(a)-(b)

Paragraph 20(1)(a) - Capital cost of property

Cases

St. Benedict Catholic Secondary School Trust v. Canada, 2022 FCA 125

taxpayer was precluded from changing previous CCA claims

The taxpayer, over the course of its 1997 to 2003 taxation years, claimed capital cost allowance and generated non-capital losses. When CRA denied the carryforward of these losses to the taxpayer’s 2014 to 2016 taxation years (they had expired), the taxpayer claimed that it incurred a terminal loss in 2017 that could be carried back to those years. This terminal loss was computed by reversing a portion of CCA claims it had made in its 1997 through 2003 taxation years (so as to reduce the losses in those years to nil), and adding these amounts to the undepreciated capital cost of the property it had disposed of in 2017.

In finding that such CCA claims could not be treated as having been revised, Webb JA indicated (at para. 32) that the “administrative practice [in IC 84-1] is not binding on this Court, nor can it amend the Act, noted (at para. 36) that “Nassau Walnut … drew a distinction between an election and a designation” and found (at para. 41) that “the comments in Nassau Walnut with respect to an election, and the inability of a taxpayer to change an election absent a specific provision in the Act permitting such a change, are applicable in this case.” He further stated (at para. 49):

If the Trust is permitted to revise its earlier claims for CCA, this would defeat the purpose chosen by Parliament of having non-capital losses only available for a particular period of time. Having chosen to claim the amounts of CCA as it did in each of the years, the Trust must accept the consequences that flow from having made those choices. The Trust is attempting to revive non-capital losses that it cannot otherwise claim by converting these non-capital losses into a terminal loss in 2017.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - E reductions to UCC from previous CCA claims could not be reversed 348

Revising Claims

Cases

Mattabi Mines Ltd. v. Ontario (Minister of Revenue), [1988] 2 CTC 294, [1988] 2 S.C.R. 175

The taxpayer, which first made a request at trial that it be permitted CCA claims for Ontario purposes in computing its income for 1974 in the event that an investment tax credit should be found to be unavailable, was precluded from doing so in light inter alia of the fact that to permit such a claim would reduce the available level of claims for its 1975 and 1976 taxation years, which were statute-barred. [C.R.: 20(1)(n)]

See Also

St. Benedict Catholic Secondary School Trust v. The Queen, 2020 TCC 109, aff'd 2022 FCA 125

CCA claims could not be subsequently reversed to refresh losses

The taxpayer, over the course of its 1997 to 2003 taxation years, claimed capital cost allowance and generated non-capital losses. When CRA denied the carryforward of these losses to the taxpayer’s 2014 to 2016 taxation years (they had expired), the taxpayer claimed that it incurred a terminal loss in 2017 that could be carried back to those years. This terminal loss was computed by reversing a portion of CCA claims it had made in its 1997 through 2003 taxation years, and adding these amounts to the undepreciated capital cost of the property it had disposed of in 2017.

Hogan J found that this approach of subsequently changing CCA claims did not sit comfortably with the literal wording of the UCC definition (which refers to “the total depreciation allowed to the taxpayer… before that time”) and was “not the result that Parliament intended” (para. 17) as to which he further stated (at para. 20):

Under the Appellant’s theory, a taxpayer could claim the maximum amount of all discretionary deductions that are calculated on a pool basis each year to maximize the amount of losses available for carry-forward. If the carry-over period expires, a taxpayer could unilaterally pick and choose which discretionary deductions would be adjusted downward to avoid the impact of this rule. … This result would be extremely difficult for the Canada Revenue Agency to audit. As a matter of effective tax administration of our self-assessment system, I have difficulty imagining that Parliament intended such a result.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - E Variable E could not be subsequently adjusted by reversing CCA claims 375

Administrative Policy

13 March 2012 External T.I. 2012-0432111E5 - Revised joint venture policy

stub period CCA on transitioning away from JV CCA claims

After adverting to the previous withdrawal of its position that joint venture income could be computed as if the joint venture had a separate fiscal period (see 2011-042958), and the resulting requirement that income for the "stub period" be included in income for the first taxation year commencing after March 2, 2011, CRA stated that

For purposes of calculating the net income for the stub period in accordance with the revised JV administrative policy, the CCA would be allowed based on the period of the incremental income inclusion, as long as all the stub period income is reported on the JV participant's return. For example, if in the case where there was a 12 month period and a 6 month stub period, the CRA recommends that the CCA be computed separately for the 12 month period and 6 month period (i.e., not simply based on an 18 month period).

7 January 2011 Internal T.I. 2010-0387011I7 F - DPA dans une année prescrite

CCA claims could not be increased in “open” year to generate loss for carryback to year CRA had reassessed outside the normal reassessment period

CRA reassessed Opco to deny an investment tax credit claimed for Year 1, which was permitted based on a misrepresentation attributable to negligence, etc. In its income return filed in respect of the third taxation year ending after Year 1 ("Year 4") for which the normal reassessment period has not yet expired, Opco did not claim the maximum CCA claims available to it. Could CRA accept a request to increase the CCA claims for Year 4 so as to increase Opco's non-capital loss for Year 4, with Year 1 then being reassessed to reflect a carry-back of that loss? The Directorate responded:

[P]aragraph 10 of IC 84-1 indicates that where a taxpayer requests a revision of capital cost allowance claimed in a taxation year for which a notification that no tax is payable had been issued, such request will be allowed provided there is no change in the tax payable for the year or any other year filed, including one that is statute barred, for which the time has expired for filing a notice of objection. …[T]he CRA should not accept the adjustment request … as it would result in changes to the tax assessment for Year 1, which is a statute-barred year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) tax from s. 152(4)(a)(i) reassessment of statute-barred year could not be offset through increased CCA claims for that year 321

19 October 2010 External T.I. 2010-0369671E5 F - Révision d'une déduction pour amortissement

IC 84-1 applies mutatis mutandis to CCA revisions by partnership

Can a revision be made to capital cost allowance claimed in a previous taxation year regarding partnership property? CRA responded:

In general, a request for a revision to capital cost allowance claimed on property held by a partnership may be granted if all the conditions in paragraph 10 of … IC84-1... are satisfied by all members of the partnership. Specifically, all members of the partnership must jointly request a revision to capital cost allowance claimed in a taxation year for which a notice stating that no tax is payable has been issued to each member of the partnership. Such request will be allowed provided there is no change in the tax payable for any member of the partnership for the year or any other year filed, including one that is statute barred, for which the time has expired for filing a notice of objection. Such request will not be allowed … where … the Minister has issued a notice of determination … to one or more members.

13 May 2005 Internal T.I. 2005-0127041I7 F - Revisions of CCA and non-capital loss claims

permissible to revise return to increase CCA and decrease NCL carryforward to that year

Opco initially filed its return for its 2000 taxation year on the basis on deducting a non-capital loss (“NCL”) carried forward from its 1997 year so as to reduce its taxable income for 2000 to nil, and then received a written notice pursuant to s. 152(4) that no tax was payable for its 2000 taxation year. It now wishes to amend its T2 income tax return for its 2000 taxation year, so as to claim additional capital cost allowance and reverse the 1997 NCL carryforward to the year 2000, so that such NCL’s amount would be altered.

After repeating its position in IC 84-1, para. 10, the Directorate stated:

[I]t would therefore be possible for Opco to make the changes to its T2 income tax return for its 2000 taxation year more than 90 days after the date the CRA mailed the written notice that no tax was payable for its 2000 taxation year. However, the additional depreciation claimed for the 2000 year must not result in a change to tax payable for the 2001 and subsequent taxation years for which the time limit for filing a notice of objection has expired.

The new NCL for the 2000 taxation year cannot be applied to a subsequent taxation year for which there is tax payable and for which the time limit for filing a notice of objection has expired.

28 July 1995 External T.I. 9519555 - IT-315

Respecting the acquisition of shares of a corporation that is financed by interest-bearing debt issued by the purchaser to the vending shareholder, RC stated that "the policy expressed in IT-315 is applicable not only to interest on funds borrowed by a taxpayer to finance its share of acquisition ... but also to interest on the unpaid portion of the purchase price of the shares."

88 C.R. - Q.44

Where RC reviews an acquisition of a building which occurred 10 years previously and determines that its capital cost was $50,000, rather than the $200,000 which has been claimed by the taxpayer, then the revised capital cost of $50,000 will be reduced by the actual CCA deducted in each statute-barred year to arrive at a revised UCC opening balance of the class for the first non-statute barred year. Where the revised UCC balance at that time is negative, the recapture will be included in the taxpayer's income.

IC 84-1 "Revision of Capital Cost Allowance Claims and Other Permissive Deductions"

CCA claim can be revised where no notice of loss determination if no change in taxes payable

10. Where a taxpayer requests a revision of capital cost allowance claimed in a taxation year for which a notification that no tax is payable had been issued (e.g. because of a non-capital loss in that year, the application of a non-capital loss of another year, or the fact that income was exempt from tax in that year), such request will be allowed provided there is no change in the tax payable for the year or any other year filed, including one that is statute barred, for which the time has expired for filing a notice of objection. Such request will not be allowed, however, where...the Minister has issued a notice of determination pursuant to subsection 152(1.1). A taxpayer who wishes to revise the capital cost allowance in a year for which a notice of determination has been issued should do so within 90 days from the day of mailing the notice of determination for that year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) 160

Paragraph 20(1)(bb)

Articles

Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Trusts Resident in Canada", Chapter 3 of Canadian Taxation of Trusts, (Canadian Tax Foundation), 2016.

Narrow CRA interpretation of principal business test (p. 236)

Since the principal business test in paragraph 20(1)(bb) requires only that the principal business of the service provider include the provision of investment administration or management services, in theory the test should be met when it is established that the service provider has a principal business and that its investment administration or management services are sufficiently interconnected with the activities of its principal business. …

In a 2005 technical interpretation, [CRA] took the position that a service provider whose principal business included the maintenance of account records did not satisfy the test because "[the service provider's] services do not include time spent on the custody of securities, the collection and remittance of income, and the right to buy and sell on [its] own judgment on behalf of some clients without reference to those clients. [F.n. 382 … 2005-0124131E5.]

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(3) 374
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(4) - Paragraph 251.1(4)(d) 437
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(g) - Subparagraph 251.1(1)(g)(ii) 115
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) 141
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2) 331
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(1) 144
Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(3) - Paragraph 251.2(3)(b) 112
Tax Topics - Income Tax Act - Section 252.2 - Subsection 252.2(2) 115
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(i) 176
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(d.1) 161
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) 1201
Tax Topics - Treaties - Income Tax Conventions - Article 29B 239
Tax Topics - Income Tax Act - Section 248 - (2)-(41) 157
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) 199
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.2) 59
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a.3) 38
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(6) 174
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6) 164
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) 163
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1) 91
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(18) 49
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.01) 66
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) 311
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) 125
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2) 379

Paragraph 20(1)(b) - Cumulative eligible capital amount

Administrative Policy

16 November 89 T.I. (April 90 Access Letter, ¶1169)

The deduction in s. 20(1)(b) cannot be applied to income from property.