13 December 1993 Internal T.I. 9328197 F - Capital v Current Expense

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.

December 13, 1993

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Capital vs Current Expenditure

This is in reply to your memorandum of September 30, 1993, wherein you requested our comments with respect to the classification of certain costs incurred by the company (the"Company") in the following situation:

The Company currently operates a car dealership. Prior to this, it operated a service station. The Company has ceased the business of selling gas and has removed the gas pumps.

As a requirement of obtaining a loan from a bank, the Company has to procure approval from the Department of Environment that the land complies with an environmental test. The cost of the test is approximately $5000 and the cost of digging up and replacing the earth is approximately $100,000.

The above situation appears to relate to a proposed transaction. Consequently, it should be the subject of an advance income tax ruling in accordance with paragraph 21 of Information Circular 70-6R2. However, we will offer the following general comments.

While the expenditures may be required by the bank in order to obtain a loan, the expenditures referred to above are not expenses that would qualify under paragraph 20(1)(e) of the Income Tax Act. The expenditures more properly relate to "improving" the land in order that the land will be acceptable security, and therefore are an addition to the adjusted cost base of the land.

for DirectorRulings DirectorateLegislative and Intergovernmental Affairs Branch