2005 Ruling 2005-0115381R3 - XXXXXXXXXX

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether XXXXXXXXXX who receive computers and computer training from the XXXXXXXXXX must include an amount in income under paragraph 12(1)(x).

Position: No.

Reasons: The principal purpose in providing computers is so that the XXXXXXXXXX has the ability to communicate with XXXXXXXXXX . The prime beneficiary is the XXXXXXXXXX will be required to use the computers for the purpose of the program and the technology will be configured to upload from the XXXXXXXXXX website whenever XXXXXXXXXX bulletins or other important notices are posted and the XXXXXXXXXX will monitor XXXXXXXXXX to make sure that they are receiving XXXXXXXXXX (if they do not use the program, they must return the computers). XXXXXXXXXX may use the computers for other purposes. XXXXXXXXXX will receive a computer. This is not part of a remuneration package for XXXXXXXXXX . The XXXXXXXXXX will not own the computer during the XXXXXXXXXX program. Although the XXXXXXXXXX may keep the computers at the end of the program, their value at that time will be minimal.

XXXXXXXXXX 							2005-011538

XXXXXXXXXX, 2005

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

We are writing in response to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above taxpayer, and our subsequent correspondence.

To the best of your knowledge and that of the taxpayers involved, none of the issues contained in this ruling request are:

(i) dealt with in an earlier return of the taxpayer or a related person;

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person;

(iii) under objection by the taxpayer or a related person;

(iv) subject to a ruling previously issued by the Income Tax Rulings Directorate; or

(v) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired.

DEFINITIONS

In this letter, the following terms have the meanings specified below:

(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Suppl.) c.1, as amended to the date hereof. All statutory references in this letter are to the Act, unless stated otherwise;

(b) "bulletins" means XXXXXXXXXX;

(c) "Canco" means XXXXXXXXXX described in Paragraph 2;

(d) "Corporate Act" means the XXXXXXXXXX;

(e) "CRA" means the Canada Revenue Agency;

(f) "Emergency" means a XXXXXXXXXX;

(g) "Entity" means the XXXXXXXXXX;

(h) "e-strategy" means the Entity's XXXXXXXXXX strategy;

(i) "Official" means the XXXXXXXXXX;

(j) "Paragraph" means a numbered paragraph in this advance income tax ruling;

(k) "Participants" means XXXXXXXXXX;

(l) "Persons" means XXXXXXXXXX;

(m) "Policy Objective" means the Entity's policy objective of improving XXXXXXXXXX;

(n) "Proposed Transactions" means the transactions described in Paragraphs 4 to 13;

(o) "Province" means the Province of XXXXXXXXXX;

(p) "Recommendations" means recommendations made XXXXXXXXXX;

(q) Services" means XXXXXXXXXX services;

(r) "Strategy" means the XXXXXXXXXX; and

(s) "workplace" means XXXXXXXXXX.

Our understanding of the facts and proposed transactions is as follows:

FACTS

1.

1. In response to recommendations, the Entity developed the Strategy to implement its Policy Objective.

2. Canco was established as a corporation XXXXXXXXXX pursuant to the Corporate Act, and it reports to the Entity.

3. As part of the Strategy, Canco provides a secure, integrated, province-wide IT infrastructure to allow instant electronic communication among Persons (the "Canco System"). One of the principal purposes for implementing the Canco System is to provide the Official with the ability to communicate with Persons in an Emergency.

PROPOSED TRANSACTIONS

4. The creation of the Canco System requires that all Persons have the necessary technology to connect to the Canco System (the "Technology"). Recognizing that many Persons lack the required Technology, Canco intends to implement a program to make the Technology available to such Persons (the "Program").

5. The Technology will be made available to the Participants.

6. As the Program is only intended to provide for the necessary connectivity required to effectively implement the Canco System, only a single Technology package will be made available to a group of Persons operating through a common workplace or otherwise sharing the same facilities.

7. Participants will be required to provide confirmation that they have not obtained nor will they obtain similar technology under any other program funded by the Entity in order to be eligible to participate in the Program.

8. The Technology has been selected to meet the Program's objectives and will include the following: network connection, firewall appliance, UPS unit, preconfigured desktop computer and printer (if required). The Program will also include installation and XXXXXXXXXX hours of training and demonstration, software and security upgrades support, hardware maintenance and telephone customer support.

9. Canco, through funding from the Entity, will contract with an IT service provider (the "IT Service Provider") to supply and install the Technology and provide the support services at no cost to Participants over a XXXXXXXXXX period, which is the expected life of the Technology (the "Program Period").

10. Participants will be required to use the Technology for the intended purpose of the Program and the Technology will be preconfigured to upload from the Canco web site whenever bulletins or other important notices are posted to facilitate this. Canco will monitor Participants by ensuring that they are receiving such bulletins and notices. If Participants fail to use the Technology for the intended purpose they may be required to return the Technology. However, Participants will not be restricted from using the Technology for other purposes, including for running billing and scheduling applications relating to their business of delivering Services, as it would not be practical for Canco to monitor or review such use.

11. During the Program Period, Participants will not acquire any ownership interest in the Technology and will not be permitted to use or otherwise profit from the Technology outside of the normal course of their business of delivering Services.

12. At the end of the Program Period, Participants will be given the option of either keeping the Technology, at no cost, or returning the Technology to the IT Service Provider. However, the Program will no longer fund the support services for Participants who choose to keep the Technology.

13. It is expected that the cost to the IT Service Provider of retrieving the Technology at the end of the Program Period will exceed the value, if any, of the Technology at that time.

PURPOSE OF PROPOSED TRANSACTIONS

14. The primary purpose of the Program is to implement the Entity's Policy Objective by providing the Official with the ability to communicate with Persons in an Emergency, and to further the goals of the Entity's e-strategy.

RULING

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant warranties on page 1 of this advance income tax ruling, as well as all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our ruling is as set forth below:

No amount will be included in computing the income of Participants under paragraph 12(1)(x) of the Act in respect of the Proposed Transactions.

CAVEAT

The above ruling is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 (the "Circular") issued by the CRA on May 17, 2002, and are binding provided the Program is implemented on or before XXXXXXXXXX.

This ruling is based on the Act in its present form and does not take into account the effect of any proposed amendments to the Act.

Nothing in this letter should be construed as implying that the CRA has agreed to or accepted:

(i) the GST implications of any of the proposed transactions;

(ii) any other tax consequences of the proposed transactions or of related transactions or events that are not described herein.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate