January 15, 1990
AUDIT APPLICATIONS DIVISION RESOURCE INDUSTRIES SECTION R.S. BISCARO JOHN CHAN ACTING DIRECTOR (613) 952-9019
ATTN: I.J.D. RATHWELL APPLICATION OPINIONS SECTION
Request for Technical Interpretation
Subparagraph 66.1(6)(a)(v) of the
Income Tax Act (the "Act")We are writing in reply to your request for an interpretation of subparagraph 66.1(6)(a)(v) of the Act with respect
24(1)
FACTS
The facts as we understand them are as follows:
24(1)
24(1)
24(1)
Our Comments
Simon Thompson of Tax Policy, Department of Finance opined that where an investor has incured CEE solely as consideration for shares of a corporation pursuant to subparagraph 66.1(6)(a)(v) but the shares are not issued as a consequence of a dispute between the investor and the corporation, this non-issuance of the shares, in and of itself, would not disqualify the CEE from inclusion in subparagraph 66.1(6)(a)(v).
We concur with Mr Thompson's interpretation of subparagraph 66.1(6(a)(v) and consequently 24(1)
In order to qualify as CEE under subparagraph 66.1(6)(a)(v), a taxpayer must, inter alia, incur CEE. 24(1)
We refer to the case of Her Majesty the Queen vs Burnco Industries Ltd., 84 DTC 6348, F.C.A., in which J. Pratte stated that "In our opinion, an expense, within the meaning of paragraph 18(1)(a) of the Income Tax Act, is an obligation to pay a sum of money. An expense cannot be said to be incurred by a taxpayer who is under no obligation to pay money to anyone."
In order to apply subparagraph 66.1(6)(a)(v) to the three situations therefore,
24(1)
for Director Bilingual Services and Resource Industries Division Rulings Directorate