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: A letter has been sent to us that involves an unreported deemed disposition (a change in use) of a rental property in a taxation year in respect of which the "normal reassessment period" (as described in subsection 152(3.1) of the Income Tax Act (the "Act")) has expired. However, an additional assessment or reassessment can be issued under paragraph 152(4)(a) of the Act if the taxpayer "has made any misrepresentation attributable to neglect, carelessness or wilful default or has committed fraud in filing the return or in supplying any information" under the Act. Since it is necessary to review all the relevant facts of an actual situation in relation to paragraph 152(4)(a) of the Act and the review of completed transactions falls within the responsibilities of Tax Services Offices, we have referred the letter to the Toronto North Tax Services Office.
Position: See Principal Issues
Reasons: See Principal Issues
November 7, 2002
TORONTO NORTH TSO HEADQUARTERS
Morley S. Ceresne M. Eisner, CA
Assistant Director (613) 957-2138
Client Services Division
2002-016877
Deemed Diposition - Rental Property
In the circumstances of an actual fact situation that is set out in the enclosed letter, an individual purchased a rental property in 1981. The individual rented the property to arm's length persons until 1989 and likely claimed capital cost allowance in connection with the property. In 1989, the taxpayer's son and his family began to occupy the property. The son did not pay any rent to the taxpayer and the taxpayer apparently did not qualify for an election under subsection 45(3) of the Income Tax Act (the "Act") in respect of the property and did not report a deemed disposition of the property in 1989. It is anticipated that the property will be sold in 2002.
With respect to the change in use in 1989, subsection 13(7) of the Act, for purposes of capital cost allowance (including any recapture), provides for deemed dispositions and reacquisitions of property for fair market value where, inter alia, a taxpayer having acquired a property for the purpose of gaining or producing income has begun at a later time to use it for some other purpose. Similar change in use rules are also set out in subsection 45(1) of the Act, for purposes of calculating any capital gain or loss on a change in use. Pursuant to these provisions, the taxpayer would be deemed to have disposed of the rental property for its fair market value and to have reacquired it for its fair market value in 1989.
However, notwithstanding the expiration of the "normal reassessment period" as described in subsection 152(3.1) of the Act (we assume that this has occurred in respect of the taxpayer), there is an additional consideration with respect to the above scenario. An additional assessment or reassessment can be issued under paragraph 152(4)(a) of the Act if the taxpayer "has made any misrepresentation attributable to neglect, carelessness or wilful default or has committed fraud in filing the return or in supplying any information" under the Act. We have not been provided with any information to comment on whether this provision applies to the above taxpayer. Since it is necessary to review all the relevant facts of an actual situation in relation to paragraph 152(4)(a) of the Act and the review of completed transactions falls within the responsibilities of Tax Services Offices, as indicated to you in a telephone conversation on October 29 (Eisner/Ceresne), the enclosed correspondence is being forwarded to your office for action/reply.
Milled Azzi, CA
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
??
.../cont'd
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