Income Tax Application Rules — I-3.31 26
Capital gains subject to tax 26 (1) The provisions of subdivision c of Division B of Part I of the amended Act apply to dispositions of property made after 1971 and to transactions or events occurring after 1971 because of which any disposition of property was made or deemed to have been made in accordance with the provisions of that subdivision. Principal amount of certain obligations (1.1) For the purposes of subsection 39(3) and section 80 of the amended Act, the principal amount of any debt or other obligation of a taxpayer to pay an amount that was outstanding on January 1, 1972 (in this subsection referred to as an “obligation”) shall be deemed to be the lesser of (a) the principal amount, otherwise determined for the purposes of the amended Act, of the obligation, and (b) the fair market value, on valuation day, of the obligation, and in applying paragraph 39(3)(a) of the amended Act to an obligation, the reference in that paragraph to “the amount for which the obligation was issued” shall be read as a reference to “the lesser of the principal amount of the obligation and the amount for which the obligation was issued”. Cost of acquisition of capital property owned on Dec. 31, 1971 (3) For the purpose of computing the adjusted cost base to a taxpayer of any capital property (other than depreciable property or an interest in a partnership) that was owned by the taxpayer on December 31, 1971 and thereafter without interruption until such time as the taxpayer disposed of it, its cost to the taxpayer shall be deemed to be the amount that is neither the greatest nor the least of the following three amounts, namely, (a) its actual cost to the taxpayer or, if the property was an obligation, its amortized cost to the taxpayer on January 1, 1972, (b) its fair market value on valuation day, and (c) the amount, if any, by which the total of (i) the taxpayer’s proceeds of disposition of the property, determined without reference to subsection 13(21.1) of the amended Act, (ii) all amounts required by subsection 53(2) of the amended Act to be deducted in computing its adjusted cost base to the taxpayer immediately before the disposition, and (iii) all amounts described in clause (5)(c)(ii)(B) that are relevant in computing its adjusted cost base to the taxpayer immediately before the disposition, exceeds the total of (iv) all amounts required by subsection 53(1) of the amended Act (other than paragraphs 53(1)(f.1) to (f.2)) to be added in computing its adjusted cost base to the taxpayer immediately before the disposition, and (v) all amounts described in clause (5)(c)(i)(B) that are relevant in computing its adjusted cost base to the taxpayer immediately before the disposition, except that where two or more of the amounts determined under paragraphs (a) to (c) in respect of any property are the same amount, that amount shall be deemed to be its costs to the taxpayer. Determination of cost where property not disposed of (4) For the purpose of computing the adjusted cost base to a taxpayer of any capital property (other than depreciable property or an interest in a partnership) at any particular time before the taxpayer disposed of it, where the property was owned by the taxpayer on December 31, 1971 and thereafter without interruption until the particular time, its costs to the taxpayer shall be deemed to be the amount that would be determined under subsection (3) to be its cost to the taxpayer if the taxpayer had disposed of it at the particular time and the taxpayer’s proceeds of disposition had been its fair market value at that time. Where property disposed of in transaction not at arm’s length (5) Where any capital property (other than depreciable property or an interest in a partnership) that was owned by a taxpayer (in this subsection referred to as the “original owner”) on June 18, 1971 has, by one or more transactions or events between persons not dealing at arm’s length, become vested in another taxpayer (in this subsection