9 June 1995 External T.I. 9432545 - 5 ACRES FOR 150 - REPLACEMENT PROPERTY?

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.

RULINGS DIRECTORATE

CORRESPONDENCE SUMMARY

Principal Issues:

Whether excess property acquired in replacement of a former business property will qualify as replacement property.

Position TAKEN:

Excess property will probably not qualify.

Reasons FOR POSITION TAKEN:

	There must be a specific correlation between the 	disposition of the former business property and the 	acquisition of the replacement property.  Moreover, the 	Department has taken the position that the provisions of 	section 44 are not intended to encompass business 	expansions.

		943254
XXXXXXXXXX	G. Donell

Attention: XXXXXXXXXX
June 9, 1995

Dear Sir:

Re: Replacement property - Subsection 44(1) & (5)

This is in reply to your letter of December 7, 1994 in which you have requested our opinion on the application of subsections 44(1) and (5) of the Income Tax Act (the "Act") in a particular situation. We apologize for the delay of our response.

In the situation you describe, a farm property ("previous property") consisting of five (5) acres of land situated in Canada is owned by a Canadian resident individual. That individual has used the previous property in a farming business and wishes to voluntarily dispose of the previous property and defer any capital gains through the acquisition of one hundred and fifty acres of farm land ("new property") within the time limits required by subsection 44(1) of the Act. The new property which will also be used by that individual in a farming business is also situated within Canada. You have asked us whether the new property will qualify as a replacement property for the previous property.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. The following comments are therefore, of a general nature only, and are not binding on the Department.

Generally, when analysing the replacement property rules, the Department does not accept, as a replacement property, any excess property acquired as a replacement for the former property. Furthermore, as stated in paragraph 10 of IT-259R2, there must be a specific correlation between the disposition of the former business property and the acquisition of the replacement property. Accordingly, the words "replacement property" contemplate a direct substitution, such that there is a causal relationship between the disposition of the former property and the acquisition of the replacement property. Moreover, the Department has taken the position that the provisions of section 44 are not intended to encompass business expansions, which appear, in part, to be the nature of the proposed acquisitions.

We trust that the above comments are of assistance to you.

Yours truly,

Section Chief
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch