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.
Principal Issues: What is the CCA class for a mobile home?
Position: A mobile home having the construction of a trailer, that has not been attached to a permanent foundation, should be included in Class 10(e). A mobile home that has been attached to a permanent foundation, with the intention of remaining in place permanently, would be a class 1 property.
Reasons: Interpretation of Schedule II and the decision in Landsdowne
November 10, 2008
David Shugar Charles Rafuse
Senior Technical Applications Officer 613-247-9237
Technical Applications and Valuations Division
Audit Professional Services Directorate
Compliance Programs Branch
2008-029653
Re: Capital Cost Allowance-Mobile Homes
This is in reply to your emails of October 15 and 31, 2008, concerning whether a mobile home is a trailer and belongs in class 10(e) of Schedule II of the Income Tax Regulations.
You noted that in a recent case, Lansdowne Equity Ventures Ltd. v The Queen, 2007 DTC 3), the Tax Court of Canada (TCC) found that the mobile homes under review were trailers and belonged in class 10(e). As the Landsdowne decision appears to conflict with IT Rulings opinion 902569, which states that mobile homes should normally fall into class 1 or 3, depending on the date of acquisition, you have asked for our comments on the correct classification of a mobile home.
In document 902569A, it was concluded that mobile homes would normally fall into class 1 or 3, depending on the date of acquisition, and in very rare instances, in class 8. This conclusion was reached taking into account paragraph 2 of Interpretation Bulletin IT-79R2 (now IT-79R3) as well as the Dubreuil decision (78 DTC 1584), where Chairman Cardin of the Tax Review Board (TRB) dealt with the classification of mobile homes for CCA purposes. The CCH head note of the Dubreuil case describes the mobile homes under review, the tax issues and the decision of the TRB as follows:
The taxpayer corporation, which was in the logging and lumbering business, provided many of its employees with housing, mostly in the form of mobile homes. These homes were steel framed with metal sheeting and had an undercarriage with axle and wheels such as exist on trailer trucks. The mobile homes were equipped with a hitch and were capable of being towed. They were mounted on wooden cribbing or concrete pads and in some instances the wheels would be removed. Once mounted, plumbing and electrical connections would be installed and a skirting arranged around the understructure. In the 1972 to 1974 taxation years inclusive the taxpayer claimed capital cost allowance on the mobile homes on the basis that they were trailers within the meaning of paragraph 2 of Class 10 of Schedule B of the regulations. The Minister reassessed the taxpayer on the basis that the mobile homes were Class 6 assets. The taxpayer appealed arguing that the trailers were Class 10 assets or alternately, Class 8 or Class 3 assets.
Held: The appeal was allowed. The mobile homes were not used primarily as a means of conveyance for either people or goods and therefore, since the unit's mobility was only an ancillary characteristic to their primary function as permanent homes they could not be considered "trailers" within the meaning of paragraph e of Class 10 of Schedule B of the regulations. Class 6 refers to wooden frames and since the trailers were admittedly steel framed with metal sidings they were not Class 6 assets. However, the mobile homes did fall within the general description of paragraph (d) of Class 8 of Schedule B and capital cost allowance should be allowed accordingly. (Emphasis added)
As you pointed out, the classification of mobiles homes was also in issue in a more recent case. In Lansdowne, Bell J. of the Tax Court of Canada (TCC) concluded that the mobile homes in the case under review were, in the ordinary sense of the word, trailers included in class 10(e), and were not buildings or structures (class 1).
In Lansdowne, the taxpayer operated 12 mobile home parks having approximately 1700 dirt or gravel mobile home pads and owned approximately 1100 mobile homes which it leased as residential dwelling units. The mobile homes had wood frames with steel carriages, axles, wheels, trailer hitches, brakes and emergency lights. The taxpayer included the mobile homes in class 10(e) on the basis that they were trailers. The CRA reassessed the taxpayer to include the mobile homes in class 1 on the basis that a mobile home is "a building or other structure." In reaching its decision, the TCC considered whether the mobile homes in question could be included in class 1(q) (building or structure), class 6(a)(vii)( a building of frame construction with no footings or base support below ground level), class 8(i) (tangible capital property not included in any other class) and class 10(e) (trailers). The TCC concluded that the mobile homes were, in the ordinary sense of the word, trailers included in class 10(e).
In Lansdowne, the mobile homes were found not to fall into class 1. They were not buildings, as conceded by the CRA, because a building must be affixed to the soil. They were not structures because the CRA position in IT-79R3 is that a structure is "intended to remain permanently on a permanent foundation" and the mobile homes did not meet this requirement.
The mobile homes could not be included in class 6 because, it would appear, the TCC's view was that before the mobile homes could be so included the mobile homes had to qualify as "buildings" and they did not qualify as buildings.
The TCC's decision in Lansdowne was not appealed by the CRA. The wording of the preamble of class 1, 6, and 10 ("property not included in any other class that is...") permits a court to choose between classes if an asset could be properly included in more than one class. That is, even if the mobile homes could arguably be included in class 1 or 6, it was open to the court to find that they fell into class 10.
In our view, a mobile home that fits the description of the mobile homes considered in Lansdowne (with undercarriage, axles, wheels, trailer hitches, brakes and emergency lights and sitting on pads) would be included in class 10(e) as a trailer. However, there may be circumstances where the status as a class 10(e) trailer would be lost. For example, the status as a trailer would be lost and the mobile home would be considered a building in a situation where the wheels, trailer hitches, brakes and emergency lights are removed and the unit is affixed to cement pads on the ground and services (e.g., hydro and water) are installed.
We trust this information is helpful.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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