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

1 For the purposes of paragraph 1100(1)(b), the amount that may be deducted in computing the income of a taxpayer for a taxation year in respect of the capital cost of property of Class 13 in Schedule II is the lesser of

• (a) the aggregate of each amount determined in accordance with section 2 of this Schedule that is a prorated portion of the part of the capital cost to him, incurred in a particular taxation year, of a particular leasehold interest; and

• (b) the undepreciated capital cost to the taxpayer as of the end of the taxation year (before making any deduction under section 1100) of property of the class.

2 Subject to section 3 of this Schedule, the prorated portion for the year of the part of the capital cost, incurred in a particular taxation year, of a particular leasehold interest is the lesser of

• (a) 1/5 of that part of the capital cost; and

• (b) the amount determined by dividing that part of the capital cost by the number of 12-month periods (not exceeding 40 such periods) falling within the period commencing with the beginning of the particular taxation year in which the capital cost was incurred and ending with the day the lease is to terminate.

3 For the purpose of determining, under section 2 of this Schedule, the prorated portion for the year of the part of the capital cost, incurred in a particular taxation year, of a particular leasehold interest, the following rules apply:

• (a) where an item of the capital cost of a leasehold interest was incurred before the taxation year in which the interest was acquired, it shall be deemed to have been incurred in the taxation year in which the interest was acquired;

• (b) where, under a lease, a tenant has a right to renew the lease for an additional term, or for more than one additional term, after the term that includes the end of the particular taxation year in which the capital cost was incurred, the lease shall be deemed to terminate on the day on which the term next succeeding the term in which the capital cost was incurred is to terminate;

• (c) the prorated portion for the year of the part of the capital cost, incurred in a particular taxation year, of a particular leasehold interest shall not exceed the amount, if any, remaining after deducting from that part of the capital cost the aggregate of the amounts claimed and deductible in previous years in respect thereof;

• (d) where, at the end of a taxation year, the aggregate of

  • (i) the amounts claimed and deductible in previous taxation years in respect of a particular leasehold interest, and

  • (ii) the proceeds of disposition, if any, of part or all of that interest

  equals or exceeds the capital cost as of that time of the interest, the prorated portion of any part of that capital cost shall, for all subsequent years, be deemed to be nil; and

• (e) where, at the end of a taxation year, the undepreciated capital cost to the taxpayer of property of Class 13 in Schedule II is nil, the prorated portion of any part of the capital cost as of that time shall, for all subsequent years, be deemed to be nil.

4 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, be a leasehold interest of that person, a reference in this Schedule to a leasehold interest shall, in respect of the taxpayer, include a reference to that property, and the terms and conditions of the leasehold interest of that property in respect of the taxpayer shall be deemed to be the same as those that would have applied in respect of that person had that person acquired the property.