15 April 1998 External T.I. 9729135 - S. 44 - senior's apt. / private hosp.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether a seniors’ housing apartment which replaces a private care hospital qualifies as a “replacement property” for purpose of section 44.

Position:

Likely not.

Reasons:

Question of fact. However, the operation of a seniors’ housing apartment would not generally be considered a similar business to a private care hospital.

J. Gibbons
XXXXXXXXXX 5-972913

Attention: XXXXXXXXXX

April 15, 1998

Dear XXXXXXXXXX:

We are replying to your letter of October 30, 1997, in which you inquire whether the sale of a private care hospital can be “rolled over against” the cost of building a seniors’ housing apartment. We have assumed that you are inquiring whether the replacement property rules in sections 44 and 13 of the Income Tax Act (the “Act”), by which all or part of, respectively, a taxable capital gain and recapture of capital cost allowance can be deferred by acquiring a “replacement property,” would apply to the situation described in your letter.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only.

Section 44 of the Act applies to the voluntary or involuntary disposition of property which is either a former property that was involuntarily disposed of or was a “former business property.” We understand from your letter that the particular property was disposed of voluntarily. Accordingly, we will restrict our comments to dispositions of “former business property.”

The term “former business property” is defined in subsection 248(1) of the Act as, generally, a capital property of the taxpayer that is real property of the taxpayer (other than “rental property”) used by the taxpayer or a related person primarily for the purpose of gaining or producing income from a business. Rental property is defined for this purpose as real property owned by the taxpayer and used in the particular year principally for the purpose of gaining or producing gross revenue that is rent. Accordingly, even though a property is used to earn business income, it would be disqualified as a former business property if it was used in the taxation year in which it was disposed of principally for the purpose of producing rent. For additional comments on the meaning of former business property, we refer you to the enclosed Interpretation Bulletin IT-491, (“Former Business Property” ).

Also, the new property must qualify as a “replacement property” within the meaning of subsections 44(5) and 13(4.1) of the Act. These provisions provide, inter alia, that the replacement property must be acquired by the taxpayer for the same or similar use as the use to which the taxpayer or a related person put the former property. Whether a particular property has been acquired for the same or similar use, as required by paragraph 44(5)(a) of the Act, is a question of fact. As indicated in paragraph 16 of the enclosed IT-259R2 (“Exchanges of property”), property will be considered to be acquired for the same or similar use if it is acquired to gain or produce income from the same or similar business and if it generally bears the same physical description as the former property.

In addition, where the former property was used by the taxpayer or a related person for the purpose of earning income from a business, the replacement property must be acquired by the taxpayer for the purpose of earning income from that or a similar business or for use by a related person for such a purpose. As stated in paragraph 17 of IT-259R2, it is the intention of the Department to interpret the term “similar business” as used in the phrase “the same or a similar business” or “from that or a similar business” in a reasonably broad manner. However, this position only applies where two businesses belong to the same service industry. Although we cannot determine conclusively from the limited information provided in your letter whether the operation of a senior’s housing apartment would be considered to be a similar business to the operation of private care hospital, it is our view that generally it would not.

We trust that these comments will be of assistance.

Yours truly,

P. Spice
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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