9 January 2002 External T.I. 2001-0095765 - DEDUCTION OF GENERAL EXPENSES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

The deduction of general expenses for capital transactions.

Position:

The Act does not provide for the deduction of general expenses in the calculation of capital gains or losses. The only expenses that are deductible in the calculation of a gain or loss from a capital transaction are outlays and expenses to the extent that they were made or incurred for the purpose of making the disposition of the property. While the Act does generally provide for the deduction of expenses incurred to earn business or property income, these provisions do not apply for a gain or loss on a capital property.

Reasons:

Subdivision B

XXXXXXXXXX 2001-009576

Randy Hewlett, B.Comm.

January 9, 2002

Dear XXXXXXXXXX:

Re: Deduction of General Expenses Capital Transactions

We are writing in response to your letter dated July 18, 2001, wherein you expressed concern about the treatment of certain "salaries and other operating costs" that are not deductible against capital gains.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

The question of whether a particular gain is of a capital or income nature is one of fact. In your letter you referred to the tax treatment of certain expenses against a capital gain. In general terms, the Income Tax Act (the Act) does not provide for the deduction of "salaries and other operating costs" in the calculation of capital gains or losses. The only expenses that are deductible in the calculation of a gain or loss from a capital transaction are outlays and expenses to the extent that they were made or incurred for the purpose of making the disposition of the property. While the Act does generally provide for the deduction of expenses incurred to earn business or property income, these provisions do not apply for a gain or loss on a capital property.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch