19 December 1990 Ruling 903423 F - Expropriation Proceeds

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.

Attention:  19(1)

December 19, 1990

Dear Sirs:

Re:  Taxation of Expropriation Proceeds, your file 24(1)

This is in reply to your letter of December 5, 1990 requesting a technical interpretation on the application of the replacement property rules in sections 13 and 44 of the Income Tax Act ("the Act") to the situation described below.

Facts

The facts you have presented are is follows:

24(1)

5.     24(1)

Your Opinion

24(1)

Our Comments

Since the situation described above involves actual taxpayers and completed transactions, we are unable to comment specifically on the issues set out in your letter. However, we offer the following general comments regarding the replacement property rules.

In the case of involuntary dispositions a disposition for tax purposes is deemed to have occurred only when the proceeds are receivable. The rules for determining when proceeds are receivable in such cases are found in subsection 44(2). Specifically, proceeds have become receivable at the earliest of: (a) the day the taxpayer has agreed to the full amount of the compensation; (b) the day the compensation is finally determined by a court or tribunal; (c) the day that is two years from the day of loss, destruction or taking where a claim or suit has not been taken before the courts; (d) the day a taxpayer dies or ceases to be a resident of Canada; and (e) the day immediately before the winding-up of a corporation, where the taxpayer is a corporation.

The Department considers that a partnership qualifies as a "taxpayer" for the purposes of sections 13 and 44 of the Act because of the operation of the general rule in paragraph 96(1)(a). As such subsection 44(2) can apply to deem a partnership to have disposed of a property on one of the dates described above provided it has full legal title to the property disposed of on the disposal date deemed by this subsection.

Subsection 13(4) of the Act contains provisions for the deferral of recapture realized on an involuntary disposition. As for, the possible application of this section to the situation you have described, it cannot be said that the partnership will acquire a replacement property when it did not previously use the property in question for a income producing purpose as required by subsection 13(4.1). That is although subsection 44(2) deems the taxpayer to have owned the property continuously until the disposal date determined by this subsection, the replacement property rules are applicable only to the taxpayer who has in fact previously used the former property. In the case you have presented  24(1)

We trust these comments will be of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch