Principal Issues: Suggested amendments to the replacement property rules and the Home Buyers Plan.
Position: Copy of correspondence forwarded to Minister of Finance.
Reasons: Any change to legislation is the responsibility of the Department of Finance Canada.
XXXXXXXXXX
December 21, 2010
Dear XXXXXXXXXX :
The Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your correspondence, which I received on October 27, 2010, written on behalf of XXXXXXXXXX , suggesting two changes to the Canadian tax system.
XXXXXXXXXX suggests that capital gains on the voluntary disposition of an income property be deferred if the proceeds are reinvested in another income property within one year.
The Income Tax Act permits a taxpayer to elect to defer their capital gains when they sell a former business property if they buy a replacement property. Former business property is defined in subsection 248(1) of the Act as meaning, generally, real property or an interest in a real property that is used primarily to earn income from a business and excludes a rental property. In this situation, rental property means real property that is used principally to earn rental income. However, if the taxpayer leases a property to a person related to the taxpayer and that related person will use the property for any purpose other than gaining or producing rental income, the property is not considered rental property. The provisions of the Act do not permit an individual to defer income or capital gains when they sell income property that meets the definition of rental property.
XXXXXXXXXX also suggests that the amount an individual can withdraw from his or her registered retirement savings plan (RRSP) under the Home Buyers' Plan (HBP) should be indexed or increased regularly. An individual can withdraw funds from an RRSP without immediate tax consequences if he or she is using the funds to buy or build a qualifying home. An individual can make a single withdrawal or a series of withdrawals from his or her RRSP under the HBP if he or she meets certain conditions and a withdrawal limit. For 2009 and later tax years, for withdrawals made after January 27, 2009, the withdrawal limit was increased to $25,000 from $20,000. However, the Act does not contain any provision for an automatic increase in the withdrawal limit for indexing.
The Canada Revenue Agency is responsible for administering the tax system and applying the current tax legislation as enacted by Parliament, whereas the Department of Finance Canada is responsible for developing and evaluating federal income tax policy and amending income tax law. Since your comments about the replacement property rules and the HBP relate to tax policy, it is appropriate that you wrote to Mr. Flaherty.
I appreciate the opportunity to respond to your suggestions.
Yours sincerely,
Keith Ashfield
Charles Rafuse
2010-038534
613-247-9237