Principal Issues: [TaxInterpretations translation] In what class does a railway system acquired before 1958 come within?
Position: A railway system of a common carrier acquired before 1958 falls within paragraph (a) of Class 4 of Schedule II of the Income Tax Regulations.
Reasons: Background and overall context of the regulatory provisions dealing with capital cost allowance for assets in the railway industry.
2009-031308 XXXXXXXXXXX L. Allaire, Advocate, CGA, D. Fisc. November 16, 2009
Dear XXXXXXXXXX,
Subject: Tax class of railway
This is in response to your letter we received by fax on March 9, 2009 in which you requested our opinion as to the depreciable class for a railway system acquired by a corporation prior to 1958. We apologize for the delay in responding to your request.
You indicated that the corporation operates a railway business and owns a railway system that it acquired in part prior to 1958. In addition, you indicated in a telephone conversation (XXXXXXXXXX/Allaire) on June 4, 2009, that the corporation provides transportation services to the public for the transportation of goods or people.
We have assumed that the corporation is a common carrier. In this regard, the definition of "railway system" in subsection 1104(2) of the Income Tax Regulations ("Regulations") provides that a railway system includes a railway owned or operated by a common carrier, together with all buildings, rolling stock, equipment and other properties pertaining thereto, but does not include a tramway. Accordingly, we are of the view that the term "common carrier" includes a person who carries on the business of providing, for consideration, a service of transporting property or persons from one place to another and who generally offers its services to the public.
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 completed transactions, you should submit all relevant facts and documents to the appropriate Tax Services Office for its opinion. However, we are able to offer the following general comments that may be of assistance.
Generally speaking, the question of whether a depreciable property can be classified in a particular class in Schedule II of the Regulations can only be decided after a review of the relevant facts in a particular situation.
By virtue of paragraph (h) of Class 1 of Schedule II of the Regulations, property consisting of railway track and grading, including components such as rails, ballast, ties and other track material that is not part of a railway system, or that was acquired after May 25, 1976, must be included in Class 1. As a result, property described in subparagraph (h)(ii) of Class 1 of Schedule II to the Regulations, that is, property acquired after May 25, 1976, may be included in a railway system.
By virtue of paragraph (a) of Class 4 of Schedule II to the Regulations, property that would otherwise be included in another class in Schedule II, consisting of a railway system or part thereof, except automotive equipment not designed to run on rails or tracks, that was acquired after the end of the taxpayer’s 1958 taxation year and before May 26, 1976, is to be included in that class.
After reviewing the history and overall context of the regulatory provisions dealing with the capital cost allowance of assets in the railway industry, it is our opinion that the post-1958 year-end acquisition test in paragraph (a) of Class 4 of Schedule II of the Regulations should relate only to non-railway automotive equipment.
Based on the above, we are of the view that a railway system acquired prior to 1958 is depreciable property that falls within Class 4 of Schedule II of the Regulations.
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.