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.
913340
Dear Sirs:
Re: Replacement of Utility Poles Whether Current Expenditure or Capital Expenditure
This is in reply to your letter of November 27, 1991 wherein you request our views whether utility pole replacement costs are deductible as current expenditures.
24(1)
The average useful life of the poles is 25-30 years. In the past the pole replacement costs have been capitalized and included in classes 1 or 2 for income tax purposes. For financial statement purposes the company is required by the Utilities Commission to capitalize the pole replacement costs.
The company now proposes for income tax purposes to deduct the pole replacement costs as a current expenditure. It is your view that the accounting policy established by the Utilities Commission for reasons other than taxation should not deny the company the right to deduct these costs as a current expenditure for income tax purposes. It is your view that the entire line system should be considered as a single separate asset comprised of a multitude of parts designed to distribute electricity from the point of generation to the ultimate user. You refer to our comments in paragraph 4 of IT-128R to support your position.
Our Views
Paragraphs (m) and (c) of classes 1 and 2 refer to property that is distributing equipment of a producer or distributor of electrical energy. We do not consider the utility poles to be part of a property. The utility poles would in our view be considered separate assets or properties which together with the conductors and lines comprise the electrical line system. Where a deteriorated pole with a short or no useful life is replaced with a new pole it could not be considered to be a restoration of the old pole to its original condition. It would be considered an acquisition of a new asset with a useful life of 25-30 years.
In our view the comments in paragraph 4 of IT-128R do not support your position that the pole replacement costs could be considered current expenditures. In our opinion the better view is that the cost of the replacement utility poles would be considered a capital expenditure to be included in classes 1 or 2 of Schedule II of the Income Tax Regulations.
We trust our comments will be of assistance to you.
Yours truly,
E. Wheeler for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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