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) Can the election under subsection 16(1) of the Act be late filed? 2) Whether logging trucks specifically designed for transporting logs on dirt and gravel logging roads are "exempt property" and therefore, "prescribed property" as defined in Reg. 8200 for purposes of section 16.1?
Position: 1) A completed copy of the subsection 16.1(1) election form is to be filed by both the lessor and the lessee with their returns of income under Part I for their respective taxation years that include the time at which the lease commenced. A subsection 16.1(1) election cannot be late-filed. 2) Logging trucks designed and built specifically for use on dirt or gravel roads and not for highways are not prescribed property for purposes of Income Tax Regulation 8200.
Reasons: 1) Wording in the Act. 2) The primary purpose of the logging trucks in question is that they are to be used on dirt roads and not built specifically for the transport of freight on the highway.
XXXXXXXXXX
2014-054804
Christina Teow
December 15, 2014
Dear XXXXXXXXXX:
Re: Section 16.1 Election Election in Respect of the Leasing of Property
This is in reply to your letter of September 24, 2014, in which you requested our comments regarding an election under subsection 16.1(1)of the Income Tax Act (the "Act").
In particular, you have asked us for guidance with respect to the filing of Form 2145 Election in Respect of the Leasing of Property (the "Subsection 16.1(1) Election Form"). In addition, you have enquired about whether logging trucks specifically designed for dirt or gravel roads would be considered "prescribed property" for purposes of section 8200 of the Income Tax Regulations (the "Regulations"). You have indicated that the logging trucks in question are designed and built for use in the activity of logging and are not built or designed to haul freight on highways. They are built for heavy duty use on dirt and gravel logging roads. The logging trucks leased have a gross vehicle weight of 33,001 pounds or more and are equipped with extra fuel tanks, head ach rake and power take off to run a loader mounted on a log trailer.
Our comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (the "Act") and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
The instructions for the Subsection 16.1(1) Election Form provide that in order for the election to be valid, the completed form must be filed by both the lessor and the lessee with their returns of income under Part I for their respective taxation years that include the time at which the lease commenced. Subsection 220(3.2) of the Act provides for some late filed elections but these elections are limited to those listed in section 600 of the Regulations. Since subsection 16.1(1) is not listed in section 600, a subsection 16.1(1) election cannot be late-filed. For your reference, please see the information set out in Information Circular IC 07-1, Taxpayer Relief Provisions.
You have also asked whether certain types of logging trucks are prescribed property as described in section 8200 of the Regulations for purposes of section 16.1 of the Act. Section 16.1 of the Act provides leasing property rules which may apply in computing the income of a lessee of tangible property, other than prescribed property, leased for a term of more than one year from an arm's length person who is resident in Canada or a non-resident person who holds a lease in the course of carrying on business through a permanent establishment in Canada. For purposes of section 16.1 of the Act, "prescribed property" is defined in section 8200 of the Regulations and includes "exempt property" as defined in paragraph 1100(1.13)(a) of the Regulations. Subparagraph 1100(1.13)(a)(iv) of the Regulations includes in the definition of "exempt property," "a truck or tractor that is designed for hauling freight on highways." If logging trucks in question are not considered "prescribed property" as defined in section 8200 of the Regulations, then a subsection 16.1(1) election may be contemplated provided other conditions of the provision are met.
In the court cases of the Queen v. Nowsco Well Service Ltd., 90 DTC 6312 and Terroco Industries Ltd. V. MNR, 93 DTC 1, the courts looked to the "primary purpose" to determine whether or not the subject vehicle was "designed for use on highways or streets" within the meaning of subsection 4600(2)(e) of the Regulations. In applying the "primary purpose test", if the trucks are substantially modified to process and deliver concrete to customers such that the trucks' primary purpose is to operate off-highway on construction sites or at the plant, then the concrete ready-mixers are not "exempt property" as defined in Regulation 1100(1.13)(a)."
Based on the information provided, it appears that the primary purpose of the logging trucks you described is that they are to be specifically used in the activity of logging on dirt and gravel roads and not the highway. It is our opinion, in general terms, that logging trucks that are specifically designed and built for off-road use are not "exempt property" as defined in subsection 1100(1.13)(a) of the Regulations and therefore, not "prescribed property" pursuant to section 8200 of the Regulations. Accordingly, if the logging trucks are not prescribed property, an election in respect of such property may be made under section 16.1, as described above.
We trust that our comments will be of assistance.
Yours truly,
G. Moore
For Director
Partnerships and Corporate Financing Section
International Division
Legislative Policy and Regulatory Affairs Branch
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