Non-arm's length transactions

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When you acquire rental property (depreciable property) in a non-arm's length transaction, there are special rules for determining the property's capital cost. These special rules do not apply if you get the property because of someone's death.

You can acquire depreciable property in a non-arm's length transaction from:

  • an individual resident in Canada
  • a partnership with at least one partner who is an individual resident in Canada
  • a partnership with at least one partner who is another partnership

If you pay more for the rental property than the seller paid for the same rental property, calculate the capital cost as follows:

Capital cost calculation (non-arm's length, resident of Canada transaction)

The seller's cost or capital cost

$ Blank space for dollar value
Line 1
 

The seller's proceeds of disposition

$ Blank space for dollar value
Line 2
 

Amount from line 1

$ Blank space for dollar value
Line 3
 

Line 2 minus line 3 (if negative, enter "0")

$ Blank space for dollar value
Line 4
 

Enter any capital gains deductions claimed for the amount on line 4Footnote 1

$ Blank space for dollar value
× 2
$ Blank space for dollar value
Line 5
 

Line 4 minus line 5 (if negative, enter "0")

$ Blank space for dollar value
× 1/2
$ Blank space for dollar value
Line 6
 

Capital cost: line 1 plus line 6

$ Blank space for dollar value
Line 7
 

You can also acquire depreciable property in a non-arm's length transaction from:

  • a corporation
  • an individual who is not resident in Canada
  • a partnership with no partners who are individuals resident in Canada or with no partners that are other partnerships

If you pay more for the rental property than the seller paid for the same rental property, calculate the capital cost as follows:

Capital cost calculation (non-arm's length, non-resident transaction)

The seller's cost or capital cost

$ Blank space for dollar value
Line 1
 

The seller's proceeds of disposition

$ Blank space for dollar value
Line 2
 

Amount from line 1

$ Blank space for dollar value
Line 3
 

Line 2 minus line 3 (if negative, enter "0")

$ Blank space for dollar value
× 1/2
$ Blank space for dollar value
Line 4
 

Capital cost: line 1 plus line 4

$ Blank space for dollar value
Line 5
 

Enter this amount in column 3 of either Area B or C, whichever applies. Do not include the cost of the related land. Include the cost of the related land on line 9923 in Form T776.

If you acquire depreciable property in a non-arm's length transaction and pay less for it than the seller paid, your capital cost is the same amount as the seller paid.

The difference between what you paid and what the seller paid is considered to be deducted as capital cost allowance (CCA). Enter the amount you paid in column 3 of Area A. Enter the same amount in Area B or C, whichever applies.

Example

Teresa bought a refrigerator from her father Roman for $400 to use in her rental operation. Roman paid $1,000 for the refrigerator and was using it in his rental operations. Since the amount Teresa paid is less than the amount Roman paid, we consider Teresa's cost to be $1,000. We also consider that Teresa has deducted CCA from the amount of $600 in the past ($1,000 $400).

  • In Area B Teresa enters $1,000 in column 3, "Total cost."
  • In Area A she enters $400 in column 3 as the addition for the current tax year.
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