Principal Issues: Whether a laser cutting machine which is CNC system -controlled is included in class 52.
Position: No.
Reasons: Machinery and equipment that is used in manufacturing or processing of goods for sale or lease and that is acquired after March 18, 2007 and before 2012 is generally included under class 29.
XXXXXXXXXX 2010-038638 Tim Fitzgerald, CGA
March 28, 2011
Dear XXXXXXXXXX ,
RE: Capital Cost Allowance (CCA) Class of Laser Cutting Machine
This is in reply to your letter and your email of November 8, 2010 concerning the CCA class of certain laser cutting machinery to be used by XXXXXXXXXX ("Aco") in its metal fabrication operations.
We understand the facts to be as follows:
1. Aco's operations at its plant in Canada include the fabrication of various metal products that involves, amongst other activities, the cutting of sheets of steel.
2. In 2010 Aco purchased a computer numerical controlled (CNC) laser cutting machine to be used by Aco for cutting steel in its metal fabrication operations. Aco sells the product that it manufactures. Aco considers its operation to be primarily manufacturing goods for sale or lease.
3. The laser cutting machine consists of a Trumpf Trulaser 2030 laser cutter, a Trumpf TruCoax 3200 laser resonator, both manufactured by Trumpf Inc. (TCO), and a Siemens Sinumerik 840D controller.
You would like to know if the equipment referred to in 3 above can be included under Class 52 of Schedule II of the Income Tax Regulations (the "Regulations") because, as you put it in your letter, the laser cutter is run by computer.
Our Comments
As explained in Information Circular 70-6R5, Advance Income Tax Rulings, if a particular situation involves proposed transactions, all relevant facts and documentation can be submitted in the context of an advance income tax ruling request. If the situation involves completed transactions, the information can be submitted to your local tax services office for their views. The situation outlined in your letter appears to relate to one involving completed transactions. Nonetheless, we offer the following general comments.
Before determining the appropriate CCA class, it is necessary to determine whether the components of the laser cutting machine referred to in 3 above should be treated as separate properties or together as one property for CCA purposes.
Your letter did not provide any technical information concerning the aforementioned equipment. However, based on information gleaned from the internet, our impression is that the Trumpf TruLaser 2030 laser cutter and Trumpf TruCoax 3200 laser resonator are designed to operate as one integrated laser cutting machine tool that is CNC controlled by the Siemens Sinumerik 840D.
We understand that automated machine tools are generally CNC controlled. Numerical control generally refers to the automation of machine tools operated by programmed commands encoded on a storage medium.
According to the specifications listed in TCO's pamphlet, TruLaser: Flexible cutting through thick and thin, the operator controller for the TruLaser 2030 is the Siemens Sinumerik 840D and all parts of the laser cutting machine, including the Siemens Sinumerik 840D are integrated:
"TruLaser machines are designed to optimally coordinate the complete manufacturing process. All parts are integrated [...]. The machine enclosure integrates the laser and operator panel."
It would appear that the Trumpf TruLaser 2030 laser cutter, Trumpf TruCoax 3200 laser resonator, and the Siemens Sinumerik 840D controller, are integral components of a single property, that being an automated laser cutting machine.
For income tax purposes, Schedule II of the Regulations provides various CCA classes for depreciable capital property and applicable rates of CCA.
Class 52 generally provides for a 100% CCA rate for property acquired by a taxpayer after January 27, 2009 and before February 2011 that is general-purpose electronic data processing equipment (GPEDPE) and systems software for that equipment, including ancillary data processing equipment that:
(a) is situated in Canada;
(b) has not been used, or acquired for use, for any purpose whatever before it was acquired by the taxpayer; and
(c) is acquired by the taxpayer either
(i) for use in a business carried on by the taxpayer in Canada or for the purpose of earning income from property situated in Canada; or
(ii) for lease by the taxpayer to a lessee for use in a business carried on by the lessee in Canada or for the purpose of earning income from property situated in Canada.
GPEDPE is defined in subsection 1104(2) of the Regulations as electronic equipment that, in its operation, requires an internally stored computer program that:
(a) is executed by the equipment;
(b) can be altered by the user of the equipment;
(c) instructs the equipment to read and select, alter or store data from an external medium such as a card, disk or tape; and
(d) depends upon the characteristics of the data being processed to determine the sequence of its execution.
An example of GPEDPE would be a desktop PC or laptop computer.
However, there are exceptions in that property falling into class 52 does not include property that is principally or is used principally as electronic process control or monitor equipment (including related system software), electronic communications control equipment (including related system software), or data handling equipment (other than such equipment that is ancillary to general-purpose electronic data processing equipment).
It is our view that the automated laser cutting machine is not GPEDPE but is equipment used for cutting steel in metal fabrication operations. Thus it is excluded from class 52.
Generally, machinery and equipment acquired by a taxpayer after February 25, 1992 to be used directly or indirectly by the taxpayer in Canada primarily (more than 50%) in manufacturing or processing of goods for sale or lease are included in Class 43 (CCA rate 30%). However, eligible manufacturing and processing (M&P) machinery and equipment acquired after March 18, 2007, and before 2012 that would otherwise be included in Class 43 is generally included in Class 29 (CCA rate 50%). Regular Class 43 treatment will apply to eligible M&P equipment acquired after 2011.
We trust our general comments above are of assistance.
Yours truly,
Sandy Parnanzone
Manager
for Director,
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Division