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Neutral citation: 2001 FCA 114
CORAM: RICHARD C.J.
DU PONT CANADA INC.
- and -
HER MAJESTY THE QUEEN
Reasons for Judgment
On January 22, 1988, Du Pont Canada Inc. sold its explosives manufacturing plant and related assets. Revenue Canada took the position that Du Pont's explosives manufacturing operation comprised a separate business and on that basis reassessed Du Pont's 1988 tax return to increase taxable income by $24,249,784. Du Pont appealed the reassessment to the Tax Court of Canada. In a decision rendered on June 3, 1999 (reported as Du Pont Canada Inc. v. Her Majesty the Queen, 99 D.T.C. 1132), the Tax Court Judge dismissed the appeal. Du Pont now appeals to this Court.
The principal statutory basis of the reassessment is subsection 1101(1) of the Income Tax Regulations. This provision has been in force since at least 1950 and has never been substantially amended. In 1988 it read as follows:
1101(1) Where more than one property of a taxpayer is described in the same class in Schedule II and where
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1101(1) Lorsque l'annexe II comporte la description de plus d'un des biens d'un contribuable, sous la même catégorie, et
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(a) one of the properties was acquired for the purpose of gaining or producing income from a business, and
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a) qu'un des biens a été acquis aux fins de gagner ou de produire le revenu d'une entreprise, et
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(b) one of the properties was acquired for the purpose of gaining or producing income from another business or from the property,
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b) qu'un des biens a été acquis aux fins de gagner ou de produire le revenu d'une autre enterprise ou des biens,
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a separate class is hereby prescribed for the properties that
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une catégorie distincte est prescrite pour les biens qui
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(c) were acquired for the purpose of gaining or producing income from each business, and
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c) ont été acquis aux fins de gagner ou de produire le revenu de chaque entreprise; et
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(d) would otherwise be included in the class.
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d) seraient par ailleurs comprise dans la catégorie.
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This regulation must be read in the context of the scheme for capital cost allowances. The cost of depreciable property is not deductible in computing income except over a number of years as capital cost allowance. "Capital cost allowance" is the name given to the statutory deduction that may be claimed in the place of depreciation. All depreciable property acquired by a taxpayer for the purpose of earning income from a business or property falls into one, but only one, "prescribed class". The prescribed classes are defined in Schedule II of the Regulations. Regulation 1100(1) assigns a capital cost allowance rate to each prescribed class. The manner in which capital cost allowance may be claimed for each prescribed class is set out in the detailed rules in Part XI of the Regulations.
The general rule is that the cost of all depreciable assets of a prescribed class acquired by a taxpayer are pooled together and a running account is maintained from year to year. The amount in the pool for each prescribed class at the end of a particular year consists of the balance from the previous year plus the cost of additions to the class during the year, minus the proceeds of dispositions in the year, minus capital cost allowance claimed in the year.
Generally, if the deduction of proceeds of disposition of property of a prescribed class causes the balance in the account for that class to become negative, the negative amount is taxable under subsection 13(1) of the Income Tax Act as "recaptured capital cost allowance". If all property in a prescribed class is sold and a balance remains after deducting the proceeds of disposition, that amount is deductible as a "terminal loss." If that were the entire scheme, a taxpayer would maintain only a single pool for each prescribed class, no matter how many businesses the taxpayer carried on. However, there are provisions of the Income Tax Regulations that compel the division of assets that would otherwise be part of the same prescribed class. Regulation 1101(1) is one such provision. It deems a separate class to exist for depreciable property acquired for use in a business that is separate from any preexisting business.
It is possible to determine from the notice of objection and the notice of reassessment in the record the difference in taxable income resulting from the opposing positions of the parties. First, assume that Du Pont is correct when it asserts that it carries on only one business. It sold assets for $55 million (US), of which $52.8 million (US) was attributed to depreciable property. It appears that the undepreciated capital cost of all of Du Pont's depreciable property at the end of its 1987 taxation year exceeded $52.8 million (US). The deduction in 1988 of a total of $52.8 million (US) from the capital cost allowance pools for the various prescribed classes would leave a positive balance. Therefore, no taxable recapture of capital cost allowance would arise in 1988. That is the result sought by Du Pont.
On the other hand, if the Crown is correct and the explosives manufacturing operation of Du Pont comprised a separate business, each class of depreciable asset used in the manufacturing of explosives would form a separate prescribed class for purposes of Schedule II to the Income Tax Act. The $52.8 million (US) sale of the depreciable assets used in that business would give rise to a taxable recapture of capital cost allowance of $24,066,437 (Cdn). That is the result sought by the Crown.
A similar running account must be maintained for "eligible capital expenditures". That is the term used in section 14 of the Income Tax Act to describe the cost of intangibles acquired for the purpose of earning income from a business. In Du Pont's case, $2 million (US) of the proceeds of sale was attributed to assets reflected in Du Pont's cumulative eligible capital expenditure account. If there was a single such account, as Du Pont maintains is correct because it has only one business, the sale would have resulted in an income inclusion of $1,114,388 (Cdn) pursuant to subsection 14(1) of the Income Tax Act. However, if the explosives manufacturing operation was a separate business as the Crown contends, the allocation of $2 million (US) of the proceeds of sale to the separate cumulative eligible capital expenditure account of that business would have resulted in an income inclusion of $1,297,735 (Cdn) under subsection 14(1) of the Income Tax Act.
Du Pont is challenging a subsection 13(1) income inclusion (recapture of capital cost allowance) of $24,066,437 (Cdn) and an increased subsection 14(1) income inclusion of approximately $183,437 (Cdn). It is common ground that both items stand or fall together. Du Pont is entitled to succeed in this appeal if its purpose in acquiring the assets sold on January 22, 1988 was to earn income from its then existing business and not from a separate business.
The record indicates that Du Pont's explosives manufacturing plant was constructed between 1955 and 1957, but it does not disclose exactly when Du Pont acquired each of the other assets that it sold on January 22, 1988. Nothing turns on that, however. The Crown has not suggested that Du Pont's purpose in acquiring its explosives manufacturing assets changed over time.
There are no reported cases that involve facts exactly like the facts of this case, or the precise question that arises in this case. However, there are cases that are generally instructive on the question of how to identify a separate business. The most commonly cited case is Scales (H.M. Inspector of Taxes) v. George Thompson & Company, Limited (1927), 13 T.C. 83, 138 L.T. 331 (Eng. K.B.), which involved a company that operated a fleet of ships and also carried on an underwriting business. The issue was whether it was carrying on one business or two. Rowlatt J. held that there were two businesses. He said, at page 89:
I cannot conceive two businesses that could be more easily separated than these two. They both have something to do with ships. That is all that can be said about it. One does not depend upon the other; they are not interlaced; they do not dovetail into each other, except that the people who are in them know about ships; but the actual conduct of the business shows no dovetailing of the one into the other at all. They might stop the underwriting; it does not affect the ships. They might stop the ships and it does not affect the underwriting.
[...] I think the real question is, was there any inter-connection, any interlacing, any interdependence, any unity at all embracing those two businesses [...].
The last quoted statement has become the generally accepted test for determining when a taxpayer has a separate business.
The Howden Boiler and Armaments Company, Limited v. Stewart (H.M. Inspector of Taxes) (1924), 9 T.C. 204, 1925 S.C. 110 (Scot. Ct. of Sessions) involves a corporation that operated two factories, one to construct boilers and the other to construct shells for the French Government during the war. There were separate premises, separate workers, separate technical and clerical staff, separate books and trading accounts. However, the two plants were operated under common management and there was a single set of financial statements. Financing and management expenses were charged against the company generally without apportionment. The corporation was held to be carrying on a single business.
In Canada the leading case is  S.C.R. 713">Frankel Corporation Ltd. v. Minister of National Revenue,  S.C.R. 713,  C.T.C. 244, 59 D.T.C. 1161. Frankel dealt in scrap metals, smelted and refined non-ferrous metals, carried on wrecking and salvage operations, and fabricated and erected structural steel. In 1952 it sold its non-ferrous metal refining operation, including inventory, to another company. The portion of the sale price allocated to the inventory was higher than Frankel's cost of the inventory. Under the income tax legislation then in effect, Frankel would have no tax liability as a result of the sale if it was the sale of a separate business, because in that case the entire transaction would be on capital account. If the transaction was not a sale of a separate business, Frankel would be taxable on the profit on the sale of the inventory.
There were a number of factors that established the separation of the non-ferrous metal refining operation from the other activities of Frankel. There was a separate source for material and supplies. There was a separate group of employees. There were separate machines kept in a separate part of Frankel's premises. There were separate customers. There was a separate trade mark and a separate trade name. There was separate supervision. There were also some connections. Minor quantities of scrap metal were acquired from the salvage operations. There was some combined accounting with the ferrous and non-ferrous operation. There was a single board of directors, a single union contract for all employees, and single pension and insurance plans. The ultimate preparation of profit and loss accounts reflected the results for the whole company. The sale transaction itself included, not only the transfer of the inventory, but also the transfer of the equipment, the right to use the premises for a fixed term, the transfer of unfilled customers orders, the transfer of the employees, and the transfer of the trade name, trade mark and goodwill. In addition, the transaction effectively put Frankel out of the non-ferrous metal refining business. Taking all of these factors into account, the Court held for Frankel on the basis that the non-ferrous metal refining operation was the sale of a separate business, and thus a capital transaction.
In Utah Co. of the Americas v. Minister of National Revenue,  Ex. Ct. 128,  C.T.C. 496, 59 D.T.C. 1275, the issue was whether the taxpayer was carrying on a single business or two businesses, mining and construction. Each activity was conducted independently under separate management, but under the overall supervision of a single board of directors. Separate accounts were kept. There was no functional connection between the two activities – no interconnection, no interdependence, and no interlacing. They employed different processes, produced different products and services, had different customers, locations, union contracts and staff. Head office costs were allocated between the two divisions. Sometimes equipment from one division was used by another. The Court held that the taxpayer was carrying on two separate businesses.
In H.A. Roberts Ltd. v. Minister of National Revenue,  S.C.R. 19,  C.T.C. 369, 69 D.T.C. 5249, the issue was whether the taxpayer's activity of administering mortgages under an agency contract comprised a business that was separate from its real estate business. The employees carrying on the two activities worked in different premises under separate management. The mortgage operation had its own accounting system. Employees of the mortgage operation were prohibited from sharing customer information with those in the real estate operation. The only common element was that there was a single board of directors. The mortgage business was held to be a separate business.
River Estates Sdn Bnd v. Director General of Inland Revenue,  S.T.C. 60 (P.C.) was an appeal from the Federal Court of Malaysia. The taxpayer argued that its plantation and timber operations on five estates comprised a single business. The Special Commissioners, apparently a tribunal that acted as the court of first instance, held that timber clearing operations directed toward clearing land for agricultural purposes comprised a separate business from timber operations on land that the taxpayer did not own and on which no agricultural operations were contemplated. The Privy Council upheld the decision on the basis that it was a reasonable conclusion on the evidence.
I will now summarize the facts of this case, which are not in dispute. It is interesting, if not strictly necessary, to look back to 1852 when Canada Powder Company began manufacturing explosives in Canada. Its assets were purchased in 1862 by Hamilton Powder Company. In 1877, that business was enhanced by an investment of money and expertise by the du Pont family of Wilmington, who had been manufacturing blasting powder for 75 years. In 1899, the business was further improved when it was joined by the Nobels of England. Hamilton Powder Company soon became the Canadian leader in the manufacture of explosives. In 1910, Hamilton Powder merged with a number of smaller companies to form Canadian Explosives Limited . It carried on its explosives manufacturing business in Canada throughout World War I.
After the war, Canadian Explosives Limited embarked on a program of diversification and began to manufacture paint, varnishes, coated fabrics and pyroxylin plastics. By 1927, it had entered into agreements with two of its major shareholders, E.I. du Pont de Nemours & Company and Imperial Chemical Industries, both chemical manufacturers, which resulted in the commencement of production of acid, alkali and heavy chemicals. The name of Canadian Explosives Limited was changed to Canadian Industries Limited (CIL).
Over the next two decades, Canadian Industries Limited began to manufacture cellophane and nylon, a product developed by its shareholder E.I. du Pont de Nemours & Company. During World War II, Canadian Industries Limited concentrated on the manufacture of material required for the war. After the war, Canadian Industries Limited discontinued that activity but expanded its other operations, including the manufacture of nylon and cellophane. Explosives manufacturing gradually became a less important aspect of its operations.
In 1952, the Government of the United States commenced an anti-trust suit against E.I. du Pont de Nemours & Company and Imperial Chemical Industries, the two major shareholders of Canadian Industries Limited. As a result of that proceeding, those two shareholders were obliged to separate their interests in Canadian Industries Limited. That was accomplished in 1954 through a complex reorganization. The name of Canadian Industries Limited was changed to Du Pont of Canada Securities Limited, and it became a holding company controlled by E.I. du Pont de Nemours & Company.
The holding company acquired two newly created subsidiaries named Canadian Industries (1954) Limited (CIL 54) and Du Pont of Canada Limited, which is the appellant in this case. Each of the two new subsidiaries acquired assets from Canadian Industries Limited. CIL 54 acquired the assets required to manufacture agricultural and other chemicals, explosives, paints, coated fabrics and plastics. Du Pont acquired what was referred to as the "Films and Textiles Fibres Department", which included among other things the assets required to manufacture cellophane and nylon. Thus, in 1954, Du Pont had no explosives manufacturing capacity.
The 1956 annual report of Du Pont and its parent company, by that time renamed Du Pont Company of Canada (1956) Limited, indicates that Du Pont continued to expand and diversify its activities. A new research facility was constructed at Kingston, Ontario. A plant for the manufacture of fluorinated hydrocarbons was constructed in Maitland, Ontario. The cellophane manufacturing plant in Shawinigan Falls, Quebec was expanded. A new plant for the manufacture of automotive and industrial finishes was completed in Ajax, Ontario. The production facilities for nylon and polymers in Maitland and Kingston were expanded. A new plant for the manufacture of orlon was constructed in Maitland, Ontario.
Between 1955 and 1957, Du Pont constructed a plant in Nipissing, Ontario for the manufacture of explosives. That plant and related assets were sold in January 22, 1988 in the transaction that gave rise to the reassessments under appeal.
The financial statements published in Du Pont's 1956 annual report show results for the whole company, with no breakdown by plant or by product. The following excerpt from the 1956 annual report (page 9) appears to address the attitude of Du Pont at that time to the relationship between its various operations:
In the growth of any chemical company, it naturally is important to seek the most logical degree of integration between the various operations. Planning is accordingly being directed toward a series of interlocking plants and processes, integrated to make maximum use of the raw materials as well as of the by-products relating from the processes
The financial statements published in the 1987 and 1988 annual reports also show the financial results for the whole company. The notes to the financial statements show segmented information for three groups as identified in this excerpt from the 1987 annual report (page 2):
Using complex technology, we upgrade basic chemicals and raw materials into specialty products for use by our customers in the manufacturing, resource and service sectors.
Our businesses fall into three main groups: Fibres and Intermediates, Specialty Chemicals and Materials, and Specialty Plastics and Films. Du Pont Canada's 125-year history of growth is based on a strong commitment to research and development and the continuing introduction of new and improved products.
The explosives manufacturing operation was included in the "specialty chemicals" group, along with the production of a large number of other chemical and industrial products, including hydrogen peroxide, fluorocarbons, speciality acids, paint, primers and solvents for the automobile industry, x-ray films, medical equipment, pharmaceutical products and agricultural chemicals.
Du Pont's corporate policy was to centralize certain key business functions, rather than allowing each division to operate independently. This policy is described as follows in paragraph 11 of the reasons for decision of the Tax Court Judge (emphasis added):
 The witnesses explained that in 1928, C.I.L. abandoned its previous practice of employing separate subsidiary companies and combined all of its operations into a single corporate structure. This divisional organisation was employed by C.I.L. and its successor, the Appellant, up until the time of the sale of the explosives operations in 1988. However, the Appellant insisted that there was a centralized control over three main elements, namely, finance, people and technology. There were general service functions like research which was provided from Kingston, treasury, central pay system, human resources and industrial relations, and systems and computer services which were provided from Mississauga. These services were supplied to the explosives operations as well as to other divisions. Each of these functions was centrally managed and the divisions had little or no autonomy in these areas..
All of the products produced by Du Pont, including the explosives manufactured at the Nipissing plant, were marketed under the Du Pont brand with the Du Pont name and logos prominently displayed on all products and promotional material.
