Principal Issues: [TaxInterpretations translation] What is the tax treatment of software development?
Position: Not available
Reasons: These are questions of fact to be resolved in an advance ruling application only.
XXXXXXXXXX 2004-008384
Michel Lambert
July 30, 2004
Dear Sir,
Subject: Request for technical interpretation
This is in response to your letter of July 5, 2004 requesting our opinion on a computer system development project.
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is our practice not to issue a written opinion regarding proposed transactions otherwise than by advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may not, however, apply to your particular situation in certain circumstances.
As noted in paragraph 15(e) of the Information Circular, we do not issue advance income tax rulings where the main issue is whether a transaction is on income or capital account. Nor do we comment on this issue in the context of a technical interpretation.
The question of whether all the conditions for the application of paragraph 12(1)(x) are satisfied can only be resolved after considering all the relevant facts, including the contracts between the parties.
In determining whether a taxpayer has acquired software or an interest in software, we are of the view that it is necessary to determine whether there has been such an acquisition under civil law or under common law, depending on which legal regime applies to the transaction.
There are many facts in the situation you described and we cannot comment without knowing all the facts. However, we would be pleased to take up your case again in an advance ruling application to be submitted to us in the manner set out in Information Circular 70-6R5.
Best regards,
Section Manager
for the Director of the Division
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch