4 October 1995 Internal T.I. 9521367 - CAPITAL GAINS ELECTION - LEASED PROPERTY

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 Issues:

Whether a capital gains election can be filed in respect of a cottage located on land leased from the provincial government.

Position TAKEN:

The election must be filed in respect of a leasehold interest.

Reasons FOR POSITION TAKEN:

The property owned by the taxpayer on February 22, 1994 was a leasehold interest, of which the cottage formed part.

		October 4, 1995

	Winnipeg Tax Services Office 	HEADQUARTERS
	Client Assistance	C. Chouinard
		957-8953
	Attention: Susann Ward
		7-952136

Leased Property and the Capital Gains Election

This is in response to your memorandum of August 10, 1995, wherein you requested our comments on the capital gains election as it applies to a cottage located on land leased from the Manitoba government.

We understand that the taxpayer filed the capital gains election based on the value of the cottage only. The taxpayer is of the opinion that the lease he has is a separate property and he now wishes to file a late capital gains election in respect of the leased land. In your opinion, the taxpayer cannot file an additional capital gains election in respect of the leased land, since the value of the lease should be reflected in the value of the cottage.

Our Comments

According to subsection 110.6(19) of the Income Tax Act (the "Act"), a capital gains election can be made in respect of any property that constitutes capital property. In our view, the property owned by the taxpayer on February 22, 1994 was not the cottage, but a leasehold interest in land, of which the cottage formed a part. In addition, since the land is subject to a long term lease, in our view, the leasehold interest would be considered to be capital property. Therefore, since the taxpayer owned but one property, the leasehold interest, on February 22, 1994, he cannot file two capital gains elections.

Nevertheless, the capital gains election filed by the taxpayer could be treated as an election in respect of his leasehold interest. The question of whether the value of the cottage and the value of the lease, if any, should be reflected in the value of this leasehold interest is a valuation question and should, therefore, be referred to your Valuations Service.

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch