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.
DATE: August 19, 1987
To- Toronto District Office
FROM- Specialty Rulings Directorate M.D. Praulins (613)957-2103
ATTENTION B.B. Brown Large File Case Audit
RE: Subsection 248(1) Definition of "Former Business Property"
This is in reply to your memorandum dated May 4, 1987, in which you seek our further opinion as to whether residential property owned by XXXX would qualify as "former business property" as defined in subsection 248(1) of the Income Tax Act (the "Act").
We had previously indicated in earlier correspondence to the Toronto District Office that it was our view that such property would qualify as a "former business property" of the XXXX provided that the employees were not charged any rent or any other amount for the use of the residence. Your main concern appears to be whether either a cash reimbursement to the XXXX of some or all all of its expenses incurred in connection with the property, or a rental payment of any amount whatever by the employee, would disqualify a residential property from being a "former business property", i.e. could these transactions cause a residence to be considered as used principally for the purpose of gaining or producing "gross revenue that is rent"?
A second issue arises as a result of the XXXX intention to apply the provisions of subsection 44(1) to defer capital gain realized on the disposition of a residential property where it is replaced by a property which is a branch office.
Our Comments XXXX
All terms used herein that are defined in the Income Tax Act (the "Act") have the meaning given in such definition unless otherwise indicated, and all references herein to sections or components thereof are references to the Act unless otherwise indicated.
Residential Property as "Former Business Property"
XXXX For this reason, as stated previously, we are of the view that XXXX meet the definition of "former business property" in subsection 248(1) of the Act, and that such properties may be eligible for rollover treatment on the basis that the residences would have been used in a relevant taxation year principally for the purpose of gaining or producing gross revenue that is rent.
Residential Property Replaced by Branch Office
In our view, a branch office building property would not be considered a replacement property for a residential property used to provide living accommodation for an employee and family. XXXX contrary to the requirement of paragraph 44(5)(a) of the Act.
The XXXX may present as an argument in favour of its position the following sentence in paragraph 16, Interpretation Bulletin IT259R2 entitled Exchanges of Property:
Where the former property was used for the purpose of gaining or producing income from a business, the Department will normally consider the replacement property to be acquired for the "same or similar use" if it is a property that is used for the purpose of gaining or producing income in the same or similar business, although such property generally will bear the same physical description as the former property.
While the XXXX business is presumably the "same" in both instances, the Department does qualify its position with the word "normally". Furthermore, the Department also states in that paragraph that a property will not normally be a replacement property acquired for the same or a similar use when it is acquired to replace a former property and at the same time provide substantial other uses. The "use" by XXXX
We trust that our telephone call of June 25, 1987 to Mr. C. Demetro of your office provided you with sufficient information to contribute to the finalization of the audit in progress.
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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