Principal Issues: Income tax treatment of Government of Canada ecoEnergy Retrofit grant and Province of Ontario's Home Energy Retrofit grant received by a corporation that owns a house, which it uses to earn rental income.
Position: General Comments
Reasons: IT-273R2. To extent that the expenditure is deductible as a current expense in computing the corporation's income, the grants would reduce the expense so deducted. To the extent that the expenditure is capital in nature and is part of the cost of capital property, the grants would reduce the cost of the property.
December 18, 2009
XXXXXXXXXX
Dear XXXXXXXXXX :
XXXXXXXXXX , forwarded to me a copy of your correspondence, concerning the income tax treatment of government grants received by a corporation. Please accept my apology for this delayed reply.
You refer to a situation where a farmer owns shares in a corporation that owns farmland with a house on it that is rented out to the farmer. You indicate that the corporation is eligible to receive grants under the Government of Canada ecoEnergy Retrofit - Homes Program and the Province of Ontario's Home Energy Retrofit Program, in respect of certain energy saving improvements made to the house.
Under the Income Tax Act, the treatment of government assistance such as grants is discussed in the Canada Revenue Agency (CRA) Interpretation Bulletin IT-273R2, Government Assistance - General Comments, which is available on the CRA Web site at www.cra.gc.ca/E/pub/tp/it273r2/README.html.
Generally, the tax treatment of government assistance that is received in the course of earning income from a business or property is determined by the application of well-accepted business principles. The application of well-accepted business principles for the purpose of calculating profit or loss under section 9 of the Act commonly requires the cost of an asset or the amount of an expense to be reduced by any reimbursement or similar payment that relates to the acquisition of the asset or the expense incurred. If the application of well-accepted business principles does not require the government assistance to be included in income or to reduce the cost or capital cost of a property or the amount deductible as an expense, a specific provision of the Act, such as paragraph 12(1)(x), may apply to require the amount to be included in income.
In regard to the grants mentioned in your correspondence, these grants would reduce the expenditure incurred by the corporation for house improvements. To the extent that the expenditure is deductible as a current expense in computing the corporation's income, the grants would reduce the amount of expense so deducted. To the extent that the expenditure is capital in nature and is part of the cost of capital property, the grants would reduce the cost of the property.
Interpretation Bulletin IT-128R, Capital Cost Allowance - Depreciable Property, available at www.cra.gc.ca/E/pub/tp/ it128r/it128r-e.html, discusses some of the factors to consider in determining whether a particular expenditure is in the nature of capital, or a current outlay or expense.
Should you require further assistance concerning this matter, I invite you to contact Mr. Tim Fitzgerald, a CRA official of the Income Tax Rulings Directorate at 613-957-8967.
I trust that this information is helpful.
Sincerely,
Jean-Pierre Blackburn, P.C., M.P.
Tim Fitzgerald, CGA
Tel. 613-957-8967
2009-034391