CRA continues to require land subdivision developers to pro-rate interest expenses on a lot-by-lot basis

Subject to a somewhat minimal "base level deduction," land developers are required under s. 18(2) to capitalize development-related interest expenses except to the extent of their related gross revenues.  CRA has confirmed a position adopted over 20 years ago (see 89 C.M.TC - Q.13 and 91 C.R. - Q.39) that interest expense is effectively required to be allocated for these purposes among the lots in a land subdivision, so that if only 1/3 of the lots are sold in the first post-subdivision year, around 2/3 of its interest expense for that year will still be non-deductible.

Neal Armstrong.  Summary of 20 February 2013 T.I. 2012-0469811E5 F under s. 18(2).