2018-0780011C6 2018 CTF - Q15 - Class 14.1

Principal Issues: Does the CRA consider the reference in the Class 14.1 description to "property" does not have the effect of disqualifying, as Class 14.1 additions, expenditures that would have qualified as eligible capital expenditures if incurred before 2017?

Position: No.

Reasons: Subsections 13(34) to 13(37) provide specific rules in respect of goodwill and expenditures and receipts that do not relate to a specific property of the business. Subject to paragraphs 13(35)(a) to (e), subsection 13(35) provides for a deemed acquisition of goodwill for capital expenditures that are not incurred to acquire an identifiable property.

Author: D'Angelo, Sandro
Section: Class 14.1, 13(34), 13(35), 13(36), 20(1)(a), 18(1)(y), 18(1)(a), 9(1)

2018 CTF Annual Conference
CRA Roundtable

Question 15: Class 14.1

Class 14.1 depreciable property references “property” of the taxpayer, a requirement that was not explicitly present under the former eligible capital “property” rules.  In 2017-0727041E5, the CRA indicated that legal and accounting fees incurred in an aborted share acquisition transaction could be treated as an addition to Class 14.1 property in specified circumstances.  Does the CRA consider that the reference in the Class 14.1 description to “property” does not have the effect of disqualifying, as Class 14.1 additions, expenditures that would have qualified as eligible capital expenditures if incurred before 2017?

CRA Response

Effective January 1, 2017, the eligible capital property rules in section 14 of the Income Tax Act (“Act”) were repealed and replaced by new Class 14.1 under the capital cost allowance regulations. Class 14.1 of Schedule II of the Income Tax Regulations applies to certain intangible properties that would otherwise not be included in any other class. Property (for example, customer lists and licences, franchise rights and farm quotas of indefinite duration), the cost of which would previously have been treated as an eligible capital expenditure, is generally included in new Class 14.1.

Subsections 13(34) to (37) of the Act provide specific rules in respect of goodwill and expenditures and receipts that do not relate to a specific property of the business. As indicated in the Department of Finance technical notes, subject to certain conditions in paragraphs 13(35)(a) to (e), subsection 13(35) provides that if a taxpayer makes or incurs an outlay or expense, at any time on or after January 1, 2017, on account of capital for the purpose of gaining or producing income from a business carried on by the taxpayer, the taxpayer is deemed to acquire property at that time that is goodwill in respect of the business with a cost amount equal to the amount of the outlay or expense.

Thus, for purposes of inclusion in Class 14.1, subsection 13(35) provides for a deemed acquisition of goodwill for capital expenditures that are not incurred to acquire an identifiable property. Subsection 13(34) specifies that there is a single goodwill property in respect of a particular business and the definition of property in subsection 248(1) provides that goodwill of a business, as referred to in subsection 13(34), is property for purposes of the Act.

Sandro D’Angelo
2018-078001
November 27, 2018

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2019

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2019