| December 6, 1989 | |
| TO - Appeals and Referrals | FROM - Resource Industries |
| Division | Section |
| Frank Gillman | |
| E. Noël de Tilly | 957-9768 |
| Director | |
| File No. 7-3733 |
SUBJECT: Regulation 4600(2)(h) of the Income Tax Regulations
Following your memorandum of April 3, 1989, to the Quebec District Office regarding the above cited subject matter which you also carbon copied to this Division, we are writing to inform you of an opinion request we were presented with dealing with the same subject matter, dated March 13 from the Industry Specialists Section of the Special Audits Division.
They requested our opinion whether a bridge constructed as part of a logging road system would meet the definition of "qualified property" as that expression is used at subsection 127(9) of the Act, with regards to earning investment tax credits and as to whether the subsurface construction of the road itself qualifies for such credits.
Logging roads and bridges are included for income tax purposes in either Class 10(n) or Class 15 of Schedule II to the Regulations. Under paragraph 4600(2)(h) of the Regulations, Class 10(n) or Class 15 assets meet the definition of "qualified property" as defined at subsection 127(9) of the Act which costs are eligible for investment tax credits. However paragraph 4600(2)(h) of the Regulations excludes from this definition "a roadway".
The Special Audits Division was finding that the logging industry was starting to include the cost of bridges and subsurface construction of roads as qualified property and claiming investment tax credits on these costs. It was their contention that these costs should not be so treated and requested our input.
It was our initial reaction based on the dictionary definition of roads and bridges (in the English and French language), and the general usage and meaning of these terms in the logging industry, that the exclusionary words at paragraph 4600(2)(h) of the Regulations "other than a roadway" included therein the subsurface construction of a road and any bridges necessary for a logging road system to be functional.
Based on our initial opinion, we approached the Department of Finance and formally requested their comments on this matter. They responded that it was their understanding that the intention of these provisions was that all of the expenses relating to the building of a road, including subsurface construction, culverts, and bridges should be excluded from earning investment tax credits since they are part of a roadway as that expression is defined in the logging industry.
In that the Department of Finance was in unison with our own opinion on this matter, our response to the Special Audits Division took this approach.
Prior to issuing our response to the Special Audits Division, the officer on the file, Frank Gillman, discussed the matter with J.P. Simard of your Division, the author of your April 3 memorandum to the Quebec District Office.
We have enclosed for your files a copy of the memorandum we sent to the Special Audits Divisions.
C. Gouin-ToussaintDirectorBilingual Services and ResourceIndustries DivisionRulings Directorate