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.
| 19(1) |
File No. 5-8315 |
| |
R.B. Day |
| |
(613) 957-2136 |
August 18, 1989
19(1)
We are writing in reply to your letter of June 21, 1989, wherein you requested our views regarding the recapture of capital cost allowance (CCA) in the following situation.
A company acquires a building to be used in manufacturing or other active business operations. CCA is claimed in respect of that building for a significant number of years (say twenty years) while active business operations are carried on. After twenty years, the company sells its business assets and operations but retains the building used in the active business operations and rents that building to another person.
After the building has been rented for a number of years (say five years) with full CCA being claimed during those years against the related rental income, the building is sold and all previous CCA (both while the building was used in active business operations and while it was rented) is recaptured.
Specifically you have requested our views as to whether recaptured CCA would be:
(a) treated as active business income because the building is in a "prescribed class" in respect of an active business;
(b) treated as investment income because that was the last use to which the building was put and, in fact, reflects the most recent use of the building and activity of the corporation; or
(c) split so that the recaptured CCA claims while the building was used in an active business are treated as active business income and the recaptured CCA claims while the building was a rental property are treated as investment income.
Although, in your view, there is merit in each of these three alternatives you believe alternative (b) would most likely reflect the proper source for the CCA recapture.
Our Comments
It is our view that alternative (b) would apply to the recapture of CCA in this situation. Once a company ceases to carry on an active business and commences to earn income from rentals, any income received by the company from the disposition of property used in the rental operation, would be considered to be income from that source.
No allocation between active business income and rental income could be permitted without the existence of a specific provision in the Act.
We trust these remarks are of assistance to you.
Yours truly,
for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch
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© Sa Majesté la Reine du Chef du Canada, 1989
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