12 September 1989 Income Tax Severed Letter 73669A F - Investment Tax Credit - Fishing Vessels

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.

September 12, 1989

19(1)

We are writing in reply to your letter of June 29, 1988, wherein you requested our interpretation as to whether new vessels which operate within Canada's 200 nautical mile fishing limit, but beyond the 12 mile territorial waters of Canada will be used "in Canada" for purposes of the definition of qualified property under subsection 127(9) of the Income Tax Act (the "Act") and therefore, will be 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.  In both situations, the vessel is registered in Canada and is based from and lands its catch in a Canadian port.  We regret the delay in replying to your letter.

Our Comments

Our Department has an administrative position whereby the rate of ITC available for a fishing vessel used within the 12 nautical mile limit is determined by the rate applicable to the location of the business of the taxpayer.  This position has normally been followed for purposes of determining whether a vessel is used in a province for purposes of subparagraph (a)(iii) of the definition of "specified percentage" in subsection 127(9) of the Act.

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 nautical mile. fishing limit.  In the court case Mersey Seafoods Limited v. M.N.R.  (85 DTC 731), our 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.  In addition, neither section 255 of the Act, which expands the definition of "Canada" for purposes of mineral, oil, and gas activities, nor section 5 of the Income Tax Conventions Interpretation Act defining the meaning of the word "Canada", are relevant to the operation of a vessel.

Therefore, it is our opinion that fishing vessels and factory freezer trawlers used beyond the 12 nautical mile limit are not used in Canada (or in a province), and are not eligible for ITC.  To recognize Canada's 200 nautical mile fishing limit for the purpose of earning ITC on these vessels appears to require an amendment to the Act and you may wish to pursue this matter with the Department of Finance.

Yours truly,

for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch