6 October 1995 External T.I. 9515925 - EXCHANGE AND PARTITION OF LAND

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 there are tax consequences flowing from the exchange by two sisters of land of same size and value.

Position TAKEN:

Question of fact.

Reasons FOR POSITION TAKEN:

Unless the exchange constitutes a partition of property, there will be tax consequences.

			5-951592
XXXXXXXXXX		C. Chouinard

October 6, 1995

Dear XXXXXXXXXX:

Re: Exchange of Property

We are writing in response to your letter of June 7, 1995, wherein you requested our comments on the tax consequences of a transaction involving an exchange of land of the same size and value between you and your sister. You indicate that you and your sister inherited land in 1984.

Our Comments

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. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office.

The hypothetical facts you provided do not give us the information necessary to determine the tax consequences of the proposed transaction. For instance, it is not clear to us whether the land you propose to exchange is part of one or two parcels of land held jointly by you and your sister or whether it consists of two or more parcels of land held separately by each sister. The following comments are, therefore, of a general nature only, and are not binding on the Department.

If you and your sister own separate parcels of land, the exchange of one parcel for another would be considered a barter transaction which would give rise to a disposition and a possible capital gain. Since you and your sister are not considered to be dealing at arm's length, according to paragraph 69(1)(b) of the Income Tax Act (the "Act"), both you and your sister would be deemed to have received proceeds of disposition equal to the fair market value of your respective parcels of land.

If you and your sister jointly own two parcels of land and you propose to exchange with one another your undivided interests, such that you would each have a divided interest (i.e., separate ownership) in a separate parcel of land, the exchange would be considered to be a barter of interests and would give rise to a taxable disposition to which the rules of paragraph 69(1)(b) of the Act would apply.

On the other hand, if you and your sister jointly own a parcel of land which you propose to subdivide and partition, such that you and your sister would each acquire a divided interest (i.e., separate ownership) in separate parcels of land, subsection 248(21) of the Act may apply if the property is divided proportionately with respect to fair market value. Where subsection 248(21) of the Act applies, the new interest that each owner has pursuant to the partition is deemed to be a continuation of that owner's undivided interest in the property immediately before the partition and, therefore, there are no immediate tax consequences flowing from the partition.

We trust that these comments and the enclosed Interpretation Bulletins on barter and non-arm's length transactions will be of assistance.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Encl.