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: 1. How is the amount received by a homeowner for the use of the roof of his principal residence by a company reported? 2. Must the homeowner and his or her spouse each report half of the amount received on their T1 if they co-own the principal residence? 3. How does CCA work in this situation?
Position: 1. Appears to be rental income. 2. Each co-owner of the property is to report their share of the amount. 3. Cannot claim CCA now as does not own the solar equipment. When ownership of the equipment is transferred to the homeowners they may be able to claim CCA if the property is acquired for the purpose of earning income and the property has value.
Reasons: 1. & 2. Provisions of the Act. 3. Income Tax Regulations section 1100.
XXXXXXXXXX
2013-050113
L. Zannese
(613) 410-9134
November 1, 2013
Dear XXXXXXXXXX:
Re: Rental of RoofOntario microFIT program
We are writing in response to your email of August 8, 2013 which requested information with respect to the following situation:
- You entered into a contract with a third-party (the "Taxpayer") in respect of the installation of a solar photovoltaic system (the "Solar Equipment") on the roof of your principal residence;
- The Taxpayer entered into a microFIT contract with the Ontario Power Authority governing the sale of the electricity generated by the Solar Equipment;
- The Taxpayer proposes to pay you a portion of the amount received from the Ontario Power Authority for a period of 20 years;
- At the end of 20 years, you will become the owner of the Solar Equipment.
Specifically, you ask how the amounts received from the Taxpayer should be recorded on your personal income tax return. As you and your spouse are co-owners of your principal residence, you ask whether you and your spouse should each report half of the amounts received. Lastly, you requested information as to whether you can claim capital cost allowance ("CCA") on the Solar Equipment once ownership of this property is transferred to you.
OUR COMMENTS
Written confirmation of the income tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request as described in Information Circular 70-6R5 dated May 17, 2002 issued by the Canada Revenue Agency ("CRA"). A fee is charged for this service. Although we are unable to provide you a definitive answer to your specific situation we hope that the following comments will be of assistance.
The characterization of an amount for income tax purposes is a question of fact and law. This determination may only be made based on an examination of the legal agreements and after all the facts of a situation have been reviewed. Provided that you and your spouse did not acquire an ownership interest in the Solar Equipment, and you are not in the business of renting property the amounts you received as payment for the use of the roof of your principal residence would be rental income. To report rental income, a person would complete form T776 "Statement of Rental Income" ("Form T776") to determine the net amount of rental income that is subject to tax. Once the net amount of the rental income is determined, that amount is placed on line 126 "rental income" on your personal income tax return. The CRA has published guide T4036 "Rental Income" ("Guide T4036") to assist people in completing Form T776. Both Form T776 and Guide T4036 are available on the CRA website located at www.cra-arc.gc.ca.
As stated in Guide T4036, each co-owner of a rental property is generally expected to report its share of the rental income. This means that you and your spouse would each complete Form T776 and calculate your share of the rental income. The amount of net rental income would then be reported on your respective personal income tax returns. When calculating net rental income, a person is entitled to deduct expenses incurred to earn that income. If the expenses incurred relate both to earning income and to personal living expenses then it must be determined which portion of the expenses relate to earning the income. Only the portion of the expenses that were incurred to earn the income is eligible to be deducted from that income. For more information on the personal portion of expense, please see the appropriate section contained in Guide T4036.
By virtue of paragraph 1102(1)(c) of the Income Tax Regulations (the "Regulations"), only property that was acquired by a person for an income earning purpose is eligible for CCA and included in the classes described in Schedule II to the Regulations. Unless you own the Solar Equipment you will not be entitled to claim CCA for this property. Once you do acquire ownership of the Solar Equipment whether you can claim CCA with respect to this property will depend on the Regulations in place at that time.
We hope that these comments will be of assistance.
Yours truly,
Fiona Harrison, CPA, CA
Manager, Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch
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