Subject: Capital Cost Allowance Expense Against Rental Income
This is in reply to your memorandum of April 8, 1991, concerning the deductibility of capital cost allowance ("CCA") on a motor vehicle when calculating net income from rental property where the operation is not a business.
Our Comments
Where rental operations are not a business, paragraph 23 and 24 of Interpretation Bulletin IT-521 and the 1990 Rental Income Tax Guide summarize automobile expenses that may be claimed in travelling to rented properties. If the rental properties are two separate rental properties, the deductible amount is normally that portion of the total operating expenses of the automobile incurred by the taxpayer in the year (plus capital cost allowance and interest if applicable) that the mileage driven for rental purposes is of the total mileage for the year. The amount claimed must be reasonable in the circumstances. However, if the rental operation comprises one rental property, the cost of using an automobile to get to a locality outside the general area where the taxpayer resides is regarded as personal travelling expenses and not deductible, even though tools and materials may in fact be transported.
In our view, subsection 1100(11) of the Income Tax Regulations (the "Regulations") has no application to a vehicle used to collect rents (i.e. subsections 1100(14) and 1100(15) of the Regulations restrict the CCA claimed by the taxpayer to the net income for the year from renting or leasing a rental property). The motor vehicle is not an income earning asset (i.e. not a rental property or a leasing property) but rather an asset used to assist in the earning of rental income.
Paragraph 13(7)(g) of the Income Tax Act (the "Act") provides a limitation on the capital cost of a passenger vehicle as that term is defined in subsection 248(1) of the Act; i.e. an automobile acquired after June 17, 1987. Section 67.3 of the Act provides that maximum amounts that would be deductible with respect to any given passenger vehicle are to be limited to prescribed amounts. Consequently, the owner of the vehicle may have a reduced capital and operating costs in respect of that vehicle.
We trust our comments are of assistance.
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch