Principal Issues: Whether certain expenditures incurred to construct road ramps, roadways and other road related improvement could be treated as Class 17 depreciable assets on the basis that the requirements of paragraph 13(7.5)(b) have been satisfied.
Position: Question of fact. General comments only.
Reasons: See above.
XXXXXXXXXX 2011-042692 S. D'Angelo (613)952-5803 January 25, 2012
Dear XXXXXXXXXX :
Re: Classification of Certain Assets as Class 17
This is in response to your correspondence of October 21, 2011 concerning the income tax treatment under the Income Tax Act (the "Act") of certain capital expenditures incurred by a taxpayer in connection with the construction of a commercial property and related infrastructure.
In particular, you have asked whether the costs incurred by a taxpayer pertaining to the construction of roadways, ramps and other road related improvements can be included in Class 17 of Schedule II of the Income Tax Regulations (the "Regulations") as depreciable property on the basis that the requirements of paragraph 13(7.5)(b) of the Act have been satisfied or, alternatively, whether such costs can be treated as "eligible capital expenditures" as that term is defined in subsection 14(5) of the Act.
Our Comments
Your request appears to relate to a completed transaction or possibly a proposed transaction involving specific taxpayers. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided by the Canada Revenue Agency ("CRA") in response to a request for an advance income tax ruling. To make such a request, the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5 ("IC-70-6R5") dated May 17, 2002. Where the particular transactions are completed, the determination of the proper income tax consequences is the responsibility of the relevant tax services office. We can, however, provide the following general comments.
Paragraph 13(7.5)(b) of the Act provides that where a taxpayer incurs a cost on account of capital for the building of, for the right to use or in respect of, a prescribed property, and the cost of such property would not otherwise be included in the capital cost of any depreciable property to the taxpayer then the taxpayer will be deemed to have acquired the property at that time at a capital cost equal to the amount of the cost.
In addition, paragraph 13(7.5)(d) of the Act provides, inter alia, that any property deemed by paragraph 13(7.5)(b) of the Act to have been acquired at any time by the taxpayer as a consequence of making a payment or incurring a cost:
- is deemed to have been acquired for the purpose for which the payment was made or the cost was incurred, and
- is deemed to be owned by the taxpayer at any subsequent time that the taxpayer benefits from the use of the property.
Prescribed property for the purpose of paragraph 13(7.5)(b) of the Act is described in subsection 1102(14.3) of the Regulations as:
(a) a road (other than a specified temporary access road), sidewalk, plane runway, parking area, storage area or similar surface construction;
(b) a bridge; and
(c) a property that is ancillary to any property described in paragraph (a) or (b).
Additional general comments on the application of the above described rules can be found in Interpretation Bulletin IT-143R3, Meaning of Eligible Capital Expenditure, at paragraph 30 and Interpretation Bulletin IT-476R, Capital Cost Allowance - Equipment Used in Petroleum and Natural Gas Activities, at paragraph 27.
It is a question of fact whether the above-noted rules or some other rules would apply in a particular fact situation and in order to make such a determination the CRA would need to have a compete understanding of all the relevant facts and circumstances which would normally require a review of any relevant contracts, agreements or other documentation or information pertaining to the particular situation.
We trust our comments will be of assistance.
Yours truly
Michael Cooke
Manager
Capital Transactions Section
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch