LANGIND E
DOCNUM 2013-0501131E5
REFDATE 131101
SUBJECT Micro-FIT Rental Income
SECTION section 9, section 1100 of the ITRs
Please note
at the time
Prenez note
représenter
that the following document, although believed to be correct
of issue, may not represent the current position of the CRA.
que ce document, bien qu'exact au moment émis, peut ne pas
la position actuelle de l'ARC.
PRINCIPAL ISSUES:
1. How is the amount received by a homeowner for the
use of the roof of his principal residence by a company reported? 2.
Must the homeowner and his or her spouse each report half of the amount
received on their T1 if they co-own the principal residence? 3. How does
CCA work in this situation?
POSITION:
1. Appears to be rental income. 2. Each co-owner of the
property is to report their share of the amount. 3. Cannot claim CCA now
as does not own the solar equipment. When ownership of the equipment is
transferred to the homeowners they may be able to claim CCA if the
property is acquired for the purpose of earning income and the property
has value.
REASONS:
1. & 2. Provisions of the Act. 3. Income Tax Regulations
section 1100.
XXXXXXXXXX
2013-050113
L. Zannese
(613) 410-9134
November 1, 2013
Dear XXXXXXXXXX:
Re:
Rental of Roof—Ontario microFIT program
We are writing in response to your email of August 8, 2013 which
requested information with respect to the following situation:
*
You entered into a contract with a third-party (the "Taxpayer") in
respect of the installation of a solar photovoltaic system (the "Solar
Equipment") on the roof of your principal residence;
*
At the end of 20 years, you will become the owner of the Solar
Equipment.
Specifically, you ask how the amounts received from the Taxpayer should
be recorded on your personal income tax return. As you and your spouse
are co-owners of your principal residence, you ask whether you and your
spouse should each report half of the amounts received. Lastly, you
requested information as to whether you can claim capital cost allowance
("CCA") on the Solar Equipment once ownership of this property is
-2transferred to you.
OUR COMMENTS
Written confirmation of the income tax implications inherent in
particular transactions is given by this directorate only where the
transactions are proposed and are the subject matter of an advance income
tax ruling request as described in Information Circular 70-6R5 dated May
17, 2002 issued by the Canada Revenue Agency ("CRA"). A fee is charged
for this service. Although we are unable to provide you a definitive
answer to your specific situation we hope that the following comments
will be of assistance.
The characterization of an amount for income tax purposes is a question
of fact and law. This determination may only be made based on an
examination of the legal agreements and after all the facts of a
situation have been reviewed. Provided that you and your spouse did not
acquire an ownership interest in the Solar Equipment, and you are not in
the business of renting property the amounts you received as payment for
the use of the roof of your principal residence would be rental income.
To report rental income, a person would complete form T776 "Statement of
Rental Income" ("Form T776") to determine the net amount of rental income
that is subject to tax. Once the net amount of the rental income is
determined, that amount is placed on line 126 —"rental income" on your
personal income tax return. The CRA has published guide T4036 "Rental
Income" ("Guide T4036") to assist people in completing Form T776. Both
Form T776 and Guide T4036 are available on the CRA website located at
www.cra-arc.gc.ca.
As stated in Guide T4036, each co-owner of a rental property is generally
expected to report its share of the rental income. This means that you
and your spouse would each complete Form T776 and calculate your share of
the rental income. The amount of net rental income would then be
reported on your respective personal income tax returns. When
calculating net rental income, a person is entitled to deduct expenses
incurred to earn that income. If the expenses incurred relate both to
earning income and to personal living expenses then it must be determined
which portion of the expenses relate to earning the income. Only the
portion of the expenses that were incurred to earn the income is eligible
to be deducted from that income. For more information on the personal
portion of expense, please see the appropriate section contained in Guide
T4036.
By virtue of paragraph 1102(1)(c) of the Income Tax Regulations (the
"Regulations"), only property that was acquired by a person for an income
earning purpose is eligible for CCA and included in the classes described
in Schedule II to the Regulations. Unless you own the Solar Equipment
you will not be entitled to claim CCA for this property. Once you do
acquire ownership of the Solar Equipment whether you can claim CCA with
respect to this property will depend on the Regulations in place at that
time.
-3-
We hope that these comments will be of assistance.
Yours truly,
Fiona Harrison, CPA, CA
Manager, Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch