24 November 1999 External T.I. 9928255 - 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 the addition to an existing manufacturing plant can qualify as a replacement property for a disposed manufacturing plant.

POSITION: Generally, it can qualify.

Reasons: We have previously stated that the cost of an addition to a building can qualify as a replacement property.

XXXXXXXXXX 992825
J. E. Grisé
Attention: XXXXXXXXXX

November 24, 1999

Dear Sirs:

Re: Replacement Property Rules

This is in reply to your letter of September 9, 1999, requesting a technical interpretation in connection with the application of the replacement property rules to a hypothetical situation.

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 and do not apply to any proposed transaction.

You describe a situation wherein ABC Corporation, a Canadian-controlled private corporation, has two manufacturing plants located in the Province of Ontario. Each of the plants is a "former business property" of ABC Corporation as that term is defined in subsection 248(1) of the Income Tax Act (the Act). ABC Corporation intends to dispose of one of the plants and to expand the other plant to ensure that it has the appropriate operating capacity to carry on the manufacturing activities that would have been carried on at the disposed plant. The floor space addition to the remaining plant would be approximately the same size as the floor space of the disposed plant. Furthermore, the two plants may operate simultaneously, but only for a brief transitional period.

Your basic question is whether an addition to a plant can qualify as a "particular capital property of a taxpayer" for purposes of subsection 44(5) of the Act and, thus, possibly qualify as a replacement property for a former business property of the taxpayer. Generally, an addition to an existing plant or building in the circumstances outlined, could qualify as a replacement property within the meaning of subsection 44(5) of the Act.

The statement in paragraph 15 of Interpretation Bulletin IT-259R3 that paragraph 44(5)(a) of the Act is not intended to encompass business expansions does not necessarily prevent an addition to a property from qualifying as a replacement property. In any event, it is always a question of fact as to whether it is reasonable to conclude that an acquired property is a replacement property of a former property.

We hope our comments are helpful.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

??

- 2 -