16 October 1989 Ministerial Letter 58298 F - Disposition of Capital Property

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.

We are writing in reply to your letter of June 19, 1989 in which you asked for our comments concerning the disposition of capital property of a taxpayer to whom the provisions of paragraph 53(1)(h) regarding interest on undeveloped land are not available.

You are in receipt of March 30, 1989 letter from the Department, our file 5-7548, in which we set out the tax cases which support our position that interest incurred with respect to undeveloped land held as capital property that is not otherwise deductible under paragraph 20(1)(c) is not denied as a deduction under subsection 18(2) and therefore, cannot be added to the adjusted cost base of undeveloped land under paragraph 53(1)(h). In determining whether an outlay in respect of interest is deductible or not, the Act requires the taxpayer to first consider paragraphs 18(1)(a), (b) or (h), paragraph 20(1)(c) and lastly subsection 18(2). Interest incurred on vacant land not being used in a business or to generate income from property would be denied as a deduction by virtue of the aforementioned provisions of subsection 18(1) and would not be deductible under paragraph 20(1)(c).

From the limited facts provided in your letter wherein a vendor disposes of such undeveloped land and the deed of sale allocates proceeds of disposition between the land and interest which the vendor has referred  to us as deferred costs, we would probably reallocate the entire proceeds to the proceeds of disposition of the land to the vendor, in which case the total purchase price of would represent the cost of land inventory to the purchaser.

Your truly,

for DirectorBusiness and general DivisionSpecialty Rulings DivisionLegislative and IntergovernmentalAffairs Branch