Subsection 1100(0.1)
Paragraph 1100(0.1)(c)
Administrative Policy
24 March 2023 External T.I. 2023-0960171E5 - Immediate expensing rules
Does the amount determined under Reg. 1100(0.1)(c) - the income of an eligible person or partnership (EPOP) earned from a business or property (computed without regard to s. 20(1)(a)) in which the relevant designated immediate expensing property (DIEP) is used for the EPOP’s taxation year - include any relevant recapture of CCA or terminal loss? CRA responded:
Since a taxpayer’s recapture and terminal loss are included or deducted from income, respectively, under subsections 13(1) and 20(16) … and are not included in income under paragraph 20(1)(a) … these amounts would be reflected in an EPOP’s income amount for purposes of paragraph 1100(0.1)(c) of the Regulations where they relate to the same source of income that is a business or property in which the relevant DIEP is used for the EPOP’s taxation year.
We further note that where a taxpayer has either a recapture of CCA or a terminal loss in respect of a particular class in a taxation year, generally no CCA would be deducted in respect of that class in the year.
Can immediate expensing CCA be deducted prior to regular CCA and, if so, can regular CCA then be used to create a loss from self-employed business income following the immediate expensing CCA claim? After noting that Reg. 1100(0.1)(c) prevents an EPOP that is an individual or partnership from using the immediate expensing incentive to create or increase a loss, CRA stated:
However, following their immediate expensing claim and subject to various rules which may apply to limit a taxpayer’s CCA claim for a taxation year, such as those in [Regs. 1100(11) and (15)] an individual or partner may use regular CCA on any remaining UCC balances to create or increase a loss.
CRA also indicated that, given that CCA is claimed in computing income at the partnership level, the immediate expensing income limit under Reg. 1100(0.1)(c) is also determined at the partnership level.
CRA further indicated that, given that a taxpayer’s Farmers Fuel Charge Tax Credit under s. 127.42 is included in the taxpayer’s business income under s. 12(1)(x) in the year of the related farming activity then, provided that the credit and DIEP relate to the same business, the credit (included in an EPOP’s business income) would be included in the amount of income used for purposes of determining the immediate expensing limit under Reg. 1100(0.1)(c).
Subsection 1100(1)
Paragraph 1100(1)(a.1)
Administrative Policy
9 September 2014 External T.I. 2014-0530631E5 F - Alinéa 1100(1)a.1) du Règlement
A pharmaceutical company carries on SR&ED at a building whose floor space is more than 90% utilized as laboratories for pharmaceutical research (apparently including test production of some sort) with the balance of the space used as administrative offices. In finding that the building likely qualified for the additional 6% allowance, CRA stated (TaxInterpretations translation):
Since "SR&ED activities" are "qualified activities" respecting M or P under paragraph (c) of section 5202, we are of the view that the SR&ED is qualifying M or P since it is part of a process which includes the M or P of goods for sale or lease.
Given that the corporation which conducts the SR&ED also manufactures the commercial product, we are of the view that the research activities in the space constitute qualifying activities for M or P purposes. Consequently, the use test provided under paragraph 1100(1)(a.1) could be satisfied.
11 February 2013 External T.I. 2012-0469441E5 F - Aire de plancher - fabrication et transformation
In response to a question as to whether floor space representing a cafeteria, washroom and office qualified, CRA stated (TaxInterpretations translation):
...[I]f the floor space of the sanitary facilities and cafeteria are used by personnel who are engaged in manufacturing and processing in Canada of goods for sale or lease, then that space could be part of the floor space of the building that is used for the manufacturing and processing in Canada of goods for sale or lease.
Similarly ... if the nature of the activities performed in the office has a connection with the personnel engaged in the manufacturing and processing in Canada of goods for sale or lease, then the floor space of the office also qualifies as being used for the manufacturing or processing in Canada of goods for sale or lease.
16 November 2009 Internal T.I. 2009-0342571I7 F - Catégorie 1, alinéa 1100(1)a.1) du Règlement
Which of the owner of the property and the user of an eligible non-residential building will be eligible for CCA under Reg. 1100(1)(a.1)?
The Directorate responded that “the owner of the property is the person who can claim the depreciation, if the owner meets the other conditions otherwise provided for in the Regulation, and not the tenant,” and in the decision summary, added that the Reg. 1104 definition of eligible non-residential building “stipulates that the property must be acquired by the taxpayer but may be used by the taxpayer or its lessee.”
Paragraph 1100(1)(c) - Class 14
Cases
Weinberger v. MNR, 64 DTC 5060, [1964] CTC 103 (Ex Ct)
The cost to the taxpayer of a patent included not only the legal expenses incurred in obtaining the patent but also the research-related costs of developing the taxpayer's invention prior to the application for the patent and amounts expended subsequent to the application (including costs of continued testing of the invention) attributable to satisfying the patent examiner that the patent had the utility necessary to support a patent.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Evidence | 50 | |
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A | cost of patent included legal costs and R&D | 63 |
Administrative Policy
2011 Ruling 2010-0374221R3 - XXXXXXXXXX
A limited partnership for the distribution of a film (the "Picture") pursuant to a distribution licence for 10 years contained in a distribution agreement with the producer issues Class A and Class B (subordinated) LP units to investors. The producer retains certain rights to the Picture and "will be entitled to all revenues from the exploitation of the Picture." "The Partnership will pay the full purchase price, estimated to be $XX, for the Distribution Licence in the taxation year that the Distribution Licence is acquired." The partnership is entitled to a distribution fee of X% of gross receipts, subject to adjustment for "sell-through rights." The partnership will recoup its contributions to the Picture before the producer and other revenue participants receive their share of revenues. The general partner, which is unrelated to the producer, appears to have some sort of carry. The partnership will engage sub-distributors to exploit the Distribution Licence on its behalf. For purposes of computing its income under s. 9 the partnership will depreciate its capital cost of the Distribution Licence in accordance with its revenue projections over the 10-year term.
Rulings that: the cost of the Distribution Licence will be the capital cost of a Class 14 asset; the partnership will be entitled under Reg. 1100(1)(c) to deduct such capital cost on a straight line basis over the term of the Distribution Licence; and assuming the partnership exploits the Distribution Licence (either directly or through the sub-distributors, the Distribution Licence will not be a "leasing property" for purposes of Reg. 1100(17).
With respect to the proposal for the partnership to deduct the capital cost of the Distribution Licence using a gross income forecast method of depreciation resulting in the apportionment of the cost in accordance with revenue projections over its ten-year term, CRA stated in the summary:
we are not able to give an advance income tax ruling that would be binding on the CRA on this issue because our opinion is that such a determination can only be made on an audit basis and will depend on a number of factors, which will include a verification of the Partnership's gross revenue projections and whether these gross revenue projections have been properly attributed to the appropriate fiscal year of the Partnership.
27 February 2002 Internal T.I. 2002-0121207 - CLASS 14 - CAPITAL COST ALLOWANCE
Where a class 14 asset that originally was purchased at a cost of $100,000 and had a term of ten years, is disposed of in the fifth year, the taxpayer will continue to be able to claim $10,000 per year of CCA in respect of that asset for the remaining six years provided that there is a sufficient UCC balance in the class as a result of the acquisition of other class 14 assets.
22 June 2001 Internal T.I. 2001-0065467 - AMORTIZATION OF BROADCAST LICENSES
CCRA is no longer of the view that Regulation 1101(1)(c) require that the capital cost of a property be amortized equally over its life. "[A] particular taxpayer may be able to demonstrate that apportioning on the basis of economic value is reasonable in a particular situation ... . The onus will be on the taxpayer to clearly demonstrate that the previous 'equal' method is unreasonable and that another method is appropriate in the particular circumstances."
Paragraph 1100(1)(c.1)
Administrative Policy
13 March 2023 External T.I. 2019-0802271E5 F - Déduction supplémentaire prévue au sous-alinéa 110
Regarding the availability of the additional deduction under Reg. 1100(1)(c.1)(i) where a Class 14.1 property was acquired by a taxpayer after December 31, 2016 as a result of a distribution of the property on an s. 98(3) rollover basis, CRA stated:
[F[or taxation years ending before 2027, subparagraph 1100(1)(c.1)(i) allows a taxpayer to claim additional capital cost allowance of 2% on the portion of the undepreciated capital cost of Class 14.1 property at the beginning of January 1, 2017 that exceeds the total of the amounts described in clauses (A) and (B) of that subparagraph.
Consequently, a taxpayer is not eligible for the additional deduction provided for in subparagraph 1100(1)(c.1)(i) in respect of a property of Class 14.1 in Schedule II where that property is acquired by the taxpayer after December 31, 2016 as a result of a distribution of property for which subsection 98(3) of the Act applied. This conclusion also applies in the event that this distribution is followed by a transfer on a rollover basis pursuant to section 85
8 March 2023 External T.I. 2017-0729871E5 F - Déduction supplémentaire prévue au sous-alinéa 110
Regarding where a taxpayer acquired Class 14.1 property after 2016 pursuant to a s. 85 rollover, CRA noted that, for taxation years ending before 2017, Reg. 1100(1)(c.1)(i) allowed a claim of additional CCA of 2% on a portion of the undepreciated capital cost of Class 14.1 property at the beginning of January 1, 2017, and stated:
Consequently, a taxpayer is not eligible for the additional deduction provided for in subparagraph 1100(1)(c.1)(i) in respect of a property in Class 14.1 of Schedule II where that property is acquired by the taxpayer after December 31, 2016 as a result of a rollover pursuant to section 85 … .
If you are of the view that this tax treatment is not appropriate, we invite you to contact the Department of Finance.
Paragraph 1100(1)(e)
Administrative Policy
7 November 2011 Internal T.I. 2011-0424641I7 F - Right to cut Christmas trees
A taxpayer purchased the right to cut, over a period of 10 years, Christmas trees on another taxpayer's land for a lump sum payable over 4 years. In finding that this cutting right was not a property referred to in Reg. 1100(1)(e) (and before finding that it was a Class 14 property), CRA reiterated its position in IT-373R2, para. 15 that:
A stand of Christmas trees is not viewed as a timber limit since the output is trees, not timber or similar products, and the capital cost allowance in Schedule VI of the Income Tax Regulations is not applicable.
CRA then stated:
Since the definition of "timber" in English brings us back to lumber and similar products, we interpret the term "bois" used in French (which translates the word "timber") in the same sense even though the term "bois" could have had a broader meaning. Thus, Christmas trees that are not lumber or a similar product would not be covered by the term "bois" used in French to translate the term "timber".
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Timber Resource Property | right to cut Christmas trees was not a timber resource property | 93 |
| Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 14 | right to cut Christmas trees with 10-year term was a Class 14 property | 134 |
30 April 2008 External T.I. 2007-0252051E5 F - Commercial Woodlot - Timber Limit
In the context of a general response to a query regarding a taxpayer who was preparing to buy a woodlot, and then log the wood and sell it, CRA stated:
It is possible that the woodlot to be acquired by your client would be considered a "commercial non-farm woodlot", as that term is defined in Interpretation Bulletin IT-373R2, and that the woodlot would constitute a "timber limit" for purposes of the Act and Regulations. …
IT-373R2 describes the steps to be followed in determining the main tax rules that apply in respect of a woodlot. …
Paragraph 7 of IT-481 … states that "[i]f a taxpayer acquires land on which there is standing timber (for example, freehold timberlands), such property is a timber limit.”
Paragraph 1100(1)(g) - Industrial Mineral Mines
Administrative Policy
27 March 2014 External T.I. 2014-0520941E5 F - Industrial mineral mine and related expenditures
CRA affirmed: its position in IT-492, (archived), para. 3 that "the word mineral has its ordinary meaning of any chemical or compound occurring naturally as a product of inorganic processes;" and the list therein of some of the most common industrial minerals.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(7.5) - Paragraph 13(7.5)(b) | access road deemed to have been "acquired" | 201 |
| Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 17 | access road to quarry was Class 17 property notwithstanding that not owned | 164 |
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Start-Up and Close-Down Expenditures | expenditures deductible where incurred prior to acquisition decision | 154 |
3 February 2014 External T.I. 2013-0506641E5 - CCA class(es) for mineral claims and mining leases
Volcanic aggregate which was produced by a quarry and sold for various construction purposes likely qualified as industrial minerals. CRA in this regard quoted Archived Interpretation Bulletin IT-492, para. 3:
The term "industrial mineral" means a non-metallic mineral capable of being used in industry, and the word mineral has its ordinary meaning of any chemical or compound occurring naturally as a product of inorganic processes.
Paragraph 1100(1)(ta)
Administrative Policy
Weinberger v. MNR, 64 DTC 5060 (Ex Ct)
3 July 1992 T.I. 920476 (January - February Access Letter, p. 12, ¶C20-066)
A Class 24 or 27 property acquired after November 12, 1981 which qualifies under s. 1100(1)(ta)(v) will qualify for write-off over two years.
Paragraph 1100(1)(zg) - Additional Allowance — Year 2000 Computer Hardware and Systems Software
Paragraph 1100(5k.1)
Subsection 1100(1.1)
Administrative Policy
10 July 1991 T.I. (Tax Window, No. 5, p. 19, ¶1342)
An investment tax credit will reduce the UCC of the related property with respect to the calculation under Regulation 1100(1.1)(b), but not under 1100(1.1)(a).
Articles
Howick, "Income Tax Aspects of Leasing", Tax Profile, May 1992, p. 211
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 16.1 - Subsection 16.1(1) | 0 |
Subsection 1100(1.11)
Administrative Policy
3 February 1997 External T.I. 9640635 - LEASE AND SUB-LEASE
A sublease of property does not cause the property to become intangible property.
17 December 1993 Income Tax Severed Letter 9323875 - Specified Leasing Property Rules
"The circumstances of a particular fact situation will determine whether a sublease causes the property to become 'specified leasing property'. If the transaction is undertaken by an amendment to the existing leasing, it is our view that such an amendment would cause a material change to the lease and cause the property to be specified leasing property."
30 March 1993 External T.I. 9308305 F - Specified Leasing Property
"When a corporation derives revenue from the leasing of a vessel on a 'time-charter' basis (i.e., the owner provides all services including fuel, a captain, crew, provisions, etc., necessary to operate the vessel), such revenue would not normally be regarded as rent, royalty or leasing revenue. Accordingly, if in a particular taxation year the vessel is used more than 50% of the time on time-charters, the vessel would not be a specified leasing property."
Subsection 1100(2) - Property Acquired in the Year
Administrative Policy
6 June 2019 CPTS Roundtable, 2019-0816111C6
CRA confirmed that its statements in Folio S4-F15-C1 as to the meaning of M&P also apply in this context so that, for example, in the oil and gas context, M&P includes the processing in Canada of natural gas at a straddle plant or at a plant devoted primarily to the recovery of ethane.
S3-F4-C1 - General Discussion of Capital Cost Allowance
Operation of formula
1.38 Subsection 1100(2) of the Regulations limits CCA in the tax year of acquisition of most depreciable property. The claim is limited to the amount otherwise available less one-half of the CCA attributable to net acquisitions in the year, determined on a class by class basis. The term net acquisitions means cost of acquisitions in the year in excess of that year's net proceeds of disposition (or capital cost, if less). Where the lesser of net proceeds of disposition and capital cost of property of a particular class in a tax year exceeds the costs of all additions to the same class in that year, the rule has no effect.
Exclusion for 2-year rolling start
1.39 The half-year rule generally applies to the cost of property that was acquired or became available for use during the year. However, where property, including a building or part of a building, becomes available for use under the two-year rolling-start rule, the half-year rule will not apply in the first year in which the CCA is deductible in respect of the property (see Example 1 as well as ¶1.33 and 1.34).
S4-F7-C1 - Amalgamations of Canadian Corporations
1.31 …[T]he half-year rule found in subsection 1100(2) of the Regulations will apply in determining the new corporation's maximum capital cost allowance otherwise allowable on most depreciable property acquired from a predecessor corporation unless the conditions set out in paragraph 1100(2.2)(e) and paragraph 1100(2.2)(f) or (g) of the Regulations have been met. … These conditions are:
(a) the predecessor was not dealing at arm's length (otherwise than because of a right referred to in paragraph 251(5)(b)) with the new corporation immediately before the amalgamation (paragraph 1100(2.2)(e)); and
(b) the property was depreciable property of the predecessor corporation and either:
(i) was owned continuously by the predecessor corporation from a day that was at least 364 days before the end of the new corporation's first tax year to the date of the amalgamation (paragraph 1100(2.2)(f)), or
(ii) subsection 1100(2.1) or 1100(2.2) of the Regulations applied to the predecessor corporation on its original acquisition of the property (paragraph 1100(2.2)(g)).
1.32 With respect to the condition described in ¶1.31(a), subsection 251(3.1) deems the new corporation formed on an amalgamation to be related to (and, therefore, not deal at arm's length with) a predecessor corporation where the two corporations would have been related immediately before the amalgamation if the new corporation had been in existence at that time with the same shareholders that it had after the amalgamation. For example, a predecessor corporation will be deemed to be related to the new corporation where the predecessor corporation was, immediately before the amalgamation, controlled by a person or group of persons and the new corporation was, immediately following the amalgamation, controlled by that same person or group of persons. In addition, subsection 251(3.2) provides that where there is an amalgamation of two or more related corporations (other than corporations which are related solely because of a right referred to in paragraph 251(5)(b)) the new corporation will be deemed to be related to (and therefore, not to deal at arm's length with) each of the predecessor corporations.
Articles
Sarah S. Chiu, "Half-Year Rule and Amalgamations", Resource Sector Taxation, Volume IX, No. 2, 2013, p. 638
A textual and contextual interpretation of the half-year rule suggests that the rule may not apply to amalgamations. In particular, the half-year rule applies to depreciable property "acquired" by a taxpayer. [fn 6: See Regulations 1100(2)(a)(i).] For paragraph 87(1)(a) to apply, AmalCo does not necessarily need to acquire property of its predecessor corporations, but rather all that is required is that the property of its predecessors becomes property of AmalCo. [fn 7: Guaranty Properties Ltd. v. R., 90 DTC 6363 (Fed. C.A.) at paragraph 24 and Pan Ocean Oil Ltd. v. R., 94 DTC 6412 (Fed.C.A.) at paragraph 14.] This is consistent with the general state of corporate law in most jurisdictions where predecessor corporations continue to exist in AmalCo and the property of each predecessor corporation continues to be the property of AmalCo. [fn 8: See, for example, ss. 181 and 186(b) of the Canada Business Corporations Act....See, also, Black & Decker Manufacturing Co. v. R., [1975] 1. S.C.R. 411 (S.C.C.).]
The strength that the wording in paragraph 87(1)(a) lends to this argument may be tempered by paragraph 87(2)(d),…
Element A
Administrative Policy
21 October 2024 External T.I. 2024-1027501E5 - Stacking of investment tax credits and CCA
The $10,000,000 capital cost of the Property will be included in the UCC of Class 43.2, based on its date of acquisition. The Property meets the definition of accelerated investment incentive property (“AIIP”) in Reg. 1104(4) (i.e., it is depreciable property that is (i) new, (ii) acquired after November 20, 2018 and (iii) became available for use before 2028), so that the taxpayer may deduct up to $7,500,000 of CCA for 2024, computed as a grossed-up (by 50%) capital cost of $15,000,000 multiplied by the 50% Class 43.2 CCA deduction.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Government Assistance | NS CITC was reasonably expected to be received at year end even though required government certificate not yet applied for | 170 |
| Tax Topics - Income Tax Act - Section 127.45 - Subsection 127.45(5) - Paragraph 127.45(5)(b.1) - Subparagraph 127.45(5)(b.1(i)) | combined effect of NS CITC and clean tech ITC | 119 |
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(1) | illustration showing recapture being realized with no disposition | 294 |
24 June 2024 External T.I. 2023-1000861E5 - Clean technology property and phase out of AIIP
The only Class 43.1 or 43.2 property transactions of the taxpayer were that it acquired (solar energy) equipment described in Class 43.1(d)(vi) in November 2024 (becoming available for use in January 2025) for $20M and acquired more such equipment in June 2027 (becoming available for use in July 2027) for $10M. The specified energy property rules did not apply because it met one of the exceptions in Reg.1100(25) or (26).
CRA noted that because the $20M of property was acquired before 2025, it would be a Class 43.2 property (50% CCA rate) rather than a Class 43.1 property (30% CCA rate) even though no CCA could be claimed until 2025 due to the available-for-use rules.
Its CCA claim for 2025 would be calculated as follows:
| Capital cost | $20M |
| AII per Reg. 1100(2) – A - (c)(ii) (i.e., 1/2 X $20M) | $10M |
| Subtotal | $30M |
| CCA (50% Class 43.2 rate) | $15M |
The “clean tech” ITC under s. 127.45(1) for 2027 would be 20% of the capital cost of $20M, or $4M.
CCA for 2026 would be $0.5M (i.e., the 50% CCA rate applied to the $20M capital cost as reduced by the $4M ITC claimed and the $15M CCA claim).
The CCA claim for 2027 would consist of a further $0.25M for the Class 43.2 property plus CCA regarding the $10M Class 43.1 acquisition calculated as follows:
| Capital cost | $10M |
| AII per Reg. 1100(2) – A - (b)(iii) (i.e., 5/6 X $10M) | $8.33M |
| Subtotal | $18.33M |
| CCA (30% Class 43.2 rate) | $5.5M |
The clean tech ITC for 2027 would be 20% of the capital cost of $10M, or $2M.
Subsection 1100(2.1)
See Also
McLellan v. M.N.R., 90 DTC 1405, [1990] 2 CTC 2191 (TCC)
Although agreements did not obligate a partnership to acquire any specific property from a particular vendor but only property of a type or class meeting certain qualities as to building standards, and therefore did not come within s. 1100(2.1)(a), they did meet the requirements of s. 1100(2.1)(d):
"'Obligated to acquire' implies that the taxpayer must be bound by contract; whereas 'arrangements for the acquisition' implies that the taxpayer need not be bound by contract." (p. 1407)
Subsection 1100(2.2)
Administrative Policy
S3-F4-C1 - General Discussion of Capital Cost Allowance
Overview
1.41 … [S]ubsection 1100(2.2) … appl[ies] to a transferee only if:
- the property was depreciable property of the transferor, and was owned continuously by that person, either from November 12, 1981 or from a date that was at least 364 days before the end of the transferee's tax year in which they acquired the property, to the date of acquisition; or
- the property was previously exempted from the half-year rule because of the application of subsection 1100(2.1) or 1100(2.2) of the Regulations (at the time when the transferor originally acquired the property).
Example: Double NAL transfer
1.41 …
Scenario A
Mr. C is the controlling shareholder of a corporation which has a tax year ending on December 31. On November 1, 2015, Mr. C sold depreciable property to the corporation. He had owned the property since December 15, 2014.
Results:
The property would be excluded from the half-year rule because Mr. C and the corporation do not operate at arm's length and Mr. C had owned the property continuously from a date (December 15, 2014) that was at least 364 days before the end of the corporation's tax year in which the corporation acquired the property (December 31, 2015), until it was acquired by the corporation.
Scenario B
The facts are as described in Scenario A except that Mr. C acquired the property on June 30, 2015 from his father.
Results:
Both Mr. C and the corporation would be exempt from the application of the half-year rule on their acquisitions, provided:
-
the property was depreciable property of the father;
-
the father acquired it at least 364 days before the end of Mr. C's 2015 tax year; and
-
the father owned it continuously until it was acquired by Mr. C.
S4-F7-C1 - Amalgamations of Canadian Corporations
1.31 …[T]he half-year rule found in subsection 1100(2) of the Regulations will apply in determining the new corporation's maximum capital cost allowance otherwise allowable on most depreciable property acquired from a predecessor corporation unless the conditions set out in paragraph 1100(2.2)(e) and paragraph 1100(2.2)(f) or (g) of the Regulations have been met. … These conditions are:
(a) the predecessor was not dealing at arm's length (otherwise than because of a right referred to in paragraph 251(5)(b)) with the new corporation immediately before the amalgamation (paragraph 1100(2.2)(e)); and
(b) the property was depreciable property of the predecessor corporation and either:
(i) was owned continuously by the predecessor corporation from a day that was at least 364 days before the end of the new corporation's first tax year to the date of the amalgamation (paragraph 1100(2.2)(f)), or
(ii) subsection 1100(2.1) or 1100(2.2) of the Regulations applied to the predecessor corporation on its original acquisition of the property (paragraph 1100(2.2)(g)).
1.32 With respect to the condition described in ¶1.31(a), subsection 251(3.1) deems the new corporation formed on an amalgamation to be related to (and, therefore, not deal at arm's length with) a predecessor corporation where the two corporations would have been related immediately before the amalgamation if the new corporation had been in existence at that time with the same shareholders that it had after the amalgamation. For example, a predecessor corporation will be deemed to be related to the new corporation where the predecessor corporation was, immediately before the amalgamation, controlled by a person or group of persons and the new corporation was, immediately following the amalgamation, controlled by that same person or group of persons. In addition, subsection 251(3.2) provides that where there is an amalgamation of two or more related corporations (other than corporations which are related solely because of a right referred to in paragraph 251(5)(b)) the new corporation will be deemed to be related to (and therefore, not to deal at arm's length with) each of the predecessor corporations.
1.34 Subsection 1102(20) of the Regulations is an anti-avoidance rule which deems the new corporation and a predecessor corporation to be dealing at arm's length for, among other things, the purposes of subsections 1100(2.2) and 1102(14) of the Regulations. This anti-avoidance provision will apply where a new corporation would be considered not to deal at arm's length with a predecessor corporation as a result of a transaction or series of transactions the principal purpose of which may reasonably be considered to have been to cause subsection 1100(2.2) or 1102(14) of the Regulations to apply to a given amalgamation.
18 October 2011 External T.I. 2011-0401381E5 - Capital Cost Allowance for a Partnership
None of the exceptions in s. 1100(2.2) to the half-year capital cost allowance rule appear to cover a deemed acquisition of property under s. 96(8)(a) of the Act.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(27) | 37 | |
| Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.21) | 30 |
February 1991 TI
Where a corporation ("Pco") transfers depreciable property to a subsidiary ("Subco") and, later in the day, a third party (Aco") acquires all the outstanding shares of Subco so that control of Subco is deemed to have been acquired at the beginning of that day, the transfer of depreciable property from Pco to Subco will be considered to be a non-arm's length transaction given that at the time of the transfer Pco will be related to Subco pursuant to s. 251(2)(b)(i).
10 August 2004 Internal T.I. 2004-0080201I7 - Capital Cost Allowance
The exception in Regulation 1100(2.2) for non-arm's length acquisitions of depreciable property situated outside Canada did not apply to an acquisition of computer hardware and related peripheral equipment by a Canadian corporation from its non-resident parent corporation because Regulation 1100(3) indicated that such property was not depreciable property to the non-resident parent.
29 December 1989 T.I. (May 1990 Access Letter, ¶1224)
A partnership is a person and a taxpayer for purposes of ss.1100(2.2) and 1102(14).
89 C.P.T.J. - Q13
A partnership will be considered to be a taxpayer for purposes of s. 1100(2.2)(e) and s. 1102(14)(b). Therefore, those provisions will apply to a majority interest partner who does not deal at arm's length with the partnership.
Paragraph 1100(2.2)(e)
Administrative Policy
2024 Ruling 2024-1008661R3 - Internal reorganization: Half-year rule
2022-0941241R3 concerned inter alia (i) two general partnerships: Partnership C between ParentCo and its wholly-owned subsidiary, SubCo; and Partnership D, between ParentCo, Partnership C, and NewCo2 (held by ParentCo and SubCo); (2) the successive windings-up by operation of law of Partnerships C and D as a consequence of the winding-up of SubCo, then NewCo2. CRA ruled inter alia as to the application of s. 98(5) to the two wind-ups.
Now, in 2024-1008661R3, CRA ruled that, provided that (the 364-day rule in) Reg. 1100(2.2)(f) was satisfied (or as per Reg. 1100(2.2)(g), the Reg. 1100(2.2) exception applied to the transferor), the half-year rule in Reg. 1100(2) did not apply by virtue of Reg. 1100(2.2) to the depreciable property acquired by ParentCo on the two partnership wind-ups.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | parent was not dealing at arm’s length with a subsidiary partnership at the instant of its dissolution by operation of law | 234 |
Paragraph 1100(2.2)(f)
Articles
Sabrina Wong, Sania Ilahi, "Tax Implications of Asset Securitizations", 2015 CTF Annual Conference Report
Non-application of half-year rule on drop-down from lease originator to LP if not inventory (p.12:10)
This exception to the half-year rule may apply in certain circumstances to the limited partnership in the [above] lease securitization structure… . The originator and the limited partnership should be considered not to be dealing at arm's length since the originator is the sole shareholder of GP Co. If the originator has owned the leased equipment continuously for a period from at least 364 days before the end of the taxation year of the limited partnership in which the limited partnership acquires the leased equipment, the half-year rule should not apply, as long as the leased equipment is depreciable property to the originator before its transfer to the limited partnership. …
[L]eased equipment that is acquired with the intention of immediately selling it to the limited partnership may not be considered to be depreciable property. In this case, the CCA on the leased equipment acquired by the limited partnership is subject to the half-year rule in the year that the equipment is acquired by the partnership (subject to the exception relating to specified leasing property acquired by a partnership that satisfies the principal leasing requirements).
Subsection 1100(2.21)
Administrative Policy
18 October 2011 External T.I. 2011-0401381E5 - Capital Cost Allowance for a Partnership
Subsection 1100(2.21) does not apply to the deeming rule in paragraph 96(8)(a) of the Act, because that paragraph only creates a deemed acquisition, not a deemed disposition and reacquisition.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(27) | 37 | |
| Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.2) | 29 |
22 August 2000 External T.I. 2000-0002885 - SALE/LEASEBACK TRANSACTION
As s. 16.1(1)(b) does not deem a taxpayer to have disposed of an acquired or reacquired property, Regulations 1100(2.21) will not apply to the property.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 16.1 - Subsection 16.1(1) | 26 | |
| Tax Topics - Income Tax Regulations - Regulation 1103 - Subsection 1103(2d) | 4 |
Subsection 1100(3)
Administrative Policy
S3-F4-C1 - General Discussion of Capital Cost Allowance
Combined application with half-year rule
1.43 The adjustment for a short-fiscal period applies in addition to the half-year rule. For example, if an asset is acquired in a tax year of six month's duration, in effect, only one-quarter (approximately) of the maximum annual rate of CCA that would normally be available for that asset will be allowed in that tax year.
Subsection 1100(4.1)
Administrative Policy
IT-195R4 "Rental Property - Capital Cost Allowance Restrictions"
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(11) | 128 | |
| Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(14) | 223 |
Subsection 1100(5k.1)
Administrative Policy
20 May 2008 Internal T.I. 2008-0267041I7 F - Productions cinématographiques et magnétoscopiques
Must a taxpayer include all Canadian film or video productions ("CFVP") productions in a single separate depreciable class, or should a separate depreciable class be created for each CFVP? The Directorate responded:
For the purposes of calculating the additional capital cost allowance provided for in paragraph 1100(1)(m) of the ITR, we are of the view that the calculation should be made in such a way that all CFVPs for which a tax credit is claimed under section 125.4 are included in a single depreciation class.
Indeed, paragraph 1100(1)(m) and subsection 1101(5k.1) of the ITR are not worded in a way that allows us to conclude that a separate depreciable class is required for each CFVP. If Parliament had intended a taxpayer to create a separate class for each CFVP for which a tax credit may be claimed under section 125.4, it would have used clear language to that effect, such as that used in subsections 1101(1ac) and 1101(2) of the ITR.
Subsection 1100(9) - Patents
Administrative Policy
IT-477 "Capital Cost Allowance - Patents, Franchises, Concessions and Licences"
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(cc) | 18 | |
| Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 14 | 283 |
Subsection 1100(11) - Rental Properties
Administrative Policy
IT-195R4 "Rental Property - Capital Cost Allowance Restrictions"
2. Accordingly, if a taxpayer has more than one class of rental properties, the CCA restriction is not applied to the individual classes of rental properties but rather to the total CCA that may be claimed against all the taxpayer's rental properties. The entire CCA claim for all the properties must not exceed the total of the rental income from all properties less the total of the rental losses from the properties. Any recapture of CCA is included in computing these totals. In computing the amount of CCA allowable where a terminal loss has occurred, it will be necessary to deduct the terminal loss first and then to claim ordinary CCA to the extent, if any, of the remaining net rental income from all properties.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(4.1) | 0 | |
| Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(14) | 223 |
6 February 2008 External T.I. 2007-0239951E5 F - Restrictions à la déduction pour amortissement
S. 75(2) applies to the transfer of one of the individual’s rental properties to a trust. In confirming that the rental property restriction rules apply separately to the computation of the income attributed to the individual and the computation of income from rental properties held by the individual directly, CRA stated:
[T]he trust does not own rental property owned by the individual personally. Consequently, if the property transferred by the individual to the trust is the only rental property owned directly or through a partnership by the trust, its capital cost allowance will be limited to the rental income from that property.
Similarly, the individual does not own the property that was transferred to the trust. Consequently, when computing capital cost allowance on rental property owned by the individual, the individual will not take into account the rental income from the property that was transferred to the trust, even if it was attributed to the individual by virtue of subsection 75(2).
Subsection 1100(12)
See Also
Satin Finish Hardwood Flooring (Ontario) Ltd. v. R. I, 97 DTC 287, [1997] 2 CTC 2915 (TCC)
The taxpayer was found to be a principal business corporation notwithstanding that its business of manufacturing unfinished parquet flooring had 120 employees whereas there was only one individual who dealt with real estate (industrial warehouses that were managed by Florida-resident partners). Bell TCJ. stated (at p. 290) that "the question to be determined is which business was more important", and found that the real estate operation satisfied this test given that its net asset value was almost triple that of the manufacturing operations, and its cash flow exceed the net profit from the manufacturing operation.
Administrative Policy
2 November 2023 APFF Roundtable Q. 5, 2023-0982821C6 F - Notion d’ « entreprise principale » aux fins du paragraphe 1100(12) R.I.R.
Aco carries on a business of renting its own real estate - as well as holding shares of various operating companies on which it regularly receives dividends and also earning interest income on loans to related companies. The latter two “passive” investing activities require very little time and effort of Aco's management.
For purposes of s. 1100(12) of the Income Tax Regulations ("I.T.R."), does CRA consider Aco's principal business to be the “leasing, rental, development, or sale, or any combination thereof” of real property owned by it if the income from and the capital invested in the two passive activities represent more than 50% of Aco's total income and invested capital? After noting that it could not respond definitively to the presented facts, CRA responded:
As indicated in … IT-206R[, para. 2] the question of whether the carrying on of two or more simultaneous business operations by a taxpayer is the same business is dependent upon, among other things, the degree of interconnection, interlacing or interdependence existing between the business operations. The factors to be considered in making this determination are set out in … IT-206R[, para. 3].
… [T] he question of what is the principal business of a taxpayer that is a corporation within the meaning of subsection 1100(12) I.T.R. is a question of fact … .
As stated in … IT-371[, para. 7], there are no established criteria. … [T]he following factors are among those that may be relevant:
(a) the profits realized by each of the businesses;
(b) the volume and the value of the gross sales or transactions of each business;
(c) the value of the assets of each business;
(d) the capital employed in each business; and
(e) the time, attention and effort expended by the employees, agents or officers in each business.
While the revenue or profit criteria may be important, they will not necessarily be determinative.
18 April 2001 External T.I. 2001-0070105 - CCA FOR SHORT FISCAL PERIOD
In response to a suggestion that an individual who started a new business partway through the year was not required to pro-rate capital cost allowance claims on the basis that an individual had a calendar taxation year under s. 249(1), the Agency noted that Regulation 1104(1) provided that a reference to the taxation year of the individual was deemed to be a reference to his shorter fiscal period. Accordingly, his CCA deductions for the year were subject to proration.
27 March 1992 T.I. 920570
A corporation would be considered to be a principal-business corporation if its sole asset is an interest in a principal business partnership.
Subsection 1100(14)
Cases
Gulf Canada Resources Ltd. v. The Queen, 93 DTC 5345, [1993] 2 CTC 198 (FCTD)
A predecessor of the taxpayer ("GCL") approached a developer to erect a large office building in Calgary in order that GCL could eliminate the inefficiencies associated with housing its employees in four separate office buildings in Calgary. By the completion of construction, GCL had transferred a portion of its operations to a subsidiary ("GCRI"), with the result that 28.5% of the square footage was occupied by GCL, 26.5% by GCRI and the balance of 45% by an arm's length tenant. Notwithstanding that GCRI paid rent to GCL (albeit not at market rates, and not pursuant to a long-term lease or other commercial terms), Rothstein J. found that the space was not being used principally for the purpose of producing rents given GCL's initial business purpose for having the building erected (which was not changed as a result of the incorporation of GCRI).
See Also
McInnes v. The Queen, 2014 TCC 247 (Informal Procedure)
The taxpayer owned and operated a rental chalet in Charlevoix Quebec which was furnished including with kitchen utensils, bedding, WiFi and sound system. A maid service was available but not usually utilized. In finding that the chalet was a rental property, so that Reg. 1100(11) denied the deduction of capital cost allowance, Masse J noted that over half of the rentals came from a single user who rented the Chalet from mid-June to the end of August each year and who did not wish to utilize any supplementary services such as cleaning , changing bedding, laundry and snacks. Before so concluding, he stated (para. 36 – TaxInterpretations translation):
[T]here is income from property rather than income from a business when the appellant cannot demonstrate that the range of services provided by her are such that the payments can in substantial part ["bonne partie"] be attributed to such services. In other word, income is considered to be from an active business only when the owner provides or makes available to the renters services so as to cause the activities at the property to go beyond the simple rental of immovable property.
Sivasubramaniam v. The Queen, 2008 DTC 3886, 2008 TCC 261 (Informal Procedure)
The taxpayer was unsuccessful in a submission that seven condominiums owned by him, which generated gross revenue of approximately $85,000 in a year, were not rental properties because he had acquired the properties in order to resell them at a capital gain. Bowman C.J. stated (at para. 12) that "the fact remains that the use to which the units were put in the year was the production of rental income. They fall within the definition of rental properties."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate | hope to dispose of at gain consistent with capital property | 64 |
| Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(b) | 111 | |
| Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c) | capital gains from resale not a permitted purpose | 63 |
Jong v. The Queen, 98 DTC 16161 (TCC)
A medical practioner who owned a building in co-ownership with others and used about 45% of the building along with the co-owners in a medical practice was found to be operating his medical practice apart from the operation of the building. Accordingly, a terminal loss realized on the disposition of the building represented a loss from a rental property.
Malenfant v. MNR, 92 DTC 2081, [1992] 2 CTC 2431 (TCC)
Various hotels and motels of the taxpayer were rental properties given that the revenues were derived principally from the rental of rooms and not from services. Accordingly, such revenues could be included for purposes of determining whether the taxpayer was subject to the limitation in Regulation 1100(11).
