IT285R2 Capital Cost Allowance – General Comments

Capital Cost Allowance – General Comments

NO: IT-285R2

DATE: March 31, 1994

SUBJECT: INCOME TAX ACT
Capital Cost Allowance – General Comments

REFERENCE: Paragraph 20(1)(a) (also paragraph 18(1)(b) and Part XI of the Income Tax Regulations)

Application

This bulletin cancels and replaces Interpretation Bulletin IT-285R dated October 11, 1985 and the Special Release to IT-285R dated March 31, 1987, as well as the following bulletins (relevant commentary has been incorporated into this bulletin):

IT-50R Capital Cost Allowances – Date of Acquisition of Depreciable Property

IT-174R Capital Cost Allowance – Meaning of “Capital Cost of Property”

IT-205 Capital Cost Allowance – Capital Cost of Property in a Foreign Country

Summary

This bulletin discusses the capital cost allowance system in general terms. Capital cost allowance (CCA) replaces accounting depreciation for income tax purposes. The term “capital cost” generally means the actual cost of a depreciable property; however, there are many sections of the Income Tax Act that can change the capital cost, some of which are discussed in this bulletin. A listing of other bulletins that discuss the determination of capital cost can be found at the end of this bulletin. This bulletin also discusses the date a depreciable property is considered to have been acquired and makes reference to the possible application of the “available for use rules”. These rules may delay a CCA claim for up to two years if a depreciable property is acquired but is not considered to be “available for use”. The “50% rule”, which may restrict capital cost allowance in the year an asset is acquired, is also discussed. A reference to depreciable property in this bulletin does not include farming or fishing assets acquired before January 1, 1972, and classified for depreciation purposes under Part XVII of the Regulations. Certain types of assets and the classes into which they fall for capital cost allowance purposes are discussed in order interpretation bulletins listed at the end of this bulletin. The issues in this bulletin are discussed under the following headings and under the paragraphs noted:

Discussion and Interpretation

General

1. In computing income from a business or property, paragraph 18(1)(b) prohibits the deduction of any outlay, loss or replacement of capital, payment on account of capital or any allowance for depreciation, obsolescence or depletion, unless specifically allowed in Part I of the Act. Paragraph 20(1)(a) allows a deduction, in computing the income from a business or property, of any amount allowed by Regulation in respect of the capital cost of a property. The amount that is allowed by Regulation is referred to as “capital cost allowance” (CCA).

2. Under Part XI of the Regulations, depreciable property is grouped into prescribed classes that are described in Schedule II of the Regulations. The maximum rate of CCA allowed is prescribed for each class in subsection 1100(1) of the Regulations. In most cases, CCA is calculated on a diminishing balance and expressed as a percentage of the undepreciated capital cost of the class at year-end. In general terms, “undepreciated capital cost” (UCC) is defined as the total capital cost of all the property in the class (whether or not still owned), less the total CCA previously claimed for all years and the net proceeds (or capital cost if less) from dispositions before that time of property that was included in the class. Most CCA rates are set out in paragraph 1100(1)(a) of the Regulations, while the remaining paragraphs of subsection 1100(1) of the Regulations set out a number of special rates applicable to specific types of property and certain additional accelerated allowances. In addition to the classes set out in Schedule II, certain separate classes are prescribed by section 1101 of the Regulations. In general, a taxpayer may deduct any amount up to the maximum available for the year taking into consideration any restrictions such as those mentioned in 12, 15 and 23 to 26 below or restrictions on certain types of property such as rental or leasing property (subsections 1100(11) to (20) of the Regulations) or specified leasing property (subsections 1100(1.1) to (1.3) of the Regulations). CCA that is available but not claimed in a year is not “carried forward” to the next year. However, any available CCA not claimed in a year remains as part of the UCC balance for CCA claims in future years.

Classes of Depreciable Property

3. A property is not depreciable property and CCA cannot be claimed for it unless it fits within the description of a class in Schedule II or Part XI of the Regulations. A tangible capital property not specifically covered in any other class may not be placed in what appears to be the most appropriate class; rather, it is included in class 8 of Schedule II, unless it is excluded by the specific exceptions therein or is excluded by section 1102 of the Regulations. Property that is excluded is not depreciable property and no CCA is available for that property. Some of the exclusions under section 1102 of the Regulations are discussed in the current version of IT-128, Capital Cost Allowance – Depreciable Property.

4. Certain words used in the Regulations to describe properties may have wider meanings than those ordinarily attributed to them. For example, “automotive equipment” in class 10 of Schedule II includes outboard motors and air cushion vehicles popularly known as “hovercraft”. Other examples appear in other interpretation bulletins on the subject of capital cost allowance (see 27 below).

5. The descriptive phrase “property that would otherwise be included in” appears in several classes in Schedule II, which could lead to uncertainty as to the class in which a particular property may belong. If a property is described in more than one class and the descriptive phrase mentioned above appears in only one of those classes, the property must be included in the class in which the phrase appears. If, however, the descriptive phrase appears in more than one of those classes in which the property is described, the taxpayer may choose from among those in which the phrase appears, providing that the other requirements of the chosen class are met. For example, a taxpayer may choose to include air pollution equipment acquired in connection with mining activities in class 27 rather than class 41. Although ordinarily in such circumstance the property is included in the class allowing the greater CCA, the taxpayer may choose to place it in another class to avoid immediate recapture of CCA on the disposition of other property of that class.

6. The descriptive phrase, “not included in any other class”, appears frequently in Schedule II. A property may be included in a class in which such phrase appears only if it is not described in another class within Schedule II or any separate class established under Part XI of the Regulations. If the descriptive phrase appears in all classes in which a property is described, the taxpayer may choose from among them.

7. Section 1103 of the Regulations contains elections that, under certain conditions, permit a taxpayer to transfer property otherwise included in one class to another class. For details on these elections see the current version of IT-327, Capital Cost Allowance – Elections under Regulation 1103.

Capital Cost of Property

8. The term “capital cost of property” generally means the full cost to the taxpayer of acquiring the property and includes:

(a) legal, accounting, engineering or other fees incurred to acquire the property; and

(b) in the case of a property a taxpayer manufactures for the taxpayer’s own use, it includes material, labour and overhead costs reasonably attributable to the property, but nothing for any profit which might have been earned had the asset been sold.

In addition, by virtue of subsections 18(3.1) to 18(3.7), the capital cost of a building includes certain outlays or expenses (commonly referred to as “soft costs”) that are costs attributable to the period of, and relating to, the construction, renovation or alteration of the building or such costs related to the ownership, during that period, of land subjacent to the building, or land contiguous to the land subjacent to the building that is used (or intended to be used) for a parking area, driveway, yard, garden or any similar use and is necessary for the use (or intended use) of the building.

Note: If the draft legislation released by the Minister of Finance on August 30, 1993 is enacted into law as currently proposed, new subsection 13(33) will provide that, for greater certainty, where a person acquires a depreciable property (the acquired property) for consideration that includes a transfer of property (for example, a trade-in), the portion of the cost to the person of the acquired property attributable to the transfer shall not exceed the fair market value of the transferred property. This new subsection will apply to depreciable property acquired after November 1992.

9. If a property is acquired in a transaction requiring payment in a foreign currency, including property situated in a foreign country and used to earn income, the historical cost of the property should be expressed in Canadian dollars. Generally, the rate of exchange in effect on the date of acquisition should be used to convert the amount to Canadian dollars. However, payments on account of the purchase price of the property made before the date of acquisition should be converted to Canadian dollars using the exchange rate on the dates of such payments. Foreign exchange gains and losses on payments made after the date of acquisition do not form part of the capital cost of the property.

10. In cases where a taxpayer becomes a resident of Canada and owns depreciable property in a foreign country, which is property that was and continues to be used to earn income in that foreign country, the capital cost of that depreciable property for CCA purposes is the historical cost of the property converted to Canadian dollars in the manner explained in 9 above. The capital cost will not be reduced by any depreciation allowances recognized by that foreign country.

Note: If the draft legislation released by the Minister of Finance on August 30, 1993 is enacted into law as currently proposed, the capital cost of such depreciable property for CCA purposes will, by virtue of proposed paragraphs 128.1(1)(b) and (c), be the fair market value of the property immediately before the time immediately before the taxpayer becomes a resident of Canada. This results from the fact that subsection 128.1(1) will apply for purposes of the Act, while subsection 48(3) (repealed by the draft legislation) applied for purposes of subdivision c of division B. It should also be noted that under proposed paragraph 128.1(1)(a), where a taxpayer is a corporation or a trust, the taxpayer’s taxation year shall be deemed to have ended immediately before becoming a resident of Canada and a new taxation year shall be deemed to have commenced at the time the taxpayer becomes resident. These amendments will apply after 1992; however, they may apply earlier in respect of a corporation electing to be subject to proposed new subsection 250(5.1) (in which case, they will apply from the corporation’s time of continuation).

11. If an old building used by a taxpayer for a long time to earn income is demolished to build a new one, the cost of demolition is not considered to be part of the capital cost of the new building (unless the taxpayer so desires), but may be deducted as an expense in the year. The tax treatment of the costs of demolishing a building incidentally acquired on obtaining a site is discussed in the current versions of IT-128, Capital Cost Allowance – Depreciable Property and IT-485, Cost of Clearing or Levelling Land.

12. Where a building or other structure is being erected by or for a taxpayer on land owned by the taxpayer or where a taxpayer erects, makes an addition or makes alterations to a building or other structure to which paragraph 1102(5)(a) of the Regulations applies, the taxpayer is considered to have acquired a building or other structure, at any particular time, to the extent of:

(a) the construction costs incurred by the taxpayer to that time, including the cost to the taxpayer of materials that have been put in place, but not including holdbacks that constitute a conditional liability (for example, a holdback which requires that the work be approved by the taxpayer’s architect or engineer before payment), or

(b) progress billings received by the taxpayer to that time, net of any holdbacks that constitute a conditional liability.

However, a building (or part thereof) that is under construction may be considered not to be available for use and, as a result, CCA may be restricted by the “available for use rules” in subsections 13(26) and 13(28).

Reduction of Capital Cost – Assistance or Inducements

13. Generally, the capital cost of property is incurred by a taxpayer if the expenditures or outlays for the acquisition of the property are met by the taxpayer. On occasion, however, a taxpayer in question may receive or be entitled to receive some form of assistance for the acquisition. If any form of assistance is received, the capital cost of the property for which it was received may have to be reduced or the amount of the assistance included in income. See the current version of IT-273, Government Assistance – General Comments, if any form of assistance has been received.

14. Where a taxpayer acquires depreciable property and at a later date the vendor agrees to reduce the amount owing under a negotiated adjustment of the purchase price, the capital cost of the property is reduced by the amount of the reduction at the beginning of the taxation year in which the price adjustment takes place. As a result of the reduction to the capital cost of the property, the undepreciated capital cost of the class of the property is reduced by the same amount and at the same time. If the adjustment can be established to be a true forgiveness of debt, rather than a reduction in the purchase price, the rules in section 80 will apply.

Ownership

15. CCA may be claimed only for property owned by the taxpayer (however, see 22 below) or property in which the taxpayer has a leasehold interest. However, a taxpayer who acquires or holds property as an agent or nominee for another cannot claim CCA on such property. It should be noted that, in calculating the income of a partnership, subsection 96(1) of the Act and subsection 1102(1a) of the Regulations require that partnership property (including depreciable property) be accounted for as if it were owned at the partnership level. If the depreciable property acquired is not considered “available for use”, the CCA may be restricted until such a time as it is available for use. The “available for use rules” are in subsections 13(26) to (31) of the Act.

16. If a taxpayer’s year-end intervenes between the date the taxpayer ordered a depreciable property and the date it was delivered to the taxpayer in usable condition, it sometimes becomes necessary to determine whether, for CCA purposes, the taxpayer “acquired” the property before the end of the taxation year.

17. Generally, a taxpayer will be considered to have acquired a depreciable property at the earlier of:

(a) the date on which title to it is obtained, and

(b) the date on which the taxpayer has all the incidents of ownership such as possession, use, and risk, even though legal title remains in the vendor as security for the purchase price (as is commercial practice under a conditional sale agreement).

In order that the cost of an asset may fall within a specified class, the purchaser must have a current ownership right in the asset itself and not merely rights under a contract, of which the asset is the subject, to acquire it in the future.

18. In determining whether or not depreciable property is acquired by a taxpayer, the legal relationship between the vendor and the purchaser of the property should be reviewed. For example, where chattels are being acquired, the relevant sale of goods legislation would be applicable. Each of the provinces (other than Quebec) has a Sale of Goods Act pertaining to sales of chattels laying down substantially the same rules for the ownership rights to assets bought and sold. The basic rule is that property in respect of specific assets passes, and is therefore acquired by the purchaser, at the time when the parties to the contract intend it to pass as evidenced by the terms of the contract, the conduct of the parties and any other circumstances.

19. If, however, the intention of the parties is not evidenced as discussed above, the following rules apply to determine when property is to pass:

(a) if there is an unconditional contract for the sale of a specific asset in a deliverable state, property will pass to the purchaser when the contract is made, and it is immaterial whether the time of payment or delivery or both are postponed;

(b) if there is a contract for the sale of a specific asset and:

(i) the seller is bound to do something to the asset to put it into a deliverable state, or

(ii) the asset is in a deliverable state, but the seller must weigh, measure, test or do some other act or thing to ascertain the price,

then property does not pass until the seller has satisfied those conditions and the purchaser has notice thereof.

20. For the purpose of 18 and 19 above, property can pass and acquisition take place only if the asset is in existence and, even then, only if it is a “specific” asset, i.e., one that can be identified as the object of the contract. For example, this requirement is not met by a contract for the purchase of machinery which is described simply as being of a certain make and model, but it is met if the machinery is further identified by its serial number, since only one particular machine can be so described. It should be noted here that it is customary in some industries, for example, the automotive and other heavy equipment manufacturing industry, to issue contracts that describe the property being purchased as being of a certain make, model and even serial number at a time when the property does not exist but is scheduled for production. Under this type of contract, the purchaser acquires the property when the property has been produced and the purchaser has knowledge that it is in a deliverable state.

21. In most cases, where a taxpayer incurs a cost for a capital asset, the ownership of, or a lease to, that asset will be obtained either at the time the cost was incurred or at a later date. However, there may be circumstances in which neither a freehold nor a leasehold interest in the property is acquired. If a taxpayer constructs and incurs the cost of a structure on land owned by another person, or otherwise incorporates an asset into property owned by another as an integral part thereof, and does not have a leasehold interest in or ownership of the asset, CCA may not be claimed for the property. This will be the case where a road providing access to a taxpayer’s plant is built at the taxpayer’s expense on land owned by a municipality. Also, capital expenditures for architectural and engineering services in preparing plans and estimates for new plants, or for additions to existing plants or other construction work of a capital nature, are not subject to CCA if the work for which the plans and estimates were prepared is not carried out. However, an expenditure of this nature may be an eligible capital expenditure (defined in paragraph 14(5)(b)) for which an allowance is permitted under paragraph 20(1)(b) (see the current version of IT-143, Meaning of Eligible Capital Expenditure).

22. Where by joint election subsection 16.1(1) applies to leased tangible property, the lessee is deemed to have acquired the property, at the particular time the lease commenced, at a cost equal to its fair market value at that time. Consequently, the lessee may be eligible to claim CCA on the property, although the lessee does not own the property.

“50% Rule” – Property Acquired in the Year

23. Subsection 1100(2) of the Regulations limits CCA claims in the taxation year of acquisition of most depreciable property to the amount otherwise available less one-half of the CCA attributable to “net acquisitions” in the year, determined on a class by class basis. The term “net acquisitions” refers to cost of acquisitions in the year in excess of net proceeds of disposition (or capital cost if less) in that year. Thus, where the lesser of net proceeds of disposition and capital cost of property of a particular class in a taxation year exceeds the costs of any additions to the same class in that year, the rule has no effect.

24. The following properties are exempt from the application of the 50% rule:

(a) class 12 property (thus preserving the availability of 100% write off in the year of acquisition) except:

(i) a motion picture film or video tape that is a television commercial message,

(ii) class 12(o) computer software (i.e., not systems software or certain property described in Class 12(s)),

(iii) a certified production acquired before 1988 and a certified feature film,

(iv) a videotape cassette acquired after February 15, 1984 for the purpose of renting and that is not expected to be rented to any one person for more than 7 days in any 30 day period,

(v) a die, jig, pattern, mould or last, and

(vi) the cutting or shaping part in a machine;

(b) such patents, franchises, concessions or licences as are included in class 14;

(c) property acquired for the purpose of cutting and removing merchantable timber included in class 15;

(d) the following properties to which special 50% rules apply:

(i) property of classes 24, 27, 29 and 34 to which paragraphs 1100(1)(t) and (ta) of the Regulations apply (see the current versions of IT-147, Capital Cost Allowance – Accelerated Write-Off of Manufacturing and Processing Machinery and Equipment and IT-336, Capital Cost Allowance – Pollution Control Property), and

(ii) property of class 13 to which paragraph 1100(1)(b) of the Regulations applies (see the current version of IT-464, CCA – Leasehold Interests);

(e) class 23 property (in connection with Expo 86) acquired after 1983 for which a 100% write off is available in the year of acquisition;

(f) a certified production acquired after 1987;

(g) vessels and other costs to which paragraph 1100(1)(v) of the Regulations applies (see the current version of IT-267, Capital Cost Allowance – Vessels);

(h) specified leasing property of a corporation that was throughout the year a corporation described in subsection 1100(16) of the Regulations;

(i) property that was deemed to have been acquired in a preceding taxation year under paragraph 16.1(1)(b) (see 22 above) in respect of a lease to which the property was subject immediately before the taxpayer last acquired the property; and

(j) property considered to have become available for use by the taxpayer in the year by reason of paragraph 13(27)(b) or 13(28)(c).

25. Application of the 50% rule described in 23 above is also subject to exemptions for the acquisition of property in a non-arm’s length transaction (except where paragraph 251(5)(b) applies) and in the course of certain corporate reorganizations. These exemptions, contained in subsection 1100(2.2) of the Regulations, are applicable only if:

(a) the property was depreciable property of the transferor, and was owned continuously by that person, either from November 12, 1981 or from a date that was at least 364 days before the end of the transferee’s taxation year in which the property was acquired (by the transferee), to the date of acquisition; or

(b) the property was exempted from the 50% rule because of the application of subsection 1100(2.1) or 1100(2.2) of the Regulations to the transferor.

Example: Mr. A is the controlling shareholder of a corporation which has a taxation year ending on December 31. On November 1, 1991, Mr. A sold to the corporation depreciable property which he had owned since December 15, 1990. The property would be excluded from the 50% rule because Mr. A had owned it continuously from a date (December 15, 1990) that was at least 364 days before the end of the corporation’s taxation year in which the corporation acquired the property (December 31, 1991), until it was acquired by the corporation. Even if Mr. A had only acquired the property on June 30, 1991 but he had acquired it from his father, both Mr. A and the corporation would be exempted from the application of the 50% rule on their acquisitions, provided the property was depreciable property of the father and the father acquired it at least 364 days before the end of Mr. A’s 1991 taxation year and owned it continuously until it was acquired by Mr. A.

Short Fiscal Period

26. If a taxpayer’s fiscal period is less than 12 months, subsection 1100(3) of the Regulations restricts CCA claims to that portion of the maximum amount otherwise allowable that the number of days in the fiscal period is of 365 (see the current version of IT-172, Capital Cost Allowance – Taxation Year of Individuals). This applies to all of the CCA provisions in subsection 1100(1) of the Regulations except for classes 14 and 15, and paragraphs 1100(1)(e) (Timber Limits and Cutting Rights), 1100(1)(g) (Industrial Mineral Mines), 1100(1)(l)(Additional Allowances-Certified Productions), 1100(1)(w) (Additional Allowances- Class 28), 1100(1)(x) (Mines) and 1100(1)(y) and (ya) (Additional Allowances-Class 41) of the Regulations. The provisions of subsection 1100(3) of the Regulations apply in addition to the 50% rule, i.e., if an asset is acquired in a taxation year of six month’s duration, in effect, only one-quarter (approximately) of the maximum annual rate of CCA that would normally be available for that asset will be allowed in that taxation year.

Other Interpretation Bulletins

27. Refer to the current version of the following bulletins (listed alphabetically by subject) for information on CCA claims regarding particular types of property:

BuildingIT-79
Certified Feature Productions and Certified Short ProductionsIT-441
Class 8 propertyIT-472
“Construction” – Meaning ofIT-411
CondominiumsIT-304
Contractor’s moveable equipmentIT-306
Disposition of depreciable propertyIT-220
Earth-moving equipmentIT-469
Elections under Regulation 1103IT-327
Emphyteutic leaseIT-324
Gas and oil exploration and production equipmentIT-476
Industrial mineral minesIT-492
Leasehold interestsIT-464
Leasing propertyIT-443
Logging assetsIT-501
Manufacturing and processing machinery and equipmentIT-147
Multi-unit residential buildingsIT-367
Partial disposition of propertyIT-418
Patents, franchises, concessions and licencesIT-477
PipelinesIT-482
Pollution control propertyIT-336
Radio and television equipmentIT-317
Recapture and terminal lossIT-478
Rental properties – $50,000 or moreIT-274
Rental properties – restrictionsIT-195
Taxation year of individualsIT-172
Transferred and misclassified propertyIT-190
VesselsIT-267
Video tapes, films, computer software and master recording tapesIT-283

