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.
| 19(1) |
5-8988 |
| |
R.B. Day |
| |
(613) 957-2136 |
| December 28, 1989 |
| 19(1) |
We are writing in reply to your letter of October 26, 1989, wherein you requested our views regarding the income tax implications of the recapture of capital cost allowance ("CCA") relative to subsection 129(6) of the Income Tax Act, in the following scenario.
A Canadian controlled private corporation (the "CCPC") leases a building to its associated corporation ("ACO"). By virtue of subsection 129(6), the rental payments made by ACO to the CCPC are deemed to be active business income ("ABI") in the hands of the CCPC rather than specified investment business ("SIB") income as defined in paragraph 125(7)(e).
The CCPC subsequently disposes of the building to XCO, a corporation dealing at arm's length with the CCPC, and CCA previously claimed by the CCPC is recaptured in its hands.
It is your view that the recaptured CCA would be SIB income to the CCPC and that subsection 129(6) would not apply to deem the recaptured CCA to be ABI. Your opinion is based on the fact that the recaptured CCA is not an amount "that was deductible is computing the income of an associated corporation" (in this case ACO) and the general scheme of the Income Tax Act.
Our Comments
It would involve a finding of fact as to whether or not the CCPC is carrying on an SIB and whether the recaptured CCA would be attributed to that source. However, on the assumption that the CCPC is carrying on an SIB, we agree with your conclusions that subsection 129(6) would not deem the recaptured CCA to be ABI.
We would caution that the above comments are an expression of opinion only, and as such, are not binding upon the Department.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch
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© Her Majesty the Queen in Right of Canada, 1989
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