Administrative Policy
26 July 2010 External T.I. 2010-0364721E5 F - Revenus de bien et d'entreprise
After concluding that “the operator of a bed and breakfast, who has a personal residence in which bed and breakfast rooms are rented out on a short-term basis, is generally considered to be carrying on a business” rather than having a source of property income, CRA stated:
Whether or not the rental of a building by an individual is a business, the property may be considered a "rental property" for purposes of the CCA restrictions under subsection 1100(11) … . [A] rental property is defined as a building owned by a taxpayer and used principally to gain or produce gross revenue that is rent. The term "principally" normally means 50% of the time for the purpose of gaining or producing gross revenue that is rent.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(12) | bed and breakfast operation was business rather than property source (and thus subject to s. 18(12) limitation) since more than normal essential services provided | 166 |
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | reduction of personal expenses is not the pursuit of profit | 97 |
26 April 1990 T.I. (September 1990 Access Letter, ¶1437)
Where one of the assets of a corporation, which together with its subsidiaries carries on an active business, consist of a 60% undivided interest in a building and the corporation and its subsidiaries are tenants of the building and occupy more than 50% of the building, the building will be considered to be a rental property if the corporation itself occupies less than 50% of the area of the building.
IT-195R4 "Rental Property - Capital Cost Allowance Restrictions"
Principally based on time
4. ...[T]he word "principally" means "primarily" or "chiefly." In establishing whether a property is used principally for a given purpose, one of the main factors to be considered is the proportion of time that the property is used for that purpose. If the property is used more than 50 percent of the time for the purposes of gaining or producing gross revenue that is rent, that pattern of use is a good indication that the property is used principally for that purpose. Another important factor to be considered is the proportion of the amount of space rented in relation to the total area of the building. ...
Examples of application of extended meaning of rent under Reg. 1100(14.1)
6. ...[G]ross revenue that is rent will include revenue derived from a property such as a hotel, motel or nursing home operation, where it is established that such revenue is ancillary to the use or occupation of the property. On the other hand, if the services offered (for example, medical care in a nursing home) are such that they go beyond being merely ancillary to the use and occupation of the property, gross revenue derived from such services is not considered to be rent derived from the property.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(4.1) | 0 | |
| Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(11) | 128 |
Subsection 1100(14.1)
Administrative Policy
2 August 1990 T.I. 900139
[A] person who operates a hotel is in the business of providing services and not in the rentals business. Although Regulation 1100(14.1) could over-ride this general view, it is not applicable in the circumstances described in 1100(14.2)(c). In any case we agree with your interpretation that a property of which more than 50% of the total space is occupied by a hotel operation, and which otherwise is exempt under Regulation 1100(14.2)(c), would not be restricted with respect to the capital cost allowance it can claim on any portion of the property.
Subsection 1100(15) - Leasing Properties
See Also
McCoy v. The Queen, 2003 DTC 660, 2003 TCC 332
A partnership purchased trading software from a vendor corporation, with the vendor and the partnership agreeing that the vendor would form a joint venture for exportation of the trading software and that the vendor would buy no less than a stipulated number of trading reports generated from the software in each year. In finding that the purchased software was not leasing property to the partnership, Bowman A.C.J. stated (at p. 682) that:
"The profits of a joint venture in which the partnership expected to share were profits from trading future contracts. By no stretch of the imagination can this be called rent, royalty or leasing revenue."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Evidence | 122 | |
| Tax Topics - General Concepts - Purpose/Intention | intention objectively determined having regard to the material presented to investors | 83 |
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A | 202 | |
| Tax Topics - Income Tax Act - Section 96 - Subsection 96(2.2) - Paragraph 96(2.2)(d) | 118 | |
| Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c) | 83 |
Subsection 1100(16)
Administrative Policy
30 October 2003 Internal T.I. 2003-0030597 - ARE SWAP RECEIPTS GROSS REVENUE
The expression "gross revenue" used in Regulation 1100(16)(a) would not include swap receipts received by a potentially qualifying corporation in relation to interest rate swap agreements given that the swap agreements are contractual arrangements which are separate from any associated assets or liabilities.
18 December 2002 External T.I. 2002-0156515 - LEASING PROPERTY EXCEPTIONS
"We are of the view that a corporation that carried on two businesses of the type described in subparagraph 1100(16)(a)(ii) of the Regulations, one of which produced 11% of the corporation's gross revenues and one of which produced 89% of its gross revenues, would not satisfy the test in paragraph 1100(16)(a)".
19 February 1996 External T.I. 9530915 - LEASING BUSINESS
Gross revenue from the principal business includes proceeds from the sale of property described in Regulation 1100(16) or property of the same general type and description, and interest and other financing charges incidental to the taxpayer's activities of renting or leasing property described in that Regulation or from the servicing of property of the same general type and description, or from such sales.
December 1992 B.C. Tax Executives Institute Round Table, Q. 5 (October 1993 Access Letter, p. 478)
Because a joint venture is not recognized by a statute, each corporate joint venturer must account separately for its gross revenue test under Regulation 1100(16).
31 March 1992 T.I. (Tax Window, No. 18, p. 13, ¶1841)
The fact that a corporation manufactures property that it subsequently sells and leases to its customers will not prevent qualification as a principal business corporation.
26 March 1990 T.I. (August 1990 Access Letter, ¶1396)
Where one of the two principal business corporations of a principal business partnership acquired its partnership interest upon the commencement of the January 1, 1990 partnership fiscal period from a previous corporation which apparently was not a principal business corporation, this transaction will not by itself cause the partnership not to be a partnership each member of which was a principal business corporation "throughout" the year.
5 January 1990 T.I. (June 1990 Access Letter, ¶1285)
It is not necessary for the corporation to provide services in respect of the property which is rented, leased or sold. Discussion of the inclusion of interest and financing charges in "gross revenue".
Articles
Sabrina Wong, Sania Ilahi, "Tax Implications of Asset Securitizations", 2015 CTF Annual Conference Report
Most commonly-used lease securitization structure: drop-down to LP (pp. 12:4)
In the most commonly used lease securitization structure in the last few years…the lease originator does not retain ownership of the equipment. This is not the case in the sale lease-back structure and the concurrent lease structure. …
[T]he lease originator transfers the equipment that is subject to the underlying leases at fair market value to an SPE, often a limited partnership, in consideration…for limited partnership interests, assumed liabilities, and a note issued by the limited partnership…under subsection 97(2). …
The limited partnership issues asset-backed notes, either directly to investors or to a conduit trust (that in turn issues commercial paper to investors). The limited partnership uses the proceeds from the issuance of the asset-backed notes to repay the limited partnership note and/or return partnership capital to the lease originator.
Quaere correctness of including sales proceeds in gross revenues (p. 12:9)
There is some doubt concerning the correctness [under 1T-443] of including the proceeds of sale of leasing property in gross revenues since leased property is generally considered to be "capital property," and thus the sale proceeds of the property should be considered to be payments on account of capital. Payments on account of capital are specifically excluded from the definition of gross revenues.
Accessing advantages of principal business partnership (p. 12:10)
If the property is specified leasing property, an exception is provided to the application of the half-year rule [in Reg. 1100(2)(a)(v)] when the taxpayer or partnership satisfies the principal leasing requirements.
Principal business corporations or partnerships can…file a special once-and-for-all election to deem all of their subsequently acquired exempt property (which is ordinarily not subject to the specified leasing property rules) to be specified leasing property. Alternatively, they can elect to include one or more exempt properties in a separate class for CCA purposes. … [S]ince the principal leasing business requirement must be met throughout each taxation year, including the first taxation year of a newly formed SPE, it is common to transfer a few leased pieces of equipment to the SPE at the time of its formation.
Quaere whether LP business is separate from the originator’s (p. 12:10-12:11)
An issue may arise when the SPE is a limited partnership and the originator that is a member of the partnership retains some leased equipment. This issue was raised in a CRA technical interpretation [2002-0156515 where] … A Co, B Co, and C Co each retained 10 percent of the leased equipment. …
It is the CRA's position [in IT-443, para. 10] that the gross revenue of the partnership from a particular source is to be included in the gross revenue of the corporation from that source to the extent of the corporation's profit-sharing percentage. …
[I]f the activities of the corporation and the partnership are considered to be two separate businesses of the corporation, the following determinations must be made: (1) which business is the corporation's principal business, (2) whether this principal business is the leasing of leasing property, and (3) whether the gross revenue from that principal business is at least 90 percent of the gross revenue of the corporation for the year from all sources.
Subsection 1100(17)
Cases
Evans v. The Queen, 87 DTC 5226, [1987] 1 CTC 316 (FCTD)
The taxpayer acquired a motorhome in 1980 with the intention of renting it out in 1981 as a business endeavour. The leasing property restriction rules did not apply in 1980 because the motorhome was not used as a rental property in 1980.
See Also
Agence du revenu du Québec v. J.D. Irving Limited, 2022 QCCA 241
The taxpayer (“JDI”) and another pulp and paper company in the Irving group (“IPPL”) engaged in several transactions to effectively transfer non-capital losses from a third company (“IOL”) in the Irving group to JDI. In a representative transaction, IOL acquired pollution control equipment (“PCE”), that IPPL had been using in its pulp facilities, from IPPL on a rollover basis at a nominal agreed amount. JDI then almost immediately acquired the PCE from IOL for $120 million (claiming 100% of this amount as CCA for that year), and agreed to operate the PCE in consideration for “throughput fees” payable to it by IPPL pursuant to “Operating and Services Agreements” (“OSAs”) governed by New Brunswick law. In a separate “contract services” agreement, IPPL agreed to perform the operating services required of JDI under the OSAs on behalf of JDI and for a daily fee. In January of the next year, after having earned $1.3 million in throughput fees, the taxpayer transferred the PCE “back” to IPPL on a rollover basis with a nominal elected amount.
Mainville JCA rejected the ARQ position (stated at para. 37, TaxInterpretations translation) “that an essential precondition for a services contract is the existence of a services business,” noting that the ARQ did not provide any common law authority for this proposition and that, in any event, the Court of Quebec had made a finding of fact that the operation of the PCE was within the scope of JDI’s business. In also rejecting the ARQ submission that IPPL did not validly operate the PCE on behalf of JDI, he stated (at paras. 43-44, 46):
[I]t is undisputed that a taxpayer may carry on a business through an agent. …
The fact that the agent and the principal are related companies does not change this principle. This was the case in Stubart … .
As the trial judge concluded, we are dealing with clear contracts and uncontradicted evidence that confirm that the designation of the transactions as services agreements does reflect their true legal effects. It is a principle of tax law that, in the absence of sham, recharacterization is only possible where the label attached to a transaction does not properly reflect its actual legal effects.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Agency | agency relationship respected so as to permit owner to charge for services performed by user | 281 |
J.D. Irving Limited v. Agence du revenu du Québec, 2020 QCCQ 2423, aff'd 2022 QCCA 241
The taxpayer ("JDI") and another pulp and paper company in the Irving group (“IPPL”) participated in transactions to effectively transfer non-capital losses (“NCLs”) from an oil refining company (“IOL”) in the Irving group to the taxpayer. In December 2002, IOL acquired pollution control equipment (“PCE”), that IPPL had been using in its pulp facilities, from IPPL under TA s. 85(1) and TA s. 518, at an agreed amount of $3. In the same month, JDI acquired the PCE from IOL for $120 million (claiming that amount in CCA thereon for 2002), and agreed to operate the PCE in consideration for “throughput fees” and cost reimbursements payable to it by IPPL pursuant to “Operating and Services Agreements” (“OSAs”) governed by New Brunswick law. In January 2003, after having earned about $1.3 million in throughput fees, JDI transferred the PCE “back” to IPPL on a rollover basis with an elected amount of $3. Further transactions to a similar effect were implemented in 2003, with one variation being that in May and June transactions, the PCE was sold by IOL to a wholly-owned inactive subsidiary (“IRF’) of the taxpayer, with IRF making substantial CCA claims that generated a NCL, and then being wound-up under inter alia s. 88(1.1) into the taxpayer.
The ARQ attacked on the basis that the PCE constituted leasing property to the taxpayer (and, subsequently, to IRF), so that the Quebec leasing property restriction rules denied the deduction of CCA so as to generate NCLs. In particular, although the OSAs provided that the taxpayer (and then IRF) was to operate the PCE, the taxpayer delegated to IPPL, in consideration for fees, the performance of all the such operating services, so that nothing had changed “on the ground.”
In allowing the taxpayer’s appeal and finding that the PCE generated business income rather than leasing revenue to it (and IRF), Fournier JCQ accepted that submissions of the taxpayer (quoted in English at para. 98) that a “legal right of exclusive possession is essential to the existence of a lease at common law” and that here no legal right of possession of the PCE is conferred upon IPPL under the Operating and Services Agreement, let alone an exclusive right of possession.” Furthermore (para. 109, TaxInterpretations translation) whether the taxpayer had “delegated or subcontracted to IPPL the performance of its contractual obligations (Contract Services) to operate and maintain the PCE is irrelevant”: similarly to Stubart, the taxpayer “carried on business through an agent, in this case IPPL” (para. 127).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Agency | Stubart recognized that business operations can be carried on by an affiliated agent | 231 |
| Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a) | loss consolidation transaction entailing circular transfers of depreciable property confirmed | 90 |
Barclays Mercantile Industrial Finance Ltd. v. Melluish, [1990] BTC 209 (Ch. D.)
A British corporation ("WBDL") entered into a distribution agreement with a California corporation ("WBI") pursuant to which WBI was granted the right to license and to exhibit and distribute the picture, largely in Canada and the U.S., but with WBDL retaining control of the master negative. WBDL was found not to be "leasing" the film to WBI because it did not provide "exclusive possession at a rent for a term" (see p. 243).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | 136 | |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) | 240 | |
| Tax Topics - Income Tax Act - Section 83 - Subsection 83(2.1) | main purpose was to make a profit, not take deduction | 264 |
General Motors Acceptance Corp. (U.K.) Ltd. v. I.R.C., [1985] BTC 324 (HC), aff'd [1987] BTC 71 (C.A.)
In the ordinary course of trade of a finance subsidiary ("GMAC"), it provided a financial package to car dealers, which entailed (1) GMAC purchasing a vehicle from its manufacturing affiliate on the same terms as if the dealer had ordered the vehicle, (2) GMAC providing the dealer with an option to purchase the vehicle, and (3) GMAC in the interim charging a "handling fee" to the dealer in order to recover its interest expense and a profit. It was found that "although cars was not what [GMAC] was trading in, in the ordinary course of selling its financial package, it would, inevitably, be involved in the sale of cars [as a consequence of the dealers' exercise of their options]. So, in the ordinary course of its trade as a financial dealer, it sold the cars, even though it was not out of such sales that it made its profits".
Canadian Acceptance Corp. Ltd. v. Regent Park Butcher Shop Ltd. (1969), 67 WWR 297 (Man. C.A.)
Dickson J.A. found that the hiring of a cash register was a chattel lease notwithstanding a clause that provided that the lease was irrevocable for the full term and that the aggregate rentals would not abate by reason of the hirer's right to retake possession on default. The right of the hirer to collect the full balance of rentals for the remaining term following a default (minus any proceeds received from a sale or re-leasing within the 60-day period following default) instead represented a penalty clause that was void.
Dickson J.A. also accepted a definition of a lease of chattels as "a contract by which the hirer obtains a right to use the chattel hired, in return for the payment of the price of the hiring to the owner'".
Crawford v. Kingston, [1952] OR 715 (C.A.)
In finding that an agreement pursuant to which the plaintiff transferred 14 cows to his brother-in-law who was required to return the same number of cows (but not necessarily the same cows), was a sale rather than a bailment, MacKay J.A. stated (at p. 717):
"When the original chattel delivered is to be returned in the same or an altered form the title does not pass but the transaction constitutes a bailment with the title in the bailor, but if the transaction as made by the contract between the parties does not require the party receiving the chattel to return it in its original or an altered form but permits the possessor to return another chattel of equal value or to pay the money value thereof, the relation of vendor and purchaser is created and the title to the property passes to him and is in him.
The essential difference between bailment and sale is the locus of the title."
Administrative Policy
8 January 2008 Internal T.I. 2007-0254881I7 F - Amortissement d'une aire de camping
In finding that a campground generally would not be subject to the rental property restriction rules, the Directorate stated:
[P]aragraph 7 of [IT-434R] … states that “The operation of a trailer court or campground where all services are provided, e.g., laundromat, cafeteria, swimming pool, showers, playgrounds, etc. … would be a business, but not a rental business due to the magnitude of services provided.” …
[I]f a taxpayer's operation of a campground constitutes a business … it is the CRA's view that the taxpayer carrying on such a business is not restricted in the amount of the CCA deduction.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 17 - Paragraph 17(c) | costs of developing a campground would generally be added to Class 17(c) | 98 |
| Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 1 | septic tanks are structures | 167 |
| Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 6 | swimming pool is a water storage tank | 98 |
14 September 1992, T.I. (Tax Window, No. 24, p. 15, ¶2217)
Leasing property can include application software. In any event, Regulation 110(17.2) extends the concepts of rent to include gross revenue derived from ancillary services.
IT-443 "Leasing Property - Capital Cost Allowance Restrictions"
Subsection 1100(17.2)
See Also
Oke v. The Queen, 2009 DTC 1366, 2009 TCC 386 (Informal Procedure), aff'd 2011 DTC 5010 [at 5553], 2010 FCA 350
The taxpayer (Mr. Oke), who leased a recreational vehicle to a company that was in the business of renting recreational vehicles to movie studios for several-week terms, was found not to be himself using the recreational vehicle in a business notwithstanding that he provided some assistance to the proprietor of the company in its business.
In the Court of Appeal, Pelletier JA stated (2011 DTC 5010 [at 5553], 2010 FCA 350, at paras. 29-30):
The higher the level of activity, the more likely it is that one is engaged in a business; the lower the level of activity the more likely it is that the income derives from the use of property.
...[T]he Tax Court compared Mr. Oke’s level of activity relative to other RV owners in Coast-to-Coast’s pool and found that Mr. Oke’s level of activity relative to his own RV did not differ significantly from that of other (admittedly passive) owners. In my view, this was the correct test.
Subsection 1100(17.3)
See Also
Thibeault v. The Queen, 2015 TCC 271
The taxpayer leased a boat (his only leasing asset) to a company of which he was the sole shareholder and director for use by the company in running whale-sighting cruises.
As the exception in Reg. 1100(17.3)(b) was not available, the CCA deductions of the taxpayer were limited to the leasing revenues (net of minor management fees) generated from the company. After noting (at para. 63) that the company rather than the taxpayer was responsible for the crew, operating and insuring the boat and for all damages, D’Auray J indicated (at para. 64) that the services provided by the taxpayer did not satisfy the test in Oke that they “surpass those which are usually provided under a lease” (TaxInterpretations translation). In particular, the activities of the taxpayer in distributing pamphlets, constructing a ticketing booth, landscaping around the booth and selecting a caterer, were effected in his capacity of shareholder of the company rather than of lessor (para. 64).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) | boats were not a source of income | 60 |
Subsection 1100(21) - Certified Films and Video Tapes
Articles
Mandell, Yip, "Tax Shelters in the 1990s", 1991 Conference Report, c.35.
Subsection 1100(24) - Specified Energy Property
Articles
Mandel, Yip, "Tax Shelters in the 1990s", 1991 Conference Report, c. 35: Discussion of introduction of specified energy property rules.
Subsection 1100(25)
Administrative Policy
17 January 2020 External T.I. 2017-0685341E5 - Tax Comparison of the FIT & Net Metering Programs
Under the Feed-in Tariff and microFIT programs (the “FIT/micro-FIT Programs”) administered by the Ontario Power Authority (the “OPA”), a participant contracts with the OPA to supply the electricity generated from approved renewable energy project to the provincial electricity distribution system at a charge for each kWh of electricity generated regardless of whether electricity is subsequently consumed by the participant. Under the Net Metering Program, a participant used such property to generate electricity primarily for its own use, and was billed only for the difference between the value of the electricity consumed by it and the value of the electricity supplied to the provincial electrical distribution system.
After noting the exception from the specified energy property rules in Reg. 1100(24) et seq. in Reg. 1100(25) for “property that is acquired to be used by the owner primarily (i.e., more than 50%) for the purpose of gaining or producing income from either: (i) a business of the owner carried on in Canada (not including the business of selling the energy generated by the particular property); or (ii) another property held in Canada by the owner of the property,” CRA stated:
Generally, the specified energy property rules would apply to a participant in a FIT/microFIT Program or a Net Metering Program that is otherwise eligible to claim CCA in respect of a renewable energy property unless:
(a) the participant carries on a business in Canada (other than the business of selling electricity) or earns income from another property situated in Canada and the amount of electricity consumed in carrying on that business or earning income from that other property, as applicable, exceeds 50% of the electricity generated by the renewable energy property for the taxation year;
(b) the participant is a corporation (or a partnership described in subsection 1100(26) of the Regulations) whose principal business is:
(i) manufacturing or processing; (ii) mining; or (iii) the sale, distribution, or production of energy or potential energy; or
(c) the property is leased by the participant and all the requirements of paragraph 1100(25)(b) of the Regulations are met.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 9 - Computation of Profit | a credit generated by a business under the Ontario Net Metering Program is only income when applied, and is offset by a deduction for the electricity consumed | 261 |
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | credits received under the Ontario Net Metering Program respecting electricity generated for personal consumption are not income | 210 |
| Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 43.1 | general Class 43.1 or 43.2 treatment of specified energy property rules to equipment used in the Ontario Feed-in Tariff program | 157 |
Subsection 1100(26)
Administrative Policy
15 September 1992 T.I. (Tax Window, No. 24, p. 9, ¶2179)
The expression "distribution or production" should be interpreted broadly and would include "transmission". Whether a corporation's principal business is transmission, is not based solely on its revenues and net income and entails consideration of such factors as income, gross revenue, operating cost, and expenses associated with each business; the capital employed in each business; and the time and effort expended by employees in respect of each business.
Paragraph 1100(26)(b)
Administrative Policy
26 May 2023 External T.I. 2022-0946411E5 - Classification of an Intermunicipal Management Board
A municipality may acquire an interest in a Canadian renewable energy project through an (apparently Quebec) intermunicipal management board (“IMB”), which acquires an interest in the limited partnership owning the project assets and selling the electricity generated. In order for the LP to claim accelerated capital cost allowance without being constrained by the Canadian specified energy property rules, Reg. 1100(26)(b) required that all of the members of the LP be “corporations” the principal business of which is the sale, distribution or production of electricity (or certain other enumerated activities), or other qualifying partnerships.
After noting that the (apparently Quebec) statutory provisions governing an IMB are similar to those governing a CBCA corporation, including providing that the IMB is a legal person (“personne morale”), has limited liability, except in relation to certain borrowings, has a board of directors and is governed by by-laws and resolutions – and the interests in it carry voting rights, CRA stated:
[A]n IMB created under the XXXXXXXXXX qualifies as a corporation under subsection 248(1).However, paragraph 1100(26)(b) of the Regulations requires that each member of the partnership be a corporation described in paragraph 1100(26)(a) of the Regulations – that is a corporation whose principal business throughout a taxation year is: (i) manufacturing or processing; (ii) mining operation; or (iii) the sale, distribution or production of electricity, natural gas, oil, steam, heat or any other form of energy or potential energy – or another partnership described in paragraph 1100(26)(b) of the Regulations.
… [B]ased on the limited facts provided … we cannot provide a definitive answer to this [latter] question.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) | an intermunicipal management board is a corporation given similarity of governing provisions to CBCA | 185 |