| 24(1) | 900830 |
| A.Y. Ho | |
| (613) 957-2094 | |
| 19(1) | EACC9638 |
September 21, 1990
Dear Sirs:
This is in reply to your letter of May 15, 1990 in which you asked for our view on the meaning of the phase "plant facility or other property that was under construction by or on behalf of the taxpayer on June 18, 1987" as used in the grandfathering provisions of paragraph (c) of Class 29, Schedule II of the Regulations and how it would be applied to a situation of continual plant expansion. By continual plant expansion, you mean a situation where there is management commitment to enhance and continually expand to achieve target levels of capacity for a plant site on an efficient production basis.
Your Opinion
In your view, continual plant expansion to meet long-term capacity objectives can reasonably be seen to be one continuous construction process and therefore, should any process in place on June 18, 1987 be seen as a continual one, it would be reasonable to conclude that the plant facility is under construction on June 18, 1987.
Our Comments
In our view "plant facility or other property" refers to the test of a particular asset and not a collection of assets that may be envisioned in a "continual plant expansion" project. Clause (c)(ii)(C) of Schedule II of Class 29 of the Regulations reads as follows:
(c) that is property acquired by the taxpayer
(ii) before 1990
(C) that is machinery or equipment that is fixed and integral part of a building, structure, plant facility or other property that was under construction by or on behalf of the taxpayer on June 18, 1987.
Therefore, the test is applied to a particular piece of machinery or equipment that becomes a fixed and integral part of a particular asset that was under construction on June 18, 1987. It is not sufficient that it becomes a fixed and integral part of an asset that, at June 18, 1987, was planned to be constructed as part of a continual plant expansion project that was under way at June 18, 1987.
The meaning of the word "construction" is contained in Interpretation Bulletin IT-411. In paragraph 2 of that IT-411, it states that:
The term "Construction" refers to those activities normally associated with the on-site fabrication and erection of buildings, roads, bridges, etc., which are intended to be permanently affixed to the land on which they are built.
Thus the concept of "a continuous construction process" extending through a program of continual plant expansion is also incompatible with the Department's interpretation of the meaning of the words "under construction".
In conclusion, the grandfathering provisions do not contemplate application to a continual plant expansion project.
We hope the above comments will be of assistance.
Yours truly,
for Director Business and General Division Rulings DirectorateLegislative and Intergovernmental Affairs Branch