Subsection 16.1(1) - Leasing properties
Administrative Policy
28 April 2015 T.I. 2015-0566011E5 - Whether s. 16.1 applies to a transport truck
Before concluding that "since a transport truck would be considered exempt property, a lessee and a lessor would not be entitled to elect under section 16.1…[so that] the lessee would not be entitled to deduct CCA on this vehicle, " CRA stated:
As noted in Income Tax Technical News ITTN No. 21, it is our view that the determination of whether a contract is a lease or a sale for income tax purposes is based on the legal relationships created by the terms of the particular agreement, rather than the underlying economic reality. In the absence of a sham, a lease is a lease and a sale is a sale.
and then noted that the effect of s. 16.1 election:
is to consider the lessee, for the purpose of calculating the lessee's income only, to have purchased the leased property for the duration of the lease and to have financed the purchase by way of a loan. This will have the effect of allowing the lessee to claim CCA on the property over the term of the lease. In addition, where the election is filed, the lessee will be entitled to deduct the notional interest portion of the rental payments.
15 December 2014 T.I. 2014-0548041E5 - Leasing Properties
CRA stated:
Since subsection 16.1(1) is not listed in section 600, a subsection 16.1(1) election cannot be late-filed.
18 June 2014 T.I. 2013-0516251E5 - Paragraph 16.1(1)(b) - the particular time
Does "the particular time" in s. 16.1(1)(b) mean the time when the lease began or when it was entered into? CRA stated:
[S.] 16.1(1)… states that they must "jointly elect in prescribed form filed with their returns of income for their respective taxation years that include the particular time when the lease began." Since this is the only reference to the "particular time" in subsection 16.1(1), it is our view that this term refers to the time when the lease began.
22 August 2000 T.I. 2000-000288 -
As s. 16.1(1)(b) does not deem a taxpayer to have disposed of an acquired or reacquired property, Regulations 1100(2.21) will not apply to the property.
8 June 1993 T.I. (Tax Window, No. 32, p. 18, ¶2615)
After the confirmation of Finance that it was not intended that an election under s. 16.1 should cause equipment not to qualify for an investment tax credit, RC on an administrative basis has adopted the position that Regulation 2902(b)(ii) will not apply to the leased equipment.
7 May 1993 T.I. (Tax Window, No. 31, p. 7, ¶2514)
Re effect of election on availability of investment tax credit.
13 November 1991 T.I. (Tax Window, No. 13, p. 18, ¶1594)
A partnership is a person for purposes of s. 16.1. The partner who is first required to file an income tax return for the taxation year in which the election is made is required to file the prescribed form with its income tax return.
89 C.R. - Q.8
"A lease is a contract by which a person who owns property grants to another the right to possess, use and enjoy the property for a specific period of time for periodic payments of the stipulated price, referred to as rent, with the obligation to return the property at the term of the lease ... . Transactions which are structured as management agreements or licences and under the terms of which a lessee/lessor relationship does not exist would not generally be considered as leases for income tax purposes."
IT285R2 ARCHIVED - "Capital Cost Allowance - General Comments" 31 March 1994
22. Where by joint election subsection 16.1(1) applies to leased tangible property, the lessee is deemed to have acquired the property, at the particular time the lease commenced, at a cost equal to its fair market value at that time. Consequently, the lessee may be eligible to claim CCA on the property, although the lessee does not own the property.