7 May 2003 External T.I. 2003-0004735 - CAPITAL COST ALLOWANCE

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 certain bakery equipment is included in Class 43 of Schedule II of the Regulations.

Position: Question of fact.

Reasons:

Provided the equipment was acquired after February 25, 1992 and would otherwise have been included in Class 29, it will qualify for inclusion in Class 43.

A. Seidel
XXXXXXXXXX (613) 957-2058
2003-000473
May 7, 2003

Dear XXXXXXXXXX:

Re: Capital Cost Allowance - Bakery Equipment

We are writing in response to your letter dated February 12, 2003, wherein you requested our comments regarding the inclusion of baking equipment, including ovens, proofers and mixers, in Class 43 of Schedule II of the Income Tax Regulations (the "Regulations").

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 70-6R5, it is not this Directorate's practice to comment on transactions involving specific taxpayers other than in the form of an advance income tax ruling. To the extent that you require confirmation of the tax consequences of proposed transactions involving specific baking equipment, you should be requesting an advance income tax ruling. However, we would point out that advance income tax rulings are not provided in respect of transactions that are substantially completed.

To the extent that your situation involves baking equipment that is already in use, the appropriate classification of such baking equipment could only be determined by a review of the taxpayer's actual use of the baking equipment in the specific business operations. This review of the taxpayer's use of baking equipment is the responsibility of the Verification and Enforcement Division of the local tax services office. The local tax services office would need you to supply them with the complete details of all of the relevant facts and documentation related to the use of specific baking equipment before they could proceed with such a review.

Although we cannot provide any specific comments with respect to the baking equipment described in your letter, the following general comments may be of assistance.

Generally, the appropriate classification of depreciable property for purposes of Schedule II of the Regulations is determined by reference to the particular property and all of the relevant facts applicable to a specific situation. Interpretation Bulletin IT-285R2 provides an overview and general comments relating to capital cost allowance and Interpretation Bulletin IT-147R3 ("IT-147R3") discusses the accelerated write-off of manufacturing and processing machinery and equipment.

Class 43 of Schedule II of the Regulations includes, among other things, property acquired after February 25, 1992 that would otherwise have been included in Class 29 of Schedule II of the Regulations. Property is eligible for inclusion in Class 43 in those situations where the property acquired is to be used directly or indirectly by the taxpayer, in Canada, primarily in the manufacturing or processing of goods for sale and the property would otherwise have been included in Class 8 of Schedule II of the Regulations. The manufacturing or processing activities must be carried out on goods for sale, but the manufacturer or processor of the goods does not necessarily have to be the vendor of the goods. Paragraph 9 of IT-147R3 discusses the meaning of the expression "to be used directly or indirectly" and paragraph 11 of IT-147R3 discusses the meaning of the expression "primarily".

In general, it is our view that certain activities related to a bakery operation, such as the making of bread, could be considered to be manufacturing and processing. Accordingly, baking equipment acquired for the manufacturing or processing of bread, that meets all of the requirements enumerated therein, would be included in Class 43 of Schedule II of the Regulations.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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