Principal Issues: Additional questions with respect to technical interpretation no. 2001-010944. In the given fact situation, a taxpayer acquired, pursuant to a will, bare owner rights ("droits de nue-propriété") with respect to a rental property situated in France (the usufruct being established under French law) for the purposes of the Act. The rental income generated by the rental property belongs to the mother of the taxpayer, being the usufructuary. 1) Whether the costs of major repairs incurred by the taxpayer with respect to the rental property can be added to the cost to the said taxpayer of such property. 2) Whether paragraph 45(1)(a) of the Act could apply at the time of the death of the mother of the taxpayer.
Position: 1) Yes.
2) Yes. If, at the time of the death of her mother, the taxpayer commences to use the rental property for the purpose of gaining or producing income, paragraph 45(1)(a) would apply. A capital gain may then arise, depending on the circumstances. However, the taxpayer could make an election under subsection 45(2) of the Act in her return of income for the year of the change in use in order to avoid the deemed disposition that would otherwise result under paragraph 45(1)(a). However, capital cost allowance with respect to the rental property may not be claimed while a subsection 45(2) election is in force because the taxpayer would be deemed under such provision not to have begun to use the rental property for the purpose of gaining or producing income.
Reasons: Wording of the Act.