27 June 1994 External T.I. 9410195 - LARGE CORPORATION TAX & CONDITIONAL SALES CONTRACTS

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.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

Principal Issues:

WHETHER THE PURCHASE OF CONDITIONAL SALES CONTRACTS BY A CORPORATION, THAT IS NOT A FINANCIAL INSTITUTION, IS ELIGIBLE FOR AN INVESTMENT ALLOWANCE PURSUANT TO SUBSECTION 181.2(4).

Position TAKEN:

YES, BY VIRTUE OF PARAGRAPH 181.2(4)(c), IF A NOTE IS ISSUED AS A CONSEQUENCE OF THE CONDITIONAL SALES CONTRACT.

Reasons FOR POSITION TAKEN:

LEGISLATION.

				941019

XXXXXXXXXX		G.Donell

Attention: XXXXXXXXXX

June 27, 1994

Re: Large Corporation Tax and Subsection 181.2(4) of the Income Tax Act (the "Act")

This is in reply to your letter of April 14, 1994 in which you have requested our interpretation as to whether the purchase of conditional sales contracts from an arm's length party entitles the acquiring corporation to an investment allowance by virtue of subsection 181.2(4) of the Income Tax Act, S.C.1970-71-72, c.63 as amended consolidated to June 10, 1993.

A "note", in Black's law dictionary, is defined as "an instrument (secured or unsecured) containing an express and absolute promise of the signer to pay to a specified person or order, or bearer, a definite sum of money at a specified time". Where as a consequence of entering into a conditional sales agreement the purchaser issues a note to the vendor the amount of the note will be included in computing the purchaser's capital pursuant to paragraph 181.2(3)(d) of the Act and such amount will be included in the investment allowance of the vendor pursuant to paragraph 181.2(4)(c) of the Act. Such treatment is predicated on neither the purchaser nor the vendor being a financial institution as defined in subsection 181(1) of the Act. Accordingly where a party acquires a note issued by the purchaser pursuant to a conditional sales agreement, and the party is not a financial institution, the note will be included in the calculation of the party's investment allowance pursuant to paragraph 181.2(4)(c) of the Act.

You have not provided sufficient information to allow us to comment on whether the particular corporation to which you refer to in your letter is a "financial institution" within the meaning of subsection 181(1) of the Act. Such determination is a question of fact that you may wish to pursue with the relevant District Taxation Office. You should note that the principal business of the particular corporation is not, in itself, relevant to that determination.

While we trust that our comments are of assistance to you, we would advise that they do not constitute an advance income tax ruling and are, therefore, not binding upon the Department in respect of any particular situation.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch