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.
Subject: "Finished Goods" of Logging
Subparagraph 127(11)(b)(i)
We are writing in reply to your memorandum dated June 9, 1989 in which the Specialized Industries Section requested clarification of the Rulings' position stated in a memorandum dated October 31, 1988 pertaining to the eligibility for ITC of certain assets used in logging activities.
This is also further to our memorandum dated December 4, 1989 wherein we informed you that your request on April 13, 1989 for Rulings to confirm that logs are the finished goods of logging would be deferred to a later memorandum.
Our replies were delayed by a detailed examination of the application of the phrase "storing and shipping finished goods" in subparagraph 127(11)(b)(i) of the Income Tax Act (the "Act") to the extractive industries. This examination has recently been completed and we are sending a copy of our analysis and our views dated April 22, 1991 (our reference no. 7-4563). Therein, we state that we do not consider the products of the extractive industries, viz. oil and gas extracted from a natural accumulation thereof, the minerals extracted from a mineral resource, the logs from logging and the minerals from producing industrial minerals to be "finished goods" for purposes of subparagraph 127(11)(b)(i) of Act.
Our view is supported by a written legal opinion dated May 15, 1991.
In response to your April 13, 1989 request, we therefore reiterate the position stated at page 2 of Rulings' October 31, 1988 memorandum that "logs would not be considered `finished goods' within the context of the use of the term in paragraph 127(11)(b) of the Act.".
The subject of Rulings' October 31, 1988 and your June 9, 1989 memoranda was the eligibility for ITC of certain assets which were asserted as being used in logging activities, e.g. self-tripping bunks and related skidways used at a central gathering facility whereat logs are sorted into species, graded and bundled for flotation to a sawmill or a pulpmill and equipment used for handling logs in the water. These assets were considered by Specialized Industries Section and by Rulings to be "qualified property" as this term is defined in subsection 127(9) of the Act provided that said assets are used primarily for the purpose of logging. Logging activities are generally understood to end upon delivery of the logs to a processing facility, i.e. a sawmill or a pulpmill (reference pages 4 and 5 of the attachment dated April 22, 1991).
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The June 9, 1989 memorandum from Specialized Industries Section however requests clarification of our position on whether equipment used for handling logs in the water would be considered as being used in logging activities.
It is our view that assets such as the aforementioned self-tripping bunks, related skidways and equipment used for handling logs in the water (for floating the logs to a processing facility) would be considered as being used primarily for the purpose of logging. These assets would be eligible for treatment as qualified property under subsection 127(9) of the Act provided of course, that all other requirements of the definition of qualified property have been met. The assets would not be precluded therefrom under subparagraph 127(11)(b)(i) as being used for storing and shipping finished goods because logs are not finished goods.
Consequently, in response to your June 9, 1989 enquiry, we confirm that after the logs have been placed into the water from the self-tripping bunks and skidways, the equipment that is used for handling the logs in the water would be considered as being used in logging activities and would therefore be eligible for treatment as qualified property for ITC purposes under subsection 127(9) of the Acts.
If you have any questions or comments, please contact the writer.
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