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.
June 29, 1979
Assessing Division G.C. Stewart
Compliance Directorate, Audit T. McDonald
Seasonal Rental of Cottage
We refer to your memorandum of April 6 concerning the query raised by
XXXX
One of XXXX clients built a summer cottage property in 1972. As he did not use it in the winter it was rented for several months per year at present six months, as a ski residence. He proposes to sell the property in 1979. You have asked for guidelines as to how to calculate the taxable capital gain, if any, especially since the 1972, 1973 and 1974 returns are statute-barred.
In our opinion cases such as this should be resolved in accordance with the policies described in Interpretation Bulletin No. 120R. Though this bulletin is about to be revised it is not anticipated that there will be any changes which will affect the following.
On the assumption that there has been no capital cost allowance claimed and that the principal reason for the acquisition of the cottage property was not for the purpose of gaining or producing income therefrom the rental of the property for the winter season will not be considered to have caused a change in use and the cottage property may be designated as the principal residence of the taxpayer. In this case subsection 40(2)(b) will be applicable in the calculation of the capital gain derived from the sale of the property.
If, on the other hand, capital cost allowance was claimed in 1973 or sub- sequently or, if the property was acquired for renting during the winter months the temporary use of the property by the owner during the summer months for personal usage should not be considered a change in use of the rental property. Recapture of capital cost allowance on taxable capital gain would only arise when the property was disposed of or when it caused to be offered for rent during the winter months.
Regarding the case cited we have been unable to ascertain whether capital cost allowance had been claimed as a deduction. However paragraph 4 above will apply if no capital cost allowance has been claimed whereas the preceding paragraph will be applicable if capital cost allowance has been claimed. The change in use should be considered to have occurred in the year in which capital cost allowance was first claimed.
The above has been discussed with Mr.Vogan of Non-Corporate Rulings and Mr. McColm of Current Amendments who have agreed with our proposal.
G.B. Mitchell Chief Technical Section
TM/dh
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