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: Whether the rule in subsection 1100(3) of the Income Tax Regulations, which provides for the proration of capital cost allowance when a taxation year is less than 12 months, applies to an individual who begins a business during the year.
Position: Yes.
Reasons: In the case of an individual operating a business, subsection 1104(1) of the Regulations provides that, for purposes of Part XI of the Regulations, if the fiscal period of the business does not coincide with the calendar year (for example, in the case of a new business that begins in the middle of the year), a reference to a taxation year in respect of the business is deemed to be a reference to a fiscal period.
XXXXXXXXXX J. Gibbons, CGA
2001-007010
April 18, 2001
Dear XXXXXXXXXX:
We are replying to your letter dated February 13, 2001, in which you requested our views on the application of the rule in subsection 1100(3) of the Income Tax Regulations (the "Regulations"), which provides for the proration of capital cost allowance when a taxation year is less than 12 months. In particular, you wish to know how the rules will apply in the situation described below:
- An individual (Mr. X) started a new business involving the use of computer software services in 2000.
- Mr. X started researching and evaluating the software in June 2000. It was purchased in December 2000.
- The software is a class 12 asset.
As requested, we have considered the situation outlined in your letter and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4. Thus, our comments are of a general nature only.
According to an opinion you received, because subsection 1100(3) of the Regulations refers to a taxation year rather than a fiscal period, an individual does not have to prorate CCA pursuant to this provision since an individual's taxation year is a calendar year and thus always 12 months pursuant to subsection 249(1) of the Income Tax Act.
As you noted in your letter, a taxation year for an individual is the calendar year pursuant to subsection 249(1) of the Act. However, in the case of an individual operating a business, subsection 1104(1) of the Regulations provides that, for purposes of Part XI of the Regulations, if the fiscal period of the business does not coincide with the calendar year (for example, in the case of a new business that begins in the middle of the year), a reference to a taxation year in respect of the business is deemed to be a reference to a fiscal period. Accordingly, since this appears to be the situation for Mr. X, it is our view that his CCA deduction would be subject to proration pursuant to subsection 1100(3) of the Regulations.
We trust that these comments will be of assistance.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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