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 'total of all amounts deducted in computing the taxpayer's income from the land for the year' under paragraph 18(2)(e) of the Act includes costs under paragraphs 20(1)(cc) and 20(1)(dd) of the Act ?
Position: Generally, yes
Reasons: Subsection 18(2) applies to a taxpayer whose ordinary business is holding land as inventory for the purpose of resale or inventory and limits the deduction of carrying charges such as interest and property taxes. Pursuant to paragraph 18(2)(e), the deduction for carrying charges incurred in a taxation year is limited to the net income from the land for the year (being the gross income from the land for the year less other deductions exclusive of the carrying charges). There is no provision to exclude costs under paragraphs 20(1)(cc) and 20(1)(dd) that relate to the land from being part of 'amounts deducted in computing the taxpayer's income from the land.'
XXXXXXXXXX E2007-026212
S. Bernards
August 11, 2008
Re: Technical Interpretation - Paragraph 18(2)(e)
This is in response to your request of December 6, 2007 in which you requested our comments on whether "total of all amounts deducted in computing the taxpayer's income from the land for the year" under paragraph 18(2)(e) of the Income Tax Act (the "Act") includes costs under paragraphs 20(1)(cc) and 20(1)(dd) of the Act.
Our comments
As noted in paragraph 22 of Information Circular 70-6R5, Canada Revenue Agency's tax services offices consider requests for written interpretations on completed transactions. Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject of an advance income tax ruling request submitted in a manner set out in Information Circular 70-6R5. We are, however, prepared to provide the following comments which are of a general nature only.
Subsection 18(2) applies to a taxpayer whose ordinary business is holding land as inventory for the purpose of resale or inventory and limits the deduction of carrying charges such as interest and property taxes.
Specifically, subsection 18(2) of the Act limits the deduction of interest expense and property taxes incurred in connection with undeveloped land to the extent of the net income from the land for the year (being the gross income from the land for the year less other deductions exclusive of the interest and property taxes).
In our view, to the extent that amounts deducted under paragraphs 20(1)(cc) and 20(1)(dd) of the Act are considered to relate to the land, such amounts would be included in the 'total of all amounts deducted in computing the taxpayer's income from the land for the year' under paragraph 18(2)(e) of the Act.
We refer you to paragraph 1 of Interpretation Bulletin IT-153R3 entitled 'Land Developers - Subdivision and development costs and carrying charges on land' for further information with respect to the tax treatment of interest and property taxes on land held for the purpose of resale and development.
We trust our comments will be of assistance.
R. Albert, CA
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs 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, 2008
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, 2008
Email this Content