Income Tax Regulations (C.R.C., c. 945)

Regulations are current to 2015-02-04 and last amended on 2014-12-16. Previous Versions

Division IIIProperty Rules

Property Not Included

  •  (1) The classes of property described in this Part and in Schedule II shall be deemed not to include property

    • (a) the cost of which would be deductible in computing the taxpayer’s income if the Act were read without reference to sections 66 to 66.4 of the Act;

    • (a.1) the cost of which is included in the taxpayer’s Canadian renewable and conservation expense (within the meaning assigned by section 1219);

    • (b) that is described in the taxpayer’s inventory;

    • (c) that was not acquired by the taxpayer for the purpose of gaining or producing income;

    • (d) that was acquired by an expenditure in respect of which the taxpayer is allowed a deduction in computing income under section 37 of the Act;

    • (e) that was acquired by the taxpayer after November 12, 1981, other than property acquired from a person with whom the taxpayer was not dealing at arm’s length (otherwise than by virtue of a right referred to in paragraph 251(5)(b) of the Act) at the time the property was acquired if the property was acquired in the circumstances where subsection (14) applies, and is

      • (i) a print, etching, drawing, painting, sculpture, or other similar work of art, the cost of which to the taxpayer was not less than $200,

      • (ii) a hand-woven tapestry or carpet or a handmade appliqué, the cost of which to the taxpayer was not less than $215 per square metre,

      • (iii) an engraving, etching, lithograph, woodcut, map or chart, made before 1900, or

      • (iv) antique furniture, or any other antique object, produced more than 100 years before the date it was acquired, the cost of which to the taxpayer was not less than $1,000,

      other than any property described in subparagraph (i) or (ii) where the individual who created the property was a Canadian (within the meaning assigned by paragraph 1104(10)(a)) at the time the property was created;

    • (f) that is property referred to in paragraph 18(1)(l) of the Act acquired after December 31, 1974, an outlay or expense for the use or maintenance of which is not deductible by virtue of that paragraph;

    • (g) in respect of which an allowance is claimed and permitted under Part XVII;

    • (h) that is a passenger automobile acquired after June 13, 1963 and before January 1, 1966, the cost to the taxpayer of which, minus the initial transportation charges and retail sales tax in respect thereof, exceeded $5,000, unless the automobile was acquired by a person before June 14, 1963 and has by one or more transactions between persons not dealing at arm’s length become vested in the taxpayer;

    • (i) that was deemed by section 18 of the Income Tax Act, as enacted by the Statutes of Canada, 1958, Chapter 32, subsection 8(1), to have been acquired by the taxpayer and that did not vest in the taxpayer before the 1963 taxation year;

    • (j) of a life insurer, that is property used by it in, or held by it in the course of, carrying on an insurance business outside Canada; or

    • (k) that is linefill in a pipeline.

Partnership Property
  • [SOR/94-686, s. 78(F)]

  • (1a) Where the taxpayer is a member of a partnership, the classes of property described in this Part and in Schedule II shall be deemed not to include any property that is an interest of the taxpayer in depreciable property that is partnership property of the partnership.

Land

  • (2) The classes of property described in Schedule II shall be deemed not to include the land upon which a property described therein was constructed or is situated.

Non-Residents

  • (3) Where the taxpayer is a non-resident person, the classes of property described in this Part and in Schedule II shall, except for the purpose of determining the foreign accrual property income of the taxpayer for the purposes of subdivision i of Division B of Part I of the Act, be deemed not to include property that is situated outside Canada.

Improvements or Alterations to Leased Properties

  • (4) Subject to subsection (5), “capital cost” for the purposes of paragraph 1100(1)(b) includes any amount expended by a taxpayer for or in respect of an improvement or alteration to a leased property.

Buildings on Leased Properties

  • (5) Where the taxpayer has a leasehold interest in a property, a reference in Schedule II to a property that is a building or other structure shall include a reference to that leasehold interest to the extent that that interest

    • (a) was acquired by reason of the fact that the taxpayer

      • (i) erected a building or structure on leased land,

      • (ii) made an addition to a leased building or structure, or

      • (iii) made alterations to a leased building or structure that substantially changed the nature of the property; or

    • (b) was acquired after 1975 or, in the case of any property of Class 31 or 32, after November 18, 1974, from a former lessee who had acquired it by reason of the fact that he or a lessee before him

      • (i) erected a building or structure on leased land,

      • (ii) made an addition to a leased building or structure, or

      • (iii) made alterations to a leased building or structure that substantially changed the nature of the property.

  • (5.1) Where a taxpayer has acquired a property that would, if the property had been acquired by a person with whom the taxpayer was not dealing at arm’s length at the time the property was acquired by the taxpayer, be described in paragraph (5)(a) or (b) in respect of that person, a reference in Schedule II to a property that is a building or other structure shall, in respect of the taxpayer, include a reference to that property.

Leasehold Interests Acquired Before 1949

  • (6) For the purposes of paragraphs 2(a) and (b) of Schedule III, where an item of capital cost has been incurred before the commencement of the taxpayer’s 1949 taxation year, there shall be added to the capital cost of each item the amount that has been allowed in respect thereof as depreciation under the Income War Tax Act and has been deducted from the original cost to arrive at the capital cost of the item.

River Improvements

  • (7) For the purposes of paragraph 1100(1)(f), capital cost includes an amount expended on river improvements by the taxpayer for the purpose of facilitating the removal of timber from a timber limit.

Electrical Plant Used for Mining

  • (8) Where the generating or distributing equipment and plant (including structures) of a producer or distributor of electrical energy were acquired for the purpose of providing power to a consumer for use by the consumer in the operation in Canada of a mine, ore mill, smelter, metal refinery or any combination thereof and at least 80 per cent of the producer’s or distributor’s output of electrical energy

    • (a) for his 1948 and 1949 taxation years, or

    • (b) for his first two taxation years in which he sold power,

    whichever period is later, was sold to the consumer for that purpose, the property shall be included in

    • (c) Class 10 in Schedule II if it is property acquired

      • (i) before 1988, or

      • (ii) before 1990

        • (A) pursuant to an obligation in writing entered into by the taxpayer before June 18, 1987,

        • (B) that was under construction by or on behalf of the taxpayer on June 18, 1987, or

        • (C) that is machinery or equipment that is a fixed and integral part of a building, structure, plant facility or other property that was under construction by or on behalf of the taxpayer on June 18, 1987, or

    • (d) Class 41, 41.1 or 41.2 in Schedule II in any other case, unless the property would otherwise be included in Class 43.1 or 43.2 in Schedule II and the taxpayer has, by a letter filed with the taxpayer’s return of income filed with the Minister in accordance with section 150 of the Act for the taxation year in which the property was acquired, elected to include the property in Class 43.1 or 43.2, as the case may be.

  • (9) Where a taxpayer has acquired generating or distributing equipment and plant (including structures) for the purpose of providing power for his own consumption in operating a mine, ore mill, smelter, metal refinery or any combination thereof and at least 80 per cent of the output of electrical energy was so used

    • (a) in his 1948 and 1949 taxation years, or

    • (b) in the first two taxation years in which he so produced power,

    whichever period is the later, the property shall be included in

    • (c) Class 10 in Schedule II if it is property acquired

      • (i) before 1988, or

      • (ii) before 1990

        • (A) pursuant to an obligation in writing entered into by the taxpayer before June 18, 1987,

        • (B) that was under construction by or on behalf of the taxpayer on June 18, 1987, or

        • (C) that is machinery or equipment that is a fixed and integral part of a building, structure, plant facility or other property that was under construction by or on behalf of the taxpayer on June 18, 1987, or

    • (d) Class 41, 41.1 or 41.2 in Schedule II in any other case, unless the property would otherwise be included in Class 43.1 or 43.2 in Schedule II and the taxpayer has, by a letter filed with the taxpayer’s return of income filed with the Minister in accordance with section 150 of the Act for the taxation year in which the property was acquired, elected to include the property in Class 43.1 or 43.2, as the case may be.

  • (9.1) In their application to generating or distributing equipment and plant (including structures) that were acquired by the taxpayer before November 8, 1969, subsections (8) and (9) shall be read without reference to a “metal refinery”.

  • (9.2) Where a taxpayer acquires property after November 7, 1969 from a person with whom he was not dealing at arm’s length that is property referred to in subsection (8) or (9), notwithstanding those subsections, that property shall not be included in Class 10 in Schedule II by the taxpayer unless the property had been included in that class by the person from whom it was acquired, by virtue of subsection (8) or (9) as it read in its application before November 8, 1969.

  • (10) [Repealed, 2013, c. 40, s. 102]

Passenger Automobiles

  • (11) In paragraph (1)(h),

    “cost to the taxpayer”

    “cost to the taxpayer” of an automobile means, except as provided in subsections (12) and (13),

    • (a) except in any case coming under paragraph (b) or (c), the capital cost to the taxpayer of the automobile,

    • (b) except in any case coming under paragraph (c), where the automobile was acquired by a person (in this section referred to as the “original owner”) after June 13, 1963, and has, by one or more transactions between persons not dealing at arm’s length, become vested in the taxpayer, the greater of

      • (i) the actual cost to the taxpayer, and

      • (ii) the actual cost to the original owner, and

    • (c) where the automobile was acquired by the taxpayer outside Canada for use in connection with a permanent establishment, as defined for the purposes of Part IV or Part XXVI, outside Canada, the lesser of

      • (i) the actual cost to the taxpayer, and

      • (ii) the amount that such an automobile would ordinarily cost the taxpayer if he purchased it from a dealer in automobiles in Canada for use in Canada; (coût pour le contribuable)

    “initial transportation charges”

    “initial transportation charges” in respect of an automobile means the costs incurred by a dealer in automobiles for transporting the automobile (before it had been used for any purpose whatever) from,

    • (a) in the case of an automobile manufactured in Canada, the manufacturer’s plant, and

    • (b) in any other case, the place in Canada, if any, at which the automobile was received or stored by a wholesale distributor,

    to the dealer’s place of business; (frais de transport initiaux)

    “passenger automobile”

    “passenger automobile” means a vehicle, other than an ambulance or hearse, that was designed to carry not more than nine persons, and that is

    • (a) an automobile designed primarily for carrying persons on highways and streets, except an automobile that

      • (i) is designed to accommodate and is equipped with auxiliary folding seats installed between the front and the rear seats,

      • (ii) was acquired by a person carrying on the business of operating a taxi or automobile rental service, or arranging and managing funerals, for use in such business, and

      • (iii) is not a vehicle described in paragraph (b), or

    • (b) a station wagon or substantially similar vehicle; (automobile à voyageurs)

    “retail sales tax”

    “retail sales tax” in respect of an automobile means the aggregate of municipal and provincial retail sales taxes payable in respect of the purchase of the automobile by the taxpayer. (taxe de vente ou détail)

  • (12) For the purposes of paragraph (1)(h), where an automobile is owned by two or more persons or by partners, a reference to “cost to the taxpayer” shall be deemed to be a reference to the aggregate of the cost, as defined in subsection (11), to each such person or partner.

  • (13) In determining the cost to the taxpayer for the purposes of paragraph (1)(h), subsection 13(7) of the Act shall not apply unless the automobile was acquired by gift.

Property Acquired by Transfer, Amalgamation or Winding-Up

  • (14) Subject to subsections (14.11) and (14.12), for the purposes of this Part and Schedule II, if a property is acquired by a taxpayer

    • (a) in the course of a reorganization in respect of which, if a dividend were received by a corporation in the course of the reorganization, subsection 55(2) of the Act would not be applicable to the dividend by reason of the application of paragraph 55(3)(b) of the Act, or

    • (a.1) to (c[Repealed, SOR/90-22, s. 3]

    • (d) from a person with whom the taxpayer was not dealing at arm’s length (otherwise than by virtue of a right referred to in paragraph 251(5)(b) of the Act) at the time the property was acquired, and

    • (e[Repealed, SOR/90-22, s. 3]

    the property, immediately before it was so acquired by the taxpayer, was property of a prescribed class or a separate prescribed class of the person from whom it was so acquired, the property shall be deemed to be property of that same prescribed class or separate prescribed class, as the case may be, of the taxpayer.

  • (14.1) For the purposes of this Part and Schedule II, if a taxpayer has acquired, after May 25, 1976, property of a class in Schedule II (in this subsection referred to as the “present class”), that had been previously owned before May 26, 1976 by the taxpayer or by a person with whom the taxpayer was not dealing at arm’s length (otherwise than by virtue of a right referred to in paragraph 251(5)(b) of the Act) at the time the property was acquired, and at the time the property was previously so owned it was a property of a different class (other than Class 28 or 41) in Schedule II (in this subsection referred to as the “former class”), the property is deemed to be property of the former class and not to be property of the present class.

  • (14.11) If, after March 18, 2007, a taxpayer acquires an oil sands property in circumstances to which subsection (14) applies and the property was depreciable property that was included in Class 41, because of paragraph (a), (a.1) or (a.2) of that Class, by the person or partnership from whom the taxpayer acquired the property, the following rules apply:

    • (a) there may be included in Class 41 of the taxpayer only that portion of the property the capital cost of which portion to the taxpayer is the lesser of the undepreciated capital cost of Class 41 of that person or partnership immediately before the disposition of the property by the person or partnership and the amount, if any, by which that undepreciated capital cost is reduced as a result of that disposition; and

    • (b) there shall be included in Class 41.1 of the taxpayer that portion, if any, of the property that is not the portion included in Class 41 of the taxpayer under paragraph (a).

  • (14.12) If, after March 20, 2013, a taxpayer acquires a property (other than an oil sands property) in circumstances to which subsection (14) applies and the property was depreciable property that was included in Class 41, because of paragraph (a) or (a.1) of that Class, by the person or partnership from whom the taxpayer acquired the property, the following rules apply:

    • (a) there may be included in Class 41 of the taxpayer only that portion of the property the capital cost of which portion to the taxpayer is the lesser of the undepreciated capital cost of Class 41 of that person or partnership immediately before the disposition of the property by the person or partnership and the amount, if any, by which that undepreciated capital cost is reduced as a result of that disposition; and

    • (b) there shall be included in Class 41.2 of the taxpayer that portion, if any, of the property that is not the portion included in Class 41 of the taxpayer under paragraph (a).

Townsite Costs

  • (14.2) For the purpose of paragraph 13(7.5)(a) of the Act, a property is prescribed in respect of a taxpayer where the property would, if it had been acquired by the taxpayer, be property included in Class 10 in Schedule II because of paragraph (l) of that Class.

Surface Construction and Bridges

  • (14.3) For the purpose of paragraph 13(7.5)(b) of the Act, prescribed property is any of

    • (a) a road (other than a specified temporary access road), sidewalk, airplane runway, parking area, storage area or similar surface construction;

    • (b) a bridge; and

    • (c) a property that is ancillary to any property described in paragraph (a) or (b).

Manufacturing and Processing Enterprises

  • (15) For the purposes of subsection 13(10) of the Act,

    • (a) property is hereby prescribed that is

      • (i) a building included in Class 3 or 6 in Schedule II, or

      • (ii) machinery or equipment included in Class 8 in Schedule II,

      except

      • (iii) property that may reasonably be regarded as having been acquired for the purpose of producing coal from a coal mine or oil, gas, metals or industrial minerals from a resource referred to in section 1201 as it read immediately before it was repealed by section 2 of Order in Council P.C. 1975-1323 of June 12, 1975, or

      • (iv) property acquired for use outside Canada; and

    • (b) a business carried on by the taxpayer is hereby prescribed as a manufacturing or processing business if,

      • (i) for the fiscal period in which the property was acquired, or

      • (ii) for the fiscal period in which a reasonable volume of business was first carried on,

      whichever was later, the revenue received by the taxpayer, in the course of carrying on the business from

      • (iii) the sale of goods processed or manufactured by the taxpayer in Canada,

      • (iv) the leasing or renting of goods that were processed or manufactured by the taxpayer in Canada,

      • (v) advertisements in a newspaper or magazine that was produced by the taxpayer in Canada, and

      • (vi) construction carried on by the taxpayer in Canada,

      was not less than 2/3 of the revenue of the business for the period.

  • (16) For the purposes of paragraph (15)(b), “revenue” means gross revenue minus the aggregate of

    • (a) amounts that were paid or credited in the period, to customers of the business, in relation to such revenue as a bonus, rebate or discount or for returned or damaged goods; and

    • (b) amounts included therein by virtue of section 13 or subsection 23(1) of the Act.

Election for Certain Manufacturing or Processing Equipments

  • (16.1) A taxpayer who acquires a property after March 18, 2007 and before 2016 that is manufacturing or processing machinery or equipment may (by letter attached to the return of income of the taxpayer filed with the Minister in accordance with section 150 of the Act for the taxation year in which the property is acquired) elect to include the property in Class 29 in Schedule II if

    • (a) Class 43.1 or 43.2 in Schedule II would otherwise apply to the property; and

    • (b) Class 29 in Schedule II would apply to the property if that schedule were read without reference to Classes 43.1 and 43.2.

Recreational Property

  • (17) Property referred to in paragraph (1)(f) does not include

    • (a) any property that the taxpayer was obligated to acquire under the terms of an agreement in writing entered into before November 13, 1974; or

    • (b) any property the construction of which was

      • (i) commenced by the taxpayer before November 13, 1974 or commenced under an agreement in writing entered into by the taxpayer before November 13, 1974, and

      • (ii) completed substantially according to plans and specifications agreed to by the taxpayer before November 13, 1974.

  • (18) [Repealed, SOR/99-179, s. 2]

Additions and Alterations

  • (19) For the purposes of this Part and Schedule II, where

    • (a) a taxpayer acquired a property that is included in a class in Schedule II (in this subsection referred to as the “actual class”),

    • (b) the taxpayer acquires property that is an addition or alteration to the property referred to in paragraph (a),

    • (c) the property that is the addition or alteration referred to in paragraph (b) would have been property of the actual class if it had been acquired by the taxpayer at the time he acquired the property referred to in paragraph (a), and

    • (d) the property referred to in paragraph (a) would have been property of a class in Schedule II (in this subsection referred to as the “present class”) that is different from the actual class if it had been acquired by the taxpayer at the time he acquired the addition or alteration referred to in paragraph (b),

    the addition or alteration referred to in paragraph (b) shall, except as otherwise provided in this Part or in Schedule II, be deemed to be an acquisition by the taxpayer of property of the present class.

  • (19.1) For the purposes of this Part and Schedule II, if subsection (19.2) applies to the refurbishment or reconditioning of a railway locomotive of a taxpayer, any property acquired by the taxpayer after February 25, 2008 that is incorporated into the locomotive in the course of the refurbishment or reconditioning is, except as otherwise provided in this Part or in Schedule II, deemed to be included in paragraph (y) of Class 10 in Schedule II.

  • (19.2) This subsection applies to the refurbishment or reconditioning of a railway locomotive, of a taxpayer, that

    • (a) is included in a class in Schedule II other than Class 10; and

    • (b) would be included in Class 10 in Schedule II if it had not been used or acquired for use for any purpose by any taxpayer before February 26, 2008.

Non-arm’s Length Exception

  • (20) For the purposes of subsections 1100(2.2) and (19), 1101(lad) and 1102(14) (in this subsection referred to as the “relevant subsections”), where, but for this subsection, a taxpayer would be considered to be dealing not at arm’s length with another person as a result of a transaction or series of transactions the principal purpose of which may reasonably be considered to have been to cause one or more of the relevant subsections to apply in respect of the acquisition of a property, the taxpayer shall be considered to be dealing at arm’s length with the other person in respect of the acquisition of that property.

  • (21) Where a taxpayer has acquired a property described in Class 43.1 of Schedule II in circumstances in which clauses (b)(iii)(A) and (B) or (e)(iii)(A) and (B) of that class apply,

    • (a) the portion of the property, determined by reference to capital cost, that is equal to or less than the capital cost of the property to the person from whom the property was acquired, is included in that class; and

    • (b) the portion of the property, if any, determined by reference to capital cost, that is in excess of the capital cost of the property to the person from whom it was acquired, shall not be included in that class.

  • (22) Where a taxpayer has acquired a property that is described in Class 43.2 in Schedule II in circumstances in which clauses (b)(iii)(A) and (B) or (e)(iii)(A) and (B) of Class 43.1 in Schedule II apply and the property was included in Class 43.2 in Schedule II of the person from whom the taxpayer acquired the property,

    • (a) the portion of the property, determined by reference to capital cost, that is equal to or less than the capital cost of the property to the person from whom the property was acquired is included in Class 43.2 in Schedule II; and

    • (b) the portion of the property, if any, determined by reference to capital cost, that is in excess of the capital cost of the property to the person from whom it was acquired shall not be included in Class 43.1 or 43.2 in Schedule II.

Rules for Additions to and Alterations of Certain Buildings

  • (23) For the purposes of applying paragraphs 1100(1)(a.1) and (a.2) and subsection 1101(5b.1), the capital cost of an addition to or an alteration of a taxpayer’s building is deemed to be the capital cost to the taxpayer of a separate building if the building to which the addition or alteration was made is not included in a separate class under subsection 1101(5b.1).

  • (24) If an addition or an alteration is deemed to be a separate building under subsection (23), the references in paragraphs 1100(1) (a.1) and (a.2) to “the floor space of the building” are to be read as references to “the total floor space of the separate building and the building to which the addition or alteration was made”.

Acquisition Costs of Certain Buildings

  • (25) For the purposes of this Part and Schedule II, if an eligible non-residential building of a taxpayer was under construction on March 19, 2007, the portion, if any, of the capital cost of the building that was incurred by the taxpayer before March 19, 2007 is deemed to have been incurred by the taxpayer on March 19, 2007 unless the taxpayer elects (by letter attached to the taxpayer’s return of income filed with the Minister in accordance with section 150 of the Act for the taxation year in which the building was acquired) that this subsection not apply to that cost.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations. SOR/78-377, s. 8;
  • SOR/78-502, s. 1;
  • SOR/78-949, s. 1;
  • SOR/79-670, s. 2;
  • SOR/83-340, s. 2;
  • SOR/84-948, s. 7;
  • SOR/86-1092, s. 5(F);
  • SOR/88-392, s. 3;
  • SOR/90-22, s. 3;
  • SOR/94-140, s. 4;
  • SOR/94-686, ss. 10(F), 49(F), 58(F), 66(F), 78(F), 79(F), 81(F);
  • SOR/97-377, s. 2;
  • SOR/99-179, s. 2;
  • SOR/2000-327, s. 1;
  • SOR/2006-117, s. 3;
  • SOR/2009-115, ss. 3, 13;
  • SOR/2009-126, s. 3;
  • SOR/2011-9, s. 3;
  • SOR/2011-195, s. 5(F);
  • 2013, c. 33, s. 35, c. 40, 102.