January 14, 1987
St. John's District Office Chief of Audit
A. Dunphy B. Field Examination
Specialty Rulings Directorate T.R. Kuss (613) 957-2120
Change in Use - Subsection 45(1) Agreed Amounts - Subsection 85(1) Elections
This is in response to your memorandum dated October 7, 1986 regarding the above-referenced subject. We have reviewed your memorandum and have a number of comments.
Whether there has been a change in use, within the meaning of subsection 45(1) of the Act, in respect of the taxpayer's "restaurant properties", is a question of fact and can only be determined with full knowledge of all the particulars of the situation. However, it is our opinion that none of the facts included in your memorandum would cause us to determine that such a change in use has taken place.
In order for a change in use, within the meaning of subsection 45(1), to have occurred, it is not, in our opinion, sufficient that a property that was acquired for the purpose of gaining or producing income from a business, or for the purpose of producing income therefrom, is simply no longer used for those purposes. For the subsection to apply, the taxpayer must have commenced to use the property for some other purpose. It is our opinion, based on the facts you have provided us, that no use has been made of the property after the cessation of the business. In this regard see paragraph 6 of IT-478 .
We concur with your disallowance of the taxpayer's "rental losses" for the XXXX taxation years provided that
(1) XXXX
(2) XXXX
With respect to your questions regarding subsection 85(1) of the Act we have the following comments.
There does not appear to be any provision of the Act or general administrative practice of the Department which would allow a taxpayer to file a subsection 85(1) election with the agreed amounts to be determined at some later date. In order for an election to be valid there must be an agreed amount for property disposed of by the taxpayer.
Subsection 85(7.1) of the Act may be of some use in the situation you have described. Subsection 85(7.1) of the Act deals with situations where
(1) an election can be made after the date provided for in subsection 85(7), or
(2) an election already made can be subsequently amended.
The provisions of this subsection only apply where the Minister considers such application just and equitable in the circumstances. However, as described in paragraph 85(7.1)(d), a penalty (which would be computed pursuant to subsection 85(8)) would have to be paid by the taxpayer at the time the election or amended election is made.
From an administrative perspective, Information Circular 76-19R deals with situations where the agreed amounts may be subsequently amended, but these situations are confined to V-day valuation issues. IT-169 deals with price adjustment clauses and under what circumstances the Department will recognize their operation for purposes of the Act. However this bulletin restricts itself to valuation problems, which really are not the issue in this case.
XXXX
We hope these comments are of assistance to you.
Chief, Foreign and Small Business Section Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch