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:
Does the cost of renovating a fishing vessel qualify as the capital cost of a qualified property for the investment tax credit?
Position:
Major renovations to a taxpayer's qualified property that are capital in nature will normally be creditable investments provided that the renovated equipment continues to satisfy the other eligibility conditions. Where, subsequent to the acquisition of used equipment, a taxpayer carries out major renovations only the costs of the renovations may qualify.
Reasons:
It is the Department's administrative practice which was stated in paragraph 24 of former Interpretation Bulletin IT-331R.
September 4, 1997
Individual Returns and Payments Headquarters
Validation Section Sylvie Labarre
9th Floor (613) 957-8953
Cumberland
Attention: M. Pastuch 7-971907
Investment tax credit
XXXXXXXXXX
This is in reply to your memorandum dated July 14, 1997 wherein you requested our opinion with respect to the investment tax credit claimed by the above taxpayers.
Our understanding of the facts is as follows.
XXXXXXXXXX
Your opinion is that while these costs would be considered capital expenditures for capital cost allowance purposes, they would not qualify as "qualified property" for investment tax credit purposes as new property was not "acquired" in the year.
A vessel is prescribed machinery and equipment for the purpose of the definition of "qualified property" in subsection 127(9) of the Income Tax Act (the "Act"). Assuming the vessel is to be used by the taxpayers in Canada primarily for the purpose of fishing, the other eligibility condition that must be met in order to claim an investment tax credit would be that the vessel has not been used, or acquired for use or lease, for any purpose whatever before it was acquired by the taxpayers. Furthermore, subsection 127(11.2) of the Act provides that a qualified property is deemed not to have been acquired by a taxpayer before the property is considered to have become available for use by the taxpayer, determined without reference to paragraphs 13(27)(c) and (28)(d).
Former Interpretation Bulletin IT-331R provided comments on the investment tax credit. The Bulletin was cancelled in 1994. The Department's administrative practice regarding major renovations was stated in paragraph 24 of this Bulletin which read as follows:
Major renovations to a taxpayer's qualified machinery or equipment, qualified transportation equipment or qualified construction equipment ("the equipment") that are capital in nature will normally be creditable investments providing the renovated equipment continues to satisfy the other eligibility conditions. Where used equipment is renovated by a vendor and those renovations are so significant that the equipment, when acquired by a taxpayer can be said to be new, it will also constitute a creditable investment if the other eligibility conditions are met. However, where, subsequent to the acquisition of used equipment, a taxpayer carries out major renovations only the costs of the renovations may qualify.
Although the Bulletin was cancelled, this position still represents the Department's administrative practice where used equipment is renovated and should be applied to determine whether the condition that a property has not been used, or acquired for use or lease, for any purpose whatever before it was acquired by the taxpayers is met.
The Bulletin did not address the meaning of "major renovations". However, it is our view that renovations would have to be more than the simple replacement of worn parts. It would be a question of fact whether a particular renovation would bring a piece of equipment to a new state. In our view, XXXXXXXXXX would constitute a major renovation and, if the other eligibility conditions are met, the cost of such a renovation would qualify as the capital cost of a qualified property.
We trust that our comments will be of assistance to you.
Marc Vanasse
A/Section chief
Resources, Partnerships and Trusts Section
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
ENDNOTES
1.As used in the definition of "qualified property" in subsection 127(9) of the Act.
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