7 May 1991 Income Tax Severed Letter - Equipment and Software for the Recording of Sales

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.

Dear Madam:

Re: Equipment and software for the recording of sales

We are writing in reply to your letter of November 9, 1990 wherein you requested clarification with respect to the interpretation and application of paragraph (s) of Class 12 of Schedule II of the Income Tax Regulations (the "Regulations").

You specifically requested whether the application of paragraph (s) of Class 12 of Schedule II of the Regulations would encompass all hardware including point-of-sale devices, central processing units (memory), other input and output devices and the software used in recording and reporting sales tax imposed by more than one jurisdiction. Additionally you wished to know in situations where the software selected for recording these sales taxes has modules for purposes not related to sales tax but necessary for accounting control (e.g. an inventory control module), would these modules be eligible for inclusion in Class 12 by virtue of the fact that they are part of the software package. And further, where the module is not eligible for Class 12 treatment, would the central processing unit not qualify, as it is not only utilized for sales tax purposes.

While we are only capable of providing confirmation of the tax effects of proposed situations in the form of advance income tax rulings, we nevertheless are prepared to provide the following general comments for your assistance.

Class 12 was amended September 29, 1990 to permit a one hundred per cent (100%) capital cost allowance rate for certain electronic point-of-sale equipment used in retail businesses that was acquired for use or lease after August 8, 1989 and before 1993. Such property is not subject to the half-year capital cost allowance rule.

The property included in paragraph (s) of Class 12 is:

• (i) electronic bar code scanning equipment designed to read bar codes applied to goods held for sale in the ordinary course of the business;
• (ii) a cash register or similar sales recording device designed with the capability of calculating and recording sales tax imposed by more than one jurisdiction in respect of the same sale;
• (iii) equipment or computer software that is designed to convert a cash register or similar sales recording devise to one having the capability of calculating and recording sales tax imposed by more than one jurisdiction in respect of the same sale; or
• (iv) electronic equipment or computer software that is ancillary to property described in subparagraph (i), (ii) or (iii) and all or substantially all the use of which is in conjunction with that property.

Subparagraphs (i), (ii) and (iii) refer to specific types of point-of-sale property which either read bar codes, calculates and records sales tax, or converts certain equipment to do so. Subparagraph (iv) includes equipment and software which is "ancillary" to property described in subparagraphs (i), (ii) and (iii). However, the interpretation of the word ancillary as it relates to electronic equipment and computer software in subparagraph (iv) should be based on the application of the ejusdem generis doctrine which is a rule in common use by jurists in the interpretation of statutes. It provides that a general expression or phrase will take its meaning from a preceding specific word or phrase. The application of this doctrine was best explained by Judge Cattanach in G.T.E. Sylvania Canada Limited v The Queen, [[1974] C.T.C. 408] 74 DTC 6315 (FCTD) at 6320 where the learned judge said:

"The ejusdem generis doctrine is as old as Bacon's maxims. That rule, which I repeat, is that where general words follow an enumeration of particular things they do not introduce changes of a different character.

In my judgement the familiar rule that where there are general words following particular and specific words all of one genus, the general words are presumed to be restricted to the same genus as the particular words . . . .

. . . It seems to me that where there are ancillary words of this nature it is a sound rule not to give such a construction to the ancillary words as will wipe out the significance of the particular words which antecede them."

In addition to the use of the word ancillary, subparagraph (iv) goes on to read ". . . and all or substantially all the use of which is in conjunction with that property." It is the Department's view that the expression "all or substantially all" means at least ninety per cent (90%). The word "conjunction" is defined in The Oxford English Dictionary to mean "joining together, marriage union, connection of ideas, . . . the action of conjoining; the fact or condition of being conjoined; union, connexion, combination . . ." The expression "in conjunction with" as used in the said subparagraph therefore connotates an association, i.e. the action of operating together, between the described properties. Therefore in addition to the properties explicitly mentioned in subparagraphs (i), (ii) and (iii), subparagraph (iv) permits the inclusion of ancillary property provided that ninety per cent (90%) of its use is in conjunction with property described in the three preceeding subparagraphs.

In attempting to understand the meaning of a statute, it is essential that we endeavor to comprehend what the legislative intent was. Based on the above, any ancillary electronic equipment and computer software not used all or substantially all of the time in conjunction with property described in subparagraph (i), (ii) or (iii) will not qualify for inclusion in paragraph (s) of Class 12 of Schedule II of the Regulations.

We trust that you will find our comments useful.