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: When 75(2) applies to attribute rental income earned by an alter ego trust to an individual who also earns income from rental properties owned by him directly, is the CCA limited to the rental income earned on all the property or are there separate CCA limitations for the property held by the alter ego trust and for the property held by the individual?
Position: The CCA limitation for computing the trust's income to be attributed to the individual is computed separately from the CCA limitation on property owned by the individual directly.
Reasons: Plain meaning of the words in regulation 1100(11)(a)
XXXXXXXXXX 2006-021649
Annemarie Humenuk
Attention: XXXXXXXXXX
July 11, 2007
Dear XXXXXXXXXX:
Re: CCA Restrictions on Rental Property
This is in reply to your letter of December 1, 2006 concerning the CCA restrictions contained in subsection 1100(11) of the Income Tax Regulations (the "Regulations") for rental property.
In the situation you describe, an individual earns income from rental property owned by him directly. In addition, rental income earned by an alter ego trust is attributed to the individual under subsection 75(2) of the Income Tax Act (the "Act"). For the purpose of determining the extent of the CCA restrictions in subsection 1100(11) of the Regulations, you ask whether the aggregate income determined under paragraph 1100(11)(a) of the Regulations includes both the rental income earned on property owned by the individual as well as the rental income earned on the property owned by the alter ego trust. It is your view that the CCA restrictions in subsection 1100(11) of the Regulations should be based on the aggregate net rental income earned on the properties held by the individual and the alter ego trust since the individual will be the person reporting all of the income from such properties. You are concerned with the general determination of aggregate income as determined under paragraph 1100(11)(a) of the Regulations in this scenario and our comments will be restricted to that aspect of the relevant provisions.
Subject to certain exceptions that are not relevant to your question, subsection 1100(11) of the Regulations limits the amount of CCA that can be claimed by certain taxpayers in respect of rental property to the amount determined under that subsection. In particular, the CCA claimed in a particular taxation year cannot exceed the aggregate of the rental income earned in that year from properties owned by the taxpayer, either alone or as a member of a partnership in excess of the rental losses realized by the taxpayer in respect of properties owned by the taxpayer, either alone or as a member of a partnership. As the individual does not own the property held by the alter ego trust, it is our view that the CCA which can by claimed by the individual would be limited to the net rental income in excess of rental losses from properties owned by that individual, either alone or as a member of a partnership. Likewise, in computing the amount of income to be attributed to the individual under subsection 75(2) of the Act, the alter ego trust would be entitled to claim CCA to the extent permitted by the Regulations. For greater certainty, where subsection 1100(11) of the Regulations applies, in computing the income of the alter ego trust that is to be attributed to the individual, the CCA would be limited to the net rental income in excess of rental losses from properties owned by the alter ego trust, either alone or as a member of a partnership. It should be noted that subsection 1100(15) of the Regulations would apply in the same matter to determine aggregate income of either the individual or the alter ego trust with respect to leasing properties held in a similar scenario.
Interpretation Bulletin IT-195R4, Rental Property - Capital Cost Allowance Restrictions, provides further details concerning the limitations on CCA in respect of rental property and IT-433, Leasing Property - Capital Cost Allowance Restrictions provides further details concerning the limitations on CCA in respect of leasing property. These bulletins are available on our website at www.cra-arc.gc.ca.
We trust our comments have clarified our position in this matter.
T. Murphy
Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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