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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Replacement Property
This is in reply to your facsimile of January 15, 1993 in which you requested our opinion on the application of the replacement property rules in the Income Tax Act (the "Act"). You presented a hypothetical situation for our consideration of subsections 13(4), 44(1) and 44(5) of the Act.
Our Comments:
The situation which you presented appears to be a real situation involving specific taxpayers who contemplate undertaking specific transactions. Although the Department provides general technical interpretations regarding the provisions of the Act, confirmation as to the income tax consequences of proposed transactions can only be given in the context of an advance income tax ruling and only with respect to the taxpayers identified in such ruling. However, we are prepared to provide the following comments of a general nature.
There are two issues of a general nature which appear to be of primary concern to you.
The first issue is whether property leased by an owner to a person with whom the owner is related can qualify as a "former business property". "Former business property" is a term which is defined in subsection 248(1) of the Act, and is described in part as "capital property of the taxpayer that was used by the taxpayer or a person related to the taxpayer primarily for the purpose of gaining or producing income from a business." Thus, capital property (which is real property that is not excluded in the definition) which is leased to a related person and used by the related person primarily to produce income from a business may qualify as a former business property. For example, a building leased by an Opco from its Holdco could qualify.
The second issue is what constitutes a "similar business", a term which is used in the description of "replacement property" in paragraph 44(5)(b) of the Act. The concept of "similar business" is described in paragraphs 17 through 20 of Interpretation Bulletin 259R2. It is stated in paragraph 17 that, in considering the term "similar business" as used in paragraph 44(5)(b) of the Act, two businesses will be considered to be "similar" if they both fall within the same category, such as merchandising retailing and wholesaling. For example, a wholesale grocery operation and a wholesale vegetable operation would be in the same category.
We refer you to IT-259R2 for other comments dealing with exchanges of property.
These comments represent an expression of opinion and, as stated in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.
We trust that our comments are of assistance.
Yours truly,
R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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