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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether a building situated on leased land can be considered a "former business property" under the replacement property rules.
Position: Yes - the building and leasehold interest in land can be considered a former business property.
Reasons: Definition of former business property includes an interest in real property.
January 24, 2003
Re: Technical Interpretation Request: Former Business Property
We are writing in response to your letter of November 12, 2002, wherein you request our opinion on the above-noted issue. We also acknowledge additional information submitted in your letters of December 24, 2002 and January 16, 2003.
Further to our telephone conversation (XXXXXXXXXX/Hewlett) and your correspondence, your questions concern the application of the replacement property rules in sections 13 and 44 of the Income Tax Act (the Act), in a situation in which a corporation disposes of a building and leasehold interest in land, and replaces it with a new building and land that the corporation will purchase. Your main concern is whether a building and leasehold interest in land can be considered a "former business property" for purposes of the replacement property rules. You also inquire whether the taxpayer could elect under subsection 44(6) of the Act to reallocate a portion of the proceeds of disposition of the former building towards the leasehold interest in the land.
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 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following comments.
In our view, a building and leasehold interest in land may be considered a "former business property" as defined in subsection 248(1) of the Act, since it would be property "that was real property of the taxpayer or an interest of the taxpayer in real property". Consequently, the fact that a building is located on leased land, would not, in and by itself, prevent a taxpayer from deferring the gain or recapture of capital cost allowance on the property, nor would it preclude the taxpayer from electing under subsection 44(6) of Act.
You should also note that all other requirements under the replacement property rules must be met and depending on the circumstances, restrictions could apply to the amount of gain or recapture deferred. Interpretation Bulletin IT-265R3, Exchanges of Property, contains detailed information on the replacement property rules. As discussed, since this is a proposed transaction, we would be pleased to address your specific concerns, should you wish to submit an advance income tax ruling request.
We trust our comments will be of assistance to you.
John Oulton, CA
Business and Individual Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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