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: Whether a taxpayer's income which is derived from the recapture of CCA on a property that was used to earn income from an office or employment, is included in the calculation of the taxpayer's "earned income" for the taxation year.
Position: Yes.
Reasons: Subsection 13(1) of the Act provides for the inclusion in income of the recapture of CCA where the proceeds of disposition of a depreciable property exceed the undepreciated capital cost of the prescribed class of the property. Subsection 13(11) of the Act provides the authority for the recapture of CCA on a property that was previously deducted by a taxpayer in computing income from an office or employment. An amount included in income under subsection 13(1) of the Act is considered to be income from the same source from which CCA on the property was deducted. Therefore, the recapture of CCA on a property that was previously deducted by a taxpayer in computing income from an office or employment, is considered income from "an office or employment" which is included in "earned income" pursuant to subparagraph (a)(i) of definition in subsection 146(1) of the Act.
January 27, 2004
Mr. Eric Watterud HEADQUARTERS
Publication Officer Randy Hewlett, B.Comm.
Client Services Directorate 613-957-8973
Assessment and Collections Branch
2004-005536
Recaptured Capital Cost Allowance - Earned Income
We are writing in response to your e-mail of January 8, 2004, wherein you requested our opinion on whether a taxpayer's income which is derived from the recapture of capital cost allowance ("CCA") on a property that was used to earn income from an office or employment, is included in the calculation of the taxpayer's "earned income" for the taxation year.
Subsection 8(1) of the Income Tax Act (the "Act") provides for the deduction of CCA on certain property that is used by a taxpayer to earn income from an office or employment. Subparagraph 8(1)(j)(ii) of the Act provides for the deduction of CCA on a motor vehicle or an aircraft, and subparagraph 8(1)(p)(ii) provides for the deduction of CCA on a musical instrument. The rules that apply for purposes of calculating CCA on a property that is used to earn income from a business or property, which are enumerated in section 13 of the Act and Part XI of the Income Tax Regulations, also apply for purposes of calculating CCA on a property that is used to earn income from an office or employment.
Subsection 13(1) of the Act provides for the inclusion in income of the recapture of CCA where the proceeds of disposition of a depreciable property exceed the undepreciated capital cost of the prescribed class of the property. Subsection 13(11) of the Act provides the authority for the recapture of CCA on a property that was previously deducted by a taxpayer in computing income from an office or employment. An amount included in income under subsection 13(1) of the Act is considered to be income from the same source from which CCA on the property was deducted. Therefore, the recapture of CCA on a property that was previously deducted by a taxpayer in computing income from an office or employment, is considered income from "an office or employment" which is included in "earned income" pursuant to subparagraph (a)(i) of the definition in subsection 146(1) of the Act.
We trust our comments are of assistance.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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