Subsection 22(1) - Sale of accounts receivable
See Also
Office Overload Co. Ltd. v. MNR, 65 DTC 690 (TAB)
The election under s. 85D(1) of the pre-1972 Act was not available for accounts receivable included in a business purchased by the taxpayer from a non-resident vendor who did not carry on business in Canada given that the vendor accounted for accounts receivable on a cash basis and because the provision did not apply to a vendor who is a non-resident of Canada and is not doing business in Canada. Mr. Davis stated (at p. 697):
"... the section taken as a whole, which, in my opinion, is the way in which it must be interpreted, is intended to apply to persons who fall to be taxed or otherwise dealt with under the provisions of the Canadian Income Tax Act and who report to the Canadian Government the income arising from the operation of the business or businesses whose sale is the central concern of the said section 85D. That section is, in my opinion, intended to afford a continuity in the treatment of accounts receivable where the sale of a business intervenes ... ."
Administrative Policy
12 February 2015 T.I. 2014-0560491E5 F - Article 22
Would a Canadian corporation which has carried on a business through a non-resident branch and which then sells all or substantially all of the assets of the business including trade receivables be able to make the s. 22 election? After referring to the statement in IT-188R (Archived), para. 1, that "section 22 is applicable upon election by a vendor and a purchaser, where the vendor…sells all or substantially all of the assets of a business that was carried on in Canada to the purchaser who proposes to continue the business," CRA responded (TaxInterpretations translation):
The commentary in paragraph 1…is not restricted only to the situation where a business is carried on in Canada. Consequently, there are other situations where the election contemplated by section 22 could be made.
27 November 2011 , 2010 CTF Annual Conference Roundtable Q. , 2011-0426271C6
If the conditions in s. 96(3)(a) are met, then the s. 22 election is deemed by paragraph 96(3)(b) to have been made or executed by each other member of the partnership.
13 July 1994 T.I. 941020 (C.T.O. "Loans not Acquired in the Ordinary Course ...")
An election under s. 22 is not available where parts of a business or assets of a business are acquired by a number of purchasers.
The deeming rule in s. 22(1)(c) applies to permit a reserve under s. 20(1)(l) for debts arising from loans that were not acquired by the purchaser in the ordinary course of the money-lending business of the purchaser.
17 September 1992 T.I. (Tax Window, No. 24, p. 4, ¶2195)
A taxpayer cannot elect under both ss.85(1) and 22 with respect to accounts receivable.
31 August 1992 T.I. 921342 (April 1993 Access Letter, p. 136 ¶C20-1142)
A privately-appointed receiver-manager would be considered to transfer property to a purchaser on behalf of the debtor. Accordingly, it is the debtor who should sign the election. Authority of the receiver-manager to dispose of the debtor's property would not be sufficient authority to file income tax elections with respect to such dispositions.
30 November 1991 Round Table (4M0462), Q. 14.3 - Sale of Debts (C.T.O. September 1994)
In considering a situation where a corporation had two divisions, one of which did printing and the other which did photo typesetting, and all the assets of the first division were sold to another corporation which continued the operation in the same manner and under the same name, RC stated that "the fact that the corporation that has acquired the assets used in the printing division can be considered to be carrying on a separate business does not mean that the vendor corporation was operating its two divisions in the form of two separate businesses."
IT-188R Archived "Sale of Accounts Receivable" 22 May 1984
1. Section 22 is applicable upon election by a vendor and a purchaser, where the vendor (individual, partnership, corporation or estate) sells all or substantially all of the assets of a business that was carried on in Canada to the purchaser who proposes to continue the business. All or substantially all is considered to be at least 90% of the property used in carrying on the business. The business assets sold must include all the accounts receivable of the vendor that are outstanding at the time of the sale. "Accounts receivable" includes the debts arising from loans made in the ordinary course of the business if part of the business was the lending of money.
IT-206R "Separate Businesses"
General discussion of what constitutes a separate business.
Forms
T2022 "Election in Respect of the Sale of Debts Receivable"
If the vendor or the purchaser is a partnership, a designated partner must sign the election.