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 the entire amount paid by a Taxpayer under an Agreement belongs in class 14, or whether some of this amount is allocable to other classes, such as class 43, or is deductible as a current expense.
Position: Class 14.
Reasons: The Agreement specifically states that it is an agreement for the transfer of technology, and it has been verified that the Agreement is effective for XXXXXXXXXX years. Accordingly, there is a reasonable argument that the entire amount paid by the Taxpayer under the agreement constitutes a license that falls within class 14. Further, there is not enough information to substantiate an allocation of some of the amount paid by the Taxpayer under the agreement on some other basis.
July 2, 2002
David Slack HEADQUARTERS
Team Leader J. Gibbons, CGA
Small and Medium Enterprises (613) 957-2135
Winnipeg Tax Services Offices
2002-014053
XXXXXXXXXX (the "Taxpayer")
We are responding to your memorandum, which we received on May 13, 2002, concerning the appropriate treatment of the amount paid by the Taxpayer under an agreement (the "Agreement") with XXXXXXXXXX (the "Licensor"). You are trying to determine whether the entire amount paid by the Taxpayer under the Agreement belongs in class 14, or whether some of this amount is allocable to other classes, such as class 43, or is deductible as a current expense. We have assumed that you have verified that the Agreement otherwise meets the definition of Class 14 in Schedule II of the Income Tax Regulations.
Facts
? Under the Agreement, the Taxpayer paid US $XXXXXXXXXX to the Licensor for the right to use the latter's technology in connection with the maintenance, repair and overhaul of XXXXXXXXXX.
? By virtue of other agreements, the Agreement has an effective life of XXXXXXXXXX years.
? XXXXXXXXXX.
? XXXXXXXXXX.
? The Agreement was effective XXXXXXXXXX, and, pursuant to the Agreement, the training XXXXXXXXXX was scheduled to take place shortly thereafter.
? The Design Data XXXXXXXXXX relates to detailed prints which are suitable for the fabrication and procurement of the required tooling, jig, and fixtures for all services to the XXXXXXXXXX and to a facility design manual sufficient to replicate the facility and the lean manufacturing process.
As we understand it, you feel that there is an argument that the training should be treated as a current expense, since it was scheduled to take place immediately following the signing of the Agreement, and the design data should be allocated to class 43 or some other class, since it will be used in the building of assets that belong to these other classes.
The Agreement specifically states that it is an agreement for the transfer of technology. As well, you have verified that the Agreement is effective for XXXXXXXXXX years. Accordingly, in our view, there is a reasonable argument that the entire amount paid by the Taxpayer under the agreement constitutes a license that falls within class 14. Further, there is not enough information to substantiate an allocation of some of the amount paid by the Taxpayer under the agreement on some other basis. As indicated in our telephone conversation on June 20, 2002 (Gibbons/Slack), you and the client have discussed the foregoing and are in agreement to treat the entire amount paid under the Agreement as a class 14 asset.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you from Mrs. Jackie Page at (819) 994-2898, who will send the severed copy to you for delivery to the client.
John Oulton, CA
Manager
Business and Individual Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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