Minister (2)/DM's Office Central Records Author/Section Chief District Office Research File Taxpayer's File Return to Specialty Rulings, Room 303 Met.
Y.S. 90150001
The Honourable Don Mazankowski, P.C., M.P., Deputy Prime Minister, President of the Queen's Privy Council for Canada and Minister of Agriculture, House of Commons, Room 203-S, Centre Block, Ottawa, Ontario K1A OA6
My dear Colleague:
I am writing in reply to your letter of May 11, 1990, file reference 219723, concerning the federal/provincial Grape and Wine Adjustment Program and the replacement property provisions of section 44 of the Income Tax Act.
Section 44 of the Act provides for a deferral of taxation on a disposition of property when a replacement is purchased within certain time frames. The Act specifically states that a taxpayer has one year from the end of the taxation year in which he disposed of a former business property to acquire a replacement property. In some cases this could be as much as twenty-three months. There is a provision that allows for two years to acquire a replacement property in the case of involuntary dispositions of property such as through theft or destruction by fire or flooding. These time frames are legislated and the Department is not able to extend them administratively.
I would mention that the replacement property rules only have application to dispositions and acquisitions of "real property" and would only apply to replacement grape vines in those instances where the former grape vines had been added to the cost of the farmer's land at the time of purchase.
Farmers who have participated in the grape removal program have the option of applying any excess funds under the program to the capital cost of their farm land, once they have offset the costs of removal and replanting. Only in situations where the excess funds are greater than the cost of their land will they have to report a taxable gain. However, it should be noted that the gain will be taxed as a capital gain and not an income gain, and would be eligible for the enhanced capital gains exemption available in respect to qualified farm property.
I trust my comments will be helpful in resolving this issue.
Yours sincerely, XXXX
G. Thornley/jp June 29, 1990 957-2101