23 November 1992 Income Tax Severed Letter 9234525 - Class 12(1)(s) - Point-of-Sale Equipment

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.

5-923452
R. Albert
24(1) (613) 957-2140

Attention: 19(1)

November 23, 1992

Dear Sirs:

Re: Class 12(1)(s) Computer Equipment and Software

We are writing in reply to your facsimile request dated November 12, 1992 wherein you requested clarification with respect to the interpretation and application of paragraph (s) of Class 12 of Schedule II of the Income Tax Regulations (the "Regulations").

You specifically requested whether the application of paragraph (s) of Class 12 of Schedule II of the Regulations would encompass any or all of the components of a specialized electronic point-of-sale inventory system designed for retail application which consists of point-of-sale ("POS") terminals, a central processing unit ("CPU"), a printer and specialized software. The system is capable of calculating and recording sales tax imposed by more than one jurisdiction although the

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POS terminal relies on the CPU to calculate and record the sales tax. The CPU is designed primarily for controlling inventory and processing sales although it may perform some or all accounting functions for the business. The POS terminals have a cash drawer and are connected to a printer which produces a sales invoice.

Our Comments

While we provide confirmation of the tax effects of proposed situations only in the form of advance income tax rulings, we are prepared to provide the following general comments.

Class 12 was amended September 29, 1990 to permit a one hundred per cent (100%) capital cost allowance rate for certain electronic point-of-sale equipment used in retail businesses that was acquired for use or lease after August 8, 1989 and before 1993. Such property is not subject to the half-year capital cost allowance rule.

The property included in paragraph (s) of Class 12 is:

• (i) electronic bar code scanning equipment designed to read bar codes applied to goods held for sale in the ordinary course of the business;
• (ii) a cash register or similar sales recording device designed with the capability of calculating and recording sales tax imposed by more than one jurisdiction in respect of the same sale;
• (iii) equipment or computer software that is designed to convert a cash register or similar sales recording devise to one having the capability of calculating and recording sales tax imposed by more than one jurisdiction in respect of the same sale; or
• (iv) electronic equipment or computer software that is ancillary to property described in subparagraph (i), (ii) or (iii) and all or substantially all the use of which is in conjunction with that property.

Subparagraphs (i), (ii) and (iii) refer to specific types of point-of- sale property which either reads bar codes, calculates and records sales tax, or converts certain equipment to do so. Subparagraph (iv) includes equipment and software which is "ancillary" to property described in subparagraphs (i), (ii) and (iii). Subparagraph (iv) goes on to read "... and all or substantially all the use of which is in conjunction with that property." It is the Department's view that the expression "all or substantially all" means at least ninety per cent (90%). The word "conjunction" is defined in The Oxford English Dictionary to mean "joining together, marriage union, connection of ideas,...the action of conjoining; the fact or condition of being conjoined; union, connection,

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combination...". The expression "in conjunction with" as used in the said subparagraph therefore connotates an association, i.e. the action of operating together, between the described properties. Therefore in addition to the properties explicitly mentioned in subparagraphs (i), (ii) and (iii), subparagraph (iv) permits the inclusion of ancillary property provided that ninety per cent (90%) of its use is in conjunction with property described in the three preceding subparagraphs. In our view, a `dummy' POS terminal which is part of a system designed with the capability of calculating and recording sales tax imposed by more than one jurisdiction but which relies on a CPU to calculate and record sales tax will qualify for inclusion in subparagraph (s)(ii) of Class 12 of Schedule II of the Regulations. However, a CPU or specialized software, as any ancillary electronic equipment and computer software referred to in subparagraph (s)(iv), will not qualify unless they are used all or substantially all of the time in conjunction with the `dummy' POS terminal in calculating and recording sales tax. Connected printers would not qualify under any of the subparagraphs of Class 12.

We trust that these comments will be of assistance.

Yours truly,

E. Wheeler
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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