28 September 1989 Administrative Letter 74056 F - Cape Breton Investment Tax Credit - Transfers of Approved Projects

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.

Subject:  Cape Breton Investment Tax Credit Transfers of Approved Projects

This is in reply to your memorandum of June 22, 1989, concerning the transfer of approved projects from one corporation to another corporation. 24(1) In your memorandum you state that you agree that approved projects which have not been started by the original applicant may be transferred.  However, you requested our opinion concerning transfers to a third party where the approved project had been started by the original applicant, and where the original applicant may or may not have acquired assets or obtained certification of these assets from Enterprise Cape Breton (ECB), and where the tax credits may or may not have been claimed and/or refunded.  Specifically you requested that we address the following:

1)      a situation where no assets were acquired and the project was abandoned by the original applicant;

2)     a situation where assets were acquired but not certified and the project was abandoned by the original applicant;

3)     a situation where assets were acquired and certified but no tax credit claimed and the project was abandoned by the original applicant;

4)     a situation where assets were acquired, certified, the tax credit claimed and/or refunded and the project was abandoned by the original applicant.

Our Comments

In order for a taxpayer to receive an ITC in respect of an "approved project property" which he has acquired, the project must meet the criteria contained in the definition of "approved project" in subsection 127(9) of the Act and the property acquired must meet the criteria contained in the definition of "approved project property" in subsection 127(9) of the Act.  Our review of the criteria indicates the following:

a)     "approved project"

-      the project must have a total capital cost of depreciable property, determined without reference to subsection 13(7.1) or 13(7.4) of the Act, of not less than $25,000,

-      the project must have been approved by the Minister of Regional Industrial Expansion pursuant to an application in writing before July 1988.

     As it is the project and not the taxpayer which must be approved, in our opinion a transfer of a project from one taxpayer to another at any time during the project would not affect its status as an "approved project".

b)     "approved project property"

-      the property must be certified by the Minister of Regional Industrial Expansion to be property that has not been used, or acquired for use or lease, for any purpose whatever before it was acquired by the taxpayer.

-      the property must met all other criteria contained in the definition of "approved project property" in subsection 127(9) if the Act.

     Any property purchased by the original applicant for use in a project is considered to have been "used, or acquired for use or lease, for any purpose whatever" prior to any sale to a new taxpayer who is taking over the project.  The new taxpayer will not be entitled to claim any ITC's related to the property previously acquired by the original applicant, even where the original applicant did not claim any ITC related to the property.

Consequently, our comments related to the above four situations are as follows:

Situation I

Where no assets were acquired and the project was abandoned by the original applicant, it is our opinion that a new taxpayer may take over the project and receive the applicable ITC's provided the following conditions have been met:

-      the original applicant must agree in writing to allow the new taxpayer to take over the project and agree not to claim any lTC's related to any assets to be acquired by the new taxpayer;

-      the project must be carried out as originally proposed, any significant change would create a new unapproved project which would not qualify for the ITC's available to the original project;

-     the new taxpayer must meet all of the other applicable requirements.

Situation 2

Where assets were acquired but not certified and the project was abandoned by the original applicant, it is our opinion that a new taxpayer may take over the project and be entitled to applicable ITC's provided the following conditions have been met:

-      the original applicant must agree in writing to allow the new taxpayer to take over the project and agree not to claim any ITC's related to any assets to be acquired by the new taxpayer;

-     the project must be carried out as originally proposed, any significant change would create a new unapproved project which would not qualify for the ITC's available to the original project;

-      the new taxpayer will not be entitled to claim any ITC's on the assets already acquired by the original applicant.  As the assets would have been acquired for use or lease by the original applicant, they will not qualify as "approved project property" when acquired by the new taxpayer even if they were not previously certified and no ITC's were previously claimed by the original applicant.  The new taxpayer may only claim ITC's on an acquisition of property that is part of the originally "approved project" and which has not been used, or' acquired for use or lease (including by the original applicant), for any purpose whatever before it was acquired by the new taxpayer.

-      the new taxpayer must meet all of the other applicable requirements.

Situation 3

Where assets were acquired and certified but no tax credit claimed and the project was abandoned by the original applicant, it is our opinion that a new taxpayer may take over the project and be entitled to applicable ITC's provided the following conditions have been met:

-      the original applicant must agree in writing to allow the new taxpayer to take over the project and agree not to claim any ITC's related to any assets to be acquired by the new taxpayer;

-      the project must be carried out as originally proposed, any significant change would create a new unapproved project which would not qualify for the ITC's available to the original project;

-      the new taxpayer will be entitled to claim any lTC's on the assets already acquired by the original applicant whether the assets acquired were certified or not certified.  As the assets would have been acquired for use or lease by the original applicant, they will not qualify as "approved project property" when acquired by the new taxpayer even if no ITC's were previously claimed by the original applicant.  The new taxpayer may only claim ITC's on an acquisition of property that is part of the originally "approved project" and which has not been used, or acquired for use or lease (including by the original applicant), for any purpose whatever before it was acquired by the new taxpayer.

-      the new taxpayer must meet all of the other applicable requirements.

Situation 4

Where assets were acquired, certified, the ITC claimed and/or refunded and the project was abandoned by the original applicant, it is our opinion that a new taxpayer may take over the project and be-entitled to applicable ITC's provided the following conditions have been met:

-      the original applicant must agree in writing to allow the new taxpayer to take over the project and agree not to claim any ITC's related to any assets to be acquired by the new taxpayer;

-      the project must be carried out as originally proposed, any significant change would create a new unapproved project which would not qualify for the ITC's available to the original project;

-     the new taxpayer will not be entitled to claim any ITC's on the assets already acquired by the original applicant whether the assets acquired were certified or not certified.  As the assets would have been acquired for use or lease by the original applicant and the ITC's claimed and/or refunded previously, they will not qualify as "approved project property" when acquired by the new taxpayer.  The new taxpayer may only claim ITC's on an acquisition of property that is part of the originally "approved project" and which has not been used, or acquired for use or lease (including by the original applicant), for any purpose whatever before it was acquired by the new taxpayer.

-      the new taxpayer must meet all of the other applicable requirements.

We trust that the above comments will be of assistance.

B.W. DathDirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch