28 June 1990 Income Tax Severed Letter ACC9459 - Election to Transfer Capital Property from One Class to Another

24(1)
                                               901133
                                               J.D. Brooks
                                               613-957-2097

                  19(1)

Attention:

June 28, 1990

June 5, 1990

Dear Sirs:

Re: Subsection 1103(2d) of the Income Tax Regulations Subsection 85(1) of the Income Tax Act

We are writing you in reply to your letter of June 13, 1990 in which you raised a concern which stems from our letter (900027) of June 8, 1990 on Regulation 1103(2d). You noted that an election filed under Regulation 1103(2d) with respect to the 1988 transfer from Corporation A to Corporation X would be deemed to have effect prior to the time at which an election under subsection 85(1) of the Act would have been filed. Since the election under the Regulation would cause the transferred assets to be in class 39 at the time of the transfer to Corporation X and no longer in class 39 at the time of the transfer to Corporation X and no longer in class 29, you raised the concern that the subsection 85(1) election would no longer be valid. You queried whether the Department would view the revision to the subsection 85(1) election, identifying the property as property of class 39 and not of class 29, as being of a clerical nature and therefore be afforded the treatment described in paragraph 19 of our Information Circular 76-19R.

Our Comments

Where an election under subsection 85(1) of the Act is filed, it relates to specific property rather than to a prescribed class of assets. Thus, the transfer of the assets from class 29 to 39, pursuant to Regulation 1103(2d), would not itself invalidate the election.

However, it is likely that the transfer of assets will necessitate a revision to the amounts agreed upon for purposes of subsection 85(1). This could be the case where the undepreciated capital cost ("UCC") of class 39 is higher than the UCC of class 29 and the UCC of the class was used to determine the agreed amounts. To alter the agreed amounts, it would be necessary to conform to the requirements of subsection 85(7.1).

Yours truly, for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch