Date: 20000112
Docket: A-886-96
CORAM: STONE, J.A.
LÉTOURNEAU, J.A.
ROTHSTEIN, J.A.
BETWEEN:
BURGER KING RESTAURANTS OF CANADA INC.
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
Heard at Toronto, Ontario, Tuesday, January 11, 2000
and Wednesday, January 12, 2000
Judgment delivered at Toronto, Ontario on Wednesday, January 12, 2000
REASONS FOR JUDGMENT OF THE COURT BY: ROTHSTEIN J.A.
Date: 20000112
Docket: A-886-96
CORAM: STONE, J.A.
LÉTOURNEAU, J.A.
ROTHSTEIN, J.A.
BETWEEN:
BURGER KING RESTAURANTS OF CANADA INC.
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Toronto, Ontario
on Wednesday, January 12, 2000)
ROTHSTEIN J.A.
This is an appeal from a decision of Bonner T.C.J. dated October 15, 19961 in which he dismissed an appeal by the appellant from assessments which denied Investment Tax Credits ("ITCs") in respect of 68 buildings used as Burger King fast food restaurants. The learned judge assumed, without deciding, that the preparation of food at the outlets constituted "processing" for the purpose of entitlement to ITCs. However, he then went on to find that the processing areas in the buildings in question were less than 50% of the total areas of the buildings and that therefore the buildings were not used "primarily" for the purpose of processing and that the appellant did not satisfy the statutory requirement for entitlement to ITCs.
The relevant portions of subsections 127(9) and (11) of the Income Tax Act (the "Act")2 provide:
| "qualified property" of a taxpayer means property (other than an approved project property or a certified property) that is |
| (a) a prescribed building to the extent that it is acquired by the taxpayer after June 23, 1975, |
| that has not been used, or acquired for use or lease, for any purpose whatever before it was acquired by the taxpayer and that is |
| (c) to be used by him in Canada primarily for the purpose of |
| (i) manufacturing or processing goods for sale or lease, |
| (11) For the purposes of the definition of "qualified property" in subsection (9), |
| (b) for greater certainty, the purposes referred to in paragraph (c) of the definition "qualified property" in subsection (9) do not include |
| (i) ... selling ... finished goods |
| (vi) providing facilities for employees, including cafeterias, clinics and recreation facilities. |
Processing
The Minister says that the preparation of food in a kitchen in a fast-food restaurant is not processing. We do not agree. The approach to the meaning to be attributed to the term "processing" was established in Federal Farms Limited v. Minister of National Revenue3 and has been applied continuously since that time. In Federal Farms, supra, Cattanach J. found that the word "processing" should receive its ordinary unrestricted meaning. If this were not the case, specific enumeration of a number of exceptions would be unnecessary. At page 5072, Cattanach J. cites various dictionary definitions of "process" and concludes:
| Other standard works consulted define "process" as "to treat, prepare, or handle by some special method". |
In Federal Farms, supra, it was determined that processes which prepared carrots and potatoes for the retail market by cleaning them and rendering them more attractive and convenient to the consumer constituted processing.
In Tenneco Inc. v. Her Majesty the Queen4, Linden J.A. states at page 5209:
| Processing occurs when raw or natural materials are transformed into saleable items. Such raw or natural materials are unsaleable, or would sell for a lesser price in their unprocessed state. |
In the present case, at page 844, the learned Tax Court judge found as facts:
| Raw materials are removed as required from storage areas just mentioned to the kitchen where patties are broiled, buns are toasted, ketchup and other condiments are added and hamburgers or other sandwiches are assembled. Other products prepared in the kitchen includes salads made there from raw materials by slicing and mixing produce and other ingredients. The finished products are wrapped and placed in convenient holding areas. |
We see no reason why such preparation of food in a fast-food outlet is not processing within the ordinary meaning of that term in subsection 127(9) of the Act. Food is cooked or otherwise prepared for sale. While such food might be saleable in its unprocessed form, it would sell for a lesser price than once processed at the outlet.
Counsel for the Minister argued that ITCs are intended to make Canadian industry competitive with foreign manufacturers and producers, and that such purpose cannot be applied to the appellant in this case. Even assuming that to be so, the words of the Act do not restrict ITCs to such a purpose. The ordinary meaning of the word "processing" does not exclude the preparation of food as described by the learned Tax Court judge in this case and we have no difficulty concluding that the preparation of food at the appellant"s establishments constitutes processing for purposes of ITCs.
Primarily
The more difficult question is whether the buildings are used primarily for the purpose of manufacturing or processing goods for sale. The learned Tax Court judge, on the basis that the areas of the buildings used for processing amounted to less than 50% of the total areas of the buildings, concluded that the buildings were not used primarily for processing. Of 48 buildings analysed, approximately 46.5% of space was used for processing. This analysis was based on an attribution of space most favourable to the appellant. Under other allocation formulas, less space was attributed to processing.
Although in some layouts, more than 50% of the buildings were used for processing, the overall average was less than 50% and counsel agreed, and the learned judge found, that the "primarily" question should not be determined on a building by building basis in the circumstances of this case.
The appellant does not take exception with the calculations of the learned Tax Court judge. What the appellant contends is that a qualitative approach should be adopted, utilizing factors other than a simple use of space test and when that is done, the conclusion should be that the buildings are used primarily for processing. The appellant says that the qualitative factors to be considered in this case are: 1) there is more investment in equipment in the processing areas than in the portions of the buildings in which food is sold and customers consume food; 2) the capital cost associated with the processing of food portions of the buildings outweighs the capital cost associated with the sales and consumption of food portions of the buildings; 3) more employees work in processing than in the sales and consumption of food areas of the buildings; and 4) there is no table service or entertainment in the sales and consumption of food portions of the buildings.
In Mother"s Pizza Parlour (London) Limited et al. v. The Queen5, Pratte J.A. determined that when different portions of a building are permanently used for two different purposes, the most important factor in determining the purpose for which the building is primarily used is the amount of space in the building used for each one of the two purposes. At page 6399 he states:
| When, as in the present, different parts of a same building are permanently used for what is considered to be two different purposes, the most important factor in determining the purpose for which the building is primarily used is the amount of space in the building that is used for each one of those two purposes. |
The appellant contended that Mother"s Pizza was not applicable because unlike in that case, here the appellant used the buildings for only one purpose - the preparation of food i.e. processing. However, such contention is inconsistent with the factual findings of the learned Tax Court judge that the buildings accommodated more than one use. Indeed, it is implicit in the learned judge"s determination that overall, less than 50% of the total space of the buildings was used for processing, that the buildings are used for another purpose. His reliance on Mother"s Pizza also indicates this approach. The evidence is indisputable that the buildings in question house both a processing area and an area in which the public purchases and consumes food. There is not one purpose only for which the buildings are used and there is no merit to this argument.
In accordance with Mother"s Pizza, use of the space in the buildings is the most important consideration in determining the use primarily made of the buildings. However, that does not exclude other considerations and we are prepared to assume, without deciding, that in a case such as this, a qualitative assessment is also relevant. See Gulf Canada Resources Limited v. The Queen6.
However, the qualitative evidence must be sufficiently persuasive and must be capable of being analysed in such a way as to cause the Court to displace the result of the quantitative space test.
The appellant conceded that the investment in equipment was not relevant, as equipment is taxed under separate provisions of the Act.
While the decision of the Tax Court judge indicates that there are certain features of the processing areas which might indicate that the capital cost of the processing areas of the buildings was greater than for the food purchase and consumption portion, the material before the Court does not indicate relative capital costs of the processing versus food purchase and consumption portions of the buildings, and without such evidence, it is not possible to determine how much weight to ascribe to differential capital costs.
In Mother"s Pizza, supra, Pratte J.A. noted the argument that in that case the kitchen areas were the scene of more intense activity than the dining rooms. However, he found this consideration was irrelevant to the question of whether a building was used primarily for processing. Even if we were to treat the number of employees working in processing versus other areas of the buildings as relevant, we have no calculations, e.g. numbers of employees working in each, payroll attributable to each, upon which to determine that use of the buildings was primarily for processing.
We have difficulty understanding why the presence or absence of table service or entertainment in the food consumption areas are relevant considerations in respect of whether the buildings are used primarily for the purpose of processing.
Finally, the evidence in this case was that approximately 50% of the appellant"s sales are to customers who consume food in the food consumption areas of the buildings, with the balance to customers who remain in their cars or who walk in and take away food for consumption elsewhere. Therefore, relative sales volumes are not of assistance in a "primarily" assessment.
We have not been satisfied on the evidence in this case that qualitative considerations, if applicable, displace the quantitative assessment that the buildings are not primarily used for processing.
Conclusion
The appeal will be dismissed with costs.
"Marshall Rothstein"
J.A.
FEDERAL COURT OF CANADA
Names of Counsel and Solicitors of Record
| STYLE OF CAUSE: BURGER KING RESTAURANTS OF CANADA INC. |
Appellant
Respondent
DATES OF HEARING: TUESDAY, JANUARY 11, 2000 AND
| WEDNESDAY JANUARY 12, 2000 |
PLACE OF HEARING: TORONTO, ONTARIO
REASONS FOR JUDGMENT
| OF THE COURT BY: ROTHSTEIN J.A. |
Delivered at Toronto, Ontario on Wednesday, January 12, 2000
APPEARANCES: Mr. Paul Steep and
Mr. Peter A. Vita, Q.C.
| SOLICITORS OF RECORD: McCarthy Tétrault |
Barristers & Solicitors
| Toronto-Dominion Bank Tower |
| P.O. Box 48, Station Toronto Dominion |
| Deputy Attorney General of Canada |
FEDERAL COURT OF APPEAL
Date: 20000112
Docket: A-886-96
BETWEEN:
| BURGER KING RESTAURANTS OF CANADA INC. |
Appellant
Respondent
__________________
1 97 D.T.C. 841 (T.C.C.).
2 R.S.C. 1985, (5th Suppl.), C.1 as amended.
3 66 D.T.C. 5068 (Ex. Ct.) affirmed 67 D.T.C. 5311 (S.C.C.).
4 91 D.T.C. 5207 (F.C.A.).
5 88 D.T.C. 6397 (F.C.A.).
6 93 D.T.C. 5345 (F.C.T.D.).
Email this Content