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:
Are acquisition of new leasing properties of different type still exempt pursuant to Reg 1100(16) ?
Position:
yes, provided no new business
Reasons:
the principal business remains leasing
953091
XXXXXXXXXX C. Tremblay
Attention: XXXXXXXXXX
February 19, 1996
Dear Sirs:
Re: Subsection 1100(16) of the Income Tax Regulations (the "Regulations")
This is in reply to your letter of November 15, 1995, wherein you asked us to confirm your views that in the situation described a Canadian corporation in the business of manufacturing property and leasing and selling such property for use by its customers will not be subject to subsection 1100(15) of the Act by virtue of paragraph 1100(16)(a) of the Regulations in the situation described.
The situation that is described appears to involve a series of actual proposed transactions. It is not our practice to give written opinions concerning proposed transactions, as indicated in Information Circular 70-6R2. Should you wish to request an advance ruling on these or other transactions which may be proposed, please refer to Information Circular 70-6R2 for the procedure to be followed. Although we are unable to provide any opinion in respect of the specific transactions described in your letter, we have set out some general comments which may be of some assistance.
Subsection 1100(15) of the Regulations limits the amount of capital cost allowance (CCA) that can be claimed on leasing property owned by a corporation, other than a corporation whose principal business was renting or leasing of leasing property or renting or leasing property combined with selling and servicing of property of the same general type and description if the gross revenue of the corporation for the year from such principal business was not less than 90% of the gross revenue of the corporation for the year from all sources. Interpretation Bulletin IT-371 provides some comments on the meaning of principal business. The determination of whether the principal business of a corporation is as described in subparagraph 1100(16)(a)(ii) of the Regulations is a question of fact.
The term "gross revenue" is defined in subsection 248(1) of the Act. The Department considers that for purposes of paragraph 1100(16)(a) of the Regulations "gross revenue" from the principal business referred to therein includes:
(a) gross revenue from renting or leasing of property described in that subsection of the Regulations or from the servicing of property of the same general type and description as well as royalty income from all such property;
(b) proceeds from the sale of property described in that subsection of the Regulations or property of the same general type and description;
(c) interest and other financing charges incidental to the taxpayer's activities set out in (a) and (b) above, other than a money-lending business, and earned in the course of selling or leasing property.
Accordingly, it is our view that by virtue of subsection 1100(16) of the Regulations, subsection 1100(15) of the Regulations would not apply to a corporation whose principal business was renting or leasing of property throughout the year combined with selling and servicing throughout the year of property of the same general type and description, provided the 90% gross revenue test is met. However, in our view, where a corporation's gross income from renting or leasing a property which is not of the same type as the property currently being leased and sold exceeds 10% such as to constitute a new business, the corporation would be subject to the provisions of subsection 1100(15) of the Regulations.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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