I have a ccpc that bought a secondary property (farm) that is being used for personal use and also doing minimum work for corporation from property now. They are incurring costs to convert property. Transitioning all work to this space in future years to new space. They also own another building in Toronto where they are currently performing most business from
I have few questions for T2:
costs incurred to convert property - capitalize until using for income generating?
if family uses property should assess taxable benefit for shareholder - even if they have no intention of renting but are staying at property partially to convert it?
mortgage interest, insurance and property taxes - i am not sure if i should write off if not being used to generate income yet or if possibility of no taxable benefits issued?
thanks and have a great evening
However, it’s not clear what is going on (mostly related to point 2):
What do you mean by “convert property”? There are many different ways to interpret this:
from an unusable state to a usable state
from farmland to a non-agricultural commercial enterprise (or vice versa)
from a farmhouse to a residential rental property (or vice versa)
from residential to commercial zoning (or vice versa)
from a passive asset to an active asset (or vice-versa)
How is this “family” related to the CCPC? Are they tenants? Employees? Squatters? Even if some of the family members are shareholders, I’m not sure what you mean by “staying at the property” - are they working there during the day or LIVING there? Is there a HOUSE on the property, which could be considered a residence?
If there could be a shareholder benefit per ITA 15(1), I would advise my client how to AVOID it. I’m not CRA, so wouldn’t be doing any “assessing” of it.
Who is “they” when you refer to the “intention of renting”? If the CCPC owns the property, it is the CCPC’s management who decide whether or not to rent the property, and to whom it may be rented. Whether or not management has decided to use this asset for rental revenue has no bearing on whether a shareholder benefit exists.
Presumably renovations, building additions, or new construction is what is meant by “convert the property”. If so, I’m not sure how they could be anything other than capital in nature.
Do the “family” who are presumably staying in the house to perform the renovations own (or rent) a home elsewhere that they would ordinarily or otherwise inhabit as their principal residence? Whether or not they have a personal residence (owned or rented) would go a long way in determining whether there might be an employee or shareholder benefit for the house on the company property.
Of course it would also depend on what is meant by “secondary property that is being used for personal use”. What is the personal use? Vacationing at the farm-cottage on the company’s dime would likely attract some subsection 15(1) or paragraph 6(1)(a) benefit.
Regarding the deductibility of interest and property taxes look at Joe’s reference to subsection 18(2) as well as the restrictions on adding these costs to the ACB of the property. While I realize the property is more than just vacant land, however, some of the interest and taxes likely covers the land portion.
Realistically speaking, the corporation needs to start earning income from the property or using the property in order to be able to properly expense these costs.