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 replacing a long-term lease for land (with a provincial government) for land for the purposes of gaining or producing income from farming qualifies for the replacement property rules in section 44.
Position: Question of fact. However, it is our general view that the replacement property rules in section 44 may apply when land is acquired to replace a leasehold interest in land for the purpose of carrying out the same or similar business.
Reasons: This is based on our understanding that a leasehold interest in land is an "interest ... in real property" pursuant to the definition of "former business property" in subsection 248(1) of the Act.
XXXXXXXXXX J. Gibbons
2000-001280
Attention: XXXXXXXXXX
March 29, 2000
Dear XXXXXXXXXX:
We are replying to your letter of February 28, 2000, in which you requested our interpretation of the replacement property rules in section 44 of the Income Tax Act. More specifically, you wish to know if this provision will apply to a particular proposed transaction, which you described in your letter.
Since your situation seems to relate to an actual proposed transaction, we refer you to our policy in this regard, which is set out in Information Circular 70-6R3. This circular explains that it is our policy not to provide written confirmation of the tax implications inherent in particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in IC 70-6R3. Nonetheless, we have provided general some comments on the following hypothetical facts:
- A taxpayer (the "taxpayer") has a long-term lease with a provincial government for the use of land for the purposes of gaining or producing income from farming.
- The taxpayer will sell the leasehold interest in the land to a non-arm's length person.
- The taxpayer will purchase a different parcel of land to replace the leasehold interest in the land.
- The taxpayer will use the proceeds to acquire another parcel of new land to carry on a business which would be the same as or similar to the business carried on by the taxpayer using the leased land.
In regard to the foregoing scenario, your main concern is whether or not a) paragraph 44(5)(a) would preclude the use of section 44, and b) the fact that the first property was leased is relevant to the determination of "use."
Our views
A determination of whether or not the condition in paragraph 44(5)(a) is met, i.e., whether it is reasonable to conclude that a property was acquired by a taxpayer to replace a former property, and whether the use of property is the same or similar to the use to which a former property was put [as required by paragraph 44(5)(a.1)], can only be made after reviewing the particular facts of a specific situation. However, it is our general view that the replacement property rules in section 44 may apply when land is acquired to replace a leasehold interest in land for the purpose of carrying out the same or similar business. This is based on our understanding that a leasehold interest in land is an "interest ... in real property" pursuant to the definition of "former business property" in subsection 248(1) of the Act.
We trust that our comments will be of assistance. However, they should not be construed as representing our views with respect to a particular proposed transaction.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
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