 

28. In certain circumstances, the capital cost of depreciable property may be determined or altered by special provisions in the Act. The following list indicates some of these provisions and the interpretation bulletins currently issued that provide details of their application:

The ActDescription of provision discussed in bulletinBulletin
13(5),(6)Transferred property or misclassified propertyIT-190
13(7)Passenger vehicle cost in excess of $20,000IT-521
13(7.1)Receipt of inducements or other forms of assistanceIT-273
13(12)Expenses of representationIT-99
13(21)(b)Capital cost allowance – depreciable propertyIT-128
13(21)(c)Conversion of property to and from inventoryIT-102
20(1)(a), (aa)Cost of clearing or levelling landIT-485
20(1)(a), 21(1)Election to capitalize cost of borrowed moneyIT-121
44Replacement property, expropriation of propertyIT-259
69(1)Property acquired in “non-arm’s length” transactionIT-169
69(1)Property acquired as a gift or from inheritanceIT-209
73Transfer of property to a spouseIT-258
80Debtors gain on settlement of debtIT-293
85Transfer of property to a corporationIT-291
98(3)Distribution of property on cessation of partnershipIT-471
107(2)Property distributed by trust to a capital beneficiaryIT-209
127(5)Investment tax creditIT-331

 

If you have any comments regarding the matters discussed in this bulletin, please send them to:

Director, Technical Publications Division
Legislative and Intergovernmental Affairs Branch
Revenue Canada – Customs, Excise and Taxation
875 Heron Road
Ottawa, Ontario
K1A 0L8

Explanation of Changes for Interpretation Bulletin IT-285R2 Capital Cost Allowance – General Comments

Introduction

The purpose of the Explanation of Changes is to give the reasons for the revisions to an interpretation bulletin. It outlines revisions that we have made as a result of changes to the law, as well as changes reflecting new or revised departmental interpretations.

Overview

This bulletin discusses the capital cost allowance system in general terms and some of the sections of the Income Tax Act that can change the capital cost of a property. It also discusses the date a depreciable property is considered to have been acquired, the “50% rule” (which may restrict capital cost allowance in the year of acquisition) and refers to the possible application of the “available for use rules”. The bulletin also lists other bulletins which discuss certain types of assets and the classes into which they fall for capital cost allowance purposes, and bulletins which discuss the determination of capital cost.

The bulletin has been revised to incorporate and cancel the Special Release to IT-285R, as well as the following bulletins:

IT-50R Capital Cost Allowances – Date of Acquisition of Depreciable Property
IT-174R Capital Cost Allowance – Meaning of “Capital Cost of Property”
IT-205 Capital Cost Allowance – Capital Cost of Property in a Foreign Country

These bulletins have been consolidated for simplification purposes, by having all general comments regarding the capital cost allowance system in one bulletin. The revised bulletin also reflects various amendments which have been made to the Income Tax Act and to the Income Tax Regulations. The proposed amendments in the August 30, 1993 draft legislation which affect this bulletin have been reflected in italics where applicable (a Bill for this legislation will likely be introduced in the House of Commons in the current session of Parliament). The contents of this bulletin are not affected by the draft Regulations in April 26, 1993 Federal Budget or by the proposed changes in Bill C-9 (this bill received first reading in the House of Commons on february 4, 1994).

The bulletin does not reflect the 5th Supplement to the Revised Statutes of Canada, 1985 or any changes which may result from the February 22, 1994 Federal Budget.

Legislative and Other Changes

Throughout the bulletin, we have made minor changes for clarification or readability purposes.

New no. 7 has been added to refer to the elections under section 1103 of the Regulations that, under certain conditions, are available to taxpayers.

New no. 8 replaces former no.s 1 and 2 of IT-174R. The new paragraph also includes a reference to the “soft costs” which, by virtue of subsections 18(3.1) to 18(3.7), are included in the capital cost of a building.

The note at the end of new no. 8 reflects proposed new subsection 13(33) in the August 30, 1993 draft legislation. This new provision will apply in determining the cost of a depreciable property which a person acquires for consideration that includes a transfer of property (for example, a trade-in).

New no. 9 replaces former no. 3 of IT-174R. An explanation has been added, for clarification purposes, with respect to the exchange rate to use where payments (in foreign currency) are made before the date of acquisition of a property.

New no. 10 replaces former no. 3 of IT-205 and has been updated for the same reasons as new no. 9 explained above.

The note at the end of new no. 10 has been added to reflect proposed new paragraphs 128.1(1)(b) and (c) in the August 30, 1993 draft legislation. These provisions will apply in determining the capital cost of a depreciable property for capital cost allowance (CCA) purposes, where a taxpayer becomes a resident of Canada and owns the property in a foreign country, which is property that was and continues to be used to earn income in that country.

New no. 11 replaces former no. 4 of IT-174R.

New no. 12 is former no. 7 of IT-50R, except that 12(a) and (b) have been revised to indicate that the costs incurred and the progress billings received should not include holdbacks that constitute a conditional liability. This revision reflects the decision in Newfoundland Light & Power Co. Ltd. v. The Queen, 90 DTC 6166, (1990) 1 CTC 229. A reference to the CCA restrictions under the “available for use rules” has also been added.

New no. 13 replaces former no.s 5 and 7 of IT-174R. The new paragraph does not discuss assistance and inducements in detail. Instead, it refers to the current version of IT-273, Government Assistance – General Comments, which discusses this topic.

New no. 14 replaces former no. 6 of IT-174R.

New no. 15 has been added for clarification purposes. The comments in this paragraph are consistent with no. 2 of IT-128R, Capital Cost Allowance – Depreciable Property. The new paragraph also refers to the restrictions that apply when a taxpayer acquires or holds property as an agent or nominee for another. This agrees with the decision in Garness v. M.N.R., 82 DTC 1663, (1982) CTC 2647. A reference to the CCA restrictions under the “available for use rules” has also been added.

New no.s 16 to 20 contain the same information as no.s 1 to 6 of IT-50R.

New no. 21 has been added to explain the restrictions that apply, with respect to CCA, where a taxpayer incorporates an asset into property owned by another as an integral part thereof, and the taxpayer does not have a leasehold interest in, or ownership of, the asset. The new paragraph also explains the treatment of architectural and engineering services for certain plans and estimates, where the work for which the plans and estimates were prepared is not carried out. This paragraph reflects the position set out in no. 3 of IT-128R.

New no. 22 has been added to explain that, where subsection 16.1(1) applies to leased tangible property, CCA may be claimed by a lessee although he or she does not own the property.

New no. 24 (former no. 10 of IT-285R) reflects amendments to subsection 1100(2) of the Regulations dated December 27, 1988, December 14, 1989, September 27, 1990, March 14, 1991 and January 27, 1994. These amendments added more exceptions to the “50% rule”.

New no. 25 (former no. 11 of IT-285R) reflects amendments to subsection 1100(2.2) of the Regulations, dated December 14, 1989. These amendments relate to the situations where the subsection applies. In addition, the dates in the example of the new paragraph have been updated to more current dates and the sale of the property to the corporation, in this example, is no longer on the day of the corporation’s year-end. This is to clarify that the property must be owned by the transferor from a day that is at least 364 days before the end of the transferee’s taxation year, in which the transferee acquired the property, to the date of acquisition by the transferee.

New no. 26 (former no. 13 of IT-285R) reflects amendments to subsection 1100(3) of the Regulations which are applicable to the 1986 and subsequent taxation years.

Former no. 8 of IT-174R has been updated and divided into new no.s 27 and 28. no. 27 refers to bulletins that give information regarding CCA claims for particular types of property, and no. 28 refers to certain provisions that determine or alter capital cost, with a reference to the relevant interpretation bulletins.

no. 12 of IT-285R has been deleted since that paragraph applied to years which are now statute-barred.

no. 8 of IT-50R, which dealt with motion picture films, has been deleted since this topic is discussed in the current version of IT-441, Capital Cost Allowance – Certified Feature Productions and Certified Short Productions.

no.s 1 and 2 of IT-205 have been deleted since the topics previously discussed in these paragraphs are now discussed in new no.s 8 to 10.

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