A Canadian-controlled private corporation demolished a building on its land, realized a terminal loss and, on the same land, erected a new rental building. CRA stated:
Paragraph 13(21.1)(b) applies where a taxpayer, whose building is demolished in a taxation year, does not dispose in that year of the land subjacent to, or immediately contiguous to and necessary for the use of, the building. For the purposes of paragraph 13(21.1)(b), the land must have been owned at any time before the disposition of the building by the taxpayer or by a person with whom the taxpayer did not deal at arm’s length. In such a case, the deemed proceeds of disposition of the building, for the purpose of determining the terminal loss, if the building is the last property in the class, are then equal to the proceeds otherwise determined plus one-half of the amount by which the greater of the cost amount of the building and the fair market value of the building exceeds the proceeds of disposition.
Furthermore, where a building is demolished and the land subjacent to the building is not disposed of, subsection 13(21.1) generally reduces the amount of the terminal loss to one-half of the amount otherwise calculated.
Paragraph 13(21.1)(b) will apply where the subjacent land is disposed of in a taxation year other than the one in which the building is demolished.
... [T]here is no provision in the Act that allows for a terminal loss denied under paragraph 13(21.1)(b) to be added to the adjusted cost base of the building or land.