7 November 1990 External T.I. 9025605 F - CCA Class 34

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.

November 7, 1990

Dear Mr. Burke:

Re:  Class 34

This is in reply to your letter of September 18, 1990, concerning the following issues.

1.     Definition of "Distributor of Heat"

     As stated in our letter dated August 20, 1990, it is our view that the term "distributor of heat" in subparagraph (a)(ii) of class 34 can not be interpreted in such a broad manner that those taxpayers who distribute heat for their own consumption would qualify.

2.     Eligibility of Chemical Recovery Boilers

     On the basis of our understanding of "chemical recovery boilers" (based on our discussions with you) we agree with your basic premise that the primary purpose of the recovery boilers is the recovery of chemicals, not the production of heat and therefore the requirements of neither subparagraph (a)(ii) nor (a)(iii) of, class 34 would be met.

     21(1)(b)

     21(1)(b)

3.     Used Equipment

     This pertains to the application of paragraph (i) of class 34 where used equipment is refurbished to the "as new" condition. As regards the refurbishment, a determination is required as to whether the amount of the expenditure is capital in nature because depreciable property was acquired or whether it is currently deductible because it is in respect of the maintenance or repair of a property. Paragraph 4 of Interpretation Bulletin IT-128R sets out guidelines which may be used in this determination. For your information a copy of IT-128R is enclosed.

     Assuming that an expenditure is capital in nature, a determination must be made whether the refurbished equipment can be considered new property in that property that has been used before it was acquired by the taxpayer can not be included in class 34 (unless the property had been included in class 34 by the person from whom it was acquired). Property considered to be new will not, for purposes of paragraph (i) of class 34, be considered to have been used before it was acquired by the taxpayer. For example, major renovations to a taxpayer's class 34 equipment that are capital in nature will normally qualify for inclusion in class 34 provided the renovated equipment continues to satisfy the other eligibility conditions. Where used equipment is renovated by a vendor and those renovations are so significant that the equipment, when acquired by the taxpayer can be said to be new, it will also qualify for inclusion in class 34 if the other eligibility conditions are met. However, where a taxpayer carries out major renovations either to used unqualified equipment he currently owns or to used equipment which he acquired from a third party, only the costs of the renovations may qualify.

4.     Spare Equipment

     There is no requirement in class 34 that equipment must be put into service. Subparagraph (c)(i) of class 34 only requires that the property be acquired by the taxpayer for use by him in a business carried on in Canada. Where equipment is not put into service the proposed available for use rules will effect the taxation year(s) that capital cost allowance may be claimed. We previously commented regarding spare parts in our letter dated May 17, 1990.

5.     Certificates

     As stated in our letter dated May 17, 1990, a copy of each certificate issued under class 34 should be forwarded to:

     Claudia Barbour Chief Taxroll Section Winnipeg Taxation Center Revenue Canada, TaxationWinnipeg, Manitoba R3C 3N2

     We apologize for any confusion on this point.

We trust this will be of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch