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.
February 17, 1998
XXXXXXXXXX
Re: Revenue Canada Roundtable
1994 British Columbia Tax Conference
Dear Sir or Madam:
We have had the opportunity to reflect on our response to Question 6 of the Revenue Canada Roundtable of the 1994 British Columbia Tax Conference and we would like to advise you that we have reconsidered our response. The original question and response, as well as the Department’s position, are outlined below.
The question concerned the appropriate determination of the amount of a paragraph 20(1)(m) reserve where rent is prepaid in respect of a 99 year lease from an unrelated party. In response to the question, the Department indicated that a reasonable reserve in respect of prepaid rent under paragraph 20(1)(m) of the Income Tax Act “would not exceed the undepreciated capital cost of the building, since this should represent the maximum future cost to the lessor in respect of the leased property.”
However, we have recently been made aware that the above-mentioned response is not in keeping with the Department’s position in Interpretation Bulletins IT-154R and IT-261R. As stated in paragraph 8 of IT-154R and paragraph 9 of IT-261R, a reasonable reserve in respect of prepaid rent is that part of the rent received in advance which relates to the period after the end of the year for which possession or use of the property must be made available. This amount may, in certain circumstances, exceed the undepreciated capital cost of the building. Accordingly, the response provided at the Tax Conference was not accurate.
XXXXXXXXXX
Yours sincerely,
Roy C. Shultis
Director General
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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