2018-0784701E5 Rent from real/immovable properties - furnishings

Principal Issues: Whether the inclusion of furnishings in a rental unit, for which a single rental payment is charged, requires that the rental payment be allocated as between real property and furnishings for purposes of the definition of "rent from real or immovable properties" in subsection 122.1(1).

Position: No. Provided that the furnishings are of a type typically or usually found in a residence, there is no need to allocate a portion of the rental payments to the furnishings; the entire amount of rent can be treated as "rent from real or immovable properties".

Reasons: Other CRA positions regarding the rental of furnished premises.

Author: Harris, Judith
Section: 122.1(1)

XXXXXXXXXX                                                                                                                            2018-078470
                                                                                                                                                    Judith Harris
July 29, 2019

Dear XXXXXXXXXX:

Re:   Technical Interpretation Request
Subsection 122.1(1) – Real Estate Investment Trust – Rent from Real or Immovable Properties

We are writing in response to your letter of November 2, 2018 regarding the definition of “rent from real or immovable properties” in subsection 122.1(1) of the Income Tax Act (Canada) (the “Act”).  All legislative references herein are to provisions of the Act.

Your Scenario

Your letter presented the following fact scenario:

1)    A mutual fund trust (the “Trust”) holds a limited partner interest in a limited partnership (the “Partnership”). The interest in the Partnership is “non-portfolio property” to the Trust as that term is defined in subsection 122.1(1) of the Act.

2)    The Partnership holds numerous multi-residential rental apartment buildings as capital property.

3)    A multi-residential rental apartment building held by the Partnership (the “Property”) contains rental units that are fully furnished. Under the rental agreements, there is a single charge for use and occupancy of the rental unit. There is not a separate charge or invoice for the furnishings.

4)    The Property is not a hotel or other similar lodging facility.

The Issue

You have asked whether, in the above scenario, the full amount of rent received by the Partnership under the rental agreements in respect of the furnished units of the Property meets the definition of “rent from real or immovable properties” in subsection 122.1(1) of the Act.

Our Comments

Your correspondence appears to relate to a factual situation, involving a specific taxpayer.  Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R9, Advance Income Tax Rulings and Technical Interpretations.  However, we are prepared to offer the following general comments, which may be of assistance.

We have assumed that in the above described situation, the furnishings provided in the rental units consists of furnishings typically or usually found in a residence.  In such case, it is our view that the entire amount of the rental payments can be considered to be “rent from real or immovable properties” for purposes of that definition in subsection 122.1(1) of the Act.

We trust that our comments will be of assistance.

Yours truly,

Phil Kohnen, CPA, CMA, TEP
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2019

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2019