Two brothers (B1 and B2) hold several pieces of farmland in equal co-ownership. Some of their children are actively involved in farming. B2 continues to actively farm, whereas B1, who was formerly actively involved, now rents his interest out to some children.
After finding (contrary to an earlier position) that their respective co-ownership interests could constitute qualified farm property, CRA went on to find that if their co-ownership was partitioned, with each exchanging some of his 50% interests for 50% interests of the other, that the interests so acquired by them could potentially qualify as replacement properties. CRA stated:
Paragraph 44(1)(b) requires that a property be a former business property immediately before it is disposed of. In light of the preceding comments that a property may include an undivided interest of a co-owner in real property, it is our view that, if the other requirements of the definition of former business property in subsection 248(1) are satisfied, the undivided interest acquired by B2 from B1 could be a replacement property for purposes of subsection 44(1) as defined in subsection 44(5). The same is true for the undivided interest acquired by B1 from B2 where B1's children use the property for the purpose of earning business income. The determination as to a replacement property is essentially a question of fact on which we cannot rule in a technical interpretation.