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Principal Issues: [TaxInterpretations translation] If acquired to be used by a taxpayer, directly or indirectly, in Canada primarily in the manufacturing or processing of goods for sale or lease, in which Class would a container and a shearing machine be included for the purposes of the capital cost allowance?
Position: Question of fact. Possibly Class 29.
Reasons: Conditions of the different Classes. The property was acquired in 2011.
XXXXXXXXXX
2011-042634
Lucie Allaire, LL.B, CGA
April 3, 2012
Dear Sir,
Subject: Classification of certain property for the purpose of capital cost allowance
This is in response to your email dated November 1, 2011 in which you asked us if a container and a shearing machine are included in Class 29 or Class 43 of Schedule II of the Income Tax Regulations ("Regulations"), for capital cost allowance purposes. You gave details during a telephone conversation (XXXXXXXXXX /Allaire).
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Particular Situation
You referred to a taxpayer who recycles metal and has bought a container and an excavator with a shear to cut the metal. You indicated that after being cut by the shearing machine, the metal is placed in containers without wheels and sent to the press to make blocks.
The shearing machine, which includes the excavator and the shears, and the container, were both used outside and acquired during the year 2011. Finally, you specified that 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.
Your Question
You wish to know in which class of depreciable property, either 29 or 43 of Schedule II of the Regulations, the container and the shearing machine are to be included.
Our Comments
The question of which particular class of Schedule II of the Regulations a depreciable property is to be included is a fact that can only be determined after a review of all the relevant facts of a particular situation.
Factors to consider include, among other things, the specific characteristics of the equipment and its current use by the taxpayer. Although this determination is generally made by the taxpayer's local Tax Services Office, we are, however, prepared to provide the following general comments, which we hope will be helpful to you.
Interpretation Bulletin IT-285R2 Capital Cost Allowance - General Comments provides general comments on capital cost allowance, while Interpretation Bulletin IT-147R3 Capital Cost Allowance - Accelerated Write-off of Manufacturing and Processing Machinery and Equipment elaborates on the condition to the effect that the taxpayer must have acquired the property to be used, directly or indirectly, in Canada primarily in the manufacturing or processing of goods for sale or lease.
Class 43
Class 43 includes the property referred to in paragraph (a) of that Class. That paragraph indicates that the property must be property acquired after February 25, 1992 that is not included in Class 29, but that would otherwise be included in that Class in the absence of subparagraphs (b)(iii) and (v) and of paragraph (c) of that Class.
Class 29
To be included in Class 29, property must, under paragraph (a), be manufactured by the taxpayer, the manufacture of which was completed by the taxpayer after May 8, 1972, or other property acquired by the taxpayer after May 8, 1972, to be used directly or indirectly by the taxpayer in Canada primarily in the manufacturing or processing of goods for sale or lease.
The goods must then be included in one of subparagraphs b(i), (ii), or (iv) of that Class, including, in particular, goods that would normally be included in category 8, which appears to be so in this case.
On the other hand, property acquired by a taxpayer after March 18, 2007 and before 2014 is not included in Class 43 because of subparagraph (c)(iii) of Class 29. Indeed, this subparagraph indicates that property acquired by a taxpayer after March 18, 2007 and before 2014 that is machinery or equipment would be included in Class 29 if it was acquired for direct or indirect use by the taxpayer in Canada, primarily for manufacturing or processing goods for sale or lease and was included in any of subparagraphs b(i) to (iii) and (vi) of that Class, including any property that would normally be included in Class 8.
Class 8
Paragraph (a) of Class 8 indicates that property not included in Class 1, 2, 7, 9, 11, 17 or 30 that is a structure that is manufacturing or processing machinery or equipment is included in Class 8.
In addition, machinery and equipment not expressly provided for in another Class may be included in Class 8 under paragraph (i).
Based on the foregoing and considering 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.
Please note that this opinion is not an advance ruling and does not bind the Canada Revenue Agency with respect to a particular factual situation.
We hope that these comments are of assistance.
François Bordeleau, Advocate
Manager
Business and Trusts Section
Business and Trusts division
Income Tax Rulings Directorate
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