2014-0551841E5 SUBSECTIONS 44(1) AND 69(11) OF THE ACT

Principal Issues: Whether deemed proceeds of disposition for purposes of subsection 69(11) would be considered to be an amount that has become receivable by a taxpayer as proceeds of disposition for purposes of the replacement property rules in subsection 44(1) of the Act?

Position: Yes.

Reasons: We will accept that the taxpayer is considered to have received those proceeds at that time for purposes of subsection 44(1).

Author: D'Angelo, Sandro
Section: D'Angelo, Sandro

XXXXXXXXXX

2014-055184
S. D’Angelo

December 23, 2014

Dear XXXXXXXXXX:

Re: Subsections 44(1) and 69(11) of the Income Tax Act (the “Act”)

This is in reply to your correspondence of October 23, 2014 and our telephone conversation (D’Angelo/XXXXXXXXXX) of October 29, 2014, wherein you requested our views whether the amount of proceeds of disposition deemed by subsection 69(11) of the Act could be considered an amount that has become receivable by the taxpayer as proceeds of disposition for purposes of the replacement property rules in subsection 44(1) of the Act.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Subsection 69(11) may apply where, as part of a series of transactions or events, a taxpayer disposes of property to a recipient for proceeds of disposition that are less than the fair market value of that property (rollover) and the recipient subsequently disposes of that property (or substituted property), or makes arrangements for the disposition of that property, within 3 years from the date of the disposition of the property by the taxpayer. However, subsection 69(11) would only apply where it also can reasonably be considered that one of the main purposes of the series of transactions or events is to obtain the benefit of, inter alia, any deduction in computing taxable income (e.g., a deduction under subsection 110.6(2) of the Act in respect of a “qualified farm property”) available to the recipient in respect of the subsequent disposition of that property, provided that the recipient is not an “affiliated person” in respect of the taxpayer immediately before the series commenced. Where subsection 69(11) applies the taxpayer is deemed to have disposed of the property for proceeds of disposition equal to its fair market value at that particular time.

Generally speaking, the replacement property rules in subsection 44(1) may allow a taxpayer who incurs a capital gain on the disposition of certain capital property to elect to defer tax on that gain to the extent that the taxpayer reinvests the proceeds of disposition in a replacement property within a certain period of time. The preamble to subsection 44(1) specifically requires that “an amount has become receivable by a taxpayer as proceeds of disposition of a capital property”.

While subsection 69(11) does not specifically deem the taxpayer to have an amount receivable as proceeds of disposition (when it applies), the CRA will generally accept that this will not, in and by itself, prevent a taxpayer from making an election to have the replacement property rules in subsection 44(1) apply where all the required conditions set out in section 44 are otherwise met.

We trust our comments will be of assistance.

Yours truly

Michael Cooke, C.P.A., C.A.
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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