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.
940241
XXXXXXXXXX L.Holloway
(613) 957-8953
Attention: XXXXXXXXXX
February 18, 1994
Dear Sirs:
Re: Interpretation of Subparagraph 149(1)(o.2)(ii)
This is in reply to your letter dated January 31, 1994, expressing your concern over the Department's interpretation of activities permitted by subparagraph 149(1)(o.2)(ii) of the Income Tax Act. These concerns arose in direct response to the Department's position at the Round Table held by the Canadian Tax Foundation in December, 1993. We had also stated at the conference that this position was currently under review. In addition you had asked us to comment on whether improving a property would include developing the property.
We have reconsidered our position on the subject of what activities corporations exempted by paragraph 149(1)(o.2) can engage in without jeopardizing their tax exempt status. This position follows:
A pension fund realty corporation may acquire or hold capital property that is real property or an interest therein, whether or not there may be co-owners of the property who are non-qualified persons. Further, where such a corporation owns, say, a 50% undivided interest in real property, it may accept responsibility for 50% of the obligation to maintain, improve, lease or manage the property. As a second example, where such a corporation owns a 50% interest in a property, another paragraph 149(1)(o.2) corporation owns a 25% interest and the remaining 25% interest is owned by a taxable entity, either one of the two paragraph 149(1)(o.2) corporations concerned may undertake up to 75% of the maintaining, improving, leasing, or managing responsibilities associated with the entire property.
With respect to the issue of developing the property, the Department's position has been to accept the development of capital property as being synonymous with the improvement of capital property as long as the activities are associated with the earning of passive investment income on capital property. The overriding limitation on the permitted activities is that the property remains 'capital property'. Activities undertaken with respect to an asset that was acquired with the intent to improve and develop for sale at a profit would not be acceptable. Whether an asset is acquired with the intention of holding and managing it as an investment or with the intention to resell at profit is a question of fact. Paragraph 3 of IT-218R lists several factors which would need be considered when determining whether an asset was a capital property.
We trust our comments will be of assistance to you.
Yours truly,
R.Biscaro
A/Director General
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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