Assessing & Enquiries Directorate D.S. Brooks, Director General
FROM - Specialty Rulings Directorate D.S. Delorey 957-2125
ATTENTION Sherry Moran Enquiries and Taxpayer Assistance Division
RE: Proposed T1 Guide for Rental Income
With regard to your Round Trip Memorandum of May 16, we have reviewed the proposed guide and offer the following comments
1. In paragraph 4 on page 2 of the draft, the situation given after the first sentence is worded in such a manner that one could infer it is the only type of situation in which losses are not allowable. We suggest that the words "In circumstances" be replaced by the words "For instance" (or "For example" etc.).
2. After the comments on pages 2 and 3 of the draft concerning the distinction between rental income that is income from property and rental income that is income from a business, the remainder of the draft is based on the assumption that the rental income represents income from property. To clarify this point, we suggest that the third last sentence on page 2 of the draft be eliminated and replaced by a separate sentence to be placed before the words "Keeping Records" on page 3, and worded along the following lines:
"The remainder of the comments in this Guide are based on the assumption that the rental income represents income from property."
3. With respect to the penultimate paragraph on page 3 of the draft, we suggest rewording it similar to paragraph 8 in IT-434R . The wording in the draft gives the partnership relationship too much emphasis. The wording in the IT keeps the importance of the partnership relationship in proper perspective.
4. If the suggestion in 2 above is not followed, we suggest that the following words be added to the second sentence of the "Rental Income" paragraph or page 4 of the draft:
"unless the rental income represents income from a business."
5. While not incorrect, it is our view that the first complete sentence on page 5 of the draft reads better when reworded as follows:
"You must include in your rental income the fair market value of the goods and services provided."
6. The statements in the first two sentences under the heading "Premiums and prepayments of rent" on page 5 of the draft are incorrect. In accordance with the comments on page 1 of IT-359R2 , and assuming the suggestion in 2 above is followed, we suggest that the complete paragraph be reworded as follows:
"Amounts that you receive for cancelling a lease or sublease should be included in your rental income. If you receive a premium for granting or extending a lease and the rent charged is less than fair market value, the premium forms part of your rental income to the extent that it can reasonably be regarded as being in the nature of rent. Such premiums are usually referred to as "key money" and the income portion would be included in "Other Related Income" on Schedule 7."
7. In No. 13 on page 8 of the draft, after the word "renewals" in the 3rd line, we suggest that the following bracketed words be inserted: "(maximum 40 years)".
8. With respect to the description of Class 31 on page 13, we suggest that the first two paragraphs of the description be reworded as follows:
"Property that is a multiple-unit residential building that would otherwise be included in class 3 or class 6, and in respect of which a certificate has been issued by Canada Mortgage and Housing Corporation certifying that the installation of footings or any other base support of the building was commenced,
(a) with respect to a building that would otherwise be included in class 3,
- after November 18, 1974 and before 1980, or - after October 28, 1980 and before 1982, and,
(b) with respect to a building that would otherwise be included in class 6,
- after December 31, 1977 and before 1979.
9. In (1) on page 19 of the draft, we suggest that a comma be placed after the word "year" in the 6th line.
We trust the above comments will be of assistance.
ORIGINAL SIGNED BY
Director General Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch