To Current Amendments and Regulations Division
FROM Small Business and General Division R. Langevin 957-2138
B. Bryson A/Director
This is in reply to your memorandum dated June 9, 1988 concerning a letter received from the Department of Finance involving the appropriate capital cost allowance rate for a building "acquired" by the acquisition of the underlying leased land.
We concur in the view expressed by Len Farber of the Department of Finance that in circumstances in which a taxpayer has, prior to tax reform, erected a building that was classified as a Class 3 asset, such building should not be considered as disposed of and reacquired as a Class 1 asset if, after tax reform, the leased land is acquired by the taxpayer.
This opinion is implied by the view expressed at paragraph 6 of Interpretation Bulletin IT-324 which in turn states the position originally set out in the Assessing Guide which dealt with the case in which a taxpayer erected a building on leased premises and subsequently acquired those premises. In such a case, a disposition is not considered to arise upon the merger of those interests. We have seen nothing in the Draft Income Tax Regulations in respect of this matter which would necessitate a departure from the current position.
ORIGINAL SIGNED By R.J.L. Read
Director General Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch