23 November 2010 External T.I. 2010-0376141E5 - Capital Cost allowance

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 an indoor golf simulator that cost approximately $50,000 would qualify as a class 52 asset.

Position: This property is a mixture of class 8, 12, and 52 assets.

Reasons: The golf simulator computer which is used principally as electronic process control or monitor equipment would be excluded from class 52 and thus be a class 8 asset along with other components like the cameras, projectors and enclosure/structure. The high definition golf software package is considered to be applications software and is thus a class 12 asset. The optional golf center management system that utilizes a Dell Precision T3500, 19 inch monitor and management software should be treated as a class 52 asset for the computer and systems software with the management software being applications software and a class 12 asset.

XXXXXXXXXX
									2010-037614
									Charles Rafuse
      								613-247-9237
November 23, 2010

Dear XXXXXXXXXX :

Re: Capital Cost Allowance

This is in response to your email of July 26, 2010 and is further to our telephone conversation (XXXXXXXXXX /Rafuse), regarding the proper class in Schedule II of the Income Tax Regulations ("Regulations") in which an indoor golf simulator should be included.

A 100% capital cost allowance (CCA) rate for certain computer hardware and systems software acquired after January 27, 2009 and before February 1, 2011 was enacted into law by adding class 52. You have indicated that you will be XXXXXXXXXX and have asked whether a golf simulator that cost approximately $50,000 would qualify as a class 52 asset.

You have indicated that the golf simulator will be purchased from XXXXXXXXXX and a description of the simulator could be found on their website XXXXXXXXXX . Based on the list of the equipment and the information gleaned from a review of products on the XXXXXXXXXX , it was noted that a golf simulator consists of the following:

• Dell Precision T3500 workstation.
• A frame/screen assembly.
• A high definition golf software package.
• A 19 inch touch screen.
• Two video projectors.
• A ball tracking system that utilizes 4 high speed cameras.
• An optional video swing analysis system which utilizes 2 high speed cameras.
• An optional shaft flex module that utilizes a high speed camera.
• An option for live internet play which includes a camera, amplifier and microphones.
• An optional golf center management system that utilizes a Dell Precision T3500, 19 inch monitor and management software.
• A golf turf, hitting mat, stance mat and a drapery package.

As the XXXXXXXXXX website did not indicate prices for individual components of the golf simulator, our understanding of such costs is based on information obtained on the internet. It was noted that a Dell Precision T3500 workstation had a price of approximately $2000, a video projector costs approximately $1000, and a high speed camera had a cost in excess of $2000.

It was also noted that the golf center management system and software allows the golf center staff to manage the day-to-day operations, including booking tee times, saving player statistics and video swing analysis videos from the simulators, organizing tournaments and leagues, sending emails to clients, reviewing simulator time usage and comparing simulator usage to point of sale receipts.

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 particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office (the "TSO"). We are, however, prepared to offer the following general comments, which may be of assistance.

Schedule II of the Regulations sets out the various classes for depreciable capital property and the applicable rates of CCA. In particular, paragraph (i) in class 8 includes all tangible capital property that is not found in any other class.

Class 52 generally provides for a temporary 100% CCA rate for property acquired by a taxpayer after January 27, 2009 and before February 2011 that is general-purpose electronic data processing equipment (GPEDPE) and systems software for that equipment, including ancillary data processing equipment that:

(a) is situated in Canada;
(b) has not been used, or acquired for use, for any purpose whatever before it was acquired by the taxpayer; and
(c) is acquired by the taxpayer either

(i) 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
(ii) for lease by the taxpayer to a lessee for use 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.

However, there are exceptions in that property falling into class 52 does not include property that is principally or is used principally as electronic process control or monitor equipment (including related system software), electronic communications control equipment (including related system software), or data handling equipment (other than such equipment that is ancillary to general-purpose electronic date processing equipment).

Computer software that is not systems software, often referred to as "applications software", is included in Class 12 of Schedule II of the Regulations pursuant to paragraph (o) of that class. As defined in subsection 1104(2) of the Regulations for the purposes of Part XI and Schedule II of the Regulations, "computer software" includes the right or licence to use computer software.

Based on the above, it is our view that the Dell Precision T3500 workstation used in the golf simulator is excluded from class 52 as it can be regarded as electronic process control or monitor equipment because it is used principally to monitor golf swings. In addition, the frame/screen assembly, 19 inch touch screen, video projectors, high speed cameras, camera, amplifier and microphones, and golf turf, hitting mat, stance mat and a drapery package are tangible capital property that is not found in any particular CCA class. Accordingly, it is our opinion that all these assets should be included in Class 8(i).

However, the Dell Precision T3500 workstation used in the optional golf center management system would not be excluded from class 52 because of the exceptions mentioned above as it not used to monitor golf swings and based on its functions can be considered to be used as a general-purpose electronic data processing equipment. Accordingly, it is our opinion that this is a class 52 asset, provided the other conditions for inclusion in class 52 are met.

The high definition golf software package and the golf center management software appear to be applications software that would be considered to fall into class 12.

We trust that these comments will be of assistance.

Yours sincerely,

S. Parnanzone
Manager
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch