Definitions for Rental income

CCA

Capital cost allowance

FMV

Fair market value

MURB

Multiple-unit residential building

UCC

Undepreciated capital cost

Adjusted cost base (ACB)

This is usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees.

The cost of a capital property is its actual or deemed cost, depending on the type of property and how you acquired it. It also includes capital expenditures, such as the cost of additions and improvements to the property. You cannot add current expenses, such as maintenance and repair costs, to the cost base of a property.

For more information on ACB, see IT456, Capital Property - Some Adjustments to Cost Base, and its Special Release.

Arm's length transaction

This is an expression used to describe a transaction between unrelated parties. Each party acts in his or her own self-interest.

Related persons are not considered to deal with each other at arm's length. Related persons include individuals connected by blood relationship, marriage, or common-law partnership, or adoption. Also, a corporation and a shareholder who control the corporation are related.

Unrelated parties may not be dealing with each other at arm's length if, for instance, one is under the influence or control of the other, if one is acting in concert with the other, or if they have a common mind. For more information, see IT419, Meaning of Arm's Length.

Available for use

You can claim CCA on a rental property only when it becomes available for use.

A rental property, other than a building, usually becomes available for use on the earliest of:

• the date you first use it to earn income;
• the second year after the year you acquire the rental property; or
• the time immediately before you dispose of the property.

A rental property that is a building, or part of a building, usually becomes available for use on the earliest of:

• the date when construction of the building is complete or a fully constructed building is bought, as long as it can be used at once as a rental building;
• the date that you rent out 90% or more of the building;
• the second year after the year you acquire the building; or
• the time immediately before you dispose of the building.

For the purpose of determining the available-for-use date, a renovation, alteration, or addition to a particular building is considered a separate building.

You may be able to claim CCA on a building that is under construction, renovation, or alteration before it is available for use. You can deduct CCA that you have available on such a building when you have net rental income from that building. The CCA that you can deduct is restricted to the amount of net rental income you have after you deduct any soft costs for constructing, renovating, or altering the building. For an explanation of soft costs, see Costs relating to construction, renovation, or alteration.

Business Number (BN)

This is a number you get when you register to do any business with us. It is a single number which replaces the numbers that Canadian businesses previously needed to deal with the federal government.

Capital cost

This is the amount on which you first claim CCA. The capital cost of a rental property is usually the total of:

• the purchase price, not including the cost of land;
• the part of your legal, accounting, engineering, installation, and other fees that relates to the purchase or construction of the rental property, excluding the part that applies to the land;
• the cost of any additions or improvements you made to the rental property after you acquired it, provided you have not claimed these costs as current expenses; and
• for a building, soft costs (such as interest, legal and accounting fees, and property taxes) related to the period you are constructing, renovating, or altering the building, if you have not deducted these expenses as current expenses.

For more information on current expenses, see Current or capital expenses.

For more information on soft costs, see Costs relating to construction, renovation, or alteration.

Legal and accounting fees for buying a rental property are allocated between the cost of the land and the capital cost of the building.

If land is acquired for rental purposes or for constructing a rental property, the legal and accounting fees apply to the land.

Capital cost allowance (CCA)

In the year you buy a depreciable property, such as a building, you cannot deduct the full cost. However, since this type of property wears out or becomes obsolete over time, you can deduct its capital cost over a period of several years.

You usually group depreciable properties into classes. For example, appliances and furniture belong to Class 8. You have to base your CCA claim on a rate assigned to each class of property.

For the most common classes of depreciable properties, see Classes of depreciable properties.

Capital expense

Capital expenses provide a benefit that usually lasts for several years. For example, costs to buy or improve your property are capital expenses. Generally, you cannot deduct the full amount of these expenses in the year you incur them. Instead, you can deduct their cost over a period of several years as capital cost allowance (CCA).

Capital expenses can include:

• the purchase price of rental property;
• legal fees and other costs connected with buying the property; and
• the cost of furniture and equipment you are renting with the property.

Capital gain

You have a capital gain when you sell, or are considered to have sold, a capital property for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.

Capital loss

You have a capital loss when you sell, or are considered to have sold, a capital property for less than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.

Note
You cannot have a capital loss when you sell depreciable property such as a rental property. However, you may have a terminal loss.

Common-law partner

A person who is not your spouse with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies. He or she:

• has been living with you in a conjugal relationship for at least 12 continuous months;
• is the parent of your child by birth or adoption; or
• has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support.

In addition, an individual immediately becomes your common-law partner if you previously lived together in a conjugal relationship for at least 12 continuous months and you have resumed living together in such a relationship. Under proposed changes, this condition will no longer exist. The effect of this proposed change is that a person (other than a person described in the bullets above) will be your common-law partner only after your current relationship with that person has lasted at least 12 continuous months. This proposed change will apply to 2001 and later years.

The "12 continuous months" in this definition includes any period that you were separated for less than 90 days because of a breakdown in the relationship.

Current expense

Current or operating expenses are recurring expenses that provide a short-term benefit. For example, a current expense is the cost of repairs you make to keep a rental property in the same condition as it was when you acquired it. You can deduct current expenses from your gross rental income in the year you incur them.

Deductible expenses

Your deductible expenses equal your total expenses minus your personal portion.

Depreciable property

This is any property on which you can claim capital cost allowance (CCA). It is usually capital property used to earn income from a business or property. The capital cost can be written off as CCA over a number of years.

Fair market value (FMV)

Fair market value is generally the highest dollar value that you can get for a property or service in an open and unrestricted market between an informed and willing buyer and an informed and willing seller who are dealing at arm's length with each other.

Non-arm's length transaction

This is a transaction between persons who were not dealing with each other at arm's length at the time of the transaction.

Proceeds of disposition

This is usually the amount you received or will receive for your property. In most cases, it refers to the sale price of the property. This could also include compensation you received for property that has been destroyed, expropriated, or stolen.

For more information about proceeds of disposition, see IT220, Capital Cost Allowance - Proceeds of Disposition of Depreciable Property, and its Special Release, and IT285, Capital Cost Allowance - General Comments.

Spouse

For tax purposes, you have a spouse when you are legally married.

Undepreciated capital cost (UCC)

Generally, UCC is equal to the total capital cost of all the properties of the class minus the capital cost allowance you claimed in previous years.

If you sell depreciable property in a year, you also have to subtract from the UCC one of the following two amounts, whichever is less:

• the proceeds of disposition of the property minus the related outlays and expenses; or
• the capital cost of the property.