| March 20, 1990 | |
| VICTORIA DISTRICT OFFICE | HEAD OFFICE |
| Bruce Donaldson | Financial Industries Division |
| Chief of Audit | C. Robb |
| (613)957-2744 | |
| Attention: Brian Rowden | |
| Section 148-1-1 | File No. 7-4466 |
Subject: Assignment of Herring Licenses
We are writing in response to your memorandum of October 23, 1989 in which you asked for our comments concerning the assignment of herring licenses.
The situation described in your memorandum can be summarized as follows:
A person ("A") owns an unlimited life herring fishing licence, which under the Fisheries Act (Canada) is not transferable. A enters into a "lease" with another party ("B") and receives a one time payment for doing so. B receives all the rights associated with the licence except that B cannot directly renew the licence. A grants B a power of attorney for this purpose. B uses the lease for a period of time and then assigns his interest in the lease to another party ("C") for a fixed price.
We have been asked to review this type of transaction in the past. Based on the documentation submitted with those prior requests, we concluded that there is generally a disposition and an acquisition of property upon the initial and subsequent assignments of a herring licence.
Where both parties are in the fishing business and the licence is not held as inventory, our recommendation has been to treat the vendor as having received proceeds of disposition of an eligible capital property which are referred to in clause 14(5)(a)(iv)(A) of the Income Tax Act (Canada) (the "Act"). The purchaser has been treated as having incurred an eligible capital expenditure ("ECE") within the meaning of paragraph 14(5)(b) of the Act.
For your information, we enclose copies of our prior memoranda on this subject which set out the reasoning that led to the interpretation described above. If you encounter cases where you believe the facts differ in substance from those considered in the attached memoranda, we would be pleased to provide our comments in response to a request from you.
J.C. ClarkChiefLeasing and Financing SectionFinancial Industries DivisionRulings Directorate
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