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 there is a provision for deferring recapture resulting from the sale of a Class 32 garden home and subsequent purchase of a rental bachelor or one bedroom apartment unit.
Position TAKEN:
The garden home may be misclassified as Class 32 property. Adequate details were not provided about the apartment unit, however, it would appear that the provisions of subsection 1103(2d) of the Regulations would not apply.
Reasons FOR POSITION TAKEN:
If the garden home was purchased in 1985 by a subsequent owner, the property should be classified as Class 31 property. In addition, the apartment unit did not appear to be certified by CMHC as Class 31 property at the time the garden home was acquired. Therefore, the requirements of subsection 1103(2d) of the Regulations could not be met.
L. Barrows
XXXXXXXXXX 952898
March 18, 1996
Dear XXXXXXXXXX:
Re: Class 32 Property
This is in reply to your letter of September 27, 1995 in which you requested our opinion on the treatment of property classification for capital cost allowance ("CCA") and recapture purposes relating to the sale of a Class 32 garden home and the purchase of a rental bachelor or one bedroom apartment. Specifically, you would like to know if it would be permissable to put the bachelor or one bedroom apartment which otherwise qualifies under another Class into Class 32 thereby deferring any recapture that may result on sale of the garden home. We apologize for the delay in responding.
We should advise that written confirmation of the tax implications inherent in a particular fact situation is only given by this Directorate when there is a proposed transaction which is the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. However, in response to your request, we can provide the following general comments which are not binding on the Department.
Regulation 1103 provides specific rules for the transfer of properties between Classes. Subsection 1103(2d) of the Regulations deals with the situation involving the sale of a property ("former property") and the purchase of another property ("new property"). Where a taxpayer disposes of the former property and acquires a new property in any taxation year before the end of the taxation year in which the former property is sold and the property class of the new property is neither
-the property class of the former property, nor
-a separate class described in section 1101 of the Regulations, such that
-if the former property had been acquired at the time the new property was acquired and from the same person, the former property would have been included in the class of the present property, and
-if the new property had been acquired at the time the former property was acquired and from the same person, the new property would have been included in the class of the former property,
the taxpayer may by letter attached to his return in respect of the taxation year in which the former property was disposed of elect to transfer the former property from the former class to the present class in the year of its disposition.
With regard to separate classes, subsection 1101(1ac) provides that, where one or more of the properties is a rental property and the cost of the property is not less than $50,000, a separate class is prescribed for each rental property that would otherwise be included in the same class.
We enclose IT-367R3, entitled, Capital Cost Allowance - Multiple-Unit Residential Buildings which discusses Class 31 and 32 assets. Classes 31 and 32 are prescribed to contain property that is a multiple-unit residential building ("MURB") in Canada that would otherwise be included in class 3 or 6, as the case may be, and in respect of which a certificate has been issued by Canada Mortgage and Housing ("CMHC") certifying that the installation of the footings commenced within the pertinent time period and that not less than 80% of the floor space will be used for self-contained domestic establishments and related uses. In addition, not more than 20% of the floor space can be used for any other purpose than self-contained domestic establishments or related uses.
Class 32 is further qualified to include only those buildings that would otherwise be included in Class 6 if the reference to "1979" in subparagraph (a)(vii) of that class were read as a reference to "1980" and that the footings commenced after 1974 and before 1978. A subsequent owner will also qualify under this class provided the property was acquired by the subsequent owner before 1980.
Class 31, on the other hand, includes properties that would otherwise be included in Class 3 and for which the footings were commenced after November 18, 1974 and before 1980 or after October 28, 1980 and before 1982. It also includes Class 6 properties the footings for which were commenced after December 31, 1977 and before 1979. Property that was originally eligible for inclusion in Class 32 will be included in Class 31 if acquired by a subsequent owner after 1979. In addition, in order to qualify under this class, the property must have been acquired by the taxpayer before June 18, 1987 or after June 17, 1987 pursuant to an obligation in writing entered into by the taxpayer before June 18, 1987.
With regard to residential structures that would otherwise be included in Classes 6 or 3, Class 6 includes buildings of frame construction that were acquired by a taxpayer before 1979. Class 3 includes buildings that were acquired by a taxpayer before 1988.
Before discussing the application of subsection 1103(2d) of the Regulations, we should first point out that if you are a subsequent owner of the garden home it may be misclassified as Class 32 property. You stated that you acquired the property in 1985 and, as discussed above and in paragraph 9 of IT-367R3, Class 32 property acquired by a subsequent owner after 1979 should be classified as Class 31 property. If this is the case, you should request that corrections be made. Since the rates for CCA purposes differ for Classes 31 and 32 properties, reassessments may result in respect of those years permitted under subsection 152(4). For the years not permitted under subsection 152(4), the Minister may make a direction under subsection 13(6) whereby the property is deemed to be in the incorrect class for the years prior to the year for which direction by the Minister is made.
With regard to the application of subsection 1103(2d) of the Regulations, you have not provided adequate details in order to determine if the apartment units, as new property, would have qualified as Class 31 property at the time the former property was acquired. However, it is unlikely that the new property would have qualified because, due to the beneficial tax consequences in relation to Class 31 property, if the new property could have qualified it likely would have been certified. In our view, as the new property has not been certified by CMHC as Class 31 property it probably could not be certified now. Accordingly, even though it would appear that both the former property and the new property would currently qualify as Class 1 property, it is unlikely that subsection 1103(2d) of the Regulations could apply in this situation as it does not appear that all the requirements of the Regulation can be met.
Interpretation Bulletin IT-190R2 (copy enclosed) discusses the procedures for transferring misclassified property. It also discusses the method of determining the amount for transfer from one class to another for misclassified property as well as for property on which an election has been made under section 1103 of the Regulations. You should contact the Ottawa Tax Services Office if you have any further questions pertaining to a specific property transfer.
We trust these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
Enclosures
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1996
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1996
Email this Content