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: Rental Property (a condominium unit) - an individual has requested information with respect to whether an expenditure is currently deductible or on account of capital.
Position: General comments were provided
Reasons: See principal issues and position
XXXXXXXXXX 2000-004939
M. Eisner
November 22, 2000
Dear XXXXXXXXXX:
Re: Expenditure - Capital or Current Expense
This is in reply to your facsimile dated September 28, 2000 concerning the above-noted subject.
You have indicated that you, your husband and your daughter own a "leaky condo" apartment for which there has been a $XXXXXXXXXX special assessment. Your condominium is currently rented. You have asked us for guidelines on how to treat the assessment and the resulting rental loss.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. However, we are prepared to provide the following general comments on the basis that an individual has incurred expenditures subsequent to the rental of a residential property.
In general, where a condominium owner is charged an extraordinary levy by the condominium corporation for a portion of the costs relating to the common elements, it is our position that no amount can be taken into account by the owner of a rented condominium unit until an amount has actually been incurred by the condominium corporation. Only expenses of a current nature are deductible from your gross rental income for a particular year. On the other hand, capital expenditures on depreciable property are added to the capital cost of such assets. The issue of whether an expenditure is current or capital in nature can only be made after all the facts and details have established and reviewed. Guidelines have been set out in paragraph 4 of Interpretation Bulletin IT-128R "Capital Cost Allowance - Depreciable Property," which has been enclosed.
The guideline in paragraph 4(b) of IT-128R gives the example of a roof and provides a discussion of whether the expenditure involves maintenance or a betterment. If the new roof is of better quality and greater durability, then the expenditures may be capital in nature. On the other hand, if an expenditure only restores the roof to its original condition, this may be an indication that it is current in nature.
Also, consistent with the comments in paragraph 4(e) of IT-128R, if the expenditures were made on the basis that they were needed to put the condominium in a suitable condition to lease, then they may be capital in nature. In other situations, expenditures may result in walls being restored to their original condition. In such a case, the expenditures may be considered to be current expenses.
As indicated on page 13 under the heading "Rental losses" in the enclosed pamphlet entitled "Rental Income", when an individual whose rental expenses are more than rental income, the individual may be entitled to deduct the rental loss against other income. However, as mentioned in the comments under that heading, there are restrictions concerning the deduction of rental losses.
If you need further assistance with respect to your situation, please contact the Client Services Division of your local Tax Services Office.
We trust that our comments are of assistance to you.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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