Subsection 43(1) - General rule for part dispositions
Administrative Policy
11 October 2019 APFF Roundtable, Q.3
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 | 266 |
| Tax Topics - Income Tax Act - Section 45 - Subsection 45(3) | method for making s. 45(3) election where conersion of duplex | 173 |
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.
1 October 2013 External T.I. 2013-0491571E5 - Partial disposition of partnership interest - ACB
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 | 171 |
18 June 2012 External T.I. 2012-0446131E5 - Meaning of "at that time" in 43(1)
"the 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
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 | 49 |
| 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 | 195 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property | partnership unit is not separate property from other units | 50 |
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. 4 August 1999 T.I. 9918345 -
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 | 50 |
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.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Commodities, and commodities futures and derivatives | 31 |
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.