7 September 1990 Income Tax Severed Letter - Definition of “disposition” for the purposes of paragraph 13(21)(c) of the Income Tax Act

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.

Dear Sirs:

Re: Paragraph 13(21)(c) of the Income Tax Act Your file XXX

The purpose of this letter is to provide to you our comments with respect to the definition of "disposition" for the purposes of paragraph 13(21)(c) of the Income Tax Act (the "Act"), as requested in your letter of August 16, 1990.

Our understanding of the situation, as described to us in your letter is as follows:

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Specifically, you requested confirmation that the demolition of a building will constitute a disposition of property for the purposes of paragraph 13(21)(c).

Our Comments

Prior to making a determination as to whether the demolition of the building referred to above constitutes a disposition for tax purposes, a determination of the type of property should be made. Paragraph 7 of Interpretation Bulletin IT-220R2 explains:

... (if the building is demolished) "without using it for the purpose of gaining or producing income, it is not depreciable property in the purchaser's hands by reason of paragraph 1102(1)(c) of the Regulations and the purchaser is not entitled to capital cost allowance nor a terminal loss in respect of it. In these latter circumstances, the demolition of the building is considered a disposition and may result in a capital loss in the purchaser's hands."

Paragraph 8 of this same bulletin continues that when a building is not demolished shortly after the original purchase, the facts of each case will determine whether or not the property was depreciable property.

Paragraph 6 of IT-128R should also be consulted as it comments on buildings incidentally acquired on obtaining a site when the building in question is demolished without having been used to earn income or when the building is used for only a short time prior to demolition. In addition paragraph 6 of IT-485 explains that if the taxpayer in question had not used the building to earn income, the original purchase price of the property should have been allocated entirely to the land. In such a case the cost of demolishing the existing building, less any salvage, would form a part of the cost of the land.

The administrative policy of Revenue Canada concerning the disposition of property in the absence of any consideration is found in Interpretation Bulletin IT-460. Generally, the Department will consider a disposition to have occurred when "possession, control, and all other aspects of property ownership are relinquished". This test is not helpful in the case of the demolition of a building where the owner retains ownership of the related land. None of the examples given in paragraph 3 of IT-460 deal with a voluntary demolition of property. Given the comments made in Interpretation Bulletin IT-220R2" It appears that a disposition will occur for purposes of paragraph ???(21)(c) of the Act in the scenario you have presented to us however all the facts and circumstances must be examined in determining how this disposition should be treated for Income Tax purposes. Such an examination would be conducted by officials of your local District Taxation Office, with whom you may wish to review this matter in greater detail.

We note that these comments are an expression of opinion only and, as such, are not binding on the Department. We hope these comments are of assistance to you.