Accelerated investment incentive property (AIIP)

Property that is eligible for an enhanced first year allowance that is subject to the capital cost allowance (CCA) rules. The property may be eligible if it is acquired after November 20, 2018, and becomes available for use before 2028. For more information on AIIP, go to Accelerated Investment Incentive.

Adjusted cost base (ACB)

This is usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees.

The cost of a capital property is its actual or deemed cost, depending on the type of property and how you acquired it. It also includes capital expenditures, such as the cost of additions and improvements to the property. You cannot add current expenses, such as maintenance and repair costs, to the cost base of a property.

For more information on ACB, go to IT456R, Capital Property – Some Adjustments to Cost Base, and its Special Release.

Arm's length

Refers to a relationship or a transaction between persons who act in their own separate interests. An arm's length transaction is generally a transaction that reflects ordinary commercial dealings between parties acting in their separate interests.

"Related persons" are not considered to deal with each other at arm's length. Related persons include individuals connected by blood relationship, marriage, common-law partnership or adoption (legal or in fact). A corporation and another person or two corporations may also be related persons.

"Unrelated persons" may not be dealing with each other at arm's length at a particular time. Each case will depend upon its own facts. The following criteria will generally be used to determine if the parties to a transaction are not dealing at arm's length:

• whether there is a common mind that directs the bargaining for the parties to a transaction
• whether the parties to a transaction act in concert without separate interests; "acting in concert" means, for example, that parties act with considerable interdependence on a transaction of common interest
• whether there is de facto control of one party by the other because of, for example, advantage, authority or influence

For more information, go to Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

Available for use

You can generally claim capital cost allowance on a rental property only once it has become available for use.

A rental property, other than a building, usually becomes available for use on the earliest of:

• the date you first use it to earn income
• the second year after the year you acquired the rental property
• the time just before you dispose of the property

A rental property that is a building, or part of a building, usually becomes available for use on the earliest of:

• the date when a fully constructed building is purchased or construction of the building is completed
• the date that you rented out 90% or more of the building
• the second year after the year you acquired the building
• the time just before you dispose of the building

When determining the available-for-use date, you should consider a renovation, an alteration or an addition to a building as a separate building.

You may be able to claim CCA on a building that is under construction, renovation or alteration before it is available for use. You can deduct CCA that you have available on such a building when you have net rental income from that it. The CCA that you can deduct is restricted to the amount of net rental income you have after you deduct any soft costs for constructing, renovating or altering the building. For an explanation of soft costs, go to Construction soft costs.

Business Number (BN)

This is a number you get when you register to do any business with us. It is a single number which replaces the numbers that Canadian businesses previously needed to deal with the federal government.

Capital cost

This is the amount on which you first claim CCA. The capital cost of a property is usually the total of the following:

• the purchase price (not including the cost of land, which is not depreciable)
• the part of your legal, accounting, engineering, installation and other fees that relate to buying or constructing the property (not including the part that applies to land)
• the cost of any additions or improvements you made to the property after you acquired it, if you did not claim these costs as a current expense (such as modifications to accommodate persons with disabilities)
• for a building, soft costs (such as interest, legal and accounting fees, and property taxes) related to the period you are constructing, renovating or altering the building, if these expenses have not been deducted as current expenses

For more information on current expenses, go to Current or capital expenses.

Legal and accounting fees for buying a rental property are allocated between the cost of the land and the capital cost of the building. If land is acquired for rental purposes or for constructing a rental property, the legal and accounting fees apply to the land.

Capital cost allowance (CCA)

You may have acquired depreciable property like a building, furniture or equipment to use in your business. You cannot deduct the initial cost of these properties in the calculation of the net income of the business or professional activities of the year. However, since these properties wear out or become obsolete over time, you can deduct the cost over a period of several years. This deduction is called CCA.

For the most common classes of depreciable properties used to earn rental income, go to Classes of depreciable properties.

Capital expense

Capital expenses provide a benefit that usually lasts for several years. For example, costs to buy or improve your property are capital expenses. Generally, you cannot deduct the full amount of these expenses in the year you incur them. Instead, you can deduct their cost over a period of several years as CCA.

