24(1) 920110
C. Tremblay
(613)952-1361
Attention: 19(1)
March 9, 1992
Dear Sirs:
Re: Class 34 Property
This is in reply to your letter of January 9, 1992 requesting our opinion concerning the purchase of a hydro-electric power generating facility which is now in the final phase of commissioning. You are concerned that on a strict reading of the Income Tax Regulations (the "Regulations") that the property in question may be considered "used" before it was acquired by the taxpayer pursuant to paragraph (i) of the Class 34 definition. Such an interpretation would disqualify the property as Class 34 property. Accordingly you seek our opinion that the production and sale of power during the commissioning period and the lapse of time between the actual closing date and the date on which title is deemed to pass to the purchaser will not disqualify the facility as a Class 34 property.
The situations that are described appear to involve a series of actual proposed transactions. It is not the Department's practice to give written opinions concerning proposed transactions, as indicated in
Information Circular 70-6R2. Should you wish to request an advance ruling on these or other transactions which may be proposed, please refer to Information Circular 70-6R2 for the procedure to be followed. Although we are unable to provide any opinion in respect of the specific transactions described in your letter, we have set out some general comments which may be of some assistance.
Our Comments
In our view, when a new asset such as a new hydro-electric power generating facility undergoes a final phase of commissioning or other routine testing prior to the transfer of ownership from the builder to the purchaser, the methods used to test the equipment would not, in and by themselves, result in the asset being considered used before being acquired by the purchaser. Provided the property otherwise qualifies, notwithstanding power is produced and sold during the commissioning period, in our view, the property may still qualify under Schedule II of the Regulations as class 34 property.
Our position with respect to the date of disposition of property transferred in a sale is set forth in Interpretation Bulletin IT-170R. Generally, in our view, the date of disposition of property sold is the date that the vendor has an absolute but not necessarily immediate right to be paid. If the contract of sale specifies one or more conditions precedent (as described in paragraph 6 of IT-170R) to completion of the sale, the date of disposition cannot precede satisfaction or waiver of the conditions precedent because the vendor does not have an absolute right to be paid while any condition precedent remains outstanding. On the other hand, if the contract of sale specifies that beneficial ownership of the property will revert to the vendor on occurrence of an event subsequent to completion of the sale, in our view, the date of disposition occurred on completion of the sale since the vendor's right to be paid arose at the date. A second disposition for tax purposes will occur if the property reverts to the vendor.
We would caution that the above comments represent an expression of opinion only, not an advance income tax ruling, and as such are not binding upon Revenue Canada, Taxation.
Yours truly,
E. Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch