Schedule II

Table of Contents

Class 1

Cases

The Queen v. Hampton Golf Club Ltd., 86 DTC 6513, [1986] 2 CTC 403 (FCTD)

Golf Club greens and tees were "not so obviously artificial as to be readily distinguishable from the natural earth surroundings of the rest of the golf course", and accordingly did not qualify as "structures" (class 3). They also were not "similar surface constructions" (class 1).

See Also

Repsol Canada Ltd. v. The Queen, 2015 TCC 21, aff'd 2017 FCA 193

LNG regasification jetty and terminal were one asset for processing before distribution

The taxpayers were related companies, and the general partner and a 75% limited partner of a partnership which constructed a terminal and jetty in St. John to which liquid natural gas would be delivered by tanker (at the jetty), "regasified," tested and processed to meet quality standards such as flammability and low O2 content, and then delivered to a pipeline for shipment to the U.S. resellers.

The eligibility of the related costs for investment tax credits turned on whether the assets qualified as a Class 43 property rather than (as maintained by the Minister) as Class 1(n) (i.e. for the distribution of natural gas) and 3(h) (i.e. a jetty not captured by any other class).

As a preliminary matter, C Miller J found that terminal and jetty were one asset on the basis that the Jetty could "be considered ancillary and necessary, and part of the integral totality of the operation occurring at the Terminal" (para. 88), including that the jetty operators monitored the safety of the overall operation. Furthermore, the terminal was not engaged in distribution, but rather processing before distribution. There was "processing" because there was a change to the goods (including a change in chemical composition) and there was an increase in the goods' marketability (i.e., the natural gas entering into the pipeline was worth more than the LNG arriving at the jetty). He also stated that, even in the "broadest sense," "distribution" of natural gas does not commence before the gas enters a transmission pipeline (para. 120).

(Class 47, which explicitly includes liquid natural gas plants and thus excludes those plants from Class 43, was introduced in 2007; consequently this appeal concerned the approximately one third of capital costs arising before that introduction.)

Words and Phrases
distribution processing

Lansdowne Equity Ventures Ltd. v. The Queen, 2007 DTC 3, 2006 TCC 565

Mobile homes with axles, wheels, trailer hitches, brakes and emergency lights but which were now sitting on blocks were found to be "trailers" includable in Class 10 rather than "structures" includable in Class 1.

Swan Lake Recreation Resort Ltd. v. Registrant, Kamloops Land Title Office (1999), 174 DLR (4th) 549 (BCSC)

Before going on to find that a mail box was not a "building" for purposes of the Condominium Act (B.C.), Cowan J. stated (at p. 565):

"In my view, the word 'building' ordinarily means a structure which is designed for use as a habitation or other purposes of occupation, or for the storage of commodities. Further, a 'building' ordinarily is relatively permanent, and relatively large in size."

Paragraph 1(n)

Cases

Canada v. Repsol Energy Canada Ltd., 2017 FCA 193

“integration principle” applied to find that a jetty was a “processing” asset

The taxpayers were the partners of a limited partnership which constructed a terminal and jetty in St. John to which liquid natural gas would be delivered by tanker (at the jetty), "regasified,", and then delivered to a pipeline for shipment to the U.S. resellers.

The eligibility of the related costs for investment tax credits and classification as a Class 43 asset turned principally on whether it came within the exclusion from Class 1(n) (respecting manufacturing and distributing equipment and plant acquired primarily for the production or distribution of gas) contained in (ii) thereof for “property acquired for the purpose of processing natural gas, before the delivery of such gas to a distributions system.” The Crown’s primary position was that the terminal was not so excluded because it was part of a distribution system, and secondarily took the position that the terminal’s operation was not “processing.”

In rejecting the Crown’s position, Woods JA stated (at para 40) that she agreed with C. Miller J below that the Class 1(n)(ii) exclusion “only makes sense if distribution starts at a pipeline,” and further noted (at para 48):

Northern & Central … stands for the proposition that the term “distribution” can encompass not only short-distance pipelines, in accordance with industry usage, but also long-distance transmission lines. It did not state a broader principle. …

Woods J also rejected a Crown submission that the distribution process started with the tanker, in part because, unlike Northern & Central, the purpose of the processing here was “to make the gas more marketable” rather to merely “provide storage in the course of transmission.”

In also rejecting the Crown’s position on “processing,” she stated (at paras 54 and 56):

… It is clear that the product has been changed when it is transformed from a liquid to a gaseous state. …

Furthermore ...change ... takes place during the facility’s blending operations, and ... in chemical composition… [and] the operations …transform the product from being non-marketable in the North American market, to being marketable… .

Finally, in rejecting a Crown submission that, as a jetty was specifically mentioned in Class 3(h), the Jetty should be so classified, she stated (at paras. 64-65):

…Class 3 only applies to property “not included in any other class.” … If the Jetty falls within Class 43, that is the end of the matter. …

The judge-made integration principle provides that processing includes all activities that are necessary and integral to the processing operation.

Paragraph 1(q)

Cases

Stearns Catalytic Ltd. v. The Queen, 90 DTC 6286 (FCTD)

Two shelters which enclosed equipment in order to muffle noise were found to constitute buildings or other structures for purposes of Class 3 rather than manufacturing or processing machinery equipment within the meaning of Class 8, given that the shelters did not perform any work directly relating to the manufacturing or processing of the taxpayer's product.

The Queen v. Hampton Golf Club Ltd., 86 DTC 6513, [1986] 2 CTC 403 (FCTD)

Golf Club greens and tees were "not so obviously artificial as to be readily distinguishable from the natural earth surroundings of the rest of the golf course", and accordingly did not qualify as "structures" (class 3). They also were not "similar surface constructions" (class 1).

Words and Phrases
structure

British Columbia Forest Products Ltd. v. MNR, 71 DTC 5178, [1971] CTC 270 (SCC)

piers, foundations part of "building"/tanks were "structures"

Supporting piers, reinforced concrete foundations and chest walls which facilitated and were necessary for the production of paper nonetheless had no separate existence as tangible capital assets and instead formed part of buildings. Accordingly, they qualified as Class 3 rather than Class 8 assets.

Tanks and recovering units were "structures" and also fell within Class 3.

Words and Phrases
structure building

See Also

Lloyd v. The Queen, 2002 DTC 1493 (TCC)

Before going on to find that a building was a Class 6 rather than Class 3 property because it had no footings rather base support below ground level, Bowman A.C.J. stated (at p. 1494) that:

"The fact there might have been a little earth or detritus that has accumulated and piled against one wall does not turn the part that is covered into a footing."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date taxpayer can attack own transaction as legally ineffective 130
Tax Topics - General Concepts - Tax Avoidance taxapyer can argue legally ineffective transactions 131
Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(1) 74

Sun Life Assurance Co. of Canada v. The Queen, 97 DTC 422 (TCC)

Bowman TCJ. followed his earlier decision in Cadillac Fairview Corp. Ltd. in finding that density rights purchased by the taxpayer from a nearby church were an addition to the cost of land rather than building notwithstanding accounting evidence that such expenditures should have been added to the cost of the building and notwithstanding that, unlike the other case, a building actually was constructed.

Words and Phrases
land building
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A density rights are land even if building constructed 79

Cadillac Fairview Corp. Ltd. v. The Queen, 97 DTC 405 (TCC)

obtaining density for building expansion was land cost rather than Class 3 cost

The taxpayer expended $11.2 million in obtaining zoning changes that were desirable for the proposed Phase II of the Eaton Centre (i.e., eliminating a requirement that the development have a residential component, and obtaining a "transfer" of density rights from four City of Toronto sites and a Church) represented a cost of modifying restrictions of the rights that the taxpayer, as land owner, was subject to with respect to the use of the land. Accordingly, such expenditures were an addition to the cost to it of the land, rather than being a cost of the proposed building expansion.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A costs of density rights were land costs 200

Superior Pre-Knit Septic Tanks Ltd. v. The Queen, 78 DTC 6263, [1978] CTC 431 (SCC)

Pre-cast concrete septic tanks were "structures". (Excise Tax Act (Canada), s. 26(4).)

Administrative Policy

16 March 2012 External T.I. 2012-0432101E5 F - Acquisition d'un séparateur d'huile

oil separator Class 1 if sufficiently attached to garage

Respecting an oil separator acquired by a garage in order to meet government requirements, CRA stated:

To the extent that an oil separator is an integral part of a building (sufficiently attached to the building) or can be considered as a component part of a building, we are of the view that the oil separator could be included in the description of Class 1 … [and otherwise] could be included in Class 8.

17 December 2014 External T.I. 2014-0560281E5 - Arena and skateboard park - CCA classes

hockey arena a "structure"

The taxpayer constructed a hockey arena and a skateboard park for use in its children's summer camp. CRA stated:

"Building" is a term of wide range covering any structure with walls and a roof affording protection and shelter. The word "structure" includes anything of substantial size that is built up from component parts and intended to remain permanently on a permanent foundation. Portable shelters such as housing, office and other service units are regarded as buildings if they are installed and intended to remain in a particular location. Such things as tents, canvas marquees and air-supported fabric domes that are not part of a rigid structure are not considered to be buildings or structures.

And then concluded:

[M]ost hockey arenas constructed after 1987 would be included in Class 1 unless Class 6 otherwise applies. …[S]ince the skateboard park ramps are movable and do not appear to be property specifically described in any other CCA class, such property would be included in Class 8(i)… .

IT-79R3 "Capital Cost Allowance - Buildings or other Structures"

Meaning of building/structure

1. "Building" is a term of wide range covering any structure with walls and a roof affording protection and shelter. The word "structure" includes anything of substantial size that is built up from component parts and intended to remain permanently on a permanent foundation. ... British Columbia Forest Products ... concluded that the word "structure" when used in the context of "building or other structure" does not mean only a structure in the nature of a building. Bridges or hydro-electric transmission towers, for example, while clearly not buildings, are structures.

Words and Phrases
building structure

Class 2

Cases

Gulf Canada Resources Ltd. v. The Queen, 95 DTC 5189 (FCTD), partially rev'd 96 DTC 6065 (FCA).

A 2200 ft. extension to a concrete water intake line that provided water for use in a refinery was not established by the taxpayer to not be a "pipeline" under Class 2.

Pacific Northern Gas Ltd. v. The Queen, 90 DTC 6252 (FCTD), aff'd 91 DTC 5287 (FCA)

After noting that the decisions in Nova and in Northern and Central Gas were essentially contradictory on this point, Joyal J. found (following Northern and Central) that compressor stations which permitted the transmission of gas at high pressures through the transmission lines of the taxpayer constituted "equipment ... for the ... distribution of gas" for purposes of Class 2, rather than other equipment described in Class 8, notwithstanding the distinction drawn in industry practice between transmission (at high pressures), and the final stage of distribution (at low pressures) to the customer.

Nova, an Alberta Corporation v. The Queen, 88 DTC 6386, [1988] 2 CTC 167 (FCA)

Pipes and valves located between the inlet and outlet connections of the main pipeline and to and from the compressor station and metering facilities were integral parts of the compressor stations and metering facilities rather than integral parts of the pipeline and therefore were not described in paragraph 1(b). In addition, since the sole business of the taxpayer was the transmission of natural gas, and it was not involved in the distribution of natural gas, the pipes and valves were not distributing equipment."

Alberta Oil Sands Pipeline Ltd. v. The Queen, 88 DTC 6059, [1988] 1 CTC 99 (FCTD)

Linefill was not part of a pipeline and accordingly was a Class 8 asset.

Northern and Central Gas Corp. Ltd. v. The Queen, 85 DTC 5144, [1985] 1 CTC 192 (FCTD), aff'd 87 DTC 5439, [1987] 2 CTC 241 (FCA)

The subparagraphs of class 2 were intended to encompass the whole process of the production and distribution of electricity, heat, water and natural gas. Facilities that were an integral part of the taxpayer's system for the transmission of natural gas prior to its ultimate distribution to customers accordingly were a plant "acquired primarily for the ... distribution of gas" within the meaning of class 2(d).

Class 3

See Also

MNR v. Plastibeton Inc., 86 DTC 6400, [1986] 2 CTC 211 (FCA)

Highway medians constructed of precast polymer concrete were not a separate structure from the highway, but merely a part of the structure of the highway. S.26(4)(a), Excise Tax Act)

Plan A Leasing Ltd. v. The Queen, 76 DTC 6159, [1976] CTC 261 (FCTD)

An individual ("Lunenfeld") conveyed a building to a corporation ("159 Bay") and conveyed the underlying land to a second corporation ("Great West"). Great West then leased the land to 159 Bay, and the taxpayer acquired the property from 159 Bay by purchasing the building and accepting an assignment of the lease.

The building was a class 3 asset rather than a class 13 asset. "The usual rule of law that the building is part of the freehold can be abrogated by a contract of parties."

Administrative Policy

28 April 2004 External T.I. 2004-0064781E5 - Classification of Conduit

Underground conduit which carries wire or cable referred to in paragraph (j) of Class 3 is a Class 3 rather than a Class 8 asset.

Class 4

Administrative Policy

16 November 2009 External T.I. 2009-0313081E5 F - Classification d'un chemin de fer avant 1958

railway system acquired by common carrier before 1958 falls within Class 4

Into what class does a railway system acquired before 1958 by a corporation with a railway business fall? After assuming that the corporation was a “common carrier” (as referenced in Reg. 1104(2)), which CRA described as “a person who carries on the business of providing, for consideration, a service of transporting property or persons from one place to another and who generally offers its services to the public,” CRA stated:

[P]roperty described in subparagraph (h)(ii) of Class 1 …, that is, property acquired after May 25, 1976, may be included in a railway system.

By virtue of paragraph (a) of Class 4 … property that would otherwise be included in another class in Schedule II, consisting of a railway system or part thereof, except automotive equipment not designed to run on rails or tracks, that was acquired after the end of the taxpayer’s 1958 taxation year and before May 26, 1976, is to be included in that class.

After reviewing the history and overall context of the regulatory provisions dealing with the capital cost allowance of assets in the railway industry, it is our opinion that the post-1958 year-end acquisition test in paragraph (a) of Class 4 … should relate only to non-railway automotive equipment.

… [Thus] a railway system acquired prior to 1958 is depreciable property that falls within Class 4 … .

Words and Phrases
common carrier

Class 6

Administrative Policy

18 December 2013 External T.I. 2013-0479421E5 F - Section 30 and Cranberry Farm

costs of constructing irrigation pond included

Following Oriole Fair Parkways (56 DTC 537), the costs of constructing an artificial pond for use in irrigating a cranberry farm would be in respect of a Class 6 property (para. (e)).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense initial cranberry plant planting is a cost of land 94
Tax Topics - Income Tax Act - Section 30 costs of clearing, levelling and draining lands, but not of constructing basins, for a cranberry farm are currently deductible 136
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 17 costs of constructing cranberry farm basins included in Class 17 79
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 8 irrigation system included, drainage costs deductible under s. 30 79

Class 7

Administrative Policy

12 March 2012 Internal T.I. 2011-0431631I7 F - Catégorie d'amortissement- maison flottante

portable floating home qualified as “vessel”

What is the applicable class for a floating home or "houseboat" (on a large pontoon with an outboard motor) that is rented out for navigation of a large lake, e.g., for a day or weekend at a time? After noting that the Canada Shipping Act, 2001 defines a "vessel" by reference to being used at least in part for navigation in water without regard to method or lack of propulsion and with there being no prescribed exceptions, CRA indicated that the floating home would generally be included in Class 7 except to the extent it was a "Canadian" ship prescribed by Reg. 1101(2a) as eligible for accelerated CCA under Reg. 1100(1)(v).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Vessel vessel is as defined in Canada Shipping Act, 2001 115
Tax Topics - Statutory Interpretation - Interpretation Act - Section 44 - Paragraph 44(h) IA s. 44(h) applied to reference definition in replacement Canada Shipping Act 48

Paragraph 7(c)

Administrative Policy

25 November 2010 External T.I. 2010-0377841E5 F - Catégorie d'amortissement - bateau

“vessel” includes a moored boat without a motor

The engine of a boat has been removed (so that to be moved, it would need to be towed) and it is kept moored at a dock for use in an (unspecified) business, e.g., a tourist, restaurant or accommodation business. In finding that it would qualify as a Class 7(c) “vessel,” CRA stated:

The Canada Shipping Act, 2001 now defines a vessel as a boat, ship or craft designed, used or capable of being used solely or partly for navigation in, on, through or immediately above water, without regard to method or lack of propulsion, and includes such a vessel that is under construction. However, that definition excludes a floating object of a prescribed class. To date, no Regulations to that effect have been promulgated.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Section 44 - Paragraph 44(h) “vessel” informed by meaning in replacement Canada Shipping Act 166
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Vessel "vessel" now defined in (replacement) Canada Shipping Act, 2001 55

Class 8

Cases

Coopers & Lybrand Ltd., Trustee of Hawboldt Hydraulics (Canada) Inc. v. The Queen, 92 DTC 6452 (FCTD)

An operation of fabricating cylinders, pistons, rods or other parts to be incorporated into hydraulic components which customers of the taxpayer had delivered to it for repair constituted a manufacturing or processing operation, with the result that the equipment used to fabricate the parts were Class 29 rather than Class 8 assets. The Crown Tire case was distinguished on the ground that in that case no product was produced by the taxpayer before the work and materials provided became the customer's property by adhesion of the materials.

Stearns Catalytic Ltd. v. The Queen, 90 DTC 6286 (FCTD)

A stock of spare parts which the taxpayer kept on hand for potential use in the event of machine or equipment failure did not qualify as property "to be used" for the purpose of manufacturing or processing goods for sale for the purposes of s. 127(10)(c)(i) of the Act and paragraph (a)(i) of Class 29. McNair, J. stated (p. 6294):

"The words in subparagraph 127(10)(c)(i) 'to be used' connote an actual physical or functional use of the prescribed machinery and equipment and spare parts stocked on shelves as an assurance against possible mechanical breakdown do not come within that concept of used, regardless of the soundness of the underlying business policy in stocking them."

Two shelters which enclosed equipment in order to muffle noise were found to constitute buildings or other structures for purposes of Class 3 rather than manufacturing or processing machinery equipment within the meaning of Class 8, given that the shelters did not perform any work directly relating to the manufacturing or processing of the taxpayer's product.

Pacific Northern Gas Ltd. v. The Queen, 90 DTC 6252 (FCTD), aff'd 91 DTC 5287 (FCA)

After noting that the decisions in Nova and in Northern and Central Gas were essentially contradictory on this point, Joyal J. found (following Northern and Central) that compressor stations which permitted the transmission of gas at high pressures through the transmission lines of the taxpayer constituted "equipment ... for the ... distribution of gas" for purposes of Class 2, rather than other equipment described in Class 8, notwithstanding the distinction drawn in industry practice between transmission (at high pressures), and the final stage of distribution (at low pressures) to the customer.

Nowsco Well Service Ltd. v. The Queen, 88 DTC 6300, [1988] 2 CTC 24 (FCTD)

Equipment which was designed for use in enhancing the flow of oil at an oil well, but which with a special licence could be driven on a highway as the means of getting to the oil well, was not "automotive equipment", and instead fell in the residual category of Class 8(d).

Alberta Oil Sands Pipeline Ltd. v. The Queen, 88 DTC 6059, [1988] 1 CTC 99 (FCTD)

Linefill was not part of a pipeline and accordingly was a Class 8 asset.

Northern and Central Gas Corp. Ltd. v. The Queen, 85 DTC 5144, [1985] 1 CTC 192 (FCTD), aff'd 87 DTC 5439, [1987] 2 CTC 241 (FCA)

The subparagraphs of class 2 were intended to encompass the whole process of the production and distribution of electricity, heat, water and natural gas. Facilities that were an integral part of the taxpayer's system for the transmission of natural gas prior to its ultimate distribution to customers accordingly were a plant "acquired primarily for the ... distribution of gas" within the meaning of class 2(d).

Nova Construction Co. Ltd. v. The Queen, 83 DTC 5105, [1983] CTC 58 (FCTD)

The Act contemplates that an activity may constitute both manufacturing or processing and construction. Accordingly, it was found that an asphalt processing plant used in construction was "a structure that [was] manufacturing or processing machinery or equipment" within the meaning of class 8 (and class 29).

It was noted that if the plant had not fallen within Class 29, it would have been a Class 10 property ("contractor's moveable equipment") because it was designed to be disassembled and moved, and was assembled so as to preserve that moveability.

Butler v. MNR, 67 DTC 5019, [1967] CTC 7 (Ex Ct)

The value of customer lists of an accounting practice purchased by an accounting firm was in their intangible value as goodwill. Accordingly, the purchase price was not depreciable as a Class 8 asset.

Southam Business Publications Ltd. v. MNR, 66 DTC 5215, [1966] CTC 265 (Ex. Ct.), briefly aff'd 67 DTC 5150 (SCC)

As part of the purchase of the Financial Times, the taxpayer paid $50,000 for the customer lists of the vendor. Noël J. found that what was of value was the information on the lists and not the value of the lists as documents - they were destroyed a few days after the purchase. Accordingly, an amount had not been paid for the acquisition of a tangible asset.

See Also

Roy Legumex Inc. v. MNR, 90 DTC 1858 (TCC)

Containers which were used to dry legumes in order that they could be split were found to be structures that were manufacturing or processing machinery or equipment for purposes of paragraph (a) of Class 8 and accordingly qualified as Class 29 properties. However, it was found that they were not "tangible property attached to a building" for purposes of paragraph (b) of Class 8 because "the words 'attached' in the English language version of clause (b)(ii) means more than a mere connection; the tangible property must be so attached to the building that it more or less becomes part of it" (p. 1862).

Re St. Lawrence Cement Inc. (1985), 52 OR (2d) 545 (HCJ.)

Various silos owned by a cement operator were not "machinery" because their primary function was storage and nothing physical happened in them that was part of the manufacturing process.

Administrative Policy

S3-F4-C1 - General Discussion of Capital Cost Allowance

Choice among classes

1.120 The phrase "property that would otherwise be included in" appears in several classes in Schedule II, which could lead to uncertainty as to the class in which a particular property belongs. If a property is described in more than one class and the phrase mentioned above appears in only one of those classes, the property must be included in the class in which the phrase appears. However, if the phrase appears in more than one class that describes the property, the taxpayer may choose from among those in which the phrase appears. Of course, the other requirements of the chosen class must be met. A taxpayer might choose the class allowing the greater CCA or could choose another class to avoid immediate recapture of CCA on the disposition of other property of that class.

Property not included in any other CCA class

1.121 The phrase, "not included in any other class", appears frequently in Schedule II. A property may be included in a class in which such phrase appears only if it is not described in another class within Schedule II or any separate class established under Part XI of the Regulations. If this phrase appears in all classes in which a property is described, the taxpayer may choose from among them.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense 556
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A 791
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property 218
Tax Topics - Income Tax Act - Section 16.1 - Subsection 16.1(1) 275
Tax Topics - Income Tax Act - Section 13 - Subsection 13(28) 254
Tax Topics - Income Tax Act - Section 13 - Subsection 13(27) 222
Tax Topics - Income Tax Act - Section 13 - Subsection 13(29) 155
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2) 212
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.2) 351
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(3) 70
Tax Topics - Income Tax Act - Section 18 - Subsection 18(3.1) 166
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7.5) 207
Tax Topics - Income Tax Act - Section 261 - Subsection 261(2) 65
Tax Topics - Income Tax Act - Section 128.1 - Subsection 128.1(1) - Paragraph 128.1(1)(b) 230
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c) 170
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(e) 65
Tax Topics - Income Tax Act - Section 43 - Subsection 43(1) 152
Tax Topics - Income Tax Act - Section 68 197
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21.1) - Paragraph 13(21.1)(a) 75
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21.1) - Paragraph 13(21.1)(b) 212
Tax Topics - Income Tax Act - Section 13 - Subsection 13(1) 431
Tax Topics - Income Tax Act - Section 8 - Subsection 8(2) 75
Tax Topics - Income Tax Act - Section 20 - Subsection 20(16.1) 152
Tax Topics - Income Tax Act - Section 13 - Subsection 13(9) 229
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) 321
Tax Topics - Income Tax Act - Section 13 - Subsection 13(5) 317
Tax Topics - Income Tax Act - Section 13 - Subsection 13(6) 221

12 June 2014 External T.I. 2014-0527651E5 - Whether keeping a zoo is a farming activity

zoo animals

CRA stated that zoo animals:

are capital assets and cannot be expensed. In addition, no capital cost allowance may be deducted under paragraph 20(1)(a) of the Act as animals are specifically excluded from Class 8 of Schedule II...and not included in any other class.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Farming zoo not farming 122

18 December 2013 External T.I. 2013-0479421E5 F - Section 30 and Cranberry Farm

irrigation system included, drainage costs deductible under s. 30

In converting lands to a cranberry farm, there would need to be a reasonable allocation of the relevant costs between the cost of installing a drainage system, which would be deductible under s. 30, and the costs of an irrigation system, which would be the cost of a Class 8 asset. The costs of constructing sand-bottomed basins surrounded by dikes would be the cost of a Class 17 property ("similar surface construction," following Mont-Sutton).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense initial cranberry plant planting is a cost of land 94
Tax Topics - Income Tax Act - Section 30 costs of clearing, levelling and draining lands, but not of constructing basins, for a cranberry farm are currently deductible 136
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 17 costs of constructing cranberry farm basins included in Class 17 79
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 6 costs of constructing irrigation pond included 33

20 March 2013 External T.I. 2012-0442571E5 F - Coût d'acquisition d'un terrain

cost of water and sewer lines connecting mobile home units, included in Class 8

A developer acquired Land 1 from a Canadian-controlled private corporation (the “Corporation”) in exchange for cash and for land which the Corporation would use in its mobile home rental operation (Land 2), with the developer being required to first perform work so as to provide Land 2 to the Corporation in a serviced state. CRA stated:

With respect to the costs of water and sewer lines connecting mobile home units, they could constitute properties distinct from Land 2 and thus be included in Class 8… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base cost of land acquired from developer equal to total barter value minus amounts allocated to Classes 8 and 17 152

7 August 2007 Internal T.I. 2007-0240691I7 - Music CD production-CCA class

costs of producing a music CD including artists’ remuneration are added to Class 8

A company incurred costs of studio fees, mixing, song writing, and musicians' fees in producing a music CD. If these are capital expenditures, what class do they fall in? CRA stated:

[P]aragraph 15 of IT-283R2 [states]:

"The capital cost of a master recording medium (e.g., a tape or disk) used in the music industry for the making of records, tapes and compact disks is considered to include the costs related to the production of the master recording medium. Such costs would include applicable overhead plus expenditures for

(a) scripts, musical arrangements and materials,

(b) remuneration of writers, producers, directors, musicians, performers and technicians, and

(c) the rental or other costs of a studio and of sound recording and other equipment."

While IT-283R2 has been archived … the above statement … is still valid. …

In regard to the CCA class, paragraph 8 of IT-472 [states]:

" … The Department considers the following property to be so included in Class 8:

... (q) A master audio-tape or a master disc used in the phonograph record industry. However, a master die (stamper) for processing records is a Class 12;"

13 December 1994 External T.I. 9416075 - RAPID TRANSIT CAR

A rapid transit car that is a railway car will not fall within Class 8(k) but, rather, within Class 35 (if acquired after 25 May 1976).

4 August 1992 T.I. 921654 (April 1993 Access Letter, p. 132, ¶C9-259)

18-litre bottles used to hold water delivered to customers' premises until returned to the taxpayer for refilling by it belong to Class 8 rather than Class 12.

9 April 1992 Memorandum (Tax Window, No. 18, p. 15, ¶1870)

Styroblocks that are used in seed boxes for starting young trees do not meet the requirements of Class 12 (tools or returnable containers) and, therefore, are Class 8 assets.

11 October 1991 T.I. (Tax Window, No. 11, p. 4, ¶1520)

A desktop publishing system did not constitute general-purpose electronic data processing equipment and system software therefor and therefore is included in Class 8 rather than Class 10(f).

7 October 1991 T.I. (Tax Window, No. 10, p. 19, ¶1501)

An electronic safe for the storage and protection of investment papers qualifies as a Class 8 asset.

IT-79R3 "Capital Cost Allowance - Buildings or other Structures"

Paragraph 8(a)

See Also

Adélard Soucy (1975) Inc. v. Agence du revenu du Québec, 2019 QCCQ 6956

a building for warming equipment qualified as “manufacturing or processing machinery or equipment”

The taxpayer, whose business entailed the bending, cutting and assembly through soldering of metallic equipment such as junction boxes, gutters and truck boxes) mainly for mining customers, leased space for a nominal rent at the remote northern site of one of its mining-company customers (AM) in order that it could assemble such items (which were quite bulky – e.g., 5 tonnes) on site. It needed to house its fabrication operation there in a building in order that the soldering could occur at close to room temperature. Accordingly, it purchased a pre-assembled shelter (the “Econox”) which it installed there - and also installed a bridge crane.

Whether the Econox qualified for Quebec investment tax credit purposes turned on whether it constituted a Class 29 property which, in turn, rested on whether it was a property described in Class 8. In finding that the Econox was a “a structure that is manufacturing or processing machinery or equipment” as per para. (a) of the Class 8 description, Popescu JCQ stated (at paras. 117-122, TaxInterpretations translation):

The plaintiff had learned that when its soldering work was not carried out in thermally optimal conditions (i.e., 16° C), cracks would emerge in its soldered products.

Consequently, the manufacturing and processing activities of the taxpayer could only be carried out within the Econox, which was closely linked to this activity.

The Econox also was fixed equipment which permitted the plaintiff to manufacture and process industrial and mining items.

… In default of being able to speak of permanent physical integration, one can certainly speak of a functional integration as the plaintiff could not carry out its operations in the Great North without the Econox.

It must be stated that the Econox is part of the manufacturing and processing machinery used by the plaintiff for the purposes of its business.

The Court also finds that the Econox is a structure within the meaning of paragraph (a) of Class 8.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 29 building was functionally integrated with M&P so as to itself be M&P equipment 200

Paragrpah 8(i)

Administrative Policy

22 March 2011 Internal T.I. 2010-0387551I7 F - Dépenses - travailleur indépendant

erotic costumes used on website did not qualify

The taxpayer operated an erotic website for which she was the model and her husband took care of the technical side, with profits split equally. It was assumed that they were not in partnership. The Directorate stated:

[T]he costs of clothing, costumes and fine lingerie of a self-employed person who carries on a business in the form of an erotic website are personal expenses that are not deductible against the business income of the taxpayer where such clothing could be used other than in the course of carrying on the business. Those expenses also cannot qualify for capital cost allowance.

The CRA summary stated: “the expenses appear to be of a personal nature.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(h) expenses of costumes, breast implants and rejuvenation expenses of erotic website were non-deductible 165

Paragraph 8(j)

See Also

Unidisc Musique Inc.v. Agence du revenu du Québec, 2019 QCCQ 1818

purchase cost of master music recordings was for Class 8(j) tangible property

The plaintiff (Unidisc) was in the business of purchasing master recordings of music (“masters”), i.e., the magnetic tapes containing the original recordings of the songs or other music, and making master copies of the masters for transmission to a studio for reproduction. Its revenues were principally derived from compilations which were sold as CDs or electronically. The agreements for the purchase of masters included an assignment of all the vendor’s rights such as intellectual property rights, copyright and the right to use, reproduce or license the masters.

The ARQ assessed on the basis that the cost to Unidisc of its purchased masters was predominantly intangible property including the copyright to the songs, and that since the value of the physical medium for the master recordings was minimal, such cost was for eligible capital property rather than Class 8(j) tangible capital property.

Gouin, J.C.Q. found that such vendors did not have the copyright of the song writers, performers and publishers to assign and that the only rights under the Copyright Act (“CA”) that were assigned to Unidisc were the rights to publish for the first time, reproduce and rent out the masters described in s. 18 thereof. Accordingly, whenever Unidisc wished to sell compilations, it was still necessary for it to pay royalties to the song creators and publishers.

In allowing Unidisc’s appeal on the basis that the masters were Class 8 property, Gouin, J.C.Q. stated (at paras. 70, 78, TaxInterpretations translation):

The quality of the sound recording had nothing to do with the rights protected under section 3, 13 and 15, or even 18, of the CA. In fact, the quality of the sound recording had everything to do with the quality of the physical medium, reflecting its preservation in optimal conditions, its protection against alterations and theft, and finally its handling by conscientious professionals in accordance with the art of making copies. ...

The evidence at trial demonstrated that the allocation of 100% of the price to the physical medium must be allowed. Unidisc acquired the best sound recording for the purpose of generating revenues from making copies.

Words and Phrases
intangible property
Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 14.1 master recordings are tangible rather than intangible property 288

Class 9

Administrative Policy

11 March 2016 External T.I. 2016-0633111E5 - CCA Class of a drone

aerial drone likely an aircraft

A taxpayer in the real estate business uses an aerial drone to take photographs of houses for sale. How should it be classified? CRA responded:

[A]erial drones are considered to be a type of unmanned aircraft. For instance, Merriam-Webster’s Dictionary defines drone as an unmanned aircraft or ship guided by remote control or onboard computers. The Canadian Aviation Regulations… also describes aerial drones as a type of aircraft. …[A]n aerial drone would generally be included in Class 9(g)…which has a CCA rate of 25%.

Words and Phrases
aircraft

Class 10

Cases

Lindwest Holdings Ltd. v. The Queen, 88 DTC 6482, [1988] 2 CTC 287 (FCTD)

Equipment which both was "designed" for the purpose of excavating or moving earth and rock (Class 22) and which was acquired for logging operations (Class 10(o)) was Class 10 property because Class 10(o) applied to "property that would otherwise be included in another class".

Nova, an Alberta Corporation v. The Queen, 88 DTC 6386, [1988] 2 CTC 167 (FCA)

Pipes and valves located between the inlet and outlet connections of the main pipeline and to and from the compressor station and metering facilities were integral parts of the compressor stations and metering facilities rather than integral parts of the pipeline and therefore were not described in paragraph 1(b). In addition, since the sole business of the taxpayer was the transmission of natural gas, and it was not involved in the distribution of natural gas, the pipes and valves were not distributing equipment."

Nowsco Well Service Ltd. v. The Queen, 88 DTC 6300, [1988] 2 CTC 24 (FCTD)

Equipment which was designed for use in enhancing the flow of oil at an oil well, but which with a special licence could be driven on a highway as the means of getting to the oil well, was not "automotive equipment", and instead fell in the residual category of Class 8(d).

The Queen v. Nomad Sand & Gravel Ltd., 87 DTC 5343, [1987] 2 CTC 112 (FCTD)

A sand and gravel pit was not a "mine", and front end loaders used in the gravel pit operation accordingly were Class 22, rather than Class 10 assets.

Halliburton Services Ltd. v. The Queen, 85 DTC 5336, [1985] 2 CTC 52 (FCTD), aff'd 90 DTC 6320 (FCA).

Equipment which the taxpayer bolted or welded to its trucks to be used in its well-pumping operations was held to be contractor's movable equipment (Class 10(h)) rather than a structure (Class 29). It was not built from component parts on the site of the oil or gas well, and accordingly was not a "structure".

Howden Brothers Construction Ltd. v. The Queen, 80 DTC 6393, [1980] CTC 529 (FCTD)

Metal sheets that were used by a contractor to construct a form in order to receive wet concrete which form was then disassembled following the hardening of the concrete, constituted "contractor's movable equipment" (class 10) rather than a "mould" (class 12). It was noted, obiter, that there is some authority that the decision to allocate a depreciable asset to a class may be made in light of "the time of the effective usefulness of the depreciable asset."

See Also

Suncor Energy Inc. v. The Queen, 2001 DTC 660 (TCC), aff'd 2002 DTC 7395, 2002 FCA 350

300-ft dykes might not be "structures"

The taxpayer used the overburden and tailings produced or extracted by it in the process of extracting bitumen from oil sands deposits to construct dykes separating disposal areas from active mining areas, and deposited the balance of the tailings in the disposal areas. Notwithstanding that the dykes were 200 or 300 feet tall and were carefully engineered, Bell T.C.J. indicated that even if the expenditures on them were considered to have given rise to a capital asset, it was his "impression" that they could not be described as a "structure".

Words and Phrases
structure

Cargill Ltd. v. The Queen, 96 DTC 1461 (TCC)

After noting that the common elements that make up a trailer or wagon include "(i) a wheeled vehicle; (ii) drawn by another; (iii) that is non-motorized; (iv) is easily mobile (designed to be hauled); and (v) is used to transport goods", Hamlyn TCJ. went on to find that wheeled farm implements, consisting of fertilizer spreaders and dry fertilzer applicators, were wagon or trailers for purposes of Class 10.

Gordon v. The Queen, 95 DTC 493 (TCC)

A film that was described in evidence as being over 50% complete was found to be depreciable property described in Class 10 given that it was acquired on capital account for an income-producing purpose and given that it had a readily discernable comedy plot, appropriate sound, a beginning, and a developing sequential story, and it had reached the state where it could be shown to professional marketers through a videotape medium. Furthermore, even if it did not qualify as a "motion picture film", then, as an incomplete film, it would qualify as tangible property and, therefore, as a Class 8 property.

Administrative Policy

8 January 1996 External T.I. 9530675 - CLASSIFICATION OF A MOTORHOME

Motorhomes are designed primarily as recreational vehicles and do not qualify for inclusion under either Class 10.1 or Class 16 since they do not constitute automobiles within the meaning of s. 248(1).

31 January 1994 Internal T.I. 9328977 - CCA CLASS OF BUILDING USED IN PEAT PROCESSING

Regulation 1104(3), which defines mining to include the harvesting of peat, does not apply to an operation of cleaning, compressing and baking peat in a separate building. Accordingly, such a building is not described in Class 10(g).

24 March 1993 Memorandum (Tax Window, No. 32, p. 20, ¶2623)

Re classification of computer equipment and automotive equipment acquired for use in a mine.

10 November 1992 Memorandum 923297 (September 1993 Access Letter, p. 409, ¶20-1159)

Re whether a limestone quarry was a mine for purposes of paragraph 10(k).

2 December 1992 Memorandum (Tax Window, No. 27, p. 22, ¶2323)

An outboard motor is a class 10 asset based on a broad interpretation of the phrase "automotive equipment".

13 January 1992 T.I. (Tax Window, No. 15, p. 9, ¶1693)

If the film was not completed at the year end and will not be completed in a subsequent year, it cannot be included in Class 10.

11 October 1991 T.I. (Tax Window, No. 11, p. 4, ¶1520)

A desktop publishing system did not constitute general-purpose electronic data processing equipment and system software therefor and therefore is included in Class 8 rather than Class 10(f).

Paragraph 10(x)

Administrative Policy

17 February 2010 Internal T.I. 2009-0348461I7 F - Transfert d'une PCMC à une société mère

full cost of CFVPs acquired by parent from production sub (which claimed the credits) added to Class 10(x)

After a subsidiary (“Imageco”) of a Canadian-controlled private corporation (“Canco”) produced a film and DVD (the "CFVPs"), being Canadian film or video productions for which Imageco received the film and video production tax credit, it transferred the CFVPs to Canco. The Directorate noted that “for Canco, the CFVPs could be depreciable property in Class 10(x).” The summary stated:

The cost to Canco of acquiring CFVPs is not limited to the production costs of Imageco, the corporation eligible for the film tax credit.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Current expense vs. capital acquisition fully claimed films productions acquired from production sub on capital account 66

Class 12

Cases

Howden Brothers Construction Ltd. v. The Queen, 80 DTC 6393, [1980] CTC 529 (FCTD)

Metal sheets that were used by a contractor to construct a form in order to receive wet concrete which form was then disassembled following the hardening of the concrete, constituted "contractor's movable equipment" (Class 10) rather than a "mould" (Class 12). It was noted, obiter, that there is some authority that the decision to allocate a depreciable asset to a class may be made in light of "the time of the effective usefulness of the depreciable asset."

See Also

Desgagné v. The Queen, 2012 DTC 1237 [at 3664], 2012 TCC 63 (Informal Procedure)

The gowns and bands that the taxpayer, a lawyer, wore in court were covered by paragraph (f) of Class 12.

McKee v. The Queen, 77 DTC 5345, [1977] CTC 491 (FCTD)

Movie scripts which were never turned into films did not qualify as motion pictures.

Administrative Policy

29 October 2013 External T.I. 2013-0507121E5 - Website costs

Determining whether website costs are in the nature of income or capital should entail an analysis of each component of the site. The determination depends predominantly on the expected useful life of the website, although "some components of the development costs are likely capital in nature."

To the extent that expenses are in the nature of capital, they may be added to the capital cost of "applications software" as described in Class 12 of Schedule II. Such costs include the labour costs incurred to design and develop software to carry out the website functions. Some components may instead be "data network infrastructure equipment" or "systems software" described in Class 46.

A particular capital expenditure that is not a depreciable property may instead be an "eligible capital expenditure" described in s. 14(5) or the Act.

24 November 2010 External T.I. 2010-0380521E5 - Web page costs

CRA indicated that the costs of application software purchased from third parties to develop a web page, and the labour costs of development, would likely constitute "applications software" under Class 12 of Schedule II, rather than "systems software."

26 April 1995 Internal T.I. 9506797 - CCA - BOOKPLATE COSTS

Bookplates created for the printing of books would not qualify as a "pattern, mould or die", and instead would be property described in Class 8, with the result that the property would qualify as a Class 39 or Class 40 property. (The Department noted an exception, "that where the useful life of an asset is one year or less, generally accepted accounting principles would require that the cost of the asset be written off in the year in which the cost was incurred").

13 April 1994 Internal T.I. 9400887 - COMPUTER SOFTWARE

When the assets of a computer software business are purchased for a lump sum purchase price, the amounts allocated to Class 12 would include not only the portion applicable to the purchase of applications software, including all rights attached thereto, but also special technology, know-how and copyrights.

23 November 1992 T.I. 923452 (September 1993 Access Letter, p. 409, ¶C20-075)

Re whether components of a specialized electronic point-of-sale inventory system for a retail application will qualify under paragraph 12(s).

7 September 1992 T.I. (Tax Window, No. 24, p. 7, ¶2189)

Most computer software acquired for use internally in a business is included in Class 12(o). However, a contractual right or licence of a capital nature to buy and resell, to sublet or to otherwise market computer software is either a Class 14 asset or an eligible capital property.

20 August 1992 T.I. (Tax Window, No. 23, p. 14, ¶2170)

A contractual right or licence of a capital nature to buy and resell, to sublet or to otherwise market computer software is not a right or licence to use computer software (Class 12) but, rather, a franchise, concession or licence and, therefore, is included in Class 14 if it is for a limited period.

4 August 1992 T.I. 921654 (April 1993 Access Letter, p. 132, ¶C9-259)

18-litre bottles used to hold water delivered to customers' premises until returned to the taxpayer for refilling by it belong to Class 8 rather than Class 12.

4 March 1992 T.I. (Tax Window, No. 17, p. 21, ¶1782)

Videotape cassettes may be depreciated under Class 12(r) if the owner acquires them for the purpose of renting and the cassettes are not expected to be rented to any one person for more than seven days in any 30-day period.

9 April 1992 Memorandum (Tax Window, No. 18, p. 15, ¶1870)

Styroblocks that are used in seed boxes for starting young trees do not meet the requirements of Class 12 (tools or returnable containers) and, therefore, are Class 8 assets.

3 January 1992 T.I. (Tax Window, No. 15, p. 17, ¶1681)

Re meaning of "consumers" in Class 12(s).

25 Aug. 89 T.I. (Jan. 90 Access Letter, ¶1088)

A "right or licence to use computer software" can include the right to reproduce computer software, the right to use it internally, the right to lease, licence or sublicence, the right to copyright protection or the right to use a trademark in respect of computer software. However, the right must be granted to the licencee specifically under a licencing agreement.

18 Aug. 89 T.I. (Jan. 90 Access Letter, ¶1087)

If the Minister revokes a certification, the revocation is effective as of the date of issue of the film certificate and the asset is removed from Class 12 effective on the date of acquisition. An amount invested in an uncompleted and uncertified film or videotape is not eligible to be included in Class 10(s). If such property subsequently is disposed of, a capital loss could result.

Paragraph (c)

Administrative Policy

18 May 2011 External T.I. 2011-0392441E5 F - Outils - déduction pour amortissement

small tools were Class 12 assets rather than currently deductible

In finding that small tools that the taxpayer purchased at a unit cost of less than $200 to maintain the units in a rental building (one of which was occupied personally) qualified as Class 12 depreciable assets rather than being deductible as a current expense, and after quoting the definition of “tool” in IT-422, CRA stated:

Unless tools, at a unit cost of less than $200, are inventory assets - which does not appear to be the case here - the CRA is of the view that such assets are depreciable assets described in Class 12

CRA went on to find that the taxpayer’s capital cost allowance claims “must be reduced to reflect the personal use that is made of [the tool].”

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c) CCA claim was to be proportionately reduced based on personal use percentage 64

Class 13

Cases

The Queen v. Mount Robson Motor Inn Ltd., 81 DTC 5188, [1981] CTC 345 (FCA)

When improvements (such as 2 frame buildings and pavement for a parking area) are constructed by a tenant, they normally become the property of the landlord rather than the tenant, and thus fall within Class 13 (leasehold interests). "In order for the buildings and pavement here in question to have retained their identity as chattels and remained the property of the lessee, if it were at all possible, a clear indication of that intention should have been found in the lease [which was not the case]."

The Queen v. Saskatoon Drug & Stationery Co. Ltd., 78 DTC 6396, [1978] CTC 578 (FCTD)

The taxpayer acquired a leasehold interest in a drug store. It was found that the terms of the lease were such that a prospective sub-lessee would not pay anything for it beyond assumption of the tenant's obligations under it.

A sum paid in respect of goodwill relating to the favourable location of the store was held to form part of the capital cost of the leasehold interest: "I am unable to divorce the goodwill of a location from the other advantages accruing to the person entitled to possession of that location. When it accrues under a lease, it is part of the leasehold interest".

See Also

Plan A Leasing Ltd. v. The Queen, 76 DTC 6159, [1976] CTC 261 (FCTD)

An individual ("Lunenfeld") conveyed a building to a corporation ("159 Bay") and conveyed the underlying land to a second corporation ("Great West"). Great West then leased the land to 159 Bay, and the taxpayer acquired the property from 159 Bay by purchasing the building and accepting an assignment of the lease.

The building was a class 3 asset rather than a class 13 asset. "The usual rule of law that the building is part of the freehold can be abrogated by a contract of parties."

Rudnikoff v. The Queen, 75 DTC 5008, [1975] CTC 1 (FCA)

"[W]hile the general rule ... is that a substantial building becomes a part of the land and belongs to the owner of the land, this situation may be changed, by contract or otherwise, so that ownership of the building is separate from ownership of the land and the building would not be part of the subject matter of the lease." Here, however, there was no clear language in the emphytuetic lease establishing the taxpayer as the owner of the building held by it as part of its leasehold interest.

A franchise terminable by notice on or after a fixed date was not a franchise for a limited period, and thus did not come within Class 14 (or any other class).

Administrative Policy

IT-464R "Capital Cost Allowance - Leasehold Interest"

Class 14

Cases

Bomag (Canada) Ltd. v. The Queen, 81 DTC 5085, [1981] CTC 156 (FCTD), aff'd 84 DTC 6363, [1984] CTC 378 (FCA)

The cost to the taxpayer (namely, the sum of $108,000 paid by it to terminate a previous franchise arrangment) of obtaining a contractual right to distribute roller equipment in Canada did not represent a franchise for a limited period as it was for an indefinite period (the agreement was terminable by notice on or after a fixed date) and, therefore, did not qualify as the capital cost of a Class 14 property.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Purpose/Intention 49
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A cost of obtaining surrender of previous contact was part of cost of new contract 34

MNR v. Canadian Glassine Co. Ltd., 76 DTC 6083, [1976] CTC 141 (FCA)

Payments made by the taxpayer to reimburse a pulp company ("Anglo-Canadian") for the costs of installing pipelines connecting the taxpayer's manufacturing plant with Anglo-Canadian's plant as part and parcel of a long-term supply arrangement were not costs of a Class 14 property. "Whatever may be the precise meaning of the expression 'franchise' ... that expression refers to the right, granted to a person, to carry on an activity which, otherwise, that person could not have carried on, at least in the same conditions."

Words and Phrases
franchise

Capital Management Ltd. v. MNR, 68 DTC 5041 (SCC)

The taxpayer purchased, from an affiliated company, the right to manage two mutual funds (which would entitle it to earn a quarterly fee of 1/8 of 1% of their assets) together with the right to designate selling agents for the sale of shares of the mutual funds and to receive a 2% acquisiton fee on such sales. In dismissing th etaxpayer's position that the purchase price of $1.9 million was depreciable as the capital cost of a Class 14 asset, Spence J stated his agreement with the Investor's Group case.

Metropolitan Taxi Ltd. v. MNR, 67 DTC 5073 (Ex Ct), aff'd 68 DTC 5098, [1968] CTC 163 (SCC)

$70,000 of the $104,000 purchase price paid by the taxpayer for a taxicab business was allocated by it to 14 taxicab licences which had been issued for one year and which would expire within one month (although, based upon the prevailing practice of the licensing board, they would be renewed). This amount represented non-depreciable goodwill rather than the cost of a Class 14 property. Cattanach J stated (at p. 5080):

...the licences granted by the Taxicab Board are personal to the owner...[and] are not transferable in themselves....Therefore ,the appellant did not buy the licences in question but by its purchase of fourteen licensed taxicabs placed itself in a better position from which to apply to the Taxicab Board for licences on its own behalf.

Investors Group v. MNR, 65 DTC 5120, [1965] CTC 192 (Ex Ct)

In finding that the purchase price paid for the acquisition of rights under a sales management agreement (pursuant to which the vendor had undertaken to perform certain services to a related entity in return for specified remuneration based on the volume of that entity's sales) was not depreciable as a Class 14 property, Jackett P. found (p. 5122), after accepting the submission of the taxpayer that these words extend "not only to certain kinds of rights, privileges and monopolies conferred by or pursuant to legislation or by government authority, but also to analogous rights, privileges or authorities created by contract between private parties," went on to state that the words "franchise" and "concession" are:

"used to refer to some right, privilege or monopoly that enables the concessionaire or franchise holder to carry on his business, or that facilitates the carrying on of his business; and that they are not used to refer to a contract under which a person is entitled to remuneration for the performance of specified services."

Mandrell Industries, Inc. v. M.N.R., 65 DTC 5142 (Ex Ct)

The taxpayer, a manufacturer of geophysical equipment, had granted an affiliated company the exclusive right to market its products for five years throughout the world. Two years into this agreement, it paid the affiliate $150,000 for the assignment of the Canadian distribution rights.

This payment was a non-deductible capital expenditure. Furthermore, although the payment very well might be in respect of a franchise, concession or licence, it was not in respect of property.

MNR v. Kirby Maurice Co. Ltd., 58 DTC 1033, [1958] CTC 41 (Ex Ct)

A proprietorship was granted the exclusive right to market the products of a manufacturer of vacuum cleaners in the County of York pursuant to an agreement which could be terminated by either party by giving 30 days' notice, and which stated that it was not assignable without prior written consent. The following year, the proprietor transferred this right to a corporation pursuant to a clause which further provided that:

'the Company shall be entitled to all benefits, rights and privileges for a period of ten years under this agreement and as between the parties hereto shall be regarded and construed as a 10 year franchise.'

Cameron J. stated that he was "quite unable to see how a franchise for an indefinite and unlimited term can by the act of the holder of the franchise only, become one for a period of ten years."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) purchaser exercising no independent judgment 142

Golden Arrow Sprayers Ltd. v. MNR, 61 DTC 1185 (Ex Ct)

patents were Classs 14 property

A right to use the patents of an individual was a Class 14 property to the corporation that acquired those rights. However, the capital cost was limited by s. 20(4) of the pre-1972 Act, which prohibited a step-up to the capital cost of depreciable property transferred in a non-arm's length transaction.

See Also

Rocheleau v. The Queen, 2010 DTC 1016 [at 2615], 2009 TCC 484 (Informal Procedure)

A contract under which the taxpayer made a total contribution of $25,500 in consideration for a company agreeing to pay to the taxpayer 5.5% of the gross revenue from the operation of a lottery terminal in St. Petersburg, Russia for 10 years (with such company operating the terminal) only gave the taxpayer a right to earn income from property, and did not represent a concession or licence. Furthermore, as the agreement would not give rise to business income, the expenditure did not qualify as an eligible capital expenditure.

Gouchee v. MNR, 67 DTC 203 (TAB)

trade name not depreciable property

In finding that a taxpayer, who had acquired assets of a business together with the right to use the name "V.W. Body & Paint Shop" was not entitled to deduct capital cost allowance in respect of the cost of that right, Roland St-Onge stated (p. 204) that "the trade name of a firm is purely goodwill and cannot be construed as a depreciable asset".

No. 728 v. MNR, 61 DTC 34 (TAB)

In connection with a purchase by the taxpayer from its president and general manager of the insurance business previously carried on by him, the taxpayer acquired the exclusive right to use the name of the business for a period of ten years. The taxpayer was not entitled to deduct the cost of this right as capital cost allowance because "the right to use the name of the vendor is inseparable from goodwill" and "it has been settled that goodwill is a capital asset which is not subject to capital cost allowance" (p. 35). [This case was applied in Drouillard v. MNR, 61 DTC 36 (TAB); Harry Bridge Pharmacy Ltd., 61 DTC 37 (TAB); Thomson-White Windsor Motors Ltd. v. MNR, 61 DTC 39 (TAB); and No. 733 v. MNR, 61 DTC 392 (TAB).]

No. 678 v. MNR, 60 DTC 45 (TAB)

The assets of a proprietorship ("Beaver Oil Company") purchased by the taxpayer included "the good will of Beaver Oil Company and the exclusive right to use the name Beaver Oil Company for a period of ten (10) years from the date hereof". In finding that the taxpayer was not entitled to claim capital cost allowance in respect of the $10,000 allocated by the parties to the right to use the name, Mr. Fordham noted (p. 47) that "it is trite law that where, as occurred here, the goodwill of a business is sold to a purchaser, the business name goes with it" and that, characterizing the purchased asset as goodwill, the taxpayer therefore was not entitled to treat it as a Class 14 property. [Followed in Itally-Ho Distributing Co. Ltd. v. MNR, 60 DTC 51 (TAB)]

Administrative Policy

7 November 2011 Internal T.I. 2011-0424641I7 F - Right to cut Christmas trees

right to cut Christmas trees with 10-year term was a Class 14 property

A taxpayer purchased the right to cut, over a period of 10 years, Christmas trees on another taxpayer's land for a lump sum payable over 4 years. After finding that this cutting right was not a timber resource property, nor a property referred to in Reg. 1100(1)(e), CRA found that it was a Class 14 property, stating:

[T]he right to cut Christmas trees could qualify as rights or privileges that allow the holder to carry on its business of selling Christmas trees or to facilitate that operation. Indeed, this right to cut allows the holder to obtain the raw material, the fir tree. In addition, according to the information you provided, we understand that this right to cut is not renewable. It seems to have a limited duration of 10 years.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Timber Resource Property right to cut Christmas trees was not a timber resource property 93
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(1) - Paragraph 1100(1)(e) Christmas trees are not “timber” 184

17 July 2018 External T.I. 2018-0747311E5 - Geothermal Energy Project

if renegotiation, further permit fees may generate Class 14 property

After noting that different licence, lease and permit fees may be imposed under the applicable provincial law in connection with a geothermal project, CRA stated:

The fees paid for renewals and extensions of a licence could also be included in Class 14. Generally, where the renewals or extensions are automatic or within the control of the taxpayer, the overall term of the licence includes such additional periods. However, if there is a requirement for any further negotiations with, or the concurrence or consent of, the grantor of the licence, the new period would not be considered to be an automatic renewal but rather it could be a separate property eligible for inclusion in Class 14.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 1219 - Subsection 1219(1) - Paragraph 1219(1)(h) completing an exploratory geothermal well ultimately used in production generates Class 43.1 costs, not CRCE 264
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 43.1 - Paragraph (d) - Subparagraph (d)(viii) inclusion of cost of completing geothermal exploratory wells in fact used in production 92

30 July 2015 External T.I. 2014-0552041E5 F - Permis XXXXXXXXXX

renewable government licences were ECP, not Class 14

Government permits granted to the taxpayer are renewable each year on the payment of $X. In finding that the permits were eligible capital property rather than Class 14 properties, CRA referred to IT-477, paras. 15-17 stating (TaxInterpretations translation):

Where…renewals or extensions are automatic or within the control of the taxpayer, that is they do not require any further negotiation with or the concurrence or consent of the grantor, the life of the property includes such additional periods. On the other hand, where the taxpayer has the option to renew or extend the term only if certain conditions are met, for instance meeting certain performance or sales criteria, the circumstances of the particular case must be examined to determine whether or not, when the property was acquired, it was reasonably certain that these conditions would be met. If so, the additional periods are included in the life of the property. …

The classification of the permits in this case must be made in accordance with their actual life established under the above criteria. Accordingly, it appears that the … permits acquired by the taxpayer represent eligible capital properties and not property which can be added to Class 14.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Eligible Capital Expenditure renewable government licences were ECP, not Class 14 49

30 May 2013 External T.I. 2013-0487301E5 - 3P Project

failure to state consideration for concession

The query noted that para. 12 of 2006-0218781R3 stated:

In return for the grant of the Concession, the Partnership will agree to construct the Facility and operate it during the Operating Period at its own expenses except for the amount of $XX that the Minister will pay to the Partnership during the Construction Period.

Would CRA's treatment of a particular concession or licence as a Class 14 asset be the same if the particular concession agreement did not specifically state that the particular entity will agree to incur the costs to construct and operate the facilities during the term of the agreement in consideration for the grant of a concession? CRA stated:

The determination of whether an entity has agreed to construct and operate a facility at its own expense in return for the granting of a concession or licence for a particular period remains a question of fact. ... Based on our experience with projects of this nature, it would be somewhat unusual for the particular agreement to be silent on such an important matter; however, it is possible that some other evidence (as yet unspecified) might be used as support that such a concession or licence was granted.

25 January 2007 External T.I. 2006-0199451E5 - License Agreement

Amounts that the taxpayer was required to reimburse a school board for in respect of a licensed space in a school that was constructed by the Board constituted the capital cost of a Class 14 rather than a Class 13 property given that the arrangement was intended to be a licence rather than a lease.

2007 Ruling 2006-0218781R3 - XXXXXXXXXX

concession granted for constructing and operating facility
2006-0185201R3 (which describes the licence as being issued "in consideration for Project Co carrying out and completing the Works [i.e., facility]" rather than also the agreement to operate the facility) and 2003-0051741R3 (in which this aspect is redacted) are similar

A Canadian public corporation ("Z Co"), as LP, and newly-incorporated CBCA grandchild subsidiary ("GP") of Z Co, as GP, form the Partnership. The Partnership enters into a "Concession Agreement" with the Province respecting the financing, construction and operation by the Partnership of the Facility for the specified Contract Period and respecting the granting by the Province to the Partnership of the "Concession", i.e., the right to use and access the Facility and related site for the purpose of constructing the Facility, and operating it during the "Operating Period," i.e., the portion of the Contract Period following substantial completion. The Province will be the owner of the Facility at all times so that title to property will pass to it as the construction work occurs.

In return for the grant of the Concession, the Partnership will agree to construct the Facility and operate it during the Operating Period at its own expenses except for the amount of $XX that the Minister will pay to the Partnership during the Construction Period.

For the purposes of apportioning the capital cost of the Concession over the remaining period of the Concession in accordance with Reg. 1100(1)(c), the Partnership will aggregate its total capital expenditures incurred with respect to the Concession (including capital repairs and alterations once operations commence, but as reduced by the construction payments received from the Province) on a quarterly basis and amortize that quarterly amount over the remaining period of the Concession.

Rulings that the Concession will be included in Class 14 with a capital cost including the design and net construction costs.

16 November 1994 Internal T.I. 9414677 - FILM RIGHTS

See also 941171 and 951423.

Even though it may be likely that a CRTC licence issued for a period of five years will be extended or renewed following the expiration of that period, there is no basis for assuming that the current licence is for anything but a limited period of five years, with the result that it should qualify as a Class 14 property for that period.

9 November 1994 Internal T.I. 9425187 - PLANT BREEDERS RIGHTS ACT

Rights granted pursuant to the Breeders Act do not constitute a franchise, concession or licence for the purposes of Class 14 because the effect of the Breeders Act is to give to the holder of a plant variety the exclusive rights in respect of certain activities described under s. 5(1) of the Breeders Act which could nevertheless be carried on (but without the exclusion of the other parties) by the holder without the granting of plant breeder rights.

7 September 1992 T.I. (Tax Window, No. 24, p. 7, ¶2189)

Most computer software acquired for use internally in a business is included in Class 12(o). However, a contractual right or licence of a capital nature to buy and resell, to sublet or to otherwise market computer software is either a Class 14 asset or an eligible capital property.

20 August 1992 T.I. (Tax Window, No. 23, p. 14, ¶2170)

A contractual right or licence of a capital nature to buy and resell, to sublet or to otherwise market computer software is not a right or licence to use computer software (Class 12) but, rather, a franchise, concession or licence and, therefore, is included in Class 14 if it is for a limited period.

14 May 1990 T.I. AC59728 [bare right to income not a concession]

bare right to income not a concession

A payment made by a public company to acquire a contractual right to a 50% share in a partnership's net proceeds from the purchase, processing and sale of natural gas and the construction of gas transportation pipelines for a specified period of time did not constitute a "licence" or a "concession". The Directorate stated:

[A] licence does not alter or transfer property but only makes an action lawful which, without it, would be unlawful. Accordingly, in our view the NRI acquired by Company B would not constitute a licence for purposes of Class 14.

A "concession" contemplates a right to use or occupy a property for a limited time as, for example, a right of way....[T]he conspicuous feature of a franchise in....Capital Management Ltd. vs M.N.R., [[1968] C.T.C. 29] 68 DTC 5041 (S.C.C.) and Mandrell Industries, Inc. vs M.N.R., [[1965] C.T.C. 233] 65 DTC 5142 (Ex. Ct.), is that franchise, concession or licence refer to some right, privilege or monopoly to enable the franchise holder to carry on his business or that facilitates the carrying on of his business....[T]he NRI, which is a bare right to income, does not fall within the meaning of a property that is a franchise, concession of licence for purposes of Class 14

IT-283R2 "Capital Cost Allowance - Video Tapes, Videotapes Cassettes, Films, Computer Software and Master Recording Media"

A contractual right or licence of a capital nature to buy and to resell, to sublet or to otherwise market computer software is not a right or licence to use computer software and, therefore, qualifies as a Class 14 asset (if for a limited period) rather than as a Class 10 or Class 12 asset.

IT-477 "Capital Cost Allowance - Patents, Franchises, Concessions and Licences," consolidated October 2001

15. The provisions of a franchise, concession or licence concerning renewals or extensions following the original term are relevent in determining the life of the property and whether or not the property is for a limited period. Where such renewals or extensions are automatic or within the control of the taxpayer, that is they do not require any further negotiation with or the concurrence or consent of the grantor, the life of the property includes such additional periods....

16. Where renewal or extension periods are considered part of the life of the property under the criteria set out in ¶ 15 above, and where the number of such renewals or extensions is indefinite, the property is not for a limited period and does not qualify as a class 14 property. Where the number of such renewals or extensions is definite, for example, where a licence is for an initial term of 5 years and the licensee has options to renew the licence for two further 3-year periods, the property is for a limited term, in this example 11 years....

17. Provisions, including force majeure and contingency termination clauses, which may result in an early termination of the life of a property are not considered relevant in determining the life of the property and whether or not the property is for a limited period....

18. Under the Industrial Design Act, an industrial design is protected for a period of 5 years from the date of registration subject to renewal for a further period of up to 5 years. A registered industrial design is considered to be a franchise for a limited period and the life of the property on initial registration is 10 years.

Articles

Shane Onufrechuk, Warren Pashkowick, "Tax Considerations of Major Construction Projects", 2014 Conference Report, Canadian Tax Foundation, 10:1-35.

Construction costs incurred for Class 14 licence (p. 10:18)

[The project] contract states that in exchange for granting the concession, the P3 [Projectco] has "agreed" to incur the costs necessary to meet its contractual obligations. Without incurring these construction costs, the P3 will not be entitled to any of the payments set out in the contract to be paid over the term of the project. …

[CRA has ruled] that the cost of building the infrastructure asset constitutes a "cost" of acquiring the concession agreement and/or non-exclusive access licence and that these costs, as such, are otherwise included in class 14.

Scheuermann, "Income and Commodity Tax Aspects of Acquiring and Exploiting Technology", 1991 Conference Report, c. 45.

Class 14.1

See Also

Unidisc Musique Inc.v. Agence du revenu du Québec, 2019 QCCQ 1818

master recordings are tangible rather than intangible property

Unidisc bought master recordings of music (“masters”), i.e., the magnetic tapes containing the original recordings of the songs or other music for the purpose of having them reproduced in order to make and sell song compilations in CD or electronic form.

The CRA position (e.g., in 2007-0240691I7) was that masters are Class 8(j) tangible capital property. However, the ARQ reassessed Unidisc on the basis that the masters instead were eligible capital property (now Class 14.1). It was thrown off track by the agreements for the purchase of masters, which included an assignment of all the vendors’ rights such as intellectual property rights, copyright and the right to use, reproduce or license the masters.

Gouin, J.C.Q. found that such vendors did not have the copyright of the song writers, performers and publishers to assign and that the only rights under the Copyright Act (“CA”) that were assigned to Unidisc were the more limited rights (albeit, still expressed in misleading broad terms) described in s. 18 thereof. Accordingly, whenever Unidisc wished to sell compilations, it was still necessary for it to pay royalties to the song creators and publishers.

In allowing Unidisc’s appeal on the basis that the masters were Class 8 property, Gouin, J.C.Q. stated (at paras. 70, 78, TaxInterpretations translation):

The quality of the sound recording had nothing to do with the rights protected under section 3, 13 and 15, or even 18, of the CA. In fact, the quality of the sound recording had everything to do with the quality of the physical medium … .

The evidence at trial demonstrated that the allocation of 100% of the price to the physical medium must be allowed. Unidisc acquired the best sound recording for the purpose of generating revenues from making copies.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 8 - Paragraph 8(j) purchase cost of master music recordings was for Class 8(j) tangible property 346

Administrative Policy

27 November 2018 CTF Roundtable Q. 15, 2018-0780011C6 - Class 14.1

Class 14.1 “property” need not be property

Class 14.1 depreciable property references “property” of the taxpayer. CRA confirmed that this does not have the effect of disqualifying capital expenditures that did not give rise to property rights (such as legal costs of an aborted acquisition , see 2017-0727041E5). The reason is that s. 13(35) provides that such expenditures incurred for the purpose of gaining or producing income from a business are deemed to be the cost of property that is goodwill, and the s. 248(1) definition of “property” has been amended to clarify that goodwill is property.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(35) - Paragraph 13(35)(a) capital expenditures not giving rise to property are deemed to be goodwill property 106

19 July 2018 External T.I. 2017-0727041E5 - Legal and accounting fees - aborted share purchase

aborted target acquisition expenses may qualify as Class 14.1 additions

Does the position in 2002-0151405, respecting an aborted attempt to acquire shares, that “these fees qualify as eligible capital expenditures if the taxpayer can demonstrate that the taxpayer intended to make the business of the target corporation part of a similar business that the taxpayer already operated,” still apply following the repeal of the eligible capital property system? CRA responded:

…CRA has applied … IT-143R3 [para. 23]:

“Since an outlay or expense is an eligible capital expenditure only if it is incurred for the purpose of gaining or producing income from a business, legal and accounting fees incurred in an abortive attempt to acquire shares of a corporation would normally not qualify. Where, however, the taxpayer can demonstrate that he or she proposed to make the business of the corporation part of a similar business which the taxpayer already operated, the fees may qualify as eligible capital expenditures.”

Effective January 1, 2017, the Eligible Capital Property system was repealed and replaced with a new capital cost allowance class, Class 14.1. We confirm that the CRA will continue the position as outlined in paragraph 23 of IT-143R3 under the new Class 14.1 rules.

Paragraph (a)

See Also

Commissioner of State Revenue v Placer Dome Inc., [2018] HCA 59

goodwill must have a connection to attracting custom

Whether the acquisition by Barrick Gold Corporation ("Barrick") of another Canadian public company, namely, Placer Dome Inc. ("Placer") triggered Western Australia land transfer tax (“stamp duty”) of A$55 million on the unencumbered value of "the land and chattels situated in Western Australia” of an Australian subsidiary of Placer Dome turned on whether Placer was a "listed land-holder corporation" for Stamp Act purposes. This turned on whether, on a global consolidated basis, the value of all of Placer's land (defined to include mining tenements and improvements) equalled or exceeded 60% of the value of all its property.

The price Barrick paid to acquire Placer (grossed up for liabilities) was $15.346 billion. The post-acquisition balance sheet of Placer valued its identifiable assets at $8.84 billion including $5.694 billion for its land assets, and recognized goodwill of $6.506 billion, being the excess of the cost over the fair value of the specifically identified tangible and intangible assets.

In rejecting the proposition that sufficient value could thus be assigned to the goodwill to avoid a conclusion that Placer was a listed land-holder corporation, the plurality stated (at paras. 78, 87, 141 and 143):

The accounting approach in Murry [(1998) 193 CLR 605] was described as "the difference between the present value of the predicted earnings of the business and the fair value of its identifiable net assets". That methodology is not the same as comparing the fair value of Placer's identifiable net assets to the purchase price of the business, the accounting approach adopted by Barrick. ...

Murry did not broaden the legal concept of goodwill to include sources which did not generate or add value (or earnings) to the business by attracting custom. The "typical sources" of goodwill acknowledged in Murry were "typical sources" because "they motivate service or provide competitive prices that attract customers" (emphasis added). And Murry and the decision which preceded it, Box [(1952) 86 CLR 387], recognised that in the modern world, patronage – in the sense of customers through the door – was no longer the sole means of generating or adding value (or earnings) to a business by attracting custom. But, in both decisions, the recognition that there were other sources of goodwill was itself considered in terms of the ability of those other sources to attract custom. ...

[A]t the acquisition date, there were no sources of goodwill that could explain the $6 billion gap which was attributed by Barrick to goodwill. That unexplained gap suggests that the DCF calculations used by Barrick's valuers to value Placer's land, its principal asset, were wrong. … [T]he danger identified by the majority in Murry of attributing a value to goodwill which actually inheres in an asset was readily apparent. …

At the acquisition date, Placer was a land rich company which had no material property comprising legal goodwill. … [italics in original]

Words and Phrases
goodwill
Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other discounted cash flow valuation undervalued resource lands and residual valuation overstated goodwill 312
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property protean nature of property concept 445

Class 16

Paragraph (e)

Administrative Policy

16 June 2010 External T.I. 2009-0344861E5 F - Actifs de la Catégorie 16

pick-up trucks leased out on short-term basis but also used as described in (e)(ii) of automobile are in Class 16 - otherwise, Class 10

A taxable Canadian corporation acquires pick-up trucks for short-term lease (not exceeding 30 days in any 12-month period) to lessees for personal use or transporting goods or equipment to earn income, or as described in clauses (e)(iii)(A) and (B) of the s. 248(1) automobile definition. Although the pick-up trucks fall within para. (d) of the automobile definition, can they be included in Class 16 since they also may potentially fall within para. (e) of the definition? CRA responded:

Subparagraph (e)(i) of Class 16 generally applies to motor vehicles that are automobiles and are intended for short-term rental purposes. …

Subparagraph (e)(ii) of the definition of automobile refers to pick-up trucks and/or vans the use of which, in the taxation year in which they are acquired or leased, are all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income.

In this case, where it can be established that the pick-up trucks the use of which, in the taxation year in which they are acquired or leased, are all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income, the CRA will be of the view that the pick-up trucks are motor vehicles described in subparagraph (e)(ii) of the definition of automobile to be included in Class 10.

Class 17

Cases

The Queen v. Mont-Sutton Inc., 99 DTC 5733, [1999] F.T.R. 33467 (FCA)

downhill ski trails qualified as surface construction

Létourneau J. A. found that the types of surface construction referred to in Class 17(c) had the following characteristics: first the land which, as a result of the work performed becomes a surface construction should display a clearly discernable change in configuration that goes beyond mere clearing and levelling; the surface construction should occupy a circumscribed space that is identifiable as such and to varying degrees requires the addition of some materials in order to fulfil the intended function; and because of wear and tear there must be a recurring need for maintenance to maintain its identity and purpose. On the basis of these criteria, he concluded that downhill ski trails of the taxpayer qualified.

Words and Phrases
surface construction

Administrative Policy

27 March 2014 External T.I. 2014-0520941E5 F - Industrial mineral mine and related expenditures

access road to quarry was Class 17 property notwithstanding that not owned

The costs of a temporary access road to a quarry would not be considered to be in respect of a "specified temporary access road" as defined in Reg. 1104(2), and would qualify under Class 17. CRA noted:

[P]aragraph 13(7.5)(b) provides a presumption, for taxation years ending after March 6, 1996, in respect of certain costs incurred by a taxpayer on account of capital for the building of, for the right to use or in respect of a property to which subsection 1102(14.3) of the Regulations applies, including a road, other than a specified temporary access road, that would not be considered depreciable property if that provision did not apply. By virtue of that legislative presumption, the taxpayer is deemed to have acquired the prescribed property at that time at a capital cost equal to the amount of the cost incurred by the taxpayer on account of capital for the building of, for the right to use or in respect of, the property.

18 December 2013 External T.I. 2013-0479421E5 F - Section 30 and Cranberry Farm

costs of constructing cranberry farm basins included in Class 17

In converting lands to a cranberry farm, there would need to be a reasonable allocation of the relevant costs between the cost of installing a drainage system, which would be deductible under s. 30, and the costs of an irrigation system, which would be the cost of a Class 8 asset. The costs of constructing sand-bottomed basins surrounded by dykes would be the cost of a Class 17 property ("similar surface construction," following Mont-Sutton).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense initial cranberry plant planting is a cost of land 94
Tax Topics - Income Tax Act - Section 30 costs of clearing, levelling and draining lands, but not of constructing basins, for a cranberry farm are currently deductible 136
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 6 costs of constructing irrigation pond included 33
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 8 irrigation system included, drainage costs deductible under s. 30 79

14 February 2005 External T.I. 2005-011130 -

Discussion of criteria to be satisfied in order for ski trails to qualify as surface construction for purposes of paragraph (c) of Class 17.

28 June 2001 External T.I. 2001-0068425 - CLEARING LAND-GOLF COURSE

The creation of greens, tees and fairways for a golf course would constitute "surface construction" and, therefore, would qualify for inclusion in Class 17. The cost of creating greens, tees and fairways for a golf course on leased land would be included in Class 13.

Class 22

Cases

Lindwest Holdings Ltd. v. The Queen, 88 DTC 6482, [1988] 2 CTC 287 (FCTD)

Equipment which both was "designed" for the purpose of excavating or moving earth and rock (Class 22) and which was acquired for logging operations (Class 10(o)) was Class 10 property because Class 10(o) applied to "property that would otherwise be included in another class".

The Queen v. Nomad Sand & Gravel Ltd., 87 DTC 5343, [1987] 2 CTC 112 (FCTD)

A sand and gravel pit was not a "mine", and front end loaders used in the gravel pit operation accordingly were Class 22, rather than Class 10 assets.

Class 24

Administrative Policy

IT-336R "Pollution Control Property"

27 September 1991 T.I. (Tax Window, No. 10, p. 18, ¶1485)

The Minister of the Environment has the authority only to make the determination referred to in paragraph (b)(iv).

27 September 1991 Memorandum (Tax Window, No. 10, p. 18, ¶1487)

Equipment used to provide pollution reduction services to oil and gas lease holders will not qualify for inclusion in Class 24 unless the equipment is employed at site for exploration and production of rations had been carried on continuously since before 1974 and the operation was owned by the taxpayer from that time.

Class 26

Administrative Policy

7 June 2017 CPTS Roundtable, 2017-0695131C6

Q.7 - refinery catalysts are Class 26 property

Most modern refinery catalysts have a useful life of 1 to 3 years and are disposed of at the end of this period. Is CRA still of the view that the costs incurred on the acquisition of new catalysts qualify as property of Class 26 (depreciable at 5%, declining balance method)? CRA stated:

Our position remains that the cost of catalysts is properly classified as Class 26, deductible on a declining basis at 5% per year. … We suggest you make a submission to the Department of Finance.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Proceeds of Disposition Q.1 - Daishowa extends beyond reforestation and reclamation obligations only on a case-by-case basis 213
Tax Topics - Income Tax Act - Section 66 - Subsection 66(15) - Canadian Resource Property - Paragraph (d) Q.2 - a Canadian resource royalty interest requires a right to “take production” 135
Tax Topics - Treaties - Income Tax Conventions - Article 13 Q.3 - Canada-U.K. Treaty does not exempt shares deriving their value from Canadian oil and gas licences – even where the Canadian business is carried on “in” them 193
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(ii) Q.4 - by analogy to mining, hydrocarbons may be similar properties 348
Tax Topics - Income Tax Regulations - Regulation 1101 - Subsection 1101(1) Q.5 - normal course dispositions of oil and gas properties generally are not of a separate business 131
Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) Q.5 - application of Scales test to determining whether there is a separate business 224
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 49 Q.8 - taxpayers generally have the documentary evidence on hand to allocate costs between pipelines and pipeline appendages 117

Class 28

Administrative Policy

November 1991 Memorandum (Tax Window, No. 12, p. 21, ¶1570)

An acquisition of equipment will not be considered a "major expansion" where it increases or recovery at a mine by more than 25% but there is no mill.

Class 29

Cases

Will-Kare Paving & Contracting Ltd. v. Canada, 2000 DTC 6467, 2000 SCC 36, [2000] 1 S.C.R. 915 (SCC)

supplied asphalt was merely an accession to customers' real property

The taxpayer, which paved driveways, parking lots and small roadways, also operated an asphalt-producing plant. 75% of the output was utilized in that paving business, and the balance was sold to third parties. In finding that manufacturing or processing equipment utilized in the plant did not qualify as Class 39 property on the basis that it was not used "primarily in the manufacturing or processing of goods for sale or lease", Major J. noted (at p. 6473) that "the concepts of sale or lease have settled legal definitions", that "Parliament has chosen to use language that imports relatively fine private law distinctions" and that "the technical nature of the Act does not lend itself to broadening the principle of plain meaning to embrace popular meaning". Accordingly, because property and the asphalt transferred to the taxpayer's paving customers as accessions to real property, the equipment did not qualify under Class 39.

The Queen v. Donohue Normick Inc., 96 DTC 6061 (FCA)

Seventeen spare parts having a cost in excess of $1 million that the taxpayer purchased to be held until such time as identical parts in a continuous-operation paper machine broke down, represented capital assets (includable in Class 29) rather than inventory. Hugessen J.A. found that the interpretation accorded to the phrase "to be used directly or indirectly by him" in the Class 29 definition had been interpreted too narrowly in the Stearns Catalytic case (90 DTC 6286). In particular, this expression related "to property that is not necessarily used immediately after it is purchased" and "it is sufficient if there is a reasonable expectation that the property would be used in the future" (at p. 6065).

The Queen v. Coopers & Lybrand Ltd., Trustee of Hawboldt Hydraulics (Canada) Inc., 94 DTC 6541 (FCA)

An operation of repairing and "re-manufacturing" hydraulic systems for customers (including the replacement of a part or parts of a customer's hydraulic system with the part or parts manufactured by the taxpayer) was found not to be the manufacturing of goods "for sale" on the basis of the "well-known distinction between manufacturing for the purpose of sale and manufacturing for the purpose of repair services", and in light of Parliament's objective in enacting the legislation, which "was encouragement of increased production of manufactured and processed goods to be placed on the domestic and international markets in competition with foreign manufacturers" (p. 6548).

Stearns Catalytic Ltd. v. The Queen, 90 DTC 6286 (FCTD)

stock of spare property was not property "to be used" in M&P

A stock of spare parts which the taxpayer kept on hand for potential use in the event of machine or equipment failure did not qualify as property "to be used" for the purpose of manufacturing or processing goods for sale for the purposes of the definition of qualified property" in s. 127(10)(c)(i) of the Act (now s. 127(9)) and paragraph (a)(i) of the description of Class 29 property. McNair, J. stated (p. 6294):

"The words in subparagraph 127(10)(c)(i) 'to be used' connote an actual physical or functional use of the prescribed machinery and equipment and spare parts stocked on shelves as an assurance against possible mechanical breakdown do not come within that concept of used, regardless of the soundness of the underlying business policy in stocking them."

Words and Phrases
use

Halliburton Services Ltd. v. The Queen, 85 DTC 5336, [1985] 2 CTC 52 (FCTD), aff'd 90 DTC 6320 (FCA).

Equipment which the taxpayer bolted or welded to its trucks to be used in its well-pumping operations was held to be contractor's movable equipment (Class 10(h)) rather than a structure (Class 29). It was not built from component parts on the site of the oil or gas well, and accordingly was not a "structure".

Nova Construction Co. Ltd. v. The Queen, 83 DTC 5105, [1983] CTC 58 (FCTD)

The Act contemplates that an activity may constitute both manufacturing or processing and construction. Accordingly, it was found that an asphalt processing plant used in construction was "a structure that [was] manufacturing or processing machinery or equipment" within the meaning of class 8 (and class 29).

It was noted that if the plant had not fallen within Class 29, it would have been a Class 10 property ("contractor's moveable equipment") because it was designed to be disassembled and moved, and was assembled so as to preserve that moveability.

See Also

Adélard Soucy (1975) Inc. v. Agence du revenu du Québec, 2019 QCCQ 6956

building was functionally integrated with M&P so as to itself be M&P equipment

The taxpayer custom-fabricated pieces of heavy specialized equipment at the northern mining site of one of its mining customers. In order that its soldering work did not fracture (which required that the soldering be carried out at close to room temperature), it needed to house its operation in a pre-assembled shelter (the “Econox”) which it installed at the site. Whether the Econox qualified for Quebec investment tax credit purposes turned on whether it constituted a Class 29 property which, in turn, rested on whether it was a property described in Class 8. In finding that the Econox was a “a structure that is manufacturing or processing machinery or equipment” as per para. (a) of the Class 8 description, Popescu JCQ stated (at paras. 118-122, TaxInterpretations translation):

[T]he manufacturing and processing activities of the taxpayer could only be carried out within the Econox, which was closely linked to this activity.

The Econox also was fixed equipment which permitted the plaintiff to manufacture and process industrial and mining items.

… In default of being able to speak of permanent physical integration, one can certainly speak of a functional integration as the plaintiff could not carry out its operations in the Great North without the Econox.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 8 - Paragraph 8(a) a building for warming equipment qualified as “manufacturing or processing machinery or equipment” 315

Coop de travailleurs en serres Belle-de-Jour v. Agence du revenu du Québec, 2019 QCCQ 6609

greenhouse heating equipment was used in non-farming manufacturing of floral arrangements

The taxpayer used approximately 20% of the area within greenhouses to grow cucumbers or other vegetables, or flowers, from seed for sale as grocery items or as little plants that could be transplanted. The taxpayer also annually produced about 85,000 floral arrangements in pots, which it sold to retailers such as Costco. To this end, it purchased already-grown flowers from other growers, and maintained them in its greenhouses pending its use of them for incorporation into the floral arrangements. Between 2012 and 2014, it constructed a biomass system for heating the greenhouses.

S. 1029.8.36.166.40 of the Taxation Act potentially provided an investment tax credit for a Class 29 property, but Regulation 130R12(a) provided that for purposes of Class 29, “manufacturing or processing” did not include “farming.”

In finding that the taxpayer’s floral-arranging activity did not constitute “farming,” Gibbens JCQ noted the element of artistry in this activity, observed that although the flowers would still grow while being kept in the greenhouses, this was not the predominant element in a process that entailed the creation of something new, and stated (at para. 55, TaxInterpretations translation) that the activity:

also entailed an aspect of processing, as the purchased plants … were subject to a series of standard procedures: they were arranged with each other and with other materials and placed in pots in a particular manner according to a precise model. The plants and other material underwent a change in form and appearance to become the final product – the arrangements sold to the customers.

In further finding that the two activities were distinct, so that the flower-arranging activity was not assimilated to the taxpayer’s farming business, Gibbens JCQ stated (at para. 68):

Nothing otherwise suggests that the two activities were dependent one on the other. In particular, the floral arrangements were manufactured exclusively from already-grown plants that had been purchased by the Coop from third-party suppliers and not from flowers that the Coop had grown for sale as small plants to be transplanted.

Respecting the use of the biomass system, although 20% of the greenhouses were used in farming, the greenhouse-heating was not necessary to this business, with the exception of the warming of cucumber seeds in the spring so as to encourage germination, whereas heating was essential to the floral arrangement business, whose focus was on the cold season. Accordingly, the biomass system was used “primarily” in the manufacturing or processing of the floral arrangements.

Words and Phrases
processing manufacturing
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) - Paragraph 4(1)(a) use of greenhouses to further grow flowers before use in making floral arrangements was separate from the taxpayer’s greenhouse plant-growing farming business 213
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Farming use of greenhouses to further grow flowers before use in making floral arrangements did not constitute farming 157

Stark International Inc. v. The Queen, 2019 TCC 248

oil-processing equipment was for sale even though initial use was to process customer's oil

The taxpayer (“Stark”) used three newly-constructed transformer maintenance trailers (which were 50-foot trailers (“TMT 3, TMT 4 and TMT 5”) to purify oil, on site, from electrical transformers and also to purify oil at its Nova Scotia premises for subsequent resale. Furthermore, it had constructed a building (the “Fabrication Shop”) used for the construction of TMTs. In finding that a portion of the cost of the TMTs applicable to the oil processing equipment qualified as the cost of property newly-acquired property acquired by the taxpayer to be used directly or indirectly by it in Canada primarily in processing goods for sale, as required under the definition of a Class 29 property (so as to qualify such property as a Class 43 property) and also for purposes of the similar definition of “qualified property” in s. 127(9), Sommerfeldt J noted (at para. 33) that although Stark’s processing of a customer’s own oil at a customer’s premises did not qualify as a sale of oil:

When Stark used the oil processing equipment in a TMT to process oil at its own premises, the oil in question belonged to Stark and, after the processing was completed, was sold by Stark.

Sommerfeldt J found that certain components of the TMTs did not qualify for ITCs and accelerated CCA, such as used equipment (paras 44 and 45), living quarters (para 46), tool storage (para 48), safety equipment (para 50), a snowblower (para 51), and a used towing trailer (para 52). Respecting the safety equipment, he stated (at para. 50):

While safety is a commendable and essential objective of any oil processing business, safety equipment is used for the purpose of promoting and ensuring safety, rather than for the purpose of processing oil for sale.

The cost of constructing the Fabrication Shop did not qualify given that “although there had been talk of eventually getting into building TMTs for sale, that idea had fallen through” (para. 70).

In finding that the oil processing equipment in TMT 3 satisfied the purpose test of having been acquired primarily for the purpose of processing oil for sale, Sommerfeldt J noted that at a customer site, the TMT was idle 80% of the time in contrast to its use at the Stark premises for processing oil for sale, and on that basis, “when Stark constructed TMT 3, Stark’s intention was to use the oil processing equipment in TMT 3 primarily for the purpose of processing its own oil for sale” (para.. 82).

In the case of the other two TMTs, complicating factors were that TMT 4 was first used for a 10 month contract at the Bruce Nuclear Power Station, and during this use, Bruce Power (a.k.a., Areva) requested that Stark make certain modifications to the standard TMT design in order that TMT 5 (which was then in construction) would be specially adapted for use at the Bruce Power facility. In finding that the oil-processing equipment included in TMT 4 and 5 also so qualified, he stated (at paras. 82-83):

… [T]he oil processing equipment in TMT 4 was also constructed to be used by Stark at its premises …primarily for the purpose of processing Stark’s oil for sale. … Bruce Power’s nuclear power facility … contract with Areva … [was a] situation ... similar to that of the seismic equipment in Capilano International, in that Stark expected to bring TMT 4 back to its premises at Bailey’s Brook and continue primarily to process its own oil for sale, which it did.

… [G]iven that the contract between Stark and Areva was only for 10 months, and given that the expected working life of TMT 5 would undoubtedly have been far greater than that, I find that the oil processing equipment in TMT 5 also comes within the principle established by Capilano International. In other words, the intention of Stark, in constructing the oil processing equipment in TMT 5, was to use it at its own premises primarily for the purpose of processing its own oil for sale.

Words and Phrases
sale
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Qualified Property - Paragraph (c) a use test could be applied by looking beyond the property’s immediate intended use 235

Environnement Sanivac Inc. v. ARQ, 2016 QCCQ 9461

trucks used both for transporting and decanting dirty oil were M&P equipment

A company used somewhat modified trucks to collect dirty oils from customers. On the trucks’ return to the company premises, they would sit there for 12 hours in order to permit the oils to settle out in their holding tanks – before the now, somewhat separated oils, were pumped out for further processing at the company’s premises with a view to their sale.

Guimond JCQ found that, as this settling-out process was part and parcel of the process for purifying the oils and was more significant than the use of the trucks in transporting the oil, the trucks qualified as processing equipment under the Quebec equivalent of ITA s. 127(9) – qualified property – (c)(i). In so concluding, he quoted the Démolition A.M. case extensively.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Qualified Property - Paragraph (c) - Subparagraph (c)(i) transporting trucks with decanting tanks used in M&P 255

Mont-Sutton Inc. v. The Queen, 96 DTC 1472 (TCC)

Artificial snow-making equipment did not qualify for inclusion in Class 29.

Démolition A.M. de l'est du Québec Inc. v. MNR, 93 DTC 889 (TCC)

containers used for sorting materials essential to their processing

The taxpayer, which derived its revenues from contracts for the demolition of buildings or other works, and from the sale of materials resulting from its alleged processing activities on the demolition sites, successfully maintained its position that its recycling activities, i.e., sorting materials, cutting to size, taking out the hardware, separating various items, removing nails and screws, etc., were processing activities. In finding that containers used by it in sorting materials obtained at the demolition sites qualified as Class 29 properties on the basis of being “used directly or indirectly by him in Canada primarily in the manufacturing or processing of good for sale or lease,” Garon TCCJ stated (at p. 897):

[I]t is indisputable that these containers, which were installed on the sites, were used for sorting materials. …[U]sing containers was a practical and economic manner of sorting the materials and other items which were ultimately to be sold or otherwise disposed of by the appellant. In terms of time, this stage, sorting the materials and other items, came, at least in the vast majority of cases, immediately after the processing work. From all appearances, the sorting work is closely connected to the work of processing the materials taken from the demolished buildings and works, which was carried out on the sites. These containers were therefore used at least indirectly by the appellant in Canada primarily for the processing of goods for sale. These containers were indeed also used to transport goods to the customers… . However, the fact remains that these containers were used at a point that was prior and essential to sorting the materials….

Lehmann Bookbindings Ltd. v. MNR, 92 DTC 1308 (TCC)

The taxpayer, which bound periodicals, textbooks and other materials owned by its customers, was engaged in manufacturing or processing.

Roy Legumex Inc. v. MNR, 90 DTC 1858 (TCC)

Containers which were used to dry legumes in order that they could be split were found to be structures that were manufacturing or processing machinery or equipment for purposes of paragraph (a) of Class 8 and accordingly qualified as Class 29 properties. However, it was found that they were not "tangible property attached to a building" for purposes of paragraph (b) of Class 8 because "the words 'attached' in the English language version of clause (b)(ii) means more than a mere connection; the tangible property must be so attached to the building that it more or less becomes part of it" (p. 1862).

Red Deer Adviser Publications Ltd. v. MNR, 89 DTC 520 (TCC)

This taxpayer sought (at p. 523) to characterize two bi-weekly or weekly publications each "as a multiple advertisement flyer consisting of commercial advertisements, classified advertisements, flyers or circular inserts, all in a format which incidentally contains news, weather and sports within it" in order to establish that it was selling such advertising materials to the advertisers. In rejecting this characterization Sarchuk TCJ. found (at p. 524) that the two publications were not advertising circulars and that because they contained a substantial amount of information relating to community events, weather, local sports and other material that had the quality of being news, they qualified as newspapers. Accordingly, the publications did not qualify as goods for sale.

Words and Phrases
same transaction

Administrative Policy

6 June 2019 CPTS Roundtable, 2019-0816111C6

Folio S4-F15-C1 applies for purposes of the new accelerated CCA rules

In light of the accelerated CCA rules under Reg. 1100(2), what are examples of manufacturing or processing properties in the oil and gas context? CRA responded:

Properties used in manufacturing or processing activities are included in Class 29, 43 or 53. The enhanced first year allowance for qualifying property does not affect the depreciable class of a property.

Examples of the activities in the oil and gas context that are considered manufacturing or processing include:

  • the processing of natural gas at a straddle plant in Canada; and
  • the processing of natural gas in a plant in Canada that is devoted primarily to the recovery of ethane.

S4-F15-C1 … lists the following activities in the oil and gas context that are [excluded]:

  • operating an oil or gas well or extracting petroleum or natural gas from a natural accumulation of petroleum or natural gas;
  • processing natural gas as part of the business of selling or distributing gas in the course of operating a public utility;
  • processing heavy crude oil recovered from a natural reservoir in Canada to a stage that is not beyond the crude oil stage or its equivalent; and
  • “Canadian field processing” as defined in subsection 248(1).
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 231.2 - Subsection 231.2(1) taxpayers can choose between reasonable alternative formats (e.g. hard or soft) for providing their tax working papers/records 140
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2) extension of M&P guidance to oil and gas sector 61
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Oversight or Investment Management project expenses incurred after determining economic feasibility and before project approval are generally deductible 248
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Start-Up and Close-Down Expenditures no acceptance that expenses incurred before decision to proceed are thereby on current account 186
Tax Topics - Income Tax Act - Section 66.2 - Subsection 66.2(5) - Accelerated Canadian Development Expense - Paragraph (a) - Subparagraph (a)(ii) accelerated CDE deduction can be available for drilling on land acquired from an affiliate 131

7 March 2019 Internal T.I. 2018-0781511I7 F - Fabrication ou transformation

printing or photocopying operations may no longer be manufacturing or processing

9406917 F indicated that:

photocopying activities from a photocopier equipped with a computer and the activities of assembling photocopies with a flange constitute the manufacturing or processing of goods for sale.

However, this position relied in part on the analogous activities of a commercial printer (including publisher) which, in IT-145R, para. 42, were considered to constitute manufacturing or processing. This position was not carried forward when IT-145R was replaced by Folio S4-F15-C1.

After also referring to Will-Kare, CRA stated:

Consequently, considering the new case law, the cancellation of IT-145R and the technological progress of the last 25 years in the field of photocopying, we cannot confirm or deny that the position taken in the Interpretation continues to reflect the position of the CRA. If we had a specific file under study, we would have to do a complete re-analysis before making a decision.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 125.1 - Subsection 125.1(3) - Canadian Manufacturing and Processing Profits commercial printing or photocopying operations may not be M&P 160

15 January 2015 External T.I. 2014-0548101E5 F - Sens de "fabrication ou transformation"

“primarily” based on the fraction of time used in the qualifying activities

In the course of a general discussion as to whether equipment used in coating steel rods with metal alloys were includible in Class 29, CRA stated:

In order for a property to be included in Class 29, it must also have been acquired or manufactured by the taxpayer for use directly or indirectly in Canada primarily for the manufacture or processing of goods for sale or lease. IT-147R3 states that the term "primarily" means "principally" or "chiefly". The factor that generally determines whether a particular good is used primarily in manufacturing or processing is the fraction of the time it is used in these activities.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 125.1 - Subsection 125.1(3) - Manufacturing or Processing steel rod plating could qualify 151

S4-F15-C1 - Manufacturing and Processing

Meaning of used directly or indirectly

1.52 The phrase used directly or indirectly...includes any ancillary equipment such as furniture and fixtures, repair and maintenance equipment, and fire extinguishing equipment, which is acquired for use in those activities. Although such equipment is generally located in the manufacturing or processing plant, it may also qualify if located elsewhere. Furniture and equipment acquired by the taxpayer for use by the taxpayer or lessee primarily in activities such as selling, distribution, and administration, which are not manufacturing or processing, are not eligible for the accelerated write-off.

1.53 Direct or indirect use of a computer in manufacturing or processing is considered to include direct manufacturing and processing applications. It can also include ancillary activities such as maintaining inventory records, production scheduling, engineering design, and production control. It would not include the maintenance of financial and accounting information such as accounts receivable and payable records, general ledger accounts, payroll records, customer lists, and sales invoices and analyses.

Meaning of principal business in (a)(ii)

1.56 In determining the nature of a taxpayer's principal business as described in [(a)(ii)], the following factors will be considered:

  • the number of employees engaged in each branch or phase of a company's operations;
  • the amount of gross revenue from each phase of operations; and
  • the amount of capital employed in each phase of operations.

1.57 Ordinarily, the above factors will be considered in relation only to a specific year. However, when a company's normal activities have ceased or substantially decreased, the pattern of operations over several years may be considered in determining whether there has been only a temporary break in the normal activities of the company or an actual change in the principal business.

11 August 2014 Internal T.I. 2014-0528231I7 F - Dépenses en immobilisation en RS&DE

R&D of manufacturing company constitutes manufacturing or processing for sale use if a salable product ultimately results

The taxpayer acquired a machine which it used as part of SR&ED to create a prototype, which in turn was used in eventually commercializing a product for sale. Would the machine qualify under Class 29?

CRA stated (TaxInterpretations translation):

SR&ED is not listed [in Reg. 1104(9)]… . [S]ection 5202 of the Regulations lists "qualified activities", which includes, in paragraph (c), "SR&ED activities" ... . Subparagraph (c) of that definition refers to experimental development, which includes in paragraph (d) work (engineering, design, operations research, data collection, testing, etc.) undertaken in Canada commensurate with the needs of experimental development. ...

We are therefore of the view that an SR&ED activity could be a qualifying activity for Class 29 CCA purposes. Consequently, since the machinery used to create a prototype was property used in experimental development, it would constitute M&P property which is depreciable under Class 29. ...

[W]here a corporation carries out SR&ED, its SR&ED activities generally constitute M or P on condition that it also produces a commercial product as a result.

19 November 2013 External T.I. 2013-0510351E5 - Steel Tanks and Oak Barrels of a Winery Business

wine fermentation not processing

The taxpayer in 2013-0503311E5 carried on a wine-making business that involved both farming activities (i.e., growing grapes) and non-farming activities (i.e., producing wine for sale). Its fermentation tanks and barrels were considered to likely qualify for class 29 purposes as property used primarily in the manufacturing or processing of goods for sale. In clarifying that the exclusion in Reg. 1104(9)(a) of "farming" from "manufacturing or processing" did not apply, CRA stated:

[G]enerally where a farmer or farming corporation separates the activities of farming and the processing of farm products, the CRA will essentially consider the processing activity to be a distinct business from that of farming provided that there is a clear delineation of the income from each business activity, and that the income from the processing business is properly calculated and is not eligible for any of the special sections in the Act dealing with income from a farming business (such as the cash method of computing income in section 28…).

22 October 2013 External T.I. 2013-0503311E5 - Class. of steel tanks & oak barrel for CCA purpose

A CCPC wine producer whose activities include growing and purchasing, and then pressing, grapes, fermenting and aging wine, and bottling and corking or capping for distribution, owns steel tanks and oak barrels, which it acquired after March 18, 2007 and are used in fermenting and aging the wines before they are sold by it. Before concluding that "it appears that the steel tanks and oak barrels would be used primarily in the manufacturing or processing of goods for sale and would be assets included in class 29," CRA stated:

[P]rocessing of goods usually refers to a technique of preparation, handling or other activity designed to effect a physical and/or chemical change in an article or substance, other than natural growth. Examples of such activities are galvanizing iron, creosoting fence posts, dyeing cloth, dehydrating foods and homogenizing and pasteurizing dairy products.

3 April 2012 External T.I. 2011-0426341E5 F - Catégories 29 et 43

scrap metal shearing device and container for sliced metal described in Class 29

In 2011, a taxpayer who recycles metal acquired a new container and excavator with a shear to cut the metal, which was placed in containers without wheels and sent to the press to make blocks. They were acquired by the taxpayer to be used directly or indirectly in Canada primarily in the manufacturing or processing of goods for sale or lease. After providing a general discussion of the relevant parts of Classes 43, 29 and 8, CRA stated:

[C]onsidering their date of acquisition, we are of the view that the container and shearing machine are property that could be included in Class 29 if they were acquired by the taxpayer to be used directly or indirectly by the taxpayer in Canada primarily for the manufacture and processing of goods for sale or lease.

4 June 2010 External T.I. 2010-0358811E5 F - Catégorie d'amortissement d'un moule

moulds potentially includible in Class 29 or 43

Would moulds be included in Class 43 even though they are specifically described in para. (d) of Class 12? CRA responded:

Although moulds are specifically described in paragraph (d) of Class 12, it is our view that they could be included in Class 29 or Class 43, depending on when they were acquired and the facts of each particular situation. In order to be included in Class 29 or 43, as the case may be, the moulds must satisfy all the conditions, including having been acquired by the taxpayer for use directly or indirectly by the taxpayer in Canada primarily in the manufacture and processing of goods for sale or lease and normally be included in Class 8. Moulds could be considered to be structures that are manufacturing or processing machinery or equipment within the meaning of paragraph (a) of Class 8 depending on the facts of each particular situation.

21 September 1990 T.I. (Tax Window, Prelim. No. 1, p. 23, ¶1005)

RC does not consider additions of machinery and equipment to a plant under a continual expansion to meet long-term capacity objectives as qualifying such machinery and equipment for purposes of Class 29 as being "under construction".

Class 31

Cases

Vaillancourt v. The Queen, 86 DTC 6449, [1986] 2 CTC 188 (FCTD), rev'd 91 DTC 5352 (F.R.), 91 DTC 5408 (E.) (FCA)

For a property to qualify as a MURB to a taxpayer, the taxpayer must have more than one unit in the residential building. It is not sufficient for the taxpayer to have one unit (together with appurtenant common elements) in a building which has been certified to be a MURB.

Johns-Manville Canada v. The Queen, 85 DTC 5373, [1985] 2 CTC 111, [1985] 2 S.C.R. 46

Estey, J. stated, obiter, that if it were not for the addition of Class 26 to Schedule II, expenditures for catalysts would be currently deductible.

Administrative Policy

86 C.R. - Q.25

Notwithstanding Vaillancourt, RC will continue to follow IT-367R2, para 4.

IT-304R "Capital Cost Allowance - Condominiums"

Class 32

Administrative Policy

IT-304R "Capital Cost Allowance - Condominiums"

Class 34

Administrative Policy

10 August 1994 External T.I. 9405135 - WIND TURBINES

A wind turbine installed by Company A on its own property and used to displace electricity which would otherwise be purchased from a utility could qualify under subparagraph (e)(v) of Class 34 provided a certificate is obtained from the Minister of Natural Resources. If company A were to purchase a wind turbine and install it at company B's site and sell the electricity to company B, the wind turbine could qualify for inclusion in Class 34 as described above, provided it was considered to be owned by company A.

2 February 1994 Internal T.I. 9400307 - HYDRO ELECTRIC EQUIPMENT FOR A MINE

Property described in Regulation 1102(9) must be included in Class 41 and cannot be included in Class 34.

Class 39

Cases

Will Kare Paving & Contracting Ltd. v. The Queen, 98 DTC 6203 (FCA)

The taxpayer purchased an asphalt plant with the expectation that it would sell up to 40% of the production of the plant to third parties and use the balance in its own asphalt paving business. In fact, only 25% of the plant's production was sold to third parties.

The Tax Court Judge had "correctly ascribed to 'primarily' in this context the meaning of 'most important'" in concluding that the property had not been acquired primarily for manufacturing goods for sale. Furthermore, the Coopers & Lybrand case (94 DTC 6541) had been properly applied in finding that the taxpayer's own use under contracts that were for working materials and not in respect of the sale of goods did not represent the purchase of "goods for sale or lease".

Words and Phrases
primarily

Class 41

Administrative Policy

November 1991 Memorandum (Tax Window, No. 12, p. 21, ¶1570)

An acquisition of equipment will not be considered a "major expansion" where it increases recoveries at a mine by more than 25% but there is no mill.

Class 43

See Also

Ateliers Ferroviaires de Mont-Joli Inc. v. The Queen, 2011 DTC 1358 [at 2006], 2011 TCC 352

The taxpayer's parent company ("Séma") was in the business of providing consulting and maintenance services to the Canadian National Railway Company. Séma incorporated the taxpayer for the purpose of cutting, and supplying Séma with, railway-grade steel pieces. Jorré J. found that the taxpayer's tools were being used "primarily for the purpose of manufacturing or processing goods for sale or lease." It was irrelevant that the steel pieces were made predominantly for Séma's maintenance business because the taxpayer and Séma were distinct legal entities - the taxpayer had no direct involvement in Séma's maintenance contracts (para. 54). The taxpayer being separate from Séma also distinguished the facts from Albert, where the high value of the taxpayer's labour compared to his material costs in his dentistry practice led to a finding that he was not selling goods (paras. 62-63).

It was also immaterial that the goods were custom-made to meet Séma's specific purposes, and therefore presumably of limited use to other potential customers. Jorré J. stated (at para. 57):

The "high end" in manufacturing is the manufacturer who can quickly fill an order for goods intended to satisfy a client's specific needs. It would be surprising to discover that such a manufacturer that makes unique goods to order to meet a client's needs does not sell those goods to that client.

(He stated in a footnote, however, that this comment was confined to situations where the manufacturer obtains the necessary parts and materials itself, and that the conclusion might be different where the client provides some or all of the parts and materials.)

Scieri St-Elzéar Inc. v. The Queen, 2003 DTC 14 (TCC)

A fire protection system and a steam heating system used in the taxpayer's lumber plant were includable in Class 43. The fire protection system was "essential to provide for the safety of the appellant's employees, to ensure the continuing operation of its business, and to enable it to obtain fire insurance coverage" and the steam heating system provided a "suitable work environment for its employees during the winter months". A. Tardif T.C.J. stated (at p. 18) that:

"The evaluation or assessment of the factors essential to the smooth operation of a manufacturing business today must take into account certain property that is not absolutely essential at first glance, but becomes essential in a context where the environment, workers quality of life, productivity and production quality are increasingly indispensable to a business's survival."

Administrative Policy

4 June 2010 External T.I. 2009-0324801E5 F - catégorie 43

potential inclusion of moulds and cranes, but not forklift truck

General discussion as to potential qualification of moulds, overhead crane and crane for inclusion in Class 43 or 29, whereas a forklift truck is specifically excluded in para. (a) of Class 43 by reference to subparagraph (b)(iii) of Class 29.

