ARCHIVED - Capital Cost Allowance - Contractor's Movable Equipment

What the "Archived Content" notice means for interpretation bulletins

NO: IT-306R2

DATE: March 25, 1994

SUBJECT: INCOME TAX ACT
Capital Cost Allowance - Contractor's Movable Equipment

REFERENCE: Paragraph 20(1)(a) of the Income Tax Act and paragraph (h) of class 10 of Schedule II to the Income Tax Regulations

APPLICATION

This bulletin replaces and cancels Interpretation Bulletin IT-306R dated June 25, 1982.

SUMMARY

This bulletin describes some types of contractor's movable equipment that qualify for inclusion in class 10. (Capital cost allowance may be claimed on class 10 assets at the rate of 30% of the undepreciated capital cost of the class as of the end of the taxation year.)

DISCUSSION AND INTERPRETATION

1. Portable camp buildings (bunkhouses, cookhouses and similar buildings) are specifically included in paragraph (h) of class 10 of Schedule II to the Income Tax Regulations (class 10(h)) as contractor's movable equipment.

2. For contractor's movable equipment acquired after December 23, 1991 (except acquisitions described in 3 below), class 10(h) specifically requires the equipment to have been acquired for use in a construction business or for lease to another taxpayer for use in that other taxpayer's construction business.

3. For contractor's movable equipment acquired before December 24, 1991, or acquired before 1993

(a) pursuant to an agreement in writing entered into by the taxpayer before December 24, 1991, or

(b) that was under construction by or on behalf of the taxpayer on December 23, 1991,

there was no specific requirement in class 10(h) that the equipment was to have been acquired for use in a construction business or for lease to another taxpayer for use in that other taxpayer's construction business. For such equipment, the Department accepts the conclusion of the Tax Court of Canada that "contractor" is not restricted to a construction contractor (see Laidlaw Waste Systems Ltd. v. Minister of National Revenue, 89 DTC 259, (1989) 1 CTC 2375). That is, for such equipment, "contractor" has a sufficiently wide meaning to include construction contractors, waste disposal contractors, cleaning contractors and other similar contractors. However, "contractor" is not broad enough to include retail merchants.

4. The term "contractor's movable equipment" refers to the kind of equipment that normally is moved from place to place in the course of a contractor's business activities. Equipment leased by a contractor that would qualify as contractor's movable equipment if owned by the contractor qualifies as class 10 property of the lessor (i.e., the owner). The term "contractor's movable equipment" is wide enough to include movable equipment owned by a contractor, even though such equipment would not normally be regarded as contractor's movable equipment if owned by a person who is not a contractor. For example, welding equipment owned by an operator of a garage or welding shop is class 8 property but is class 10 property if owned and moved from place to place by a person engaged in construction work. The properties described in 6 and 7 below are specifically excluded from contractor's movable equipment.

5. Whether or not a large piece of equipment is movable may depend on its particular use. Part of a job that ordinarily is done at a fixed plant sometimes is done elsewhere such as at a construction site. As a result, a contractor may have at the construction or other site a portable machine that qualifies as "contractor's movable equipment" even though it is otherwise the same type of machine as one in the contractor's fixed plant. For example, a stone crusher of relatively large size that can be partly dismantled and moved from place to place may be used at construction sites and thus may be included in class 10, whereas the same type of crusher, or even a smaller one, that is installed at a fixed plant would be included in another class.

6. Contractor's movable equipment that is power-operated and designed for the purpose of excavating, moving, placing or compacting earth, rock, concrete or asphalt is included in class 22 or 38 rather than class 10. (See the current version of IT-469, Capital Cost Allowance . Earth-moving Equipment.)

7. Vessels designed principally for natural resource exploration or the drilling of oil or gas wells as described in subsection 1101(2b) of the Regulations, other property acquired after May 22, 1979 that also is designed principally for natural resource exploration or the drilling of oil or gas wells that qualifies as class 10 property by virtue of paragraph (t) of class 10 and property included in class 41 are not considered to be contractor's movable equipment. (See the current versions of IT-267, Capital Cost Allowance . Vessels and IT-476, Capital Cost Allowance . Gas and Oil Exploration and Production Equipment.)

If you have any comments regarding the matters discussed in this bulletin, please send them to:

Director, Technical Publications Division Legislative and
Intergovernmental Affairs Branch
Revenue Canada . Customs, Excise and Taxation
875 Heron Road
Ottawa, Ontario
K1A 0L8

Explanation of Changes for Interpretation Bulletin IT-306R2 Capital Cost Allowance . Contractor's Movable Equipment

INTRODUCTION

The purpose of the Explanation of Changes is to give the reasons for the revisions to an interpretation bulletin. It outlines revisions we have made as a result of changes to the law, as well as changes reflecting new or revised departmental interpretations.

OVERVIEW

This bulletin discusses the subject of what properties qualify as "contractor's movable equipment" in class 10(h) (capital cost allowance rate 30%). We have revised the bulletin primarily as a result of an amendment to the Regulations (class 10(h)), and also to reflect the Department's interpretation for pre-amendment (including "grandfathered") acquisitions which has changed as a result of a court decision.

LEGISLATIVE AND OTHER CHANGES

Renumbering of opening paragraphs: We have moved the information in No. 1 of the old bulletin to the "Summary" statement in the new bulletin. Old No. 2 has accordingly become new No. 1.

New Nos 2 and 3: The Department's interpretation in old Nos 3 and 4 was that the word "contractor" was restricted to construction contractor. However, in the Laidlaw Waste Systems decision (89 DTC 259, (1989) 1 CTC 2375), the Tax Court of Canada concluded that "contractor's movable equipment" was not restricted to construction contractors and was wide enough to also include waste disposal contractors, but was not broad enough to include retail merchants. As a result of this decision, the Regulations have recently been amended so that "contractor's movable equipment" in class 10(h) is specifically restricted to equipment acquired for use in a construction business or for lease to another taxpayer for use in that other taxpayer's construction business. The amendment generally applies for equipment acquired after December 23, 1991. For acquisitions before December 24, 1991, or within a grandfathering period, the Department follows the Laidlaw case.

New Nos 4 and 5: The discussion in these paragraphs is essentially the same as in old Nos 3 and 4 except that, again because of the Laidlaw decision (which applies only to pre-amendment or grandfathered acquisitions), references to "construction" contractors, work or sites are now given only as examples of the principles discussed in those paragraphs. At the end of new No. 5, it is now indicated that a stone crusher that is installed at a fixed plant (and thus does not qualify as class 10 "contractor's movable equipment") would be included in "another class" (rather than "class 8" as stated at the end of old No. 4). (When IT-306R was written in 1982, such an asset could only have been included in class 8. Since that time, however, such an asset could possibly have been included in any one of a number of different classes depending on the date the taxpayer acquired the asset and how it was used.)

New Nos 6 and 7: These paragraphs, which are essentially the same as old Nos 5 and 6, discuss the properties that are specifically excluded from class 10(h). Now referred to in these exclusions are assets in class 38 and class 41, both of which came into being under the Tax Reform Measures.

Clarification changes: Throughout the bulletin, we have changed some of the wording and the order of some sentences to clarify the bulletin and improve its cohesiveness without changing the substance of what was said in the old bulletin.