2021-0912801E5 CCA Classification - Digital Smart Meters
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: Whether Digital Smart Meters employed by an electricity distributor may be classified under Class 50 of Schedule II to the Income Tax Regulations.
Position: Question of fact. However, in our view, the Digital Smart Meters may not be included in Class 50.
Reasons: Even if the Digital Smart Meters are GPEDPE, the Digital Smart Meters appear to be electronic process control or monitor equipment, which is excluded from Class 50.
Section: ITR Schedule II, Class 50; ITR 1104(2)
Matthew Ross, CPA, CA
February 13, 2023
Re: Capital Cost Allowance – Digital Smart Meters
We are writing in response to your email of October 4, 2021, concerning the classification of certain equipment (“Digital Smart Meters”) for capital cost allowance (“CCA”) purposes. Specifically, you have asked whether the Digital Smart Meters could be included in Class 50 of Schedule II of the Income Tax Regulations (“the Regulations”).
From the information you provided, it is our understanding that the Digital Smart Meters are used in an electricity distribution business where, generally speaking, they capture and report various information relevant to customer electricity demand and consumption. You have indicated, for example, that the Digital Smart Meters make a number of energy measurements, monitor voltage changes, sense and report certain events and status changes, and measure temperature at the particular location.
This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.
The classification of a particular asset for CCA purposes is always a question of fact. We are, however, prepared to offer the following general comments.
Where the cost of a property qualifies for inclusion in the classes of property described in Schedule II of the Regulations, the specific class to which its cost is to be allocated must be determined with reference to the particular property and the facts of the situation. Factors to consider include not only the specific functions that the property is designed to perform but also, amongst other things, the actual use to which the property has been put by the particular taxpayer.
Property that belongs in Class 50 of Schedule II of the Regulations is property acquired after March 18, 2007 that is “general-purpose electronic data processing equipment” (“GPEDPE”) and systems software for that equipment, including ancillary data processing equipment, but not including property that is included in Class 52 or that is principally or is used principally as
(a) electronic process control or monitor equipment;
(b) electronic communications control equipment;
(c) systems software for equipment referred to in paragraph (a) or (b); or
(d) data handling equipment (other than data handling equipment that is ancillary to general-purpose electronic data processing equipment).
GPEDPE is defined in subsection 1104(2) of the Regulations as electronic equipment that, in its operation, requires an internally stored computer program that
(a) is executed by the equipment,
(b) can be altered by the user of the equipment,
(c) instructs the equipment to read and select, alter or store data from an external medium such as a card, disk or tape, and
(d) depends upon the characteristics of the data being processed to determine the sequence of its execution.
You have indicated that the Digital Smart Meters meet the requirements of the GPEDPE definition. Even if the Digital Smart Meters are GPEDPE, it is our view that the Digital Smart Meters would not be included in Class 50. Based on the information provided, the Digital Smart Meters may be regarded as being principally or being used principally as electronic process control or monitor equipment. As such, they are excluded by virtue of paragraph (a) of the description of Class 50 of Schedule II of the Regulations.
We trust our comments will be of assistance.
Amanda Couvrette, CPA, CA
Business Income and Capital Transactions
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency
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