19 September 2000 External T.I. 2000-0033995 - REPLACEMENT PROPERTY

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether a portion of the cost of property can qualify for the replacement property rules in section 44 of the Income Tax Act, in the situation where excess property is acquired.

Position: It is our view that the replacement property rules in section 44 clearly do not allow such a proration. According to these rules, a particular property either qualifies as a replacement property or it does not.

Reasons: The definition of replacement property in section 44.

XXXXXXXXXX 	J. Gibbons, CGA
		2000-003399
Attention:  XXXXXXXXXX 

September 19, 2000

Dear XXXXXXXXXX:

We are replying to your letter of June 21, 2000, in which you requested our views whether a portion of the cost of property can qualify for the replacement property rules in section 44 of the Income Tax Act, in the situation where excess property is acquired. In other words, you wish to know whether, in a situation where it is reasonable to consider that only a portion of a particular property was acquired to replace a former property, one can apply a portion of the cost of the particular property to defer the capital gain on the former property in accordance with the rules in section 44.

As requested, we have considered the situation outlined in your letter and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. Thus, our comments are of a general nature only.

In your letter, you referred to previous interpretations issued by us where we stated that it is our general position that the replacement property rules do not allow the acquisition of a property that is significantly larger than the property it replaces. In one interpretation, we stated that only a small part of a 3,000 acre farm could be considered a replacement for a 200 acre farm. While this statement may be construed as implying that it is possible to prorate the cost of replacement property, it is our view that the replacement property rules in section 44 clearly do not allow such a proration. According to these rules, a particular property either qualifies as a replacement property or it does not. Thus, if, owing to the substantial difference in the size of a former property and a newly acquired property, it is not reasonable to conclude that a new property was acquired to replace the former property, the rules in section 44 may not be used to defer a capital gain on the disposition of the former property.

We trust that these comments will be of assistance.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate

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