28 October 1997 External T.I. 9717535 - REPLACEMENT PROPERTY - EXCESS 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.

Principal Issues:

Whether the fact that a new property is significantly larger than the property it replaces would affect the status of the property as a replacement property for purposes of section 44 of the Act.

Position:

Yes.

Reasons:

The Department does not accept as a replacement property, any excess property acquired as a replacement for the former property.

J. Gibbons
XXXXXXXXXX 5-971753

Attention: XXXXXXXXXX

October 28, 1997

Dear Sir:

We are replying to your letter of June 24, 1997, requesting our comments regarding the term “replacement property” in section 44 of the Income Tax Act (the “Act”). More specifically, you inquire whether the fact that a new property is significantly larger than the property it replaces would affect the status of the new property as a replacement property. You describe a situation where 200 acres of farm land and related buildings would be replaced with 3,000 acres of new farm land.

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 70-6R3. The following comments are, therefore, of a general nature only.

In order for the provisions of subsection 44(1) of the Act to apply, a taxpayer must dispose of, and acquire as a replacement, a capital property. The Department considers that a property is a replacement for a former property where it can reasonably be considered to have been substituted for that former property. As it is a question of fact whether a particular property is a replacement for a former property, the Department has not established specific guidelines in this respect.

However, 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. Moreover, the Department takes the position that the provisions of section 44 of the Act are not intended to encompass business expansions, which appear, in part, to be the nature of the proposed acquisition. Accordingly, in our view, only a small part of the new farm (totaling approximately 3,000 acres in land) could be considered to be a replacement for the farm (totaling 200 acres in land) which is presently owned by the taxpayer.

We trust these comments will be of assistance.

Yours truly,

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