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.
Principal Issues:
Whether recreational vehicles must be classed under Class 16 or Class 10 for capital cost allowance purposes?
Position TAKEN:
Class 10.
Reasons FOR POSITION TAKEN:
Recreational vehicles do not qualify for inclusion under Class 16 since they do not constitute an "automobile" within the meaning of subsection 248(1) of the Act.
April 15, 1994
Vancouver District Office Head Office
Client Assistance Division Rulings Directorate
Technical Business Inquiries C. Chouinard
S. W. Holmes 957-8953
7-940851
Capital Cost Allowance - Recreational Vehicles
This is in response to your memorandum of April 5, 1994 wherein you requested our opinion as to the appropriate classification of recreational vehicles for capital cost allowance purposes.
Your questions relate to two different situations. One situation concerns a retailer of recreational vehicles who, in addition to selling recreational vehicles, rents them for periods of two to four weeks. On rare occasions, the retailer rents the vehicles for periods of up to two months. In the second situation described, owners of recreational vehicles enter into sale/leaseback arrangements with the retailer for a period of up to two years. Under this arrangement, the retailer rents out the owner's vehicle when it is not being used by the owner.
You ask how the recreational vehicles will be classed for capital cost allowance purposes where:
a)the vehicles are part of the retailer's inventory;
b)the vehicles are part of the retailer's rental fleet; and
c)the vehicles are privately owned and rented out under a sale/leaseback arrangement.
In our view, recreational vehicles must be included under Class 10 for capital cost allowance purposes. They do not qualify for inclusion under either Class 10.1 or Class 16 since, in our opinion, they do not constitute an "automobile" within the meaning of subsection 248(1) of the Income Tax Act (the "Act"). An "automobile" is defined as a motor vehicle that is designed or adapted primarily to carry individuals on highways and streets (...). The Department's position regarding motorhomes remains as stated in the Go Vacations letter E577561. In our view, motorhomes are "designed primarily as recreational vehicles to provide a home away from home for persons while they are vacationing". Consequently, they do not meet the definition of "automobile".
Therefore, in response to your questions, the recreational vehicles that are part of the retailer's rental fleet will be classed under Class 10 for capital cost allowance purposes. With respect to recreational vehicles that are part of the retailer's inventory, we share your view that capital cost allowance cannot be claimed in respect of these vehicles as paragraph 1102(1)(b) of the Regulations denies a deduction for capital cost allowance where the property is part of the taxpayer's inventory.
In the case of vehicles privately owned and rented to private parties, unless the vehicles were acquired for the purpose of gaining or producing income, capital cost allowance cannot be deducted. It is a question of fact whether property has been acquired for the purpose of gaining or producing income. However, if the owners of these vehicles do not rent them on a regular basis, an argument could be made that there is no expectation of profit from the leasing activity and, therefore, that the vehicles were not acquired for the purpose of gaining or producing income. On the other hand, if they were acquired for such purpose, the capital cost allowance claimed will have to be apportioned between business and personal use in accordance with the provisions of paragraph 13(7)(c) of the Act. If the degree of personal use of the vehicles changes, paragraph 13(7)(d) and subsection 45(1) of the Act may apply.
We note incidentally that subparagraph (e)(i) of Class 16 of Schedule II was amended (by section 23 of PC 1994-139), such that the reference to paragraph (e) of the definition of "automobile" now refers to paragraph (d) of the definition of "automobile".
R. Albert
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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