19 September 1997 External T.I. 9709055 - ONE SYSTEM OF TWO SYSTEMS?

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 two gas turbine generators each capable of producing electrical energy independent of the other considered, for purposes of paragraph (c) of Class 43.1, to be one system or two independent systems?

Position:

To be determined by NRCan on basis of Engineering and Scientific concepts.

Reasons:

NRCan responsible for all engineering and scientific issues respecting Class 43.1.

Class 34/43.1 Secretariat
Natural Resources Canada
Building 3, Room 213A 970905
1 Haanel Drive Wm. P. Guglich

Nepean, Ontario
K1A 1M1

Attention: Richard Fry

September 19, 1997

Dear Sirs:

Re: Definition of "a system"

This is in reply to your letter of April 2, 1997, wherein you requested our views regarding the definition of "a system" for purposes of paragraph (c) of Class 43.1.

In the scenario described in the letter you received from XXXXXXXXXX Each unit is capable of producing electrical energy independent of the other. The only difference between the two units is that one unit has a waste heat recovery oil heater and the other unit does not. XXXXXXXXXX considers the two units to be separate systems for purposes of clause (c)(i)(B) of Class 43.1.

Although you mention "independent systems" in your letter, you should note that the word "independent" does not appear in paragraph (c) of Class 43.1, which merely refers to "a system". In our view where there is more then one system, clauses (c)(i)((B) and (c)(ii)(B) of Class 43.1 require the calculation of the heat rate for each individual system.

The word "system" is not defined in the Income Tax Act and therefore it must be given its ordinary meaning. In Lovell Lighting v. Minister of National Revenue 89 C.I.T.T. 1137 (see attached), the Canadian International Trade Tribunal referred to the Institute of Electrical and Electronic Engineers Inc. Standard Dictionary of Electrical and Electronic Terms (1984) (the "IEEE dictionary") which defines "system" as follows:

"System (1) (general). An integrated whole even though composed of diverse, interacting specialized structures and subjunctions. Notes: (1) Any system has a number of objectives and the weights placed on them may differ widely from system to system. (2) A system performs a function not possible with any of the individual parts. Complexity of the combination is implied".

Based on this definition, the tribunal concluded that " a system is an integrated whole composed of diverse, yet interacting structures that performs a function not possible with any of the individual parts."

The issue of whether the two systems are part of an integrated whole that performs the function of generating electrical energy must be determined on the basis of engineering or scientific concepts. As such determinations fall within your area of expertise we are unable to comment further on this matter.

We trust our comments will be of assistance.

Yours truly,

C. Chouinard
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch