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 buildings that are used in an active business, subsequently leases one of those buildings and it has a cost greater than $50M will it get transferred to a separate class and if eventually sold will the proceeds be credited to that class?
2.) Will ss 13(7) and 45(1) apply to this situation ?
Position:
1. Yes.
2. No
Reasons:
1. Subsection 13(5) and Regulation 1101(1ac)
2. Not if taxpayer has continuously earned income from the property throughout the year.
1999-001394
XXXXXXXXXX S. Tevlin
(613) 957-2093
Attention: XXXXXXXXXX
June 30, 2000
Dear Sirs:
Re: Classification of a Rental Property
We are writing in response to your letter dated November 15, 1999 wherein you requested our comments with respect to the classification of rental property for capital cost allowance purposes.
The situation you described appears to reflect a factual situation, and as stated in Information Circular 70-6R3, we do not provide opinions on specific fact situations. For a completed transaction, you should submit all the facts and documentation to your local tax services office for their views.
However, we can provide you with the following general comments.
Where a particular building that has a cost in excess of $50,000 and that is used in a taxpayer's active business subsequently becomes a rental property, subsection 13(5) of the Income Tax Act (the "Act") will apply to the reclassification of the building from its former class in Schedule II of the Income Tax Regulations (the "Regulations") to a separate class, as prescribed by regulation 1101(1ac) of the Regulations. (The taxation year in which a property becomes a "rental property" is a question of fact.)
As such, any proceeds received on a subsequent disposition of that rental property will be credited to the separate class and recapture or a terminal loss will be calculated accordingly.
It is our opinion that provided a taxpayer uses a property for the purpose of gaining or producing income, both before and subsequent to any reclassification of that property, subsections 13(7) and 45(1) of the Act would not apply at the time the property is reclassified. As to whether a property is used for the purpose of gaining or earning income at a particular time is an objective determination to be made from all the facts.
The foregoing comments are given in accordance with the practice referred to in paragraph 21 of IC-70-6R3, and are not binding on the Canada Customs and Revenue Agency.
We trust our comments will be of assistance to you.
Yours truly,
Paul Lynch
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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