The explosives manufacturing operation employed over 200 employees, most of whom worked at the Nipissing plant. Approximately 30 of the employees worked in bulk sites on the premises of mines that purchased Du Pont's explosives and another 30 worked in Du Pont's Mississauga office. There was a sales force of approximately 25 employees, including a national marketing manager, who worked exclusively for the explosives manufacturing operation and marketed its products across Canada. The marketing manager reported to the manager of the Nipissing plant.
The manager of the Nipissing plant reported to the vice-president of the manufacturing group, who worked out of Du Pont's Mississauga office. The on-site accounting staff reported to a group control manager and then to the vice-president and comptroller in Mississauga. The employees of the explosives manufacturing operation reported to a number of different vice-presidents, depending on Du Pont's requirements from time to time.
Although the Nipissing plant had some research facilities, Du Pont's Kingston research facilities provided the principal research work, including work that was beyond the capability of the Nipissing facility.
The explosives manufacturing operation maintained accounting records, but not enough records to permit a reader to determine the profitability of the operation. For example, the explosives manufacturing records accounted for the cost of goods manufactured and sold, but did not account for the cost inventories of raw materials that were centrally purchased or the cost of inventories of finished goods. Nor did they take into account the cost of centralized services or unallocated corporate costs, such as financing costs, collection and bad debt expenses, and income taxes. Records relating to that information were maintained centrally.
The cost of centrally provided services were allocated by division, in some cases on a periodic basis and in other cases on the basis of services supplied. The centralized services included all borrowing and financing, cash management, foreign exchange management, the granting of credit, invoicing of customers, collection of accounts, purchasing, processing of supplier invoices and preparation of expense reports. For 1987, Du Pont valued the centralized services provided to the explosives manufacturing operation at approximately $4.4 million. The explosives manufacturing operation was not authorized to conduct any of these activities on its own. It did not even have its own bank account.
There was cooperation by the various divisions of Du Pont in the use and marketing of Du Pont products. For example, Du Pont's Sarnia site manufactured polyethylene pellets (resin) called sclair, a product developed by Du Pont's research facility in Kingston. It was the base product for several other products that were used by mining companies, which were also purchasers of Du Pont's explosives. Sclair was shipped to Du Pont's Whitby site where it was extruded into a film and then formed into flexible plastic tubing. The tubing was used as a dry liner in wet holes in which Du Pont's explosives products would be used. The film was also used as a packaging material for small diameter water gel explosives.
Sclair was also used at Du Pont's Huntsville site to manufacture a rigid pipe used by mining customers to transport water and tailings. The pipe assembly was done by Du Pont personnel at the mine site using proprietary technology developed at Du Pont's Kingston research facility. In addition, sclair was used in the manufacture of a product called fabrene, which was sold to mines by the sales personnel assigned to the explosives manufacturing operation for use as bags and ventilation ducting.
A material called anfo, a combination of ammonium nitrate and fuel oil, was used at the Nipissing plant to produce explosives. Anfo would leak if stored in polyethylene, and so the Nipissing explosives plant used a special bag of nylon film called dartek, which was manufactured at Du Pont's Whitby site. As well, the sales personnel assigned to the explosives manufacturing operation sold to Du Pont's mining customers a polyester resin and chemical combination called fasloc which was used to secure or fasten loose rocks in the ceilings of mines. A product called imron, developed by Du Pont and produced at its Ajax site, was used as a protective finish to prevent the corrosion of vehicles used to carry corrosive chemicals such as ammonium nitrate used by the explosives manufacturing operation.
The terms of the January 22, 1988 sale of the explosives manufacturing assets to the purchaser, ETI Explosives Technologies International (Canada) Ltd., are set out in a number of documents, including a purchase and sale agreement dated September 4, 1987, and amending agreements dated December 15 and December 30, 1987. Those documents do not clearly state whether the parties considered the transaction to be a sale of a separate business or simply a sale of a number of assets. The ambiguity is apparent in the first sentence of section 1.1 of the September 4, 1987 agreement. It says, first, that the purchaser will purchase the "Business" as a going concern. However, the word "Business" is defined in the agreement as "certain assets of Seller's [Du Pont's] Canadian Commercial Explosives Business", not "all" or even "substantially all" of such assets. The same sentence goes on to state that Du Pont wishes to sell the "Business Assets", defined in a circular fashion as the assets of the "Business" listed as the subject of the sale.
The total purchase price of the assets was $55 million (US), of which $37 million (US) was paid in cash and $18 million (US) was payable over eight years. The obligation of the purchaser to pay the deferred payments was evidenced by interest bearing notes. Inventories of stores, spare parts, packaging materials, semi-finished and raw materials were sold at a separately agreed price.
Of the $55 million purchase price for the assets other than the inventories, $52.8 million was allocated to buildings and tangible property other than land, including equipment, machinery, fixtures, storage tanks, laboratory and technical equipment, furniture, tools, office equipment, personal computers dedicated exclusively to the explosives manufacturing operation and computer software for explosives related applied technology.
Of the remainder of the purchase price, $200,000 (US) was allocated to land and $2 million (US) was allocated to intangibles, including patents and patent applications relating to the explosives manufactured and certain proprietary information set out in a separate technology transfer agreement, and goodwill. The composition of the goodwill element was not stated, but it would seem to include, at least, the outstanding sale and purchase orders and other contracts, customer lists and confidential marketing information relating to the explosives manufacturing operation that were assigned to the purchaser along with the operating assets.
Any assets of the explosives manufacturing operation that were not specifically listed in the agreement were not sold. The unsold assets included the Du Pont name, the Du Pont Oval trademark and the Maple Leaf in the Pentagon logo trademark. Also unsold were accounts and notes receivable, cash on hand, bank deposits, investments, causes of action against third parties except as listed, prepaid amounts except as listed, taxes withheld and payable for the account of third parties, insurance policies, financial and other records not specific to the explosives manufacturing operation, certain assets used by Du Pont exclusively for the resale of non-commercial explosives products manufactured by its controlling shareholder, and computer hardware and software except as listed.
The purchaser obliged itself to make offers of employment to all employees working in the explosives manufacturing operation, except certain individuals that Du Pont wished to retain. The terms and conditions of employment were to be no less favourable than those in effect with Du Pont. All but three of the Du Pont employees who were employed in its explosives manufacturing operation accepted employment with the purchaser.
Du Pont made the following representation to the purchaser of the explosives manufacturing assets (emphasis added):
4.4 Sufficiency of Business Assets. The Business Assets [the assets being sold] together with the leased assets of the business (the "Leased Assets"), the corporate and other departmental assets used in providing support services to Seller generally and the Excluded Assets, constitute essentially all of the assets used by Seller in the operation of the Business, with the exception of certain assets owned by DUS [the controlling shareholder of Du Pont] to be transferred to ETI [the American affiliate of the purchaser] pursuant to the related transaction whereby the U.S. Business is to be acquired by ETI. The Leased Assets represent less than 15% of the Business Assets and substitutes are generally available for the Leased Assets.
This appears to be an express acknowledgement by the purchaser that the purchased assets were not sufficient to comprise a stand-alone business, because there were assets required for the business that were not included in the transaction. To deal with that potential problem, the purchaser and Du Pont entered into a separate support services agreement under which Du Pont would provide those necessary services for a fee for a period of 120 days after closing, with a possibility of extension for a further 90 days.
The sale agreement also contains these representations made by the purchaser of the assets to Du Pont:
5.6 Intention to Operate the Business. Buyer currently intends to continue the Business for a period of eight (8) years.
The interest of Du Pont in the continuation of the operation by the purchaser for eight years is said to be explained by the eight year term of the deferred portion of the purchase price, as evidenced by the notes in the amount of $18 million (US).
At the time of the sale of the assets in 1988, Du Pont's controlling shareholder, E.I. du Pont de Nemours & Company, manufactured explosives in the United States. The purchaser of Du Pont's explosives manufacturing assets was ETI Explosives Technologies International (Canada) Ltd., a subsidiary of CIC Canadian Investment Capital Limited. Another subsidiary of that corporation simultaneously purchased the explosives manufacturing assets of E.I. du Pont de Nemours & Company. I do not think anything turns on the simultaneous sale of the Canadian and American based assets.
The annual reports in evidence at trial indicate that Du Pont presents itself as a manufacturer of a number of different chemical products whose operations are integrated. That is not consistent with the notion that its explosives manufacturing operation is a separate business. At the same time, Du Pont sometimes refers to its explosives manufacturing operation as a "business". Neither Du Pont's self description as an integrated business or its casual use of word of the word "business" is determinative of the question that must be answered in this case.
The Tax Court Judge concluded that Du Pont's explosives manufacturing operation was a separate business. She summarized her conclusion as follows (at paragraphs 35 and 36):
 The principles enunciated by the Supreme Court of Canada in Frankel and H.A.Roberts Ltd. are not different from those enunciated by the British courts in Scales and my analysis of them is the following: there will be one business when there is interlacing and interdependence to such a degree that there may be found only one income producing unit; there will be a separate business when the circumstances are such that the whole process by which profit is earned is quite distinct from the others despite the fact that the business is not the subject of a separate incorporation. I find this interpretation to have the advantage of being in agreement with the concept of business as it is understood in the Act.
 It is my view that the evidence has shown clearly that the explosives division was managed as one income producing unit: the manufacturing, the supervision and direction, the marketing, the sales of the products, the staff and the accounting, although certain rules applies generally to all divisions and certain services were provided centrally. Therefore it was a separate business of the Appellant.
I agree with the formulation of the legal test adopted by the Tax Court Judge. It is my respectful view, however, that the Tax Court Judge did not correctly apply the legal test. It appears to me that she was led into error by a misapprehension of the evidence relating to the particular combination of centralized and divisional decision making that Du Pont adopted and has practised over the years, and the substantial functional connections between Du Pont's explosives manufacturing operation and its other business activities. That misapprehension is demonstrated by her characterization of those aspects of Du Pont's business as nothing more than "rules applicable generally to all divisions", and as "certain services provided centrally".
A corporation like Du Pont that manufactures many products in different plants faces innumerable choices in how it will organize its affairs. It could, for example, establish each plant as a separate, stand alone business with independent decision making authority in all aspects of the business. That was the choice made, for example, in Scales and in H.A. Roberts. Or it could organize itself as a single business with various divisions having no autonomy or independence at all, in which case none of the divisions would be a separate business. Any number of intermediate positions are possible, with divisions having autonomy in some aspects of the divisional operations but not others.
Du Pont has chosen an intermediate position. That being the case, the question that must be addressed is whether, having regard to the manner in which Du Pont organized its affairs, the aspects of its operations that are characteristic of a single integrated business are more substantial than the aspects that are characteristic of separate businesses.
The most important indicators of integration in this case are the centralized financing and credit management, centralized purchasing, and common research facilities. The other side of that coin is the lack of autonomy given to the Nipissing explosives plant with respect to those important business functions. These facts distinguish this case from Frankel, Utah Co. and H.A. Roberts, in which separate businesses were found.
It is also important that the Du Pont brand name and trade marks were consistently used for all of Du Pont's products, but that they ceased to be an attribute of the explosives manufactured at the Nipissing plant after the sale. By contrast, a separate business was found in Frankel, where the trade name and trade mark were transferred with the plant.
Another fact that distinguishes this case from Frankel, Utah Co. and H.A. Roberts is the degree of product integration demonstrated by the practice of cross-selling. The explosives manufacturing operation in particular had customers in common with other Du Pont plants and sold those customers Du Pont products that were not produced at the Nipissing plant. That is a natural and expected result of Du Pont's fundamental corporate strategy as described above.
There are some factors that divided the explosives manufacturing operation from the rest of Du Pont's business. For example, the Nipissing plant was physically separate from the other activities of Du Pont, which necessarily separated most of the plant employees as well, except those who provided services for the explosives manufacturing operation from Mississauga and Kingston. However, I am unable to conclude on the facts of this case that there are sufficient indicators of separation to overcome the many substantial indicators that Du Pont operates a single integrated business.
The Crown relies on the fact that "goodwill" was one of the assets sold, and argues that the assets sold must have comprised a free standing business, because if that were not so, there would be no goodwill to transfer. That contradicts the acknowledgement of the purchaser that it was not acquiring all of the assets required to carry on an explosives manufacturing business. In my view, the Crown is attempting to attribute far too much weight to a boilerplate clause that, in the circumstances, is sufficiently explained by the transfer of such intangibles as contracts, customer lists and confidential information.
For these reasons, I conclude that Du Pont's explosives manufacturing operation was not a separate business. It follows that this appeal should be allowed with costs, the judgment of the Tax Court should be set aside, and the reassessments under appeal should be referred back for reassessment in accordance with these reasons.
Karen R. Sharlow
J. Richard C.J."
John M. Evans J.A."