Principal Issues: [TaxInterpretations translation] Are pick-up trucks that are leased by a taxable Canadian corporation in the course of its short-term motor vehicle leasing business assets in Class 16 of the Income Tax Regulations?
Position: In this case, we believe that pick-up trucks should be included in Class 10 of Schedule II of the Income Tax Regulations. It is necessary to determine whether pick-up trucks are automobiles for the purposes of the Act. As part of this determination, it is necessary to determine whether they fall within the exception in subparagraph 248(1)(e)(ii) of the definition of automobile. That provision provides that motor vehicles of the van or pick-up truck type the use of which, in the taxation year in which it is acquired or leased, is all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income are not automobiles.
Reasons: In order to determine whether vans can be included in Class 16, they must first be automobiles. As part of that determination, it must be determined whether they fall within the exception in paragraph 248(1)(e) of the definition of automobile. That provision provides that motor vehicles of the van or pick-up truck type the use of which, in the taxation year in which it is acquired or leased, is all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income are not automobiles.
XXXXXXXXXX 2009-034486
June 16, 2010
Dear Madam,
Subject: Class 16 of Schedule II to the Income Tax Regulations
This is in response to your letter of October 13, 2009, requesting our opinion regarding paragraph (e) of Class 16 of Schedule II ("Class 16") of the Income Tax Regulations (the "Regulations").
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act"). Specifically, since the paragraphs of the definition of automobile in the French version of the Act are identified differently from those in the English version, any reference to paragraphs of the definition of automobile in subsection 248(1) is a reference to those paragraphs as set out in the English version of the Act.
You described a situation where a taxable Canadian corporation carries on a short-term motor vehicle leasing business. In the course of carrying on its business, the corporation acquires motor vehicles for the purpose of leasing them. Among the vehicles the corporation acquires are pick-up trucks, some with up to three seats, others with more than three seats.
The pick-up trucks are leased to lessees who may use them for personal use or to transport goods or equipment to earn income. Similarly, the pick-up trucks are sometimes leased to customers who use them at locations in Canada that fall within clauses (e)(iii)(A) and (B) of the definition of automobile in subsection 248(1). The foreseeable lease period for the pick-up trucks, per lessee, does not exceed 30 days in any 12-month period.
You confirmed that the pick-up trucks fall within paragraph (d) of the definition of automobile.
Therefore, you wish to know if pick-up trucks are automobiles that the corporation can include in Class 16 since, in your opinion, they may also potentially fall within paragraph (e) of the definition of automobile in subsection 248(1).
Our Comments
It appears to us that the situation described in your letter and summarized below could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involved specific taxpayers and one or more transactions, you should submit all relevant facts and documentation to the appropriate tax services office for its opinion. However, we can offer the following general comments that may be helpful.
Paragraph (e) of Class 16 reads as follows:
[...]
property acquired after November 12, 1981 that is
(e) a motor vehicle that
(i) would be an automobile as that term is defined in subsection 248(1) of the Act, if that definition were read without reference to paragraph (d) thereof,
(ii) was acquired for the purpose of renting or leasing, and
(iii) is not expected to be rented or leased to any person for more than 30 days in any 12 month period,
In this case, since pickup trucks fall within paragraph (d) of the definition of automobile in subsection 248(1), it appears that condition (i) above is satisfied.
However, based on your interpretation of paragraph (e) of the definition of automobile, you believe it is possible that the pick-up trucks also come within that paragraph. If that were the case, pick-up trucks could not be included in Class 16 and should instead be included in Class 10 of Schedule II ("Class 10") of the Regulations.
Subparagraph (e)(i) of Class 16 generally applies to motor vehicles that are automobiles and are intended for short-term rental purposes.
Subparagraph (e)(ii) of the definition of automobile refers to pick-up trucks and/or vans the use of which, in the taxation year in which they are acquired or leased, are all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income.
In this case, where it can be established that the pick-up trucks the use of which, in the taxation year in which they are acquired or leased, are all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income, the CRA will be of the view that the pick-up trucks are motor vehicles described in subparagraph (e)(ii) of the definition of automobile to be included in Class 10.
We hope that these comments will be of assistance.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.