P. K. Tang (613) 995-1787
MAR 19 1985
Dear Sirs:
Re: Technical Interpretation, Income Tax Regulations Capital Cost Allowance
This is in reply to your letter of February 21, 1985 concerning the question of proper classification of certain electrical distribution equipment under Schedule II to the Income Tax Regulations for capital cost allowance purposes. You provide us with the following hypothetical situation:
1. A Co. is a corporation whose principal business is the production and distribution of electrical energy.
2. B Co. is a financial institution that carries on the business of lending or granting credit.
3. A Co. and B Co. intend to enter into an arrangement whereby B Co. will purchase from A Co. certain of its electrical distributing equipment and/or purchase from third parties certain electrical distributing equipment A Co. may need in the future.
4. The equipment will then form the object of a leasing contract between B Co. as lessor and A Co. as lessee.
We are inclined to agree with you that the electrical distributing equipment would not be included in Class 2 of Schedule II since B Co. is not a producer or distributor of electrical energy as required under paragraph (c) of that Class and, if the equipment is a tangible capital property that is not included in another class in Schedule II it would be included in Class S for capital cost allowance purposes.
In the arrangement described, since the equipment is purchased from A Co. and leased back to that company it would appear that the situation described in IT-233R and the leasing provisions of subsection 1100(15) of the Regulations might have reference with respect to the situation.
Please note that this represents only our views of the arrangements based on the limited information provided. It is not a formal advance income tax ruling and is hence not binding on the Department. If you have an actual case you might wish to apply for an advance income tax ruling in accordance with Information Circular No. 70-6R.
Yours truly,
ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR
D.B. MORPHY
for Director Corporate Rulings Division Legislation Branch