7 August 1990 Income Tax Severed Letter - Capital cost allowance restriction allowance

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.

Dear Sirs:

Re: Regulation 1100(17.3)

This will reply to your letter of March 9, 1990. We apologize for the delay in our response.

You have requested our opinion as to whether the exemptions from the capital cost allowance restriction rules under Regulation 1100(17.3)(c) would extend to income generated XXX

Situation A

XXX

Situation B

XXX

Our Comments

Since your submission mentions XXX and we presume that the XXX we suggest that the regulation you are concerned with is Regulation 1100(14.2) rather than Regulation 1100(17.3), since the latter deals with leasing property.

As the two particular fact situations which you set out are quite specific it appears that they may relate to definite contemplated transactions. Assurance as to the tax consequences of contemplated transactions can only be given in response to a request for an advance income tax ruling. If you wish to obtain any binding commitment with respect to actual cases with facts similar to your examples, an advance income tax ruling application should be submitted. If on the other hand, the alternative situations reflect factual historic occurrences the determination with respect to the exemption under Regulation 1100(14.2) would generally be carried out by personnel from your local District Taxation Office. We do, however, provide the following comments for your information.

It is the Department's general view, as stated in paragraph 10 of, that a person who operates a hotel is in the business of providing services and not in the rentals business. Although Regulation 1100(14.1) could over-ride this general view, it is not applicable in the circumstances described in 1100(14.2)(c). In any case we agree with your interpretation that a property of which more than 50% of the total space is occupied by a hotel operation, and which otherwise is exempt under Regulation 1100(14.2)(c), would not be restricted with respect to the capital cost allowance it can claim on any portion of the property.

It is assumed that the property is operated in the manner stated throughout the taxation year, since another factor that must be considered is that the property be used more than 50% of the time for the purpose of gaining or producing gross income that is not rent. This time factor would be applicable when there is a change in the use made of the property during the year. Other factors, such as revenue relative to the space devoted to hotel operations compared to that pertaining to rental income, may be relevant in determining whether the property is used principally for the purpose of producing gross revenue that is rent.

The foregoing comments are an expression of our opinion only. As such they do not constitute an advance income tax ruling and are not binding on the Department.

We trust these comments will be helpful.