Section 43

Subsection 43(1) - General rule for part dispositions

Administrative Policy

11 October 2019 APFF Roundtable Q. 3, 2019-0812621C6 F - Changement d’usage-impact sur l’exemption pour résidence principale

allocation of ACB between units in a duplex

After Monsieur acquired a duplex in January 2011, he used the two units for renting to a third party and as his personal residence, respectively. In July 2019 he ceased to rent out the first unit, and appropriated it to his residence.

He disposed of the duplex in December 2022. By making a s. 45(3) election respecting his change of use under s. 45(1)(c) (as permitted by the 2019 Budget changes), he was deemed to have not disposed of the unit that had been used for rental purposes. After noting that it was necessary to report the preconverted living unit and the expanded unit separately in claiming the principal residence exemption, CRA stated:

… [A]n allocation of the adjusted cost base ("ACB") and the proceeds of disposition of a property based on the size of each unit is, in some cases, that of a reasonable allocation. However, the allocation does not need to be based on area. All factors that may affect the value of any unit in the building must also be considered.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (c) reporting of principal residence exemption when the residence had been expanded from 1 to 2 duplex units 278
Tax Topics - Income Tax Act - Section 45 - Subsection 45(3) method for making s. 45(3) election where conersion of duplex 181

S3-F4-C1 - General Discussion of Capital Cost Allowance

Non-pro-rata apportionment

1.77 … [T]he pro rata apportionment of the capital cost of a depreciable property would not be reasonable in all circumstances. Where, for instance, the value of different parts of the same property cannot be established, it will be a question of fact as to what is a reasonable allocation of the capital cost of the whole property to the part disposed of and the part retained. Further, where a taxpayer incurs an expenditure before the disposition that is wholly attributable to one specific part of the property, it would be unreasonable to make a pro rata apportionment without first excluding the amount of that expenditure from the capital cost. After the apportionment is made, the amount of the expenditure would then be added back to the capital cost of the part disposed of or retained, as the case may be.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense 556
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A 791
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property 218
Tax Topics - Income Tax Act - Section 16.1 - Subsection 16.1(1) 275
Tax Topics - Income Tax Act - Section 13 - Subsection 13(28) 254
Tax Topics - Income Tax Act - Section 13 - Subsection 13(27) 222
Tax Topics - Income Tax Act - Section 13 - Subsection 13(29) 155
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2) 212
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.2) 351
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(3) 70
Tax Topics - Income Tax Act - Section 18 - Subsection 18(3.1) 166
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7.5) 207
Tax Topics - Income Tax Act - Section 261 - Subsection 261(2) 65
Tax Topics - Income Tax Act - Section 128.1 - Subsection 128.1(1) - Paragraph 128.1(1)(b) 230
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c) 170
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(e) 65
Tax Topics - Income Tax Act - Section 68 197
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21.1) - Paragraph 13(21.1)(a) 75
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21.1) - Paragraph 13(21.1)(b) 212
Tax Topics - Income Tax Act - Section 13 - Subsection 13(1) 431
Tax Topics - Income Tax Act - Section 8 - Subsection 8(2) 75
Tax Topics - Income Tax Act - Section 20 - Subsection 20(16.1) 152
Tax Topics - Income Tax Act - Section 13 - Subsection 13(9) 229
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) 321
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 8 237
Tax Topics - Income Tax Act - Section 13 - Subsection 13(5) 317
Tax Topics - Income Tax Act - Section 13 - Subsection 13(6) 221

1 October 2013 External T.I. 2013-0491571E5 - Partial disposition of partnership interest - ACB

disposition of some partnership units a part disposition

Where a partner disposes of some of its units of a partnership during the year, is there an ACB adjustment for the entire amount of the income allocated to that partner for the fiscal period? After noting that "all of the units that a partner holds in a partnership constitute a single property, i.e. the partner's interest in the partnership" so that, for example, a disposition of "40% of its partnership units…constitutes a partial disposition of its partnership interest," CRA stated:

Where the partial disposition occurs during the fiscal period of the partnership and thus the ACB adjustment for that fiscal period is not reflected in the ACB of the partnership interest for purposes of computing the gain or loss on the partial disposition, it is our view that the ACB of the remaining partnership interest will be increased by that ACB adjustment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(e) - Subparagraph 53(1)(e)(i) all units are single property/entire gain allocated to remaining units 177

18 June 2012 External T.I. 2012-0446131E5 - Meaning of "at that time" in 43(1)

"[T[he phrase 'at that time' as used in subsection 43(1) of the Act, would, in our view, refer to the time immediately before the particular triggering event that resulted in the application of the subsection which was the partial disposition of the property."

8 October 2010 Roundtable, 2010-0373461C6 F - Retrait d'une société de personnes

all the partner’s units are a single property

Before going on to find that there was a pro rata recognition of capital gain when 20% of a partner’s units were redeemed, CRA stated:

[A]ll the units that a partner holds in a partnership are one and the same property, that is, the partner's interest in the partnership. Therefore, when a partner has 20% of his or her units redeemed by the partnership, there is a partial disposition of the partner’s partnership interest.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 40 - Subsection 40(3) negative ACB realized pro rata as units are redeemed 51
Tax Topics - Income Tax Act - Section 100 - Subsection 100(2) negative ACB realized pro rata under s. 100(2) as portion of the units are redeemed each year 201
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property partnership unit is not separate property from other units 57

8 September 2009 External T.I. 2008-0299771E5 F - Gain on Disposition of Debt

partial repayment of low-ACB debt generates a capital gain

Over the years, A made advances (the "Debt") to Aco which it wholly owned, and then sold all the shares of A to an arm’s length purchaser, as well as the Debt for nominal consideration. What are the consequences of the repayment by Aco of the Debt held by B?

CRA indicated that if the Debt was capital property, its partial or full repayment would give rise to capital gains having regard to its nominal ACB and ss. b)(i) and (ii) of "disposition" in s. 248(1), as well as s. 43(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Computation of Profit partial repayment of low-cost debt generates business income if held on income account 89

29 July 2009 External T.I. 2008-0297011E5 F - Conversion de participations dans une SNC

where only income interest and not capital interest in a partnership disposed of, there is part disposition of partnership interest with resulting reduced ACB for remainder interest

A partnership has several members, some of whom hold partnership interests which participate in both income and capital of the partnership. The partnership agreement will be amended to provide for the issuance of two partnership interests: the first, to provide for participation only in income; and the second, to provide for participation only in capital. If only the income share is subsequently disposed of, would that constitute a partial disposition of property? CRA stated:

The CRA accepts that a partner's interest in a partnership may take the form of various shares in the partnership. However, such an interest remains a single property. Accordingly, on a partial disposition of the interest, the adjusted cost base ("ACB") of the interest in the partnership is determined under subsection 43(1). Under paragraph 53(2)(d), the ACB of the retained portion of the interest is equal to the ACB of the entire interest less the ACB of the portion subject to the partial disposition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition no disposition if new partnerships interests exchanged for old interests that in totality are not substantially distinguishable 213
Tax Topics - Income Tax Act - Section 97 - Subsection 97(2) s. 97(2) rollover not available if new partnerships interests exchanged for old interests are not in totality substantially distinguishable 274
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1.01) s. 96(1.01) inapplicable where only income interest and not capital interest disposed of 139

3 May 2004 External T.I. 2003-0049061E5 F - Calcul du PBR d'une terre agricole

allocation by sq. m. not always appropriate

If farmland is divided into two lots, one of them with road access, how should the ACB be apportioned between the two parts? CRA responded:

The allocation of the ACB by sq. m. does not always give an acceptable result. All relevant factors surrounding a particular situation must be considered. The value assigned to portions of farmland by a professional appraiser at the time the property was acquired is a factor that could be considered in determining the portion of the ACB that is reasonable to assign to the disposed of part.

Rulings Directorate Discussion and Position Paper on Motion Picture Films and Video Tapes as Tax Shelters, Version 29/3/93 930501 (C.T.O. "Motion Picture Films - C.C.A.")

In an arrangement in which a creditor is entitled to all the income and losses following conversion of its loan into an interest in a film partnership, it is arguable that the continuing limited partner has partly disposed of his partnership interest because his entitlement to share in profits and losses has been reduced to nil. Although the issue is considered to be arguable, RC will consider the proceeds of disposition of the interest to be equal to the amount of the liability converted.

4 August 1999 External T.I. 9918345 - GAIN ON DISPOSITION OF DEBT OBLIGATIONS

gain on debt repayments based on pro rata ACB

What are the tax implications to a creditor which receives a payment on account of a debt obligation’s principal amount that is greater than the obligation’s adjusted cost base? CRA responded:

When the creditor receives a payment on account of the outstanding principal amount of a debt obligation, the creditor is considered to have disposed of a portion of that obligation with the amount of the payment constituting the proceeds of disposition of that portion.

…[T]he adjusted cost base applicable to the part disposition would be equal to that proportion of entire adjusted cost base of the debt obligation immediately prior to the part disposition that the payment received is of the outstanding principal amount of the obligation at that same time.

4 September 1991 T.I. (Tax Window, No. 9, p. 20, ¶1445)

Where there is a partial repayment of a debt acquired by a taxpayer on capital account and at a discount, the taxpayer must use the part disposition method, i.e., part of the debt is considered to be disposed of each time a payment is received, resulting in a capital gain.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Computation of Profit 52

IT-373R "Farm Woodlots and Tree Farms"

Amounts received for permitting other persons to remove standing trees from a woodlot will normally reduce the adjusted cost base of the whole property to the extent of the amount received, rather than giving rise to immediate tax consequences.

IT-264R "Part Dispositions"

Easements

2. The granting of an easement or a public right of way is a disposition of a part of the property in respect of which it is granted. For the purpose of section 43, the Department normally accepts an amount equal to the proceeds from such a disposition as being the reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of in such cases as well as in cases where a portion of a property is expropriated in fee simple for use as a right of way, provided that:

(a) the area of the portion of the property that was expropriated or in respect of which an easement or right of way was granted is not more than 20% of the area of the total property; and

(b) the amount of the compensation received is not more than 20% of the amount of the adjusted cost base of the total property.

Mortgage instalments

4. ...[A]n installment payment made on a mortgage is a disposition of property because it is a transaction or event by which the property (i.e. the mortgage principal) is redeemed in part. For the purpose of computing the capital gain where an installment payment is received on a discounted mortgage, the proceeds of disposition are the portion of the installment payment received on account of the mortgage principal, and the ACB of the property disposed of is, by virtue of section 43, an amount equal to the proceeds of disposition less a portion of the discount as determined on the basis of a pro rata share of all amounts receivable as payments on account of the total principal indebtedness of the borrower. In effect, a capital gain is realized in respect of the discount each time an installment payment is received.

5. However, for administrative purposes, where the amount of the mortgage discount is relatively minor, the taxpayer may treat it as only being realized in payments received by him after he has fully recovered his acquisition cost of the mortgage.