Subsection 20(1)


Hickman Motors Ltd. v. Canada, 97 DTC 5363, [1997] 2 S.C.R. 336, [1998] 1 CTC 213

brief earning of rental income

On the winding-up of its wholly-owned subsidiary, the taxpayer received heavy equipment that had been used in the subsidiary's leasing business. Five days later, the taxpayer transferred these assets to a newly formed subsidiary.

In finding that the taxpayer possessed a source of business income related to the equipment for which capital cost allowance could be claimed, L'Heureux-Dubé J. noted that "where machinery is rented out, the essential core operations may at times be limited to accepting rental revenue and assuming the business risk and other obligations". In addition, given that the taxpayer at all times carried on a car leasing business, the acquired equipment related to a business of the taxpayer of making a profit generally out of machines (be they heavy equipment or automobiles).

See Also

Thibeault v. The Queen, 2015 TCC 271

boats were not a source of income

In finding that the taxpayer was precluded by the preamble to s. 20(1) from deducting CCA respecting boats which he no longer was leasing, D’Auray J noted (at para. 82) that he had admitted that there was no link between the revenues generated by a sale by him in the year of boating permits and the boats in question.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(17.3) bare boat lease by individual did not qualify as business activity 165

Administrative Policy

11 October 2019 APFF Roundtable Q. 2, 2019-0812611C6 F - Résiliation d'un bail - Lease cancellation

s. 20(1)-preamble source rule applied

A tenant had been annually renewing a lease of a personal-use condo since the time the condo was first leased in July 2013. The condo was sold in February 2019. In order to be able to move in right away, the new owner paid $15,000 to the tenant for early termination of the lease. S. 20(1)(z) provides for deductibility of the amount specified notwithstanding s. 18(1)(a). Did this mean that the $15,000 was deductible in computing the new owner’s income under s. 20(1)(z) notwithstanding that the new owner paid this amount respecting a personal-use asset?

CRA noted that s. 20(1)(z) was not stated to apply notwithstanding the income-source rule in the preamble to s. 20(1). Thus, “the amount to be deducted must be applicable wholly or in part to income from a business or property,” which an examination of the facts might not demonstrate to be the case.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(z) s. 20(1)(z) applies notwithstanding s. 18(1)(a) but is subject to source rule in s. 20(1) preamble 193
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) lease termination payment received by tenant was referable to complete period of holding of (annually renewed) leasehold interest 245
Tax Topics - Income Tax Act - Section 54 - Principal Residence lease termination payment received by tenant was eligible for principal residence exemption 116

22 June 2015 Internal T.I. 2014-0553731I7 - Deduction of Terminal Loss - Wind-up

deemed depreciable property in fact not used for income-producing purpose

A corporation ("Parentco") received depreciable property of its subsidiary on a s. 88(1) winding-up with no intention of using the property for an income–producing purpose (it was kept idle) - and a number of years later, sold the property at a loss.In light of Reg. 1102(14), which deemed the property to belong to the same prescribed class as when it was held in the subsidiary, and the somewhat conflicting reasons in Hickman, CRA concluded that the property retained its character as depreciable property in the hands of Parentco. Furthermore, keeping the property idle did not constitute a change of use under s. 13(7)(a), so that the terminal loss was not realized until the year of the sale. CRA then referred to the analysis in Hickman of the preamble to s. 20(1), and stated:

Parentco will not meet the requirements set out above as Parentco did not acquire the Property for the purpose of earning income and held the Property without earning income from the Property and, accordingly, Parentco is not entitled to claim CCA on the Property.

See summaries under Reg. 1102(14) and s. 13(7)(a).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(a) property remaining idle after deemed acquisition as depreciable property not a change of use 176
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(14) depreciable property of sub deemed to be depreciable property when acquired by parent 444

5 March 2012 Internal T.I. 2010-0384681I7 - Preamble to subsection 20(1) of the Income Tax Act

the applicable-to-source test in the preamble "requires that expenses described in paragraphs 20(1)(a) - (ww) of the Act must be prorated between a taxpayer's sources of incomes and its activities, if any, which do not constitute a source of income."

7 October 2011 Roundtable, 2011-0412061C6 F - Financing Expenses

property that is source only of capital gains cannot support a s. 20 deduction

If an issuer intends only to realize capital gains from its investments, would its issue expenses be deductible under the s. 20(1)(e)(i)? CRA responded:

No amount can be deductible under subparagraph 20(1)(e)(i) if there is not a source of income that is a business or property. … As a result [of s. 9(3)], the appreciation in the value of a property that is capital property … is not in itself a source of income that is property.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e) - Subparagraph 20(1)(e)(i) no s. 20(1)(e) deduction if only capital property that is not a source of income 101

2003 Ruling 2003-001372

Favourable rulings given with respect to transactions for the transfer of losses of a parent public corporation to its profitable subsidiary accomplished by way of the profitable subsidiaries borrowing money on an interest-bearing basis from the parent, using the borrowed money to subscribe for preferred shares of a newly-incorporated sister company which advances the proceeds on an interest-free basis to the parent.

7 March 2001 Internal T.I. 2001-007215

A taxpayer will be entitled to deduct over time the entire amount of the cost of depreciable property notwithstanding that such property, subsequent to its acquisition, becomes no longer available for use in the business.

2000 Ruling 2000-0038963 - Affiliated group of persons loss ATIL

Depreciable assets transferred on a rollover basis to a wholly-owned subsidiary which then amalgamated were acquired by it for the purpose of gaining or producing income given that they are held for a period of 10 days to earn income.

5 June 1997 Internal T.I. 9704727 - SPECIAL WARRANT ISSUE COSTS

After referring, with respect to a question as to the deductibility of issue expenses incurred for special warrants, to the requirements in the preamble to s. 20(1), RC stated "that is, there must be a clear connection between the amount sought to be deducted and the issuance of the shares.