| 24(1) | File No. 5-9817 |
| C. Robb | |
| (613) 957-2744 |
Attention: 19(1)
June 26, 1990
Dear Sirs:
Re: Interpretation Bulletin IT-233R
We are writing in response to your letter of March 21, 1990 in which you requested our views concerning the eligibility or property acquired pursuant to certain lease agreements as replacement property for the purposes of subsections 13(4), 44(1) and 44(5) of the Income Tax Act (Canada) (the "Act").
The views of Revenue Canada, Taxation ("RCT") concerning the determination of whether amounts paid under lease agreements are in substance payments on account of the acquisition of property are described in detail in Interpretation Bulletin IT-233R (the "Bulletin"). The Bulletin has not been withdrawn or replaced, although it is currently being revised.
Whether or not a particular lease involves an acquisition and disposition of property is a question of fact to be determined with reference to all the circumstances of a particular transaction. The criteria which RCT generally considers in this determination are described in paragraphs 3 and 4 of the Bulletin.
In those circumstances where it is determined for the purposes of the Act that a lease agreement involves an acquisition of property, the lessee will be required to account for the transaction for tax purposes as the acquisition of an asset and the assumption of a liability form the inception of the lease, as described in paragraph 7 of the Bulletin. A transaction of this type undertaken by a lessee would, in our opinion, result in an acquisition of property referred to in subsections 13(4) and 44(1) of the Act, provided the other requirements of those subsections are met.
When it is determined that an agreement results in a disposition of property for the purposes of the Act, and when the fair market value of the property is less than the amounts to be paid therefor over the life of the agreement, including the option price if any, the provisions of subsection 16(1) will generally apply. The proceeds of disposition would be equal to the total of the amounts receivable under the agreement less any portion thereof included would be the purchaser's cost of the property.
The opinions set out in this letter are not rulings and are consequently not binding on RCT, as stated in paragraph 24 of Information Circular 70-6R.
Yours truly,
for Director Financial Industries DivisionRulings Directorate