Section 21

Subsection 21(1) - Cost of borrowed money


Alberta Wheat Pool v. Canada, 99 DTC 5198, [1999] 2 CTC 369 (FCA)

The taxpayers, who were members of a joint venture, did not capitalize interest costs incurred during the construction of a grain elevator under s. 21, because they wished to avoid the prohibition in s. 127(11.2) against including such capitalized interest in the capital cost for investment tax credit purposes, and instead took the position that they were entitled to capitalize the interest on the authority of the Sherritt Gordon case. After concluding that "the rule in Sherritt Gordon cannot stand together with section 21", Rothstein J.A. went on to indicate (at p. 5202) that he had "no difficulty with a proposition that in circumstances not contemplated by section 21 or other statutory provisions [e.g., situations where the interest would not qualify for deduction under ss.20(1)(c), (d) or (e)], interest may be capitalized according to GAAP".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A interest not part of cost if could be deducted 177

Administrative Policy

2013 Ruling 2013-0488351R3 - Conversion of a MFC to a MFT

election of GP to capitalize loss before elimination of subtrust

As a preliminary step to the elimination of a subtrust (OT) of a mutual fund corporation (later converted to a mutual fund trust) using a s. 107.4(3) transfer and a s. 132.2 merger, the general partner of a partnership (MLP) of which OT is the limited partner will file late elections under s. 21 in order "to capitalize the non-capital losses of OT into the capital cost of MLP's depreciable property."

Opinion that:

[A]n election made by GPco under subsections 21(1) and (3) respect of the depreciable property held by MLP would be considered a valid election provided that GPco had authority to act for the MLP and the election was made or executed on behalf of GPco and each other person who was a member of MLP during the fiscal period. In such a case, each other person who was a member of the MLP during the fiscal period would be deemed to have also made a valid election by virtue of paragraphs 96(3)(b) and (c)… . We express no opinion as to whether or not the late-filed elections under section 21…will be accepted under subsection 220(3.2)… .

See detailed summary under s. 132.2(1) – qualifying exchange.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 107.4 - Subsection 107.4(1) conversion of MFC to MFT and subtrust elimination 180
Tax Topics - Income Tax Act - Section 132.2 - Subsection 132.2(1) - Qualifying Exchange conversion of MFC to MFT and subtrust elimination 178

27 June 2013 External T.I. 2013-0485721E5 - Election to Capitalize Cost of Borrowed Money

minor personal use

Respecting whether a taxpayer could add interest expense to the capital cost of a rental condominium, used less than 10% for personal use, where the money was borrowed to make various capital improvements to that condominium, CRA indicated that it would only be appropriate to capitalize interest under s. 21 if the cost of a particular improvement has been properly added to the capital cost of the depreciable property for capital cost allowance purposes, without commenting more specifically.

23 February 2004 Internal T.I. 2003-0049157 - ELECTION BORROWED MONEY CAPITALIZE

Also released under document number 2003-00491570.

A s. 21(1) or (3) election may be made by the taxpayer after it has disposed of the relevant depreciable properties.

19 August 1993 External T.I. 9322075 F - Capitalization of Interest

Where money is borrowed to repay accrued interest on debt that was incurred to acquire depreciable property, interest on such further borrowing will not qualify for purposes of s. 21(1) as being in respect of borrowed money used to acquire the depreciable property or as being in respect of an amount payable for such property.

Where an election is made in the year and no election is made in the immediately following year or an election is made in the following year but for an amount less than the total amount of the cost incurred in the preceding year in respect of the borrowing used to acquire the depreciable property in that preceding year, no elections may be made in the future years in respect of that portion of the borrowing expended in the preceding year.


Shane Onufrechuk, Warren Pashkowick, "Tax Considerations of Major Construction Projects", 2014 Conference Report, Canadian Tax Foundation, 10:1-35.

Capitalization of financing costs (p. 10:22)

[S]ubsection 21(1) allow[s] a taxpayer to capitalize certain costs of financing to any related depreciable property acquired with the borrowed funds. Consideration should be given to capitalizing paragraph 20(1)(e) costs to the related capital property based on this elective provision.

Subsection 21(2) - Borrowed money used for exploration or development

See Also

Mattabi Mines Ltd. v. Min. of Rev., [1982] CTC 382 (SCO), rev'd [1984] CTC 566 (Ont CA), which was, aff'd by [1988] 2 CTC 294, [1988] 2 S.C.R. 175

rev'd on other grounds [1984] CTC 566 (Ont CA), which was aff'd by [1988] 2 CTC 294, [1988] 2 S.C.R. 175

The taxpayer overlooked making an election in "prescribed form" under a comparable provision of the Corporations Tax Act (Ontario), and the Minister accepted the taxpayer's tax returns as if the interest expenditures had been properly capitalized pursuant to a formal election. It was stated (at p.393), that the Minister was entitled to waive the statutory requirement for the making of an election, and that the taxpayer accordingly was later precluded from arguing that it was entitled to deduct the capitalized interest as an expense. [C.R.: 85(1)]

Subsection 21(3) - Borrowing for depreciable property

Administrative Policy

19 August 1993 External T.I. 9322075 F - Capitalization of Interest

Where an amount is expended in respect of borrowed money to acquire depreciable property in a year and an amount is also expended in the following year to acquire additional depreciable property and an election is made in respect of the initial year pursuant to s. 21(1), the failure to elect under s. 21(1) with respect to the second year expenditure should not preclude an election under s. 21(3) for years subsequent to the initial year.