Canada Revenue Agency
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Capital expenses - Special situations
The following situations may change the way you deduct your expenses:
- Modification to buildings to accommodate persons with disabilities
- Buying an older building
- Selling your property
- Costs relating to construction, renovation, or alteration - soft costs
Modifications to buildings to accommodate persons with disabilities
You may renovate your existing rental property to accommodate persons with disabilities. You can deduct outlays and expenses you have for eligible disability-related modifications in the year you paid them, instead of having to add them to the capital cost of your building.
Eligible disability-related modifications are changes you make to accommodate individuals who have a mobility impairment.
These changes include:
- installing hand-activated electric door openers;
- installing interior and exterior ramps; and
- modifying a bathroom, elevator, or doorway so a person in a wheelchair can use it.
You can also deduct expenses you pay to install or acquire the following disability-related devices and equipment:
- elevator car-position indicators (such as braille panels and audio indicators);
- visual fire-alarm indicators;
- listening or telephone devices for people who have a hearing impairment; and
- disability-specific computer software and hardware attachments.
Buying an older building
If you buy an older building that you have to repair or renovate to make it suitable to rent, the cost of the work is a capital expense. This is the case even though you would usually treat these costs as current expenses.
Selling your property
If you make repairs to your property because you want to sell it, or you make the repairs as a condition of sale, the repairs are capital expenses. However, we consider the repairs to be current expenses if they were necessary and you made them to your property or were making them before you decided to sell.
Costs relating to construction, renovation, or alteration - soft costs
You may have certain costs relating to the period you were constructing, renovating, or altering your rental building to make it more suitable for renting. These expenses are sometimes called soft costs. Soft costs include:
- interest;
- legal fees;
- accounting fees; and
- property taxes.
Soft costs attributable to the period of construction, renovation, or alteration of a building are made up of the soft costs relating to the building and those pertaining to the ownership of the related land and attributable to that period. The building's related land consists of the land:
- that is under the building, or
- that is immediately adjacent to the land under the building; used or intended for use for a parking area, driveway, yard, garden, or any other similar use; and necessary for the use or intended use of the building.
Soft costs pertaining to a building's related land and attributable to the period of construction, renovation, or alteration are not deductible but can be added to the cost of the building. However, soft costs related to a building may be deductible as a current expense or added to the cost of the building, depending on your situation.
Soft costs may be deductible as a current expense if:
- the costs relate to the period you were constructing, renovating, or altering the building; and
- the costs relate only to constructing, renovating, or altering the building.
We consider the period of construction, renovation, or alteration to be completed on whichever date is earlier:
- the date the work is completed; or
- the date you rent 90% or more of the building.
When these conditions are met, the amount of soft costs related to the building that you can deduct is limited to the amount of rental income earned from the building.
Soft costs that do not meet the above conditions are capital expenses. Add them to the capital cost of the building and not the land.
Note
Capital cost allowance (CCA), landscaping costs, and costs for disability-related modifications to buildings are not soft costs. Therefore, they are not subject to the soft cost rules.
