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: Would the CRA treat a concession or licence as a Class 14 asset where the particular agreement does not specifically state that the entity will agree to incur the costs to construct and operate the facilities during the term of the agreement in consideration for the Province's grant of the concession or licence?
Position: Question of fact.
Reasons: We don't have any facts.
XXXXXXXXXX
2013-048730
Charles Rafuse
613-247-9237
May 30, 2013
Dear XXXXXXXXXX:
Re: 3P Project
This is in response to your email of April 30, 2013 and our telephone conversation (XXXXXXXXXX/Rafuse); regarding your question concerning the treatment of cost relating to a project that is a public-private partnership (a "3P Project") under the Income Tax Act (the "Act").
More specifically, you noted that the severed version of ITR 2006-0218781R3 at paragraph 12 stated that:
"In return for the grant of the Concession, the Partnership will agree to construct the Facility and operate it during the Operating Period at its own expenses except for the amount of $XXXXXXXXXX that the Minister will pay to the Partnership during the Construction Period."
You want to know if our treatment of a particular concession or licence as a Class 14 asset, as was the case in the above-noted ITR, would be the same if the particular concession agreement did not specifically state that the particular entity will agree to incur the costs to construct and operate the facilities during the term of the agreement in consideration for the grant of a concession.
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 Rulings, 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 comments that may be of assistance.
The determination of whether an entity has agreed to construct and operate a facility at its own expense in return for the granting of a concession or licence for a particular period remains a question of fact that can only be determined on a case-by-case basis. Based on our experience with projects of this nature, it would be somewhat unusual for the particular agreement to be silent on such an important matter; however, it is possible that some other evidence (as yet unspecified) might be used as support that such a concession or licence was granted. Whether the CRA would accept such other evidence as being suitable in such circumstances remains a question for the particular auditor to decide.
We trust that this information will be of assistance.
Yours truly
Michael Cooke, C.P.A., C.A.
Manager
Business and Capital Transactions Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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