| 19(1) | File No. 5-8550 |
| C. Tremblay | |
| 613-957-2095 |
February 1, 1990
Dear Sirs:
Re: Similar Business Properties
This is in reply to your letter of August 21, 1989, requesting a technical interpretation of the meaning of the phrases "similar use" and "similar business" for the purpose of the deferral of recapture of capital cost allowance as provided in subsection 13(4) of the Income Tax Act (the "Act") and the deferral of capital gains as used in the context of subsection 44(5) of the Act. We apologize for the delay in replying.
You have described a situation where two of your clients who presently operate within the rest homes industry have expressed interest in pursuing an investment in a hotel. One has recently disposed of a rest home and the other has received unsolicited offers from prospective purchasers of its facility. You refer to the pronouncement in paragraph 20 of Interpretation Bulletin IT-259R2 and ask whether these service business could be considered similar business for purposes of paragraphs 13(4.1)(a) and (b) and 44(5)(a) and (b) of the Act.
Our Comments
With regard to service industries, the Department's position, as stated in paragraph 20 of IT-259R2 is that the determination of whether two businesses are "similar businesses" will have to be made on the facts of the case. For such cases, the Department will interpret "similar business" in reasonably broad manner. However, the Department's position that it will interpret the phrase "similar business" in a reasonably broad manner only applies where two businesses belong to the same service industry.
You have outlined a number of similarities between a rest home and a hotel, but there remains a number of differences such monthly or daily payment rates, typical length of stay by a guest, room and lounge facilities and degree of residential care. Accordingly, in our view, the operation of most full service hotels would not be considered similar businesses to most rest homes for the purposes of paragraph 44(5)(b) of the Act. However, as our response in any particular case would depend on the facts of the case, we would prefer to deal with such a case on the basis of an advance ruling request, where we are given all the facts.
This opinion is our best interpretation of the law as it applies generally. We trust our comments will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch