| 24(1) | June 1990 |
| 900937 | |
| M. Vallée |
Question 12
An individual sells capital property taking back, as conditional payment of the unpaid balance of the purchase price, a five-year promissory note from the purchaser enabling the individual to claim a reasonable capital gain reserve under subparagraph 40(1)(a)(iii) of the Act. The individual subsequently transfers the promissory note to his wholly-owned corporation, taking back a five-year promissory note from the corporation. Is the individual still entitled to claim a reserve under subparagraph 40(1)(a)(iii)?
Department's Position
As indicated in paragraph 7 of Interpretation Bulletin IT-436R, it is generally our view that where a vendor disposes of a noted receivable from a purchaser of a capital property to a third party in consideration for a promissory note of that third party, a capital gains reserve under subparagraph 40(1)(a)(iii) is no longer available because there is no longer anything due to the vendor from the purchaser in the original transaction.