Principal Issues: What is the correct classification of a drone for CCA purposes in Schedule II of the Regulations?
Position: Question of fact but generally Class 9
Reasons: See below
XXXXXXXXXX
Amanda Couvrette
2016-063311
March 11, 2016
Dear XXXXXXXXXX,
Subject: Capital Cost Allowance
We are writing in response to your recent question concerning the proper capital cost allowance (“CCA”) class under Schedule II of the Income Tax Regulations (“Regulations”) for an aerial drone.
Briefly, as we understand the situation, the taxpayer is in the business of real estate and uses the aerial drone to take aerial photographs of houses for sale.
Our comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (“Act”) and related legislation (where referenced). 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 a particular transaction 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 IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.
Where the cost of a property qualifies for inclusion in the classes of property described in Schedule II of the Regulations, the specific class to which its cost is to be allocated must be determined with reference to the particular property and facts of the situation. Factors to consider will include not only the specific functions the particular property is designed to perform but also, amongst other things, the actual use to which the property has been put to use by the taxpayer.
The term “drone” is not defined in the Act or the Regulations and reference must be made to the ordinary usage of this term. Generally speaking, it is our understanding that aerial drones are considered to be a type of unmanned aircraft. For instance, Merriam-Webster’s Dictionary defines drone as an unmanned aircraft or ship guided by remote control or onboard computers. The Canadian Aviation Regulations which are available on Transport Canada’s website also describes aerial drones as a type of aircraft. As such, and while a question of fact, it is our view that an aerial drone would generally be included in Class 9(g) of Schedule II of the Regulations which has a CCA rate of 25%.
We trust these comments will be of assistance.
Yours truly,
Michael Cooke, C.P.A., C.A.
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch