,canada ,cu/oms                       #a
& ,rev5ue ,ag5cy

          ,9t]pret,n ,bullet9
    
,subject3 ,9come ,tax ,act
  ,pr(it1 ,capital ,ga9s & ,losses f !
  ,sale ( ,r1l ,e/ate1 ,9clud+ ,f>ml& &
  ,9h]it$ ,l& & ,3v].n ( ,r1l ,e/ate f
  ,capital ,prop]ty 6,9v5tory & ,vice
  ,v]sa
,numb]3 ,,it-#bah;,r
,date3 ,septemb] #af1 #aihf
,ref];e3 ,sec;n #i 7al subsec;ns
  #ac7#g71 #de7#a7 & #bdh7#a71 p>agraphs
  #ac7#ba77c71 #ed7a71 7c71 7f7 & 7g71
  subp>agraph #dj7#b77g77;iii7 &
  ,regul,ns #aaja7#a7 & #aajb7#a77b77

  ,? bullet9 c.els & replaces
,,it-#aig;,r dat$ ,augu/ #bj1 #aigi &
,,it-#bah dat$ ,may #bf1 #aige & applies
) respect 6tax,n ye>s -m5c+ af ! date (
xs issue4 ,pl1se note t ! -;ts 9
,,it-#ajb;,r 3c]n+ r1l prop]ty & xs   #a
              ,,it-#bah;,r           a#a
3v].n f capital prop]ty 69v5tory & vice
v]sa 3t9ue 6apply 6tax,n ye>s -m5c+ on
or 2f ! date ( issue ( ? bullet94

#a4 ,a ga9 >is+ on ! sale ( r1l e/ate w
  2 3sid]$ 6be busi;s 9come1 prop]ty
  9come or a capital ga94 ,? bullet9
  does n d1l ) ga9s >is+ on ! sale ( r1l
  e/ate t is or 0 designat$ z a pr9cipal
  resid;e 2c s* ga9s >e d1lt ) 9
  ,,it-#abj;,r#c4
#b4 ,! ^w 8busi;s0 is def9$ 9 subsec;n
  #bdh7#a7 s z 69clude1 9t] alia1 an
  adv5ture or 3c]n 9 ! nature ( trade4
  ,? def9i;n c cause an isolat$
  transac;n 9volv+ r1l e/ate 6be 3sid]$
  a busi;s transac;n4 ,z a busi;s1 any
  ga9 or loss : >ises "!from is1 0virtue
  ( sec;n #i1 requir$ 6be 9clud$ 9 -put+
  9come or loss1 z ! case may be4
#c4 ,"! is no provi.n 9 ! ,9come ,tax
  ,act : describes ! circum/.es 9 : ga9s
  f ! sale ( r1l e/ate >e 6be det]m9$ z
  2+ ei 9come or capital4 ,h["e1 9    #b
              ,,it-#bah;,r           b#a
  mak+ s* det]m9,ns1 ! c\rts h 3sid]$
  factors s* z ^? li/$ 2l3 7,! li/ is n
  9t5d$ 6be exclusive ( any o!r factor47
  7a7 ! taxpay]'s 9t5;n ) respect 6! r1l
    e/ate at ! "t ( xs pur*ase2
  7b7 f1sibil;y (! taxpay]'s 9t5;n2
  7c7 geographical loc,n & zon$ use (!
    r1l e/ate acquir$2
  7d7 ext5t 6: 9t5;n c>ri$ \ 0! taxpay]2
  7e7 evid;e t ! taxpay]'s 9t5;n *ang$
    af pur*ase (! r1l e/ate2
  7f7 ! nature (! busi;s1 profes.n1
    call+ or trade (! taxpay] &
    associates2
--------------------------------------#b
  7g7 ! ext5t 6: borr[$ m"oy 0 us$ 6f9.e
    ! r1l e/ate acquisi;n &! t]ms (!
    f9anc+1 if any1 >rang$2
  7h7 ! l5g? ( "t "?\t : ! r1l e/ate 0
    held 0! taxpay]2
  7i7 ! exi/;e ( p]sons o!r ?an !
    taxpay] :o %>e 9t]e/s 9 ! r1l e/ate2
  
                                      #c
              ,,it-#bah;,r           a#b
  7j7 ! nature (! o3up,n (! o!r p]sons
    ref]r$ 6in 7i7 abv z well z _! /at$
    9t5;ns & c\rses ( 3duct2
  7k7 factors : motivat$ ! sale (! r1l
    e/ate2
  7l7 evid;e t ! taxpay] &/or associates
    _h d1lt ext5sively 9 r1l e/ate4
#d4 ,n"o (! factors li/$ 9 #c abv is
  3clusive 9 xf =! purpose ( det]m9+ t a
  ga9 >is+ on ! sale ( r1l e/ate
  3/itutes 9come or a capital ga94 ,!
  relev.e ( any factor 6s* a det]m9,n w
  v>y )! facts ( ea* case4
#e4 ,a taxpay]'s 9t5;n at ! "t ( pur*ase
  ( r1l e/ate is relevant 9 det]m9+ :e!r
  a ga9 on xs sale w 2 tr1t$ z busi;s
  9come or z a capital ga94 ,x is possi#
  =a taxpay] 6h an alt]nate or second>y
  9t5;n1 at ! "t ( acquir+ r1l e/ate1 (
  resell+ x at a pr(it if ! ma9 or
  prim>y 9t5;n is ?w>t$4 ,if ? second>y
  9t5;n is c>ri$ \ any ga9 r1liz$ on !
  sale usu,y w 2 tax$ z busi;s 9come4
                                      #d
              ,,it-#bah;,r           b#b
#f4 ,! m closely a taxpay]'s busi;s or
  o3up,n 7e4g4 a build]1 a r1l e/ate
  ag5t7 is relat$ 6r1l e/ate transac;ns1
  ! m likely x is t any ga9 r1liz$ 0!
  taxpay] f s* a transac;n w 2 3sid]$
  6be busi;s 9come r ?an a capital ga9
  7see #c7f7 & 7j7 abv74
#g4 ,! objects z /at$ 9 ! *>t] (a
  corpor,n (t5 (f] ll assi/.e 9 det]m9+
  ! 9t5;n (! corpor,n :5 r1l e/ate is
  acquir$ & lat] sold4 ,3sequ5tly1 9 any
  case ": a corpor,n claims a capital
  ga9 9 respect ( r1l e/ate ! corporate
  9t5;n relative 6! acquisi;n & sale "!(
  w 2 exam9$ & det]m9$ 0ref];e 6factors
  s* z ^? describ$ 9 #c abv4 ,9 "s cases
  7e4g41 closely-held corpor,ns7 !
  corporate 9t5;n may 2 9dist+ui%a# f t
  ( xs (fic]s1 directors &/or %>ehold]s
  & 9 s* cases _! 9t5;ns1 z bas$ on _!
  pa/ & pres5t 3duct ) respect 6r1l
  e/ate1 w acly 2 attribut$ 6! corpor,n4
#h4 ,passive memb]s (a "pn]%ip or
  syndicate w 2 9 no di6]5t posi;n    #e
              ,,it-#bah;,r           c#b
  ) reg>d 6! taxabil;y ( r1l e/ate
  pr(its ?an t (! active memb]s4 ,!
  ac;ns & 9t5;ns (! active memb]s w 2
  imput$ 6! passive memb]s4
--------------------------------------#c
#i4 ,:5 ! sale ( %>es 9 a corpor,n 0a
  taxpay] is m]ely an alt]native me?od (
  r1liz+ pr(its f ! sale ( r1l e/ate1 !
  pr(its f ! sale ( ^? %>es w 2 tax$ z
  if ! r1l e/ate xf _h be5 sold4

         ,3v].n ( ,r1l ,e/ate f
      ,capital ,prop]ty 6,9v5tory
           7p>agraphs #aj-ai7
    
#aj4 ,r1l e/ate t is held 0xs [n] z
  capital prop]ty may 2 us$ 0xs [n] z
  p]sonal-use prop]ty 7see def9i;n 9
  p>agraph #ed7f77 or x may 2 us$ =!
  purpose ( ga9+ or produc+ 9come f a
  busi;s or prop]ty4 ,a sale ( r1l e/ate
  t is capital prop]ty 9 ! v5dor's h&s
  w1 z a g5]al rule1 give rise 6a
  capital ga9 or loss1 z ! case may   #f
              ,,it-#bah;,r           a#c
  be1 6! v5dor 7except 9 ! case (a loss
  on ! sale ( p]sonal-use prop]ty : is
  nil 0virtue (! limit,ns ( subp>agraph
  #dj7#b77g77;iii774 ,h["e1 ": r1l e/ate
  is 3v]t$ f capital prop]ty 69v5tory z
  4cuss$ 9 #ab & #ac 2l1 ! results w 2 z
  foll[s3
  7a7 = r1l e/ate t is p]sonal-use
    prop]ty xs 3v].n 69v5tory w 3/itute
    a *ange 9 use =! purposes (
    subsec;ns #ac7#g7 & #de7#a7 )!
    att5dant deem$ 4posi;n & acquisi;n z
    expla9$ 9 #aa 2l2 &
  7b7 = r1l e/ate t is us$ =! purpose (
    ga9+ or produc+ 9come f a busi;s or
    prop]ty1 xs 3v].n 69v5tory w n
    3/itute a *ange 9 use 7see al #aa
    2l7 &! proce$s f xs ultimate sale w
    2 tr1t$ 9 a3ord.e ) #ae 2l4
#aa4 ,9 a3ord.e )! rules 9 subsec;ns
  #ac7#g7 & #de7#a7 prop]ty is deem$ 6h
  be5 4pos$ (= proce$s equal 6xs fair
  m>ket value at ! "t :5 x "ugoes a
  *ange 9 use & 6h be5 reacquir$      #g
              ,,it-#bah;,r           b#c
  immly af t "t = an am.t equal 6^? same
  proce$s4 ,! ,de"p;t 3sid]s t ! *anges
  9 use z describ$ 0subsec;ns #ac7#g7 &
  #de7#a7 d n 9clude a transf] ( prop]ty
  f "o 9come-e>n+ func;n 6ano!r s*
  func;n (! same taxpay]4 ,acly1 x is !
  ,de"p;t's posi;n t subsec;ns #ac7#g7 &
  #de7#a7 d n apply ": r1l e/ate t is
  us$ 0xs [n] =! purpose ( ga9+ or
  produc+ 9come f a busi;s or prop]ty
  7e4g41 an (fice build+ or r5tal
  prop]ty7 is 3v]t$ 0xs [n] 69v5tory4 ,!
  use 70sale7 ( 9v5tory is / an 9come-
  e>n+ func;n4 ,! same r,nale w apply :5
  9v5tory is 3v]t$ 6capital prop]ty
  provid$ ! prop]ty is1 immly af 3v].n1
  us$ 0xs [n] =! purpose ( ga9+ or
  produc+ 9come f a busi;s or prop]ty4
  ,! -;ts 9 #ab 6#ai 2l >e pr$icat$ on !
  proposi;n t subsec;ns #ac7#g7 &
  #de7#a7 h no applic,n =! r1sons /at$
  abv4

                                      #h
              ,,it-#bah;,r            #d
#ab4 ,vacant l& t is capital prop]ty us$
  0xs [n] =! purpose ( ga9+ or produc+
  9come w 2 3sid]$ 6h be5 3v]t$ 69v5tory
  at ! e>li] (
  7a7 ! "t :5 ! [n] -m;es or causes !
    -m;e;t ( improve;ts "!to )a view
    6sell+ x1 &
  7b7 ! "t ( mak+ applic,n 6! relevant
    au?or;y = approval (a plan
    6subdivide ! l& 96lots = sale1
    provid$ t ! taxpay] proce$s )!
    develop;t (! subdivi.n4
  ,see #bc & #bd 2l = -;ts 3c]n+ f>ml& &
  9h]it$ l&4
#ac4 ,! units 9 a multi-unit resid5tial
  a"p;t1 or an (fice1 w>eh\se /orage
  build+ or any simil> /ructure t is
  held z capital prop]ty 0! [n] w 2
  3sid]$ 6h be5 3v]t$ 69v5tory at ! "t
  :5 applic,n is made 6! relevant
  au?or;y = approval 6*ange ! title 6any
  s* build+ 6/rata title1 provid$ t !
  [n] proce$s )! sale (! units4 ,see al
  #ah 2l4                             #i
              ,,it-#bah;,r           a#d
#ad4 ,": ! relevant au?or;y rejects an
  applic,n ref]r$ 6in #ab or #ac abv1 &!
  [n] "!af sells ! prop]ty en bloc1 !
  sale w ord9>ily 2 tr1t$ z a sale (
  capital prop]ty if x wd h be5 s tr1t$
  _h ! prop]ty be5 sold 2f ! applic,n 0
  made4
#ae4 ,": r1l e/ate t is us$ =! purpose (
  ga9+ or produc+ 9come f a busi;s or
  prop]ty is 3v]t$ f capital prop]ty
  69v5tory1 ! ac;n ( 3v].n does n
  3/itute a 4posi;n )9 ! m1n+ (
  p>agraphs #ac7#ba77c7 & #ed7c74 ,x is1
  h["e1 recogniz$ t ! ultimate sale (
  r1l e/ate t 0 s 3v]t$ may give rise 6a
  ga9 or loss on capital a3.t1 a ga9 or
  loss on 9come a3.t or a ga9 or loss t
  is "ply capital & "ply 9come4 ,acly1
  ": s* r1l e/ate has be5 3v]t$
  69v5tory1 capital ga9s or losses1 if
  any1 w 2 calculat$ on ! basis t a
  no;nal 4posi;n ( s* prop]ty o3urr$ on
  ! date ( 3v].n4 ,! am.t ( s* a no;n,y
  det]m9$ capital ga9 or loss 9      #aj
              ,,it-#bah;,r           b#d
  respect (! r1l e/ate w 2 ! di6];e 2t
  xs adju/$ co/ base1 z def9$ 9 p>agraph
  #ed7a71 7subject 6! ,,itar rules =
  prop]ty held on ,decemb] #ca1 #aiga7 &
  xs fair m>ket value on ! date ( 3v].n4
  ,^! no;nal capital ga9s or losses w 2
  3sid]$ 6give rise 6taxa# capital ga9s
  or all[a# capital losses =! tax,n ye>
  dur+ : ! actual sale (! r1l e/ate
  o3urs & w 2 requir$ 6be s report$ 9 t
  same ye>4 ,! am.t ( any 9come ga9 or
  loss >is+ on actual sale (! 3v]t$ r1l
  e/ate w 2 det]m9$ 9
--------------------------------------#e
  a3ord.e ) g5],y a3ept$ a3.t+ pr9ciples
  on ! basis t xs 9itial 9v5tory value
  is xs fair m>ket value on ! date (
  3v].n4 ,see #af 6#ai 2l ": ! use ( ^!
  proc$ures is illu/rat$ 0examples4
--------------------------------------#f
#af4 ,! foll[+ examples illu/rate ! use
  (! proc$ures set \ 9 #ae abv = non-
  deprecia# capital prop]ty4
                                     #aa
              ,,it-#bah;,r           a#f
,transcrib]'s note3
  7,! foll[+ is set-up 9 f\r columns4
  ,column ;,a to ;,d4 ,=! brl v].n
  p>agraph #af is split 9 #b "ps4 ,"p #a
  column ;,a & ;,b1 "p #b column ;,c &
  ;,d47

 """"""""""""""""""""" ;,a """"""" ;,b
,assump;ns3
,prop]ty is l&
7#a7 ,co/ ( prop]ty
  :5 acquir$ """"""" 4#a1jjj "" 4#aj1jjj
7#b7 ;,v "d value   4#aj1jjj
7#c7 ,fair m>ket
  value at date (
  3v].n """"""""""" 4#ae1jjj "" 4#ae1jjj
7#d7 ,co/ ( a4i;ns
  made af 3v].n """" 4#d1jjj """ 4#d1jjj
7#e7 ,proce$s (
  sale """""""""""" 4#bj1jjj "" 4#ab1jjj
,no;nal capital ga9
  ;,a 7#c7 m9us
  7#b7 """"""""""""" 4#e1jjj
                                     #ab
              ,,it-#bah;,r           b#f
;,b 7#c7 m9us 7#a7 """"""""""""" 4#e1jjj
,9come ga9 ;,a 7#e7
  m9us 7#c7 m9us
  7#d7 """"""""""""" 4#a1jjj
,9come loss ;,b
  7#c7 plus 7#d7
  m9us 7#e7 """""""""""""""""" 74#g1jjj7
,e6ect = tax
  purposes 9 ye> (
  actual sale (
  prop]ty3
,taxa# capital ga9
  or 7all[a#
  capital loss """"" 4#b1ejj """ 4#b1ejj
,9come ga9 or
  7loss7 """"""""""" 4#a1jjj   74#g1jjj7
 """"""""""""""""""" 4#c1ejj  @47#d1ejj7






                                     #ac
              ,,it-#bah;,r           c#f
 """"""""""""""""""""" ;,c """"""" ;,d
,assump;ns3
,prop]ty is l&
7#a7 ,co/ ( prop]ty
  :5 acquir$ """""" 4#aj1jjj "" 4#aj1jjj
7#b7 ;,v "d value
7#c7 ,fair m>ket
  value at date (
  3v].n """""""""""" 4#h1jjj """ 4#g1ejj
7#d7 ,co/ ( a4i;ns
  made af 3v].n """" 4#d1jjj """ 4#d1jjj
7#e7 ,proce$s (
  sale """"""""""""" 4#f1jjj "" 4#bj1jjj
,no;nal capital ga9
  ;,c 7#a7 m9us
  7#c7 """""""""""" 74#b1jjj7
;,d 7#a7 m9us 7#c7 """"""""""" 74#b1ejj7
,9come ga9 ;,d 7#e7
  m9us 7#c7 m9us
  7#d7 """"""""""""""""""""""""" 4#h1ejj
,9come loss ;,c
  7#c7 plus 7#d7
  m9us 7#e7 """"""" 74#f1jjj7
                                     #ad
              ,,it-#bah;,r           d#f
,e6ect = tax
  purposes 9 ye> (
  actual sale (
  prop]ty3
,taxa# capital ga9
  or 7all[a#
  capital loss """" 74#a1jjj7  74#a1bej7
,9come ga9 or
  7loss7 """""""""" 74#f1jjj7 "" 4#h1ejj
 """""""""""""""""" 74#g1jjj7 "" 4#g1bej

,transcrib]'s note3
  7,page #g1 fr5* v].n ( page #f47
--------------------------------------#h
#ag4 ,": only "p (a p>cel ( l& is 3v]t$
  69v5tory 7e4g41 "o-half (! p>cel is
  develop$ = sale z resid5tial build+
  lots71 =! purpose ( -put+ busi;s 9come
  on ! subsequ5t sale (! 3v]t$ l& ! co/
  (! 3v]t$ "p is 3sid]$ 6be equal 6xs
  fair m>ket value at ! date ( 3v].n4
  ,simil>ly1 ": 9 a tax,n ye> only "p (!
  3v]t$ l& is sold1 ! co/ 7=! purpose (
  -put+ 9come7 (! "p sold is !       #ae
              ,,it-#bah;,r           a#h
  por;n (! fair m>ket value at ! date (
  3v].n ( all ! 3v]t$ l& z may r1sonably
  2 attributa# 6t "p4 ,! capital ga9 or
  loss1 if any1 on ! sale ( "p or all (!
  3v]t$ l& w 2 -put$ 9 a3ord.e ) #ae &
  #af abv4
#ah4 ,! ,act provides rules gov]n+ !
  tr1t;t ( proce$s >is+ on ! 4posi;n (
  deprecia# capital prop]ty b x does n
  5visage ! possibil;y t s* prop]ty may
  2 3v]t$ 69v5tory 2f xs 4posi;n4 ,acly1
  ":1 9 situ,ns s* z ^? describ$ 9 #ac
  abv1 deprecia# r1l e/ate is 3v]t$
  69v5tory1 x is ! ,de"p;t's posi;n t
  7a7 ! 9itial co/ (! r1l e/ate =
    9v5tory valu,n purposes w 2 xs fair
    m>ket value z at ! "t ( 3v].n1 &
  7b7 ! ultimate sale (! r1l e/ate may
    give rise 6results simil> 6^?
    describ$ 9 #ae abv4
  ,! classes ( prop]ty describ$ 9 ,"p
  ,,xi & ,s*$ule ,,ii (! ,9come ,tax
  ,regul,ns >e1 0virtue ( p>agraph
  #aajb7#a77b7 "!(1 deem$ n          #af
              ,,it-#bah;,r           b#h
  69clude prop]ty t is describ$ 9 a
  taxpay]'s 9v5tory4 ,acly1 ": deprecia#
  prop]ty 7e4g41 an a"p;t build+7 is
  3v]t$ 69v5tory x c1ses 6qualify =
  capital co/ all[.e =! tax,n ye> dur+ :
  ! 3v].n o3urs & subsequ5t ye>s1 b
  3t9ues 6h an undepreciat$ capital co/
  bal.e 9 ! class ( ,s*$ule ,,ii (!
  ,regul,ns 6: x 0 assign$ until xs
  ultimate 4posi;n1 at : "t ! class w 2
  cr$it$ )! less] (! co/ (! asset & xs
  fair m>ket value at ! "t ( 3v].n
  69v5tory4
--------------------------------------#i
#ai4 ,6illu/rate ! 3v].n ( deprecia# r1l
  e/ate 69v5tory &! tr1t;t1 = tax
  purposes1 (! proce$s ( sale "!(1
  assume ! foll[+3





                                     #ag
              ,,it-#bah;,r           a#i
  ,! prop]ty is a #ej-suite
    r5tal a"p;t build+ :1
    at ! "t x 0 acquir$ 0a
    taxpay]1 co/1 exclud+
    l& 7,note 7#b77 """""""" 4#a1jjj1jjj
  ,! undepreciat$ capital
    co/ (! build+ z at
    ,decemb] #ca1 #aihb 0 """" 4#ijj1jjj
  ,! fair m>ket value (!
    build+ :5 x 0 3v]t$
    69v5tory 7see #ac abv7
    on ,augu/ #a1 #aihc 0 "" 4#b1jjj1jjj
  ,sales 7 made
    9 #aihe ( #bj suites =
      proce$s ( """""""""""" 4#a1bjj1jjj
    & 9 #aihf ( #cj suites
      = proce$s ( """""""""" 4#b1ajj1jjj
    
  ,9 #aihe & #aihf1 ! taxpay] w a3.t =
  7a7 capital ga9s r1liz$ on actual
    sales 7in ? example ! no;nal capital
    ga9 z at ,augu/ #a1 #aihc 0
    4#a1jjj1jjj71
                                     #ah
              ,,it-#bah;,r           b#i
  7b7 9come f ! sale af ,july #ca1 #aihc
    ( 9v5tory1 &
  7c7 9come f ! recapture ( capital co/
    all[.e1
  0allocat+1 on an av]age p]-suite
  basis1 ! sales proce$s1 co/ & capital
  ga9 z foll[s3
-------------------------------------#aj
,transcrib]'s note3
  7,! foll[+ is set-up 9 ?ree columns4
  ,column #a3 #aihe
  ,column #b3 #aihf
  ,column #c3 ,total7
  
,sales proce$s
  --#bj suites #aihe3 4#a1bjj1jjj
  --#cj suites #aihf3 4#b1ajj1jjj
  ,total 4#c1cjj1jjj
,deduct3 ,less] ( co/ & fair m>ket value
  p] suite at ! "t ( 3v].n 69v5tory1 z
  cr$it$ 6! undepreciat$ capital co/ (!
  class ( deprecia# prop]ty 6: ! co/ (!
  build+ 0 allocat$ 7,note 7#a77
                                     #ai
              ,,it-#bah;,r          a#aj
  #aihe--#bj suites at 4#bj1jjj3
    4#djj1jjj
  #aihf--#cj suites at 4#bj1jjj3
    4#fjj1jjj
  ,total 4#c1cjj1jjj m9us 4#a1jjj1jjj3
    4#b1cjj1jjj
,deduct3 ,no;nal capital ga9 z at ,augu/
  #a1 #aihc actu,y r1liz$
  9 #aihe3 #bj divid$ 0#ej multipli$ by
    74#b1jjj1jjj m9us 4#a1jjj1jjj73
    4#djj1jjj
  9 #aihf3 #cj divid$ 0#ej multipli$ by
    74#b1jjj1jjj m9us 4#a1jjj1jjj73
    4#fjj1jjj
  ,total3 4#a1jjj1jjj
,9come f sale ( 9v5tory 7,note 7#b77
  #aihe3 4#djj1jjj
  #aihf3 4#ijj1jjj
  ,total3 4#a1cjj1jjj
,add3 ,9come--recapture ( capital co/
  all[.e 7,note 7#a77
  #aihf3 4#ajj1jjj
  ,total3 4#ajj1jjj
                                     #bj
              ,,it-#bah;,r          b#aj
,total 9come exclud+ ! taxa# capital ga9
  #aihe3 4#djj1jjj
  #aihf3 4#a1jjj1jjj
  ,total3 4#a1djj1jjj
,taxa# capital ga9
  #aihe3 4#bjj1jjj
  #aihf3 4#cjj1jjj
  ,total3 4#ejj1jjj
,total 9come
  #aihe3 4#fjj1jjj
  #aihf3 4#a1cjj1jjj
  ,total3 4#a1ijj1jjj
  
,note 7#a73
  ,! undepreciat$ capital co/ a3.t =!
  build+1 assum+ t x 0 a sep>ate class
  pursuant 6,regul,n #aaja7#a71 w appe>
  z foll[s3





                                     #ba
              ,,it-#bah;,r          c#aj
  ,undepreciat$ capital co/
    ,decemb] #ca1 #aihb-hd """ 4#ijj1jjj
  ,less3 reduc;n re #aihe
    sales """""""""""""""""""" 4#djj1jjj
  ,u4,c4,c4 ,decemb] #ca1
    #aihe """""""""""""""""""" 4#ejj1jjj
  ,less3 reduc;n re #aihf
    sales """""""""""""""""""" 4#fjj1jjj
  ,recaptur$ capital co/
    all[.e 6be 9clud$ 9 9come
    "u subsec;n #ac7#a7 """" 74#ajj1jjj7
  
,note 7#b73
  ,al? n %[n 9 ? example1 ! l& relative
  6! build+ w1 except t x is non-
  deprecia#1 2 subject 6! same 3sid],ns
  ) respect 6! det]m9,n (a no;nal
  capital ga91 9come ga91 &! report+ "!(
  9 ! ye> ( sale4

,transcrib]'s note3
  7,page #aa1 fr5* v].n on page #aj7

                                     #bb
         ,3v].n ( ,r1l ,e/ate f      #ab
      ,9v5tory 6,capital ,prop]ty
           7p>agraphs #bj-bb7
    
#bj4 ,": a taxpay] acquires r1l e/ate &
  allocates xs co/ 69v5tory 9 !
  taxpay]'s a3.t+ records1 s* a3.t+
  tr1t;t w 2 3sid]$ 6repres5t prima
  facie evid;e t ! r1l e/ate 0 9iti,y
  acquir$ )! 9t5;n ( resell+ x at a
  pr(it at a propiti\s "t 7see #e 6#g
  abv74 ,if s* r1l e/ate is vacant l&1 x
  is ! ,de"p;t's posi;n t any ga9 on xs
  sale1 z s*1 w 2 busi;s 9come r ?an a
  capital ga94 ,see h["e1 #ba 2l :
  4cusses ! 3v].n ( improv$ l& f 9v5tory
  6capital4
#ba4 ,a taxpay] :o 3/ructs build+s =
  sale & :o orig9,y 9t5d$ 6sell a
  "picul> build+ soon af x 0 -plet$ may1
  h["e1 p]man5tly 3v]t t build+ f
  9v5tory 6capital prop]ty
  7a7 0e/abli%+ t ! orig9al 9t5;n 6sell
    ! build+ has be5 ab&on$1
                                     #bc
              ,,it-#bah;,r          a#ab
  7b7 0capitaliz+ ! co/ (! build+ &! co/
    (! lot 7if [n$ 0! taxpay]7 ^u : x
    sits1 9 ! taxpay]'s f9ancial
    records1 &
  7c7 0mak+ use (! build+ z a capital
    asset =a p]iod ( "t 9 a mann] t is m
    9dicative ( 9ve/+ ?an trad+4
    ,examples ( s* uses >e z foll[s3
    7;i7 ! r5tal (! build+ on a l;g t]m
      l1se : does n provide ! lessee )
      an op;n 6pur*ase1
    7;ii7 ! h\s+ (! taxpay]'s busi;s1 or
    7;iii7 ! r5tal ( "p (! build+ on
      t]ms describ$ 9 7;i7 &! o3up,n (!
      rema9d] "!( 0! taxpay] =! purpose
      describ$ 9 7;ii74
  ,! same 3sid],ns w apply ) respect
  6r1l e/ate1 o!r ?an vacant l&1 t 0
  pur*as$ =! purpose ( resale4
#bb4 ,a taxpay] :o 3/ructs build+s =
  sale w n 2 3sid]$ 6h 3v]t$ 9v5tory
  6capital prop]ty :5 "p or all ( any s*
  build+ is tempor>ily r5t$ = any r1son4
  ,r5tal rev5ues s rcvd1 net (       #bd
              ,,it-#bah;,r          b#ab
  exp5se1 w 2 9clud$ 9 -put+ ! taxpay]'s
  9come1 b s9ce ! build+ w1 at all "ts1
  2 3sid]$ 6be held z 9v5tory1 x w n 2
  eligi# = capital co/ all[.e4

     ,f>ml& & ,9h]it$ ,l& 7p>agraph
                  #bc7
    
#bc4 ,! sale1 en bloc or piecem1l1 0a
  taxpay] (
  7a7 f>ml& regul>ly us$ 0! taxpay] =!
    purpose ( ga9+ or produc+ 9come f a
    f>m+ busi;s c>ri$ on 0! taxpay]1 or
-------------------------------------#ac
  7b7 l& 9h]it$ 0! taxpay]
  
  w g5],y give rise 6a capital ga9 or
  loss1 z ! case may be1 6! taxpay]
  except ":1 = example1 ! taxpay]

  7c7 3v]ts s* l& 6a trad+ prop]ty 7see
    #bd 2l71 or
  
                                     #be
              ,,it-#bah;,r          a#ac
  7d7 acquir$ ! l& ref]r$ 6in 7a7 )!
    9t5;n ( resell+ x = pr(it at a
    propiti\s "t 7see #e abv74
#bd4 ,p>cels ( f>m+ or 9h]it$ l& ref]r$
  6in #bc abv may 2 di6icult 6sell en
  bloc &! l& may 2 sold 0subdivid+ x &
  sell+ ! lots 9dividu,y4 ,x is !
  ,de"p;t's view t ! fil+ (a subdivi.n
  plan & sell+ lots "!"u does n 9 xf
  a6ect ! /atus (! ga9 not)/&+ t s*
  subdivi.n may 5h.e ! value ( s* l&4 ,a
  ga9 on ! sale ( f>m+ or 9h]it$ l& w
  rema9 a capital ga9 if an exam9,n (
  all o!r facts1 bo? 2f & af subdivi.n1
  e/abli%es ? 6be s4 ,h["e1 ": ! taxpay]
  goes 2y m]e subdivi.n (! l& 96lots &
  9/alls improve;ts s* z wat]ma9s1 sew]s
  or roads1 or c>ries on an ext5sive
  adv]tis+ campaign 6sell ! lots1 !
  taxpay] w 2 3sid]$ 6h 3v]t$ ! l& f a
  capital prop]ty 96a trad+ prop]ty4 ,":
  s* a 3v].n o3urs see #ae abv = tr1t;t
  ( ga9s or losses >is+ f ! ultimate
  sale (! prop]ty4                   #bf