Class 43.1

Administrative Policy

17 January 2020 External T.I. 2017-0685341E5 - Tax Comparison of the FIT & Net Metering Programs

general Class 43.1 or 43.2 treatment of specified energy property rules to equipment used in the Ontario Feed-in Tariff program

Under the Feed-in Tariff and microFIT programs (the “FIT/micro-FIT Programs”) administered by the Ontario Power Authority (the “OPA”), a participant contracts with the OPA to supply the electricity generated from approved renewable energy project to the provincial electricity distribution system at a charge for each kWh of electricity generated regardless of whether electricity is subsequently consumed by the participant. CRA stated:

Generally, costs associated with the purchase and installation of renewable energy property eligible for the FIT/microFIT Programs are considered to be the capital cost of depreciable property. A participant would include the capital cost of a renewable energy property in Class 43.1 or 43.2 for CCA purposes, provided that the property meets all of the requirements of these classes.

Essentially the same conclusion applied to renewable energy property acquired for use in the Ontario Net Metering Program provided that the electricity generated was not used for personal consumption.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Computation of Profit a credit generated by a business under the Ontario Net Metering Program is only income when applied, and is offset by a deduction for the electricity consumed 261
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit credits received under the Ontario Net Metering Program respecting electricity generated for personal consumption are not income 210
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(25) application of exception to the specified energy property rules to equipment used in the Ontario Feed-in Tariff program 364

16 May 2017 External T.I. 2016-0670661E5 - Capital Cost of De-icing Equipment

ice-melting shingles beneath solar equipment likely “related” to such equipment and not an accession to the building

New aluminum shingles with an electric cable (the “Equipment”) will be attached over existing asphalt shingles on the portion of a roof immediately beneath existing solar panels (which satisfy the conditions of s. (d)(vi) of Class 43.1)), so as to melt snow accumulations, which otherwise would hinder the functioning of the solar panels.. Would the cost of the Equipment be eligible for inclusion in Class 43.2?

After noting other more general requirements for the claiming of capital cost allowance, CRA stated:

Generally, if something is “related to” a particular subject it concerns that subject. … Thus, if the Equipment is necessary for the proper functioning of the existing photovoltaic equipment, it would likely be considered to be “related equipment”… .

…The test [of whether the Equipment is a fixture] asks whether an article is attached to another property to effect a permanent and substantial improvement of that other property or to enable more complete enjoyment and use of the first article. … In a situation where there is a dual or multiple purposes, the courts have considered what the dominant purpose of the annexation is [citing Hansen, 1998 ABQB 1103].

Here, the intention to install the Equipment is to resolve a problem caused by the deficient operation of the solar panels. Thus, the fact that the Equipment is necessary for the proper operation of the photovoltaic equipment during the winter period and that its main function is to support the solar panels (with any benefits to the building being negligible), may support the inclusion of its capital cost to Class 43.2… .

Words and Phrases
related fixture

6 May 2014 Internal T.I. 2014-0521261I7 - Biomass Electrical Facility Owned by First Nation

biomass electrical facility

General discussion respecting a general biomass-fuelled electricity generating facility, which would be described in Class 43.1 and therefore would be eligible to be included in Class 43.2 if acquired before 2020.

6 July 2012 External T.I. 2012-0444401E5 - Definition of “wood waste” in Class 43.2

"[I]t has been our longstanding view that wood pellets manufactured from inputs meeting the definition of 'wood waste' in subsection 1104(13) of the Regulations would be considered an 'eligible waste fuel' for property described in subparagraph (d)(ix) of Class 43.1...."

3 April 2013 External T.I. 2012-0469941E5 - CCA class and rate

Waste water treatment equipment is not eligible under subparagraphs (a)(i) to (a)(v) or Class 43.1, and consequently is not eligible for inclusion under Classes 43.1 or 43.2.

11 May 2009 External T.I. 2008-0276761E5 F - Class 43.1 and 43.2

wood waste fuelled heat production system and ground source heat pump likely could qualify

A wood waste fuelled heat production system and ground source heat pump likely could qualify for inclusion in Class 43.2. CRA stated:

in general, a biomass heating system acquired by a Taxpayer could be included in Class 43.2 of Schedule II if the following conditions are satisfied:

1) The biomass heating system is fuelled only by an "eligible waste fuel" (such as wood pellets), a "fossil fuel" or a combination of those.

2) The heating system is used by the Taxpayer primarily to produce thermal energy through the consumption of an "eligible waste fuel" i.e., for example, wood pellets must be the main fuel producing the thermal energy used for eligible purposes.

3) The thermal energy produced by such biomass heating system must be used directly in an industrial process or a greenhouse, operated either by the Taxpayer or by the Taxpayer's customers.

4) The biomass heating system must be located in Canada.

5) The Taxpayer acquired the biomass heating system for use in the course of earning income from a business carried on in Canada or income from property situated in Canada.

[T]he NRCan Guide indicates that expenses for eligible property incorporated into a ground source heat pump system that qualifies for Class 43.2 treatment (by virtue of subparagraph (d)(i) of Class 43.1), include:

  • The purchase and installation of heat pumps, pumps complete with controls and regulators.
  • Pressure test piping and flushing systems.
  • Purchase and installation of heat exchangers and thermal storage systems.
  • The purchase and installation of a network of horizontal underground collectors.

For vertical well systems with a depth of less than 10 metres

  • Purchase and installation of thermal storage systems (including extraction and reinjection wells, complete with wellhead equipment, piping and controls).

For vertical well systems with a depth of more than 10 metres

  • The manufacture and installation of support structures: foundations, anchors, fixing brackets, other structures.
  • The purchase and installation of thermal storage systems (including extraction and reinjection wells, complete with wellhead equipment, piping and controls).

Articles

Tim Hay, "Federal Income Tax Incentives for Independent Power Generation: Accelerated Capital Cost Allowance of Class 43.1 Assets and 100% Write-Off of Canadian Renewable and Conservation Expenses", Business Vehicles, Vol, VII, No. 3, 2001, p. 342.

Paragraph (d)

Subparagraph (d)(vii)

Subparagraph (d)(viii)

Administrative Policy

17 July 2018 External T.I. 2018-0747311E5 - Geothermal Energy Project

inclusion of cost of completing geothermal exploratory wells in fact used in production

CRA indicated that the costs of both drilling and (except as noted below) completing exploratory wells for a geothermal project generally qualify as Canadian renewable and conservation expense (“CRCE”), whereas in the case of a production well or a (smaller diameter) exploratory well that nonetheless ends up being used for production (including small-scale heat or electricity production), the costs only of drilling qualify as CRCE whereas the costs of completing such a well would not so qualify and generally would be an addition to the Class 43.1 costs of the project.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 1219 - Subsection 1219(1) - Paragraph 1219(1)(h) completing an exploratory geothermal well ultimately used in production generates Class 43.1 costs, not CRCE 264
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 14 if renegotiation, further permit fees may generate Class 14 property 119

11 January 2011 External T.I. 2010-0385231E5 F - Class 43.2

biomass boiler using wood chips from poplars grown by taxpayer did not qualify

The Corporation will plant fast-growing trees, such as poplars, on land acquired by it and fertilized by it with sludge from municipal water treatment plants. After two or three years of growth, the poplars will be harvested, chipped and burned in a biomass boiler to provide energy in the form of heat to various clients, In commenting on non-inclusion of the biomass boiler in Class 43.2, CRA stated:

In the NRCan Guide, the term "wood waste" is defined … as follows:

Main wastes and organic residues generated by activities directly associated with the forest industry and the manufacture of wood products, including:

  • forest residues such as logging waste, unsaleable trees, salvage and deforestation residues and yard debris;
  • sawdust, shavings, trimmings, cuttings and offcuts generated by the manufacture of wood products.
  • mill wastes such as sawdust, bark, trimmings and offcuts; ...

[C]hipped trees do not appear to meet the definition of "wood waste" since they are not waste generated by activities directly associated with the forest industry and the manufacture of wood products.

Consequently, the biomass boiler related to thermal energy generation … could not be included in either Class 43.1 or 43.2.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 43.1 - Paragraph (d) - Subparagraph (d)(xiii) digester producing gas from municipal sludge for thermal production could qualify 196

Subparagraph (d)(xiii)

Administrative Policy

11 January 2011 External T.I. 2010-0385231E5 F - Class 43.2

digester producing gas from municipal sludge for thermal production could qualify

The "Corporation" acquires sludge from municipal water treatment plant which, through processing by a digester, produces gas and digestate. The gas is stored by the Corporation and sold to its customers to produce thermal energy. The digestate is spread on farmers’ lands. Respecting the digester’s inclusion in Class 43.2, CRA stated:

The digester related to gas production involved in this project could be included in Class 43.2 by virtue of subparagraph (d)(xiii) of Class 43.1 if the following conditions are satisfied:

(1) The digester is part of a system used by the taxpayer, or its lessee, primarily to produce and store Biogas 2008 produced from organic waste such as sludge from "eligible sewage treatment facilities”;

(2) The digester is an anaerobic digester reactor;

(3) The digester is not property described in clauses (A) to (D) of subparagraph (d)(xiii) of Class 43.1;

(4) The digester is located in Canada; and,

(5) Corporation acquires a new digester to use for the purpose of earning income from a business carried on in Canada or income from property situated in Canada.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 43.1 - Paragraph (d) - Subparagraph (d)(viii) biomass boiler using wood chips from poplars grown by taxpayer did not qualify 215

Class 43.2

Administrative Policy

S3-F8-C1 - Principal-business Corporations in the Resource Industries

Overview: Class 43.1 and 43.2

1.9 Class 43.1 and 43.2 of Schedule II to the Regulations provide an accelerated CCA for investments in certain clean energy generation and energy conservation equipment. Class 43.1 has a 30% CCA rate on a declining balance basis and Class 43.2 has a 50% CCA rate on a declining balance basis. Generally, where depreciable property described in Class 43.1 is acquired after February 22, 2005 and before 2020, it will be eligible for inclusion under Class 43.2. However, cogeneration systems that use fossil fuels must meet a higher efficiency standard in order to be eligible for inclusion in Class 43.2.

10 February 2015 External T.I. 2014-0549331E5 F - Borne de recharge – catégorie d'amortissement

vehicle charging stations included in Class 8, not 43.1 or 43.2

An employer acquired charging stations, which were used only to recharge the employer's electric vehicles that were used by its employees for travel to customers. It added the charging stations to Class 43.1. Was that correct?

After summarizing the requirements for Classes 43.1 and 43.2 (which it described as “designed to encourage corporations to invest in clean energy production and energy conservation equipment,”) CRA stated:

[T]he charging stations… should not be included in Class 43.1. Given the absence of a specific class for this type of property… they should be included in Class 8….

21 October 2014 External T.I. 2014-0543041E5 - Class 43.2 - Photovoltaic System

solar panels

General discussion of the considerations applicable to claiming CCA on solar photovoltaic systems.

21 August 2013 External T.I. 2013-0486441E5 - CCA and ITCs on anaerobic digester

Regarding anaerobic digesters (machines for extracting methane from manure, a byproduct of which is fertilizer), CRA stated:

Property of a taxpayer, including an anaerobic digester, that is used by the taxpayer primarily to produce and store "biogas", as that term is defined under subsection 1104(13) of the Regulations, will qualify for inclusion under subparagraph (d)(xiii) of Class 43.1 and paragraph (b) of Class 43.2. Generally, the word "primarily" means more than 50%. Accordingly, where your client's anaerobic digester meets the requirements of Class 43.2, it would qualify as a PEGCP and would meet the definition of QP for purposes of the ITC.

29 February 2012 External T.I. 2012-0435151E5 - Installation of Solar Panels

Discussion of CCA rules applicable to solar photovoltaic equipment.

Class 45

Administrative Policy

5 October 2007 APFF Roundtable Q. 26, 2007-0243381C6 F - Classification des équipements de bureautique

(a) The questioner pointed out that equipment manufacturers often sell products at a minimum price and charge a premium for supplies (e.g. computer printers), and asked whether such equipment costs are a running expense. CRA stated that pricing is not, in itself, determinative of whether an expense is a capital cost or running expense.

(b) A printer would only be included in Class 45 to the extent that it constitutes general-purpose electronic data processing equipment. If the bulk of the value rests in its mechanical components, it should be included in Class 8 instead.

(c) The type of connection a device uses (i.e. wired vs. wireless) does not determine whether it is ancillary data processing equipment.

(d)-(f) Comments in (b) also apply to scanners, multifunction printers, and modern photocopiers.

(g) Internet fax and fax modems are excluded from Class 45 because para. 45(b) excludes electronic communications control equipment. Internet fax is also excluded from Class 46 because the Reg. 1104(2) definition of "data network infrastructure equipment", para. (d), excludes facsimile transmission devices.

(h) Comments in (g) also apply to Internet telephone equipment (i.e. VoIP phones).

Class 46

Administrative Policy

29 October 2013 External T.I. 2013-0507121E5 - Website costs

Determining whether website costs are in the nature of income or capital should entail an analysis of each component of the site. The determination depends predominantly on the expected useful life of the website, although "some components of the development costs are likely capital in nature."

To the extent that expenses are in the nature of capital, they may be added to the capital cost of "applications software" as described in Class 12 of Schedule II. Such costs include the labour costs incurred to design and develop software to carry out the website functions. Some components may instead be "data network infrastructure equipment" or "systems software" described in Class 46.

A particular capital expenditure that is not a depreciable property may instead be an "eligible capital expenditure" described in s. 14(5) or the Act.

Class 49

Administrative Policy

7 June 2017 CPTS Roundtable, 2017-0695131C6

Q.8 - taxpayers generally have the documentary evidence on hand to allocate costs between pipelines and pipeline appendages

CRA noted that, as per IT-482, an attachment to a pipeline is not an integral and component part of the pipeline, and is considered to be separate equipment from that of the pipeline (a "pipeline appendage"). When asked how costs should be allocated between pipelines (Class 49) and other classes, CRA stated that although IT-482 provided no “guidance as to how costs are allocated between pipelines included in class 49 and equipment included in class 7”:

However, it is our understanding that there is sufficient information at the disposal of taxpayers, such as detailed engineering documents, progress reports, authorizations for expenditures and invoices, to enable a reasonable allocation of costs, including general contractor costs.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Proceeds of Disposition Q.1 - Daishowa extends beyond reforestation and reclamation obligations only on a case-by-case basis 213
Tax Topics - Income Tax Act - Section 66 - Subsection 66(15) - Canadian Resource Property - Paragraph (d) Q.2 - a Canadian resource royalty interest requires a right to “take production” 135
Tax Topics - Treaties - Income Tax Conventions - Article 13 Q.3 - Canada-U.K. Treaty does not exempt shares deriving their value from Canadian oil and gas licences – even where the Canadian business is carried on “in” them 193
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(ii) Q.4 - by analogy to mining, hydrocarbons may be similar properties 348
Tax Topics - Income Tax Regulations - Regulation 1101 - Subsection 1101(1) Q.5 - normal course dispositions of oil and gas properties generally are not of a separate business 131
Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) Q.5 - application of Scales test to determining whether there is a separate business 224
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 26 Q.7 - refinery catalysts are Class 26 property 87

Class 50

Administrative Policy

19 September 2013 External T.I. 2013-0498331E5 F - Catégories 29 et 50

post-February 2011 computer equipment includible in Class 50

After noting that some computer equipment would qualify for inclusion in Class 29 if acquired before 2016, CRA stated:

[C]omputer equipment is property that could be included in Class 50 if it was acquired by the taxpayer after February 2011.