5 September 2001 Ministerial Correspondence 2001-0079814 - CAPITAL OR CURRENT EXPENSE

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.

Sept. 5, 2001

XXXXXXXXXX

Dear XXXXXXXXXX:

I am replying to a letter of March 26, 2001, from XXXXXXXXXX, concerning the tax treatment of expenditures incurred by British Columbia residents in respect of their "leaky condominiums".

The Canada Customs and Revenue Agency (CCRA) is responsible for administering the Income Tax Act and strives to carry out this goal fairly and uniformly for all taxpayers. As XXXXXXXXXX mentions, the Income Tax Act and its Regulations do not specifically deal with the "leaky condominium" situation in British Columbia. Moreover, the Act does not define what constitutes a capital expenditure or a repair of a current nature. However, the courts have identified certain factors that should be considered in making such determinations. These factors are explained in detail in Interpretation Bulletin IT-128R, Capital Cost Allowance - Depreciable Property, a copy of which is attached.

Whether an expense is on account of capital (in respect of which capital cost allowance, similar to depreciation, may be deducted over the useful life of the property) or income (deductible as a current expense) is a determination that can only be made after all the relevant facts of each particular case have been considered. Consequently, the CCRA is unable to provide a general statement that would apply to all cases, with respect to the wide range of expenses that may be incurred on account of remediation work considered necessary in the "leaky condominium" situation to which XXXXXXXXXX refers. In addition, in order to be entitled to a deduction in respect of capital cost allowance or current expenses, the property must be used in an activity that has a reasonable expectation of profit.

Therefore, the tax relief sought in XXXXXXXXXX letter, whereby the above expenditures would be deductible as current expenses in all circumstances, is, unfortunately, not provided for in the law. However, please be assured that the CCRA will apply fairly the guidelines established by the courts, and set out in Interpretation Bulletin IT-128R, to all involved in this situation.

I appreciate being made aware of these concerns.

						Yours sincerely,

						Martin Cauchon

C.C. Minister's Office
Political Assistant

Patrick Massicotte
April 23, 2001 957-9232