| 24(1) | 5-901733 |
| Bill Guglich | |
| (613) 957-2102 | |
| 19(1) |
October 18, 1990
Dear Sirs:
This is in reply to your letter of July 19, 1990 concerning the appropriate capital cost allowance class for videotape cassettes in the following hypothetical situations:
Situation I
1. Company A is a Canadian resident.
2. Company A maintains an inventory of videotape cassettes for rental to retail stores.
3. Company A rents the tapes to retail stores and charges a fixed rental fee per month for the use of the videotape cassettes.
4. The retail stores do not expect to rent the videotape cassettes to any one person for more than seven days in any 30 days period.
Situation II
1. Same as Situation I, except that Company A charges a fixed rental fee plus a percentage of say 5% of the videotape cassette rental revenue earned by the retail stores.
Situation III
1. Same as Situation I, except that Company A charges a percentage of say 25% of the videotape cassette rental revenue earned by the retail stores.
Situation IV
1. Same as Situation I, except that instead of a rental arrangement between Company A and the retail stores, the retail stores charge Company A an administrative fee equal to all rentals in excess of a fixed amount.
Situation V
1. Same as Situation I, except that instead of a rental arrangement between Company A and the retail stores, the retail stores charge an administrative fee of a fixed amount plus say 75% of the videotape cassette rental revenue earned by the retail stores.
It is your view that the videotape cassettes which are owned by Company A are ultimately used for the purpose of renting, to customers for which the rental period is not expected to exceed seven days to any one person in any thirty day period. Therefore in your view the videotape cassettes would qualify for inclusion in class 12 by virtue of paragraph (r) and thereby entitled to a 100% write-off in the year of acquisition, subject to the half-year rule.
Our Views
To qualify for inclusion in class 12 the owner of the videotape cassettes must meet the conditions of paragraph (r). These conditions are that the videotape cassette must be acquired after February 15, 1984 for the purpose of renting and that is not expected to be rented to any person for more than seven days in any thirty day period.
In your hypothetical situation Company A will not be renting the videotape cassettes to the customers. It is the retail stores which will be renting the videotape cassettes to the customers for periods of no more than seven days in any thirty day period. It appears that Company A will be renting the videotape to the retail stores for more than seven days in any thirty day period and the conditions of class 12(r) would not be met. Since the videotape cassettes owned by Company A do not qualify for inclusion in any other class they may be included in class 8 by virtue of paragraph (i).
We trust this will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch