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.
W.P. Guglich (613) 957-2102
January 11, 1991
Dear Sirs:
Re: Application of Paragraphs 18 (1)(a), 18(3.1) (a) & (b), 20(1)(c), 20(1)(e), 20(1)(cc) and 20(1)(dd) of the Income Tax Act (the Act)
This is in reply to your "facsimile transmission" dated December 14, 1990 concerning development of hydro power projects.
The situation you describe appears to involve a proposed transaction with four alternatives. It is not the Department's practice to give written opinions concerning proposed transactions, as indicated in Information Circular 70-6R2. However, we have set out below some general comments which may be of assistance to you.
Paragraph 18(1)(a) IT-487 contains the Department's views concerning the general restraints, provided by paragraph 18(1)(a), respecting the deductions permitted in the computation of the income of a taxpayer from a business or property. Since you refer to the establishment of a partnership the comments in IT-364 concerning the "Commencement of Business Operations" may be of assistance.
Paragraph 20(1)(e) IT-341R2 sets out the Department's views regarding the deductibility, under paragraph 20(1)(e) of the Act, of debt and equity financing expenses. Please note that IT-341R has been cancelled and replaced by IT-341R2 .
Paragraphs 20(1)(cc) & 20(1)(dd)
The deductibility of expenses under paragraphs 20(1)(cc) and 20(1)(dd) of the Act would be dependent on the facts and details of the case. The Department's views regarding the deductibility of expenses of representation and investigation of site expenses are contained in IT-99R3 and IT-350R respectively.
Paragraph 20(1)(c) & subsection 18(3.1)
Interest expense on borrowed funds used to finance the construction of structures (other than buildings) is deductible under paragraph 20(1)(c), of the Act provided the conditions therein are otherwise met. However, subsection 18(3.1) of the Act requires interest expense and other costs of borrowing money in connection with the construction of a building to be capitalized as part of the capital cost of the building or as part of the capital cost of the land, as the case may be. We agree that a dam, a weir, a water channel, a turbine or generating or distribution equipment would not be considered a building. We consider a building to be a structure with walls and a roof affording protection and shelter.
We trust this will be of assistance to you.
Yours truly,
for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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