| 24(1) | 5-902223 |
| Bill Guglich | |
| (613) 957-2102 | |
| 19(1) | EACC9653 |
September 13, 1990
Dear Sirs:
This is in reply to your letter of August 16, 1990 concerning the application of subsection 44(1) and 13(4) of the Income Tax Act (the Act) in the example described below.
1. The taxpayer disposes of his former business property.
2. A suitable replacement property is available which is being sold under distress conditions.
3. Due to the distress sale price additional space will be acquired for future expansion.
4. The taxpayer proposes to rent out up to 50% of the new property and to continue his business in the remaining space.
5. Even if the a full 50% of the building is rented out, the cost of the remaining space being used to carry on the business is greater than the proceeds received from the sale of the taxpayer's former business property.
OUR COMMENTS
The situation described above appears to involve a proposed transaction. It is not the Department's practice to give written opinions concerning proposes transactions, as indicated in Information Circular 70-6R. However, we have set out below some general comments which may be of assistance to you.
In order for the provisions of subsection 44(1) or 13(4) of the Act to apply the taxpayer must, inter alia, acquire a replacement property. Paragraph 44(5)(a) of the Act requires the replacement property to be acquired by the taxpayer for the same or a similar use as the use to which he put the former property. The last two sentences in paragraph 16 of IT-259R2 state:
"A property normally will not be a replacement property acquired for the same or similar use when it is acquired to replace a former property and at the same time provide substantial other uses. The Department is however not concerned with an insignificant secondary use of a new replacement property."
In our view the 50% rental of the new property would not meet the above criteria. As a result the new property would not qualify as a replacement property and subsection 13(4) and 44(1) of the Act would not be applicable.
We trust these comments are of assistance.
Yours truly,
E.M. Wheeler for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch