ARCHIVED - Customer Lists and Ledger Accounts

What the "Archived Content" notice means for interpretation bulletins

NO: IT-187

DATE: November 12, 1974

SUBJECT: INCOME TAX ACT
Customer Lists and Ledger Accounts

REFERENCE: Paragraph 18(1)(b) (also paragraphs 20(1)(a) and 14(5)(b))

This bulletin replaces and cancels Interpretation Bulletin IT-33 dated September 17, 1971.

1. A taxpayer who acquires lists or ledger accounts of clients, customers or subscribers must determine whether the cost of acquisition is a capital expenditure or a deductible expense of the year. This must be done on the basis of general income tax law, having regard to the principles established by the courts and to the provisions of the agreement to acquire the list or accounts.

Capital Outlay

2. Where the taxpayer, in fact, acquires the business of the vendor as a going concern rather than just a list of customers, the amount of the purchase price attributable to the list is regarded as a capital outlay to acquire an enduring benefit. As intangible property, such a list is not depreciable property within the description of Class 8 of Schedule B of the Regulations, nor is it subject to capital cost allowance as property of any other class of Schedule B.

3. Capital cost allowance may be claimed, however, where a credit bureau purchases the business of another credit bureau as a going concern, including all its files and dockets. In this case the dockets are considered to be tangible property and the portion of the purchase price allocated to them is included in Class 8 of Schedule B of the Regulations. The basis for this allowance is that the dockets and files are akin to a reference library which clients of the credit bureau use in respect of their prospective customers and not the credit bureau in respect of its own customers.

4. Where paragraph 3 does not apply, a capital outlay made after 1971 to acquire a list for use in a business of a taxpayer in most cases qualifies as an eligible capital expenditure. Interpretation Bulletin IT-143 entitled "Meaning of Eligible Capital Expenditure" should be consulted.

Deductible Expense

5. Where the taxpayer clearly purchased nothing more than ledger accounts or a list of customers and certain related information to be used for the purpose of earning income, the cost is regarded as deductible in computing income of the year. Examples are where the list is

(a) of only passing value to the purchaser because it was acquired for a specific purpose (e.g., for a promotional campaign) and its subsequent use would entail the expenditure of time and money to keep it up to date, and

(b) useful only in providing "leads" to prospective customers that will be valueless unless followed up by the normal selling techniques of the purchaser.

6. Where the business of the purchaser is dealing in such lists, the cost of a list forms part of his cost of sales.

7. Between the clear-cut cases noted in this bulletin will be situations involving some uncertainty, which should be resolved primarily on the basis of whether or not the purchase of accounts or lists is incidental to the purchase of other assets of a business.