15 July 2003 External T.I. 2003-0019495 - CLASS 16(G)

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 for purposes of classifying a truck in Class 16 of Schedule II of the Income Tax Regulations (the Regulations), it has to be used in a business that hauls freight on a for hire basis on behalf of third parties.

Position: Generally, paragraph (g) of Class 16 applies to large trucks and tractors that are primarily used by taxpayers involved in the trucking sector for hauling freight. However, there may be situations where a taxpayer is in another type of business that hauls its own freight and the truck or tractor would qualify for Class 16 treatment.

Reasons: Paragraph (g) was added to Class 16 in response to concerns from taxpayers in the trucking sector that the CCA rates on large trucks and tractors used in freight hauling were too low. In a situation where a taxpayer's business hauls its own freight, a reasonable interpretation of paragraph (g) of Class 16 is that the taxpayer is in a "business that includes hauling freight", provided the hauling of its own freight is integral to the business of the taxpayer (e.g. where a manufacturer transports its products to market), and the truck or tractor is the type primarily used by taxpayers involved in the trucking sector for hauling freight. If the other conditions outlined in paragraph (g) are met, the truck or tractor would qualify for Class 16 treatment.

XXXXXXXXXX Randy Hewlett, B.Comm.

613-957-8973
2003-001949
July 15, 2003

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Class 16(g)

We are writing in response to your letter of May 13, 2003, wherein you requested our opinion on the above-noted issue.

Your Questions

You inquired whether for purposes of classifying a truck in Class 16 of Schedule II of the Income Tax Regulations (the Regulations), the taxpayer must use the truck in a business that hauls freight on a for hire basis on behalf of third parties. In your view, trucks otherwise meeting the "gross vehicle weight rating" requirement of the provision should qualify for inclusion, regardless of the taxpayer's business. As such, you also inquired whether Class 16 should include any truck that is: (a) designed and used by a taxpayer for the haulage of materials such as "powder, liquids, stone, aggregates and finished goods", (b) "a ready-mix concrete truck", or (c) "a dump truck".

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. The classification of a particular asset for capital cost allowance (CCA) purposes is always a question of fact, which can only be determined after a review of all the relevant facts of the situation. Inquiries involving completed transactions or questions of fact should be addressed to the relevant Tax Services Office (TSO). We are prepared, however, to offer the following general comments.

Included in Class 16 of Schedule II of the Regulations, by virtue of paragraph (g) thereof, is "property acquired after December 6, 1991 that is a truck or tractor designed for hauling freight, and that is primarily so used by the taxpayer or a person with whom the taxpayer does not deal at arm's length in a business that includes hauling freight, and that has a "gross vehicle weight rating" (as that term is defined in subsection 2(1) of the Motor Vehicle Safety Regulations) in excess of 11,788 kg." According to the Explanatory Notes issued by the Department of Justice, paragraph (g) was added to Class 16 in response to concerns from taxpayers in the trucking sector that the CCA rates on large trucks and tractors used in hauling freight were too low. By virtue of subparagraph 1100(1)(a)(xiii) of the Regulations, a taxpayer can deduct CCA on Class 16 assets at a rate of 40%.

It is our general view that paragraph (g) of Class 16 applies in respect of large trucks and tractors that are primarily used by taxpayers in the trucking sector for hauling freight. Whether a particular taxpayer is "in a business that includes hauling freight" is a question of fact that can only be determined with regard to all the circumstances. As noted above, inquiries of this nature should be addressed to the relevant TSO. It is our general view, however, that a taxpayer that hauls its own freight may be considered to be in a "business that includes hauling freight" provided the hauling of its own freight is integral to the business of the taxpayer (for example, where a manufacturer transports its products to market) and the truck or tractor is the type used by taxpayers involved in the trucking sector for hauling freight. Therefore, where the other conditions outlined in paragraph (g) are met, the truck or tractor would qualify for Class 16 treatment.

In terms of your other inquires, it is our view that the same considerations would have to be given when classifying the assets in (a) and (c) above. On the other hand, a ready-mix concrete truck is included in Class 22 or 38, depending on when and under what circumstances it was acquired.

We trust our comments will be of assistance to you.

Yours truly,

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

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