Section 44

Subsection 44(1) - Exchanges of property


Macklin v. The Queen, 92 DTC 6595 (FCTD)

"immediately before"

In August 1979 the taxpayer decided that she wished to have a portion of a farm then owned by her husband developed as a housing subdivision. In October 1979 top soil was stripped from approximately 60 acres, in January 1980 a joint venture agreement between a real estate developer and the family corporation was signed, on April 2, 1980 (the date of her husband's death) the taxpayer acquired the beneficial ownership of the lands and sometime between April 11, 1980 and May 23, 1980 the land was disposed of to the joint venture. In finding that the lands in question including the 60 acres constituted a former business property "immediately before" their disposition, notwithstanding that after being stripped of the top soil the 60 acres could be no longer utilized as farm land, Rothstein J. stated (p. 6602):

"... The word 'immediately' must be capable of an interpretation broader than 'instantly', that is an interpretation connoting 'closely' or 'proximately'. Otherwise, an interim renting of property or property sitting idle pending disposition would disqualify the taxpayer from availing herself of the replacement property rules."

Words and Phrases
immediately before
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Resolving Ambiguity 45

Hawkins v. The Queen, 91 DTC 5502 (FCTD)

Joyal J. found that although "no particular formality would be required in order to meet the election requirements under section 44" (p. 5505), here it could not be said that the taxpayer had made the election when she had reported to Revenue Canada neither the disposition of her farming property nor the acquisition of the other farm which she had received in exchange.

Mintenko v. The Queen, 88 DTC 6537, [1989] 1 CTC 40 (FCTD)

An amended schedule filed under cover of an accountant's letter dated May 31, 1982 was sufficient notification to Revenue Canada of the purchase by the taxpayer of a replacement property in his 1981 taxation year. [C.R.: 85(1)]

Administrative Policy

S3-F3-C1 - Replacement Property

Form of taxpayer election

1.24 A taxpayer must elect to have the replacement property rules apply. The election should be made as follows:

  • If the disposition and replacement take place in the same year, the taxpayer’s calculation (in the income tax return for that year) of the recaptured CCA or the capital gain by virtue of subsection 44(1) will be considered to constitute an election.
  • If the property is not replaced until a subsequent year, the election should take the form of a letter attached to the income tax return for the year the replacement property is acquired. The letter should include a description of the replacement property and the former property, a request for an adjustment to the recapture of capital cost or the taxable capital gain reported, and a calculation of the revised recapture or taxable capital gain.
  • If the replacement property is acquired prior to the year of disposition of the property, the election should take the form of a letter attached to the income tax return for the year in which the replacement property is acquired.

1.25 If a former property is depreciable property, subsection 44(4) provides that a taxpayer who elects on that property under subsection 44(1) is deemed to have also elected on that property under subsection 13(4). Similarly, if the taxpayer elects under subsection 13(4), the taxpayer is deemed to have elected under subsection 44(1) as well.

Partnership and partner are separate persons for replacement property purposes

1.53 The replacement property rules would … apply to a member of a partnership who acquires a replacement property for a personally owned former business property which is or was being used in the partnership business. However, these provisions would not apply to a situation where the partnership disposes of a former business property and a partner (or partners) acquires the replacement property. This is because pursuant to paragraph 96(1)(a), the partnership is considered to be a person separate from its partners for purposes of income and loss computations under subdivision j.

Application to non-residents

1.56 The replacement property rules can apply to a non-resident who has disposed of taxable Canadian property and who acquires a qualifying replacement property that is also taxable Canadian property … .

Application to deceased

1.57 Where a taxpayer dies or ceases to be resident in Canada and is deemed pursuant to section 70 or paragraph 128.1(4)(b) to have disposed of a capital property, the replacement property rules do not apply. However, where a taxpayer dies, subsection 72(2) will, in certain circumstances, permit an election so that a reserve under subsection 44(1) may be claimed in respect of the deceased person.

4 March 2015 External T.I. 2014-0550761E5 F - 44(1) et disposition partielle

partial destruction of building

A portion of a building was destroyed by fire, with a portion of the insurance proceeds used to reconstruct it. Although the building generated both property and business income, the portion of the building in question was only used in a business. CRA stated (TaxInterpretations translation):

[T]he compensation payable to the corporation under the insurance policy appear to come within paragraph (f) of the definition of "proceeds of disposition" in section 54… .

[I]t is thus necessary to determine if the damages received were, within a reasonable period, expended for repairing damages caused to the property. If that is the case, paragraph 12(1)(f) provides that the compensation received will be included in the computation of the income of the taxpayer… .

[T]he part of the building which was destroyed by fire was used in its totality to earn income from a business and therefore conformed with the definition of a former business property. If in the light of the damages for the building and the scale of the work to be effected it turns out that a new property is acquired by the taxpayer, section 44 can apply … .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(f) inclusion of insurance proceeds applied to building repair 102
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Former Business Property part of building treated as former business property 153
Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition - Paragraph (f) insurance proceeds received for destruction of part of building: compensation for property damaged rather than destroyed 70

23 December 2014 External T.I. 2014-0551841E5 - Subsections 44(1) and 69(11) of the Act

implied receipt of deemed s. 69(11) proceeds

Would proceeds of disposition deemed to arise by s. 69(11) be considered an amount that has become receivable by the taxpayer as proceeds of disposition for purposes of the replacement property rules in s. 44(1)? After referring to the qualified farm property deduction under s. 110.6(2) by a non-affiliated transferee as an example where s. 69(11) could apply, CRA stated (TaxInterpretations translation):

While subsection 69(11) does not specifically deem the taxpayer to have an amount receivable as proceeds of disposition (when it applies), the CRA will generally accept that this will not, in and by itself, prevent a taxpayer from making an election to have the replacement property rules in subsection 44(1) apply where all the required conditions set out in section 44 are otherwise met.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 122.1 - Subsection 122.1(1) - Gross REIT Revenue implied receipt of deemed proceeds 99

21 August 1995 T.I. 951975 (C.T.O. "Proceeds of Disposition")

In response to a question concerning s. 2 of the Partition of Property Act (B.C.), RC stated "if real property is jointly owned by three taxpayers, two of them may petition the court, pursuant to section 2 of the Partition Act, to have the property sold and the proceeds distributed, despite the fact that the third person dissents to the partition ... . [T]he proceeds of disposition received by the dissenting third party would be considered to be 'compensation for property taken under statutory authority' within the meaning of paragraph 54(c) ..."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition 89

26 July 1995 T.I. 950158 (C.T.O. "Court Ordered Partition & Sale Disposition")

Where as a result of the bankruptcy of one of the four co-tenants of rental properties, a court-appointed trustee receives court approval for severance, partition and sale of the property, the non-bankrupt co-tenants would be entitled to utilize s. 44(1) in respect of their proceeds (in this case, property interests in other co-owned buildings).

18 July 1995 T.I. (C.T.O. "Expropriation")

With respect to the sale of a portion of a ranch as a result of a possible expropriation, RC noted that "a sale based on the rumour of a possible expropriation that did not include a notice of intention was held not to qualify in the Damka Lumber (90 DTC 6101)" case.

24 April 1995 T.I. 950486 (C.T.O. "Exchanges of Property")

A shareholder whose shares are acquired pursuant to s. 188 of the Business Corporations Act (Ontario) will be considered to have received his sale proceeds either as compensation for property taken under statutory authority or as the sale price of property sold to a person by whom notice of an intention to take it under statutory authority was given. Accordingly, the shareholder will be entitled to elect under s. 44(1) in respect of the disposition where the shareholder has, before the end of the second taxation year following the year of acquisition, acquired a capital property as a replacement property. A share of a corporation listed on a prescribed stock exchange in Canada would ordinarily be a replacement property in this situation.

25 July 1991 Memorandum (Tax Window, No. 7, p. 5, ¶1371)

The word "replacement" contemplates a direct substitution. Accordingly, there must be a causal relationship between the disposition of one property and the acquisition of the replacement.

87 C.R. - Q.34

There is no provision permitting the extention of the time periods set out in section 44.


Kroft, "An Update on Select Legal Issues Relating to Dispositions and Exchanges of Property", 1995 Corporate Management Tax Conference Report, c. 10.

Paragraph 44(1)(c)

Paragraph 44(1)(e)

Administrative Policy

S3-F3-C1 - Replacement Property

Example of s. 44(2) timing and reduced capital gain where proceeds not fully reinvested

  • Example 3 (para. 1.14): The taxpayer’s property with an ACB of $100,000 is expropriated in 2014, a replacement property is acquired for $130,000 on September 30, 2017 and the court determines the compensation of $175,000 on July 15, 2017 (which, therefore, is the disposition date on s. 44(2). The taxpayer has a capital gain of $175,000 - $130,000, or $45,000.

Refund claim where replacement property acquired in subsequent year

1.15 A taxpayer is required to report any recaptured CCA or taxable capital gain arising from the disposition of a former property in the year of disposition. However, where a replacement property is acquired in a subsequent tax year and within specified time limits, the taxpayer may request a reassessment of the income tax return for the year of disposition of the former property. This will generate a refund in respect of the income tax paid on income arising on the disposition.

Provision of security pending replacement property acquisition

1.16 Having to pay tax that will be refunded when a replacement property is acquired could create a financial burden. To alleviate this financial burden, acceptable security may be provided in lieu of the payment of taxes owing until the time the final determination of taxes is made or the time period for acquiring the replacement property has expired. Where this practice is followed, the full cost of providing such security is borne by the taxpayer.

S. 44(1)(e) can be applied after s. 85(1)

1.48 In some cases, where a taxpayer disposes of a former business property to a taxable Canadian corporation and a subsection 85(1) election is made, a capital gain may result. In such case, a deferral of this gain is available pursuant to section 44 provided that the requirements of that section are otherwise met.

Subsection 44(6)

Administrative Policy

S3-F3-C1 - Replacement Property

Reallocation under s. 44(6)

1.18 … [U]nder subsection 44(6), a taxpayer may be permitted to reallocate the POD of a former business property composed of land and one or more buildings between the land component and the building component. For this purpose, subsection 44(6) provides that land is, “the land (or an interest, or for civil law a right, therein) subjacent to, or immediately contiguous to and necessary for the use of, the building.”

1.19 The amount eligible for reallocation is limited to the excess of POD otherwise determined of one or the other of the components over its ACB. If, for instance, the POD of land determined without reference to subsection 44(6) exceed its ACB, a taxpayer can elect to treat all or a portion of the excess as being POD of the building component of the former business property. This will defer recognition of all or a portion of the accrued capital gain with respect to the land.

Subsection 44(2) - Time of disposition and of receipt of proceeds


Kroft, "An Update on Select Legal Issues Relating to Dispositions and Exchanges of Property", 1995 Corporate Management Tax Conference Report, c. 10.

Paragraph 44(2)(a)


The Queen v. Shaw, 93 DTC 5121 (C.A.)

The farm lands of the taxpayer were expropriated pursuant to the Expropriation Act (Alberta) in 1977. Following the settlement in 1986 of an action against the Province of Alberta, the taxpayer received the sum of $1,020,368 which was calculated as a replacement of interest income which the plaintiff would have earned if he had been paid the full value of his land at the time of the expropriation.

With respect to the finding of the Trial Judge that because s. 44(2)(a) deemed the taxpayer to have disposed of the land in 1986, therefore there was no interest that had accrued to the taxpayer prior to that date, the Court found that s. 44(2)(a) was merely a timing provision that did not recharacterize the nature of the sum received.

Laurentide Rendering Inc. v. The Queen, 84 DTC 6153 (FCTD), aff'd 88 DTC 6331, [1988] 2 CTC 200 (FCA)

It was suggested that s. 44(2)(a) was in large part a codification of existing case law as to when expropriation proceeds are to be included in computing income.

Paragraph 44(2)(b)

See Also

Loukras v. MNR, 90 DTC 1557 (TCC)

The taxpayer's entitlement to compensation was considered to have been finally determined by a judgment of the Trial Division of the Federal Court even though a notice of appeal therefrom was subsequently filed and then discontinued.

Paragraph 44(2)(c)

Administrative Policy

11 September 1992 Memorandum (Tax Window, No. 24, p. 10, ¶2231)

Where the proceeds of disposition deemed to be receivable under s. 44(2)(c) are not determinable, Revenue Canada will seek a waiver, failing which it will reassess based on the maximum likely proceeds of disposition. The interest portion of the settlement will be treated as interest income realized at the same time.

Subsection 44(5) - Replacement property

See Also

Livingston v. The Queen, 2015 TCC 24

taxpayer could not rollover farmland proceeds into purchase of non-land business assets

The taxpayer and the estate of his mother co-owned (as tenants-in-common) a dairy farm and as well as the livestock, farming equipment, feed, milk quota and other farming assets. All the estate's interest and a portion of the taxpayer's interest in the farmland was sold to a third party housing developer (who leased the lands back to the taxpayer pending development), with the taxpayer using the sales proceeds received by him to purchase all of the Estate (non-realty) farming assets.

Lyons J affirmed the Minister's denial to the taxpayer of the s. 44(1) rollover on this farming-asset purchase. After reviewing the legislative history, she stated (at para 42):

...I interpret the words "to replace" in paragraph 44(5)(a) to mean that Parliament intended a direct substitution so that the same species of capital property would be required for the acquired property to constitute a replacement property for the former property. I find that it cannot reasonably be concluded that the Assets were to replace the farmland within the meaning of paragraph 44(5)(a) of the Act.

This purchase also did not satisfy the requirement in para. 44(5)(a.1) that the new property be acquired for a "similar" use. Notwithstanding that "similar" is potentially broad, the use of land for growing crops or pasturing cattle is not similar to the use to which the physical assets and milk quota were put and, in particular, the milk quota was used for the sale of milk (paras. 49, 50).

Words and Phrases

Klanten Farms Ltd. v. The Queen, 2007 DTC 1095, 2007 TCC 348

use included holdihg for future uee

The taxpayer unsuccessfully submitted that a property acquired by the taxpayer for farming was a replacement property for a property that was used to earn rental income. Paris J. also stated (at p. 1100) that:

"'Use' in paragraph 44(5)(8.1) does not ... include the notion of holding for a future use."

Words and Phrases

Depaoli v. The Queen, 96 DTC 1820 (TCC)

maintaining farm land through other farmers' use was continued use of land

Prior to the expropriation of their 33-acre vacant property, which they intended to use on retirement to build a house and operate a farm, the taxpayers rented out the property for small sums to adjoining farmers. The expropriation proceeds were used, in part, to purchase two smaller vacant lots one-half a mile apart, which were intended to be used on retirement in the same manner (although this ceased to be feasible as a result of a proposed landfill site) and, in the meantime, similar farming arrangements with neighbouring farmers were utilized.

In finding that the subsequently purchased lots were replacement properties, Hamlyn TCJ. stated (at p. 1823) that the maintaining by the taxpayers "of farm land to keep it clean by arranging for farmers to cultivate, plant and harvest crops, is the 'use' of former property by the Appellants".

Words and Phrases

McKervey v. MNR, 92 DTC 1570 (TCC)

In finding that land acquired by the taxpayer for use "in the rather varied mélange of businesses that he carried on - truck dismantling, selling trucks and truck parts, trucking and the sale of building materials" - was a replacement property, Bowman J. stated (p. 1576):

"I do not think that for property to be 'used' primarily in a business it is necessary that it be used to full capacity all of the time provided that a reasonable amount of use is made of it and it is dedicated to and held in readiness for that use and provided further that it is not being put to any other significant use."

Administrative Policy

31 July 2006 TI 2005 015617 [leasehold interest included]

leasehold interest included

"The capital cost of a leasehold interest in respect of a building may qualify as a replacement property for a building that is a former business property if the definition of replacement property in subsections 13(4.1) and 44(5) is otherwise met."

27 January 2004 External T.I. 2003-005326 -

motel v. retirement home

A retirement home that is acquired to replace a motel would not be considered to be a replacement property: "a retirement home is not a property that can be put to a use that is the same as or similar to the use of a motel, nor is the business of operating a retirement home the same as or similar to the business of operating a motel."

17 June 1999 T.I. 991151

If a corporation, that has disposed of a former business property, acquires the shares of a qualified family farm corporation and winds it up pursuant to s. 88(1), the farm property received on the winding-up may serve as a replacement property for purposes of s. 44(5).

IT-259R3 "Exchanges of Property"

"A taxpayer who changes from one business category to another but continues to deal in the same product will normally be considered to be in a 'similar business'".

30 January 1995 External T.I. 5-942486 -

"The words 'replacement property' contemplate a direct substitution, such that there is a causal relationship between the disposition of the former property and the acquisition of the replacement property. Moreover, the Department has taken the position that the provisions of section 44 are not intended to encompass business expansions ... ."

31 March 1994 T.I. 933151 (C.T.O. "Replacement Property")

There is nothing in s. 44(5)(a) to require that the "former property" have produced income in the past or that the replacement property produce income in the future, and for purposes of the "use test", the use made of the former property is not restricted solely to uses that produce income from that property. However, vacant land would generally be excluded from the definition of replacement property as non-use does not constitute use.

4 September 1991 T.I. (Tax Window, No. 9, p. 23, ¶1441)

Where a business property owned by a taxpayer is used in an active business by a partnership each member of which is related to the taxpayer, the property is considered to be used by "a related person".

3 September 1991 T.I. (Tax Window, No. 8, p. 18, ¶1432)

A small hotel with a pub and restaurant that provides entertainment, liquor and food services would likely qualify as a similar business when acquired in replacement of a nightclub that provided entertainment, liquor and food services, because both operations belong to the same service industry.

21 August 1991 Memorandum (Tax Window, No. 8, p. 17, ¶1401)

Where a taxpayer acquires a new motel to replace an expropriated one, s. 44(5)(a) will not be available as the previous motel was operated by the owner and the new motel is leased to a relative.

6 June 1991 T.I. (Tax Window, No. 4, p. 22, ¶1284)

An apartment building earning residential rents may be a replacement property for a warehouse or office building which was used by the taxpayer (a partnership) to earn commercial rents. Where the original property was disposed of by the partnership, the replacement property rule will not apply unless the replacement property was acquired by the partnership and not by the individual partners.

1 February 1990 T.I. (July 1990 Access Letter, ¶1321)

Where a taxpayer in the business of operating rest homes sold the rest homes and bought a hotel, the operation of the hotel generally would not be considered to be a similar business.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(4.1) 33

Paragraph 44(5)(a)

Administrative Policy

S3-F3-C1 - Replacement Property

Whether more than one replacement property

1.35 In some situations, it may be necessary to purchase more than one property to replace another property. Conversely, two or more properties may be replaced with one property. However, in such situations, the specific facts must be considered to determine whether the particular property or properties purchased will be considered as a replacement property for the original property or properties.

Attributes of replacement property

1.36 To satisfy the requirement described in [s. 44(5)(a)], it must be reasonable to conclude that the property was acquired to replace the former property. In this regard, there must be some correlation or direct substitution, that is, a causal relationship between the disposition of a former property and the acquisition of the new property or properties. Where it cannot readily be determined whether one property is actually being replaced by another, the newly acquired property will not be considered a replacement property for the former property. For example, consider the situation where a taxpayer has a number of retail locations, some of which are in the process of commencing operations while others are scheduled for closing. A building at a new location probably would not be considered a replacement property for a building at an old location if the business operations at the two locations are carried on simultaneously (other than for a brief transitional period, for example, while the inventory at the old location is liquidated). Generally, the geographical location of the replacement property is not determinative when considering whether one property is a replacement for another.

2016 Ruling 2016-0632001R3 - Replacement Property

two properties to be used in expanded farming business will be replacement property for single former property

The two taxpayers are spouses and the sole shareholders of Farmco. Prior to the expropriation of Old Farmland, Farmco carried on its farming business in Canada through: Old Farmland (which was owned in equal co-ownership by the two taxpayers); a parcel of land which Farmco rented from an arm’s length third party; and a third parcel which Farmco owned. The taxpayers had always intended to expand Farmco’s farming operations and/or replace the rented land with additional owned land if and when suitable land and finances became available.

Proposed transactions

As a consequence of the expropriation of the Old Farmland and the final settlement of their related action against the government, the taxpayers will replace the Old Farmland on or before the end of XXXX with the two new parcels of land (“New Farmland 1” and “New Farmland 2”) that are located close to, or adjacent to, the two parcels of land currently used by Farmco and purchased forjm arm's length third parties. New Farmland 1 and New Farmland 2 will be used by Farmco in its farming business and will be owned jointly (50-50) by the two taxpayers, who will make the required election under s. 44(1) in the taxation year in which the two properties were acquired by them.


To “replace the Old Farmland with New Farmland 1 and New Farmland 2 to ensure that Farmco will have a sufficient land to continue to carry on its… farming business, to expand that business, and to allow [the taxpayers] to utilize the proceeds of disposition they received from the expropriation of the Old Farmland to the greatest extent possible in deferring or reducing any capital gain… .”


Each of New Farmland 1 and New Farmland 2 will be considered as a replacement property for the Old Farmland.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 33(2) reference to "the" replacement property included 2 replacement properties 42

Paragraph 44(5)(a.1)

Administrative Policy

13 November 2014 External T.I. 2014-0535041E5 F - Bien de remplacement – Location d'immeubles

rental property use before and after satisfies test

A couple who co-owned various rental properties received insurance proceeds on the complete destruction of one of the properties, and purchased chalets in a resort area for rental use. Do the chalets satisfy the "same…similar use" test in s. 44(5)(a.1)? CRA responded (TaxInterpretations translation):

Even though the physical characteristics of the new properties would not be identical to those of the previous properties, the properties appear to be of the same nature (rental properties) and to be put to the same use (rental). … [T]he use made by the taxpayers of the new properties can be considered as an identical or similar use as they made of the previous property, for purposes of paragraph 44(5)(a.1).

CRA also noted that the reference in IT-259R4, para. 16(b) to the properties bearing the same physical description would be satisfied where a building was replaced by a building.

13 March 2013 External T.I. 2012-0473291E5 F - Société de personnes - maison détruite par le feu

replacement property generally is expected to have the same material characteristics

The Taxpayer was a partner of a partnership carrying on a farming business and owning more than half a hectare of land on which there was a building which served as the exclusive principal residence of the Taxpayer and his father. A fire then completely destroyed the First House and the partnership used the insurance proceeds to build another building. If the partnership does not rely on the s. 44 property exchange rules, is the Taxpayer entitled to the exemption in s. 40(2)(c)? CRA responded:

[T]he Taxpayer could use paragraph 40(2)(b) to reduce or eliminate the capital gain on the disposition of the First House allocated to the Taxpayer by the partnership on the deemed disposition of the partnership, provided that it meets all the conditions in the definition of "principal residence". However, at that time, paragraph 40(2)(c) would not be applicable to the Taxpayer since the partnership did not dispose of land.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) partner can use the principal residence exemption re gain allocated by partnership from disposition of personally-used principal residence, including following s. 44 deferral 251
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(c) s. 40(2)(c) unavailable re disposition of building only from fire 105

Paragraph 44(5)(b)

Administrative Policy

17 February 2014 External T.I. 2014-0517491E5 F - Bien de remplacement - usages multiples

rental property not a replacement property for mixed use property

Mr. A owned a property (Building A) whose upper floors were used from residential rentals and whose ground floor was rented out to businesses including a numbered company of Mr. A. Building A was expropriated, and Mr. A wished to acquire a second property (Building B) with the same mixed use. However, in fact, neither Mr. A nor a related person carried on a business in Building B. CRA stated (TaxInterpretations translation):

… Building B is used solely to generate rental revenue. As neither Mr. A nor any person related to Mr. A will use Building B to earn income from a business…the requirements of paragraph 44(5)(b) are not satisfied. Consequently, Building B does not qualify as a replacement property… .

11 October 2013 APFF Roundtable, 2013-0495681C6 F - Bien de remplacement

a different related person can use the replacement property in a similar business

ABC Inc. leased Building A to Opco, a sister corp. which used Building A in an active business. In January 2013, Building A was expropriated (with Opco moving its business to premises of an unrelated corporation). In May 2013, ABC Inc. acquired a replacement building (Building B) which it leased to an unrelated corporation for use in that tenant's active business. In confirming that the s. 44(5) replacement property rollover was not available, CRA stated (TaxInterpretations translation):

[S]ince Building B was not used by ABC Inc., or a person related to it, to gain or produce income from a business in which Building A was used or a similar business, that building would not qualify as a replacement property.

However, CRA noted that if ABC Inc. had rented Building B to XYZ Inc., another corporation related to ABC Inc., with XYZ Inc. using it in an active business, it would suffice if XYZ Inc. used it in the same or a similar business. CRA stated:

[I]t does not matter if the person who uses Building B is different from the one who used Building A. It is sufficient if the person who uses Building B is related to ABC Inc., being the owner of the building, and that the business in which Building B is being used is the same or similar to that carried on by Opco in using Building A, the former business property.

30 September 2013 External T.I. 2013-0505151E5 F - Biens de remplacement

rollover unavailable where replacement property leased for use in a different business of Opco lessee

Mr. A leased a rental property owned by him ("Initial Property") to Opco (wholly-owned by him) for use in carrying on its business. After the Initial Property burned down and Mr. A built a replacement building ("Replacement Property") and then rented it to an unrelated third party ("Third Party") for use in carrying on a business different than Opco's.

In finding that the replacement property rollover was not available, CRA noted that the Replacement Property is not used by either Mr. A or a related third party, and that it is not used in a business carried on by Opco or in a business similar to that carried on by Opco. CRA also noted:

Our conclusion would remain the same if the Replacement Property was leased to Opco in the course of carrying on a business different from that in which the Initial Property was used.

30 September 2004 External T.I. 2004-00842 -

vacant land not "used"

The replacement property rules cannot be used with respect to a sale of vacant land to a municipality given that vacant land is not "used" by the taxpayer.