8 April 1991 Income Tax Severed Letter

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.

April 8, 1991

Mr. E.H. Gauthier                            Rulings Directorate
Director                                     J. Shaw
Special Audits Division                      957-8953

Attention:  B. Chisholm
            Specialized Industries Section

                                             7-910617
          24(1)

Proposed subsection 13(29) of the Income Tax Act

This is to reply to your memorandum of February 26, 1991 in which
you requested our comments on the statement by          19(1)19(1)      that the rule in proposed subsection 13(29) of the
Income Tax Act is ineffective.

We have examined      19(1)    re-working of the example Finance
had included in the technical notes accompanying the draft law, and
are unable to agree with his conclusions.  Consequently, we see no
need for the revisions in the draft law which he had considered
necessary.

The essence of     19(1)    difficulty with the mater seems to be
in his misreading of proposed paragraph 13(29)(d) although we note
he has used the same approach in attempting to interpret paragraph
13(29)(c), but there the erroneous assumptions he made cancelled
each other out.

Proposed paragraph 13(29)(d) reads:

"the aggregate of all amounts each of which is the capital cost to the taxpayer of a depreciable property, other than the particular portion of the property, that is part of the project to the extent that the property is considered, by reason of this subsection, to have become available for use before the end of the inclusion year.:"

     19(1)    suggests the provision in effect deals separately
     with "the total of all amounts each of which is the capital
     cost to the taxpayer of a depreciable property" and whatever
     is encompassed by the balance of the provision.

In our view, this is not the case. Proposed paragraph 13(29)(d) deals with but one item, the capital cost of project depreciable property which has under proposed subsection 13(29) previously

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become available for use before the end of the year in question. 
The "particular property" is excluded from the paragraph 13(29)(d)
amount to avoid the circularity which would obviously result, the
number produced by proposed subsection 13(29) being deemed by the 
have spoken to Shirley about this line is awaiting doc.
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question

19(1) erroneously divides proposed paragraph 13(29)(c) into three categories as well. Again, that provision generates only one number, rather than the three 19(1) obtains in his computation. That one number is the capital cost of depreciable property which meets three tests, i.e:

1) it is not a rental building:

     2)   it was acquired after 1989 and before the end of the
          taxation year ending more than 357 days before the
          commencement of the "inclusion year" (assuming "normal"
          taxation  years, those taxation years ending two or more
          years prior to the inclusion year);and

     3)   it has not become available for use at or before the end
          of the inclusion year, other than under the "rolling
          start" rule in proposed paragraph 13(27)(b) or 13(28)(c)
          or under paragraph subsection 13(29).

      19(1)    has provided an example of how his redraft of the
proposed law produces the correct result.  As the proposed law
seems not to require the changes suggested, and as his example
produces an available for-use amount of $25 million in excess of
the actual costs incurred, we saw no reason to examine it in any
detail.

For your information we enclose a copy of a memo to file setting out our understanding of the matter.

Director Bilingual Services & Resource Industries Division Rulings Directorate

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