Dennis Bresee (613) 995-1178
February 2, 1983
This is in reply to your letter of December 8, 1982 wherein you request our views as to whether or not the cost of acquiring the right to vote a third party's shares for a limited time would qualify as a Class 14 asset (and in particular a concession or a license) for income tax purposes.
In respect of shares of a corporation their jural nature are characterized as a bundle of contractual rights constituting a chose in action. The shareholder thereof may alienate one or more of his rights in the bundle, such as his right to vote. An alienation of such a right for the time specified may be characterized as a disposition of property (the right) as well as a disposition of part of a property (the share).
It is generally accepted that the words licence and concession must be given the meaning or sense in which they are employed by businessmen. A "licence" does not create any estate or interest in the property to which it relates. For greater certainty a licence does not alter or transfer property in anything but only makes an action lawful which without it would be unlawful. Accordingly, in our view the purchase of voting rights would not constitute a licence. The term "concession" covers a wide range. One who obliges himself not to do something grants a concession. However, in our view it was never intended to lay down such a wide interpretation of the term as to mean that a purchase of voting rights would fit into class 14.
Furthermore, paragraph 1102(l)(c) of the Income Tax Regulations states that the classes of property described in Part XI shall be deemed not to include property that was not acquired by the taxpayer for the purpose of gaining or producing income. In our view the purchase of voting rights would not meet this test. Any ability to produce,and to receive, income would obviously be inherent in the ownership of the shares and not in the mere ownership of their voting rights.
Notwithstanding that the cost of purchasing the voting rights would not be depreciable property it is our opinion that such costs may be capital property.
We trust our reply is sufficient for your purpose.
Yours truly,
ORIGINAL SIGNED BY R.D. WEIL
for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch