7-912018
SUBJECT: Income Tax Regulations, Schedule II, Class 24
This is in reply to your July 9, 1991 memorandum concerning Class 24 qualifications and centrifuges to be used in drilling for oil and gas.
24(1)
We have the following views on the matter.
In order to qualify for inclusion in Class 24, property must be new, must not have been included by the taxpayer in another class for CCA purposes, and must have been acquired to be used primarily to prevent, reduce or eliminate water pollution caused by an operation at a site in Canada where the taxpayer has conducted operations where construction commenced before 1974 or operations that were constructed pursuant to a written agreement entered into before 1974. In addition, the operation of transportation and other movable equipment may qualify if it has been operated by the taxpayer in Canada from a time that is before 1974. In this regard drill rigs may qualify as movable equipment. Class 24 may also include certain leased property and equipment acquired by a taxpayer whose business is providing services to prevent, reduce or eliminate water pollution caused primarily by qualified operations of other taxpayers.
The requirements for Class 24 are substantially questions of fact and circumstances that relate to the particular piece of equipment and its use. As a result, we can not provide any assurance that the centrifuge will or will not qualify for inclusion in Class 24 until all relevant facts are known. At this point in time the taxpayer is unable to provide the necessary details.
While we are unable to indicate whether or not 24(1) will qualify for Class 24, we hope the following comments are helpful.
Equipment used to provide pollution reduction services to oil and gas lease holders is required to be employed at sites where operations have been carried on continuously since before 1974. The site qualifications is intended to be applied on a specific well location basis. Oil and gas exploration and production activity conducted in the same general region will not qualify. We suggest that in order to qualify, there should be exploration or production activity at the specific well location from a time that is before 1974. In addition, the operation must be owned by the same taxpayer since before 1974. Examples of disqualified operations include, a working interest that was obtained through a post 1973 farming, or an interest that was purchased after 1973.
Where equipment is used to provide a service to the drilling contractor, the qualification for Class 24 may be met if the particular drill rig is movable equipment that has been owned and operated in Canada by the same taxpayer since before 1974. Very few drill rigs will satisfy these requirements. This is primarily a result of reduced field activity leading to the retirement of old equipment and the consolidation of the oil and gas service sector.
24(1)
At this time we do not comment on the tax implications. Should the taxpayer wish to submit a request for an advance income tax ruling we would be pleased to address his concerns at that time.
DirectorBilingual Services and Resources Industries DivisionRulings Directorate