CRA finds that s. 13(7.1) (or s. 53(2)(k)) overrides the application of s. 12(1)(x) re government assistance to construct or repair affordable housing

Aco will receive a grant (the “Government Assistance”), described under s. 12(1)(x)(iv), from a Crown corporation for the purpose of creating or repairing affordable housing.

CRA indicated that to the extent that the Government Assistance received by Aco was in respect of the acquisition of depreciable property (or land), s. 13(7.1) (or s. 53(2)(k)) will deem that amount to reduce the capital cost of the depreciable property (or land) – without any inclusion under s. 12(1)(x) pursuant to s.12(1)(x)(vi) and (in contrast with s. 13(7.4) or 53(2.1)) without any election required. The cost of depreciable property for these purposes includes any “capital expenditures (as opposed to current expenses) related to the construction of new affordable housing, or to convert existing buildings into affordable housing.”

To the extent that the Government Assistance was used to fund an expense that was otherwise fully deductible (e.g. landscaping under s. 20(1)(aa), investigation costs under s. 20(1)(dd), disability related modifications to buildings in accordance with s. 20(1)(qq), salary and certain repairs and maintenance under s. 9(1)), Aco could elect under s. 12(2.2) to reduce the expense by that amount (otherwise, there would be a s. 12(1)(x) inclusion – which would not matter because Aco could then deduct the related expense.)

Neal Armstrong. Summaries of 16 February 2024 External T.I. 2023-0984301E5 under s. 13(7.1) and s. 12(2.2).