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 multiple properties considered "a property"?
Position:
NO.
Reasons:
Subdivision of lots established in contemplation of a sale.
962633
XXXXXXXXXX Wm. P. Guglich
Attention: XXXXXXXXXX
August 11, 1997
Dear Sirs:
Re: Subsections 248(20) and 248(21) of the Income Tax Act (the "Act")
This is in reply to your letter of August 1, 1996 concerning the application of subsections 248(20) and 248(21) of the Act in the following hypothetical situation.
Three adjacent parcels of land are acquired at the same time by two arms length persons, each holding an undivided interest in all three parcels. The properties will be subdivided into 18 individual lots such that each of the co-owners would have an undivided interest in each lot. All the lots would be put up for sale. Prior to beginning with the subdivision, it would be established by way of a written agreement that any lots remaining unsold after the third anniversary would be allocated equally amongst the two co-owners.
Assuming ten of the lots are sold within the three year period, the two co-owners would have an undivided interest in the remaining eight lots, some of which are adjacent and some which are not. Assuming that the FMV of all the lots is equal, the ownership interests in the eight lots would be exchanged and each co-owner would end up with a 100% interest in four lots.
ISSUE # 1:
1.Would the adjacent lots be considered a single property for purposes of subsections 248(20) and 248(21) of the Act or would each lot be considered a separate property?
We interpret the term "a property" in subsections 248(20) and 248(21) of the Act to mean one or a single property. Paragraph 248(21)(c) of the Act provides an exception to the one or single property requirement in subsection 248(21). Therefore, multiple lots could be regarded as one property for purposes of subsection 248(21) only in those situations where the conditions described in paragraph 248(21)(c) are met.
In our view, the subdivision of the land into 18 individual lots could not, for purposes of paragraph 248(21)(c) of the Act, be considered to be in the course of or in contemplation of a partition. The subdivision of the land appears to be in contemplation of the sale of the lots and partition being a fall-back option if any of the lots are not sold after three years. Consequently, paragraph 248(21)(c) of the Act would not apply and the 18 lots would not be regarded for purposes of subsection 248(21) as one property ("a property"). The eighteen lots would be regarded as 18 separate properties for purposes of subsections 248(21) and 248(20) of the Act.
ISSUE # 2:
2.Would paragraph 248(21)(c) of the Act apply to the initial subdivision such that the eight remaining lots would be regarded as one property?
In response to the particular question, paragraph 248(21)(c) would not, as stated above, apply to the initial subdivision of the land into 18 lots.
As for the exchange of ownership interests in the eight remaining lots (so that each co-owner has a 100% interest in four lots): this would not be considered a partition of "a property". Consequently, neither subsection 248(21) nor 248(20) would apply to the exchange of ownership interests in the eight remaining lots as both of these subsections require a partition of "a property".
We trust our comments will be of assistance to you.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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