10 February 1999 e9833685.txt - LESSEE PAID ADDITIONS TO SECTION 16.1 ASSET16.1

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: How do you treat additions or alterations made by a lessee to a property which has been the subject of a sec. 16.1 election?

Position:			As additions to the property - not leasehold improvements

Reasons:			Lessee is deemed to have acquired the property.

XXXXXXXXXX 							983368
J. P. Dunn
Attention: XXXXXXXXXX 

February 10, 1999

Dear sirs:

Re: Lessee Paid Additions or Alterations to Subsection 16.1(1) Asset

We are writing in response to your correspondence of December 21, 1998 in which you requested the views of the Department regarding the treatment of additions or alterations to a property by a lessee of that property in circumstances in which the lessee and the lessor have jointly elected pursuant to subsection 16.1(1) of the Income Tax Act (the “Act”).

Paragraph 16.1(1)(b) of the Act deems that, for the purpose of computing the income of the lessee, the lessee is considered to have acquired the subject property from the lessor. Accordingly, any alterations or additions to the property by the lessee subsequent to the time that the lease began would, for that same purpose, be included as a component of item “A” in the definition of “undepreciated capital cost” in subsection 13(21) of the Act as that definition relates to the leased property. For that same reason, such alterations or additions would not be considered to be leasehold improvements of the lessee for the purpose of a claim for capital cost allowance.

We trust that this is the information which you require.

Yours truly,

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