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: 1. Whether an electronic datalogger installed on heavy equipment specifically to monitor its utilization in forestry operations would be included in class 52 for CCA purposes. 2. Whether an FM 300 Communicator installed on a hauling truck to monitor the truck's whereabouts and communicate this information to office in real time would belong to class 52.
Position: 1. No 2. No.
Reasons: In our view, the Datalogger and the FM300 Communicator are not general purpose electronic data processing equipment and would be included under class 8(i). Moreover, both devices may be regarded as being principally or being used principally by the taxpayer as electronic process control or monitor equipment, which is excluded from class 50 and 52. The systems software for these devices would also be included in class 8(i). The related applications software would be included in class 12(o).
XXXXXXXXXX
Tim Fitzgerald, CGA
2009-033186
July 27, 2010
Dear XXXXXXXXXX
This is in reply to your letter of July 8, 2009 concerning the classification of certain equipment for capital cost allowance ("CCA") purposes. You mentioned in your letter that your business involves the deployment of certain computer technology to your clients. You have asked us to consider two hypothetical clients (Client 1 and Client 2). We apologize for the delay in responding.
Client 1
Client 1 operates a logging operation and will be installing MultiDAT dataloggers ("Datalogger) on certain of its forestry machines. Your letter referred to The Forest Engineering Research Institute of Canada's ("FERIC") website for further information. According to its website:
"the MultiDAT electronic datalogger was designed by FERIC specifically for measuring the utilization rate of heavy equipment involved in forestry operations".
As we understand it, Client 1 will acquire several Dataloggers and radio frequency modems, one laptop computer, and related computer software.
Client 2
Client 2 operates a truck hauling business and uses vehicle tracking technology to monitor the use and whereabouts of its fleet of haul trucks. The project hardware includes one FM300 Communicator ("FM 300") with global positioning system (GPS) capabilities to be installed on each truck, and one office base station ("base station PC").
Based on information gleaned from the website mentioned in your letter [www.mixtelematics.com], the FM 300 is an electronic device with an internal GPS and Global System for Mobile Communication (GSM) modem. The related software used by the base station PC is configured to download and upload data from the trucks, enabling real time tracking and remote communication between office and haul trucks. You would like to know whether (a) the cost of the Datalogger, radio frequency modems, laptop computer, and the related software can be included under class 52 for Client 1; and (b) whether the cost of the FM 300, base station PC, and FM Software can be included in class 52 for Client 2.
Our Comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the situation involves specific taxpayers and completed transactions, all relevant facts and documentation should be submitted to the appropriate Tax Services Office for their views.
The determination of the proper CCA classification of a particular device is a question of fact. Factors to be considered will include not only the specific functions that the device is designed to perform but also, amongst other things, the actual use to which the device has been put by the particular taxpayer. This determination would generally be made by the local Tax Services Office having regard to all the relevant facts relating to the specific taxpayer. However, we offer the following general comments.
Generally, if an electronic device is an integral part of a particular property (e.g., a truck or forestry machine), the device would belong to the same class as the particular property. Factors to be considered in determining whether an installed device is an integral part of a particular property include whether the device is (a) permanently attached to the property (b) can be detached from the property and (c) was designed to be permanently attached to the property.
If the device is not an integral part of a particular property then that device is treated as a separate property for CCA classification purposes.
Schedule II of the Regulations provides various classes for depreciable capital property and the applicable rates of CCA. Generally, class 8(i) (20% rate) includes tangible capital property that is not included in another class in Schedule II.
Class 50 property (55% rate) is property acquired after March 18, 2007 that is "general-purpose electronic data processing equipment" ("GPEDPE") and systems software for that equipment, including ancillary data processing equipment, but does not include property that is included in Class 52 or that is principally or is used principally as:
(a) electronic process control or monitor equipment
(b) electronic communications control equipment
(c) systems software for equipment referred to in (a) and (b) or
(d) data handling equipment (other than data handling equipment that is ancillary to GPEDPE).
Generally, class 52 (100% rate) property is property described in class 50 that is acquired by a taxpayer after January 27, 2009 and before February 2011 that is situated in Canada, has not been used, or acquired for use, for any purpose whatever before it is acquired by the taxpayer; and is acquired by the taxpayer
(a) for use in a business carried on by the taxpayer in Canada or for the purpose of earning income from property situated in Canada, or
(b) for lease by the taxpayer to a lessee for use by the lessee in a business carried on by the lessee in Canada or for the purpose of earning income from property situated in Canada.
GPEDPE is defined in subsection 1104(2) of the Regulations as electronic equipment that, in its operation, requires an internally stored computer program that:
(a) is executed by the equipment;
(b) can be altered by the user of the equipment;
(c) instructs the equipment to read and select, alter or store data from an external medium such as a card, disk or tape; and
(d) depends upon the characteristics of the data being processed to determine the sequence of its execution.
An example of GPEDPE would be a desktop PC or laptop computer.
Generally, computer software includes applications software and systems software. Some common examples of applications software are spreadsheet software (e.g., Excel), word processing software (e.g., MS Word) and data base software. An example of systems software is an operating system such as Windows 7. Applications software is included in class 12(o)(100% rate). Systems software will generally be included in the same class as the device to which it relates. For example, systems software for a desktop PC would be included in the same class as the desktop PC.
Generally, external modems with an operating bandwidth in excess of 64 kilobits per second may be included in class 46 (30% rate) as being part of "data network infrastructure equipment", which is defined in subsection 1104(2) of the Regulations. However, we would mention that paragraph (b) of the definition excludes radio network equipment (such as, for example, a radio frequency modem) unless that radio network equipment supports digital transmission on a radio channel. An external modem excluded from class 46 is included in class 8(i).
The Datalogger and the FM 300 appear to be special-purpose electronic devices and are unlike general-purpose electronic equipment such as a laptop computer. In our view, they are not GPEDPE for purposes of class 50 and class 52. Moreover, the Datalogger and the FM 300 may be regarded as being principally or being used principally as electronic process control or monitor equipment, which is specifically excluded from class 50 and class 52. In our view, the Datalogger and the FM 300 would be included in class 8(i). With regard to the computer software relating to these devices, the systems software for the Datalogger and FM 300 would be included in class 8(i) and any applications software relating to these devices would be included in class 12(o).
We trust our comments are of assistance.
Yours truly,
Sandy Parnanzone
Manager
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch
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