A holding corporation carrying on a specified investment business leased a building for two years to an associated corporation that carried on an active business, so that the rents received by it were deemed to be active business income under s. 129(6). It then started leasing the property to a non-associated corporation – and then disposed of the property, thereby realizing recapture of depreciation. Respecting a proposal that such recapture be prorated between active business income and property income based on the respective periods of time that the property generated the two types of income, the Directorate stated:
[T]he CRA's position is that any recapture of capital cost allowance on the disposition of the building would also be considered to be active business income.
That position is based in part on question 1.24 [at] the APFF's 1989 Roundtable [stating]:
"Where such depreciation is recaptured under subsection 13(1), the Minister considers it to be income derived from an active business in Canada for the purposes of sections 125 and 129 of the Act."
In the context of the situation under review, the position you propose, which is to treat a portion of the recaptured depreciation as income from an active business and another portion as property income, appears reasonable to us although there is no provision in the Act expressly supporting this conclusion.