8 December 1999 External T.I. 9922595 - ADDITIONAL PROCEEDS DETERMINED LATER

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: What the income tax treatment would be of an additional amount received 9 years after the initial disposition of property, which amount was conditional on the purchaser obtaining permission to expand the landfill site on the property.

Position: In the circumstances described, it is our view that the right to the additional amount would be considered a separate property having an adjusted cost base of zero. Accordingly, a capital gain of $50,000, equal to the difference between the proceeds of disposition ($50,000) and the nil adjusted cost base, would result. Since a right does not meet the definition of a qualified farm property in subsection 110.6(1), this capital gain would not be eligible for the capital gains deduction under subsection 110.6(2).

XXXXXXXXXX 	J. Gibbons
		5-992259
Attention: XXXXXXXXXX 

December 8, 1999

Dear XXXXXXXXXX:

We are replying to your letter of August 10, 1999, in which you enquired whether a particular amount received by a taxpayer would be considered proceeds of disposition of a "qualified farm property."

As indicated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, a request for a written opinion on a completed transaction is generally considered by a taxpayer's local tax services office. Accordingly, you may wish to submit all relevant facts and documentation to the appropriate Tax Services Office for their comments. We have, however, provided some general comments below.

You describe the following situation:

• A taxpayer sold farm property (the " farm property") in 1990, and claimed the capital gains exemption, since the property was considered qualified farm property.
• The property was purchased in 1990 by a corporation which was in the business of operating landfill sites (the "purchaser"). Within the purchase and sale agreement, there was a clause stating that if the landfill site was allowed to expand within 10 years, an additional payment of $50,000 would be issued to the taxpayer.
• In 1999, the taxpayer became entitled to and received the additional $50,000.

In order to determine the income tax treatment of the additional $50,000 received by the taxpayer, it would be necessary to review the actual terms and conditions of the initial agreement. In the circumstances described, it is our view that the right to the additional amount would be considered a separate property having an adjusted cost base of zero. Accordingly, a capital gain of $50,000, equal to the difference between the proceeds of disposition ($50,000) and the nil adjusted cost base, would result. Since the right would not meet the definition of a qualified farm property in subsection 110.6(1), this capital gain would not be eligible for the capital gains deduction under subsection 110.6(2).

We trust that these comments will be of assistance.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate

??

- 2 -