(2)-(13)

The taxpayer acquired a large tract of land on income account using borrowed money and, after subdivision, sold a portion of the lots in Year 2. In response to a query as to whether the taxpayer could deduct all of the interest incurred in Year 2 on the basis that the debt related to a single large tract of land, CRA quoted its position at the 1989 Corporate Management Tax Conference Round Table, Q. 13, referred to 5-8343 and to Q. 39 at the 1991 annual CTF Roundtable, stated that the position in these pronouncements was still valid, and added (TaxIntepretations translation):

[T]he revenues derived from the sale of the XXXXXXXXXX lots cannot be considered gross revenues derived from one or the other of the respective plots of land for purposes of paragraph 18(2)(e).

It also follows that the total of the interest expense for Year 2 must be capitalized to the cost of the totality of the lots whether sold or unsold (subject to the provisions of paragraph 18(2)(f)) in accordance with an allocation which is reasonable in the circumstances. In this respect, we cannot confirm that the proportions you consider in your second question are correct. As stated above, the expenses subject to the subsection 18(2) restriction generally are calculated on a parcel by parcel basis.

In the first scenario, Ms. A bought land in 2003 for $36,000 in order to construct a rental building but, in the interim, rented the land out for amounts in excess of the property and school taxes paid. In the second scenario, Mr. B also bought land in 2003 for $36,000 to construct a rental building and sold the land in 2006 for $48,000, generating a capital gain of $12,000. CRA stated:

[I]t appears that Ms. A held the land principally to enable her to earn income from it for the years 2003 to 2006 ... [and thus] subsection 18(2) will not impose any restrictions on the deductibility of property and school taxes.

As for Mr. B, since he held the land primarily for the purpose of resale or development, subsection 18(2) will limit the amount deductible on account of property and school taxes to income that is derived from the land.

Where the owner of a motel purchases a city-owned lot adjacent to the motel property in an effort to prevent it from being developed in a manner which would be detrimental to the motel business, that lot (if kept vacant) would not be considered to be used in the business of the owner of the motel.

The carrying charges that relate to a particular parcel can only be deducted in arriving at the net income from that parcel and cannot be applied to other parcels.

A principal business corporation does not have a base level deduction for each parcel of land it owns, but only a single deduction.

Because s. 18(2)(f) does not apply to a partnership of two corporations, interest and property taxes to which s. 18(2) applies are not deductible by the partnership because it has no base level deduction, and they are not deductible by the partners because the expenses are those of the partnership.

A corporation whose principal business is the holding of a more-than-10% interest in a principal-business partnership generally will be regarded as carrying on a principal business for purposes of s. 18(2)(f) and generally will be entitled to claim the base level deduction even though the land is owned by the partnership rather than by the corporation.

Expenses that relate to a particular lot can only be deducted from the net income from that lot and not against the net income of any other lots of the taxpayer; unabsorbed expenses must be added to the cost of the lot.

The taxpayer carried out renovations on a rental property extending over more than a year, resulting in the property not being available for rental for a specified period. Expenses deducted by him included insurance, mortgage interest and municipal taxes.

CRA stated (TaxInterpretations translation) that s. 18(3.1) applied to

…[I]nsurance premiums attributable to the period of renovation and incurred by reason of the renovation as such should be added to the cost of the building under subsection 18(3.1), such as, for example, the part of insurance premiums incurred in order to provide for a risk connected to the renovation.

And added:

For example, that part of the interest on loans connected to the ownership of land subjacent to the building that is the object of a renovation must be capitalized to the cost of building by virtue of subsection 18(3.1) to the extent that such part of the interest relates to the period of renovation of the building.

And finally:

… only the part of the property taxes attributable to the renovation period that are related to the ownership of the land subjacent to the building, as well as any land meeting the requirements of subparagraph 18(3.1)(a)(ii), should be added to the cost of the building.

Interest income received from customers' deposits for buildings under construction cannot be set-off against the interest expense of the contractor which is required to be capitalized.

Payments made by the lessee under an emphyteutic lease to terminate leases in order that it could transform the rental property into a hotel complex were deductible notwithstanding s. 18(3.1).

A non-resident corporation (the “Taxpayer”), which filed a return under s. 216, took the position that the rules in s. 18(4) (the “Rules”) did not apply to it in light of the fact that 2013 amendments did not apply to taxation years that began before 2014 (a position contrary to 9638945). CRA stated:

Where a non-resident person elects to file a return of income under section 216, the person becomes liable for Part I tax on the income in question “as though the non-resident person were a person resident in Canada.” Therefore, provisions that could apply to calculate the Part I tax of a Canadian resident, including subsection 18(4), will also apply to any non-resident who makes an election under subsection 216(1). There was nothing in the Amendments to indicate that the Rules only apply to such corporations from the effective date of the Amendments, i.e., to taxation years that begin after 2013. Rather, the Amendments provide a specific formula for computing the equity amounts of such corporations for the purposes of applying the Rules. In summary… the Rules apply to the Taxpayer’s interest expense claimed in its 2013-2014 taxation year.

A ULC and its wholly-owned subsidiary (ULC II) were the partners of a partnership with a different year end than of ULC. The correspondent considered that the retained earnings of ULC should exclude its proportionate share of the Partnership income for the stub period on the basis that "2007-0248961R3 indicate[s] ... that section 96 informs the determination of the amount of partnership income to be included in determining the amount of a corporate partner's retained earnings for the purpose of the thin capitalization rules."

In disagreeing, the Directorate indicated: "It has been CRA's longstanding position…that, for purposes of subsection 18(4)… a corporation's contributed surplus and retained earnings are to be determined in accordance with ... GAAP" (although it "may not include unrealized appraisal surpluses.") However, to the extent "that ULC used the cost method of accounting to account for its investment in Partnership ... [and] this method is an appropriate basis of accounting for ULC's investment in Partnership as established by Canadian GAAP ... no amount of Partnership's income could be included in determining ULC's retained earnings as at XX, for the purpose of clause 18(4)(a)(ii)(A) of the Act because…no partnership income had been reported for financial statement purposes."

In 2007-0248961R3, CRA "ruled that when partnership income is included in a corporation's consolidated retained earnings pursuant to GAAP, subsection 248(24) would not apply to back out that partnership income when determining that corporation's retained earnings for the purpose of clause 18(4)(a)(ii)(A)... ."

A non-resident corporation (NRco) transferred its shares of Canco, having a cost and paid-up capital of $100 and a fair market value of $1,000 to Newco in consideration for shares of Newco having a stated capital of $1,000, but with the paid-up capital being ground down to $100 under s. 212.1(1)(b).

For accounting purposes, the transfer of the shares of Canco was initially recorded at fair market value, with the result that $1,000 was added to Newco's share capital account. However, the transfer should have been recorded at cost for accounting purposes. As a result, Newco's share capital account was overstated by $900....[T]he overstatement is corrected by [reducing] the share capital account by $900 and adding that amount to Newco's contributed surplus.

After referring to its position that generally accepted accounting principles govern the determination of contributed surplus, CRA stated that

In applying clause 18(4)(a)(ii)(B) to a corporation that prepares its financial statements in accordance with IFRS, the CRA would also consider that an amount reflected in the corporation's equity reserves would constitute contributed surplus for the purposes of subsection 18(4) to the extent that:

(a) the amount arises on a contribution of capital by a specified non-resident shareholder of the corporation; and

(b) the amount would be categorized as contributed surplus if the corporation's financial statements had been prepared in accordance with Canadian GAAP applicable to entities that do not report under IFRS (i.e., Part II of the CICA Handbook).

Here, as it appeared that the proposed addition to contributed surplus would not accord with Canadian GAAP (i.e., this was a related party transction under which the assets of Newco had a cost of $100), the proposed additon likely would not constitute contributed surplus for the purposes of s. 18(4)(a)(ii)(B).

GAAR will apply to prevent what otherwise would be the avoidance of the thin capitalization rule when debts owing by a Canadian corporation to a non-resident affiliated corporation (Finco) are transferred by the Finco to a partnership organized by that Canadian subsidiary and a Canadian affiliate in consideration for the issuance of interest-bearing debt by the partnership to the Finco.

The calculation takes into account all the calendar months ending in the year even if there is no debt or equity outstanding in a particular month.

The phrase "the beginning of a calendar month" is "a reference to the earliest moment of the particular calendar month ... . [An] advance made at any other time on the first day would not be included in the corporation's debt to equity ratio until the next month."

If a debt is extinguished at the earliest possible moment in the calendar month, it would not be included in the calculation of "outstanding debts to specified non-residents" for that month.

