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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
1.Where a taxpayer owns more than one condominium each worth more than $50,000 in the same building can each unit be set up as a separate class?
2. Can it be said that the renting of residential condominium units is carrying on business for the purpose of subsection 96(1.1)?
Position:
1. No.
2. Question of fact
Reasons:
1.Regulation 1101(1ac) refers to rental property and rental property is defined as a building. Therefore all units are in respect of the same building.
2.Subsection 248(1) defines business as including certain activities. Otherwise it retains it ordinary meaning. To be considered used in a business property must be used and at risk.
XXXXXXXXXX 990966
S. Tevlin
Attention: XXXXXXXXXX
February 8, 2000
Dear Sirs:
Re: Technical Interpretation Request
We are writing in response to your letter dated March 19, 1999 wherein you requested our opinion with respect to certain income tax issues.
In particular you ask, (i) whether a taxpayer who acquires several condominium units in the same building, costing in excess of $50,000 each, can include each condominium unit in a separate class notwithstanding the comments in Interpretation Bulletins IT-274R and IT304R, and (ii) whether the Canada Customs and Revenue Agency ("CCRA") would accept the position that a Limited Partnership formed to purchase and rent residential condominiums would be considered to be carrying on business for the purpose of subsection 96(1.1) of the Income Tax Act (the "Act").
In this regard we offer the following general comments:
(i) If each condominium unit which a taxpayer owns is contained within and is part of an aggregate structure which is a building, each unit necessarily has reference to the particular building in which it is contained. Subsection 1101(1ac) of the Income Tax Regulations (the "Regulations") refers to "rental property"; and a "rental property" is defined, in subsection 1100(14) of the Regulations, as a building.
Accordingly, it is our opinion that it is reasonable to conclude for purposes of subsection 1101(1ac) of the Regulations that if a taxpayer owns units in a building and the aggregate of the cost of the units owned in that building is greater than $50,000, then a separate class must be set up for that aggregate in respect of that building for purposes of capital cost allowance provisions of the Act.
(ii) The term "business" is very broadly defined in subsection 248(1) of the Act to include "...a profession, calling, manufacture or undertaking of any kind whatever and ... an adventure or concern in the nature of trade...". The court in Canadian Marconi (84 DTC 6267) made the point that beyond the included activities in subsection 248(1) of the Act, the word business retains its ordinary meaning.
In the context of whether income from property qualifies for the small business deduction, paragraph 6 of Interpretation Bulletin IT-73R5 entitled The Small Business Deduction states, ".... The issue of whether property was used or held by a corporation in the course of carrying on a business was considered by the Supreme Court in Ensite Limited v. Her Majesty the Queen (1986) 2 C.T.C. 459, 86 DTC 6521. The Court held that the holding or using of property must be linked to some definite obligation or liability of the business and that a business purpose test is not sufficient. The property had to be employed and risked in the business. If the withdrawal of the property would have decidedly destabilizing effect on the corporate operations, the property would generally be considered to be used in the course of carrying on business. .....".
Notwithstanding, that the comments above were in respect of income of a corporation from an active business, for the purpose of subsection 125(1) of the Act, it is our view that where the principal activity of a partnership is the holding and rental of condominium units with a view to profit it could be said the partnership is carrying on that business for purposes of subsection 96(1.1) of the Act. Such a determination however, would require a complete review of the partnership documents and activities.
The forgoing comments are given in accordance with the practice referred to in paragraph 21 of IC-70-6R3, and are not binding on the CCRA.
Yours truly,
Paul Lynch
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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