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: How are costs incurred for clearing, leveling and/or draining land for a golf course treated for tax purposes.
Position: Question of fact, generally qualify for inclusion in Class 17 of Schedule II of the Regulations.
Reasons:
The test laid out in the Mont-Sutton case will determine the appropriate tax treatment. Where the criteria in Mont-Sutton are satisfied, the costs incurred for greens, tees and fairways will qualify as "surface construction" within paragraph (c) of Class 17 in Schedule II of the Regulations.
Where the costs incurred do not meet the criteria set out in Mont-Sutton, the costs incurred are added to the capital cost of the land.
2001-006842
XXXXXXXXXX A. Seidel, CMA
(613) 957-2058
June 28, 2001
Dear XXXXXXXXXX:
Re: Clearing Land versus Surface Construction
This is in reply to your memorandum dated January 31, 2001 in which you requested our views concerning the tax treatment of amounts incurred in respect of clearing and leveling land and amounts incurred in respect of "surface construction", as they relate to golf courses.
The particular circumstances in your letter on which you have asked for our views appear to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R4, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we are prepared to offer the following general comments which may be of assistance.
Subject to specific exceptions, the cost of clearing, levelling or draining land is an outlay on account of capital.
Class 17 of Schedule II of the Income Tax Regulations (the "Regulations") provides a deduction, pursuant to paragraph 20(1)(a) of the Act, for that part of the capital cost of land that meets the requirements of that class. Paragraph (c) of Class 17 of Schedule II of the Regulations includes property that would otherwise be included in another class that is, amongst other things, a sidewalk, a parking area, certain types of roads or any "similar surface construction".
In your letter you referred to paragraph 7 of Interpretation Bulletin IT-485 and the Federal court decision in The Queen v. Hampton Golf Club Limited, 86 DTC 6513 (FC-TD), and asked whether the Federal court decision in Her Majesty the Queen v. Mont-Sutton Inc., 99 DTC 5733 (FCA), would have any affect on our existing view.
In Mont-Sutton, supra, the Federal court considered the issue of "similar surface construction" in the context of Class 17 and concluded that "similar surface construction" occurred in any situation where the following three criteria are satisfied:
(i) The land or property which, as a result of the transformations or work performed, should display a clearly discernable change in configuration. This change in configuration should go beyond a mere clearing or levelling and should be readily distinguishable from another property in its natural state.
(ii) The land or property must occupy a circumscribed space, identifiable as such, and the surface construction must be visible and, to varying degrees, require the addition of some metal in order to fulfil the function for which they were intended.
(iii) The land or property is subject to wear and tear such that they have a recurring need for and cost of maintenance to retain their identity and purpose.
In this particular case, it was determined that the ski slopes built by the taxpayer met these criteria, and that the work required to build the ski slopes went beyond the clearing and levelling stage, such that the ski slopes were "surface construction" similar to those enumerated in paragraph (c) of Class 17 of Schedule II of the Regulations.
In Hampton, supra, the taxpayer tried to argue that the building of a golf course was a "structure" which would be depreciable under Class 1 or 3 of Schedule II of the Regulations. It was determined that "the biggest hurdle the golf club has to clear is the fact that when all is said and done the completed structures of greens and tees look very much like the surrounding natural structure, that is, the land itself". McNair, J. concluded that the golf course was not a structure within the meaning of Class 3 of the Regulations and that he was "unable to conclude that the greens and tees come within the terminology of surface construction".
Whether the building of a particular golf course or the building of a particular ski slope is included in paragraph (c) of Class 17 of Schedule II of the Regulations will be determined after reviewing all of the facts applicable to the particular situation. Generally, where the criteria enumerated above can be satisfied, the amount will be amortized as permitted by paragraph 20(1)(a) of the Act. It is our view that the creation of greens, tees and fairways for a golf course would satisfy the three criteria set out in Mont-Sutton, supra, and would therefore constitute a "surface construction". Accordingly, the expenditures in respect of greens, tees and fairways would be included in Class 17 of Schedule II of the Regulations. The above position is published in Income Tax -- Technical News #20 issued on June 14, 2001.
A leasehold interest is the interest of a tenant in any leased tangible property. A tenant who leases property acquires a leasehold interest in that property regardless of whether or not any capital cost is incurred in respect of that interest. Where a capital cost is incurred, the leasehold interest is included in Class 13 of Schedule II of the Regulations. The capital cost of a leasehold interest of class 13 property includes an amount that a tenant expends in respect of improvements or alterations to a leased property that are capital in nature, other than improvements or alterations that are included as a building or structure. Accordingly, the cost of creating greens, tees and fairways for a golf course on leased land would be included in Class 13 of Schedule II of the Regulations.
The publications referred to in this letter may be obtained from your local tax services office or from our Internet web site (www.ccra-adrc.gc.ca).
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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