Principal Issues: [TaxInterpretations translation] Which of the landlord or tenant can claim capital cost allowance for an eligible non-residential building?
Position: The landlord if all other criteria are met.
Reasons: Regulation 1104 stipulates that the property must be acquired by the taxpayer but may be used by the taxpayer or its lessee.
November 16, 2009
Quebec Tax Services Office Headquarters
Audit Division Income Tax Rulings Directorate
Nancy Turgeon, CGA
Attention: Louise Laroche
2009-034257
Capital cost allowance, paragraph 1100(1)(a.1) of the Income Tax Regulations ("Regulations")
This is further to your email of September 29, 2009 regarding the above subject. You wish to know which of the owner of the property and the user of an eligible non-residential building will be eligible for the additional capital cost allowance under paragraph 1100(1)(a.1) of the Regulations.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Specifically, you indicated that the taxpayer owns a building that satisfies all of the Class 1 criteria. The taxpayer rents the building at arm's length from a third party. The tenant uses the property for manufacturing and processing in Canada of goods for sale or lease.
Our Comments
Paragraph 1100(1)(a.1) of the Regulations refers to where a separate class is prescribed by subsection 1101(5b.1) for a property of a taxpayer that is a building and 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. Such an asset is eligible for a combined capital cost allowance of 10%, or an additional capital cost allowance of 6% at the rate normally provided for in Class 1 of Schedule II.
Subsection 1101(5b.1) provides that a taxpayer who wishes to claim this additional capital cost allowance for an eligible non-residential building must so elect in writing, when filing the taxpayer’s return, in accordance with section 150 for the taxation year in which the building is acquired.
Furthermore, subsection 1104(1) of the Regulations defines an eligible non-residential building as a taxpayer’s building, other than a building that was used, or acquired for use, by a person or partnership before March 19, 2007, that is located in Canada, that is included in Class 1 in Schedule II of the Regulations and that is acquired by the taxpayer after March 18, 2007 to be used by the taxpayer, or a lessee of the taxpayer, for non-residential use.
It is our understanding 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.
Access to Information
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We hope that our comments are of assistance.
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.