Regulation 1103 - Elections to Include Properties in Class 1

A general partnership (SENC) holds one or more buildings that are included in Class 1 along with additions thereto included in a separate class pursuant to a Reg. 1101(5b.1) election, and also holds property in Classes 8 and 10. If SENC makes the Reg. 1103(1) election, will that election extend to the property covered by the Reg. 1101(5b.1) election?

Before responding "no," CRA indicated that a partnership could make the Reg. 1103(1) election, and then stated:

[T]he making of an election under subsection 1103(1) by a taxpayer does not override the election under subsection 1101(5b.1) and will not nullify its effects. … Consequently … SENC could elect, under subsection 1103(1), to include in Class 1 of Schedule II, the properties in Classes 8 and 10, but could not include those covered by the election under subsection 1101(5b.1).

Folio S3-F4-C1, para. 1.132 states:

[U[nder [Reg.] 1103(1) …, a taxpayer may elect to transfer all properties otherwise included in Classes 2 through 12 (excluding Class 10.1) to Class 1 provided that all such properties were acquired for the purpose of gaining or producing income from the same business. The election affects all properties on hand at the commencement of the tax year for which the election is made, as well as any such property acquired during that year.

In a technical interpretation letter dated January 8, 1980, CRA added the following sentence to this statement:

The election does not affect properties acquired after the end of that year as referred to in your letter but, of course, they could be subject to a later election.

CRA confirmed that this statement continued to be its position.

General discussion.

The rules relating to transfers of depreciable property contained in s. 13(5) govern a transfer pursuant to an election under Regulation 1103(2d).