2015-0608211E5 Assignment of right to purchase

Principal Issues: Whether an assignment to a trust by a non-resident person of the right to purchase an apartment would be considered a disposition of taxable Canadian property.

Position: Yes, unless the specific exceptions to the definition of "disposition" apply.

Reasons: The definition of "taxable Canadian property" and "disposition" under subsection 248(1).

Author: Tu, Grace
Section: 248(1)

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                                                        Grace Tu, CPA CA
                                                        (604) 362-2718

March 7, 2016

Dear XXXXXXXXXX

Re: Assignment of right to purchase an apartment unit to a trust

We are writing in response to your letter dated August 17, 2015 wherein you requested our comments regarding whether an assignment to a trust by a non-resident person of a right to purchase an apartment unit in XXXXXXXXXX would be considered a disposition of taxable Canadian property for purposes of the Income Tax Act (the “Act”).

Our comments

This technical interpretation provides general comments about the provisions of the Act.  It does not confirm the income tax treatment of a particular situation but is intended to assist you in making that determination.  The income tax treatment of transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

The term “taxable Canadian property” is defined in subsection 248(1) of the Act. According to paragraph (f) of the definition, a taxable Canadian property includes an option in respect of a real property situated in Canada, whether or not the property exists.

The term “option” is not defined in the Act, other than for limited purposes of section 143.3. According to Black's Law Dictionary 9th Ed, “option” includes the right to buy an asset at a fixed price within a specified time. Based on this definition, the right to purchase an apartment should be considered an option for purposes of the Act.

The phrase “in respect of” has been interpreted by the case law (Nowegijick v. The Queen [1983] CTC 20) to be the widest of any expressions intended to convey the connection between two subject matters. Therefore, the right to purchase in the present case should be considered an option in respect of the apartment unit. Further, since the apartment is a real property and it is situated in Canada, the right to purchase the apartment in the present case should be considered an option in respect of a real property situated in Canada.

Based on above, the right to purchase the apartment unit would be considered a taxable Canadian property.

Whether or not an assignment of the right to a trust would be considered a disposition should be determined based on the definition of “disposition” in subsection 248(1) of the Act and all relevant facts.  In this regard, paragraph (c) of the definition considers any transfer of the property to a trust to be a disposition. In our view, “assignment” is a form of “transfer”, and therefore, provided all other conditions of the definition are met, the assignment of the right to purchase the apartment to a trust would be considered a disposition.

We trust our comments will be of assistance.

Yours truly,

Vitaliy Anissimov
Section Manager
For Division Director
International Division
Income Tax Rulings Directorate

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