6 November 1989 Income Tax Severed Letter AC74202 - Investment Tax Credit on Computer Equipment

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.

Halifax District Office                      Head Office
Audit Review                                 Specialty Rulings
                                             Dave Turner
                                             (613) 957-2094

Attention:  Kevin McGuigan                   7-4202

Investment Tax Credit on Computer Equipment

We are writing in reply to your memorandum of August 1, 1989 in which you requested our comments related to a claim for and Investment Tax Credit (ITC) on computer equipment used in a textile business.

In your letter you state that the taxpayer 24(1)

Our Comments

Based on the limited information supplied and assuming that 24(1) our comments are as follows:

Comments are as follows:

     1)   We agree with you that the asset has been correctly set
          up in Class 29 for capital cost allowance purposes.

     2)   24(1)  As subparagraph 127(11)(b)(v) of the Act states
          that the purposes referred to in paragraph (c) of the
          definition of "qualified property" in subsection 127(9)
          of the Act does not include data processing, the
          computer cannot be considered to be "qualified
          property" for purposes of the ITC.  In addition, as
          paragraph (h) of the definition of "qualified
          activities" in section 5202 of the Income Tax Act
          Regulations (the Regulations) states that M & P does
          not include data processing, the computer cannot be
          included in the cost of manufacturing capital when
          calculating deduction related to M & P profits in
          section 125.1 of the Act.  This opinion is supported by
          the following:

     a)   Paragraph 30 of Interpretation Bulletin  IT-145R
 and
          paragraph 6 of Interpretation Bulletin  IT-147R2
          identify three possible uses of a computer by a
          taxpayer who is involved in  M & P, the uses are as
          follows:

1) Direct Uses:

          -    computer control of  M &  P equipment
          -    computer direction of M & P equipment
          -    other direct M & P applications

2) Indirect Use:

          -    compilation of cost records
          -    maintenance of inventory records
          -    production scheduling and control,
          -    engineering design

3) Non-M & P uses:

          -    payroll record keeping,
          -    accounts receivable and payable records
          -    customer lists
          -    sales invoices and analysis

          The definition of "data processing"  contained in
          paragraph 30 of  IT-145R
 states that the only computer
          activities which will not be considered to be "data
          processing" are direct uses of the computer in M & P
          activities.

b) The taxpayer's representation 24(1)

     c)   The Interpretation Bulletin which covers ITC's is
           IT-331R
, paragraph 14 of the IT confirms that paragraph
          127(11)(b) of the Act provides for greater certainty
          that manufacturing and processing does not include data
          processing for the purposes of determining the ITC.

We trust that our comments will be of assistance.

Chief Business and general Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch