JAN 22 1988
TO SUDBURY TAXATION CENTRE
Assessing DivisionATTENTION B.H. Lauber
ChiefFROM Head Office
Small Business and General
Division
R. Langevin
(613) 957-2138RE: XXX
This is in reply to your memorandum", with enclosure, dated January 7, 1988 in respect of the XXXX You have asked for our comments with regard to issues raised by XXXX in a letter dated November 18, 1987.
Although specific questions have not been formulated by the correspondence that you have enclosed, we will deal with the following questions which are implied by that correspondence:
(1) Should the expenditures incurred in the acquisition of traps by a taxpayer who is in the business of trapping be expenses on a current basis or alternatively, should such expenditures be capitalized;
(2) Which method of computing income should be utilized by a trapper engaged in the business of trapping in reporting his income for tax purposes;
(3) Would a taxpayer engaged in the business of trapping be eligible to claim the investment tax credit as defined by subsection 127(9) of the Income Tax Act (the "Act").
Our Comments on (1)
In our opinion, a trap is an instrument of manual operation and manipulation and, accordingly, constitutes a tool as described in Interpretation Bulletin IT-422 . We are further of the view that such traps qualify as assets contemplated by subparagraph (h)(ii) of Class 12 in Schedule II of the Regulations to the Act.
To the extent that each trap acquired has a capital cost under $200, each would be considered to be a Class 12 asset forming part of the pool of all Class 12 assets of a particular taxpayer. It proceeds from this that each trap qualifying as a Class 12 asset would be eligible for a 100% write off in the year of acquisition inasmuch as Regulation 1100(2)(x) of the Act excludes paragraph (h) of Class 12 from the application of the half year rule as contained by the former provision.
Our comments on (2)
It is our opinion that trapping does not fall within the parameters of the definition of farming as that term is defined in subsection 248(1) of the Act. It is our view that farming contemplates the raising and harvesting of various animals in a controlled environment and this would not occur in the case of trapping wild animals.
As you know, a farmer currently has, pursuant to subsection 28(1) of the Act, the option of electing to report his income on the cash basis. Because a taxpayer who is engaged in the business of trapping would not be considered to be a farmer, he would report his income using the accrual method of accounting employed generally by businesses.
Our comments on (3)
Because we have taken the view that trapping is not contemplated by the definition of farming, it is our opinion that traps would not constitute "qualified property" as defined by subsection 127(9) of the Act. We are also of the opinion that expenditures in respect of this activity would not qualify for the investment tax credit under any other heading of the relevant provisions of the Act.
We trust our comments have been helpful.
ORIGINAL SIGNED by
Wm. R. McColm
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
c.c. Tax Avoidance and Audit Applications J.A. Calderwood Director