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:
concerns regarding tax policies related to the demolition, donation and restoration of heritage buildings.
Position:
tax policy issues fall within the purview of the Department of Finance
Reasons:
Revenue Canada is responsible for the application of the Act.
ADM'S OFFICE (2) 97-01004M
RETURN TO 15TH FLOOR, ALBION TOWER
March 21, 1997
XXXXXXXXXX
Dear XXXXXXXXXX:
The Honourable Jane Stewart, Minister of National Revenue, has asked me to respond to your letter of January 23, 1997, addressed to the Honourable Paul Martin, Minister of Finance, concerning the tax policies relating to the demolition, restoration and donation of heritage buildings. A copy of your letter was received by this Department on February 13, 1997.
The Department of National Revenue (the "Department") is responsible for applying the provisions of the Income Tax Act (the "Act") as enacted by Parliament. This responsibility includes determining the tax consequences of the demolition of buildings. In this respect, you should note that, although the demolition of a building that is a depreciable property may give rise to a terminal loss, there are special rules in the Act which may reduce the potential terminal loss upon the disposition of a building. As the demolition of a building constitutes a disposition, these rules may apply.
The Department is also responsible for determining the tax treatment of expenditures related to the repair and renovation of real property. The issue of current versus capital treatment in respect of such expenditures is discussed in Interpretation Bulletin IT-128R, a copy of which is enclosed. In the Department's view, the guidelines set out in this Interpretation Bulletin are a reasonable distillation of the relevant considerations developed by the Courts. However, as a determination of the appropriate tax treatment of a particular expenditure requires an examination of the particular facts, a strict formulation of the appropriate tax treatment, i.e., current versus capital, is not possible. In addition, expenditures related to the renovation and restoration of heritage properties may only be deducted or capitalized, as the case may be, where the property is used for the purpose of gaining or producing income from business or property. Accordingly, where a heritage property is used as a personal residence, no part of the expenses incurred to renovate or restore the property can be deducted or claimed as capital cost allowance.
With respect to the tax treatment of donations of capital property, including heritage properties, the Act provides special rules pertaining to gifts of capital property, which are discussed in Interpretation Bulletin IT-288R2 (a copy of which is enclosed). These rules allow a taxpayer to designate an amount as proceeds of disposition of the property and thereby reduce or completely eliminate the amount of the capital gain that might otherwise be realized as a result of the disposition of the property by way of gift. The designated amount becomes not only the proceeds of disposition of the property but also the amount of the gift for purposes of the charitable donation credit or deduction, as the case may be. In addition, in the March 6, 1996 budget, the government introduced certain changes designed to increase the annual limit on tax credits for charitable donations. Thus, the annual charitable donation limit which restricts the amount of donations to a percentage of a taxpayer's net income will be raised from 20% to 50%. Furthermore, where capital property is donated, the 50% of net income limit will be raised further by half the amount of taxable capital gains resulting from the donation that are included in calculating the donor's taxable income for the year. This will ensure that taxpayers making gifts of appreciated capital property are able to claim tax credits for the full amount of the taxable capital gain. These changes, once enacted, will apply to donations claimed for the 1996 and subsequent taxation years. It should be noted also that, where property is donated to the provincial or federal Crown, the general annual limit on charitable donations does not apply. Therefore, the amount of the capital gain, if any, resulting from the donation may be completely offset by the charitable donation deduction or credit claimed in the year in which the donation is made.
You should note also that the 1997 budget proposes to increase the amount of donations for which the charitable tax credit or deduction can be claimed in one year from 50% to 75% of net income. In addition, for donations to the Crown and Crown foundations, the limit will be lowered from 100% to 75%, to put all charities on a level playing field. Where the property donated is capital property, the 75% limit will be increased by an amount equal to 25% of the amount of recaptured capital cost allowance and taxable capital gains from the gift of such property, so that tax credits can now be claimed for the full amount of recapture and continue to be claimed for the full amount of taxable capital gains.
In addressing your concerns, we have focused on the tax consequences of the issues you have raised, since the changes in support of which you write, such as changes to the rules governing the demolition of buildings, the elimination or reduction of GST in respect of building materials and a more favourable tax treatment of conservation and restoration expenditures, would require a change in tax policy and amendments to the Act which fall within the purview of the Department of Finance. Since you have already sent your letter to the Minister of Finance, I am certain that your views will receive every consideration.
I thank you for bringing your views to our attention.
Yours sincerely,
Denis Lefebvre
Assistant Deputy Minister
Policy and Legislation Branch
Encl.
C. Chouinard
957-2098
February 25, 1997
970478
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