| August 25, 1989 | |
| SCARBOROUGH DISTRICT OFFICE | Small Business and |
| S. Gee | General Division |
| Basic Files 142-1-3 | D. Turner |
| (613) 957-2095 | |
| File No. 7-3447 |
Subject: 24(1) - Courseware License
24(1)
Our comments
Class 12(o) of Schedule II provides for the inclusion of computer software acquired after may 25, 1976 but not including systems. The term "computer software" is defined in Regulation 1104(2) and includes "a right or license to use computer software". In our opinion the rights or licences to use computer software and they qualify for inclusion in class 12(o). We are assuming that the computer-based education software is computer software and not systems software since this is not an issue contested by you.
Although the rights summarized in (a) above are described as being perpetual (article 2(A)) and in the recitals on page one of the Agreement the 24(1) However, they do result in the granting of "rights in licenses to use computer software" and hence the inclusion in class 12(o).
The phrase "a right or license to use computer software" includes any right or license for a limited or unlimited period to use computer software for commercial exploitation. Such a right or license for commercial exploitation may include any right to commercial exploitation that would exist if a licensee owned the computer software outright. For example, "a right or license to use computer software" can include the right to reproduce computer software, the right to use it internally, the right to lease, license or sublicense, the right to copyright protection or the right to use a trademark in respect of computer software. However, a licensee can only acquire the "right or licence to use computer software" specifically granted to him under a licensing agreement so it is possible that not all rights to commercial exploitation owned by the licensor pass on to the licensee.
The introduction of the definition "computer software" in Regulation 1104(2) was made effective retroactively to May 26, 1976 to coincide with the introduction of class 12(o). The introduction of the definition "computer software" was intended to provide the same tax treatment of both the cost of computer software acquired outright and the cost of a right or licence to use computer software for commercial exploitation. Prior to the enactment of the definition "computer software", a taxpayer who engaged in the commercial exploitation of computer software and who owned the computer software outright was eligible to include the cost of the computer software in class 12(o). However, if the same taxpayer had engaged in the commercial exploitation of the same software under a licensing agreement for a limited period, the cost of acquiring these licensing rights was included in class 14 and if the licensing agreement was for an unlimited period, the cost was treated as an eligible capital expenditure.
We trust our comments will be of assistance.
A/ChiefMerchandising, Manufacturing and Construction SectionSmall Business and General DivisionSpecialty Rulings DivisionLegislative and Intergovernmental Affairs Branch