15 August 1990 T.I. 900372

Company A uses several buildings in an operating business, then later incorporates a subsidiary, transfers its real estate to the subsidiary on a rollover basis and the subsidiary leases the properties back to Company A. In these circumstances, s. 13(5) would apply to reclassify the properties from one class 3 pool to separate classes upon their commencement for use as rental properties.

Company A owns several properties, comprising buildings acquired after 1971 for more than $50,000 and all included in Class 3, and land, which are used in its business. It transfers the properties to a newly incorporated subsidiary (Company B) under s. 85(1), which commences to rent the properties to Company A as its only activity. Does Reg.1101(1ac) apply upon commencement of the rental of the properties so that each of the buildings would then be transferred into a separate class? CRA responded:

Assuming that Company A is not involved in real estate rental business, we confirm your interpretation above. However…subsection 13(5)…applies to reclassify the properties from the class 3 pool to the separate classes.