28 August 1989 Income Tax Severed Letter 8-0306 - Various issues related to ready-mix concrete mixer trucks

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.

We are writing in reply to your memorandum of July S, 1989, wherein you requested our comments on certain issues related to ready-mix concrete trucks ("concrete mixers") used by the above-noted taxpayer.

Background

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Your Questions

You requested our comments on the following questions:

• 1. Does paragraph 2 of Interpretation Bulletin 17-411 represent the Department's current position as to what constitutes construction?
• 2. What types of equipment are considered to be qualified construction equipment.?
• 3. Is any other class 22 property, apart from concrete mixers, that would be movable equipment used for placing concrete?
• 4. Does paragraph 16 of IT-331R represent the Department's current position concerning the word "principally"?
• 5. Is a stone slinger eligible for ITC as qualified construction equipment?
• 6. If concrete mixers spend more than 50% of their time on construction sites, can they be considered to be used principally in the activity of construction?
• 7. What is meant by the phrase "placing of concrete" in paragraph 4 of IT-411? At what point in the placing of concrete does construction commence?
• 8. If the concrete mixers and stone slinger are considered to be qualified construction equipment by the judge, will that property and the related labour costs of the drivers also be considered to be manufacturing and processing capital and labour for the purpose of section 5202 of the Regulations.

Our Comments

Our responses are in the same order as the questions posed.

• 1. We confirm that paragraph 2 of 17-411 represents the Department's current position as to what constitutes construction.

2: As per section 4603 of the Regulations, the definition of qualified construction equipment excludes qualified property and qualified transportation equipment but includes class 22 property, a crane, pile driver, or a dredge. In order to be eligible for ITC, the qualified construction equipment must be used by the taxpayer principally for the purpose of construction in Canada in the course of carrying on a business.

• Examples of qualified construction equipment would include the following property if it is used principally for the purpose of construction: 1) a dip trailer which is used to move and place earth and rocks as well as a truck tractor used as the source of power for the trailer, 2) a movable crane or hoist designed or modified to move or place earth, concrete or rocks in a bucket at a construction site, and 3) a fork lift fitted with concrete block tines which is designed and used primarily for moving concrete blocks at a construction site.
• 3. Class 22 equipment used to place concrete generally would include a crane with a bucket, a power-operated movable curb machine, and a concrete pump mounted on a truck.
• 4. We confirm that paragraph 16 of IT-331R represents the Department's position concerning the word "principally".
• 5. A stone slinger is used to move and place stones and sand and would normally meet the definition of power-operated movable equipment in paragraphs 2 and 3 of IT-469. Therefore, it would normally be included in class 22. In order for a stone slinger to be eligible for ITC as qualified construction equipment it must be used more than 50% of the time for the purpose of construction. A stone slinger would be considered to be used in a construction activity when it is placing, by means of its conveyor belt system, the sand or crushed stones into or onto a form or structure which is permanently affixed to the ground at a construction site.
• 6. Prior to unloading the concrete at the construction site, it is necessary to continue processing the concrete by rotating the mixer and adding more water when necessary. The processing activity ends once the concrete is removed from the concrete mixer into its chute. Therefore, it is our opinion that a concrete mixer and its driver are engaged in a construction activity only at the time they are placing concrete.
• 7. It is our opinion that the term "placing of concrete" in paragraph 4 of IT-411 refers to the activity of incorporating the concrete into a structure or a form which is permanently affixed to the land. Where the chute at the end of the concrete mixer is used to pour and direct the concrete directly into a concrete form, such as in a basement foundation, the time spent by the driver and the concrete mixer moving the truck into place, setting up the chute, and pouring the concrete would be considered a construction activity. However, where the concrete is poured down the chute into a receptacle such as a wheelbarrow, a bucket on the end of a crane or a concrete pump, the actual pouring of the concrete into a form is not done by the concrete mixer and its chute, nor is it the responsibility of the truck's driver. Consequently, the activity of unloading the concrete from the concrete mixer would be considered the delivery of finished goods.
• 8. The deduction from tax otherwise payable by a corporation for its Canadian manufacturing and processing profits ("M&PP") per section 125.1 of the Act is determined in accordance with the formulas in section 5200 of the Regulations. The term manufacturing or processing ("M & P") does not include construction activities (per paragraph 125.1(3)(h) of the Act). There fore, capital or labour used at a specific time in a construction activity cannot also be used at that same time in an M & P activity. If the judge finds that the concrete mixers and stone slinger and the drivers thereof are engaged in a construction activity while performing certain duties, then paragraph 5201(c) of the Regulations prohibits the taxpayer from using the small manufacturers' rule in calculating its M&PP. Instead, the taxpayer will have to use the basic formula outlined in section 5200 of the Regulations. As a result, the amount of M&PP eligible for the reduced rate of tax would be calculated according to the following formula:

• M&PP; - MG + ML   X  adjusted business income
             C  +  L
      MC - Cost of M & P capital            C  -  Cost of capital
      ML - Cost of M & P labour             L  -  Cost of labour

MC - Cost of M & P capital C - Cost of capital
ML - Cost of M & P labour L - Cost of labour

All of these terms are defined in section 5202 of the Regulations.

• The portion of the cost of capital (i.e., for the concrete mixers and stone slinger) that reflects the extent to which the property was used in a construction activity for each year would be excluded from the calculation of the cost M & P capital. Similarly, the portion of the cost of drivers' labour that reflects the extent to which the salaries and wages paid or payable for the portion of their time that they were engaged in a construction activity for each year would be excluded from the calculation of the cost of M & P labour.

We trust these comments will be of assistance.