Background
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.
Purpose
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… .”
Ruling
Each of New Farmland 1 and New Farmland 2 will be considered as a replacement property for the Old Farmland.