Citation: 2012 TCC 398
Date: 20121113
Docket: 2011-2294(IT)I
BETWEEN:
WALFRED ERICKSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hogan J.
I. Introduction
[1]
The appellant, Walfred
Erickson, instituted these appeals in respect of reassessments made under the Income
Tax Act (Canada) (the “ITA”) for the 2005 and 2006 taxation years.
[2]
Prior to the hearing,
the parties entered into a consent to partial judgment covering all of the
matters under appeal save for the matter described below.
[3]
In 2005, the appellant
acquired a fishing boat called the LCM 8 which became available for
use by the appellant for commercial fishing in August of 2006. The LCM 8
was being refurbished and was not used in that year by the appellant. The
parties agree that the appellant is entitled to claim capital cost allowance
(“CCA”) with respect to the LCM 8 as of 2006. Their dispute is centred
on the “half-year rule”, which, when it applies, limits a taxpayer’s CCA claim to
50% of the amount that could otherwise be claimed.
II. Analysis
[4]
Relying on a Canada
Revenue Agency (“CRA”) publication, the appellant argues that the 50% restriction
does not apply here. The excerpt which he relies on reads as follows:
. . . The
half-year rule does not apply when the available for use rules . . . denies
[sic] a CCA claim until the second tax year after the year you
acquire the property.
[5]
The respondent points
out that this passage does not help the appellant because he acquired the LCM 8
in 2005 and his CCA claim was deferred only until 2006, which was the first
taxation year that followed the acquisition of the LCM 8 and not
2007, which would be the second taxation year following its acquisition.
[6]
The “half-year rule” at
issue in this appeal is implemented by subsections 1100(2) and (2.4) of
the Income Tax Regulations (the “Regulations”). Subsection 1100(2) of
the Regulations provides that a taxpayer must reduce the undepreciated capital
cost of depreciable property for which CCA is claimed in respect of a
particular year by 50% of the net additions to property of that class for that
year. This amount works out to one-half of the amount by which property that is
acquired in the year, or that becomes “available for use” in the year, exceeds
the proceeds of disposition of property of that class disposed of in the year.
[7]
Subsection 1100(2) reads
as follows:
Property
Acquired in the Year
(2) The
amount that a taxpayer may deduct for a taxation year under subsection (1)
in respect of property of a class in Schedule II is to be determined as if the
undepreciated capital cost to the taxpayer at the end of the taxation year
(before making any deduction under subsection (1) for the taxation year) of
property of the class were reduced by an amount equal to 50 percent of the
amount, if any, by which
(a)
the total of all amounts, each of which is an amount added
(i)
because of element A in the definition “undepreciated capital cost” in
subsection 13(21) of the Act in respect of property that was acquired in
the year or that became available for use by the taxpayer in the year,
or
(ii)
because of element C or D in the definition “undepreciated capital cost” in
subsection 13(21) of the Act in respect of an amount that was repaid in the
year,
to
the undepreciated capital cost to the taxpayer of property of a class in
Schedule II, other than
(iii) property included in paragraph 1(v), in
paragraph (w) of Class 10 or in any of paragraphs (a) to (c),
(e) to (i), (k), (l) and (p) to (s)
of Class 12,
(iv)
property included in any of Classes 13, 14, 15, 23, 24, 27, 29, 34 and 52,
(v)
where the taxpayer was a corporation described in subsection (16)
throughout the year, property that was specified leasing property of the
taxpayer at that time,
(vi)
property that was deemed to have been acquired by the taxpayer in preceding
taxation year by reason of the application of paragraph 16.1(1)(b) of
the Act in respect of a lease to which the property was subject immediately
before the time at which the taxpayer last acquired the property, and
(vii)
property considered to have become available for use by the taxpayer in the
year by reason of paragraph 13(27)(b) or 28(c) of the Act
exceeds
(b)
the total of all amounts, each of which is an amount deducted from the
undepreciated capital cost to the taxpayer of property of the class
(i) because of element F or G in the definition
“undepreciated capital cost” in subsection 13(21) of the Act in respect of
property disposed of in the year, or
(ii) because of element J
in the definition “undepreciated capital cost” in subsection 13(21) of the Act
in respect of an amount the taxpayer received or was entitled to receive in the
year.
[Emphasis
added.]
[8]
The 50% restriction,
however, does not apply to property that is deemed to have become “available
for use” by the taxpayer by reason of paragraph 13(27)(b) or (28)(c)
of the ITA. Those provisions deem property to become available for use in the second
taxation year following the acquisition of the property.
[9]
The appellant was
entitled to claim CCA starting in 2006, which is the first taxation year
following the acquisition of the LCM 8. As a result, I conclude
that the “half-year rule” does apply to limit the appellant’s CCA claim in
respect of the LCM 8 for 2006.
III. Conclusion
[10]
The appeal from the
reassessment made under the ITA for the 2005 taxation year is allowed and the
reassessment is referred back to the Minister for reconsideration and
reassessment in accordance with these Reasons for Judgment and the consent for
partial judgment filed at the hearing.
[11]
The appeal from the
reassessment made under the ITA with respect to the appellant’s 2006 taxation
year is allowed and the reassessment is referred back to the Minister for
reconsideration and reassessment in accordance with these Reasons for Judgment
and the consent for partial judgment filed at the hearing.
Signed at Ottawa, Canada, this 13th day of November
2012.
“Robert J. Hogan”
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