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.
940084
XXXXXXXXXX F.B. Fontaine
Attention: XXXXXXXXXX
August 25, 1994
Dear Sirs:
Re: Replacement Property Rules
This is in reply to your letter of January 7, 1994, concerning subsections 13(4) and 44(1) of the Act, as they relate to the replacement of partnership property that is being used for business purposes by another partnership. You asked whether such partnership property would be a "former business property" as defined in subsection 248(1) of the Act and, more particularly, you are concerned whether that property may be considered to have been used by "a person related to the taxpayer" as required by that definition. We apologize for the delay in responding.
The particular circumstances outlined in your letter appear to be actual transactions involving specific taxpayers. As mentioned in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, as amended by Special Release dated September 30, 1992, it is not the practice of this Department to provide opinions with respect to proposed transactions other than in the form of advance income tax rulings. On the other hand, the tax consequences of completed transactions are best determined by our District Offices in the course of tax audits. This Directorate is therefore not in a position to provide a definitive response to your inquiry. However, we are prepared to offer the following general comments which may be of some assistance.
Subsection 96(1) of the Act provides that the income of a taxpayer from a partnership shall be computed as if the partnership were a separate person. Consequently, in computing a partner's income from the disposition of a partnership property, the particular partnership would be considered to be a person and, accordingly, a taxpayer, since the term "taxpayer" is defined in subsection 248(1) of the Act to include any person, whether or not liable to pay tax.
As indicated in paragraph 22 of Interpretation Bulletin, IT-259R2, generally the replacement property rules described in subsections 13(4) and 44(1) of the Act will apply to partnerships. However, subsection 251(2) of the Act does not provide that partnerships may be considered to be "related persons" or "persons related to each other". Also, since in the particular scenario described above, the other partnership would not be involved in the computation of income, that partnership, therefore, would not be considered to be a person. Accordingly, it is our opinion that in the circumstances, that other partnership would not be "a person related to the taxpayer" in the context of the definition described above. There are no look-through provisions in the Act which would enable us to give you the desired results.
With regard to your comment as to whether a second story of a building can qualify as a replacement property, it is our view that the words "primarily" and "principally" in the definition of the term "former business property" require that the particular property as a whole must qualify as a former business property rather than a portion of the property, such as the addition of a story to an existing building. In any event, it is also our view that since the particular property is a rental property and it was not used by "a person related to the taxpayer", the particular property would not be a former business property. Subsections 13(4) and 44(1) require that in order to be a replacement property, the property must be acquired "as a replacement for the..former property". Accordingly, where the particular property is not a former property described in paragraphs 13(4)(a) or (b) and 44(1)(a) or (b) of the Act, no property would qualify as a replacement property for the particular property.
We thank you for bringing this matter to our attention which is being forwarded to the Department of Finance, through our Current Amendments and Regulations Division, for their consideration.
We regret that our reply cannot be more favourable in this instance.
Yours truly,
for Director
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Policy and Legislation Branch
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