30 August 1989 Income Tax Severed Letter AC58003 - Deemed Capital Cost of 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.

19(1)                                   Blair P. Dwyer
                                        613 957-2744

August 30, 1989

Dear Sirs:

Re: Subsections 13(5.1) and (5.2) of the Income Tax Act (the "Act")

This is in reply to your letter dated april 27, 1989, in which you asked for our comments on the relationship between subsections 13(5.1) and (5.2) of the Act.

You are concerned that paragraphs 13(5.1)(b) and 13(5.2)(a) both deem an amount to be the capital cost of property and that each provision may produce a different deemed cost.

You are correct in stating that paragraph 13(5.2)(a) deems the property to have a specific capital cost. In the words of that provision, the property is "deemed to have been acquired {....}at that time at a cost equal to" a specific amount. However, the wording of paragraph 13(5.1)(b) is different. Rather than deeming the property to have been acquired at a specific cost, paragraph 13(5.1)(b) provides that a specific amount is to be "added to the capital cost" of the property (emphasis added). In our view, the capital cost of the property to a taxpayer for purposes of paragraph 13(5.1)(b) is the capital cost after taking into account subsection 13(5.2).

We note that a capital loss cannot arise in respect of depreciable capital property: see subparagraph 39(1)(b)(i) of the Act.

Accordingly, a disposition that comes within paragraph 13(5.1)(a) produces neither a terminal loss nor a capital loss in respect of the leasehold interest.

The comments set out in this letter are of a general nature only and do not take into account considerations that might arise in the context of specific transactions or events. In accordance with paragraph 24 of Information Circular 70-6R, the comments expressed herein do not constitute advance income tax rulings and consequently are not binding on the Department.

Yours truly,

for Director Financial Industries Division Rulings Directorate Legislative & Intergovernmental Affairs Branch