18 August 1989 Income Tax Severed Letter AC73897 - Sale of Property - When Included in Income Computation

VANCOUVER DISTRICT OFFICE                 Specialty Rulings
                                          Directorate
                                          M. Eisner
                                          (613) 957-2138
R.M. Smith
Business Audit 143-12
 IT-170R
 - Sale of Property                 7-3897

This is in reply to your memorandum of May 8, 1989 in which you have referred to paragraphs 2, 8, and 10 of Interpretation Bulletin IT-l70R in relation to the date of disposition of real property in British Columbia.

A brief summary of the relevant comments in these paragraphs is set out below:

(a) Pursuant to the wording in subparagraphs 54(c)(i) and 54(h)(i), it is evident that the date of disposition of capital property sold occurs at the time that the vendor is "entitled to ... the sale price";

(b) Since possession, use and risk are the primary attributes of beneficial ownership, registration of legal title alone is of little significance in determining the date of disposition;

(c) Many agreements involving the sale of real property propose a "closing date" for the completion of the sale. This is normally the date that beneficial ownership is intended to pass from the vendor to the purchaser and the time that the vendor is entitled to the sale price.

With respect to the above comments, you have referred to sections 22 and 37 of the land Title Act of British Columbia which provide that an instrument or application purporting to transfer land or an interest therein from one party to another is to be effective at the time application was received by the registrar. As a result of those provisions, it is your view that ownership passes to another party at the time registration occurs.

In our telephone conversation of June 5, you indicated that your particular concern was precipitated as a result of several situations where taxpayers reported a disposition of real property subsequent to the end of their fiscal periods even though the closing date and the time of registration occurred prior to the end thereof. In the details of an example, which is typical of the situations encountered, the time of registration occurred on October 29, the closing date was described as being October 30 and the vendor, which had a October 31 fiscal period, alleged that the closing date was postponed to November 2. In this case, your office refused to accept November 2 as the date of disposition as no evidence was provided to indicate that this occurred. However, you have also asked us for our comments as to whether we agree that the disposition occurred on October 29 which is the date of registration.

Rulings Comments

Based on the information provided to us, we are not able to agree that the date of disposition in your example is October 29. In this regard, we have referred to the Victory Hotels Ltd. case (62 DTC 1378) which forms much of the basis for the comments outlined in (a), (b), and (c) above. The issue was the date of disposition of a hotel business and involved the provisions of paragraph (5)(b) and subparagraph 20(5)(c)(i) of the Income Tax Act (1952) which are identical to the provisions in subparagraphs 54(h)(i) and 54(c)(i). The Department contended that there was a disposition in 1954 while the taxpayer contended that January 3, 1955 was the date of disposition being the date upon which closing took place and the date upon which a condition precedent was fulfilled. It is worth noting that the property in question was located in Alberta which has a land titles system similar to that of British Columbia. Although the date of disposition selected by the Court, January 4, 1955, was the date (same) documents were registered in the land Titles Offices, the Court did not rely on that reason alone in reaching its conclusion. Instead the Court analyzed the factors relied upon to support each contending position. The court pointed out on page 1384 that:

         "There is no question also that the taxpayer undeniably 
         had the use and control of the property and business and
         was entitled to his proceeds up until January 3rd, 1955 
         and the interest on the mortgage was computed as of that
         date.

And at page 1386 the question was stated in the following manner:

         Was the taxpayer here entitled to the sale price of the 
         properties sold?"

In concluding that the taxpayer was entitled in 1955, the Court placed some reliance upon the condition precedent aspect but concluded also that the date of possession was a factor. It was pointed out that possession could not occur earlier than the date set for completion with the result that the vendor would not have been entitled to the proceeds of disposition until that date or some time thereafter when all conditions had been fulfilled. Accordingly, the Department has interpreted this case to mean that, in the absence of a condition precedent, the taxpayer was entitled to the proceeds on the closing date and has clearly indicated this position in paragraph 10 of IT-17 OR.

In relating the above comments to your example, it is our understanding that the vendor would not have been entitled to the proceeds until the closing date (October 30). In our view, it would follow that the date of disposition would be October 30 rather than October 29.

As a final comment, we would normally expect that a disposition of real property in British Columbia would be registered on the closing date in view of the provisions of sections 22 and 37 in the land Title Act and that, in this respect, the comments in IT-17 OR are valid. However, since the comments in the Bulletin are general in nature and cannot possibly cover all situations that may arise, we would, of course, be willing to consider the facts of any situations you consider unusual upon your submission of the relevant details.

Chief Services, Public Utilities and Exempt Corporations Section Small, Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch