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 a water cooling system and air conditioning equipment that maintain an optimal temperature range necessary to the operation of a main frame computer can be classified under class 10(f) for capital cost allowance purposes.
Position:
No. They are more likely to be considered a component part of a building.
Reasons:
Do not meet the definition of general-purpose electronic data processing equipment.
5-961745
XXXXXXXXXX C.Chouinard
Attention: XXXXXXXXXX
July 18, 1996
Dear Sir:
Re: CCA - Water Cooling System and Air Conditioning Equipment
We are writing in reply to your letter of May 6, 1996 in which you inquired about the classification for capital cost allowance purposes of a water cooling system and air conditioning equipment which provide cooling to a building for both the main framecomputer and the occupants.
In your view, both the water cooling system and the air conditioning equipment should be classified as class 10(f) of Schedule II of the Income Tax Regulations (the "Regulations") property, since they are required to maintain a narrow optimal temperature range which is necessary to the proper functioning of the main frame computer.
Generally, the appropriate capital cost allowance classification of property is primarily a question of fact dependent upon the nature and characteristics of property and the purpose for which it was acquired.
The water cooling system and air conditioning equipment described above would only be included in paragraph (f) of Class 10 if they were not included in any other class and qualified as "general-purpose electronic data processing equipment and systems software therefor, including ancillary data processing equipment". The phrase "general-purpose electronic data processing equipment" is defined in subsection 1104(2) of the Regulations as "electronic equipment that, in its operation, requires an internally stored computer program that (a) is executed by the equipment, (b) can be altered by the user of the equipment, (c) instructs the equipment to read and select, alter or store data from an external medium such as a card, disk or tape, and (d) depends upon the characteristics of the data being processed to determine the sequence of its execution".
Although the above definition is quite broad in nature, in our view, the water cooling system and the air conditioning equipment do not constitute "general-purpose electronic data processing equipment" within the meaning of the definition above. Even if the water cooling system and the air conditioning equipment are essential to the operation of the main frame computer, they nevertheless have to meet the definition of "general-purpose electronic data processing equipment" found in subsection 1104(2) of the Regulations in order to be included in paragraph (f) of Class 10.
In our view, the water cooling system and the air conditioning equipment are more likely to constitute component parts of a building included in Class 1, 3 or 6, as the case may be. The fact that the water cooling system and air conditioning equipment "provides cooling to the facility for the computers and the occupants" would support this view.
As regards the two cases you referred us to, since they principally deal with the determination of the types of activities that constitute manufacturing and production, in our view, they do not support your view that the major use of property is not determinative of its classification for capital cost allowance purposes.
Should you consider that the water cooling system and the air conditioning equipment are not of a type described in Class 1, 3 or 6, you may wish to provide officials of your local Tax Services Office with the facts and technical specifications of the system and equipment for their consideration.
We trust that these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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