ARCHIVED - Cost of Clearing or Levelling Land

What the "Archived Content" notice means for interpretation bulletins

NO: IT-485

DATE: April 19, 1982

SUBJECT: INCOME TAX ACT
Cost of Clearing or Levelling Land

REFERENCE: Paragraphs 20(1)(a) & (aa) and Section 30

1. In order to be able to erect a building or other structure or to make a road, a parking area or other surface construction, a taxpayer may find it necessary to clear or level the surface of the land on which that depreciable property is to be built.

2. In the above circumstances, the cost of clearing or levelling ordinarily will be accepted as part of the depreciable cost of the property built on the land rather than as part of the cost of the land itself.

3. The term "clearing" as used in this bulletin may involve the removal of trees, stumps, shrubbery or boulders, while "levelling" may involve either filling low-lying or uneven land or the removal of solid rock, mounds or even hills. In addition, any one of these may be accompanied by drainage of the land or the diversion of a spring or stream.

4. Where depreciable property of more than one class is built on cleared or levelled land or where part of the land is either used for extensive landscaping or is not put to any use, a reasonable division of the clearing or levelling costs should be made so that each depreciable property and the land itself will bear an appropriate part of the costs. The portion applicable to land will be deductible under paragraph 20(1)(aa) to the extent that it constitutes landscaping. For a complete discussion on this subject see IT-296 "Landscaping of Grounds".

5. The cost of clearing or levelling will be allocable to the depreciable cost of depreciable property only if the taxpayer commences to build the depreciable property thereon without undue delay. Otherwise the costs must be considered as an integral part of the cost of the land. Normally it is expected that work on the construction of the depreciable property would have begun in the same taxation year unless the clearing or levelling was done near the end of that year, in which case it should begin early in the next following year. Cognizance will be taken of weather conditions (eg: it may be necessary to wait for the following spring to commence actual construction) and of particular and unexpected difficulties encountered, such as a strike or delays beyond the taxpayer's control in obtaining a building permit. Otherwise the clearing or levelling and the actual construction should form one continuous operation.

BUILDING INCIDENTALLY ACQUIRED ON OBTAINING A SITE

6. In some cases a taxpayer may buy a piece of real estate, including a building with the intention of tearing down the building. Where the taxpayer has not used the building to earn income, it would seem clear that the purchase price was paid for the land and might even have been greater if the building had not been on it. In these circumstances, the cost of demolishing the existing structure, less the amount of any salvage, will form a part of the cost of the land.

Where a building has been acquired in the circumstances outlined above but has been rented for a short period before demolition, the above rule applies, but the net rental income therefrom may be applied in reduction of the cost of the land.

GOLF COURSES

7. Where the clearing or levelling and preparation of the soil is for the purpose of laying out a golf course, by far the greatest part of that work would be to prepare a base for greens, tees and fairways. Since these do not constitute depreciable property, the cost of that part of the work will not be depreciable but will form part of the cost of the land. If a club house, pro shop or parking area is erected on part of the cleared or levelled land, however, that part will be recognized in accordance with 5 above.

FARMERS CLEARING AND LEVELLING LAND OR LAYING TILE DRAINAGE

8. Where a taxpayer is carrying on the business of farming, whether as owner or tenant of a farm, section 30 allows him to deduct, in computing his income from that business, amounts paid by him for clearing or levelling land or laying tile drainage for the purpose of carrying on such business. Where an amount is so deductible, paragraph 1102(1)(a) and subsection 1702(1) of the Regulations operate to exclude that amount from the cost of depreciable property so that capital cost allowance cannot be claimed thereon. Clearing or levelling land for this purpose includes brushing and breaking land. i.e.: clearing the land of brush, trees, roots, stones etc. and the initial ploughing for the purpose of putting the land into productive use.

9. Where expenditures were made voluntarily by a tenant farmer prior to 1965 for clearing land or for tile drainage and the cost formed part of his leasehold interest subject to capital cost allowance under class 13, such allowances can continue to be made in accordance with the terms of that Class.