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.
RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY
Principal Issues:
Whether an
XXXXXXXXXX
for which a fee is charged is a rental property within the meaning of that term in subsection 1100(14) of the Income Tax Regulations and whether the fees earned represent "gross revenue" that is rent within the meaning of that term in subsection 1100(14.1) of the regulations.Position TAKEN:
A question of fact and the answers to both questions could be yes, as long as the services offered are ancillary to the rental earning function and the principal use of the building is to earn rent and the exceptions such as subsection 1100(12) and (14.2) of the ITR are not applicable. No specific opinion expressed as the request appears to relate to a specific situation and the facts presented are not sufficient to base an opinion on.
Reasons FOR POSITION TAKEN:
Subsections 1100(14) & (14.1) of the Income Tax Regulations, previous correspondence and IT-195R4.
950196
XXXXXXXXXX G. Donell
Attention: XXXXXXXXXX
June 14, 1995
Dear Sir:
Re: Rental Property - Regulation 1100(14)
This is in reply to your letter of January 18, 1995 in which you requested our opinion on the application of subsections 1100(14) and (14.1) of the Income Tax Regulations ("ITR") in a particular situation. We apologize for the delay of our response.
In your letter you have outlined what appears to be an actual fact situation related to a past transaction. The review of such transactions falls within the responsibility of the District Taxation Offices and it is the practice of this Branch not to comment on the income tax consequences arising as a result thereof. Opinions with respect to such past transactions may be requested from the relevant District Taxation Office. However, we offer the following general comments with regard to the issues raised in your letter which we hope will be of assistance to you.
In the situation you describe a taxpayer who owns an
XXXXXXXXXX
Subsection 1100(14) of the ITR defines a "rental property" as:
"...means
(a) a building owned by the taxpayer..., or
(b) ...,
if in the taxation year in which the expression is being applied, the property was used by the taxpayer...principally for the purpose of gaining or producing gross revenue that is rent...".
Subsection 1100(14.1) of the ITR defines the expression "gross revenue" as:
"...revenue derived in a taxation year from
(a)the right of a person..., other than the owner of a property, to use or occupy the property or a part thereof, and
(b)services offered to a person...that are ancillary to the use or occupation by the person...of the property or part thereof
shall be considered to be rent derived in that year from the property."
Generally a building falls within the rental property rules where it is used principally for the purpose of earning gross revenue that is rent. The question of whether or not a property is used principally for the purpose of gaining or producing gross revenue that is rent is a question of fact. Factors that should be considered in making this determination are listed in paragraph 4 of Interpretation Bulletin IT-195R4, dated September 6, 1991, titled "Rental Property - Capital Cost Allowance Restrictions". In that paragraph the department has stated that "principally" means "primarily" or "chiefly" and that some of the main factors include the proportion of time the property is used for that purpose, or the proportion of space rented in relation to the total area of the building. Where the property is used more than 50% of the time or utilizes more than 50% of the total area for rental purposes this would be an indication that the property is being used principally for producing rental revenue. In the Canada Trust Co. decision (85 DTC 322) the Tax Court of Canada accepted the square footage use of a building as a factor to be given significant weight in the determination of the particular use to which a building is put.
In order to be qualify as a rental property the property must produce gross revenue that is rent. Subsection 1100(14.1) of the ITR elaborates as to what constitutes rent for this purpose. Rent is considered to include revenue for the use or occupation of the property and revenue for ancillary services offered to a person using or occupying that same property. Paragraph 6 of IT-195R4 states that where the services extend beyond merely ancillary revenue from the provision of those services would not be considered rent derived from that property. Where a property does not produce gross revenue that is rent or where one of the exceptions in subsection 1100(14.2) is applicable the property will not be considered to be a rental property.
We trust that the above comments are of assistance to you.
Yours truly,
Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch
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