Hello,
I have a client who has a Property Development Company and I’m filing 10 years of T2 returns for him. The company owns land with a building on it from 2009, a previous Accountant filed 2009 to 2014 and recorded the Building as a capital asset. He denied all property taxes and interest from being claimed due to likelihood of the property being using personally by the owner.
The company had no revenue for the entire 10 years, and only became active as of 2021 starting to purchase equipment and more land for development purposes. The company initially classified as a HoldCo and we’ll update it’s primary business acitivty as of 2021 to be Residential Construction.
Currently I have denied all property taxes and interest from being claimed as a business loss due to the lack of revenue from 2009 to 2021. Because it was initially recorded as a capital asset I can’t capitalize any of it. The client moved his office from said location in 2024 and now intends on holding the land and building for development purposes. No other expenses are flowing through the company with the exception of $800 in power and $25 in water, which would related to winter maintenance. As of right now I intend on recording a change of use in the 2024 tax year changing the property from capital asset to inventory, however wonder if I can take advantage of these unclaimed property taxes and interest in anyway.
(1) Could I retroactively record a change of use of the land and building in 2014 if the client confirms he was intending to use them for development purposes all along, and his previous accountant improperly them? It’s well past the eligible period to amend 2009 - 2013 T2s therefore the earliest the change of use can be recognized is 2014.
(2) What’s the likelyhood the CRA would deny the business losses from property taxes and interest on the land & building if I decide to maintain that they are Capital Assets and used as an office, therefore the expense should be eligible. I worry due to the lack of evidence of participating in the nature of trade, the CRA would deny these expenses and possibly assess the client for a shareholder benefit as it somewhat looks to be personal property.
(3) Open to any suggestion or criticisms as to how to handle the property taxes and interest related to the office.