Replace a property and defer the capital gain
Replacement property — rollover on involuntary and voluntary dispositions
Section 44 allows you to defer a capital gain (and recaptured CCA) when you replace a property that was involuntarily disposed of (stolen, expropriated, destroyed) or voluntarily sold, if you acquire a qualifying replacement property within the required time.
Plain-language explanation
Section 44 provides a deferral mechanism: when you dispose of property and use the proceeds to acquire a qualifying replacement, you can elect to defer the capital gain (and recaptured CCA) until you eventually dispose of the replacement.
Involuntary dispositions (s.44(1)): When property is taken from you involuntarily — by expropriation, theft, destruction, or damage — you have until the later of (a) two years after the end of the year of disposition, or (b) one year after the end of the year in which you received insurance or compensation to acquire the replacement.
Voluntary dispositions (s.44(5)): For land and buildings used in a business, if you sell them voluntarily, you have until the end of the second year after the year of disposition to acquire a qualifying replacement.
How the deferral works: You elect to reduce the cost of the replacement property by the gain deferred. This means the gain is not taxed currently but will be recognized when the replacement is eventually sold (at a lower ACB).
Qualifying replacement: The replacement must be used for the same or a similar purpose as the property disposed of. You cannot replace a rental building with shares in a rental company.
Example
Maria's commercial building (ACB: $200,000) is expropriated for $350,000, triggering a $150,000 capital gain. She acquires a replacement building for $400,000 within two years and makes the s.44 election. Her gain is deferred — the replacement's ACB is reduced to $250,000 ($400,000 − $150,000 deferred gain). When she later sells the replacement for $500,000, she recognizes the full $250,000 gain at that time.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Budget 2021 extended the replacement property period for businesses affected by COVID-19 — certain dispositions in 2020 and 2021 have the replacement period extended by one year.
Common questions
Do I have to make an election to get the s.44 deferral? +
Yes. You must file an election with your tax return for the year of disposition. The election is made by filing Form T2017 (for individuals) or reporting the election in your corporate tax return.
Can I use s.44 if my property was destroyed by fire? +
Yes. Destruction of property (fire, flood, etc.) is an involuntary disposition. If you collect insurance proceeds, the insurance payment triggers the disposition. You have until the end of two years after the year of the insurance payment to acquire a replacement.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 44. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.