Replacement property rules (s. 44)

A seller who disposes of business property and acquires other property to carry on in its place may ask whether this rule applies. The CRA’s folio says subsection 44(1) may provide for the deferral of all or part of the capital gain where a capital property, other than a share of the capital stock of a corporation, is disposed of and a replacement property is acquired within specified time limits.

What the rules require

The folio describes the election as available where property was involuntarily disposed of, or a former business property was voluntarily disposed of. The CRA also says the replacement must be acquired within the specified time limits and be used by you or a related person for the same or similar purpose. How much is deferred depends on the proceeds and on the cost of the replacement property under subsection 44(1).

What to ask

• Is the property a capital property that is not a share?
• Is it a former business property, or was the disposition involuntary?
• What are the time limits, and how must the election be made?
• Will the replacement be used for the same or a similar purpose?

For shares, a different rule applies: see the eligible small business investment rollover. For wider planning, see tax reporting and planning options for sale proceeds.