21 March 1997 Ministerial Letter 9702488 - HERITAGE BUILDINGS - TAX POLICY ISSUES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

MINISTER/DM'S OFFICE 97-00408M
ADM'S OFFICE RETURN TO INCOME TAX RULINGS
AND INTERPRETATIONS, 15TH FLOOR, ALBION TOWERS

March 21, 1997

XXXXXXXXXX

Dear XXXXXXXXXX:

I am writing in reply to your letter of January 14, 1997, concerning the tax policies relating to the demolition, restoration and donation of heritage buildings.

The Department of National Revenue is responsible for applying the provisions of the Income Tax Act as enacted by Parliament. This responsibility includes determining the tax consequences of the demolition of buildings. In this respect, you should note that, although the demolition of a building that is a depreciable property may give rise to a terminal loss, there are special rules in the Act which may reduce the potential terminal loss upon the disposition of a building. As the demolition of a building constitutes a disposition, these rules may apply.

The Department is also responsible for determining the tax treatment of expenditures related to the repair and renovation of real property. The issue of current versus capital treatment in respect of such expenditures is discussed in Interpretation Bulletin IT-128R, a copy of which is enclosed. In the Department's view, the guidelines set out in this Interpretation Bulletin are a reasonable distillation of the relevant considerations developed by the Courts. However, as a determination of the appropriate tax treatment of a particular expenditure requires an examination of the particular facts, a strict formulation of the appropriate tax treatment, such as current versus capital, is not possible.

With respect to the tax treatment of donations of capital property, including heritage properties, the Act provides special rules pertaining to gifts of capital property, which are discussed in the enclosed Interpretation Bulletin IT-288R2. These rules allow a taxpayer to designate an amount as proceeds of disposition of the property and thereby reduce or completely eliminate the amount of the capital gain that might otherwise be realized as a result of the disposition of the property by way of a gift. The designated amount becomes both the proceeds of disposition of the property and also the amount of the gift for purposes of the charitable donation credit or deduction.

In addition, in the March 6, 1996 budget, the federal government introduced certain changes designed to increase the annual limit on tax credits for charitable donations. The annual charitable donation limit, which restricts the amount of donations to a percentage of a taxpayer's net income will be raised from 20 per cent to 50 per cent. Furthermore, where capital property is donated, the 50 per cent of net income limit will be raised further by half the amount of taxable capital gains resulting from the donation that is included in calculating the donor's taxable income for the year. This will ensure that taxpayers making gifts of appreciated capital property are able to claim tax credits for the full amount of the taxable capital gain. These changes, once enacted, will apply to donations claimed for the 1996 and subsequent taxation years. It should be also noted that, where property is donated to the provincial or federal Crown, the general annual limit on charitable donations does not apply. Therefore, the amount of the capital gain, if any, resulting from the donation may be completely offset by the charitable donation deduction or credit claimed in the year in which the donation is made.

You should note also that the 1997 budget proposes to increase the amount of donations for which the charitable tax credit or deduction can be claimed in one year from 50 to 75 per cent of net income. In addition, for donations to the Crown and Crown foundations, the limit will be lowered from 100 to 75 per cent, to put all charities on a level playing field. Where the property donated is capital property, the 75 per cent limit will be increased by an amount equal to 25 per cent of the amount of recaptured capital cost allowance and taxable capital gains from the gift of such property, so that the tax credit can now be claimed for the full amount of recapture and continue to be claimed for the full amount of taxable capital gains.

I would note that this department is responsible for the administration of the Act. Your comments, however, relate to tax policy, which is the responsibility of the Department of Finance. Accordingly, any changes to tax policy or amendments to the legislation would have to be considered by that department. In this regard, I can assure you that Finance officials are aware of the views you have expressed.

I wish to thank you for bringing your views to our attention.

		Yours sincerely,

		Jane Stewart, P.C., M.P.

Attachments

C. Chouinard
957-2098
February 27, 1997