ARCHIVED - Rental of Real Property by Individual
DATE: July 7, 1989
SUBJECT: INCOME TAX ACT
Rental of Real Property by Individual
REFERENCE: SPECIAL RELEASE
The purpose of this Special Release is to reflect changes in the Income Tax Act pursuant to S.C. 1986, c.6 and 1986, c.55 and amendments to the Income Tax Regulations as well as to up-date references to other Interpretation Bulletins.
1. Secondary references should be changed as follows:
(a) delete section 9 and subsections 74(5) and 120(2) of the Income Tax Act, and
(b) add subsections 9(1), 74(7) and (8), 74.1(1) and (2), and paragraph 74.5(3)(a) of the Income Tax Act and subsections 1100(11) and (15) of the Income Tax Regulations.
2. Paragraph 7 is revised to read as follows:
"7. The operator of a rooming or lodging house, hotel or motel would normally be considered to be carrying on a business where, in addition to the basic services that relate to the operation and maintenance of the property as described in 5, extra services such as the supply of cleaning and maid services, linens, washroom supplies, dining facilities, etc., are provided for the convenience and comfort of guests. The operator of a trailer court or campground where services such as laundromat, cafeteria, swimming pool, washrooms, showers, playground, etc., are provided would also be considered to be carrying on a business. See, however, the comments in 18 below regarding the restrictions on the deduction of capital cost allowance pursuant to subsection 1100(11) or (15) of the Regulations."
3. (a) The first sentence of paragraph 10 is revised to read as follows:
"For transfers of property before May 23, 1985, subsections 74(1) and 75(1) provide that any income or loss from property transferred either to the transferor's spouse or to a minor is deemed to be income or loss of the transferor."
(b) The third sentence of paragraph 10 is revised to read as follows:
"Where the separation is pursuant to a written separation agreement, the separation must be of at least twelve months' duration commencing from the date on which the written separation agreement was entered into, but where the spouse ceases to live apart from the taxpayer within those twelve months subsection 74(1) applies from the commencement of the twelve month period."
(c) The last sentence of paragraph 10 is revised to read:
"(For more detailed discussion on subsections 74(1) and 75(1) see IT-258R2, 'Transfer of Property to a Spouse' and IT-260R, 'Transfer of Property to a Minor' and the Special Release for each dated December 30, 1987.)"
4. The heading "Husband and Wife Partnership" is deleted and paragraph 11 is replaced with the following:
"11. Subsection 74.1(1) generally provides that any income or loss arising from property loaned or transferred after May 22, 1985 to or for the benefit of either the transferor's spouse or a person who has since become that spouse is deemed to be the income or loss of the transferor. Subsection 74.1(1) does not apply where paragraph 74.5(3)(a) applies, i.e., where the transferor and the spouse are living separate and apart by reason of a breakdown of their marriage. Similarly, subsection 74.1(2) provides that any income or loss from property loaned or transferred after May 22, 1985 to or for the benefit of a person who is under 18 years of age and who
(a) does not deal with the transferor at arm's length, or
(b) is the niece or nephew of the transferor
(in this paragraph referred to as a 'related minor') is deemed to be the income or loss of the transferor. Subsections 74.1(1) and (2) apply only where the transferred property produces income from property. Neither of these subsections apply where the loaned or transferred property produces business income. Thus where a rental operation that constitutes a business is transferred to a spouse or a related minor, neither subsection 74.1(1) nor (2) will apply. For a more detailed discussion of the attribution rules for property that has been loaned or transferred after May 22, 1985, see IT-510 'Transfers and Loans of Property made after May 22, 1985 to a Related Minor' and IT-511 'Interspousal Transfers and Loans of Property made after May 22, 1985'."
5. In paragraph 15, change the reference to "IT-171" to a reference to "IT-171R".
6. In paragraph 16, change the reference to "IT-393" to a reference to "IT-393R".
7. Paragraph 18 is revised to read as follows:
"18. Whether the renting of real property by an individual is a business or not, the depreciable property may be considered to be a 'rental property' or a 'leasing property' for the purposes of the capital cost allowance restrictions contained in subsection 1100(11) or 1100(15) of the Regulations. (For a detailed discussion on subsections 1100(11) and 1100(15) of the Regulations, see the latest versions of IT-195, 'Rental Property - Capital Cost Allowance Restrictions' and IT-443, 'Leasing Properties - Capital Cost Allowance Restrictions'.)"
8. In paragraph 19, the reference to "IT-172R" should be to "IT-172R and the Special Release thereto dated June 13, 1986".
9. In paragraph 20, a reference to paragraphs 22 to 24 of IT-521 " Motor Vehicle Expenses Claimed by Self-Employed Individuals" should be added.
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