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.
DATE: NOV 10 1988
TO: J. Daman Acting Director Audit Applications Division
FROM: Head Office Specialty Rulings Directorate C.R. Bowen (613) 957-2094
SUBJECT: Investment Tax Credit for Fishing Vessels
Attached is a letter from XXXX dated June 28, 1988, wherein the author requested our interpretation as to whether a new vessel used within Canada's 200 nautical mile fishing limit, but beyond the 12 mile territorial waters of Canada will be used "in Canada" for the purposes of the definition of qualified property under subsection 127(9) of the Income Tax Act (the "Act") and, therefore, eligible for investment tax credit ("ITC"). in one situation, the vessel is used solely for fishing and in the other situation, the vessel is a factory freezer trawler designed both for fishing and for processing,
As per 1) the attached letter dated October 16, 1981 from Non-Corporate Rulings Division and 2) Drew Burnett of Current Amendments and Regulations Division, our Department has an administrative position whereby the rate of ITC available for a fishing vessel is determined by the rate applicable to the location of the business of the taxpayer. However, this position has normally been followed for purposes of determining whether a vessel is used in a province for purposes of subparagraph (a)(iiii) of the definition "specified percentage" in subsection 127(9). According to J.P. Miller, Chief of Audit Review in the Halifax District Office, no firm position has been taken for fishing activities outside the 12 mile limit.
The definition of qualified property requires that the property be used by the taxpayer "in Canada". As per paragraph 4 of Interpretation Bulletin IT-494 , the term "in Canada" includes the territorial sea of Canada which, in general terms, embraces the water and airspace within what is known as the 12 nautical mile limit. However, the term does not include the area of water off the coastline of Canada outside the 12 nautical mile limit, notwithstanding the 200 mile fishing limit (see attached memo dated July 18, 1980). In the court case Mersey Seafoods Limited v. M.N.R. (85 DTC 731), the Department took the position that processing activities which took place on board a vessel outside the 12 nautical mile limit were not carried out "in Canada". The judge agreed with our position after an extensive review of documents available on this matter. Two letters issued recently by Specialty Rulings Directorate dated September 11, 1987 and August 17, 1987 also confirm this position, but deal with the term "in Canada" as it relates to employment and rental payments. Neither section 255 of the Act nor section 5 of the Income Tax Conventions Interpretation Act defining the meaning of the word "Canada" are relevant to. the operation of a fishing vessel. Fishing vessels used outside the 12 mile limit are not used in Canada (or in a province), and technically, would not be eligible for any ITC.
As the decision to allow either fishing vessels or factory freezer trawlers used beyond the 12 mile limit to qualify for ITC, as well as the determination of the applicable ITC rate, will have to based on an administrative position, we axe requesting that your Division reply directly to the taxpayer.
However, based on our reading of the definition of "qualified property", the property must still be acquired for use "in Canada". Therefore, it would seem that the "prescribed offshore region" provisions would only be relevant for the activities described in section 255.
Please forward a copy of you response to us and to John Milley, Chief of Audit Review, Halifax District Office. Should you wish to discuss this matter further, please do not hesitate to contact the writer or Ted Harris at 957-2099.
D.W. DATH
Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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