19 August 1994 External T.I. 9415995 - RECAPTURE OF CCA

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.

PRINCIPAL ISSUE:

Whether subsection 129(6) of the Act would apply to deem the recaptured CCA on a building to be active business income where the rental income received on the building was deemed to be active business income?

Position TAKEN:

Subsection 129(6) would not apply but our policy is that the recapture on the disposition of the building would also be considered active business income.

Reasons FOR POSITION TAKEN:

5-7266, 1989 APFF - question 24, 5-1137.

				5-941599

XXXXXXXXXX				L. Roy

Attention: XXXXXXXXXX

August 19, 1994

Dear Sir\Madam:

RE: Recapture of Capital Cost Allowance

This is in reply to your letter of June 17, 1994 wherein you requested our opinion regarding the recaptured CCA on a building where the rental income received on that building was deemed to be active business income pursuant to subsection 129(6) of the Income Tax Act ("Act").

All references to statute are to the Income Tax Act S.C. 1970-71-72, c.63, as amended, consolidated to June 10, 1993.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2, dated September 28, 1990. Where the particular transactions are completed, the enquiry should be addressed to the relevant district taxation office. The following comments are, therefore, of a general nature only, and are not binding on the Department.

Paragraph 129(6)(b) of the Act provides that property income paid or payable by a corporation to a corporation with which it is associated shall be deemed to be income from an active business of the recipient corporation for the purposes of section 125 of the Act.

Where by virtue of subsection 129(6) of the Act, rental income of a taxpayer was deemed to be active business income and capital cost allowance in respect of the rented building was deducted in arriving at this active business income, it is the Department's position, as expressed in answer to question 1.24 of the 1989 Revenue Canada Round Table of the Association de Planification Fiscale et Financière, that the recapture of the capital cost allowance on the disposition of the building by the taxpayer would also be considered active business income.

We are not ready to express an opinion as to the second situation you raised without knowing all the facts and the purpose of the described transaction.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch