Income Tax Act

Marginal note:Exchanges of property

• 44 (1) Where at any time in a taxation year (in this subsection referred to as the “initial year”) an amount has become receivable by a taxpayer as proceeds of disposition of a capital property that is not a share of the capital stock of a corporation (which capital property is in this section referred to as the taxpayer’s “former property”) that is either

  • (a) property the proceeds of disposition of which are described in paragraph (b), (c) or (d) of the definition proceeds of disposition in subsection 13(21) or paragraph (b), (c) or (d) of the definition proceeds of disposition in section 54, or

  • (b) a property that was, immediately before the disposition, a former business property of the taxpayer,

  and the taxpayer has

  • (c) if the former property is described in paragraph (a), before the later of the end of the second taxation year following the initial year and 24 months after the end of the initial year, and

  • (d) in any other case, before the later of the end of the first taxation year following the initial year and 12 months after the end of the initial year,

  acquired a capital property that is a replacement property for the taxpayer’s former property and the replacement property has not been disposed of by the taxpayer before the time the taxpayer disposed of the taxpayer’s former property, notwithstanding subsection 40(1), if the taxpayer so elects under this subsection in the taxpayer’s return of income for the year in which the taxpayer acquired the replacement property,

  • (e) the gain for a particular taxation year from the disposition of the taxpayer’s former property shall be deemed to be the amount, if any, by which

    • (i) where the particular year is the initial year, the lesser of

      • (A) the amount, if any, by which the proceeds of disposition of the former property exceed

        • (I) in the case of depreciable property, the lesser of the proceeds of disposition of the former property computed without reference to subsection 44(6) and the total of its adjusted cost base to the taxpayer immediately before the disposition and any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition, and

        • (II) in any other case, the total of its adjusted cost base to the taxpayer immediately before the disposition and any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition, and

      • (B) the amount, if any, by which the proceeds of disposition of the former property exceed the total of the cost to the taxpayer, or in the case of depreciable property, the capital cost to the taxpayer, determined without reference to paragraph (f), of the taxpayer’s replacement property and any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition, or

    • (ii) where the particular year is subsequent to the initial year, the amount, if any, claimed by the taxpayer under subparagraph 44(1)(e)(iii) in computing the taxpayer’s gain for the immediately preceding year from the disposition of the former property,

    exceeds

    • (iii) subject to subsection 44(1.1), such amount as the taxpayer claims,

      • (A) in the case of an individual (other than a trust), in prescribed form filed with the taxpayer’s return of income under this Part for the particular year, and

      • (B) in any other case, in the taxpayer’s return of income under this Part for the particular year,

      as a deduction, not exceeding the lesser of

      • (C) a reasonable amount as a reserve in respect of such of the proceeds of disposition of the former property that are payable to the taxpayer after the end of the particular year as can reasonably be regarded as a portion of the amount determined under subparagraph 44(1)(e)(i) in respect of the property, and

      • (D) an amount equal to the product obtained when 1/5 of the amount determined under subparagraph 44(1)(e)(i) in respect of the property is multiplied by the amount, if any, by which 4 exceeds the number of preceding taxation years of the taxpayer ending after the disposition of the property, and

  • (f) the cost to the taxpayer or, in the case of depreciable property, the capital cost to the taxpayer, of the taxpayer’s replacement property at any time after the time the taxpayer disposed of the taxpayer’s former property, shall be deemed to be

    • (i) the cost to the taxpayer or, in the case of depreciable property, the capital cost to the taxpayer of the taxpayer’s replacement property otherwise determined,

    minus

    • (ii) the amount, if any, by which the amount determined under clause 44(1)(e)(i)(A) exceeds the amount determined under clause 44(1)(e)(i)(B).

• Marginal note:COVID — time not counted

  (1.01) For the purposes of paragraphs (1)(c) and (d), the period beginning on March 15, 2020 and ending on March 12, 2022 is not to be counted.

• Marginal note:Reserve — property disposed of to a child

  (1.1) In computing the amount that a taxpayer may claim under subparagraph (1)(e)(iii) in computing the taxpayer’s gain from the disposition of a former property of the taxpayer, that subparagraph shall be read as if the references in that subparagraph to “1/5” and “4” were references to “1/10” and “9” respectively if that former property is real or immovable property in respect of the disposition of which, because of subsection 73(3), the rules in subsection 73(3.1) applied to the taxpayer and a child of the taxpayer.

• Marginal note:Time of disposition and of receipt of proceeds

  (2) For the purposes of this Act, the time at which a taxpayer has disposed of a property for which there are proceeds of disposition as described in paragraph (b), (c) or (d) of the definition proceeds of disposition in subsection 13(21) or paragraph (b), (c) or (d) of the definition proceeds of disposition in section 54, and the time at which an amount, in respect of those proceeds of disposition has become receivable by the taxpayer shall be deemed to be the earliest of

  • (a) the day the taxpayer has agreed to an amount as full compensation to the taxpayer for the property lost, destroyed, taken or sold,

  • (b) where a claim, suit, appeal or other proceeding has been taken before one or more tribunals or courts of competent jurisdiction, the day on which the taxpayer’s compensation for the property is finally determined by those tribunals or courts,

  • (c) where a claim, suit, appeal or other proceeding referred to in paragraph 44(2)(b) has not been taken before a tribunal or court of competent jurisdiction within two years of the loss, destruction or taking of the property, the day that is two years following the day of the loss, destruction or taking,

  • (d) the time at which the taxpayer is deemed by section 70 or paragraph 128.1(4)(b) to have disposed of the property, and

  • (e) where the taxpayer is a corporation other than a subsidiary corporation referred to in subsection 88(1), the time immediately before the winding-up of the corporation,

  and the taxpayer shall be deemed to have owned the property continuously until the time so determined.

• Marginal note:Where s. 70(3) does not apply

  (3) Subsection 70(3) does not apply to compensation referred to in paragraph (b), (c) or (d) of the definition proceeds of disposition in subsection 13(21) or paragraph (b), (c) or (d) of the definition proceeds of disposition in section 54 that has been transferred or distributed to beneficiaries or other persons beneficially interested in an estate or trust.

• Marginal note:Deemed election

  (4) Where a former property of a taxpayer was a depreciable property of the taxpayer

  • (a) if the taxpayer has elected in respect of that property under subsection 44(1), the taxpayer shall be deemed to have elected in respect thereof under subsection 13(4); and

  • (b) if the taxpayer has elected in respect of that property under subsection 13(4), the taxpayer shall be deemed to have elected in respect thereof under subsection 44(1).

• Marginal note:Replacement property

  (5) For the purposes of this section, a particular capital property of a taxpayer is a replacement property for a former property of the taxpayer, if

  • (a) it is reasonable to conclude that the property was acquired by the taxpayer to replace the former property;

  • (a.1) it was acquired by the taxpayer and used by the taxpayer or a person related to the taxpayer for a use that is the same as or similar to the use to which the taxpayer or a person related to the taxpayer put the former property;

  • (b) where the former property was used by the taxpayer or a person related to the taxpayer for the purpose of gaining or producing income from a business, the particular capital property was acquired for the purpose of gaining or producing income from that or a similar business or for use by a person related to the taxpayer for such a purpose;

  • (c) where the former property was a taxable Canadian property of the taxpayer, the particular capital property is a taxable Canadian property of the taxpayer; and

  • (d) where the former property was a taxable Canadian property (other than treaty-protected property) of the taxpayer, the particular capital property is a taxable Canadian property (other than treaty-protected property) of the taxpayer.

• Marginal note:Deemed proceeds of disposition

  (6) If a taxpayer has disposed of property that was a former business property and was in part a building and in part the land (or an interest, or for civil law a right, therein) subjacent to, or immediately contiguous to and necessary for the use of, the building, for the purposes of this Subdivision, the amount if any, by which

  • (a) the proceeds of disposition of one such part determined without regard to this subsection

  exceed

  • (b) the adjusted cost base to the taxpayer of that part

  shall, to the extent that the taxpayer so elects in the taxpayer’s return of income under this Part for the year in which the taxpayer acquired a replacement property for the former business property, be deemed not to be proceeds of disposition of that part and to be proceeds of disposition of the other part.

• Marginal note:Where subpara. (1)(e)(iii) does not apply

  (7) Subparagraph 44(1)(e)(iii) does not apply to permit a taxpayer to claim any amount under that subparagraph in computing a gain for a taxation year where

  • (a) the taxpayer, at the end of the year or at any time in the immediately following year, was not resident in Canada or was exempt from tax under any provision of this Part;

  • (b) the person to whom the former property of the taxpayer was disposed of was a corporation that, immediately after the disposition,

    • (i) was controlled, directly or indirectly in any manner whatever, by the taxpayer,

    • (ii) was controlled, directly or indirectly in any manner whatever, by a person or group of persons by whom the taxpayer was controlled, directly or indirectly in any manner whatever, or

    • (iii) controlled the taxpayer, directly or indirectly in any manner whatever, where the taxpayer is a corporation; or

  • (c) the former property of the taxpayer was disposed of to a partnership in which the taxpayer was, immediately after the disposition, a majority-interest partner.

• Marginal note:Application of s. 70(10)

  (8) The definitions in subsection 70(10) apply to this section.