Principal Issues: [TaxInterpretations translation] Would certain property acquired be included in Class 43 if it were acquired for use directly or indirectly by a taxpayer in Canada primarily in the manufacture and processing of goods for sale or lease?
Position: General comments.
Reasons: Subparagraph (c)(iii) of Class 29.
XXXXXXXXXX 2009-032480 I. Landry, M. Fisc.
June 4, 2010
Dear Mr. XXXXXXXXXX,
Subject: Classification of certain property for capital cost allowance purposes
This is in response to your letter of February 27, 2009, asking whether the following properties are included in Class 43 of Schedule II to the Income Tax Regulations ("Regulations") if they were acquired by a taxpayer for use directly or indirectly in Canada primarily in the manufacturing and processing of goods for sale or lease:
1) moulds;
2) a forklift truck;
3) an overhead crane;
4) a crane.
Unless otherwise indicated, all legislative references herein are to the provisions of Schedule II of the Regulations.
Our Comments:
The situation you described in your letter appears to be related to an actual situation involving specific taxpayers. As explained in Information Circular 70-6R5, Advance Income Tax Rulings, it is not the Directorate's practice to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should forward all relevant facts and documents to the appropriate tax services office for its views.
The question of in which particular class in Schedule II to the Regulations a depreciable property is included is a question of fact that can only be determined after an examination of all the relevant facts of a particular situation. We are, however, prepared to provide the following general comments, which we hope you will find helpful. These comments may, however, in some circumstances, not apply to your particular situation.
Class 43:
Class 43 includes property described in paragraph (a) of that Class. Paragraph (a) requires that the property be property acquired after February 25, 1992 that is not included in Class 29, but would otherwise be included in that Class if that Class were read without reference to subparagraphs (b)(iii) and (v) and paragraph (c) thereof.
Class 29:
To be included in Class 29 for purposes of Class 43, the property must, in accordance with paragraph (a), be manufactured or acquired by a taxpayer after May 8, 1972 and must be used directly or indirectly by the taxpayer in Canada primarily in the manufacturing or processing of goods for sale or lease.
The property must then be described in one of subparagraphs (b)(i), (ii), and (iv) of that Class, including property that would normally be included in Class 8, an oil or water storage tank and electrical generating equipment described in Class 9. As previously stated, property that is described in subparagraphs (b)(iii) and (v), namely, a powered industrial lift truck, or property that is described in paragraph (b) or (f) of Class 10, is not included in Class 29 for the purposes of Class 43.
Finally, since paragraph (c) does not apply for the purposes of Class 43, the property must have been acquired between February 25, 1992 and March 18, 2007 or after 2012 by a taxpayer. Property acquired after March 18, 2007 but before 2012 by a taxpayer is not included in Class 43 by reason of subparagraph (c)(iii) of Class 29. That subparagraph indicates that property acquired by a taxpayer after March 18, 2007 but before 2012 that is machinery or equipment is included in Class 29 if it was acquired for use directly or indirectly by the taxpayer in Canada primarily in the manufacture or processing of goods for sale or lease and is described in any of subparagraphs (b)(i) to (iii) and (vi) of that class; these include property that would normally be included in Class 8, such as an oil or water tank and a powered industrial forklift truck.
Class 8:
Paragraph (a) of Class 8 indicates that property not included in Class 1, 2, 7, 9, 11, 17 or 30 that is a structure that is manufacturing or processing machinery or equipment is included in Class 8.
Paragraph (b) of Class 8 indicates that property not included in Class 1, 2, 7, 9, 11, 17 or 30 that is tangible property attached to a building and acquired solely for the purpose of, inter alia, manufacturing or processing is included in Class 8.
Class 12:
Paragraph (d) of Class 12 indicates that property not included in any other class that is a die, jig, pattern, mould or last for footwear is included in Class 12.
Moulds:
Although moulds are specifically described in paragraph (d) of Class 12, it is our view that they could be included in Class 29 or Class 43, depending on when they were acquired and the facts of each particular situation. In order to be included in Class 29 or 43, as the case may be, the moulds must satisfy all the conditions, including having been acquired by the taxpayer for use directly or indirectly by the taxpayer in Canada primarily in the manufacturing or processing of goods for sale or lease and would otherwise be included in Class 8. Moulds could be considered to be structures that are manufacturing or processing machinery or equipment within the meaning of paragraph (a) of Class 8 depending on the facts of each particular situation.
Forklift truck:
We are of the view that a powered industrial forklift truck acquired by a taxpayer for use directly or indirectly by the taxpayer in Canada primarily in the manufacturing or processing of goods for sale or lease would not be included in Class 43 because it is specifically excluded in paragraph (a) of Class 43 by reference to subparagraph (b)(iii) of Class 29. However, such property acquired after March 18, 2007 but before 2012 could be included in Class 29 by virtue of clause (c)(iii)(B) of that class.
Overhead crane and crane:
We are of the view that a crane or overhead crane is property that could be included in Class 29 or Class 43, depending on when it was acquired and the facts of each particular situation. To be included in Class 29 or 43, as the case may be, they must satisfy all the conditions, including having been acquired by the taxpayer for use directly or indirectly by the taxpayer in Canada primarily in the manufacturing or processing of goods for sale or lease and otherwise be included in Class 8. The overhead crane and the crane could be considered to be structures consisting of manufacturing or processing machinery or equipment within the meaning of paragraph (a) of Class 8 depending upon the facts of each particular situation. In the case of the overhead crane, it could in certain situations be considered to be tangible property attached to a building and acquired solely for the purpose of, inter alia, manufacturing or processing within the meaning of paragraph (b) of Class 8 depending on the facts of each particular situation.
Best regards,
Randy Hewlett
Manager
for the Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.