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 recapture of CCA on rental property should be added to active and passive income on the same basis it had been claimed?
Reasons: Since CCA was only deducted in calculating active business for some of the years of ownership, it would be reasonable to allocate the recapture of CCA in the same manner in which it was claimed.
May 9, 2012
Re: Recapture of Capital Cost Allowance
This is in response to your letter of February 12, 2012, concerning the income tax characterization of the recapture of capital cost allowance (“CCA”) in the particular situation described below.
You have indicated that a corporation owns a property on which CCA of $XXXXXXXXXX has been claimed. For a significant period the property was rented to an associated company that was carrying on an active business so CCA of approximately $XXXXXXXXXX was claimed against active business income. The active business was sold about XXXXXXXXXX years ago so approximately $XXXXXXXXXX of CCA was subsequently claimed against passive rental income.
The building has been sold this year and you have asked about how the recapture should be treated. You have indicated that it would seem reasonable to treat XXXXXXXXXX% as active business income and XXXXXXXXXX% as passive income.
Paragraph 7 of Interpretation Bulletin IT-73R6, The Small Business Deduction, indicates that where subsection 129(6) of the Income Tax Act deems rental income to be active business income and CCA on the rented building was deducted in calculating active business income, any recapture of CCA on the disposition of the building would also be considered to be active business income. However, since in the situation described above, CCA was only deducted in calculating active business for some of the years of ownership, it is our view that it would be reasonable to allocate the recapture of CCA in the same manner in which it was claimed.
The above mentioned publication is available on the CRA website at www.cra-arc.gc.ca.
We trust that these comments will be of assistance.
Capital Transactions Section
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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