30 November 1996 Ruling 9712893 - REPLACEMENT PROPERTY - BARTER

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 replacement property rules can apply to a Barter Transaction involving many parcels of land.

Position:

Yes, provided each former business property is specifically matched with its replacement property.

Reasons:

The replacement property rules in subsection 44(1) apply to "former business property" on a property by property basis.

XXXXXXXXXX							971289
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

This is in response to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayers. We also acknowledge your subsequent correspondence dated XXXXXXXXXX, and our numerous telephone conversations (XXXXXXXXXX) which further clarified the facts and proposed transactions described below.

We understand that to the best of your knowledge and that of the taxpayers involved:

(i)none of the issues involved in the requested rulings are being considered by a tax services office or a taxation centre in connection with a tax return already filed, and

(ii)none of the issues involved in the requested rulings are the subject of any notice of objection or is under appeal.

Our understanding of the facts is as follows:

FACTS

1. XXXXXXXXXX

2. XXXXXXXXXX

3.XXXXXXXXXX ("X Ltd.") owns all of the issued and outstanding shares of B Ltd. B Ltd. is a corporation that was formed after the recent amalgamation between XXXXXXXXXX ("O Ltd.") XXXXXXXXXX ("S Ltd.") and other corporations.

XXXXXXXXXX

4. XXXXXXXXXX

X Ltd., O Ltd., S Ltd. and C Ltd. are the parties to a Sale and Exchange Agreement dated XXXXXXXXXX, in respect of the exchange of the properties referred to in paragraph 5 below.

PROPOSED TRANSACTIONS

5.C Ltd. will acquire the XXXXXXXXXX Property from B Ltd. As consideration for the XXXXXXXXXX Property, C Ltd. will dispose of its XXXXXXXXXX properties in

XXXXXXXXXX

The properties disposed of by C Ltd. will include buildings in Class 3 of Schedule II of the Income Tax Regulations (the "Regulations") and the XXXXXXXXXX property received by C Ltd. will include buildings in Class 1 of Schedule II of the Regulations. The properties will also include land used in the operation of the XXXXXXXXXX.

7.For the purpose of the replacement property rules,

(i)the land used in the operation of XXXXXXXXXX will be replaced with the land used in the operation of XXXXXXXXXX;

(ii)the land used in the operation of XXXXXXXXXX will be replaced with the land used in the operation of XXXXXXXXXX;

(iii)the land used in the operation of XXXXXXXXXX will be replaced with the land used the operation of XXXXXXXXXX; and

(iv)the land used in the operation of XXXXXXXXXX will be replaced with the land used in the operation of XXXXXXXXXX.

8.In addition, C Ltd. will dispose of XXXXXXXXXX common shares, XXXXXXXXXX preferred shares and XXXXXXXXXX debentures of XXXXXXXXXX.

Reasons FOR PROPOSED TRANSACTIONS

The proposed transactions will allow C Ltd. to relocate its XXXXXXXXXX business activities

XXXXXXXXXX

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:

A.We confirm that B Ltd.'s proceeds of disposition of each property disposed of will be its respective fair market value and that the cost otherwise determined of each property acquired by B Ltd. will be its respective fair market value at the time of disposition.

B.We confirm that the land used in the operation of XXXXXXXXXX which will be acquired by C Ltd. will be replacement property within the meaning of subsection 44(5) of the Income Tax Act (the "Act").

C.Provided that C Ltd. makes an election under subsection 44(1) of the Act, we confirm that the gain from the disposition of the land used in the operation of XXXXXXXXXX will be determined in accordance with the provisions of paragraph 44(1)(e) and that the cost of each replacement property will be determined in accordance with the provisions of paragraph 44(1)(f) of the Act.

D.Provided that C Ltd. makes an election under subsection 1103(2d) of the Regulations, we confirm that C Ltd.'s buildings in class 3 of Schedule II will be considered to have been transferred to class 1 of Schedule II before the disposition of the buildings.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3, dated December 31, 1997, and are binding provided that the proposed transactions are completed by XXXXXXXXXX.

These rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act.

OPINION

We confirm that the proposed amendment to subsection 44(5), which clarifies that a particular property will not be considered to be a replacement property unless it is reasonable to conclude that the property was acquired by the taxpayer to replace the former property, will not affect the rulings given above.

COMMENTS

Nothing in this ruling should be construed as implying that Revenue Canada has agreed to or reviewed the determination of the fair market value of any property referred to herein.

Yours truly,

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch