10 February 2011 Ministerial Correspondence 2011-0392831M4 - CCA refurbished computer and components

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 a refurbished computer acquired after January 27, 2009, and before February 2011can be included in class 52. 2. Whether new internal components to replace existing components in a refurbished computer can be included in class 52. 3. CCA classification of a camera and video equipment.

Position: 1. Class 50. 2. Class 50. 3. Class 8(i)

Reasons: 1. A refurbished computer is not a new computer and is accordingly, excluded from class 52. 2. Internal components installed in a computer, once installed, are integral to the computer and not separate and distinct property for CCA purposes. 3. Class 8(i), with some exceptions, includes any tangible depreciable property that is not included in another CCA class.

February 10, 2011

XXXXXXXXXX

Dear XXXXXXXXXX :

The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your correspondence, which I received on January 10, 2011, concerning the 100% capital cost allowance (CCA) rate for computers acquired after January 27, 2009, and before February 1, 2011.

This 100% CCA rate applies to computers that meet the conditions for inclusion in Class 52 of Schedule II to the Income Tax Regulations.

You want to know if the cost of a computer that is listed on a vendor retailer's Web site as being refurbished and the cost of additional parts such as extra RAM or a new hard drive for this computer are included in Class 52. You also indicate that you are a freelance video professional and editor and want to know if there is anything similar available for the cost of a new camera and video equipment for use in your business.

Generally, a taxpayer who acquires a depreciable property for the purpose of earning income from a business is required to include that property in one of the classes specified by the tax legislation, depending on the type of property acquired. The taxpayer can then claim a portion of the cost of the depreciable property as a CCA deduction when calculating business income for a fiscal period. You can view some of the more common CCA classes and their respective CCA rates on the CRA Web site at www.cra.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/cptl/dprcbl-eng.html#class52.

In the majority of the cases, the 100% CCA rate for Class 52 property applies to
general-purpose computer equipment, including related system software and ancillary data processing equipment, that:

• is acquired after January 27, 2009, and before February 1, 2011;
• is situated in Canada; and
• is acquired by the taxpayer for the purpose of either earning income in a business carried on in Canada or earning income from property situated in Canada.

In addition, to be included in Class 52, a taxpayer's property must be new in the sense that it was not previously used or acquired to be used for any purpose before it is acquired by the taxpayer.

Class 50, which has a CCA rate of 55%, is another class where a general-purpose computer can be included. In the majority of the cases, Class 50 property includes general-purpose computer equipment, including related system software and ancillary data processing equipment, that is acquired after March 18, 2007, and is not eligible to be included in Class 52. Please note that, for Class 50, there is no requirement that the property be new.

Tangible capital property that is not described in any of the various classes in the tax legislation is included in Class 8(i), which has a CCA rate of 20%.

The half-year rule allows only half of the CCA write-off that is otherwise available in the year when an asset is first available for use. The half-year rule generally applies to property included in Class 50 and Class 8(i), but it does not apply to Class 52 property.

Since a condition for inclusion in Class 52 is that the property be new, a refurbished computer acquired by a taxpayer cannot be included in Class 52 if it was previously used or acquired to be used for any purpose before it was acquired by the taxpayer. Therefore, a refurbished computer generally falls into Class 50.

Upgrade parts such as extra RAM or a new hard drive will be included in the same class as the equipment that is being upgraded. Parts installed in a refurbished computer included in Class 50 are also included in Class 50. A camera and video equipment to be used in the business of photography and video recording will be included in Class 8(i).

I trust that the information I have provided is helpful.

Yours sincerely,

Keith Ashfield
Minister of National Revenue

Tim Fitzgerald, CGA
2011-039283