18 October 1989 Income Tax Severed Letter ACF3338 - 1989 Capital Gains Guide

October 18, 1989

         Current Amendments and
            Regulations Division
         R.D. Weil
         957-2066

         Mrs. P. McNally
         Director
         Enquiries and Taxpayer
            Assistance Division

         1989 CAPITAL GAINS GUIDE

         As requested in your memo of October 12, 1989, we have
         reviewed the final draft version of the above Guide. 
         The changes from the previous draft appear to be
         consistent with intended tax policy.

         GENERAL COMMENTS

         1. On page 11 of the final draft, the last part of the
         second "bullet" should read:

            "...active business carried on by you or THE MEMBERS
            OF the partnership, or an interest in a partnership
            where all or substantially all of the partnership's
            assets were used in an active business carried on by
            THE MEMBERS OF the partnership."

         2. On page 16 of the final draft, the first sentence of
         the third paragraph under the heading "Employees' stock
         options" might be clearer if it read as follows:

            "Generally the taxable benefit is included in your   
             income in the year you acquire the shares through
             the option.  However, the taxable benefit IS NOT
             included in your income UNTIL the year you dispose
             of the shares if the shares were acquired through an
             employee stock option plan granted by AN ARM'S
             LENGTH Canadian-controlled private corporation."

         3. On page 62 of the final draft, where the rules in
         subsection 44(5) of the Act are discussed, the
         grammatical structure is somewhat awkward.  You may wish
         to consider the following suggested alternative for the
         first paragraph under the heading "Replacement
         Property".

            "Generally speaking, a property will qualify as a    
             replacement property if it was acquired for the same
             or similar use as the former property.  Where the   
             property replaces a property used in your business,
             it must be acquired for use in the same or a similar
             business.  For further information on the meaning of
             replacement property obtain Interpretation Bulletin 
              IT-259R2
, Exchange of Property."

         B.J. Bryson
         Acting Director
         Current Amendments and
            Regulations Division

         c.c. A.G. Cockell

         RDW/jab