Citation: 2009 TCC 16
Date: 20090202
Docket: 2008-1465(IT)I
BETWEEN:
ÉRIC ALBERT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1]
This is an appeal under
the Informal Procedure from a reassessment made in regard to the Appellant with
respect to the 2004 taxation year (the year concerned). In the reassessment,
the Minister of National Revenue (the Minister) disallowed the Appellant’s investment
tax credit of $13,178.50 (the credit) that he claimed for the 2004 taxation
year pursuant to subsection 127(5) of the Income Tax Act (the Act).
Background
[2]
During the year
concerned, the Appellant was operating a dentistry business in the Carleton region
of the province of Quebec. On December 17, 2004, the Appellant purchased a
CEREC 3D from Sirona (the property).
[3]
The property, purchased
for $147,815.30, was composed of the following elements:
|
Software (before taxes):
|
$42,918.55
|
|
Imager (before taxes):
|
$43,341.39
|
|
Milling unit (before taxes):
|
$61,735.06
|
|
Credit:
|
($10,809.70)
|
|
Total
|
$137,185.30
|
[4]
The Appellant allocated
the purchase credit as follows:
|
|
Cost
|
Credit
|
Total
|
|
Software
|
$42,918.55
|
$3,134.81
|
$39,783.74
|
|
Imager and milling unit
|
$105,076.45
|
$7,164.89
|
$97,401.56
|
|
Total
|
$147,076.45
|
($10,809.70)
|
$137,185.30
|
[5]
The Appellant included
the software in Class 12 and the two other components (imager and milling unit)
in Class 8 of the CCA schedule for the year concerned.
[6]
The Appellant claimed a
$13,718.50 credit for the purchase of the property for the year concerned.
[7]
The property is a
precision instrument used for dental restoration. The property is used to make
ceramic fillings and crowns. The property uses an image of the patient’s tooth
to accurately determine and mill the ceramic. It works using an image of the
tooth and mills the restoration material accordingly.
[8]
The evidence revealed
the following:
i)
the goods (fillings and
crowns) made by the property, and the Appellant’s services for placing them,
were billed separately to the patient;
ii)
the cost of the filling
or the crown billed to the patient was always lower than the fees billed to the
patient by the Appellant for placing the filling or the crown;
iii)
pursuant to the laws in
force in Quebec, only a dentist is authorized to place fillings and crowns made
by the property in a patient’s mouth;
iv)
20% of the goods
(fillings and crowns) made by the property were sold to another dentist.
Issue
[9]
The only issue consists
in determining whether the imager and milling unit included in Class 8 of the
Appellant’s CCA schedule for the year concerned is property the Appellant used
primarily for the purpose of manufacturing or processing goods for sale or
lease. In fact, the Appellant is no longer contesting the fact that the
Minister was entitled to disallow the credit with respect to the software as
Class 12 property does not qualify as prescribed machinery or equipment
pursuant to the definition of “qualified property” for the purposes of the
investment tax credit in subsection 127(9) of the Act.
Appellant’s position
[10]
In his argument, the
Appellant essentially reiterated his position in his Notice of Appeal, the
relevant portion of which reads as follows:
[TRANSLATION]
…
I consider the property (CEREC 3D), which cost
$97,166, is qualified property for the purposes of the investment tax credit.
The tax credit clamed is $9,717.
The CEREC 3D is a precision instrument for the
manufacture of entirely ceramic restorations (inlays, onlays, veneers and partial
and full crowns from anterior and posterior blocks). The instrument uses the
image of a patient’s tooth. Based on the buccal-dental parameters, the CEREC
3D manufactures the property that will be sold to the patient.
Previously, I had to buy this made-to-measure
property from a private laboratory on behalf of my patient. Upon receipt of
this property, I would restore the patient’s tooth. I billed my dentist fees
and the crown as separate items on the invoice.
Now I make the crown myself. Once the property
is manufactured, I can restore the patient’s tooth. As I did previously, I
bill my dentist fees and the crown separately. You will find enclosed copies
of invoices showing that the crown is always billed separately. Therefore, the
patient is buying a crown and using my services for placing it. Moreover, I
use this same instrument to make crowns that are sold to other dentists.
A private laboratory that manufactures crowns is
obviously manufacturing goods for sale. Even if the crown is made to measure
for a specific patient (or, more precisely, a tooth), it is clear that the
CEREC 3D is property that qualifies for the tax credit. Even if the laboratory
makes dental restoration material from and for the tooth of an Éric Albert
patient, it is clear that this property is meant to be sold. When the crown is
made, the patient is not present. We do not work on the patient’s tooth but on
an impression of the patient’s tooth.
In the same way, all the material that is
manufactured by the CEREC 3D, which now belongs to Éric Albert, does not change
anything for the patient. He/she buys a good (a crown) and pays me fees to
have it placed. The crown is therefore a good for sale. When I was buying the
crown from a laboratory, the crown was intended to be sold to a patient. If
that were not the case, I would never have bought the crown from this
laboratory. The fact that I now have a (CEREC 3D) does not change this. The
crown is still intended to be sold to a patient. The only difference is that the
manufacturing is done in my clinic. It is the same machine CEREC 3D that
manufactures the good in a private laboratory where I procured this good
destined for sale to my patient.
Moreover, you will find enclosed the separate
code of the Association des chirugiens dentistes du Québec, which clearly
shows that we bill and sell to patients goods manufactured in a laboratory. We
also use this code to claim dental insurance for this good that we have sold to
the patient under the heading of “laboratory fees”. The code is the same and
good is the same, regardless of whether the good that is being sold comes from
a private CEREC 3D laboratory or a CEREC 3D laboratory in a dental clinic.
For these reasons, we think that the CEREC 3D is
qualified property for the purposes of the investment tax credit. This is why
we are requesting that you adjust the Notice of Assessment for 2004 and allow
the credit as claimed.
…
Analysis and conclusion
[11]
The relevant provisions
of the Act and its regulations read as follows:
Subsection 127(5) of the Act
127(5) Investment tax credit -- There
may be deducted from the tax otherwise payable by a taxpayer under this Part
for a taxation year an amount not exceeding the lesser of
(a) the total of
(i) the taxpayer’s investment tax credit at the end of the year in
respect of property acquired before the end of the year, of the taxpayer’s
apprenticeship expenditure for the year or a preceding taxation year, of the
taxpayer’s child care space amount for the year or a preceding taxation year,
of the taxpayer’s flow-through mining expenditure for the year or a preceding
taxation year, of the taxpayer’s pre-production mining expenditure for the year
or a preceding taxation year or of the taxpayer’s SR&ED qualified
expenditure pool at the end of the year or at the end of a preceding taxation
year, and
(ii) the lesser of
(A) the taxpayer’s investment tax credit at the end of the year in
respect of property acquired in a subsequent taxation year, of the taxpayer’s
apprenticeship expenditure for a subsequent taxation year, of the taxpayer’s
child care space amount for a subsequent taxation year, of the taxpayer’s
flow-through mining expenditure for a subsequent taxation year, of the
taxpayer’s pre-production mining expenditure for a subsequent taxation year or
of the taxpayer’s SR&ED qualified expenditure pool at the end of the
subsequent taxation year to the extent that an investment tax credit was not
deductible under this subsection for the subsequent taxation year, and
(B) the amount, if any, by which the taxpayer’s tax otherwise
payable under this Part for the year exceeds the amount, if any, determined
under subparagraph 127(5)(a)(i), and
(b) where Division E.1 applies to the taxpayer for the year,
the amount, if any, by which
(i) the taxpayer’s tax otherwise payable under this Part for the
year
exceeds
(ii) the taxpayer’s minimum amount for the year determined under
section 127.51.
Subsection 127(9) of the Act
127 (9) Idem – In this section,
…
“qualified property” of a taxpayer means
property (other than an approved project property or a certified property) that
is
…
(b) prescribed machinery and equipment 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 the taxpayer in Canada primarily for the
purpose of
(i) manufacturing or processing goods for sale or lease,
…
…for the purpose of this definition, “Canada” includes the offshore
region prescribed for the purpose of the definition “specified percentage”;
Regulation 4600
4600. Qualified property
…
(2) [Prescribed machinery] -- Property
is prescribed machinery and equipment for the purposes of the definition
"qualified property" in subsection 127(9) of the Act if it is
depreciable property of the taxpayer (other than property referred to in
subsection (1)) that is
…
(c) a
property included in Class 8 in Schedule II (other than railway
rolling stock);
…
Class 8 -- (20 per cent)
Property not included in Class 1, 2, 7, 9, 11, 17 or 30 that is
(a) a structure that is manufacturing or processing machinery
or equipment;
…
Class 12 -- (100 per cent)
Property not included in any other class that is
…
(o) computer software acquired after May 25, 1976, but not
including systems software or property acquired after August 8, 1989 and before
1993 that is described in paragraph (s);
…
[12]
The relevant provisions
of the Civil Code of Quebec (CCQ) for the purpose of this case are articles
1708, 2098 and 2103. Article 1708 defines sale as follows:
1708. Sale is a contract by which a
person, the seller, transfers ownership of property to another person, the
buyer, for a price in money which the latter obligates himself to pay.
A dismemberment
of the right of ownership, or any other right held by the person, may also be
transferred by sale.
[13]
Article 2098 of the CCQ
defines a contract for services as follows:
2098. A contract of
enterprise or for services is a contract by which a person, the contractor or
the provider of services, as the case may be, undertakes to carry out physical
or intellectual work for another person, the patient or to provide a service,
for a price which the patient binds himself to pay.
[14]
The third paragraph of
article 2103 of the CCQ outlines the criterion by which a contract of sale is
distinguished from a contract for services. It reads as follows:
A contract is a contract of sale, and not a contract of enterprise
or for services, where
the work or service is merely accessory to the value of the property
supplied.
[15]
We need to answer the
following questions:
1)
Is the filling or crown
in this case actually the object of a contract of sale?
2)
Is the filling or the
crown instead provided to the Appellant’s patients as part of a contract for
services, that is, as part of a request for dental services by a patient?
[16]
The fact that the
Appellant’s patients are billed separately for the materials and the work for
placing these materials does not necessarily lead to the conclusion that the
parties actually entered into two separate contracts: a contract of sale and a
contract for services. In my opinion, the Appellant and his patients entered
into only one contract. The separate billing for materials and placement services
is aimed at masking the true contractual relationship between the parties and
especially to meet the needs of insurers of patients with respect to separate
billing. It is hard to imagine a patient wanting to buy a crown without the
placement services, especially given that a dentist is the only individual
capable and authorized, by virtue of Quebec law, to place the crown. In other
words, the crown in itself cannot be a consumer good for a dentist’s patient.
The purchase of a crown without the purchase of the service to have it placed
by a dentist simply does not make sense.
[17]
Because I am of the
opinion that the Appellant and his patients had only one contract, it must now
be determined whether it was a contract of sale or a contract for services.
According to Will-Kare Paving & Contracting Ltd. v. Canada, [2000]
S.C.R. 915, 2000 S.C.C. 36, it must be assumed that Parliament, in
speaking of the concept of sale in paragraph 12(9)(c) of the Act, wanted
it to be interpreted by reference to the general law of sale. In my opinion,
the concept of “sale” must be analyzed with respect to Quebec civil law when
the applicable law is Quebec’s. In this regard, it is sufficient to consult
the Federal Court of Appeal decision in St‑Hilaire v. Canada,
[2004] 4 F.C. 289 (F.C.A.) and section 8.1 of the Interpretation Act
(R.S.C. 1985, c. I-21). The relevant provisions of the CCQ show us that in
essence, we are in the presence of a contract of sale when the work is merely
accessory to the value of the materials. In his work, author Pierre Gabriel
Jobin writes the following: [TRANSLATION] “For a sale to exist, there must be
evidence that the difference between the respective value of the labour and the
materials is so considerable that the labour is not perceived as an accessory”.
The evidence revealed in this case that the value of the labour was always
higher than that of the materials, so it must be concluded the parties had a
contract for services, as the property was not used by the Appellant primarily
for the purpose of manufacturing or processing goods for sale or lease. As a
result, we must conclude that the property was not “qualified property” for the
purposes of the Appellant’s claim for credits for the year concerned.
[18]
For these reasons, the
appeal is dismissed.
Signed at Ottawa,
Canada, this 2nd day of February 2009.
“Paul Bédard”
Translation
certified true
on
this 17th day of March 2009.
Bella Lewkowicz, Translator
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