In the first scenario, Ms. A bought land in 2003 for $36,000 in order to construct a rental building but, in the interim, rented the land out for amounts in excess of the property and school taxes paid. In the second scenario, Mr. B also bought land in 2003 for $36,000 to construct a rental building and sold the land in 2006 for $48,000, generating a capital gain of $12,000. CRA stated:
[I]t appears that Ms. A held the land principally to enable her to earn income from it for the years 2003 to 2006 ... [and thus] subsection 18(2) will not impose any restrictions on the deductibility of property and school taxes.
As for Mr. B, since he held the land primarily for the purpose of resale or development, subsection 18(2) will limit the amount deductible on account of property and school taxes to income that is derived from the land.