Subsection 20(1)

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.

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).

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."

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.

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.

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.

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.

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.