Income Tax Act

Marginal note:Dispositions subject to warranty

• 42 (1) For the purposes of this Subdivision,

  • (a) an amount received or receivable by a person or partnership (referred to in this subsection as the “vendor”), as the case may be, as consideration for a warranty, covenant or other conditional or contingent obligation given or incurred by the vendor in respect of a property (referred to in this section as the “subject property”) disposed of by the vendor,

    • (i) if it is received or receivable on or before the specified date, is deemed to be received as consideration for the disposition by the vendor of the subject property (and not to be an amount received or receivable by the vendor as consideration for the obligation) and is to be included in computing the vendor’s proceeds of disposition of the subject property for the taxation year or fiscal period in which the disposition occurred, and

    • (ii) in any other case, is deemed to be a capital gain of the vendor from the disposition of a property by the vendor that occurs at the earlier of the time when the amount is received or becomes receivable; and

  • (b) an outlay or expense paid or payable by the vendor under a warranty, covenant or other conditional or contingent obligation given or incurred by the vendor in respect of the subject property disposed of by the vendor,

    • (i) if it is paid or payable on or before the specified date, is deemed to reduce the consideration for the disposition by the vendor of the subject property (and not to be an outlay or expense paid or payable by the vendor under the obligation) and is to be deducted in computing the vendor’s proceeds of disposition of the subject property for the taxation year or fiscal period in which the disposition occurred, and

    • (ii) in any other case, is deemed to be a capital loss of the vendor from the disposition of a property by the vendor that occurs at the earlier of the time when the outlay or expense is paid or becomes payable.

• Meaning of specified date

  (2) In subsection (1), specified date means,

  • (a) if the vendor is a partnership, the last day of the vendor’s fiscal period in which the vendor disposed of the subject property; and

  • (b) in any other case, the vendor’s filing-due date for the vendor’s taxation year in which the vendor disposed of the subject property.