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.
MEMORANDUM
DATE: 18 October 1984
TO- HEAD OFFICE S.C. Lemelin, Chief Audit Applications Section
ATTENTION L.L. Brierley Specialized Audit Division
FROM- PENTICTON - P.J. Kelly Chief of Audit
RE: Capital Losses, Rental Losses and Terminal Losses
This is further to our memorandum of August 1, 1984, our telephone conversations and your reply of October 12, 1984. We still contend that the provisions of Paragraph 45(1)(a) and Regulation 1102(1)(c) have not been met and the properties in certain of the cases scheduled in our prior memorandum were never converted to the purpose of gaining or producing income.
Our basis for the above statement is supported by:
(a) Interpretation Bulletin 128, paragraph 12, and the statement contained therein which reads in part - "Where the building is rented for only a short time it is not regarded as having been acquired to earn income".
We feel each case has to be examined individually and the findings weighed. Where it is established that the home was
1. a principal residence,
2. offered for sale prior to the owners renting same,
3. a standing sales offer during the period the home was rented,
4. rented on a month to month basis for a nominal amount, and
5. sold within a relatively short period of time,
we contend that the rentals received are incidental and the prime intention of the taxpayer before and during the period in which it was rented was always to dispose of the personal use property.
(b) 1984 D.T.C. 1579 Qari Mohd Saleen, in which it was ruled that although rented the rent charged was insufficient to cover the operating expenses and therefore there was no expectation of profit.
In our memorandum of August 1, 1984 we scheduled 18 cases with losses claimed up to $130,000. Since then 40 similar cases have been found. We are certain that after further review of our capital gains printout the number will exceed 100. In addition, Vancouver and Victoria are also aware of this class of loss transaction, and I am certain their numbers will exceed those of this District Office.
We are therefore once again submitting our views on this matter and would request that further consideration be given by you.
P.J. Kelly Chief of Audit
PJK/jv
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