7 August 1991 Income Tax Severed Letter - Investment Tax Credit

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 Sirs:

Re: Investment Tax Credit

This is in reply to your letter of May 17, 1991 in which you requested an advance ruling concerning whether an excavator would qualify for the investment tax credit ("ITC").

An excavator is used by a construction company to feed unscreened stone, gravel or soil to equipment (the "screener"). The screener is used, in turn, for cleaning and sorting the material ("screening"). Sometimes the excavator removes the unscreened material directly from the earth while at other times the unscreened material is taken from a stockpile and fed into the screener.

It is your opinion that the screening activity is "manufacturing or processing" ("M & P") for the purposes of section 125.1 of the Income Tax Act (the "Act") and that any capital property used primarily in such activity qualifies for the ITC. Accordingly, you believe the excavator which supplies the raw materials to the screener and the screener itself should qualify for the ITC.

As expressed during our telephone conversation (Fontaine XXX we are not prepared to provide an advance ruling since it is not possible to determine all the facts, including the extent to which the equipment will be used in the taxpayer's construction activities and other activities. However, we will provide some general comments for your assistance.

Our comments are as follows:

• (a) We agree that for the purposes of section 125.1 of the Act the screening of soil, gravel or crushed stone in order to make a product more marketable would be considered to be a processing activity. Subject to paragraph (b) below, any equipment used primarily in such activity would qualify for the ITC provided the other requirements of the definition of "qualified property" under subsection 127(9) of the Act were met. However, it must be determined at what point screening of the material begins. It is our opinion that the screening process can only begin at the time the material to be screened is in the screener and that any equipment used prior to that time in activities of transporting, supplying or feeling the raw material to the screener would not be engaged in M & P. Such equipment would not be considered to qualify for the ITC. Our opinion is consistent with the definition of the term "qualified activities" under section 52202 of the Income Tax Regulations which indicates that the activities of transporting, placing or supplying of raw materials do not qualify.
• (b) Equipment that is used primarily in construction would not be considered to be used in M & P. Accordingly, the screener would not qualify for the ITC if it were determined on the facts that its primary use was in construction.
• (c) You may wish to refer to Interpretation Bulletins IT-145R and IT-331R which discuss the qualification of certain activities and property for M & P and ITC purposes.

These comments represent our opinion of the law as it applies generally. As stated in paragraph 21 of the Information Circular 70-6R2 dated September 28, 1990, an opinion is not an advance ruling. Accordingly, these comments are not binding on Revenue Canada, Taxation.