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 Y.S. 94-09213M
ADM'S OFFICE
RETURN TO RULINGS, ROOM 303, MET. BLDG.
AUTHOR
SUBJECT OR CORPORATE CASE FILE
October 25, 1994
XXXXXXXXXX
Dear XXXXXXXXXX:
I am writing in reply to your letter of August 18, 1994, concerning the renovation or rehabilitation of income producing residential property.
The Department is charged with the responsibility of applying the provisions of the Income Tax Act as enacted by Parliament. This responsibility includes the determination of the current deductibility or the capitalization of expenditures on real property.
There is a large body of case law that has been developed around the issue of current versus capital treatment for expenditures on repairs and renovations. However, the issue is particularly difficult because any determination of this type requires examination of the particular facts of each case. This hinders the establishment of fixed rules for all sectors of the community.
Nevertheless, the Department has published guidelines in Interpretation Bulletin IT-128R which sets out the most important factors to be considered in making this type of determination. The bulletin is based on a number of court decisions, and consequently, I believe that it continues to be a useful guide in determining the proper tax treatment of expenditures on real property.
The annual capital cost allowance rates and the provision for recapture or terminal losses on the disposal of property are tax policy issues and are provided for in the legislation. I would point out that the usual situation which gives rise to a terminal loss is not something an owner looks forward to because the proceeds on disposal of the property are such that there is in fact an economic loss. Conversely, in the case of a recapture there is an economic gain because of greater proceeds sufficient to pay the taxes on the recapture and with the excess remaining in the hands of the owner.
Tax policy and amendments to the Income Tax Act fall within the purview of the Minister of Finance. I note that you have provided the Honourable Paul Martin with a copy of your submission so that he can be aware of your tax policy issues.
I wish to thank you for bringing your concerns to my attention.
Yours sincerely,
David Anderson, P.C., M.P.
A.M. Brake
957-2133
September 21, 1994
4-942277
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