Re-zoning costs deductible from rental income
In the recent Jennings case, the taxpayers purchased a rental property in Ottawa with three rental units. When they purchased the property, they assumed that the property was properly zoned for rental purposes.
However, six years later the City of Ottawa informed the taxpayers that the property was not zoned for three rental units. The taxpayers applied for re-zoning of the property and were allowed to rent it out while the decision was made. The taxpayers claimed a deduction for the application fees and fees paid to a consultant who helped with the application. Re-zoning was eventually allowed for two rental units.
The CRA denied the deduction of the fees, taking the position that they were capital expenses (and thus not deductible in the year they were incurred) rather than current expenses. Upon appeal to the Tax Court of Canada, the judge disagreed with the CRA. The judge held that the expenses were ordinary expenses incurred with respect to the day- to-day management of the property. The fees were therefore current expenses, fully deductible in the year they were incurred.
This letter summarizes recent tax developments and tax planning opportunities; however, we recommend that you consult with an expert before embarking on any of the suggestions contained in this letter, which are appropriate to your own specific requirements.