30 January 2012 External T.I. 2012-0433141E5 - Class 29 and T4002

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.

Principal Issues: Whether the Act or the Regulations require an election to be filed for a taxpayer to be able to include in class 29, machinery and equipment otherwise eligible be included in class 43 if acquired by the taxpayer after March 18, 2007 and before 2014.

Position: No election is required.

Reasons: A reading of the law.

XXXXXXXXXX
					2012-043314
					Tim Fitzgerald, CGA

January 30, 2012

Dear XXXXXXXXXX :

Re: Class 29 Property

This is in reply to your correspondence of January 12, 2012 concerning the proper classification of certain machinery and equipment for capital cost allowance ("CCA") purposes.

Your correspondence concerns machinery and equipment otherwise described in class 43 of Schedule II of the Income Tax Regulations (the "Regulations") that is acquired by a taxpayer after March 18, 2007 and before 2014 for use by the taxpayer in Canada primarily in the manufacturing or processing ("M&P") of goods for sale or lease. In your view, such property would be included in class 29 of Schedule II without the need for any election. However, you indicate that the following comment on the Canada Revenue Agency's ("CRA") website suggests that in the above-circumstances the taxpayer would be required to file an election to include such property in class 29:

"Class 29

You can elect to place in Class 29 eligible machinery and equipment used for the manufacturing and processing (M&P) in Canada of goods for sale or lease, acquired after March 18, 2007, and before 2012 that would otherwise be included in Class 43. To make an election, attach a letter to your income tax return for the tax year you bought the property indicating you are electing to put the property in Class 29."

Although not mentioned in your letter, we acknowledge that the 2011 version of the CRA's Guide, T4002, Business and Professional Income contains a similar statement concerning the need for an election to be filed, albeit the comments in that guide have been updated to include acquisitions of eligible machinery and equipment acquired after March 18, 2007 and before 2014 as a result of the 2011 federal budget.

You have asked us to confirm whether or not an election has to be filed in such circumstances.

Our Comments:

Generally, machinery and equipment acquired by a taxpayer after February 25, 1992 to be used directly or indirectly by the taxpayer in Canada primarily (more than 50%) in manufacturing or processing of goods for sale or lease is included in class 43 (with a CCA rate of 30% on a declining balance basis). However, as noted above, such property acquired after March 18, 2007, and before 2014 is included in class 29 (with a CCA rate of 50% on a straight line basis).

In such circumstances, contrary to the above-mentioned comments on the CRA website and in the CRA Guide (T4002), there is no corresponding legislative provision under the Income Tax Act or the Regulations that would require the taxpayer to file an election to include such property in class 29.

In contrast to the above, a taxpayer may elect to include in class 29, certain M&P machinery and equipment acquired after March 18, 2007 and before 2012 that would otherwise be included in class 43.1 or 43.2 of Schedule II. The election to include such property in class 29 is to be made pursuant to subsection 1102(16.1) of the Regulations by way of a letter attached to the taxpayer's return of income filed in accordance with section 150 of the Act for the taxation year in which the property is acquired.

We trust our comments above are helpful.

For your information, a severed copy of this letter has been sent to the Taxpayer Services Directorate, which oversees the information contained on the CRA website and the above-mentioned guide.

Yours truly,

Michael Cooke, C.A.
Manager
Capital Transactions Section
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

cc.:
Donna May
Director General
Tax Services Directorate
Tax Services and Debt Management Branch