Purchase Price Allocation for Rental Properties
Question
If a purchaser in a real estate transaction follows the new accounting guidelines requiring the allocation of a portion of the purchase price to be allocated to intangible assets based on the operating leases in place and the probability of the leases being renewed (EIC 140 and CICA Handbook 1581), will the CRA view the purchaser as having purchased and the vendor as having disposed of intangibles as well as land, building, and equipment as part of the total purchase price?
Response
When dealing with real estate transactions, the CRA will generally not view the purchaser as having purchased, nor the vendor as having sold, eligible capital property for tax purposes as a result of an accounting requirement (EIC 140 and CICA Handbook 1581) to allocate a portion of the purchase price to intangible assets.
The CRA will continue to review asset values reported from agreements of real estate purchases and sales and may apply revised values to both the purchaser and the seller if the reported values are unreasonable.