Principal Issues: [TaxInterpretations translation] What are the criteria used to determine whether subsection 248(21) of the Income Tax Act applies to a division of property between two or more persons, where the division also includes buildings?
Position: Subsection 248(21) applies if each person has, as a result of a partition of a property, a new interest the fair market value of which immediately after the partition, expressed as a percentage of the fair market value of all the new interests in the property immediately after the partition, is equal to the fair market value of that person’s undivided interest immediately before the partition.
FEDERAL TAX ROUNDTABLE
APFF CONFERENCE 2005
QUESTION
25. SUBDIVISION OF PROPERTY - SUBSECTION 248(21)
For the purposes of subsection 248(21), it is possible to partition a property between two or more persons who owned it without immediate tax consequences if certain conditions are satisfied. We wish to know what criteria you use to determine whether or not this rollover applies where the partition includes not only land but also buildings. In other words, how will the CRA analyze the concept of a partitioning of a single or multiple buildings?
RESPONSE
Subsection 248(21) applies if each person has, as a result of a partition of a property, a new interest the fair market value of which immediately after the partition, expressed as a percentage of the fair market value of all the new interests in the property immediately after the partition, is equal to the fair market value of that person’s undivided interest immediately before the partition, expressed as a percentage of the fair market value of all the undivided interests in the property immediately before the partition. The application of subsection 248(21) overrides the application of subsection 248(20) and ensures that the partition of a property occurs without immediate tax consequences to the persons involved.
Before concluding that subsection 248(21) applies in a particular situation, it is necessary to determine, first, whether a property is the subject of a partition between persons with undivided interests and, second, whether the fair market value of each individual interest in the property after the partition is equal to the fair market value of each proportionate interest that existed before the partition. Those determinations can only be made after a thorough examination of all relevant circumstances in the light of the applicable rules of law.
It appears that in some, but not all, circumstances it may be possible for the rules in subsection 248(21) to apply in the context of a partition of a building and subjacent land, previously held in undivided co-ownership, between persons who become, as a result of the partition, owners of a unit of the building in divided co-ownership.
François Bordeleau
952-1506
October 7, 2005
2005-014115