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.
Re: Replacement Property Rules:
This is in reply to your letter of August 8, 1991 requesting information regarding the deferral of capital gains on the disposition of a former business property and the acquisition of a replacement property.
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Our Comments
The Department's position on exchanges of property, former business property and replacement properties are basically contained in Interpretation Bulletin IT-259R2, a copy of which is attached for your information. Additional details relevant to "former business properties" are contained in IT-491, a copy of which is also attached.
Where there has been a disposition of a former business property, subsection 44(1) of the Income Tax Act (the "Act") permits a taxpayer to defer recognition of a capital gain under certain circumstances. A paramount "circumstance" is that the former property qualify as a "former business property" as defined in the Act. The former property must have been real property used primarily for the purpose of gaining or producing income from a business but it does not include rental property. Primarily refers to the use made of the property during the taxation year in which the disposition was made. This means that the principal use of the property was to earn qualified business income but not rent during that period. Thus, even though a property was used to earn qualified business income it could be disqualified as a former business property if it was used in the taxation year in which it was disposed of principally for the purpose of producing rent. However, where property is used in part to earn gross revenue that is rental income and in part to earn income from a business other than rental income, the principal use of the property is determined on the basis of the facts in the particular case. Paragraph 4 of IT-491 sets out some factors that may be taken into consideration when determining the main or chief use of a property. Accordingly, you will first have to demonstrate that the rental "use" of your premises during the taxation year of disposal was minor in comparison to the business "use" of the premises. From the information provided it appears the property was used primarily for business other than rent.
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The foregoing comments are an expression of our opinion only and are not to be construed as an advance income tax ruling. Determinations in these matters are normally made by personnel in your local District Taxation Office. We suggest you discuss your situation and the contents of our letter with them.
We trust our comment will prove helpful.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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