26 November 1990 Internal T.I. 9031497 F - Depreciable and Non-depreciable 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.

Your memorandum of October 11, 1990 addressed to the Audit Applications Division has been referred to this office for reply.

Your memorandum concerns a situation where a taxpayer died in 1989 leaving to his wife land and an apartment building situated thereon. The land and building are legally one property and are registered under one deed. The property can be transferred under subsection 70(6) of the Income Tax Act (the "Act") without incurring any tax liability. However, so that the property will have a greater ACB to the wife, the taxpayer's representative wants to take advantage of the capital gains deduction available under subsection 110.6(3) of the Act. To this end, he intends to elect under subsection 70(6.2) of the Act but with respect to the land only. Since the land and building are legally one property, you ask if the representative can elect under subsection 70(6.2) to deem the land to have been disposed of at fair market value under subsection 70(5) of the Act while letting the building "rollover" under subsection 70(6) of the Act.

Our Comments

With respect to subsections 70(5) and (6), we note the following:

1.     But for subsection 70(6), paragraphs 70(5)(a) and (c) would apply to the land. Paragraph 70(5)(a) refers to "each property" and "the property", thus indicating that the land is considered to be a separate property for the purposes of that paragraph. Similarly, paragraphs 70(5)(b) and (d) would apply to the building. Subparagraph 70(5)(b)(i) refers to "that property" thus indicating that the building is considered to be a separate property for the purposes of paragraph 70(5)(b).

2.     Subsection 70(6) reads as follows:

     "any property ... that is a property to which paragraphs (5)(a) and (c), or paragraphs (5)(b) and (d) as the case may be, would otherwise apply...".

       Restructured, it is our view that this quote can be read as follows:

     "any property ... that is a property to which paragraphs (5)(a) and (c) apply, or a property to which paragraphs (5)(b) and (d) ... apply".

From the above, it can be seen in the case at hand that both subsection 70(5) and (6) treat the land and building as two separate properties, notwithstanding that they are legally one property. Since subsection 70(6.2) relates solely to subsections 70(5) and (6), it is our view that the word "property" in subsection 70(6.2) should be given the meaning it has in subsections 70(5) and (6). We therefore feel that the representative can make a subsection 70(6.2) election in respect of the land only.

We should perhaps mention that our view would not be the same had the representative wanted to elect on either a portion of the land or a portion of the building. It is our view that the words "each property" and "the property" in paragraph 70(5)(a) refer to the land as a whole, and the words "that property" in subparagraph 70(5)(b)(i) refer to the building as a whole.

for DirectorFinancial industries DivisionRulings Directorate

c.c. W. Szyc, Audit Applications Division, Audit Directorate