CRA treats part of a building as a “former business property”

Insurance proceeds received for the destruction of part of a building qualified as "compensation for property damaged" (para. (f) of the "proceeds of disposition" definition) rather than "compensation for property destroyed" (para. (c)), so that it was necessary for the destroyed property to qualify as a "former business property" in order for the replacement property rollover to potentially apply to the reinvestment of the insurance proceeds.  Although parts of the building were used as a rental property, the destroyed part had been used exclusively as a business property, so that such part qualified as a former business property.  In other words, the destroyed part of the property in effect was viewed as a separate property in the context of the former business property definition but not in the context of characterizing the proceeds.

A further hurdle was that the scale of the reconstruction work had to be such as to be able to conclude "that a new property is acquired by the taxpayer."

Neal Armstrong.  Summary of 4 March 2015 T.I. 2014-0550761E5 F under s. 44(1).