17 September 2012 External T.I. 2012-0461421E5 - Aircraft Spare Parts - Class 9(i)

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.

Principal Issues: 1. Do all aircraft spare parts, whether used immediately or not go into class 9(i)? 2. If not all parts are spare parts, then which parts are spare parts? 3. What happens when a spare part is put into class 9 and then subsequently installed on an aircraft?

Position: 1. Yes, if they are considered spare parts. 2. See response. 3. See response

Reasons: 1. Regulation 9(i). 2. See answer. 3. See answer.

XXXXXXXXXX
2012-046142
S. D’Angelo

September 17, 2012

Dear Mr. XXXXXXXXXX:

Re: Aircraft Spare Parts

This is in response to your correspondence of September 4, 2012, wherein you requested our views on the treatment of aircraft spare parts under Schedule II of the Income Tax Regulations (the “Regulations”) and, in particular, their inclusion in Class 9 of Schedule II.

Our Comments

Written confirmations of the tax implications inherent in particular transactions are provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, “Advance Income Tax Ruling”, dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year. Notwithstanding the foregoing, we are prepared to provide the following general comments that may be of assistance.

Paragraphs (g), (h) and (i) of Class 9 of Schedule II of the Regulations requires the inclusion of property acquired after May 25, 1976 that is:

(g) an aircraft;

(h) furniture, fittings or equipment attached to an aircraft; or

(i) a spare part for an aircraft, or for furniture, fittings or equipment attached to an aircraft.

It is our view that a spare part for an aircraft that is acquired after May 25, 1976 will be included in Class 9(i) even though such property may not be attached to the aircraft at the particular time. It is also our general view that not all parts will be considered spare parts for these purposes. “Spare parts” are typically components of heavy machinery and equipment which require periodic replacement. That term typically describes those replacement parts which are acquired as part of a fixed asset’s acquisition and are usually expensive, critical to the asset’s operation, have specific and restricted application and are often difficult to obtain on short notice. Whether or not a part is a spare part of an aircraft is a question of fact which can only be determined after a review of all of the factual evidence related to a particular situation.

In accordance with Class 9 of Schedule II of the Regulations, where both an “aircraft” and “a spare part for an aircraft” are included in Class 9, there is generally no need to make any adjustment to the capital cost of the assets otherwise included in Class 9 once a spare part is subsequently installed on the aircraft.

We trust our comments will be of assistance.

Yours truly,

Michael Cooke
Manager
Capital Transactions Section
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch