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:
Two related taxpayers jointly own several timberland properties that are used to supply logs to a related company. The taxpayers wish to exchange interests in properties so that they each have 100% interest in some of the properties. After the exchange, the taxpayers will continue to provide logs to the related company. Can section 44 apply to the transaction?
Position TAKEN:
Question of fact.
Reasons:
Insufficient information. Definition of former business property includes "an interest of the taxpayer in real property". An interest in real property is also a capital property for purposes of definition of replacement property in subsection 44(5).
XXXXXXXXXX 2001-008253
T. Young, CA
September 25, 2001
Dear XXXXXXXXXX:
Re: Replacement Property
This is in reply to your letter of April 30, 2001, requesting our views concerning the application of section 44 of the Income Tax Act (the "Act") to a proposed transaction. We also acknowledge your follow-up letter of September 17, 2001.
In your letter, you describe a scenario where the taxpayers, two brothers, jointly own XXXXXXXXXX timberland properties that are used to supply logs to a related company. The taxpayers wish to exchange interests in the properties so that one will have a 100% interest in XXXXXXXXXX properties with the other owning the remaining XXXXXXXXXX. After the exchange, the taxpayers will continue to provide logs to the related company.
You have enquired if the property disposed of and acquired by each taxpayer would constitute "former business property" as defined in subsection 248(1) of the Act and "replacement property" as defined in subsection 44(5) of the Act respectively.
Written confirmation of the tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. However, we are prepared to provide the following general comments, which may be of assistance to you.
A determination of whether or not the replacement property rules in section 44 apply to a specific transaction or series of transactions can only be made after reviewing the particular facts of the situation. According to the definition of former business property in subsection 248(1), "'former business property' of a taxpayer means a capital property of the taxpayer that was used by the taxpayer or a person related to 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 ...". Likewise, an interest in real property can qualify as replacement property for purposes of subsection 44(5) providing the other requirements of the subsection are met.
Whether or not section 44 would apply to the properties you describe would qualify as former business properties and replacement properties in the context of the proposed transactions would require a thorough review of all the available facts, which we do not have. With this in mind we are unable to comment further on this matter.
Should your client wish to proceed with a request for an advance income tax ruling, we would be pleased to consider the matter at that time.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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