Capital expenses can include:

• the purchase price of rental property
• legal fees and other costs connected with buying the property
• the cost of furniture and equipment you are renting with the property

Capital gain

You have a capital gain when you sell, or are considered to have sold, a capital property for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.

Capital loss

You have a capital loss when you sell, or are considered to have sold, a capital property for less than the total of its adjusted cost base and the outlays and expenses incurred to sell the property. You cannot have a capital loss when you sell depreciable property such as a rental property. However, you may have a terminal loss.

Capital property

Generally any property, including depreciable property, you buy for investment purposes or to earn business income. Common types of capital property include principal residences, cottages, stocks, bonds, land, buildings and equipment used in a business or rental operation.

Common-law partner

This applies to a person who is not your spouse with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies. They:

• have been living with you in a conjugal relationship, and this current relationship has lasted at least 12 continuous months

Note
The term "12 continuous months" includes any period that you were separated for less than 90 days because of a breakdown in the relationship.

• are the parent of your child by birth or adoption
• have custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support

Current expense

Current or operating expenses are recurring expenses that provide a short-term benefit. For example, a current expense is the cost of repairs you make to keep a rental property in the same condition as it was when you acquired it. You can deduct current expenses from your gross rental income in the year you incur them.

Deductible expenses

Your deductible expenses equal your total expenses minus your total personal expenses.

Depreciable property

The property on which you can claim capital cost allowance (CCA). It is usually capital property from a business or property. The capital cost can be written off as CCA over a number of years.

You usually group depreciable properties into classes. Diggers, drills and tools that cost $500 or more belong in Class 8. You have to base your CCA claim on the rate assigned to each class of property.

Designated immediate expensing property (DIEP)

A property that:

• is immediate expensing property (see definition below) of the eligible person or partnership (EPOP)
• is designated on a prescribed form the EPOP files with the minister for the tax year on or before the day that is 12 months after the EPOP's filing due date for the tax year to which the designation relates
• became available for use by the EPOP in the current year

Eligible person or partnership (EPOP)

Eligible person or partnership is one of the following:

• a Canadian controlled private corporation (CCPC) throughout the year
• an individual (other than a trust) resident in Canada throughout the year
• a Canadian partnership of which all the members were either CCPCs or individuals (other than trusts) and all the members were resident in Canada throughout the fiscal period

Fair market value (FMV)

Generally, the highest dollar value you can get for your property or service in an open and unrestricted market between an informed and willing buyer and an informed and willing seller who are dealing at arm's length with each other.

Immediate expensing property

This is a property, other than property included in CCA Classes 1 to 6, 14.1, 17, 47, 49 and 51, that:

• is acquired by an EPOP who is an individual or a Canadian partnership after December 31, 2021
• becomes available for use before:
  • 2025, if the EPOP is an individual or a Canadian partnership of which all the members are individuals throughout the year
  • 2024 in any other case
• meets either of the following conditions:
  • it has never been used for any purpose and no person or partnership has claimed CCA (or terminal loss) for the property before the property was acquired by the EPOP
  • it has not been transferred to the EPOP on a tax deferred "rollover" basis and it was not previously owned or acquired by the EPOP or a non arm's length person or partnership

Multiple unit residential building (MURB)

Rental property in either Class 31 or 32 that has at least two self contained residential units.

Motor vehicle

An automotive vehicle designed or adapted for use on highways and streets. A motor vehicle does not include a trolley bus or a vehicle designed or adapted to be operated only on rails.

Non-arm's length

Generally refers to a relationship or transaction between persons who are related to each other.

However, a non-arm's length relationship might also exist between unrelated individuals, partnerships or corporations, depending on the circumstances. For more information, see the definition of arm's length.

Non-compliant amount

For the tax year, the amount determined by the following formula

A × B ÷ C, where:

A is the total of all amounts that would normally be deductible in the calculation of income related to the use of a residential property as a short-term rental in the tax year

B is the number of days in the tax year that the residential property was a non-compliant short-term rental

C is the number of days in the tax year that the residential property was a short-term rental

Non-compliant short-term rental

Refers to a short-term rental in a province or municipality that either:

• does not permit operating the short-term rental at that locatoin
• requires registration, a licence, or a permit to operate the short-term rental, and the short-term rental does not comply with all the proper registration, licensing, and permit requirements

Passenger vehicle

A motor vehicle that is owned by the taxpayer (other than a zero emission vehicle) or that is leased, and is designed or adapted primarily to carry people on highways and streets. It seats a driver and no more than eight passengers. Most cars, station wagons, vans and some pick up trucks are passenger vehicles.

Passenger vehicles and zero emission passenger vehicles are subject to limits on the amount of CCA, interest and leasing costs that may be deducted. They do not include:

• an ambulance
• a clearly marked police or fire emergency response vehicle
• a motor vehicle you bought to use more than 50% as a taxi, a bus used in the business of transporting passengers, or a hearse used in a funeral business
• a motor vehicle you bought to sell, rent or lease in a motor vehicle sales, rental or leasing business
• a motor vehicle (except a hearse) you bought to use in a funeral business to transport passengers
• a van, pick up truck or similar vehicle that seats no more than the driver and two passengers and that, in the tax year you bought or leased it, was used more than 50% to transport goods and equipment to earn income
• a van, pick up truck or similar vehicle that, in the tax year you bought or leased it, was used 90% or more to transport goods, equipment or passengers to earn income
• a pick up truck that, in the tax year you bought or leased it, was used more than 50% to transport goods, equipment or passengers to earn or produce income at a remote work location or at a special work site that is at least 30 kilometres from the nearest community with a population of at least 40,000
• a clearly marked emergency medical service vehicle used to carry paramedics and their emergency medical equipment

Personal-use property

Refers to items that you own primarily for the personal use or enjoyment of your family and yourself. It includes all personal and household items, such as furniture, automobiles, boats, a cottage, and other similar properties.

Proceeds of disposition

The amounts you receive, or that we consider you to have received, when you dispose of your property (usually the selling price of the property). Proceeds of disposition is also defined to include, amongst other things, compensation received for property that has been destroyed, expropriated, damaged or stolen.

For more information about proceeds of disposition, go to Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

Rental income

Income you earn from renting a property that you own or have use of.

Rental operation

Services you provide within your rental property to your tenants such as heat, lighting, laundry, cleaning or security.

Rental Property

Generally, a building or certain leasehold interests owned by a taxpayer(s) or a partnership that is mainly used to generate gross revenue from rent.

Residential property

Refers to all or any part of a house, apartment, condominium unit, cottage, mobile home, trailer, houseboat, or other property located in Canada that can be used for residential purposes under applicable law.

Short-term rental

A residential property that is rented or offered for rent for a period of less than 90 consecutive days.

Spouse

A person to whom you are legally married.

Undepreciated capital cost (UCC)

Generally, the amount left after you deduct CCA from the capital cost of a depreciable property. Each year, the CCA you claim reduces the UCC of the property.

Zero emission passenger vehicle (ZEPV)

An automobile that is owned by the taxpayer and is included in Class 54 (but would otherwise be included in Class 10 or 10.1). The rules that apply to the definition of passenger vehicles apply to ZEPVs. A ZEPV does not include a leased passenger vehicle, but other vehicles that would otherwise qualify as a ZEPV if owned by the taxpayer are subject to the same leasing deduction restrictions as passenger vehicles.

Zero emission vehicle (ZEV)

A motor vehicle that is owned by the taxpayer where all of the following conditions are met:

• is a plug in hybrid with a battery capacity of at least 7kWh or is either fully:
  • electric
  • powered by hydrogen
• is acquired, and becomes available for use, after March 18, 2019, and before 2028
• has not been used or acquired for use for any purpose before it was acquired by the taxpayer
• is a vehicle in respect of which an amount has not been deducted as CCA and a terminal loss has not been claimed by another person or partnership

Note
If the property was acquired after March 1, 2020, it may have been used, but a vehicle that was subject to a prior CCA or terminal loss claim cannot have been acquired by the taxpayer on a tax deferred “rollover” basis nor previously owned or acquired by the taxpayer or a non arm’s length person or partnership.

• is a vehicle for which:
  • an election has not been made to forgo the Class 54 or 55 treatment
  • assistance has not been provided by the Government of Canada under the new incentive announced on March 19, 2019