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: Paragraph 44(1)(a) and Subsection 44(5)
This is in reply to your letter of July 27, 1993, seeking clarification of the "use test" required by paragraph 44(5)(a) of the Income Tax Act (the "Act"), specifically as it applies to vacant land, in view of the comment in paragraph 15 of Interpretation Bulletin IT-259R2 which indicates that a property that has not been used by a taxpayer to earn income therefrom cannot qualify as property subject to subsection 44(1) of the Act.
Paragraph 44(5)(a) of the Act states that "a particular capital property of a taxpayer is a replacement property for a former property of the taxpayer, if
(a) it was acquired by the taxpayer for the same or a similar use as the use to which the taxpayer or a person related to the taxpayer put the former property".
The emphasis is on the "use" to be made of the acquired property and that it be the same or a similar "use" as the "use" to which the taxpayer or a related person to the taxpayer put the former property. In our view, there is nothing contained in this provision to require that the "former property" must have produced income in the past or that the replacement property has to produce income in the future. Hence, in determining whether vacant land meets the "use test" required by paragraph 44(5)(a) of the Act, the use made of the former property is not restricted solely to a use that produced income from that property. It is a question of fact whether use was made of the former property and whether the newly acquired property is to be put to the same or similar use. However, we reiterate the comment made in our July 7, 1993 letter to you that vacant land would generally be excluded from the definition of replacement property as non-use does not constitute use.
We agree that the general comment contained in paragraph 15 of IT-259R2 is not supported by the relevant legislation and is incorrect in that it would, inter alia, preclude a rollover under paragraph 44(1)(a) of the Act to defer the capital gain on an involuntary disposition of a "personal use property" such as a cottage or other recreational property owned by a taxpayer solely for his personal use and enjoyment. This matter will be brought to the attention of our Publications Division.
We trust that you will find our comments helpful.
Yours truly,
R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
c.c. Publications Division
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