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 section 44 of the Act applies if all or substantially all of the proceeds of the sale of land and grain storage facilities is reinvested into building drying and elevator equipment and storage of roughly the same capacity as that sold.
Position: While a grain storage building may qualify as a former business property, it is our view that grain handling equipment would not since it is not real property. Also, a property will be considered to be a property 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, i.e., land replaced by land or a building replaced by a building.
Reasons: Based on our views set out in IT-259R3
XXXXXXXXXX J. Gibbons, CGA
2001-007089
March 26, 2001
Dear XXXXXXXXXX:
Your letter dated February 13, 2001, to the XXXXXXXXXX Tax Services Office, was forwarded to us for reply. In your letter, you requested our comments concerning the application of IT-259R3, "Exchanges of Property," and the appropriate capital cost allowance (CCA) class for certain assets.
As requested, we have considered your questions and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4. Thus, our comments on the following situation are of a general nature only.
- A family farm corporation (the "Corporation") is engaged in growing crops and operating a grain elevator and drying business.
- The Corporation owns several farms but will be selling one of them (the "former property") for $XXXXXXXXXX. The original cost of the former property was $XXXXXXXXXX.
- There are some grain storage facilities on the former property.
- The Corporation plans on reinvesting all or substantially all of the proceeds of the sale of the former property into building drying and elevator equipment and storage of roughly the same capacity that is now on the former property at its "home location."
You believe that the series of transactions qualifies under the rules in subsection 44(1) of the Income Tax Act (the "Act"), but wish our views on the matter. Also, you wish to know if the construction costs of the new grain elevator, with its drill, drying facilities attachment, are to be entered into class 8 for CCA purposes.
In the case of a voluntary disposition of property, the property disposed of must be a "former business property" to qualify under subsection 44(1) of the Act. Subsection 248(1) of the Act defines a "former business property" to mean capital property that was used by the taxpayer primarily for the purpose of gaining or producing income from a business and that was real property of the taxpayer or an interest of the taxpayer in real property, but does not include a rental property of the taxpayer. [Emphasis Added.] It is a question of fact whether a particular property is a former business property. However, while a grain storage building may qualify as a former business property, it is our view that grain handling equipment would not since it is not real property.
The rules in subsections 44(1) and 13(4) of the Act apply on a property-by-property basis. However, subsection 44(6) of the Act provides a special rule for a taxpayer who has disposed of a former business consisting in part of a building and in part of related land. In such circumstances, the taxpayer may elect, for purposes of subsection 44(1) of the Act, to treat any excess of the proceeds of disposition of one such part over the adjusted cost base of that part as proceeds of disposition of the other part. Accordingly, it may be possible for the Corporation to defer some or all of any capital gain on land against the cost of a new building.
In order for the provisions of subsection 44(1) of the Act to apply, the taxpayer must acquire a "replacement property". Paragraph 44(5)(a.1) of the Act provides that a particular property is a replacement property if it is acquired for the same or similar use as the use to which the taxpayer or a person related to the taxpayer put the former property. As indicated in paragraph 17 of IT-259R3, in interpreting the phrase "the same or similar use," the CCRA considers that, where the former property was used for the purpose of gaining or producing income from a property, a property will be considered to be a property 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, i.e., land replaced by land or a building replaced by a building.
With respect to your question about the appropriate CCA class for the construction cost of the new grain elevator with its drill, drying facilities, this determination requires a finding of fact. According to paragraph 8 of IT-472, "Capital cost allowance - Class 8 property," the CCRA considers grain handling equipment of line and terminal grain elevators, such as (i) driers and related heating equipment, (ii) scales, (iii) cleaning equipment, (iv) elevator legs, conveyors and spouting, (v) car dumpers and shovels, (vi) dust control systems, to be class 8 property. As for the grain storage facilities, it is our view that they would either fall into class 1 or class 6. See page 50 of the Farming Income Guide, T4003E Rev. 2000. This publication, as well as our interpretation bulletins, can be obtained on our website at www.ccra-adrc.gc.ca.
We trust that these comments will be of assistance.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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