4 June 1993 External T.I. 9303305 F - ITC on Demos

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.

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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Investment Tax Credits

Your letter dated February 3, 1993 and addressed to Mr. Alan Asselstine of Agriculture Canada has been forwarded to us for our reply.

In your letter, you have asked clarification as to whether certain tractors and equipment would qualify for an investment tax credit in the situation where (1) the tractors and equipment are used as demonstrators for a limited number of hours and then sold as "new", or (2) the tractors and equipment are leased to potential buyers for a short term period (with restricted hours) and then sold as "new".

Since the above questions relate to a number of actual transactions, the tax implications thereof can only be determined upon the review of all relevant facts and documentation. Such a determination would be made on a case-by-case basis by the appropriate district taxation office. We are therefore not in a position to give you a definitive response as to whether the tractors and equipment would qualify for an investment tax credit. However, we are prepared to offer you the following general comments which may be of some assistance to you.

As mentioned in paragraph 18 of Interpretation Bulletin IT-331R entitled Investment Tax Credit dated October 25, 1985 (enclosed), it is the Department's view that a piece of equipment that is used regularly for demonstration purposes would not qualify for an investment tax credit. However, new equipment that is demonstrated to or "test" driven by a prospective purchaser of that particular piece of equipment would not normally be considered, for the purposes of the definition of qualified property under subsection 127(9) of the Income Tax Act (the "Act"), to have been "used for a purpose".

With respect to the second situation described in your letter regarding short term lease arrangements, we would mention that pursuant to paragraph 21 of IT-331R, whether or not payments under a lease-option agreement are rental payments, as opposed to payments on account of the purchase price of the particular equipment, would involve a finding of fact in each situation. Where the facts in a particular case indicate that the lessee is in fact purchasing the equipment, rather than leasing it, that taxpayer otherwise qualifies under the Act.

Yours truly,

for Director Manufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

c.c.      Mr. Alan Asselstine,      Agriculture Canada      3rd Floor, Sir John Carling Building      Ottawa, Ontario      K1A 0C5

Enclosure