Principal Issues: Does the Act currently permit capital gains on rental properties to be deferred when a replacement property is purchased?
Position: No.
Reasons: Section 44(1)
October 17, 2007
XXXXXXXXXX
Dear Colleague:
I am writing in response to correspondence received on August 23, 2007, from your constituency assistant, XXXXXXXXXX, concerning the deferral of capital gains on the disposition of residential property under the Income Tax Act.
More specifically, XXXXXXXXXX asked whether the tax legislation would be changed for situations where an individual sells a rental property and buys another. She received this question from a constituent who owns a rental property and was under the impression that legislation was being considered that would allow for the rental property to be sold and another rental property subsequently purchased without a taxable capital gain being realized.
XXXXXXXXXX correctly points out that the Act currently does not permit capital gains on rental properties to be deferred when a replacement property is purchased. The replacement property rules are discussed in detail in Interpretation Bulletin IT-259R4, Exchange of Properties, which is available on the Canada Revenue Agency (CRA) Web site at www.cra.gc.ca/formspubs/menu-e.html.
The CRA is responsible for administering the legislation as enacted by Parliament and is unable to go beyond the provisions of the Act. The concern your constituent raised is a matter of fiscal policy and falls under the responsibility of the Department of Finance Canada. I am therefore forwarding a copy of your office's correspondence to the Honourable James M. Flaherty, Minister of Finance, for his consideration.
I trust that my comments and the referral will be helpful.
Sincerely,
The Honourable Gordon O'Connor, P.C., M.P.
c.c.: The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance
House of Commons
Ottawa ON K1A 0A6
Charles Rafuse
Tel. (613) 247-9237
2007-025066