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.
QUESTION
11. Is equipment considered to be "available for use" for purposes of draft subsection 13(27) of the Income Tax Act (the "Act") in the following two situations?
In the first situation, equipment on hand at the end of a taxation year that is designed to produce commercially saleable products was used in the taxation year to so produce. However, the production was significantly below the designed capacity of the equipment. The equipment will require extensive alterations in order to achieve designed capacity. Such alterations will be done in a subsequent taxation year.
In the second situation, equipment on hand at the end of a taxation year that is capable of producing commercially saleable products at the designed capacity in the taxation year produces nothing until one day after the end of the taxation year.
Would the answer to the second situation be different if at the end of the taxation year, the equipment was capable of producing but not at the designed capacity without there being extensive alterations made?
ANSWER
11. The time at which property is first used by a taxpayer for the purpose of earning income or the time at which property is capable of producing a commercially saleable product is a question of fact that can only be determined after examining all of the particular facts of a situation.
In the first situation, the equipment could be considered to become "available for use" in the particular taxation year by virtue of draft paragraph 13(27)(a) of the Act since the equipment was in fact used for the first time in that year in accordance with its intended purpose.
In the second situation, the equipment could be considered to become "available for use" in the particular taxation year by virtue of draft paragraph 13(27)(d) of the Act since the time that it was capable of being used for its intended purpose preceded the time when it was first used.
The answer given above in the second situation would not change notwithstanding the modifications made to the facts.
However, it is a question of fact whether the costs of the extensive alterations would give rise to the acquisition of new or separate equipment for purposes of applying the "available for use rule to such costs.
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