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.
923733
XXXXXXXXXX R. Albert
957-2140
Attention: XXXXXXXXXX
April 30, 1993
Dear Sirs:
Re: Subsection 44(5)
We are writing in reply to your letter of December 11, 1992 wherein you requested our comments on the application of subsection 44(5) based on different transactions possible in a hypothetical situation.
The hypothetical situation involves partnership owned property to be sold, the "former property", that is used exclusively in the business of farming. The partnership is carried on by two brothers on a 50-50 basis. You have described different possible arrangements for the acquisition of a replacement property and you are concerned with whether these arrangements would satisfy the requirements of subsection 44(5). The arrangements are such that the replacement property is acquired by parties related to the partnership owing the original property but not by the partnership itself.
Our Comments
The preamble in subsection 44(5) states that "a particular capital property of a taxpayer is a replacement property for a former property of the taxpayer, if..." (emphasis added) and its obvious that the same taxpayer must own the former property and purchase the replacement property. Paragraph 22 of IT-259R2 , Exchanges of Property, reflects this position with respect to the application of subsections 44(1), 14(6) and 13(4) to partnerships as follows: "These provisions would not apply however to a situation where the partnership disposes of a former business property and a partner (or partners) acquires the replacement property because, pursuant to paragraph 96(1)(a), the partnership is considered to be a person separate from its partners for purposes of income and loss computations under subdivision j."
You have referred to the Bill C-18 amendments made to paragraphs (a) and (b) of subsection 44(5) in your request. These amendments related to the use made of the former property or replacement property in recognition that capital properties used in a business may be held by a separate entity. The use was extended from use by the taxpayer to use by the taxpayer "or a person related to the taxpayer". These amendments do not change the above-noted requirements for identical ownership of the former property and the replacement property. We trust that these comments will be of assistance.
Yours truly,
E. Wheeler for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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