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.
Principal Issues: Whether the leasing property rules in subsection 1100(15) of the Regulations would apply to a business of earning rental income from the use of a motor home.
Position: Yes.
Reasons: The motor home would be depreciable property principally used to earn rental income.
2004-009059
XXXXXXXXXX A. Seidel, CMA
(613) 957-2058
November 24, 2004
Dear XXXXXXXXXX:
Re: Capital Cost Allowance for Leasing Properties
This is in reply to your August 11, 2004 facsimile, requesting our views concerning the deductibility of capital cost allowance ("CCA") within Schedule II of the Income Tax Regulations (the "Regulations") for a motor home rental business. We also understand from our telephone conversation (Seidel/XXXXXXXXXX) that your accountant may wish to discuss this issue further at a later date.
The particular circumstances in your letter on which you have asked for our views relate to proposed transactions. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions other than in the form of an advance income tax ruling. Information Circular 70-6R5 provides a summary of the requirements for requesting an advance income tax ruling. In the mean time, we are prepared to offer the following general comments which may be of assistance.
Subject to certain exceptions for corporations and partnerships, subsection 1100(15) of the Regulations limits the amount of CCA that can be claimed in respect of a "leasing property" owned by a taxpayer. Where subsection 1100(15) of the Regulations is applicable, the taxpayer is prevented from creating or increasing a loss to shelter non-leasing income.
The term "leasing property" is defined in subsection 1100(17) of the Regulations and, subject to specific exceptions, includes all depreciable property, within the meaning thereof in subsection 13(21) of the Income Tax Act (the "Act"), that is used principally for the purpose of gaining or producing gross revenue that is rent, royalty or leasing revenue. None of the exceptions to this general rule apply to depreciable property that is a motor home. The exception for property leased in the ordinary course of selling goods or rendering services under an agreement by which the lessee undertakes to use the property to carry on the business of selling or promoting the sale of the taxpayer's goods or services would also not apply to the business of earning rental income from the use of a motor home.
The word "principally" in the definition of leasing property in subsection 1100(17) of the Regulations means "primarily" or "chiefly." In establishing whether a depreciable property is used principally for a given purpose, the determining factor is the proportion of time that the property is used for that purpose. Property used more than 50% of the time for the purpose of gaining or producing gross revenue that is rent, royalty or leasing revenue is considered to be used principally for that purpose. Your letter suggests that the motor home would be used 50 weeks of the year to earn rental income, which, in our view would mean that the motor home is a leasing property.
It is therefore our view that the maximum CCA that a taxpayer can claim in respect of a motor home that is a leasing property would be limited to the amount determined pursuant to subsection 1100(15) of the Regulations.
We would also point out that any expenses incurred while you are using the motor home for personal use would not be deductible in computing income for income tax purposes pursuant to paragraph 18(1)(h) of the Act.
The publications referred to in this letter may be obtained from your local tax services office or from our Internet web site (www.ccra-adrc.gc.ca).
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2004
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2004
Email this Content