12 January 1990 Ruling 74581 F - Valuation of Investment 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.

Subject: 24(1) Valuation of Investment Property

We are writing in response to your letter of November 27, 1989 which referred a letter of October 24, 1989 from the Scarborough District Office. All references to statute are to the Income Tax Act (Canada).

You have asked us to comment on the definition of "valuation", found in subsection 2405(3) of the Regulations.

24(1)

We disagree with this position for two reasons. The definition of valuation in subsection 2405(3) of the Regulations provides that "valuation, in respect of a property of an insurer at a particular time means, in the case of (b) depreciable property of a prescribed class... the portion of the owner's undepreciated capital cost at that time of property of the class that (i) the owner's capital cost of the property is of (ii) the owner's capital cost of all property of the class" (our emphasis). As the insurer no longer owns the property at year-end when valuation is being determined, it does not have the property at that time. Thus even if the UCC balance could be a negative amount which we do not believe can be the case for the reasons noted below, the asset itself is not to be considered in the determination of valuation.

We do not accept the taxpayer's suggestion that the definition of UCC in paragraph 13(21)(f) requires the words "if any" after the words "by which the aggregate of" in order to prevent the UCC balance from being negative. UCC is defined as "the amount by which the aggregate ... exceeds the aggregate of ..." which by construction can only be a positive number or zero. To allow a negative UCC balance would produce unreasonable results in the capital cost allowance calculation in paragraph 20(1)(a) (a negative deduction). Furthermore subsections 13(1) and 20(16) by their construction appear to contemplate that UCC can only be positive as recapture is defined as that case where the negative components of the UCC definition exceed the positive components and a terminal loss is the converse with the further requirement that there be no assets remaining in the class. Interpretation Bulletin 478 supports this way of viewing recapture and terminal loss. It also in paragraph 1 defines UCC as "the amount, if any, by which the aggregate of ... exceeds the aggregate of...".

In conclusion, there appears to be sufficient evidence to substantiate the view that UCC cannot, by definition, be a negative amount. Also, if an investment property is no longer owned at the end of a year, there is no asset for "valuation" purposes at that particular time, which is the relevant time for the determination of an insurer's CIF.

We trust that this assists you.

for DirectorFinancial Industries DivisionRulings Directorate