The definition of property in the Act includes a right of any kind whatever. A property must be capital property to be considered eligible property for a rollover.
A taxable Canadian corporation (OwnerCo) holds a patent that has a number of potential uses. OwnerCo wishes to license the use of the patent for certain specified purposes to another taxable Canadian corporation (LicenseeCo) for a limited period in exchange for 40% of LicenseeCo's issued and outstanding common shares. OwnerCo will retain ownership of the patent and the right to exploit it for uses that will not compete with those for which LicenseeCo is licensed.
At issue is whether a right to use a patent qualifies as eligible property under section 85.
The CRA noted that, in some circumstances, a disposition of a right to use a patent could be on account of income, and therefore is not an eligible property for purposes of the rollover. However, the determination of whether a disposition is on account of income or capital is a question of fact that can only be determined after a thorough review of all the pertinent facts.
For more information, contact your KPMG adviser.