XXXX P.K. Tang (613) 957-9229
July 31, 1987
Dear Sirs:
This is in reply to your letter of March 10, 1987, wherein you submitted for our consideration your view on the tax consequences to XXXX in the manner described. It is your view that the coffee brewers and microwave ovens are:
1. Assets eligible for inclusion in Class 29 of Schedule II to the Income Tax Regulations (the "Regulations");
2. Assets entitled to investment tax credits because they constitute "qualified property" for purposes of subsection 127(9) of the Income Tax Act (the "Act"); and
3. Assets includable in the term "cost of manufacturing and processing capital in section 5202 of the Regulations" for purposes of computing its manufacturing and processing profits under paragraph 125.1(3)(a) of the Act.
We have considered your submission in detail XXXXXXXX. We regret that we are unable to agree with your view since in our opinion neither the coffee brewers nor the microwave ovens are "used by XXXX (directly or indirectly) in Canada (primarily) in the manufacturing or processing of goods for sale or lease" for purposes of the Act.
Based on the facts submitted it is our understanding that XXXX merely sells the coffee ingredients and the food items to its clients. It does not itself make the coffee or heat up the food. In our view, it is the clients (or their employees) who handle the coffee brewers when preparing the coffee supplied by XXXX or the microwave ovens when heating up the food purchased from the vending machines. The relationship between XXXX and its clients is nothing more than that of a vendor and a purchaser of goods. Its clients use the equipment after they have purchased the coffee ingredients or food items. They are not under contract of or for services with XXXX Accordingly, in our view, neither the coffee brewers nor the microwave ovens can qualify as being "used directly or indirectly" by XXXX in the manufacturing or processing of goods for sale.
We trust that the above comments will be of assistance.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch