11 December 1989 Income Tax Severed Letter ACC9222 - Request for a Technical Interpretation About

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.

24(1)

Montreal, December 11, 1989

The Director General Corporate Rulings directorate Revenue Canada, Taxation 875, Heron Road Ottawa, Ontario K1A 0L8

Dear Sir:

Subject: Request for a technical interpretation concerning
section 44 and subsection 13(4), 13(4.1), paragraphs 13(21)(d)
and 248(1) of the Income Tax Act (the Act) as amended by Bill
C-139 (sc. 1988, C.55)
                      24(1)24(1)
Revenue Canada Taxation      December 11, 1989        Page 2
                               24(1)24(1)

Revenue Canada Taxation      December 11, 1989        Page 3
               24(1)24(1)
Revenue Canada Taxation      December 11, 1989        Page 4

According to facts described above, would you recognize that:

Equipments described at 1.07 constitute "former business
properties".        constitute "former business properties".
                constitute a "former business property".
       24(1)
                  constitute a "former business property".

2.02 Interpretation of "as a replacement for" the former property, as referred to subsection 13(4) and 44(1) of the Act.

According to the facts described above, would you recognize that:

The lease agreement concluded with the purchaser of a former property does not preclude the property disposed of the qualify as a former business property and the new property.

2.03 Definition of "replacement property" under subsection 44(5) and 13(4.1) of the Act.

According to the facts described above, would you recognize that:

All assets purchased for the new location constitute "replacement properties".

All equipment purchased to beefup capacity of one remaining location, as an interim measure to the completion of the new facilities, constitute "replacement properties".

2.04 Application of subsection 44(6) of the Act.

According to the facts listed above, would you recognize that:

The disposition described in paragraph 1.08 of the present
request constitutes a disposition of property where the total
proceeds of disposition received from the 24(1)   can
elect, under subsection 44(6) of the Act, to reallocate 
between the properties disposed to the        24(1)

 Revenue Canada Taxation         December 11, 1989        Page 5

3. Our Position

3.01 In the context of the question 2.01 we are in the opinion that the equipment, 24(1) constitute "former business property

These assets were used by 24(1)imarily for the purpose of gaining or producing income form a business.

Also, these assets constitute real property. Although, "real property" is not defined in the income Tax act, the definition made under the general principles of law is:

a) Lands are real property by their nature;

b) building is real property because it is fixed to the land for a permanency; and

c) object attached for a permanency, which are placed by the proprietor and fastened with iron and nails, imbedded in plaster, lime or cement, or which cannot be removed without breakage, or without destroying or deterioration that part of the real property to which they are attached, are real property.

The equipment dispose off by 24(1) 19-1 constitutes real property because it is attached to a permanency to the building and necessary for the use of the building.

The  24(1) which is an asset described in class 8(c) of schedule
II of the Income Tax Regulations and therefore included in class
39 of the draft regulations because it is used directly in the    
 24(1)             is a real property because it is a building.   
      24(1)              are "real properties" because they are
fixed to the land for a permanency.

3.02 In the context of question 2.02, we are in the opinion that the lease agreement does not preclude the application of subsection 13(4) and 44(1) ITA.

Our understanding of the act for this purpose is that a "replacement property" should replace the disposed property instead of the use of the disposed property.

                             24(1)
In fact, it is specified nowhere in subsection 13(4) and 44(1)
ITA that the use of the property must cease.  The only
requirement being that an amount has became receivable by the
taxpayer as proceeds of disposition of a capital property.

3.03 In the context of question 2.03, we are in the opinion that all assets purchased for the new location, as well as assets purchased to beefup capacity of a remaining location as an interim measure prior the completion of the new location, constitute "replacement properties".

The definition of "replacement property for a former property" in relation to depreciable property is as follows:

"(a) it was acquired by the taxpayer for the same or a similar use as the use to which he put the former property;

(b) where the former property was used by the taxpayer for the purpose of gaining or producing income from a business, the particular depreciable property was acquired for the purpose of gaining or producing income from that or a similar business and..."

The definition of "replacement property for a former property" in relation to non depreciable capital property is as follows:

"(a) it was acquired by the taxpayer for the same use as the use to which he put the former property;

(b) where the former property was used by the taxpayer for the purpose of gaining or producing income from a business, the particular capital property was acquired for the purpose of gaining or producing income from a business, the particular capital property was acquired for the purpose of gaining or producing income from that or a similar business; and ..."

The tests in both cases above are such that property must be
acquired by the taxpayer for the same or similar use, and where
the former property was used by the taxpayer for the purpose of
gaining or producing income from a business "it must be acquired
for the purpose of gaining or producing income from that or a  
similar business".
                         24(1)
Interpretation Bulletin # IT-259R
, Para. 22 provides that:

"Where the former property was used for the purpose of gaining or producing income from a business, the Department will consider the replacement property to be acquired for the "same or similar use" if it is a property that is used for the purpose of gaining or producing income in the same or similar business. It is not necessary that such a property have the same property should normally bear the same physical description as the former property. For example, a taxpayer may replace a warehouse with a manufacturing building if these properties are used in the same or a similar business. The term "similar business" is discussed in 23 to 26 below."

Since all assets purchased by 24(1) be used in the same or similar business as previously carried on, these assets should qualify as "replacement properties".

3.04     In the context of question 2.04, we are in the 
opinion that the total proceeds received from  the    24(1) 
could be reallocated between all the properties sold to these
purchasers and which are the buildings     24(1)    and the land
subjacent to or necessary for the use of these buildings.

We would be pleased to discuss this matter with you at your convenience and to provide with any additional information you may require.

Yours very truly,

19(1)24(1)