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.
Principal Issues:
Whether the acquisition of new property qualifies as a replacement property where the new property is in a different geographical location.
Position TAKEN:
Must meet definition of replacement property in 14(7) and 44(5) of the Act. There must be a correlation between the disposition of a "former business property" and the acquisition of a "replacement property". Geographical location not a critical factor.
Reasons FOR POSITION TAKEN:
14(6) and 44(1) of the Act permit a business to relocate without adverse tax consequences.
5-942574
XXXXXXXXXX M. Shea-DesRosiers
Attention: XXXXXXXXXX
December 5, 1994
Re: Similar Business and Replacement Property
Subsections 44(5) and 14(7) of the Income tax Act (the "Act")
This is in reply to your letter of September 27, 1994 wherein you requested our opinion on the application of the replacement property rules as found in sections 44 and 14 of the Act.
The situation which you described appears to relate to actual proposed transactions involving identifiable taxpayers. 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. However, we are prepared to provide the following general comments which we trust will be of assistance to you.
The question of whether a taxpayer carries one or more than one business and the question of whether a property can qualify as a replacement property can only be resolved after all relevant facts have been examined. Interpretation Bulletins IT-206R and IT-259R2 may include helpful information to resolve your problems.
Among others, subsections 14(6) and 44(1) of the Act were enacted to permit a business to relocate without adverse tax consequences. These provisions were not intended to encompass business expansions or consolidations. There must be a correlation between the disposition of a "former business property" and the acquisition of a "replacement property" . In our view, replacement as used in the phrase "as a replacement for a former property" contemplates a direct substitution , i.e., there should be a causal relationship between the disposition of one property (or properties) and the acquisition of the replacement property(ies). It is our view that geographical location within Canada would not necessarily be a critical factor in establishing whether or not new properties would meet the definition of replacement property in subsections 14(7) and 44(5) of the Act.
The above comments represent an expression of opinion only and, as stated in Information Circular 70-6R2 dated September 18, 1990, are not binding on the Department. We trust however that they will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1994
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1994