22 December 2008 External T.I. 2008-0299651E5 - Transfer of Assets

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.

Principal Issues: Determination of fair market value of goodwill and intangible assets of business.

Position: Unable to comment on suggested valuation of goodwill and intangible assets. Inquirer may wish to contact Valuations section at Tax Services Office and/or consult with case law where valuation of goodwill was decided upon.

Reasons: Question of fact.

								2008-029965
XXXXXXXXXX 							J.  MacGillivray
(613) 957-2053
December 22, 2008

Dear Sir:

Re: Transfer of Assets

We are writing in response to your letter of October 31, 2008, in which you asked us to confirm the correctness of a valuation of the goodwill and other intangible assets of a business currently carried on by a corporation. It is proposed that the corporation will transfer substantially all of the assets of the business to a partnership. In your letter, you cite various reasons in support of assigning a nominal fair market value to such assets for the purposes of the transfer.

Our Comments

The determination of fair market value of property, including goodwill and other intangible assets, is a question of fact. Accordingly, we are not able to confirm whether our determination of the fair market value of the goodwill and other intangible assets of the business in question is correct.

Should you require further assistance with your inquiry, we suggest that you contact a member of the Business Equity Valuation Program at the Tax Services Office that administers the corporation's Canadian federal income tax affairs. Paragraph 46 of Information Circular IC 01-1 - "Third-Party Civil Penalties," December 18, 2001, states that:

'The Business Equity Valuation Program is responsible for advising as to the fair market value determinations of private and public securities, partnerships, proprietorships, copyrights, royalties, patents, goodwill, financial instruments and other business equities for tax purposes. It provides expert opinions on technical valuation and related issues, prepared in accordance with current professional standards and ethics, as set out by the Canadian Institute of Chartered Business Valuators.'

You may also wish to review case law in which various courts have had to resolve issues which related to the determination of the fair market value of goodwill. In this regard, we refer your attention, for example, to Marcon v. The Queen, 2008 TCC 116 (TCC), Saab v. The Queen, 2005 DTC 1042 (TCC); [2005] 4 CTC 2325, Elliott v. The Queen, [1999] 4 CTC 2402 (TCC), Les Placements A & N Robitaille Inc. v. Minister of National Revenue 96 DTC 1062 (TCC); [1996] 1 CTC 2141, The Queen v. Demco Management Ltd., [1986] 1 CTC 92 (FCA), and Butler et. al. v. Minister of National Revenue, 67 DTC 5019 (Exch. Ct.); [1967] CTC 7. While these cases, in varying degrees, deal with the issue of goodwill valuation, the conclusions in those cases were made with reference to the specific facts and circumstances at issue before the courts. Therefore, we cannot say whether the valuation methodologies adopted by the courts in those cases are consistent with the factors and the methodology you have relied upon in valuing the goodwill and intangible assets of the business for the purposes of the proposed transfer.

Our comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular IC-70-6R5.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch