Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1. Can M&P equipment included in Class 43 after March 18, 2007 be reclassified as Class 29 as a result of amendments to Class 29? If the M&P equipment is then transferred by the proprietor to a corporation, does the CCA half-year rule apply to the corporation?
Position: 1. Yes. 2. No.
Reasons: 1. See IT-190R2 par 6. 2. No, if the taxpayer and the corporation are not dealing at arm's length at the time of transfer (e.g., the taxpayer controls the corporation).
XXXXXXXXXX
August 26, 2010
Dear XXXXXXXXXX :
The Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your correspondence concerning the capital cost allowance (CCA) for machinery and equipment you purchased for your manufacturing business. I apologize for the delay in replying.
The accelerated CCA write-off for the purchase of manufacturing equipment was announced in the 2007 federal budget. The write-off was extended in the 2008 and 2009 federal budgets and applied to machinery and equipment purchased after March 18, 2007, and before January 1, 2012, and included in Class 29. The government proposal was reflected in amendments to Class 29 enacted on April 30, 2009.
The machinery and equipment that you purchased between March and December 2007 was originally included in Class 43 based on the legislation in force at the time of filing your 2007 personal income tax and benefit return.
On January 1, 2008, you incorporated your proprietorship and transferred the machinery and equipment to your corporation, XXXXXXXXXX . You indicate that the Canada Revenue Agency (CRA) applied the CCA half-year rule to the transferred property on the 2008 corporate tax return. You feel that the half-year rule should not apply because the transfer was between non-arm's length parties.
You request that the CRA reassess your 2007 personal income tax return to reclassify the machinery and equipment from Class 43 to Class 29 to reflect the tax amendments to Class 29 that were enacted on April 30, 2009. You also request that the CRA not apply the CCA half-year rule on the 2008 corporate tax return since the transfer of the machinery and equipment at incorporation was between non-arm's length parties.
After reviewing your tax returns and your corporation's tax returns, CRA officials of the XXXXXXXXXX Tax Services Office concluded that the machinery and equipment should be reclassified from Class 43 to Class 29 in your 2007 personal tax return and that the CCA half-year rule should not be applied in the 2008 corporate tax return. The CRA is adjusting the returns accordingly.
I appreciate the opportunity to address your concerns.
Yours sincerely,
Keith Ashfield
c.c.: XXXXXXXXXX
Sam Kim
2010-06517
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