14 February 1989 Income Tax Severed Letter 5-7350 -  

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.

D. Turner (613)957-2139

Feb 14 1989

Dear Sirs:

Re: Deductibility of Delivery Costs and Timing of Capital Cost Allowance Claims

This is in reply to your letter of January 9, 1989 concerning the treatment of delivery costs paid to transport a recently purchased boat to Canada and the timing of a claim for capital cost allowance.

In your hypothetical example the boat is to be used in a business enterprise and you have requested our view as to the deductibility of the delivery costs. In addition, you request our opinion as to the proper fiscal year in which to commence claiming capital cost allowance.

As your questions appear to relate to an actual fact situation involving a specific taxpayer, they should be directed to a District Taxation Office together with all pertinent documentation. However, we are prepared to offer some general comments with respect to the matter raised.

Our Comments

It is our opinion that delivery costs related to the acquisition of a depreciable asset in the circumstances of your example should be capitalized as part of the capital cost of acquiring such asset for use in Canada. Although the term "capital cost" is not defined in the Income Tax Act (the "Act") paragraph 1 of Interpretation Bulletin IT-174R

states that the term "capital cost of property" generally means the full cost to the taxpayer of acquiring the property. This would be consistent with generally accepted accounting principles which require that the recorded cost of a tangible capital asset include all costs necessary to put the asset in a position to render service. These principles are outlined in the following:

1) "Accounting Principles: A Canadian Viewpoint" written by Ross M. Skinner, published 1972 by the Canadian Institute of Chartered Accountants.

2) "The Meaning of Cost in Canadian Income Tax" written by D.K. McNair, published 1982 by the Canadian Tax Foundation.

Following these principles, where a vessel has to be shipped to Canada in order to render service, in addition to the basic invoice cost, the capital cost should include shipping costs to the location of use. The Metropolitan Properties CO. case D.T.C. 85 page 5128 established that Generally Accepted Accounting Principles should normally be used for taxation purposes unless specific provisions of the Act require a departure from those Principles.

In answer to your second question, if title to an asset is obtained at the time it leaves a particular location or country and the purchaser has received all incidents of title including possession, use and risk, it is our opinion that purchaser would be allowed to claim capital cost allowance in the year in which title is obtained (see Interpretation Bulletin IT-50R ). The capital cost allowance would be based on the purchase price plus any shipping costs incurred prior to the fiscal year-end.

To reiterate, as this appears to be an actual fact situation, all pertinent information should be provided to personnel at a District Taxation Office in order for a proper determination to be made.

We trust that our comments will be of assistance to your in this matter.

Your truly,

A. Glen Thornley

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch