Volume IV

Issue : 6: March 23, 2006

• Lawsuit Attacks Googles Secret Formula
• Court Rules Unauthorized Website Scraping May Be Actionable as Unjust Enrichment
• BC Court Finds Source Code Within Definition of Software at Time of Sale of Business
• UK Court Ruled ISPs Not Liable For Posting of Defamatory Content
• Canadian Cyberstalker Jailed
• OPC Issues Guidelines for the Use of Video Cameras in Public Spaces
• Class Action Launched Against Music Labels Alleging Price Fixing in Online Market
• Study Concludes RFID Tags May Be Vulnerable To Viruses
• European Commission Begins Public Inquiry into RFID Tag Technology
• OPP Cracks Down on Wireless Internet Theft
• Sony Faces Setback in Patent Battle Over Vibrotactile Technology
• Google Settles Click Fraud Suit For $90 Million
• Quebec Company Fined for Evading Private Copying Levies

Home > Volume IV > Issue 6: March 23, 2006 > BC Court Finds Source Code Within Definition of Software at Time of Sale of Business

BC Court Finds Source Code Within Definition of Software at Time of Sale of Business

In 1997, Coreco Inc., a Quebec company in the business of designing and selling computer imaging systems including software, acquired the assets of Logical Vision Ltd. (“Logical”) for $4,103,000.00; a substantial amount of the purchase price was allocated to software. At the time of purchase, Coreco did not remit Social Service tax on the software allocation, as proscribed by the Social Services Tax Act (the “Act”) of British Columbia. On December 16, 2002, the Commissioner of Social Service Tax issued a notice of assessment for $271,945.59 with an additional $157,681.26 for interest. The Act, which defines personal property to include software, provides that a purchaser of tangible personal property in British Columbia is required to pay tax on 7% of the purchase price.

In 2004, Coreco appealed the assessment to the Minister, arguing that:

1. it was entitled to a refund under the Act since the software had not been used in B.C.;
2. a 1998 amendment to the Act should be retroactively applied;
3. some of what had been allocated as software was not strictly software; and
4. the tax ought to be pro-rated based on use of property outside of B.C.

Coreco argued that a 1998 amendment of the Act which excluded software source code in non-executable form from taxation should retroactively apply to the transaction. In dismissing Coreco’s appeal, the British Columbia Supreme Court held that, however distinct source code may be from software, the distinction was not legally recognized at the time the asset purchase agreement was made. Accordingly, source code was properly within the definition of software at the time Coreco purchased Logical. Additionally, the court went on to conclude that aside from source code, Coreco was not persuasive in demonstrating that other non-taxable items were included within the software heading in the asset purchase agreement.

For additional information, visit:

http://www.it-can.ca/newsletters/030906.pdf