2020-0870041I7 CERS - Meaning of Qualifying Property

Principal Issues: 1. What is the definition of "real or immovable property"? For the purposes of the CERS, does the definition of "qualifying property" depend on legal title? 2. Can a property that contains a "self-contained domestic establishment" be a "qualifying property"?

Position: 1. Generally speaking, "real or immovable property" consists of land and buildings permanently affixed to the land. A single legal title may, depending on the circumstances, contain more than one "qualifying property". Similarly, a particular property may be a “qualifying property” for more than one eligible entity. 2. Yes. The fact that a property contains a "self-contained domestic establishment" will not necessarily preclude it from being a "qualifying property".

Reasons: 1. Ordinary meaning, the law and jurisprudence. The definition does not require a qualifying property to be a separate legal property; consistent with intent of the legislation. 2. Jurisprudence and previous positions.

Author: Ross, Matthew
Section: 125.7(1), 248(1)

                                                                                                                       May 17, 2021

Ms. Mireille Boucher                                                                                      HEADQUARTERS
Legislative Policy Directorate                                                                         ITRD
320 Queen Street                                                                                           Matthew Ross, CPA, CA
Place de Ville, Tower A                                                                                   (902) 399-8396
Ottawa ON  K1A 0L5
                                                                                                                       2020-087004

Subject: Qualifying property

This is in reply to your email in which you requested our views on the meaning of the term “qualifying property,” as defined in subsection 125.7(1) of the Income Tax Act (“the Act”), for the purpose of the Canada Emergency Rent Subsidy (“CERS”).  Specifically, you have asked whether the determination of a property as a qualifying property depends on its legal title. You have also asked whether a property that contains a self-contained domestic establishment can be a qualifying property.

Our Comments

The CERS is based on a qualifying eligible entity’s “qualifying rent expense” in respect of a qualifying property for a “qualifying period” as those terms are defined in subsection 125.7(1) of the Act.  Qualifying property, of an eligible entity for a qualifying period, means real or immovable property in Canada used by the eligible entity in the course of its ordinary activities.  Qualifying property excludes property that is a self-contained domestic establishment (“SCDE”) used by the eligible entity (or by a person not dealing at arm’s length with the eligible entity) or part of such a SCDE, the land subjacent to the SCDE and such portion of immediately contiguous land as can reasonably be regarded as contributing to the use and enjoyment of the SCDE as a residence.

The phrase “real or immovable property” is not defined in the Act for the purpose of the CERS.  While “real or immovable property” is defined in subsection 122.1(1) of the Act, that definition applies only for sections 104, 122 and 122.1 and is not relevant for the purpose of the CERS. In ascertaining the meaning of “real or immovable property”, it is necessary to refer to the property law of the province in which the property is located.  In provinces governed by common law, “real property” is generally considered to mean land and anything growing on, attached to, or erected on it, excluding anything that may be severed without injury to the land. (footnote 1)  Similarly, article 900 of the Civil Code of Quebec (S.Q. 1991, c. 64) defines an “immovable” as, “land, and any constructions and works of a permanent nature located thereon any anything forming an integral part thereof.”  Accordingly, for the purpose of the CERS, a qualifying property can generally include land, buildings, and other structures affixed to the land, subject to the exclusion for a SCDE.

Whether a particular property is a qualifying property for an eligible entity is a question of fact.  While common-law principles would establish that only one property exists when something built on land has a substantial connection with it, and the purpose of that construction is to effect a permanent improvement upon the land, the component parts of the property (for instance, land and building) may, nonetheless, be considered separately for tax purposes in certain situations.  Thus, while the legal title of a property may be relevant in determining whether a particular property is a qualifying property, in our view, it is not necessarily the case that a qualifying property of an eligible entity will always conform to its legal title.

For example, consider the situation where a tenant, which is an eligible entity, leases a particular unit in a building.  In determining whether that unit would be considered a qualifying property for that tenant, the determination would be based on whether the unit itself is considered real or immovable property in Canada that is used by the tenant in the course of its ordinary activities. The fact that the unit represents only a portion of the legal title of the property may not be relevant in this situation. As such, depending on the circumstances, for the purpose of the CERS, a property that is described under a single legal title may contain more than one qualifying property or may be a qualifying property for more than one eligible entity. 

A SCDE is defined in subsection 248(1) of the Act to mean a dwelling-house, apartment or other similar place of residence in which place a person as a general rule sleeps and eats.  Generally, a SCDE is a living unit with restricted access that contains a kitchen, bathroom and sleeping facilities.  A room (or rooms) in a hotel, dormitory, boarding house or bunkhouse would not ordinarily be a SCDE.

Depending on the facts of a situation, it is possible that a particular property may include a portion that is subject to the SCDE exclusion in the definition of qualifying property.  In such a case, the fact that a part of a property is excluded may not, depending on the circumstances, preclude the remaining part of the property from being a qualifying property.

Consider the following example:

*    Ms. A owns a single-story building located in New Brunswick.
*    Ms. A’s business, a grocery store, occupies part of the ground floor of the building.
*    Ms. A’s apartment is situated at the rear of the building, behind the store.  The apartment is separated from the store, and has its own entrance, as well as two bedrooms, a kitchen, a bathroom, and a living room.

In this example, Ms. A’s apartment is a SCDE and, accordingly, is excluded from the definition of qualifying property.  However, the portion of the building occupied by the store is separate from the SCDE.  As the part of the building that houses the store is real or immovable property in Canada that is used by Ms. A in the course of the ordinary activities of her business, it could be a qualifying property for the purposes of the CERS. As a result, Ms. A could have qualifying rent expenses in respect of the part of the building that contains the store; the portion of the building forming the SCDE would not be part of the qualifying property and would not generate any qualifying rent expenses for the purpose of calculating the CERS. All relevant facts and circumstances of the particular situation would need to be considered before making any determination as to whether a particular property or part thereof would be considered a SCDE.

We trust our comments will be of assistance.

Yours truly,

Amanda Couvrette, CPA, CA
Acting Manager
Business Income and Capital Transactions
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1  See, for example, Black’s Law Dictionary (7th ed) West Group, St. Paul, Minn., 1999 at page 1,234.

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