragraph 13(21.2)(b) means the actual proceeds of disposition, i.e. $200,000, or the deemed proceeds of disposition under subsection 13(21.1), i.e. $250,000.
Our Comments
As indicated in the preamble to subsection 13(21.1), the rules in that subsection apply for the purposes of paragraph (a) of the description of F in the definition of “undepreciated capital cost” in subsection 13(21) and subdivision c of the Act. Subsection 13(21.2) is also a subsection that is relevant to the computation of proceeds of disposition for the purposes of paragraph (a) of the description of F in the definition of undepreciated capital cost. Consequently, we are of the view that the expression “that would otherwise be the transferor’s proceeds of disposition of the transferred property” used in paragraph 13(21.2)(b) means the proceeds of disposition of the building determined having regard to subsection 13(21.1), which in your example would be an amount of $250,000. In your example, the vendor would be deemed to own a property with a capital cost of $10,000.
This interpretation is consistent with what is indicated in the Technical Notes issued by the Department of Finance with respect to subsections 13(21.1) and 13(21.2), including the following excerpt:
If, after subsection 13(21.1) has been applied to a disposition, there would otherwise remain a terminal loss, and the disposition is one to which subsection 13(21.2) applies, that provision may defer the disposing taxpayer's recognition of the remaining loss.
We hope you find these comments helpful. Should you require additional information regarding the content of this document, please do not hesitate to contact us.
Marc Vanasse, CA
for the Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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