Principal Issues: What is the proper CCA class in which depreciable property should be included following a change in use from a non-business to a business purpose?
Position: The determination is made based on various facts, one of which is the date of the change in use (rather than the original acquisition date).
Reasons: Paragraph 13(7)(b) of the Act.
NOTE: December 3, 2009
| Edmonton Tax Services Office Client Services Attention: Mrs. Edith Keefe MacLeod |
HEADQUARTERS Income Tax Rulings Directorate André Gallant (613) 957-8961 2009-034417 |
Change in Use - CCA Class
This is in response to your e-mail of October 13, 2009, regarding the proper capital cost allowance ("CCA") class in Schedule II of the Income Tax Regulations (the "Regulations") in which a computer should be included following a change in use. You described a taxpayer who purchased a computer in 2008 for personal use. In February of 2009, the taxpayer started a business, transferred his personal computer into his business and started using the computer for the purpose of earning income. You enquired as to whether the computer should be included in class 50 or 52.
Our Comments
Paragraph 13(7)(b) of the Income Tax Act ("the Act") deems the acquisition of property to occur when a property which was used for some other purpose begins to be used for the purpose of gaining or producing income. In addition, paragraph 13(7)(b) generally deems the taxpayer to have acquired the property at a capital cost equal to the lesser of two amounts, the fair market value of the property at the time of the change in use and the amount determined under subparagraph 13(7)(b)(ii) of the Act.
Subject to certain exceptions, general-purpose electronic data processing equipment and systems software for that equipment, including ancillary data processing equipment, acquired after March 18, 2007, is included in class 50 with a 55% CCA rate. Subject to further requirements, class 52 provides for a 100% CCA rate for such property acquired after January 27, 2009, and before February, 2011. One of the requirements for a class 52 property is that it has not been used, or acquired for use, for any purpose whatever before it is acquired by the taxpayer. This requirement does not apply to a class 50 property.
In the situation you describe, although the taxpayer acquired the computer personally in 2008, in our opinion the taxpayer is deemed to have acquired the computer for the purpose of gaining or producing income at that later time in February, 2009, pursuant to paragraph 13(7)(b) of the Act. However the computer is not included in class 52 because before the deemed acquisition by the taxpayer, the computer was used for any purpose whatever (i.e., for personal use). The computer is included in class 50 at a 55% CCA rate and is subject to the half-year rule. The half-year rule allows half the CCA otherwise available in 2009, the year the computer is deemed acquired by the taxpayer. If the computer was included in class 52, the half-year rule would not apply pursuant to subparagraph 1100(2)(a)(iv) of the Regulations.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We trust that our comments will be of assistance.
Kathryn McCarthy
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch