Principal Issues: Whether a taxpayer may claim the additional amount under subparagraph 1100(1)(c.1)(i) in respect of a property included in Class 14.1 of Schedule II when the property is acquired after December 31, 2016 following a rollover under section 85.
Position: No.
Reasons: Wording of subparagraph 1100(1)(c.1)(i) provides that the additional allowance of 2% is allowed on the undepreciated capital cost of the class 14.1 at the beginning of 2017 that exceeds the total of all amounts described in clauses (A) and (B) of that subparagraph.
XXXXXXXXXX 2017-072987
March 8, 2023
Dear Sir,
Subject: Additional deduction provided for in subparagraph 1100(1)(c.1)(i) of the Income Tax Regulations
This letter is in response to your question regarding eligibility for the additional deduction provided for in subparagraph 1100(1)(c.1)(i) of the Income Tax Regulations (the "Regulations") in respect of a property in Class 14.1 of Schedule II to the Regulations where the property is acquired by a taxpayer after December 31, 2016 as a result of a rollover under section 85 of the Income Tax Act (the "Act").
You also asked whether the answer would be the same regardless of whether or not the transfer is made between persons not dealing at arm's length.
Unless otherwise indicated, all legislative references herein are to the provisions of the Regulations.
Our Comments
This technical interpretation provides general comments about the provisions of the Act and related legislation. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R12, Advance Income Tax Rulings and Technical Interpretations.
The eligible capital property rules have been repealed and replaced by Class 14.1 of Schedule II effective January 1, 2017. Generally, Class 14.1 of Schedule II includes goodwill relating to the business, property that was eligible capital property of the taxpayer immediately before 2017 and property acquired on or after January 1, 2017, the cost of which would be considered an eligible capital expenditure under the eligible capital property rules.
Subparagraph 1100(1)(a)(xii.1) provides that the maximum capital cost allowance rate for Class 14.1 is 5 per cent. However, for taxation years ending before 2027, subparagraph 1100(1)(c.1)(i) allows a taxpayer to claim additional capital cost allowance of 2% on the portion of the undepreciated capital cost of Class 14.1 property at the beginning of January 1, 2017 that exceeds the total of the amounts described in clauses (A) and (B) of that subparagraph.
Consequently, a taxpayer is not eligible for the additional deduction provided for in subparagraph 1100(1)(c.1)(i) in respect of a property in Class 14.1 of Schedule II where that property is acquired by the taxpayer after December 31, 2016 as a result of a rollover pursuant to section 85 of the Act. This conclusion applies whether or not the transfer is made between persons not dealing at arm's length.
The Canada Revenue Agency administers the tax system and applies the rules in the Act and Regulations. The Department of Finance Canada develops federal tax policy and amends legislation. If you are of the view that this tax treatment is not appropriate, we invite you to contact the Department of Finance.
We hope you find our comments of assistance.
Best regards,
Isabelle Landry
Manager
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch