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:
The classification of a dyke and the income tax consequence of Government assistance for constructing such a dyke.
Position:
Dyke is a class 1 property. Government assistance reduces the capital cost of the dyke.
Reasons:
A dyke is a structure and falls in paragraph (q) of class 1. Subsection 13(7.1) applies to reduce the capital cost of the dyke by any Government assistance received.
972764
XXXXXXXXXX J.E. Grisé
(613) 957-2059
October 27, 1997
Dear XXXXXXXXXX:
Re: Construction of Permanent Dykes
This is in reply to your fax of October 9, 1997 to XXXXXXXXXX Tax Services Office, concerning the cost and Government assistance relating to the construction of permanent dykes for the purpose of preventing the flooding of farm land.
In our view, a permanent dyke for use in a business is a structure. The capital cost of such a structure is included in class 1 of Schedule II of the Income Tax Regulations by virtue of paragraph (q) of that class. The capital cost of the dyke would include material, labour (other than the taxpayer's own labour) and overhead costs reasonably attributable to the property, as well as amounts paid to third party contractors. In this respect, please refer to Interpretation Bulletin IT-285R2, Capital Cost Allowance - General Comments.
Subsection 13(7.1) of the Income Tax Act, requires the capital cost of a depreciable property to be reduced by the amount of Government assistance received or entitled to be received, before the time of determining the capital cost, by a taxpayer to enable the taxpayer to acquire the property. Please refer to paragraphs 8 to 11 of Interpretation Bulletin IT-273R, Government Assistance - General Comments, for additional details. To the extent that the assistance exceeds the capital cost of the depreciable property, it is included in the income of the taxpayer by virtue of paragraph 12(1)(x) of the Income Tax Act.
If the dyke is also used to protect personal-use property (e.g., a taxpayer's residence and adjacent property), a portion of the cost would need to be allocated to the personal property on a reasonable basis.
Yours truly,
John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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