15 April 1992 Income Tax Severed Letter 9133165 - Available-for-use

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

SUBJECT: AVAILABLE FOR USE SECTION: 13(27)(a), 13(27(d), 2)(1)(c)]

913316
XXX F.B. Fontaine
(613) 957-4364

Attention: XXX

April 15, 1992

Dear Sirs:

Re: Paragraphs 13(27)(a) and (d) and Subparagraph 20(l)(c) i) of the Income Tax Act (the "Act')

This is in reply to your letter dated November 27, 1991 requesting a reconsideration of the comments made in the second paragraph on page 4 of our letter of June 24, 1991 in respect of the above provisions of the Act. It is your opinion that if a company was entitled to a deduction under paragraph 20(l)(c) on money borrowed to make an outright purchase of equipment, then the equipment would meet the "available for use" rules under paragraph 13(27)(a), even where the property was under preliminary testing, since the property would also considered to be "used for the purpose of earning income".

As stated in our previous letter, we do not share your analogy with the use of the words "used for the purpose of earning income" found in paragraph 13(27)(a) and subparagraph 20(l)(c)(i) of the Act. In the former provision, the words refer to the use made of depreciable property that would entitle a taxpayer to claim capital cost allowance while in the latter case, they refer to the use of borrowed money and the deductibility of interest arising thereon. In our view, the context in which the verb "to use" appears must influence the meaning to be attributed. Also, in the first paragraph of that letter we clearly indicated that the testing activity of a piece of equipment for the purpose of bringing it on line would not be considered to be "the time at which the equipment is first used ... for the purpose of earning income" for the purposes of paragraph 13(27)(a) of the Act, and that a more direct relationship must exist between the use of the property and the process of earning income.

Accordingly, it is our conclusion that the deductibility of interest on borrowed money to acquire depreciable property, whether acquired on an outright basis, or whether or not the property is under preliminary testing, would not be a factor in determining whether the particular property is considered to be "first used for the purpose of earning income" pursuant to paragraph 13(27)(a) of the Act.

We hope this will clarify the Department's position in this matter.

Yours truly,

for Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Legislative and Intergovernmental Affairs Branch