Principal Issues: [TaxInterpretations translation] Can a seniors' residence, part of the construction of which took place after March 18, 2007, qualify as an eligible non-residential building?
Position: No.
Reasons: There is a need to examine the use residents make of it. Here, the seniors' residence is clearly used for residential purposes - by its users - and cannot qualify for accelerated CCA.
XXXXXXXXXX 2009-031844
May 26, 2009
Dear Sir,
Subject: Eligible Non-Residential Building
This is further to your letter of April 13, 2009 requesting our opinion regarding the qualification of a seniors' residence as an eligible non-residential building pursuant to subsection 1104(2) of the Income Tax Regulations ("ITR").
Specifically, you described a situation where a corporation operates a seniors' residence and employs XXXXXXXXXX full-time employees there. You say that the residence was built in XXXXXXXXX phases, XXXXXXXXXX.
The total floor space of the complex is XXXXXXXXXX ft2 of which XXXXXXXXXX% is used as common areas for residents and for the services offered to them. A significant portion of the complex is used for resident housing. Those units, which can range from a studio to a four-room unit - all have a kitchen and are similar to what you say is available in an apartment building.
Therefore, you wish to know if the addition of the XXXXXXXXXX phases, whose construction began after March 18, 2007, qualifies as an eligible non-residential building as defined in subsection 1104(2) of the ITR.
Our Comments
The situation you have indicated in your letter appears to be related to an actual situation involving a specific taxpayer. As noted in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is our practice not to provide written opinions regarding proposed transactions otherwise than through advance rulings. Furthermore, when it comes to determining whether a completed transaction has received adequate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you.
The proposed definition of "eligible non-residential building" in subsection 1104(2) of the ITR provides as follows:
…[A] taxpayer’s building (other than a building that was used, or acquired for use, by any person or partnership before March 19, 2007) that is located in Canada, that is included in Class 1 in Schedule II and that is acquired by the taxpayer on or after March 19, 2007 to be used by the taxpayer, or a lessee of the taxpayer, for a non-residential use
Therefore, a building will qualify as an "eligible non-residential building" if it meets the following conditions:
- It is located in Canada;
- It is included in Class 1 of Schedule II of the ITR;
- It was not used, or acquired for use, by any person or partnership before March 19, 2007;
- It was acquired by the taxpayer on or after March 19, 2007 to be used by the taxpayer, or a lessee of the taxpayer, for a non-residential use.
Where a building qualifies as an eligible non-residential building, proposed paragraph 1100(1)(a.1) of the ITR provides for an additional 6% CCA deduction to the extent that at least 90% of the floor space of the building is used at the end of the taxation year for the manufacturing or processing in Canada of goods for sale or lease. Similarly, proposed paragraph 1100(1)(a.2) provides for an additional 2% CCA - to the extent that the additional 6% CCA is not applicable - in respect of an eligible non-residential building where at least 90% of its floor space is used at the end of a taxation year for non-residential purposes.
In order to determine whether a building is used for residential purposes - and therefore for purposes that do not qualify for accelerated CCA - we are of the view that it is necessary to consider the use of the building by its occupants. For example, a building - such as an apartment tower - that is used by its occupants as a residence will not be an eligible non-residential building. Conversely, it is our view that a building that is used in the operation of a hotel complex or a building that is more institutional than residential - is generally used for non-residential purposes. In this case, we are of the view that a building that serves as a residence for the elderly - whose units, according to the information submitted, are similar to those of an apartment building - cannot constitute an eligible non-residential building. Such a residence could qualify for the "standard" 4% CCA rate under Class 1 of Schedule II of the ITR.
We hope that the above comments are of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.