| 19(1) | File No. 5-9129 |
| R.B. Day | |
| (613) 957-2136 |
January 18, 1990
19(1)
We are writing in reply to your letter of November 21, 1989, wherein you requested our views regarding the classification, for capital cost allowance ("CCA") purposes, of home videotape cassettes in the following scenario:
1. A corporation is currently in the leasing business.
2. The corporation decides to purchase a number of home videotape cassettes and in turn leases them, at arm's length, to various outlets.
3. The lease to the outlets will be on a operating lease basis with a term greater than one year. However, in any 30 day period each outlet will rent the videotape cassettes for only 2-3 days to any one person.
4. Since this is an operating lease, the corporation will claim CCA to be applied against the lease income.
It appears, in your view, that the home videotape cassettes would not be included in class 12(r) of schedule II because the seven day limitation has not been met. However, since the various outlets adhere to the seven day limitation, you have requested our views as to whether or not the corporation would be able to include the videotape cassettes in class 12. In the alternative, you have requested our views as to whether the videotape cassettes would be included in class 10(s) or class 8(i) of schedule II, if they cannot be included in class 12.
Our comments
It is our view that, because the corporation leases the videotape cassettes to the various arm's length lessees for more than seven days in any 30 day period, the videotape cassettes cannot be included in class 12(r) of schedule II.
With respect to your alternate question, it is our opinion that these videotape cassettes would be included in class 8(i) because there is no other specific reference in any other of the CCA classes to a "videotape cassette". Class 12(1) refers to a "video tape acquired before May 25, 1976". In this context a "video tape" is not a videotape cassette but is a video tape of which the taxpayer acquires the beneficial ownership including the master negative and copyright to the tape.
We hope these comments are of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch