Synthetic Disposition Arrangements
Appreciation on many properties, including capital properties, is recognized for tax purposes on a realization basis upon disposition of the property. If a taxpayer chooses to enter into arrangements to hedge its risk of loss or opportunity for gain in respect of the appreciated property without disposing of the property, generally speaking, no immediate disposition of the property results and the recognition for tax purposes of the appreciation on the property will continue to be deferred until disposition.
Budget 2013 proposes to change this treatment where a taxpayer enters into an arrangement that has the effect of eliminating all or substantially all the taxpayer’s risk of loss and opportunity for gain or profit in respect of the property (a synthetic disposition arrangement) for a period of more than one year. Budget 2013 proposes to deem such arrangements to result in a disposition and reacquisition of the property at fair market
