16 December 1996 External T.I. 9638355 - LEASING & SPARE PARTS

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:

is the icome from the sale of spare parts to be considered as the selling and servicing of property of the same type as that of products sold and leased?

Position:

yes

Reasons:

	               	963835
XXXXXXXXXX		               S. Tevlin

Attention: XXXXXXXXXX

December 16, 1996

Dear Sirs:

Re: Income Tax Act Regulations

We are writing in response to letter dated November 12, 1996 wherein you requested our comments on the application of Regulation 1100(16)(a)(ii) of the Income Tax Act in the following hypothetical situation.

You have presented a situation in which a distributor of a particular product earns 89% of its income from the sale and leasing of that product. The balance of its income is derived from the sale of spare parts relating to that particular product.

You note that the spare parts are required for the servicing of the product and is considered to be an essential part of the business of selling and leasing.

In particular you have asked whether for the purposes of subparagraph 1100(16)(a)(ii) of the Regulations, income from the sale of spare parts can be considered as "the selling and servicing of property of the same type and general description".

It is our opinion that for purposes of subparagraph 1100(16)(a)(ii) of the Regulations, where the sale of spare parts can be said to be part of the principal business of renting or leasing of property combined with selling and servicing of the same general type of property, then the income from the sale of the spare parts can be said to be of the same type and description as that of the selling of the product itself.

Interpretation Bulletin IT-371 provides some comments on the meaning of principal business. The determination of whether the principal business of a corporation is as described in subparagraph 1100(16)(a)(ii) of the Regulations is a question of fact.

The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch