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.
MAR 30 1983
HEAD OFFICE Corporate Rulings Directorate J.F. Oulton 995-1787
RE: XXXX
This is in reply to your memorandum dated January 27, 1983 wherein you requested our views on the appropriate treatment of video tapes in the following situation:
(1) The taxpayer is in the business of renting video tapes on a daily fee basis, i.e. $5 per day.
(2) These tapes are copies of motion pictures, i.e. "On Golden Pond" "Star Wars" etc.
(3) The cost per tape is $30 - $40.
(4) The taxpayer claims the life expectency of a tape is one year.
(5) The taxpayer has no agreements with the motion picture producer or any other parties as to exclusive use, copyrights, etc.
Since the taxpayer is only acquiring the physical tape as opposed to the master negative and all the other required elements of ownership referred to in paragraph 2 of IT-441 , it will not "own" a video tape for CCA purposes under class 10(S) or 12(m). However, the physical tape itself may also be considered to be a capital asset to the taxpayer for CCA purposes. Since there is no other class which describes the physical tape, it appears to only qualify for class 8 treatment pursuant to paragraph (i) thereof.
The foregoing comments are based on the premise that the tapes are in fact capital assets. Owing to their original cost and their expected useful life, we feel that there is merit in treating the cost of the tapes as a current expenditure. The life expectancy of the tape is undoubtedly tied into the length of time in which the tape will be of interest to the public as opposed to the physical deterioration thereof.
If the taxpayer can establish that the tapes are discarded and/or sold or can otherwise establish that they are useless (because of no income therefrom) within an average one year period, then it would not upset us if the tapes were accorded current expenditure treatment. Reference may be made to paragraph 4(a) of IT-128 in this regard.
ORIGINAL SIGNED BY Chief Services Public Utilities & Exempt Corporations Section Corporate Rulings Division Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1983
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© Sa Majesté la Reine du Chef du Canada, 1983
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