30 March 2007 External T.I. 2007-0228881E5 - Reclamation Costs

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether reclamation costs on contaminated land acquired by a land developer may be capitalized to the cost of depreciable property

Position: No

Reasons: The costs are part of the cost of the land

									2007-022888
XXXXXXXXXX 								T. Harris
(613) 957-2114
March 30, 2007

Dear XXXXXXXXXX:

Re: Remediation Costs

This is in response to your recent electronic message wherein you requested our interpretation of whether reclamation costs incurred to clean up contaminated land that was acquired by a land developer for the purpose of constructing a rental building on the site may be included as part of the cost of the building, rather than the land. In this regard, you believe that such clean-up costs are analogous to the cost of clearing and levelling land as described in paragraphs 1 to 5 of Interpretation Bulletin IT-485 Cost of Clearing or Levelling Land.

Our Comments

Written confirmation of the income 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 as described in Information Circular 70-6R5 dated May 17, 2002 issued by the Canada Revenue Agency. A fee is charged for this service. Although, we are unable to provide any comments with respect to your particular fact situation otherwise than in the form of an advance income tax ruling, the following general comments may be of assistance.

In our view, reclamation and clean-up costs incurred to remediate a parcel of land will generally be considered to form part of the capital cost of the land when the contaminated condition existed at the time that the land was acquired. We believe that this treatment is analogous to that described in paragraph 6 of IT-485 relating to the demolition of an existing building, as the purchase price paid for the land would likely have been substantially higher if the land had not been contaminated.

We trust that our comments, which are provided in accordance with the practice outlined in paragraph 22 of IC-70-6R5, are of assistance.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch