11 August 1980 Income Tax Severed Letter

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.

August 11, 1980

Policy & Systems Branch Assessing Division

Non-Corporate Rulings Division Peter K. Noack 593-7295

G.C. Stewart

Replacement Property XXXX

This is in reply to your memorandum of July 15 in which you request our opinion on a question directed to you by the XXXX D. O. in a round trip memorandum dated June 30.

The writer raises the question whether the sale of the two quarter sections of farmland qualifies for a deferment of the gain under section 44.

To qualify, the property sold must be a former business property as defined in 248(1) and the property replacing it must have been acquired for the same or a similar use or for producing income of a similar business, in this case, farming. In order to meet the requirements of the definition of "former business property" in subsection 248(1), the property must have been used primarily for the purpose of producing income from a business but it must not be a rental property. Whether a property has been used primarily for such a purpose can only be determined by referring to all the relevant facts and circumstances. The information given in the memorandum is insufficient to allow us to make such a determination. However, in our opinion, the renting of some of the land during the years before the disposition does not by itself disqualify the land from being a former business property provided it was used primarily to produce income from the business of farming over the period of ownership.

According to the information given, one of the two blocks of land purchased will be rented and a decision has not been made on the use of the other. The quarter section which will be rented will not qualify as a replacement property, neither will the other quarter sections at Vimy if it is decided to rent them. Whether the land at Vimy can be considered to be used primarily to produce income from the farming business under any of the other arrangements mentioned in the memorandum will depend on facts which are not available at this time.

There are strong indications in the information given that XXXX has retired from farming after realizing a substantial portion of his investment in farmland and turning the business over to his sons. If that is so, the farm could have changed its nature and become a rental property and section 44 would not apply in such a case.

The writer asks whether the proceeds from the disposition of the properties would have to be treated as one amount for the purpose of making the necessary calculations under subsection 44(1). It is our opinion that the term "former property" used in section 44 refers to one property only. Whether the two quarter sections of land sold can be viewed as one property depends on the facts. The two quarter sections may be considered one property if, for example, they are adjacent and were originally purchased at the same time, as one piece and for the same purpose. Although you make no reference to buildings, you may want to refer to subparagraph 18(a) of the Notice of Ways and Means Motion of April 21, 1980 where changes are proposed to the present provisions dealing with replacement properties.

Any taxable gain calculated under section 44 qualifies for the purchase of an income averaging annuity contract.

We trust that the above comments will be of assistance to you.

for Director Non-Corporate Rulings Division sec. 44