CRA technical interpretation 2016-0660861E5 dated September 27, 2016, provides a handy summary of how the transitional rules will work for milk quota that changes from eligible capital property (ECP) to Class 14.1 depreciable capital property (14.1 property) especially where only some of the quota is sold after 2016.
- Under s 13(37)(a) the total capital cost of all 14.1 property on January 1, 2017, will equal the total of the receipts a taxpayer could have received under the former ECP rules without resulting in an income inclusion under s 14(1)(b).
- S 13(37)(b) allocates the total capital cost between goodwill and the identifiable properties in that class on that day.
- Under s 13(37)(b)(ii) the capital cost of a property (other than goodwill) is generally the taxpayer’s ECE in respect of that property.
- Farm quota units are likely indistinguishable from each other. As a result, according to the CRA,
where units of a particular type of farm quota are indistinguishable from one another, the ECE, for the purposes of new subparagraph 13(37)(b)(ii), may be determined by averaging the total cost of the particular type of quota by the number of units of that type held.
- In addition,
While it is a question of fact whether units of a particular type of farm quota are identical properties, assuming they are identical properties, for the purposes of determining the adjusted cost base of farm quota that is depreciable property included in new CCA Class 14.1, the averaging rule in subsection 47(1) would apply.
