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 a grant received by a homeowner under the Saskatchewan Secondary Suite Incentive Grant Program (the “Program”) is taxable to homeowners, and if so, under which provision of the Act.
Position: Question of fact.
Reasons: If a grant that is received under the Program is received in respect of a secondary suite of a homeowner that is depreciable property (that is, a secondary suite used to earn income from a business or property), the amount will reduce the capital cost of the secondary suite in accordance with subsection 13(7.1) of the Act. On the other hand, if the grant is received in respect of a secondary suite of a homeowner that is non-depreciable capital property (for instance a secondary suite used for personal purposes as a dwelling for a homeowner’s parent or child), it will reduce the cost of the secondary suite in accordance with paragraph 53(2)(k) of the Act.
XXXXXXXXXX 2024-100378
Christina Foggia, CPA, CA
May 22, 2024
Dear XXXXXXXXXX:
Re: Saskatchewan Secondary Suite Incentive Grant Program
This is in reply to your correspondence of January 11, 2024, wherein you requested our views concerning the income tax treatment of financial assistance paid to a homeowner that is a participant of the Saskatchewan Secondary Suite Incentive Grant Program (“Saskatchewan SSI Grant Program” or the “Program”).
Background and Facts
The Saskatchewan SSI Grant Program is aimed at providing homeowners with financial assistance for the construction of a new secondary suite located on the premises of their primary residence. The Program is expected to increase the availability of rental units in Saskatchewan communities, improve housing affordability, and generate supplementary income for homeowners.
Based on the information provided, we understand that the Program provides a homeowner with a grant of 35 percent of the eligible costs to construct a new qualifying secondary suite (“XXXXXXXXXX Suite”) to a maximum grant of $35,000 (“Grant”). A qualifying XXXXXXXXXX Suite is a new private, self-contained residential unit (i.e., separate dwelling unit) located on the premises of the homeowner’s primary residence, and for purposes of the Program, includes an XXXXXXXXXX Suite within the homeowner’s residence, a laneway home, garden suite or a garage suite.
Eligible costs under the Program are those that are incurred from April 1, 2023 to March 31, 2026, and that are directly related to the construction, or the renovation of an existing space, which results in a new qualifying XXXXXXXXXX Suite. To qualify for funding, the construction of the XXXXXXXXXX Suite must be completed on or before March 31, 2027. For the Grant to be awarded, the homeowner must have received all required permits and legal approvals necessary for the XXXXXXXXXX Suite to be used as a rental property, however, verification that the XXXXXXXXXX Suite has been rented is not a condition of the Program.
Our Comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (“Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.
To the extent a government is not making an ordinary commercial investment in respect of contributions that it makes to a taxpayer, the government would generally be considered to be providing the taxpayer with government assistance. As such, in the circumstances of the Saskatchewan SSI Grant Program, the government’s contribution to a homeowner’s construction or renovation of an XXXXXXXXXX Suite, which is not subject to ordinary commercial terms, would, in our view, be considered government assistance.
Source of Income
Generally, an amount is taxable under the Act if it constitutes income from a source under section 3 of the Act or if a specific provision of the Act applies to the type of payment. If the income does not fall within one of these sources of income, it is generally not taxable.
A particular activity will generally constitute a source of income from business or property for purposes of the Act where it is undertaken in pursuit of profit and is not a personal endeavour. Where a personal or hobby element to the taxpayer’s activity exists, the activity will be considered a source of income from business or property only if the activity is undertaken in a sufficiently commercial manner.
Ultimately, the determination of whether a taxpayer’s activities will constitute a source of income under the Act is a question of fact and can only be made on a case-by-case basis, having regard to all the facts and circumstances of the particular taxpayer’s situation. In the context of the situation described, if a homeowner intends to rent their XXXXXXXXXX Suite for a profit, their activity will likely be considered a source of income from business or property for purposes of the Act and as such, the Grant will be considered income from that particular source.
Tax Treatment of Grants
When government assistance is received in the course of earning income from a business or property, the application of well-accepted business principles for the purpose of calculating profit (or loss) under section 9 of the Act commonly require that the cost of the asset or the amount of the expense to which the assistance relates be reduced accordingly. Alternatively, where the government assistance is not related to an expense or asset, these principles require that the amount will generally be included in the recipients business or property income. If such well-accepted business principles do not apply, there are specific provisions in the Act that require the recipient to include the government assistance in business or property income or where appropriate, reduce the capital cost or adjusted cost base of the property to which the assistance relates.
Specifically, as noted in paragraphs 4 and 5 of Interpretation Bulletin IT-273R2, Government Assistance – General Comments (“IT-273R2”), (footnote 1) generally, when a taxpayer receives or is entitled to receive government assistance for a depreciable property before the disposition of the property, subsection 13(7.1) of the Act applies to reduce the capital cost of the property by the amount of the assistance. Similarly, when a taxpayer receives or is entitled to receive government assistance in respect of non-depreciable capital property, paragraph 53(2)(k) of the Act applies to reduce the adjusted cost base of the property by the amount of the assistance.
Accordingly, the amount of the Grant that is received or receivable by a homeowner will generally not be required to be included in a homeowner’s income but rather will reduce the capital cost or adjusted cost base of their XXXXXXXXXX Suite by virtue of either subsection 13(7.1) of the Act, if the property is used for the purpose of earning income from business or property or under paragraph 53(2)(k) of the Act if the property is used for personal use (for instance as a dwelling for a homeowner’s parent or child).
We trust our comments will be of assistance.
Yours truly,
Pamela Burnley CPA, CA
Manager
Business and Capital Transactions
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 https://www.canada.ca/content/dam/cra-arc/formspubs/pub/it273r2/273r2-e.pdf
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