5 April 2013 External T.I. 2013-0482701E5 - Are bunk houses qualified property for ITC

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: Are bunk houses built for seasonal farm workers Qualified Property?

Position: No

Reasons: Law

XXXXXXXXXX
2013-048270
Lata Agarwal, CMA, MBA

April 5, 2013

Dear XXXXXXXXXX:

Re: Eligibility of bunk houses as qualified property

This is in response to your correspondence dated March 12, 2013, wherein you have requested our views on whether the cost of constructing bunk houses that are used in your client's farming business to house seasonal agricultural workers will be "qualified property" ("QP"), as that term is defined in subsection 127(9) of the Income Tax Act ("Act"), for the purposes of claiming an "investment tax credit" ("ITC") under subsection 127(5) of the Act.

Our Comments

Written confirmations of the tax implications inherent in particular transactions are provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable Tax Services Office ("TSO") during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year. Notwithstanding the foregoing, we are prepared to provide the following comments that may be of assistance.

Subsection 127(9) defines QP as property of a taxpayer (other than a qualified resource property) that is either a prescribed building or prescribed machinery (acquired by the taxpayer after June 23, 1975) that has not been used, acquired for use or lease, for any purpose whatever, before it was acquired by the taxpayer and where such property is to be used in Canada primarily for certain qualifying purposes specifically set out in paragraph (c) of the QP definition. Paragraph (c) of the definition of QP includes farming and fishing in Canada as a qualifying purpose; however, subparagraph 127(11)(b)(vi) of the Act specifically provides, inter alia, that providing facilities for employees, including cafeterias, clinics and recreational facilities would not be a qualifying purpose.

Accordingly, the wording of subparagraph 127(11)(b)(vi) makes it clear that where a taxpayer carries on a farming business in Canada and incurs costs to build bunk houses that are used to house its seasonal agricultural workers, such property would not be QP and such costs would not qualify for any ITCs.

We trust that these comments will be of assistance.

Yours truly,

Michael Cooke, C.P.A., C.A.
Manager
Business and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch