When there is an involuntary disposition of a depreciable asset, any resulting capital gain can be eliminated if the asset is replaced by an asset of equal or greater value, no later than the end of the second taxation year following the disposition.

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This is known as the capital gains rollover rule and is allowed under the Income Tax Act. It allows individuals and businesses to defer paying taxes on capital gains if the proceeds from the sale of a depreciable asset are reinvested in a replacement asset within the specified timeframe.

When There Is an Involuntary Disposition of a Depreciable Asset