The Taxpayer recognized a capital loss under s. 111(4)(d) for the excess of the ACB of a loan receivable from one of its controlled foreign affiliate (the “Loan”) over the Loan’s fair market value (“FMV”), and designated the following capital property pursuant to s. 111(4)(e): Class 12: intellectual property; Class 14.1: customer relationship; and Class 14.1: goodwill. Could these designations be made even though such property had no capital cost or undepreciated capital cost before the acquisition of control? The Directorate stated:
[P]aragraph 13(34)(a) states … that where a taxpayer carries on a particular business, there is deemed to be a single goodwill in respect of the particular business. …
[T]he goodwill and the customer relationship … constitute a single property, being the goodwill in respect of the Taxpayer’s business.
… 2017-0709141C6 … confirmed that a designation pursuant to paragraph 111(4)(e) can be made with respect to internally generated goodwill.
Regarding what appeared to be a question as to whether the IP could also be stepped up even though it had been generated without any cost, the Directorate stated:
A taxpayer may designate under paragraph 111(4)(e) any amount between the ACB and the FMV of property, including intellectual property included in class 12, as proceeds of disposition, and this property is deemed to be reacquired at a cost equal to the elected proceeds.