25 March 2002 External T.I. 2002-0119305 - Used Equipment and Class 43.1

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 CCRA.

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

Principal Issues:

Whether a particular used asset, more than 5 years old, can be included in Class 43.1 of Schedule II to the Income Tax Regulations.

Position :

No.

Reasons:

Since the asset is more than five years old after it does not meet the criteria in (b)(iii) (B) of Class 43.1of Schedule II

2002-011930
XXXXXXXXXX Mohamud Jivraj
(613) 957-9796
March 25, 2002

Dear XXXXXXXXXX:

Re: Technical Interpretation Request Class 43.1

This is in reply to your facsimile of January 4, 2002 addressed to XXXXXXXXXX Tax Services Office in which you ask whether a particular asset can be included in Class 43.1 of Schedule II to the Income Tax Regulations.

The facts provided in your letter are as follows:

? Canadian Corporation A purchases, in XXXXXXXXXX, a 1 MW hydroelectric generating station from another Canadian Corporation B, in an arm's length transaction.

? The asset is a small run-of- the river hydroelectric station producing wholesale electrical power for consumption by XXXXXXXXXX businesses and households.

? The asset was put in service in XXXXXXXXXX.

? No capital cost allowance (CCA) has been taken to date.

? No major capital upgrades have taken place, nor has the facility been refurbished or remanufactured.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where transactions are proposed and are the subject matter of an advance income tax ruling request. However, we are prepared to provide the following general comments. All references are to the Income Tax Act.

One of the criteria that must be met for a property to be included in Class 43.1 is as follows:

"Property, other than reconditioned or remanufactured equipment, that would otherwise be included in Class 1, 2 or 8 ...

(b) (iii) has not been used for any purpose before it was acquired by the taxpayer unless

(A) the property was depreciable property that

(I) was included in Class 34 or 43.1 of the person from whom it was acquired, or

(II) that would have been included in Class 34 or 43.1 of the person from whom it was acquired had the person made a valid election to include the property in Class 43.1 pursuant to paragraph 1102(8)(d) or 1102(9)(d), and

(B) the property was acquired by the taxpayer not more than five years after the time it is considered to have become available for use, for the purpose of subsection 13(26) of the Act, by the person from whom it was acquired and remains at the same site in Canada as that at which that person used the property, and ..."

In the situation you described, the asset is acquired by Corporation A more than five years after it became available for use by Corporation B. It, therefore, cannot be included by Corporation A in Class 43.1 as it does not meet the criteria in (b)(iii) (B) of that class.

We hope our comments will be of assistance. If you have any questions concerning this matter, please contact the writer.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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