21 December 2000 External T.I. 2000-0038285 - Classification of Generating Equipment

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether property can be reclassified from Class 1 to Class 43.1.

Position: Generally, yes, but not enough information was provided to make a determination in this particular case. The classification of property requires a determination be made based on an examination of all the facts regarding the property.

Reasons: Subsection 13(5)of the Act provides for transfers between prescribed classes. In addition, subject to the exception in subsection 1104(14) of the Regulations, subsection 13(5) of the Act would require a property to be transferred out of Class 43.1 when it no longer meets the requirements of the class. In certain situations, subsection 1104(14) of the Regulations deems a property to be operating in a manner required by paragraph (c) of Class 43.1, and would allow a property to remain in Class 43.1 when it would otherwise fail to meet the requirements of paragraph (c).

XXXXXXXXXX 							2000-003828
D. Shugar
Attention:  XXXXXXXXXX 

December 21, 2000

Dear Sirs:

Re: Classification of Cogeneration Project

This is in reply to your letter of June 9, 2000 wherein you requested our views regarding the classification of property for capital cost allowance purposes.

The particular circumstances in your letter on which you have asked for our views appear to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we are prepared to offer the following general comments which may be of assistance.

Whether the cost of the particular properties qualifies for inclusion in Class 1 or Class 43.1 or any other class of the Income Tax Regulations (the "Regulations"), is a question of fact and would require a determination based on an examination of all the relevant facts pertaining to the particular property involved. However, assuming that property initially qualifies for inclusion in Class 1 and subsequently qualifies for inclusion in Class 43.1, the property would be transferred to Class 43.1, by virtue of subsection 13(5) of the Income Tax Act (the "Act"), at the time the property meets the requirements of Class 43.1.

Subject to the exception in subsection 1104(14) of the Regulations, when a property no longer meets the requirements of Class 43.1, subsection 13(5) of the Act requires the UCC of the property to be transferred from Class 43.1 to the other class, as at the beginning of the particular year.

Interpretation Bulletin IT-190R2, Capital Cost Allowance - Transferred and Misclassified Property, contains more information on the application of subsection 13(5) of the Act.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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