23 September 1997 Ministerial Letter 9721868 - DEDUCTIONS FOR INCOME-GENERATING PROPERTIES

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.

MINISTER/DM'S OFFICE 97-04954M
ADM'S OFFICE
RETURN RULINGS, 15TH FLOOR, ALBION TOWERS
SUBJECT OR CORPORATE CASE FILE
September 23, 1997

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to respond to your letter of July 3, 1997, addressed to XXXXXXXXXX, concerning the tax policies relating to the deduction of school taxes by owners of income-generating properties.

In your letter you express disagreement with the different tax treatment as between home owners and owners of income-generating properties, regarding the deductibility of school taxes. You also suggest that the Income Tax Act (the "Act") be amended to allow home owners to choose between deducting the expenses related to their homes and paying tax on the capital gain realized upon disposition of their homes.

Generally, for income tax purposes, no deduction may be made in respect of outlays or expenses except to the extent that they were made or incurred by a taxpayer for the purpose of gaining or producing income from a business or property, are reasonable in the circumstances, and are not personal or living expenses. Therefore, although there is no specific provision in the Act which specifically permits the deduction of school taxes, they may be deducted by an owner of real property if the owner earns business or property income from such property. Where, however, an owner of real property uses the property for personal use, no deduction may be claimed in respect of any expenses incurred in respect of that property.

Although the school taxes may be imposed upon owners of income-generating properties, the burden of these taxes may be ultimately borne by the individuals leasing space from these owners, since these taxes are likely to be passed on to them in the form of rent. Unless the leased space is used by these individuals for the purpose of earning income from a business or property, like the home owners, they would also not be entitled to any tax relief in respect of such taxes. In addition, since owners of income-generating properties must include in income the rent received, which may include the built-in school taxes, they may be deducting the school taxes against income that includes such taxes.

In addressing your concerns, I have focused on the tax consequences of the issue you have raised, since the changes in support of which you write, such as changes regarding the deduction of expenses and the principal residence exemption, would require a change in tax policy and amendments to the Act which fall within the purview of the Department of Finance. I have therefore forwarded a copy of our correspondence to Mr. David Dodge, Deputy Minister, Department of Finance, so that he will be made aware of your concerns.

I thank you for bringing your views to our attention.

		Yours sincerely,

		Denis Lefebvre
		Assistant Deputy Minister
		Policy and Legislation Branch

cc.Mr. David Dodge

Deputy Minister
Department of Finance

C. Chouinard
957-2098
August 27, 1997