| 19(1) | File No. 5-9309 |
| D. Turner | |
| (613) 957-2094 |
March 23, 1990
Dear Sirs:
Re: Investment Tax Credits
We are writing in reply to your letter of December 20, 1989 concerning whether or not an 24(1) would qualify for investment tax credits ("ITCs") related to the purchase of assets.
The situation outlined in your letter involves an actual situation and should be referred to the Saint John District Taxation Office in order that they may determine the pertinent facts related to your specific situation and advise you as to your eligibility to receive ITCs.
However, we offer the following general comments related to claims for ITCs by recording studios.
a) Subsection 127(5) of the Income Tax Act (the "Act") provides for the deduction of ITCs from tax otherwise payable in a taxation year. The ITCs may also be refunded to a taxpayer under provisions contained in section 127.1 of the Act.
b) A taxpayer's "investment tax credit" at the end of a taxation year is defined in subsection 127(9) of the Act and in the case of a recording studio would be based on the total capital cost of "qualified property" and "certified property" acquired by the studio in the year.
c) For a recording studio, "qualified property" as defined in subsection 127(9) of the Act, would generally include a building that is depreciable property of the taxpayer erected on land owned or leased by the taxpayer and included in Class 3, 6 or another capital cost allowance ("CCA") class listed in subsection 4600(1) of the Income Tax Regulations (the ("Regulations"), and machinery or equipment that is depreciable property of the taxpayer and is included in one of the CCA classes listed in subsection 4600(2) of the Regulations. The property must NOT have been used, or acquired for use or lease, for any purpose whatever before it was acquired by the recording studio, and it must be used in Canada PRIMARILY for the purpose of manufacturing or processing goods for sale or lease.
d) "Certified property" as defined in subsection 127(9) of the Act, would generally include property which meets the definition of "qualified property" given above AND which is part of a "facility" as defined for the purposes of the "Regional Development Incentives Act" and was acquired PRIMARILY by the studio for use in a "prescribed area". "Prescribed areas" for New Brunswick are contained in paragraph 4602(1)(d) of the Regulations and include the census divisions of Gloucester, Kent, Madawaska, Northumberland and Restigouche as they existed in the 1976 Statistics Canada census.
e) The ITC rates are given in subsection 127(9) of the Act and are currently 30% for "certified property" and 15% for "qualified property" acquired primarily for use in New Brunswick.
f) Reference should be made to paragraph 42 of Interpretation Bulletin IT-145R in order to determine which property used by the studio would qualify as being used primarily for manufacturing or processing of goods for sale or lease and thus eligible for ITCs. Interpretation Bulletin IT-331R and Information Circular 78-4R3 may also be helpful. We have enclosed copies of IT-145R, IT-331R and IC 78-4R3 for your convenience.
g) Questions concerning claims for ITCs not claimed in prior years should be addressed to your District Taxation Office in order for them to review all pertinent information and determine if reassessments of prior years income tax returns should be carried out.
We trust our comments will be of assistance.
R.E. Thompson
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch