17 April 1998 External T.I. 9807945 - REPLACEMENT PROPERTY..

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 Replacement Property?

Position: Department's position discussed in paragraphs 9 to 20 of IT-259R2.

Reasons: Actual fact situation related to proposed transaction.

980794

XXXXXXXXXX Wm. P. Guglich

Attention: XXXXXXXXXX

April 17, 1998

Dear Sirs:

Re: Replacement Property

This is in reply to your letter of January 5, 1998, wherein you requested our views as to whether in the situation you described the property purchased would be considered a replacement property for purposes of sections 13 and 44 of the Income Tax Act ("the Act").

You described the following situation:

? A Canadian controlled private corporation (the "CCPC") conducts an active business through two locations. Location one is owned by a related corporation (the "Related Corporation") and is used by the CCPC for storage of raw materials and finished goods. Location two is leased by the Related Corporation from an arms length party and used by the CCPC for office space and manufacturing.

? The Related Corporation proposes to sell location one. The sale would result in a recapture of capital cost allowance and a capital gain under section 38 of the Act.

? Subsequent to the sale of location one location two will be purchased by the Related Corporation. The purchase price will exceed the proceeds of disposition on location one.

? The warehousing and storage facilities currently conducted through location one will be transferred to location two.

You ask whether the purchase of location two would met the definition of repalcement property.

In your letter you have outlined what appears to be an actual fact situation related to an actual proposed transaction and, therefore, we bring to your attention Information Circular 70-6R3, dated December 30, 1996, issued by Revenue Canada. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for a particular taxpayer with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can offer the following general comments.

Paragraphs 9 to 20 of Interpretation Bulletin IT-259R2 discuss replacement property. In particular comments in paragraphs 14 and 16 of IT-259R2 would appear to be relevant to the situation you described.

We also draw your attention to Bill C-28 which proposes to replace paragraph 44(5)(a) of the Act.

We trust our comments will be of assistance to you.

Yours truly,

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