6 May 1993 Income Tax Severed Letter 9301685 - Rental Property—Separate Classes

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                                   930168
XXXXXXXXXX                                         J.D. Brooks
                                                   (613) 957-2103

Attention: XXXXXXXXXX

May 6, 1993

Dear Sirs:

Re: Subsection 1103(1) of the Income Tax Regulations (the "Regulations") Election to Include Properties in Class 1

This is in reply to your letter of January 14, 1993 in which you requested our view concerning the application in a hypothetical situation of subsection 1103(1) of the Regulations which provides for the inclusion in class 1 of Schedule II of assets otherwise included in classes 2 to 10, 11 and 12 of Schedule II. We understand your concern relates to the following generalized situation:

A taxpayer's principal business is that of renting real property. The taxpayer owns more than one rental property and each is presently included in a separate class of Schedule II. The taxpayer will elect pursuant to Regulation 1103(1) to include its properties in class 1.

Our Comments

The situation you described appears to involve specific taxpayers and specific contemplated transactions. As explained in Information Circular 70-6R2 dated September 28, 1990, assurance as to the tax consequences of proposed transactions is provided by the Rulings Directorate but only on an advanced income tax rulings basis and only with respect to the taxpayers identified in such rulings. Although we are unable to provide any opinion in respect of the specific case you have described, we have set out below some comments of a general nature.

Paragraph 7 of Interpretation Bulletin IT-274R entitled "Rental Properties—Capital Cost of $50,000 or More" reflects the Department's position and where a taxpayer elects pursuant to Regulation 1103(1) to include in class 1 properties which would otherwise be included in certain other classes, the election does not override Regulation 1101(1ac). Regulation 1101(1ac) requires each rental property which cost $50,000 or more and which would otherwise be included in the same class, to be included in a separate class. Thus a taxpayer may have more than one class of assets which is described as class 1. An exclusion is provided for properties acquired before 1972. Where the cost of a rental property is less than $50,000, that rental property would be included in class 1 together with the other class 1 assets which are not property of a separate class 1 as prescribed by Regulation 1101(1ac).

In a factual situation, other provisions of the Act and Regulations may also apply.

These comments represent an expression of opinion and, as stated in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.

We trust that our comments are of assistance.

Yours truly,

R. Albert for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch