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: Why are capital improvements to a rental property not immediately deductible.
Position: General comments as a matter of tax policy. Taxpayers could ask Finance Canada for change in law.
June 11, 2012
XXXXXXXXXX
House of Commons
Ottawa ON K1A 0A6
Dear Colleague:
Thank you for your correspondence of April 5, 2012, written on behalf of your constituents, XXXXXXXXXX, concerning the rules relating to the deductibility of improvements made by landlords to rental properties under the Income Tax Act.
XXXXXXXXXX are concerned that the rules in the Act may result in landlords having little incentive to improve their rental properties.
The Canada Revenue Agency (CRA) considers expenditures made by a landlord for renovations or improvements to a particular rental property when calculating income deriving from that property. Some renovations or improvements are deductible in full in the year they were made, while the renovations or improvements that create an enduring benefit are capitalized and deducted over time, as part of the capital cost allowance regime.
There are no rules in the Act that specifically determine which treatment applies to a particular expenditure. As you can appreciate, such a determination is usually fact-specific and requires judgment to assess the various factors. The courts often consider what the purpose of the expenditure was from a practical and business perspective. The courts suggest a number of guidelines that may be relevant, but also indicate that no one guideline is determinative by itself. However, the guidelines the courts have identified as being relevant to such a determination, as well as other guidelines, are explained in paragraph 4, “Capital Expenditures on Depreciable Property versus Current Expenditures on Repairs and Maintenance,” of Interpretation Bulletin IT-128R, Capital Cost Allowance – Depreciable Property, available on the CRA Web site at www.cra.gc.ca/E/pub/tp/it128r.
As you know, the CRA is responsible for administering the tax legislation enacted by Parliament, while matters relating to tax policy are the responsibility of the Department of Finance Canada.
I trust that the information I have provided clarifies the CRA’s position on this matter.
Yours sincerely,
Gail Shea, P.C., M.P.
Prepared by:
Michael Cooke
613-957-2133
2012-044652
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