Category Archives: CCA

Erickson v The Queen, 2012 TCC 398

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CCA – Application of Half Year Rule When Property Acquired in Year 1 Only Becomes Available for Use in Year 2. 

Erickson v The Queen, 2012 TCC 398

At issue was whether the taxpayer could claim full CCA in the first taxation year that a fishing boat became available for use when the boat was purchased in the preceding taxation year.

The Court held that one exception to the half-year rule for CCA is where the property was deemed to have become available for use pursuant to either of paragraph 13(27)(b) or 13(28)(c) – the two-year rule.  In this case, the board was available for use in the first taxation year and was not deemed to have become available in the second year after purchase, as such the half-year rule applied.

FACTS

The Taxpayer purchased a fishing boat in 2005, but the boat was not available for use until 2006.  He claimed that the 50% rule didn’t apply. The MNR reassessed on the basis that the half-year rule did apply.

ANALYSIS

The Taxpayer was replying on a CRA publication.  In the publication it stated that;

. . . The half-year rule does not apply when the available for use rules . . . denies [sic] a CCA claim until the second tax year after the year you acquire the property

The Minister argued that this passage doesn’t help the taxpayer because his CCA claim was deferred until 2006, which is the first taxation year following the acquisition and not the second taxation year following the acquisition.

The TCC noted that the half-year rule is implemented by subsections 1100(2) and (2.4) of the Regulations, the former which reads:

Property Acquired in the Year

1100 (2)        The amount that a taxpayer may deduct for a taxation year under subsection (1) in respect of property of a class in Schedule II is to be determined as if the undepreciated capital cost to the taxpayer at the end of the taxation year (before making any deduction under subsection (1) for the taxation year) of property of the class were reduced by an amount equal to 50 percent of the amount, if any, by which

(a) the total of all amounts, each of which is an amount added

(i) because of element A in the definition “undepreciated capital cost” in subsection 13(21) of the Act in respect of property that was acquired in the year or that became available for use by the taxpayer in the year, or

(ii) because of element C or D in the definition “undepreciated capital cost” in subsection 13(21) of the Act in respect of an amount that was repaid in the year,

to the undepreciated capital cost to the taxpayer of property of a class in Schedule II, other than

(iii) property included in paragraph 1(v), in paragraph (w) of Class 10 or in any of paragraphs (a) to (c), (e) to (i), (k), (l) and (p) to (s) of Class 12,

(iv) property included in any of Classes 13, 14, 15, 23, 24, 27, 29, 34 and 52,

(v) where the taxpayer was a corporation described in subsection (16) throughout the year, property that was specified leasing property of the taxpayer at that time,

(vi) property that was deemed to have been acquired by the taxpayer in preceding taxation year by reason of the application of paragraph 16.1(1)(b) of the Act in respect of a lease to which the property was subject immediately before the time at which the taxpayer last acquired the property, and

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

 exceeds

(b) the total of all amounts, each of which is an amount deducted from the undepreciated capital cost to the taxpayer of property of the class

(i) because of element F or G in the definition “undepreciated capital cost” in subsection 13(21) of the Act in respect of property disposed of in the year, or

(ii) because of element J in the definition “undepreciated capital cost” in subsection 13(21) of the Act in respect of an amount the taxpayer received or was entitled to receive in the year.

[Emphasis added.]

The Court noted that the 50% rule doesn’t apply to property that is deemed to have become “available for use” by reason of paragraphs 13(27)(b) or 28(c) of the ITA (deem property to become available for use in the second year following the acquisition).

The Court concluded that the appellant was entitled to claim CCA starting in 2006, which is the first year of the acquisition of the fishing boat, and the half-year rule does apply in the 2006 year.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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Desgagné v The Queen, 2012 TCC 63

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Is the MNR Permitted to Adjust Balances for Statute-barred Years?

Desgagné v The Queen, 2012 TCC 63

 There were a number of issue in this appeal, including:

  • whether the MNR could adjust balances for statute-barred years so as to affect the tax liability/assessment for non-statute barred years.
  • what the proper class for purposes of CCA of a lawyer’s gown and bands is.

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The Court concluded that an assessment involves the determination of tax payable for a year and does not encompass the underlying facts for coming years such that the MNR may correct mistakes in past years, including statute barred years, so as to determine tax liability in non-barred years. The court also concluded that gown and bands fall under the definition of “uniform” in Class 12.

FACTS

The taxpayer is a lawyer who, among other things, challenged the Minister’s readjustment of her Class 8 opening balance for the beginning of a statute barred year.

The Taxpayer included the cost of gowns, dark suits, and bands in Class 8 and took CCA on the balance.

ANALYSIS

The Court referred to the decision in Coastal Construction and Excavating Ltd. v. Canada, [1996] T.C.J. No. 1102 (QL), where Bowman J stated:

. . . The Minister is obliged to assess in accordance with the law. If he assesses a prior year incorrectly and that year becomes statute-barred this will prevent his reassessing tax for that year, but it does not prevent his correcting the error in a year that is not statute-barred, even though it involves adjusting carry-forward balances from previous years, whether they be loss carry-forwards or balances of investment tax credits. New St. James Limited v. M.N.R., 66 DTC 5241; Allcann Wood Suppliers Inc. v. The Queen, 94 DTC 1475. No question of estoppel arises: Goldstein v. The Queen, 74 DTC 1029. [emphasis added]

The court concluded that the Minister did have the power to make the adjustment to the opening class balance.

In turning to the question of the appropriate class for Lawyers’ gowns and bands, the court reviewed the definition of Class 12 of Schedule II of the Income Tax Regulations which  includes in paragraph (i) “a uniform”. THe court refereed to the definition of uniform which includes “specific suits or clothing required to be worn by a group (professionals, etc), before concluding that the bands and gowns fall under that definition of Uniform with a higher CCA rate.

The Taxpayer included her dark suits as capital costs relying on Charron v. Canada [1997] T.C.J. No. 1181 (QL), a decision of the TCC regarding a lawyer who claimed clothing costs.  The Court, however, stated that dark suits, even if bought only for work and worn only to work, do not fall into a category that puts them into a class of “specialized clothing” but is clothing that could be worn for every day life (thus was a personal expense).

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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