Tip 36 - Is a customer list eligible as a capital property expense?

Normally the purchase of a customer list is considered eligible capital property. Buying eligible capital property is not an expense in the year of purchase, but deductible over time, similar to capital cost allowance.

In a recent Tax Court of Canada case, a taxpayer successfully argued that his payment for access to a customer list was an expense and, as a result, 100% deductible in the year of purchase.

Details of the case include:

$image\BULLET.gif$ both the purchaser and seller were employees of the same company,

$image\BULLET.gif$ both individuals were financial planners,

$image\BULLET.gif$ one employee wished to leave the business and sell his marketing contacts,

$image\BULLET.gif$ the purchasing taxpayer claimed the payment as a marketing expense and deducted it in the year of payment.

In this case, the Tax Court agreed with the taxpayers deduction of the entire payment as a marketing expense for the following reasons:

$image\BULLET.gif$ the taxpayer was not purchasing a list of clients,

$image\BULLET.gif$ the list actually belonged to the employer,

$image\BULLET.gif$ the taxpayer was only paying for the chance to approach clients on the list with the assistance of the seller (the former financial planner).

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