17 July 1986 Income Tax Severed Letter 7-0605 - [Pipelines within refineries]

July 17, 1986

TO        TORONTO DISTRICT OFFICE

ATTENTION F. Knox
          Large File Case Manager
          Basic files 142.5.1

FROM      Head Office
          Ruling Directorate
          C. Keys
          (613) 995-1178

RE: XXX Pipelines within refineries

We are writing in response to your memorandum of April 24, 1986 wherein you requested our confirmation of your proposal to reclassify certain of XXXX pipelines from Class 29 to Class 2 of Schedule II to the Regulations to the Income Tax Act. Since no information as to the specific pipelines involved was forwarded with either your memo or with XXXX letter of April 2, 1986, we can only reiterate our interpretive position on this matter which was previously considered in the case of XXXX Further, we would think the actual determination of which pipelines come within Class 2 by virtue of this position is best determined by field investigation.

Our position regarding the classification of pipelines is that a pipeline that is a component part of storage tanks or processing equipment should be treated as Class 8 and Class 29 respectively. However, a pipeline that is a conduit for the transportation of material between two points is not regarded as a component part of other equipment and is included in Class 2. It is therefore a question of fact whether any or all of the refinery piping under consideration in this instance can be regarded as a conduit and therefore as includable in Class 2.

We note that XXXX in its letter of April 2, 1986 refers to a synthetic crude unit and argues that the pipelines between that unit and the existing refinery facilities should be considered "short lines" and their cost capitalized as part of the equipment based on paragraph 9 of IT-482 . Such a conclusion does not necessarily follow since those lines must "reasonably be considered to be an integral part of the equipment" before paragraph 9 of IT-482 can be applied thereto. In the event these lines are simply serving as conduits for the passage of material between the unit and the existing facilities, we think they are properly to be classified as Class 2 assets.

We trust the foregoing discussion is of assistance. We would advise that we will be meeting with Mr. John Kurrant of Calgary District Office in the week commencing September 15, 1986 at which time the practical application of our position regarding refinery pipelines is to be discussed.

ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR

J. Daman

Chief Resource Industries Section Bilingual Services and Resource Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch