Paragraph 20(1)(a) - Capital cost of property
Administrative Policy
6 November 2003 External T.I. 2003-0039525 F - Canadian Renewable & Conservation Expenses
In finding that CCA claimed by a corporation on equipment used in a Canadian renewable and conservation expenses (CRCE) project did not qualify under Reg. 1219(1) as “an expense incurred by a taxpayer,” CCRA stated:
CCA claimed by a taxpayer under paragraph 20(1)(a) of the Act would not be an ""expense incurred by a taxpayer". In fact, CCA is a deduction that paragraph 20(1)(a) … and the Regulations allow to offset the capital cost of acquiring a property. Absent these provisions, such capital cost would otherwise be non-deductible under the terms of paragraph 18(1)(b) … . [See] McKee ... .
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Regulations - Regulation 1219 - Subsection 1219(1) | CCA is not an outlay or expense, and cannot qualify as CRCE | 126 |
| Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 43.1 - Paragraph (d) - Subparagraph (d)(viii) | computers used in operating landfill biogas site might be Class 10 property, and applications software would be Class 43.1 or Class 12 property/ below-surface pipes would not qualify | 302 |
| Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 12 - Paragraph 12(o) | applications software used by computers for operation of biogas landfill site would be Class 43.1 or Class 12 property | 180 |
Revising Claims
Cases
St. Benedict Catholic Secondary School Trust v. Canada, 2022 FCA 125
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 |
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)]
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | direct causal connection to income need not be demonstrated | 155 |
| Tax Topics - Statutory Interpretation - Comparison of Provisions | "income" has same meaning in different sections | 114 |
| Tax Topics - Statutory Interpretation - Interpretation Bulletins, etc. | 34 | |
| Tax Topics - Statutory Interpretation - Resolving Ambiguity | 56 |
See Also
St. Benedict Catholic Secondary School Trust v. The Queen, 2020 TCC 109, aff'd 2022 FCA 125
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
2 November 2023 APFF Roundtable Q. 8, 2023-0982881C6 - Revision of Capital Cost Allowance Claims
The taxpayer in St. Benedict claimed capital cost allowance over the course of its 1997 to 2003 taxation years, thereby generated non-capital losses whose carryforward to its 2014 to 2016 taxation years was denied by CRA because they had expired. The taxpayer then claimed that it incurred a terminal loss in 2017 that could be carried back to those years on the basis that a portion of the CCA claims made in its 1997 through 2003 taxation years should be reversed, thereby reducing the losses in those years to nil and increasing the undepreciated capital cost of the property it had disposed of in 2017. Webb JA found that the “administrative practice [in IC 84-1] is not binding on this Court” and that the taxpayer had no ability to change its choice of having claimed CCA for the earlier years.
Could a taxpayer who wished to refresh losses that were about to expire, reduce previous CCA claims to reduce the losses for those years (Situation 1), or could a taxpayer who did not claim CCA for loss years now make CCA claims for those years in order to increase losses for carry forward to offset trading profits that it was going to realize (Situation 2)?
CRA indicated that CRA’s position regarding the application of IC 84-1, para. 10 so far remains unchanged notwithstanding St. Benedict. However, “the CRA exercises some discretion in determining whether or not to allow a taxpayer's request” to revise CCA claims for prior years and will consider “whether granting the request would produce an inappropriate result.” Regarding revisions for loss years, relevant circumstances could include “whether the loss has expired, whether the loss has been applied to other years, whether the revision would result in a change in the tax assessment for the year or any other year, and whether a Notice of Determination has been issued in respect of the loss.” “Since each decision is based on the facts and circumstances of each case,” it declined to comment on the two Situations presented.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - E | CRA will exercise its discretion in IC84-1 having regard to avoiding inappropriate tax results | 300 |
13 March 2012 External T.I. 2012-0432111E5 - Revised joint venture policy
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).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(1) - Paragraph 249.1(1)(c) | 131 |
7 January 2011 Internal T.I. 2010-0387011I7 F - DPA dans une année prescrite
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
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
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."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) | 48 |
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"
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.]
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.