Audit Programs Directorate Audit Applications Division General Enquiries
ATTENTION D.A. Jones
SEP 8 1987
Small Business and General Division C. Tremblay (613) 957-2139 RE: Training racetrack
This is in reply to your memorandum of August 21, 1987 requesting our opinion as to whether the cost of constructing a training racetrack should be deducted as a current expense as claimed by XXX or capitalised as a Class 17 capital asset as reassessed by our auditor.
We examined section 30 of the Income Tax Act (the "Act") as well as Interpretation Bulletin IT-485 paragraph 8 which states that the terms clearing or levelling land includes brushing and breaking land, i.e. clearing the land of brush, trees, roots, stones, etc., and the initial ploughing for the purpose of putting the land into productive use. The construction of a racetrack for training horses does not seem to meet that description. The 1986 Farmers Guide states that an unpaved road is a current expense, however it is our position that only an unpaved road considered necessary to put land to productive use (i.e. access to the back 40 acres) would meet this description. A training racetrack for horses has enduring value, and it is our view that a deduction under section 30 of the Act would not apply.
Inclusion in Class 17 was considered. Class 17 lists property that is a road, sidewalk, airplane runway, parking area, storage area or similar surface construction. In order to be included in this class the asset would require a similar surface construction with a life expectancy of equal or superior duration to the other assets mentioned therein. (See Thibodeau Express Limited v. M.N.R. 66 DTC 260). Highways or roads are usually constructed upon a very heavy foundation, sometimes dug as deep as the frost-line followed by successive layers of crushed stone and sand, compacted, watered and emulsified in order to assume stability, proper drainage and proper binding between the various materials. With proper maintenance, all assets mentioned in the class have a much longer life expectancy then a training racetrack. It is thus our opinion that this capital asset is not similar to any properties mentioned in class 17. We suggest that class 8 (tangible capital property not included in another class) be used to calculate the capital cost allowance of a training racetrack.
We are forwading a copy of your memoradum to Current Amendments Division for their consideration in referring this matter to the Department of Finance which as you know, is responsible for initiating amendments to the Income Tax Act and Regulations.
We trust our comments will be of assistance.
Original Signed by Wm R. McColm
Director Small Business and General Division Specialty Ruling Directorate Legislative and Intergovernmental Affairs Branch