4 April 1996 External T.I. 9611745 - DEDUCTIBILITY OF RENTAL LOSSES OF NON-RESIDENT

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.

									961174
XXXXXXXXXX							Jim Wilson
(613) 957-2123

Attention: XXXXXXXXXX

April 4, 1996

Dear Sirs:

Re: Paragraph 216(1)(c) of the Income Tax Act (the "Act")

We are writing in response to your letter of March 25, 1996 wherein you asked us what happens to the losses incurred by a non-resident of Canada on a rental property located in Canada and whether those losses can be added to the adjusted cost base of the property.

The Department's comments on the above issue are expressed in paragraphs 3, 4 and 8 of Interpretation Bulletin IT-393R2 (the "bulletin") (copy enclosed). By virtue of paragraph 216(1)(c) of the Act, no deductions are allowable in computing taxable income on a non-resident's subsection 216(1) return. Thus, Division C amounts such as non-capital losses are not deductible. Accordingly, the loss cannot be carried back or forward to any other year's section 216 return nor can the non-resident set off such a loss against income for the same taxation year or another taxation year reported on any other return required under Part I of the Act. However, a non-resident who has income for the same taxation year from another section 216 property may apply such a loss to offset any income arising from that other property (see example in paragraph 8 of the bulletin).

Section 54 of the Act defines "adjusted cost base". There is no provision in section 53 of the Act that would adjust the adjusted cost base of the land nor is there any provision in the Act that would adjust the capital cost of the building with respect to losses incurred on the rental property. Accordingly, the cost and capital cost of the land and building, respectively, and consequently the adjusted cost base of the land and building, would be determined pursuant to general costing principles.

We trust you will find the above comments of some assistance.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch