Income Tax Application Rules

Marginal note:Government right

• 21 (1) If as a result of a disposition occurring after 1971 a taxpayer has or may become entitled to receive an amount (in this section referred to as the actual amount) that may reasonably be considered to be consideration received by the taxpayer for the disposition of, or for allowing the expiration of, a government right, in respect of a business carried on by the taxpayer throughout the period beginning January 1, 1972 and ending immediately after the disposition occurred, for the purposes of the amended Act the amount that the taxpayer has or may become entitled to receive is deemed to be the amount, if any, by which the actual amount exceeds the greater of

  • (a) the total of all amounts each of which is an outlay or expenditure made or incurred by the taxpayer as a result of a transaction that occurred before 1972 for the purpose of acquiring the government right, or the taxpayer’s original right in respect of the government right, to the extent that the outlay or expenditure was not otherwise deducted in computing the income of the taxpayer for any taxation year and would, if made or incurred by the taxpayer as a result of a transaction that occurred after 1971, be an eligible capital expenditure of the taxpayer; and

  • (b) the fair market value to the taxpayer on December 31, 1971 of the taxpayer’s specified right in respect of the government right, if no outlay or expenditure was made or incurred by the taxpayer for the purpose of acquiring the right or, if an outlay or expenditure was made or incurred, if that outlay or expenditure would have been an eligible capital expenditure of the taxpayer if it had been made or incurred as a result of a transaction that occurred after 1971.

• Marginal note:Idem

  (2) Where the taxpayer and the person by whom the actual amount has become payable to the taxpayer were not dealing with each other at arm’s length, for the purposes of computing the income of that person the portion of the actual amount in excess of the amount deemed by subsection (1) to be the amount that has become payable to the taxpayer shall be deemed not to have been an outlay, expense or cost, as the case may be, of that person.

• Marginal note:Idem

  (2.1) Where after 1971 a taxpayer has acquired a particular government right referred to in subsection (1)

  • (a) from a person with whom the taxpayer was not dealing at arm’s length, or

  • (b) under an agreement with a person with whom the taxpayer was not dealing at arm’s length, if under the terms of the agreement that person allowed the right to expire so that the taxpayer could acquire a substantially similar right from the authority that had issued the right to that person,

  and an actual amount subsequently becomes payable to the taxpayer as consideration for the disposition by the taxpayer of, or for the taxpayer allowing the expiration of, the particular government right or any other government right acquired by the taxpayer for the purpose of effecting the continuation, without interruption, of rights that are substantially similar to the rights that the taxpayer had under the particular government right, for the purpose of the amended Act, the amount that has so become payable to the taxpayer shall be deemed to be the amount that would, if that person and the taxpayer had at all times been the same person, be determined under subsection (1) to be the amount that would have become so payable to the taxpayer.

• Marginal note:Amalgamations

  (2.2) For the purposes of this section, an amalgamation (within the meaning of section 87 of the amended Act) of two or more Canadian corporations shall be deemed to be a transaction between persons not dealing at arm’s length.

• Marginal note:Definitions

  (3) In this section,

  government right

  government right of a taxpayer means a right or licence

  • (a) that enables the taxpayer to carry on a business activity in accordance with a law of Canada or of a province or Canadian municipality, to an extent to which the taxpayer would otherwise be unable to carry it on in accordance therewith,

  • (b) that was granted or issued by Her Majesty in right of Canada or a province or a Canadian municipality, or by a department, board, agency or any other body authorized by or under a law of Canada, a province or a Canadian municipality to grant or issue such a right or licence, and

  • (c) that was acquired by the taxpayer

    • (i) as a result of a transaction that occurred before 1972, or

    • (ii) at a particular time for the purpose of affecting the continuation, without interruption, of rights that are substantially similar to the rights that the taxpayer had under a government right held by the taxpayer before the particular time; (droit gouvernemental)

  original right

  original right of a taxpayer in respect of a government right means a right or licence

  • (a) described in the definition government right in this subsection, and

  • (b) acquired by the taxpayer as a result of a transaction that occurred before 1972 for a purpose other than the purpose described in subparagraph (c)(ii) of that definition,

  if the government right was acquired by the taxpayer for the purpose of effecting the continuation, without interruption, of rights that are substantially similar to the rights that the taxpayer had under the right or licence; (droit initial)

  specified right

  specified right of a taxpayer in respect of a government right means a right owned by a taxpayer on December 31, 1971 that was

  • (a) an original right, or

  • (b) a government right that was acquired by the taxpayer in substitution for the original right or that was one of a series of government rights acquired by the taxpayer for the purpose of effecting the continuation, without interruption, of rights that are substantially similar to the rights that the taxpayer had under the original right. (droit particulier)