| 19(1) | File No. 901061 |
| J.D. Brooks | |
| (613) 957-2097 |
June 26, 1990
Dear Sirs:
We are writing you in reply to your letter of November 22, 1989 in which you queried whether there is any provision in the Income Tax Act (the "Act") to permit the transfer of undepreciated capital cost ("UCC") from one class to another in circumstances where one class (e.g. class 22) has been "replaced" by another class (e.g.class 38). You questioned whether relief could be provided either by transferring UCC between classes or by utilizing replacement property rules. We apologize for the delay in replying.
Our Comments
Both of the two procedures to which you referred can defer recognition of recapture, depending on the circumstances. The replacement property rules are described in section 13 of the Act. Where a taxpayer has acquired a property of a prescribed class (the "new class") as a replacement property for depreciable property of another prescribed class (the "former class"), subsection 13(4) of the Act for these details. For instance, to qualify as replacement property, the new property must fit within the description stated in subsection 13(4.1) and it must be acquired within the specified time frame. Subsection 13(4) requires the taxpayer to elect in his return of income for the year in which he acquires the replacement property. The Department's Interpretation Bulletin IT-259R2 provides further commentary with respect to this provision.
The rules for transfers between classes that may apply are described in subsection 1103(2d) of the Income Tax regulations. It should be noted that this subsection was amended on December 14, 1989. This provision deals specifically with the situation where a former class has been "replaced" with a new class,an example being the use of class 38 now in place of class 22. Where the conditions described in subsection 1103(2d) of the Regulations have been met, the taxpayer may elect in his return of income for the year in which the former property is disposed of to transfer the former property from the new class. The UCC computations of such a transfer are made pursuant to subsection 13(5) of the Act.
Our comments in this letter represent our general views with respect tot he subject matter of your letter. The facts of a particular situation may lead to a different conclusion. Also, our comments in this letter are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R dated December 18, 1978, are not binding on the Department.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch