30 April 2002 External T.I. 2002-0129015 - CARRYING COSTS FOR UNRENTED CONDO

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether the carrying costs (property taxes, condo fees, heating, etc.) incurred for a condominium that was inherited can be claimed. The property is not currently rented, and considerable repairs must be made before the property can be rented.

Position: Likely not.

Reasons: Since there is no source of income, the carrying costs on the condominium are not deductible by virtue of paragraph 18(1)(a) of the Income Tax Act. In this regard, there is no evidence to show that the condominium is being held as "an adventure or concern in the nature of trade."

XXXXXXXXXX 2002-012901
J. Gibbons, CGA
April 30, 2002

Dear XXXXXXXXXX:

We are replying to your letter, sent by facsimile on March 15, 2002, requesting our assistance in filing your 2002 income tax return. You wish to know how you can claim the carrying costs (property taxes, condo fees, heating, etc.) incurred for a condominium that you inherited and hold as an investment.

As explained in our telephone conversation of April 17, 2002 (Gibbons/XXXXXXXXXX) confirmation of the income tax implications of particular transactions can only be provided if 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. We also explained that the issue of whether particular expenses are tax deductible is a question of fact that can only be determined following an actual review by our auditors. Thus, based on our self-assessment income tax system, the onus is on taxpayers to determine the proper reporting of their income tax transactions. However, we offer the following general comments for your benefit.

In your letter, you indicated that renting your condominium is proving rather difficult since you live over 3,000 miles away from the property, and considerable repairs must be made before the property can be rented. In our view, since you have no source of income, you are not entitled to deduct the carrying costs on the condominium by virtue of paragraph 18(1)(a) of the Income Tax Act (the "Act"). This provision provides that outlays or expenses may only be deducted if they were made or incurred for the purpose of gaining or producing income form a business or property.

You mentioned in your letter that your investment in the condominium has appreciated. In our opinion, this appreciation is likely capital in nature, and as such does not entitle you to take the deductions in question. In this regard, there is no evidence to show that you are holding the condominium as "an adventure or concern in the nature of trade", which is included in the definition of "business" in section 248 of the Act. In general terms, an adventure or concern in the nature of trade is a speculative transaction whereby a taxpayer purchases an asset with the intent of selling it a short time later for a profit. In our view, it is unlikely that you can be considered to be engaged in an adventure or concern in the nature of trade, based on the information provided.

We trust that these comments will be of assistance. However, since your situation involves the interpretation of relatively complex provisions of the Income Tax Act, you may wish to consider obtaining professional advice if you need further help.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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