Dear Sirs:
Re: Section 44 and Subsection 13(4) of the Income Tax Act (the"Act")
This is in reply to your letter of March 22, 1991, requesting our opinion on the following hypothetical situation.
24(1)
The partnership wishes to use the "replacement property' rules of the Act. You question the type of property that may be acquired in this type of situation. Specifically you have asked whether the partnership could acquire as replacement property an apartment building which it will continue to hold to earn rental revenues or whether the partnership could acquire a shopping centre or warehouse which would continue to be held to earn rental revenues ? These questions centre on the question of whether there is, or should be, a distinction between residential and commercial rents for the purpose of the replacement property rules.
You also ask whether the replacement property must be acquired by the partnership or may the partners acquire the replacement property with respect to their share of the gain ?
It appears to us that the situation you summarized in your letter involves a series of proposed actual transactions which are more properly the subject of an advance ruling. It is not the Department's practice, as indicated in Information Circular 70-6R2, to give written opinions concerning proposed transactions. Should you wish to obtain an advance ruling on transactions proposed by your client, please refer to IC 70-6R2 for the procedure to be undertaken.
We are, however, prepared to offer the following general comments, based on the information provided in your letter.
Our Comments
As indicated in paragraph 14 of Interpretation Bulletin IT-259R2 Exchange of Property, subsections 13(4.1), 14(7) and 44(5) provide that a particular property is replacement property, if it is acquired for the same or similar use as the use to which the taxpayer put the former property. Generally, the Department has adopted a fairly broad interpretation of these terms.
24(1)
Further, it is our view that whether the rents were commercial or residential would not necessarily be a critical factor in establishing the use of an asset which otherwise qualifies as a replacement property.
However, in answer to your final question, further to paragraph 22 of Interpretation Bulletin IT-259R2, the replacement property provisions would not apply to a situation where the partnership disposes of a property and a partner (or partners) acquires the replacement property because, pursuant to paragraph 96(1)(a) of the Act, the partnership is considered to be a person separate from its partners for purposes of income and loss computations under subdivision j of the Act.
We trust that the above comments will be of assistance to you. However, as you know, these comments are an expression of opinion only and. as such, are not binding on the Department.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch