15 January 1998 External T.I. 9732425 - PRINCIPAL BUSINESS OF LEASING "LEASING PROPERTY"

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 revenues from certain activities can be included in “gross revenues” for purposes of satisfying test in subsection 1100(16) of the Regs.

Position: General comments only.

Reasons:

General positions contained in I.T.’s. - whether revenues from specific activities can be considered part of gross revenues from the principal business of leasing etc. can only be judged in context of advance ruling.

973242
XXXXXXXXXX P. Spice

Attention: XXXXXXXXXX

January 15, 1998

Re: Subsection 1100(16) of the
Income Tax Regulations (the “Regulations”)

This is in reply to your letter of November 16, 1997, in which you describe various types of leasing and other properties which are leased, sublet and sold by a taxpayer. You ask whether the taxpayer meets the test in subsection 1100(16) of the Regulations thereby avoiding the subsection 1100(15) limitation on the capital cost allowance deduction.

Confirmation of the tax consequences flowing from completed transactions must be obtained from your local tax services office. This directorate will provide a technical interpretation concerning the provisions of the Income Tax Act (the “Act”) and Regulations but not with respect to specific factual or hypothetical transactions. We may, however, provide general comments concerning the provisions.

Subparagraph 1100(16)(a)(ii) of the Regulations requires that the corporation have as a principal business the renting or leasing of “leasing property” or property that would be “leasing property” but for subsection 1100(18), (19) or (20) of the Regulations combined with selling and servicing of property of the same general type and description.

Furthermore, the corporation’s gross revenue for the year from such principal business must not be less than 90% of the gross revenue of the corporation from all sources.

General comments concerning the meaning of “principal business” and “gross revenue” are contained in paragraphs 8 and 10 of Interpretation Bulletin IT-443 (“Leasing Property - Capital Cost Allowance Restrictions” ) and, more specifically, with respect to “principal business”, in paragraphs 5 through 11 of Interpretation Bulletin IT-371 (“Rental Property - Meaning of ‘Principal Business’”).

“Leasing property” is defined in subsection 1100(17) of the Regulations; assuming the “principal business” test is met, a corporation which rents or leases a particular type of property which satisfies the definition of “leasing property” can include in gross revenue the proceeds from sales of the same type of property.

We are unable to confirm the tax treatment relating to the specific activities described in your letter and whether gross revenues from such activities would be included in determining whether the corporation meets the 90% threshold. Should one of your clients wish to apply for an advance income tax ruling, we would be pleased to consider these issues further.

Although the foregoing comments are not binding on the Department, we trust they assist.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch