QUESTION: I have owned a motorhome that I purchased for rental purposes since 2001. Last October I was informed by the ccra they were going back to 2002-03-04 and auditing my taxes. End result I sent them the below reply and the cca for those years was denied, not only this but I had traded the unit in for 50,000, and in their answer I cannot even claim that. Friday I recieved my bill from our government friends. Every thing that I have read about this issue points to the ability to use cca as a loss.below is my reply. My question is do I have a leg to stand on to fight this or should I just make the best of it and move on. Dear P XXXXXXXXX: Re your letter dated November 25, 2005 regarding my 2002, 03, and 04 tax returns. Please find enclosed; 1) Copies of the T2124 as requested. 2) The receipts and vouchers to support the Business Use of Home Expenses for said years. 3) With regards to this item, a floor plan of my home is provided also its description, a 2 story, 3 bedrooms with livingroom, diningroom, main floor familyroom, the home has a double garage, 3-1/2 bathrooms, and a finished basement (7 room house). The areas of the home used in carrying out the rental business are as follows, the desk in the livingroom, for general books and documents, cheques etc, the desk with computer located in the basement to do the spreadsheets, and the 2nd bedroom where the records are stored as well the comforter and pillows supplied with the motorhome but not sent out for rentals, as are the hub caps which are stored in the garage. These items are stored here to keep them in “as new” condition as they add to the resale value of the motorhome. 4) All bills and record keeping are done from the home, insurance, licence, GST, etc. 5) As other items please find attached receipts to support “other” expenses. In addition to these requests, I am at odds to your proposal to disallow the CCA for these years. It is/was my understanding the Motorhome was purchased for the purpose of rental income, and is a piece of rental equipment like a rototiller or tractor rented from a tool rental company, and not bricks and mortar like a rental home. The motorhome is “brokered” to XXXXXXXX XXXX Motorhomes where through our agreement, XXXXXXXX rents the motorhome out for a percentage of the rental fee. XXXXXXXXX does not lease this unit from me for “rental use” they market the unit, they maintain the unit, and collect the rental income which they remit to me along with my share of the GST on a monthly basis. The unit is kept on site at XXXXXXXXXX Motorhomes and is available for rental year round. XXXXXXXXXX also sells Motorhomes Lastly, owner use. I was under the impression I could use the motorhome for 2 weeks per year with no impact. Use in 2002, was 5 days, 2003 was 6 days including repairs/deep cleaning carried out because the previous renters drove into a sign and breached the roof seal, and use in 2004 was 1 week in May and 5 days in August. Availability for rental is key, and personal use during the season is only when the unit is not rented out. One final point I would like to add is the unit in question was traded in on August 6, 2005 with a value of $ 50,000, this would remove $ 18,000 from the UCC numbers in 2005 and reduce the CCA available on a newly purchased unit. I hope and trust that the information provided will bring about a quick and satisfactory result. Regards XXXXXXX XXXXXX ---------------------------------------------------------------------------- -------- david ingram replies: I am afraid you are out of luck on all three counts. A records office in the home is not a deduction unless it is your principal place of business. The rental of a motorhome as described with another company doing the renting, maintenance and storage can NOT be considered a full time business. AND the office MUST be a private separate room not used for any other purpose. For instance, I am answering this at a computer in the middle of my living room (there are actually 4 computers in the living room and I meet at least 100 clients a year here) but since it is a dual use room, I do not and indeed CAN NOT deduct anything for the space even though I do 90% of my work here. Likewise, the entranceway to the house which has a photocopier and space to assemble and mail out tax returns; because it is a dual use room (everyone entering the house goes through it) that space is not deductible either. Next, One can NOT use depreciation to create a loss with rental property. This has been true since 1972 and applies to rental houses, rental boats, rental Motorhomes, and even rental jet engines. There was specific legislation passed for a few years to allow depreciation for special built MURB'S where depreciation was allowed from Oct 1974 to 1986 or so with a break in between and later in 1985 and 1986, there was special legislation which allowed depreciation for special built rental boats (to support the boat building industry) but there has never been an exemption for Motorhomes. Last but not least, any personal use of the motorhome must have a personal benefit attributed to you. This can be attributed by mileage or time or a combination of both. It seems to me that the motorhome dealer you have mentioned has not given you good advice. Your letter to the CRA naming them will likely create audits of the list of motorhome owners that they are renting units for. (I know - bad English). I have acted as a tax consultant for two large motorhome rental operations and can assure you that we have not suggested that depreciation can be carried past zero for any individual owner. The exception is for the actual business of renting tools, renting cars, renting hotel or motel rooms or renting Motorhomes where that is obviously the business of the operation. Mitchell Motorhomes could deduct depreciation on their own rental Motorhomes. On the other hand, even though a 10 unit motel owner can deduct depreciation (CCA) past zero on his or her 10 units, the owner of a 100 suite apartment building rented by the month or year can NOT deduct CCA to create a loss. This is, of course, NOT true in the USA. ------------------------------------------ David Ingram's US / Canada Services US / Canada / Mexico tax, Immigration and working Visa Specialists US / Canada Real Estate Specialists My Home office is at: 4466 Prospect Road North Vancouver, BC, CANADA, V7N 3L7 Cell (604) 657-8451 - (604) 980-0321 Fax (604) 980-0325 Calls welcomed from 10 AM to 10 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) email to taxman at centa.com <mailto:taxman at centa.com> www.centa.com <http://www.centa.com/> www.david-ingram.com <http://www.david-ingram.com/> Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. 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David Ingram deals on a daily basis with expatriate tax returns with: multi jurisdictional cross and trans border expatriate problems for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax Immigration Wizard Antarctica Rwanda Guru Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US international non-resident cross border income tax help assistance expert preparation & immigration consultant david ingram, experts on rentals mutual funds RRSP RESP IRA 401(K) & divorce preparer preparers consultants David Ingram expert income tax help and preparation of US Canada Mexico non-resident and cross border returns with rental dividend wages self-employed and royalty foreign tax credits New York, Boston, Sacramento, Minneapolis, Salem, Wheeling, Philadelphia, Pittsburgh, Atlanta, Pensacola, Miami, St Petersburg, Naples, Fort Myers, Cape Coral, Orlando, Atlanta, Arlington, Washington, Hudson, Green Bay, Minot, Portland, Seattle, St John, St John's, Fredericton, Quebec, Moncton, Truro, Atlanta, Charleston, San Francisco, Los Angeles, San Diego, Sacramento, Taos, Grand Canyon, Reno, Las Vegas, Phoenix, Sun City, Tulsa, Monteray, Carmel, Morgantown, Bemidji, Sandpointe, Pocatello, Bellingham, Custer, Grand Forks, Lead, Rapid City, Mitchell, Kansas City, Lawrence, Houston, Albany, Framingham, Cambridge, London, Paris, Prince George, Prince Rupert, Whitehorse, Anchorage, Fairbanks, Frankfurt, The Hague, Lisbon, Madrid, Atlanta, Myrtle Beach, Key West, Cape Coral, Fort Meyers, Berlin, Hamburg Warsaw, Auckland, Wellington, Honolulu, Maui, Kuwait, Molokai, Beijing, Shanghai, Tokyo, Manilla, Kent, Winnipeg, Saskatoon, Regina, Red Deer, Olds, Medicine Hat, Lethbridge, Moose Jaw, Brandon, Portage La Prairie, Davidson, Craik, Edmonton, Calgary, Victoria, Vancouver, Burnaby, Surrey, Edinburgh, Dublin, Belfast, Glasgow, Copenhagen, Oslo, Munich, Sydney, Nanaimo, Brisbane, Melbourne, Darwin, Perth, Athens, Rome, Berne, Zurich, Kyoto, Nanking, Rio De Janeiro, Brasilia, Colombo, Buenos Aries, Squamish, Churchill, Lima, Santiago, Abbotsford, Cologne, Yorkshire, Hope, Penticton, Kelowna, Vernon, Fort MacLeod, Deer Lodge, Springfield, St Louis, Centralia, Bradford, Stratford on Avon, Niagara Falls, Atlin, Fort Nelson, Fort St James, Red Deer, Drumheller, Fortune, Red Bank, Marystown, Cape Spears, Truro, Charlottetown, Summerside, Niagara Falls, Albany Zimbabwe Alaska, Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Garland, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon. 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