Principal Issues: Whether certain equipment used for manufacturing dental restorative products can be included in Class 53 in the following two situations: 1. The equipment is acquired by Corporation A whose sole shareholder is a dental surgeon (« Mr. X »). Corporation A uses the dental restorative products it manufactures using the equipment in providing its dental services. 2. Mr. X incorporates a new corporation (« Corporation B »), for which he is the sole shareholder, in order to acquire the equipment and manufacture the dental restorative products. Corporation B sells to Corporation A the dental restorative products it manufactures using the equipment.
Position: 1. We are of the view that the equipment would not be included in Class 53, since Corporation A uses the dental restorative products it manufactures with the equipment as part of its dental services. 2. As for the situation where the equipment is instead acquired by Corporation B for the purpose of manufacturing dental restorative products for sale to Corporation A, we are of the view that the equipment could be property included in Class 53 if it is determined that the manufactured products are subject of a sale contract under the Civil Code of Quebec, provided that all other conditions are met.
Reasons: Wording of the Act and the jurisprudence.
XXXXXXXXXX 2019-081956 Jean-François Benoit, CPA, DESS Fisc.
May 29, 2024
Dear Sir,
Subject: Depreciation Class 53 of Schedule II to the Regulations
This letter is in response to your letter of August 7, 2019 asking whether certain equipment used in the manufacture of dental restorative products may be included in Class 53 of Schedule II to the Income Tax Regulations (‘Regulations’) in the following two situations:
1. That equipment was acquired by a corporation (“Aco”) whose sole shareholder was a dental surgeon ("Mr. X"). Aco used the dental restorative products. which it manufactured using the equipment, as part of its dental services.
2. Mr. X incorporated a new corporation (“Bco”) of which he was the sole shareholder in order to acquire that equipment. Bco sold to Aco the dental restorative products it manufactured using the equipment.
All statutory references herein are to the provisions of Schedule II to the Regulations.
Our Comments
This technical interpretation provides general comments about the provisions of the Regulations. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R12, Advance Income Tax Rulings and Technical Interpretations.
The question of which particular class in Schedule II of the Regulations a depreciable property falls into is one of fact that can only be determined after a review of all the relevant facts of a given situation. However, we are prepared to provide the following general comments.
Generally speaking, Class 53 of Schedule II to the Regulations covers property acquired after 2015 and before 2026 that is not included in Class 29, but that would otherwise be included in that class if
- subparagraph (a)(ii) of Class 29 of Schedule II to the Regulations were read without reference to “in Canadian field processing carried on by the lessee or”; and
- Class 29 of Schedule II to the Regulations were read without reference to its subparagraphs (b)(iv) to (vi) and paragraph (c).
To be included in Class 29 of Schedule II to the Regulations, the property must be used directly or indirectly in Canada primarily in the manufacturing or processing of goods for sale or lease. For the purposes of this application, we have assumed that the equipment used to manufacture dental restoration products is property used directly or indirectly in Canada primarily in the manufacturing or processing of goods. Whether goods are manufactured or processed for sale or lease is a question of law and fact that can only be resolved after examining all the facts and circumstances of a particular situation.
Under section 8.1 of the Interpretation Act (R.S.C. 1985, c. I-21), if it is necessary to refer to a province’s rules, principles or concepts forming part of the law of property and civil rights, reference must be made to the rules, principles and concepts in force in the province at the time the enactment is being applied.
Consequently, in the present situation, the rules of civil law, more specifically those set out in the Civil Code of Québec ("C.C.Q."), must be used to determine whether dental restorative products are manufactured for sale. To be considered manufactured with a view to sale, the manufactured products must be the subject of a sales contract and not a business or service contract under the C.C.Q. However, in the context of a request for a technical interpretation, our Directorate does not rule on questions of law.
That said, as indicated in paragraph 1.7 of Income Tax Folio S4-F15-C1, Manufacturing and Processing, it is our opinion that goods are not considered manufactured or processed for sale where they are used to carry out a service (for example, a repair service) under a single contract for work and materials.
Consequently, in the situation where the equipment was acquired by Aco, we are of the view that the equipment would not be property included in Class 53 of Schedule II to the Regulations since Aco used the dental restorative products, that it manufactured using the equipment, in the course of providing a dental service.
As for the situation where the equipment is acquired by Bco in order to manufacture dental restorative products for sale to Aco, our answer would be the same if it is determined that the manufactured products are the subject of a business or services contract under the C.C.Q. However, if it is determined that the manufactured products are the subject of a business or service contract under the C.C.Q., our answer would be the same. However, if it is determined instead that the manufactured products are the subject of a sales contract under the C.C.Q., we are of the view that the equipment could be goods included in Class 53 of Schedule II of the Regulation, provided that all the other conditions are satisfied.
Best regards,
Isabelle Landry
Manager
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch