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.
DATE August 4 1987
REGINA DISTRICT OFFICE Doug Spencer Business Audit Group Head
ATTENTION Twyla Kuruliak
SPECIALTY RULINGS DIRECTORATE G. Thornley (613) 957-2130
RE: Section 125.1 of the Income Tax Act
This is in reply to your memorandum of May 22, 1987, concerning a taxpayer corporation (the "subcontractor
XXXX
ask if the subcontractor qualifies for the manufacturing and processing deduction or are they considered to be providing a service.
Our comments
On the basis of the limited description of the activities of the subcontractor it is our view that he would be considered to be manufacturing goods that will ultimately be sold or leased.
The fact that the manufacturer is the vendor of the goods will not in or by itself preclude the subcontractor from claiming a deduction under section 125.1 of the Act.
As discussed with you over the telephone on July 17, 1987, paragraph 4 of IT-145R (and paragraph 9 of IT-147R2 relating to property in class 29) clearly states that the manufacturer or processor could qualify for the section 125.1 deduction even though someone else is the vendor of the goods. Providing the subcontractor meets the other conditions of section 125.1 of the Act and Part Lll of the Income Tax Regulations we feel it would be difficult to deny him the M & P deduction under section 125.1 of the Act with respect to his M & P profits (which would in our view exclude income from repair services).
We trust our comments will be of assistance to you.
Chief Services, Public Utilities and Exempt Corporations Section Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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