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: The proper CCA classification of computer hardware and software and electrical generating equipment..
Position: Question of fact.
Reasons: The type of property and the use of the property will be relevant in the determination of the appropriate class.
xxxxxxxxxx
A. Seidel
(613) 957-8974
July 16, 1999
990805
Dear Sir:
Re: Capital Cost Allowance
This is in reply to your facsimile dated March 17, 1999 and our various telephone conversations concerning the appropriate classification of certain computer hardware and software for capital cost allowance (“CCA") purposes.
The equipment described in your facsimile relates to specific computer hardware and software which is already in place in certain buildings and you propose to include similar equipment in additional buildings in the future. To the extent that you require assistance in determining the current tax status of the taxpayers where the equipment is already in place, you should contact your local Taxation Services Office. To the extent that you require confirmation of the tax consequences of proposed transactions involving this specific product in the future, we bring to your attention Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada. Confirmation with respect to proposed transactions involving specific taxpayers should be the subject of a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for particular taxpayers with respect to specific contemplated transactions, a written request for an advance income tax ruling should be submitted in accordance with the Information Circular. Although we cannot provide any comments with respect to the computer hardware and software described in your letter, the following general comments may be of assistance.
At the outset, we would clarify that it is generally our view that computer hardware and software may be considered as a separate asset from any building systems that it may be used to operate, such as heating/cooling systems, sprinkler systems, lighting systems and/or alarm and emergency systems. Whether or not particular computer hardware and software would be so considered in an actual situation would depend upon the facts and circumstances of that situation and the details of the particular property.
As was stated in our February 26, 1999 letter, computer hardware and software may be classified in various classes pursuant to Schedule II of the Regulations. In particular, paragraph (f) of Class 10 of Schedule II of the Regulations includes certain general-purpose electronic data processing equipment, as defined in subsection 1104(2) of the Regulations, and systems software therefor. However, Class 10 also provides that in the situation where the general-purpose data processing equipment is principally or is used principally as any of the property described in any of subparagraphs (f)(i), (ii), (iii), or (iv), then this equipment would be excluded from Class 10. This equipment would be included in Class 8 of Schedule II of the Regulations pursuant to paragraph (i) thereof. It is also possible for certain computer hardware and software equipment to be included in Class 1 by virtue of paragraph (q) thereof. Whether or not particular computer hardware and software would be included in Class 1(q) as "a building or structure, or part thereof, including component parts ... is a question of fact that would depend upon the particulars and circumstances with respect to the particular computer hardware and software.
Whether electrical generating equipment is
a) "a building or other structure, or part thereof, including component parts" and therefore included in Class 1(q) of Schedule II of the Regulations,
b) "tangible property attached to a building" and therefore included in Class 8(b) of Schedule II of the Regulations or
c) property described in paragraph (f) of Class 8 of Schedule II of the Regulations
is a question of fact which can only be determined after reviewing all of the relevant facts related to the electrical generating equipment. It is our understanding that this issue is currently under review with your local tax services office and should therefore be resolved with them.
You requested clarification as to which would take precedence, Class 8 or Class 1 of Schedule II of the Regulations since Class 1 includes "Property not included in any other class ..." and Class 8 includes "Property not included in Class 1 . . .". As described in paragraph 6 of Interpretation Bulletin IT-285R2, the descriptive phrase "not included in any other class" means that a property will not be included in a class in Schedule II of the Regulations which contains that phrase if the property is specifically described in another class in Schedule II of the Regulations or a separate class established under Part XI of the Regulations. Consequently, with respect to property that is specifically described in any of the paragraphs of Class 1, e.g., a component part of a building is specifically mentioned in paragraph (q) of Class 1; if that property is not specifically described in Class 8 and could only potentially be included in Class 8 by virtue of the so-called "catch all" provision in paragraph (i) of Class 8, it is our view that this property would have to be included in Class 1.
Consistent with paragraph 6 of Interpretation Bulletin IT-285R2, if a property is specifically described in any of the paragraphs of Class 8, other than paragraph (i) thereof, and also in any of the paragraphs of Class 1, since both classes contain the same descriptive phrase, viz. "Property not included in [any other class/Class 1]...", the taxpayer would have the choice of including the property in either of Class 1 or Class 8 of Schedule II of the Regulations.
These comments are provided in accordance with the guidelines set out in paragraph 22 of IC 70-6R3 and are therefore not binding on Revenue Canada.
Yours truly,
for Director
Resources, Partnerships & Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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