Schedule III

Because the amount of CCA which is deductible in respect of Class 13 is not reduced for subsequent taxation years when a disposition of a Class 13 property occurs (because the amount of CCA is determined on a lease by lease basis), the impact of a disposition of a leasehold interest may be substantially deferred.

Aco granted Bco (an associated corporation, a lease of a vessel for a fixed term, without a renewal period. Bco used the vessel in its transportation business, and made leasehold improvements to the vessel. Before finding that it was not possible for Bco to extend the period for depreciating its leasehold improvements beyond the term of the lease, the Directorate stated:

Class 13 includes property that is a leasehold interest and property acquired by a taxpayer that would, if that property had been acquired by a person with whom the taxpayer was not dealing at arm’s length at the time the property was acquired by the taxpayer, be a leasehold interest of that person. Section 4 of Schedule III is to the effect that a taxpayer who acquires a leasehold interest from a person with whom the taxpayer does not deal at arm's length may continue to amortize the leasehold interest. These provisions clarify that the terms and conditions of the leasehold interest in a property of the taxpayer acquiring it are deemed to be the same as those of the person from whom it was acquired if the two persons were not dealing with each other at arm's length. However, those provisions do not extend the prescribed depreciation period.