If the property being involuntarily disposed of is a secondary residence, could a second home in the same or different tourist region, or with different attributes (access to water) or, now, in a metropolitan area, qualify as a replacement property? Is this affected by it being an undivided interest that is acquired, or if the replacement property was acquired from a spouse? CRA responded:
First, there must be some correlation (or a direct substitution) between the disposition of a former property and the acquisition of the replacement property. The two properties must generally have the same physical characteristics. For this purpose, a secondary residence consisting of a building and land, which would be a personal-use property and thus, for tax purposes, one and the same property, could be replaced by a new property, which would also consist of a building and land, and which would be considered as a single replacement property. …
Second, the replacement property must have been acquired for the same or similar use as the former property. If the former property is a secondary residence, this requirement could be satisfied if the new property qualifies as personal-use property … .
The geographic location of the "replacement property" is generally not a determining factor … .
[A] secondary residence, whether or not it is in the same tourist area as the former property or that has different attributes (access to water) or that is a personal residence in a metropolitan area - or an undivided interest in such properties - could qualify as a replacement property … .
[T]he fact that a replacement property is acquired by a taxpayer from the taxpayer’s spouse … does not, by that fact alone, preclude the application of the rules in subsection 44(1).