As an amalgamation is considered to occur at the earliest moment on the day, an amalgamation occurring on the first day of a calendar month will result in Amalco having a PUC and contributed surplus at the beginning of the month for purposes of s. 18(4).

Where a non-resident corporation has elected under s. 216(1), the calculation of its "outstanding debts to specified non-residents" and of its retained earnings, contributed surplus and paid-up capital will be made from the perspective of the corporation as a whole rather than taking into account the portion of the above items that relate only to the Canadian rental property.

Surplus contributed by a person when it was a specified non-resident shareholders included in the computation of the Canadian resident shareholder corporation's equity, even if it is no longer a specified non-resident shareholder.

"Subsection 18(4) of the Act can only apply to amounts 'otherwise deductible' and therefore would have no application in the year inventory is eventually sold to restrict deductibility of any capitalized amounts pursuant to either subsections 18(2) or 18(3.1)..."

The thin capitalization rule does not apply to interest paid by a partnership of corporations unless s. 245 applies.

A loan owing by Canco to a specified non-resident accrues simple interest, as well as compound interest on the balance of the unpaid simple interest, with both simple and compound interest remaining unpaid at the end the taxation year. How is the “outstanding debts to specified non-residents” determined? After referencing the requirement in the definition that the “outstanding debts to specified non-residents” be “any amount in respect of interest paid or payable by the corporation is or would be, but for subsection (4), deductible in computing the corporation's income for the year,” CRA stated:

Pursuant to paragraph 20(1)(d)… compound interest may only be deducted in computing a taxpayer’s income if it is paid. Accordingly, if…compound interest accrues on simple interest but is not paid in the year, the compound interest is not deductible by Canco. Therefore, the liability in respect of the accrued simple interest would not meet the definition… .

With respect to a situation where a company deposited borrowed funds from a related non-resident person into a bank account which was pooled by a group of related companies, it was the taxpayer's submission that it would not be possible to trace the flow of the borrowed funds, with the result that it could not be shown that the funds had been borrowed on the condition that they would be relent to a particular person.

S.18(6) would not apply where a non-resident corporation ("NRP") acquired a security that was not a debt obligation of a Canadian bank or a person not dealing at arm's length with that bank pledged the security to the Canadian bank to secure a guarantee by NRP of a loan made by the Canadian bank to a Canadian subsidiary of NRP. If NRP made additional deposits with a foreign bank as security for a guarantee by that foreign bank of a loan to be made to the Canadian subsidiary by the Canadian bank, such deposits would be considered to be loans to the foreign bank which would not have been made if the Canadian bank did not make its loan, with the result that s. 18(6) would apply. Where the security for such inter-bank guarantee comprised preexisting term deposits which were subsequently "renewed" because the terms of the inter-bank guarantee so required, s. 18(6) would generally apply at the time of the renewal.

S.18(6) will not be applied to a second loan made by a corporation resident in Canada ("Canco 1") to a second Canadian-resident corporation ("Canco 2") provided that: the person who made the first loan to Canco 1 is a specified non-resident shareholder of Canco 1 and qualifies as a specified shareholder of Canco 1 otherwise then by virtue of a right referred to in paragraphs (c) or (d) of the definition of specified shareholder in s. 18(5); the first loan and the second loan bear the same rate of interest; and Canco 1 is related to Canco 2.

Where a U.S. parent loans $100 to a wholly-owned Canadian subsidiary, and s. 18(4) applies to deny all of the interest charges of $10 payable on the first loan on the condition that the same amount be on-lent to a second wholly-owned subsidiary, RC will not apply s. 18(4) to deny the deduction by the second subsidiary of interest on the second loan. However, s. 18(4) would be to the second loan if s. 18(4) applied to deny the first Canadian subsidiary less than $9 of its interest deduction. In such event RC's policy will apply to permit the deduction of interest on the second loan only to the extent necessary to ensure that the denial of the interest deduction on the first loan is not duplicated.

S.18(4) applies where a non-resident corporation lends to an adequately-capitalized wholly-owned Canadian subsidiary, which subsequently loans money to its wholly-owned operating Canadian subsidiary.

Discussion of consequences of a guarantee by the non-resident parent of the Canadian borrower of a Canadian bank loan, including a finding that s. 18(6) should not apply by virtue only of the guarantee.

Canco (wholly-owned by NRco) and its wholly-owned subsidiary (Canco Sub) held respective 99.9% and 0.1% interests in the "Partnership" and, before the end of 2015, sold their interests in the Partnership to non-resident subsidiaries of NRco, so that all of the Partnership income or loss for 2015 was allocated to them.

Before rejecting an argument that the Partnership had no "deductible" interest for 2015 (so that the thin cap rules did not apply to the Canco partners) as its partners at year end were not "taxpayers" as required by s. 96(1), CRA stated:

Canco and Canco Sub would determine their "specified proportion" for their 2015 taxation year based on the allocation of the Partnership's income for the fiscal period ending December 31, 2014… . Accordingly, subsection 18(7) would apply to deem Canco and Canco Sub to owe 99.1% and 0.1% of the Loan and to have paid the corresponding interest.

See summary under s. 12(1)(l.1).

Current structure

Sub1 and Sub2 (both taxable Canadian corporations and wholly-owned subsidiaries of Parent) are currently the sole partners of a general partnership (“Partnership”). Partnership’s business generates income under s. 12(1)(a) and Partnership claims a reserve under s. 20(1)(m).

Proposed transactions

1. Partnership will pay to Sub1 a reasonable amount for undertaking to assume Partnership’s prepaid revenue obligations (by assigning an equivalent amount of the Parent-Partnership Note as payment), and a joint election will be made under s. 20(24).
2. Sub2 will transfer its interest in Partnership to Sub1 in consideration for Sub1 Preferred Shares and a non-interest bearing promissory note (the “Sub1 Note”), jointly electing under s. 85(1). As a consequence Partnership will cease to exist, Sub1 will become the sole owner of all the Partnership property and Sub1 will become subject to all the remaining obligations of Partnership, and immediately after the time that Partnership ceased to exist, Sub1 will carry on alone the business that was the business of Partnership. The transferred assets included prepaid expenses.

Ruling

Except to the extent that the prepaid expenses were deducted in computing the income of Partnership in a prior taxation year, subject to paragraph 18(1)(a) or section 67, Sub1 will be entitled to deduct in computing its income for any particular year the prepaid expenses pursuant to ss. 9(1) and 18(9).

After finding that since a transport truck was an exempt property for s. 16.1 purposes, no s. 16.1 election could be made, CRA noted that the taxpayer would pay an initial down payment for the lease of the transport truck, and stated:

[S]ubparagraph 18(9)(a)(ii)…denies a deduction made in respect of an outlay or expense to the extent that it can reasonably be regarded as having been made or incurred as, on account of, in lieu of payment of, or in satisfaction of, among other things, rent, which is in respect of a period that is after the end of the year. However, pursuant to paragraph 18(9)(b) of the Act, any rent payments that are denied under paragraph 18(9)(a) may be deducted in calculating a taxpayer's income for the subsequent year to which the outlay or deduction can reasonably be considered to relate.

In reviewing a "step-down" lease (i.e., one where the annual lease payments are higher in the initial years), CRA concluded that there was no basis for concluding that the higher rents in the initial years represented payments of rent for subsequent years.

The purchase of a single-premium product liability policy by a manufacturer covering goods manufactured in the year would be subject to s. 18(9)(a)(iii). CCRA likely would allow the manufacturer to amortize the premium equally over the average expected life of the goods manufactured in the year.

A client, who purchases an extended warranty on an asset that will be used for business purposes, will be required to apply s. 18(9) "where the set amount may reasonably be regarded as having been incurred as consideration for services to be rendered or for insurance in respect of a period, after the end of the year".

A single group term life insurance premium paid by an employer in the situation where the coverage is obtained during the ongoing employment of an employee, upon the retirement of an employee or as a result of an extraordinary event such as a plant shutdown will not be currently deductible to the extent the premium is in excess of the annual premium that would otherwise be payable for the same coverage. In each future year, s. 18(9)(b) permits a deduction for that part of the premium which was not deducted in a previous year and which relates to coverage in that year.

Where an employer discharges its obligation to provide life insurance coverage to retired employees by purchasing a single premium insurance policy upon the employee's retirement, s. 18(9)(a)(iii) restricts the deductible amount of the single premium to the amount paid in respect of coverage for the year in question. The balance of the premium is deducted in future years in relation to the future coverage.

Where an up-front fee is paid by a bank to another financial institution in respect of an interest-rate cap, no deduction may be made in the year of payment in respect of the portion of the fee which may be viewed as consideration for services to be rendered after the end of the year.

CRA indicated that where a loan from one controlled foreign affiliate (FA Finco) of Canco to a second CFA of Canco (FA Holdco) meets the conditions in s. 95(2)(a)(ii)(D), a prepayment penalty paid by FA Holdco to FA Finco also can be recharacterized as active business income by s. 95(2)(a)(ii)(D) if the penalty is first recharacterized as interest under s. 18(9.1)(e). The loan had arm’s length terms including a clause that, upon FA Holdco opting to repay a portion of the principal amount before its maturity date, required it to pay a penalty not exceeding the present value of the interest that would otherwise have been payable by it. CRA stated:

Once the penalty amount is paid, paragraph 18(9.1)(e) (which applies for the purposes of the Act, including the computation of income from property described in the pre-amble to paragraph 95(2)(a)) will in the above circumstances deem the amount of the penalty to have been paid by FA Holdco and received by FA Finco as interest on the Loan.

The sole shareholder of Aco is required under the terms of the share sale agreement to repay, in full, at closing, a bank loan owing by Aco and an early repayment penalty. The early repayment penalty is not deductible by Aco as it is paid by its former shareholder. However, if under alternative facts, Aco paid the early repayment penalty directly, the amount of the penalty generally would be deductible under s. 18(9.1) over what would have been the remaining term of the loan.

The portion of a payment made to reduce the interest rate on a loan will not be deductible to the extent that it exceeds the present value of future interest obligations on the loan.

Where part way through the term of a mortgage borrowing the taxpayer prepays the mortgage upon payment of a prepayment penalty equal to six months' interest, the penalty should be pro-rated over the remaining term of the mortgage.

Upon an acquistion of control of a taxable Canadian corporation (the "Debtor"), it was required to make an offer to repurchase its (Cdn.$) Class A and (U.S.$) Class B Notes at a make-whole premium. As a result it redeemed those notes by drawing down under an existing term facility. It deducted the premiums in full when paid under s. 9, and the TSO proposed instead that they be deducted on a strainght-line basis over the years remaining under the original terms. The Directorate stated:

Finance… informed us that the two conditions set out in the Mid-Amble are intended to apply to the total otherwise payable for the term of the obligation in future taxation years (i.e., note the reference in the Mid-Amble to "a" taxation year ending after that time) and to each taxation year that the taxpayer actually claims a deduction (note the reference in paragraph 18(9.1)(f) to the computation of the taxpayer's business or property income for "the" year. ...

[T]he Mid-Amble sets out the "global tests," and the "yearly tests" are set out in 18(9.1)(f). Accordingly, the portion, if any, of the Eligible Penalty Amount (the Penalty Amount described in paragraph 18(9.1)(d) that meets the two conditions set out in the Mid-Amble) is, subject to the yearly test, prorated over the remaining term (but for the repayment) of the debt obligation. The prorated portion of the Eligible Penalty Amount is deductible pursuant to paragraph 18(9.1)(f) as interest expense in the future taxation year to which it relates.

Discussion of proposal to switch method of amortization of penalty or bonus from straight-line method to present value method.

S.18(9.1)(d) would not characterize a premium paid for a bond purchased by the issuer in the open market in the normal manner as a bonus payable because of the repayment of the debt obligations before its maturity. Instead, the excess would be deemed by s. 39(3)(b) to be a capital loss.

"A prepayment penalty incurred by a taxpayer who borrows money from one arm's length party to pay a pre-existing debt owing to another arm's length party would generally be deductible pursuant to subsection 18(9.1) of the Act over what would have been the remaining term of the obligation. However, in our view, if the terms of the original obligation have been modified or extended with the same or a different person such that the transaction would constitute a rescheduling or restructuring of a debt obligation, the provision of subparagraph 20(1)(e)(ii.2) of the Act may apply in respect of the borrowing."

A Canadian corporation (Opco) borrows under a public offering of "New Bonds"in order to to make a cash tender offer at a premium for the "Existing Bonds" and to make a cash tender, also at a premium, for the convertible debentures.

The amount of the Existing Bond Offer Premium to be paid in respect of each of the Existing Bonds relates to, and does not exceed, the value at the time of the payment of the amount that, but for the repayment, would have been paid or payable by Opco as interest on the Existing Bonds in taxation years ending after the date the Existing Bond Offer Premium payments were made [and similarly re the debenture premium].

Rulings that ss. 18(9.1)(e) and (f) will appply the the premiums. The ruling summary stated that "'substitution', for purposes of subsection 18(9.1), does not include payments made to buy down an interest rate or, bonus or penalty payments made to prepay the principal of a debt obligation in situations where the debtor has parted with something such that there has been a 'performance of obligation' and that the performance involves an actual payment (not a promise to pay in the future) by the debtor".

With respect to a situation where a taxable Canadian corporation made an offer to purchase at a premium outstanding notes that were eligible for the exemption under s. 212(1)(b)(vii), RC ruled that provided that the premium "cannot reasonably be considered to have been made in respect of the substitution of the Notes into another debt obligation", the premium will be exempt.

"Both the straight line and the present value method of amortization are acceptable for the purposes of subsection 18(9.1)."

S.18(9.1) originally was intended as an alleviating measure for farmers who prepaid their loans but were denied a deduction for the portion of the prepayment that represented interest, although when the legislation was introduced it was not restricted to farmers.

Where penalty payments are made in order to pay off a mortgage, or reduce the interest rate on a mortgage, prior to the sale of the mortgaged capital property, the payment will be considered to have been made or incurred for the purpose of making the disposition and s. 40(1)(a)(i) will be applicable. However, if a substitute property is acquired, s. 18(9.1) may have application.

S.18(9.1) applies to a bonus or a penalty payment on the early redemption of debentures, provided that it was not paid to extend the term of the debt and that the money continues to be used for the purpose for which it was borrowed in each future year that the deduction is claimed. The bonus is deducted on a straight-line basis in accordance with s. 18(9) over the period that the obligation otherwise would have remained outstanding.

General discussion of requirements the satisfaction of which permit the deduction of a bonus payment on a straight-line basis over the period of time the obligation otherwise would have been outstanding.

With respect to a situation where a Canadian corporation repaid a bank loan out of the proceeds of a long-term debenture and incurred an early repayment penalty, RC stated that "it is a question of fact whether the payment may reasonably be considered to have been made in respect of the substitution of a debt obligation (the long-term debentures) for another debt obligation, in which case new subsection 18(9.1) would not apply".

Bonuses paid by borrowers in a money-lending business on the early retirement of obligations are now governed by s. 18(9.1).

S.18(9.7) does not apply where a payment is made for a reduction in the rate of interest payable on a loan.

A commissioned employee uses his home as his principal place of business. He has a home office as well as having inventory storage space either in a separate room or the same room for use in client presentations. CRA stated (TaxInterpretations translation):

[T]he home of the individual is his principal place of business. For purposes of subparagraph 18(12)(a)(i)…the storage space would form part of the self-contained domestic establishment which is his principal place of business if it is used only for business purposes.

Can a self-employed worker who has a home office for meeting clients deduct a portion of the "permanent works" or "local improvements" taxes paid in computing the worker’s business? After stating that such taxes were to be treated in the same manner as other property taxes, and after paraphrasing s. 18(12)(c), CRA stated:

With respect to the amount of "permanent works" or "local improvement" taxes on a self-contained domestic establishment used in part by a taxpayer to earn business income, the amount of such taxes is only deductible to the extent that the home office is either the taxpayer's principal place of business or is used exclusively to earn income from a business and to meet clients or patients on a regular and continuous basis in the home as part of the business. Of course, only the portion of those taxes that relate to the portion of the self-contained domestic establishment used to earn business income will be deductible.

Before concluding that “the operator of a bed and breakfast, who has a personal residence in which bed and breakfast rooms are rented out on a short-term basis, is generally considered to be carrying on a business” rather than having a source of property income, so that the limitation in s. 18(12) (whose operation was discussed in general terms) could be applied, CRA stated:

A taxpayer generally earns income from property if the taxpayer does no more than rent space and provides essential services. These essential services may include, but are not limited to, heating, lighting, parking, maintenance of furnishings provided in the rented premises, and laundry room services.

However, if a taxpayer provides additional services such as meal services, a continued supply of clean sheets, and supplies of bathroom items, the taxpayer's rental operation may be considered to be a business. The nature and number of services provided will determine whether a rental operation qualifies as a business.

A statutory amendment would be required before RC could require proof of a commercial assessment before permitting a business a deduction in respect of a home work space.

The relationship between ss.18(13) and 20(1)(l) is discussed.