Date: 19980220
Docket: A-323-96
C O R A M: STRAYER J.A.
DESJARDINS J.A.
ROBERTSON J.A.
B E T W E E N:
WILL-KARE PAVING & CONTRACTING LIMITED
Appellant
" and "
HER MAJESTY THE QUEEN
Respondent
Heard at Halifax, Nova Scotia, on Friday, February 13, 1998
Judgment delivered at Ottawa, Ontario, on Friday, February 20, 1998
REASONS FOR JUDGMENT BY: STRAYER J.A.
CONCURRED IN BY: DESJARDINS J.A.
ROBERTSON J.A.
Date: 19980220
Docket: A-323-96
C O R A M: STRAYER J.A.
DESJARDINS J.A.
ROBERTSON J.A.
B E T W E E N:
WILL-KARE PAVING & CONTRACTING LIMITED
Appellant
" and "
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
STRAYER J.A.
Introduction
[1] This is an appeal from a decision of the Tax Court of Canada dated March 22, 1996 which confirmed the tax assessments in respect of the appellant's 1988, 1989, and 1990 taxation years.
Facts
[2] The appellant company had been in the business of asphalt concrete paving since 1974. Until 1988 it purchased the asphalt required from suppliers, but in that year it acquired an asphalt plant. It had determined that an asphalt plant to be economic would have to manufacture at least 10,000 metric tonnes per year. In its previous, and best, year of paving the appellant had used about 7,500 tonnes. It therefore realized that it would have to sell some of its production to third parties to make the plant economic. It estimated that it might sell upward of 30 to 40% of the production of the plant to third parties. In fact in the years in question it sold approximately 25% of the plant's production to third parties.
[3] When using its own asphalt to pave the driveways, parking lots, etc. of its customers it entered into contracts with them which provided for a total price for the job, not broken down in terms of material and labour. The appellant concedes that such contracts would be for work and materials and not in respect of the sale of goods within the common law meaning of that expression.
[4] In the taxation years in question the appellant claimed capital costs allowance under paragraph 20(1)(a) of the Income Tax Act on the basis of the plant being covered by class 39 of Schedule II of the Income Tax Regulations. It also claimed deductions pursuant to subsection 127(5) of the Act in respect of the acquisition costs of the asphalt plant on the basis that it was "qualified property" as defined in subsection 127(9) of the Act. Class 39 requires that property therein be acquired "to be used . . . primarily in the manufacturing or processing of goods for sale . . . .". Subsection 127(9) requires that "qualified property" be used by the taxpayer in Canada "primarily for the purpose of . . . manufacturing or processing of goods for sale or lease . . . .". It would appear that these phrases have the same meaning.
[5] The Minister reclassified the property for purposes of capital cost allowance and denied any investment tax credit pursuant to subsection 127(5), both on the basis that the asphalt plant was not being used "primarily" for "manufacturing or processing of goods for sale . . . .".
[6] The appellant makes essentially two arguments on appeal. Firstly, it says that the Tax Court judge erred in law in his interpretation of "primarily". The appellant argues that any use which was essential to the original decision to acquire the asphalt plant must be regarded as a purpose for which the plant was primarily to be used. It concedes that its own use of the asphalt it produced would not be a "sale" within the common law meaning of that term. It asserts however that the supply of asphalt to third parties involved sales of goods in the conventional sense and as these were essential to the viability of the plant their production must be regarded as a primary intended use of the plant. Further it is argued that the intent at the time of acquisition of the plant is determinative: even though in practice the actual sales to third parties amounted to about 25% of the plant production, the original projection upon which the plant was acquired was for sale of up to 40% of its production to third parties.
[7] Secondly, the appellant argues that the use of its own asphalt production in the execution of its contracts for installation of asphalt should be regarded as "sales" within the meaning of the Income Tax Act even though they are not, admittedly, such in the contemplation of the general common law pertaining to the sale of goods. In this respect the appellant invites us to follow the decisions of this Court in H.M. v. Halliburton Services Ltd.1 and H.M. v. Nowsco Well Services Ltd.2 and to distinguish the later decision of this Court in H.M. v. Coopers & Lybrand Limited3.
Analysis
[8] I am satisfied that the learned Tax Court judge correctly characterized the asphalt plant as not being property acquired primarily for the manufacturing of goods for sale. He correctly ascribed to "primarily" in this context the meaning of "most important" and I can see no basis for reviewing his finding of fact that the most important purpose for the acquisition of this plant was to supply asphalt for the appellant's own paving business. Even if the appellant is correct that the projections at the time of acquisition should be determinative, it was certainly open to the Tax Court judge to conclude that the most important reason for acquiring the plant was for the appellant to have its own supply of asphalt and not be at the mercy of competitors for asphalt supplies.
[9] With respect to the second argument, I believe the learned Tax Court judge was correct to apply the principles enunciated by this Court in the Coopers & Lybrand case. I respectfully agree with the panel which decided that case in its characterization of the purpose of the relevant provisions in the Act and the Regulations as being for the
| encouragement of increased production of manufactured and processed goods to be placed on the domestic and international markets in competition with foreign manufacturers. . . .4 |
Further I respectfully concur with the view in that case that the words "goods for sale or lease" should, in the absence of some clear indication to the contrary, be given the same meaning as they would elsewhere in the general law of sale of goods. I do not understand the rationale of the Coopers & Lybrand decision to be confined to "repair" situations.
Disposition
[10] The appeal should therefore be dismissed with costs.
J.A.
I concur:
"A. Desjardins"
J.A.
I agree:
"J.T. Robertson"
J.A.
__________________1 (1990) 90 D.T.C. 6320.
2 (1990) 90 D.T.C. 6312.
3 (1994) 94 D.T.C. 6541.
4 Coopers & Lybrand, ibid at 6548.