Lamarre
Proulx
T.C.C.J.:—These
are
appeals
for
the
appellant’s
1985,
1986
and
1987
taxation
years.
The
issues
to
be
determined
are:
(a)
whether
a
palletizer,
pallet
shelves
and
packing
bags
were
used
in
manufacturing
and
processing
activities
for
the
purposes
of
the
investment
tax
credit,
the
manufacturing
and
processing
profits
credit
and
the
capital
cost
allowance;
(b)
whether
a
packing
machine
was
acquired
for
investment
tax
credit
purposes
since
it
had
to
be
returned
to
the
vendor
because
it
did
not
function
to
the
appellant's
specifications;
(c)
whether
C.I.P.
equipment
was
acquired
when
it
was
leased
before
being
purchased;
(d)
whether
a
bonus
of
$242,000
was
a
debt
of
the
appellant
or
whether
it
was
a
non-deductible
reserve
within
the
meaning
of
paragraphs
18(1)(a)
and
18(1)(e)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
The
parties
informed
the
Court
at
the
outset
that
they
had
agreed
on
the
other
points
mentioned
in
the
pleadings
and
that
the
only
issues
that
remained
in
dispute
were
those
described
above.
Facts
Mr.
Jean-Marie
Brasseur,
comptroller
of
the
appellant,
testified
for
the
latter.
It
was
established
that
the
appellant's
business
was
a
farm
and
domestic
animal
food
manufacturing
concern.
A.
Palletizer
and
shelves
The
palletizer
is
a
computerized
machine
which
loads
bags
of
food
onto
a
pallet
in
the
configuration
required
by
the
number
and
size
of
the
bags
in
order
to
fill
the
pallet.
The
pallet
is
a
flat
support
of
standard
shape.
The
deck
is
made
of
a
hollow
double
platform,
which
enables
the
lifting
machines
to
seize
the
pallet
by
inserting
steel
shafts
into
the
hollow
part
of
the
deck.
A
plastic
film
surrounds
the
pallet.
Buyers,
retailers
and
distributors
buy
products
by
pallets.
The
selling
price
is
determined
by
the
bag
or
by
the
package.
The
pallets
are
delivered
as
they
are
to
the
buyers,
or
they
are
sent
to
storage.
The
product
is
removed
from
the
production
line
in
pallet
form.
Mr.
Brasseur
described
the
palletizer
as
being
used
in
the
last
stage
of
the
production
line,
not
the
first
stage
of
storage.
As
regards
the
shelves
in
issue,
these
were
shelves
for
empty
bags
and
pallets
used
in
packaging.
They
were
not
used
to
store
final
products.
B.
Packaging
machine
This
is
a
machine
sold
by
a
U.S.
firm
which
the
appellant's
managers
had
seen
in
operation
at
a
trade
fair
and
which
had
impressed
them.
However,
the
one
they
had
seen
in
operation
packaged
only
identical
quantities,
whereas,
for
the
appellant’s
needs,
the
machine
had
to
be
able
to
package
products
of
different
sizes,
that
is
to
say
bags
of
8,
10
or
16
kilos.
The
machine
was
ordered
on
January
24,1986
and
was
delivered
in
August
1986.
The
documents
do
not
attest
to
a
purchase
of
a
piece
of
equipment
on
approval.
It
was
installed
by
the
vendor's
engineers
and
by
the
appellant's
machinists.
The
vendor's
engineers
came
a
number
of
times,
but
they
were
never
able
to
adjust
the
machine
to
the
size
changes.
As
a
result,
it
was
never
functional
and
was
returned
to
the
vendor
in
February
1987.
The
appellant
was
reimbursed
in
March
1987.
The
negotiations
that
took
place
with
the
vendor
were
not
clearly
explained
by
the
appellant's
witness.
It
would
appear
that
the
appellant
requested
reimbursement
because
the
equipment
was
not
working
to
specifications
and
that
it
obtained
the
refund.
Since
the
appellant's
fiscal
year
runs
from
April
to
March,
the
appellant
received
the
refund
for
the
machine
in
the
same
taxation
year
that
it
purchased
it.
An
official
of
the
Department
testified
about
the
grounds
for
disallowance
of
the
Minister
of
National
Revenue
(the
"Minister").
He
explained
that
an
investment
tax
credit
may
be
granted
in
respect
of
machinery
which
has
been
acquired
and
used
within
a
reasonable
time
limit
for
the
purpose
for
which
it
was
purchased.
He
also
explained
that,
if
after
being
used,
the
piece
of
equipment
is
destroyed
during
the
year
of
acquisition,
this
has
no
effect
on
the
entitlement
to
the
investment
credit
to
the
extent
that
it
was
functional.
C.
C.I.P.
equipment
This
is
a
machine
which
closes
bags
by
sealing
them.
The
machine
had
been
leased
for
the
purpose
of
experimenting
with
it
before
actually
owning
it.
La
Compagnie
C.I.P.
Inc.'s
offer
to
lease
appears
at
page
5
of
Exhibit
A-1
and
states
the
following:
The
lease
which
we
offer
is
a
standard
three-year
lease
starting
on
April
15,
1984.
However,
during
the
three-month
period
immediately
after
the
lease
becomes
effective,
Produits
L.B.
Ltée
will
have
the
choice
to
return
or
to
purchase
the
machine.
The
price
of
the
machine
will
be
$10,700,
less
the
rent
paid
at
the
time
of
the
purchase,
to
a
maximum
of
$750,
which
represents
three
months'
rent.
Should
you
fail
to
make
either
of
these
choices,
the
lease
will
then
be
in
effect
for
the
full
term
of
the
contract,
that
is
three
years.
The
offer
to
purchase
the
machine
is
valid
for
the
first
three
months
only.
If
you
wish
to
purchase
the
machine
at
a
later
date,
a
new
agreement
will
be
negotiated
at
the
time
of
the
purchase.
[Translation.]
The
lease
started
on
May
1,
1984.
Paragraph
14
of
the
lease
refers
to
the
possibility
of
purchasing
the
leased
equipment,
as
follows:
Upon
written
request
by
the
lessee
to
this
effect
at
any
time
before
the
expiry
of
this
lease,
and
provided
the
lessee
is
not
in
default,
the
lessor
shall
sell
one
or
all
of
the
machines
to
the
lessee
at
a
price
to
be
agreed
upon
between
parties
.
.
.
[Translation.]
The
purchase
took
place
five
months
later.
The
price
was
set
in
accordance
with
the
above-cited
clause
of
the
lease
and
was
$10,700,
less
$1,250,
that
is
a
price
of
$9,450.
D.
Bonus
In
1986,
the
appellant
entered
a
bonus
of
$242,000
in
its
financial
statements,
which,
in
particular,
had
the
effect
of
reducing
its
active
business
income
to
$199,249.
That
same
year,
it
voted
another
bonus,
in
the
amount
of
$48,000,
which
was
paid
out
immediately.
According
to
Mr.
Brasseur,
the
appellant
had
two
ways
of
issuing
bonuses.
There
were
bonuses
declared
at
the
end
of
the
fiscal
year,
which
were
paid
immediately,
and
others
which
were
voted
for
at
the
end
of
the
fiscal
year,
but
allocated
and
paid
as
wages
the
following
year.
The
allocation
of
wages
was
not
the
same
from
year
to
year.
According
to
Mr.
Brasseur,
1986
was
a
good
year,
with
earnings
of
$900,000.
There
were
two
projects
the
following
year:
expansion
of
the
offices
and
the
purchase
of
machinery.
There
was
also
a
$800,000
loan.
Hence
the
decision
that
the
bonuses
would
not
be
paid
out
in
the
form
of
wages.
According
to
the
tables
at
pages
65
and
66
of
Exhibit
A-1,
the
year
1986
was
the
first
year
in
which
the
bonus
was
not
paid
in
the
following
year
in
the
form
of
wages.
However,
the
bonus
in
question
in
the
instant
case
was
not
the
subject
of
a
specific
resolution
of
the
appellant
and
was
not
allocated
or
allotted
to
any
person
whomsoever.
Analysis
A.
The
palletizer
and
the
shelves,
as
mentioned
at
the
beginning
of
these
reasons,
relate
to
the
manufacturing
and
processing
profits
credit,
the
investment
tax
credit
and
the
property
class
to
which
they
belong
for
capital
cost
allowance
purposes.
Counsel
for
the
appellant
argued
that
the
palletizer
was
used
to
package
products
and
that
it
was
therefore
an
essential
component
of
the
production
line.
In
support
of
his
contention,
he
referred,
in
particular,
to
Coca
Cola
Ltd.
v.
D./M.N.R.,
[1984]
1
C.T.C.
75,
84
D.T.C.
6081
(F.C.A.).
The
shelves
were
also
part
of
the
production
line
because
they
were
used
to
store
items
essential
to
product
packaging.
Counsel
for
the
respondent,
for
his
part,
argued
that
the
palletizer
was
not
part
of
the
production
process
because
the
product
is
already
packaged
in
bags
when
the
palletizer
is
used.
It
served
either
for
storage
or
for
shipping
purposes.
In
fact,
the
question
to
be
decided
is
where
exactly
the
processing
or
manufacturing
activities
end.
As
for
the
shelves,
he
relied
on
the
Court
to
interpret
the
facts.
Subsection
127(9)
of
the
Act
provides
the
relevant
definitions
for
investment
tax
credit
purposes."
Investment
tax
credit”
is
defined
as
follows:
"investment
tax
credit"
of
a
taxpayer
at
the
end
of
a
taxation
year
means
the
amount,
if
any,
by
which
the
aggregate
of
(a)
the
aggregate
of
all
amounts
each
of
which
is
the
specified
percentage
of
the
capital
cost
to
him
of
a
qualified
property,
qualified
transportation
equipment,
qualified
construction
equipment,
approved
project
property
or
certified
property
acquired
by
him
in
the
year
or
the
specified
percentage
of
a
qualified
expenditure
made
by
him
in
the
year,
.
.
.
[Emphasis
added.]
"Qualified
property"
is
defined
as
follows:
“
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
him
in
Canada
primarily
for
the
purpose
of
(i)
manufacturing
or
processing
goods
for
sale
or
lease.
.
.
.
Subsection
127(11)
of
the
Act
provides
the
following
definition
of
qualified
property":
For
the
purposes
of
the
definition
of''qualified
property"
in
subsection
(9),
(a)
"manufacturing
or
processing”
does
not
include
any
of
the
activities
referred
to
in
subparagraphs
125.1(3)(b)(i)
to
(ix);
and
(b)
for
greater
certainty,
the
purposes
referred
to
in
paragraph
(c)
of
the
definition”
qualified
property"
in
subsection
(9)
do
not
include
(i)
storing
(other
than
the
storing
of
grain),
shipping,
selling
or
leasing
of
finished
goods,
(ii)
purchasing
raw
materials,
(iii)
administration,
including
clerical
and
personnel
activities,
(iv)
purchase
and
resale
operations,
(v)
data
processing,
or
(vi)
providing
facilities
for
employees,
including
cafeterias,
clinics
and
recreational
facilities.
Section
4600
of
the
Income
Tax
Regulations
(the
"Regulations")
reads
as
follows
for
the
purpose
of
the
definition
of
qualified
property:
(2)(k)
a
property
included
in
any
of
Classes
21,
24,
27,
29
and
34
in
Schedule
II.
Class
29
is
described
in
Schedule
II
of
the
Regulations
as
follows:
Property
that
would
otherwise
be
included
in
another
class
in
this
Schedule
(a)
that
is
property
manufactured
by
the
taxpayer,
the
manufacture
of
which
was
completed
by
him
after
May
8,
1972,
or
other
property
acquired
by
the
taxpayer
after
May
8,
1972,
(i)
to
be
used
directly
or
indirectly
by
him
in
Canada
primarily
in
the
manufacturing
or
processing
of
goods
for
sale
or
lease,
or.
.
.
[Emphasis
added.]
To
fall
within
Class
29,
a
property
must
have
been
acquired
by
the
taxpayer
to
be
used
directly
or
indirectly
in
Canada
in
the
manufacturing
or
processing
of
goods
for
sale
or
lease.
As
regards
the
manufacturing
and
processing
credit
provided
for
in
section
125.1
of
the
Act,
section
5200
of
the
Regulations
refers
to
the
aggregate
of
its
cost
of
manufacturing
and
processing
capital
for
the
year,
and
section
5202
of
the
Regulations
includes
the
packaging
of
finished
products
as
a
qualified
manufacturing
and
processing
activity.
Although
there
are
many
legislative
provisions
in
issue
concerning
the
various
tax
aspects
of
the
case
of
the
palletizer
and
shelves,
the
only
question
to
be
decided
is
whether
the
palletizer
and
shelves
were
part
of
the
business
manufacturing
and
processing
activities
or
part
of
the
goods
shipping
activities.
Were
they
involved
in
a
packaging
operation
or
a
transportation
activity?
In
Federal
Farms
Ltd.
v.
M.N.R.,
[1966]
C.T.C.
62,
66
D.T.C.
5068,
Cattanach,
J.
of
the
Exchequer
Court
of
Canada,
stated
the
following
at
page
68
(D.T.C.
5072)
concerning
the
packaging
phase
in
manufacturing
and
processing
activities:
I
do
not
consider
that
the
operations
of
the
appellant
constitute
packaging
only
and
so
precluded
the
appellant
from
qualifying
as
a
manufacturing
and
processing
corporation
by
reason
of
subsection
(3)(a)
of
section
40A.
To
my
mind
the
term
"packaging"
applies
to
the
appellant's
ultimate
operation
in
placing
the
vegetables
in
bag
containers,
but
not
to
the
antecedent
steps
of
washing,
brushing,
spraying,
drying,
sizing,
culling
and
grading.
Packaging
is
considered
as
the
final
phase
of
manufacturing
activities.
Packaging
is
not
in
itself
a
manufacturing
or
processing
activity,
but
it
is
such
an
activity
when
it
comes
at
the
end
of
the
goods
production
line.
Thus,
for
example,
bottling
pills
that
are
purchased
from
a
pill
manufacturer
is
not
a
manufacturing
or
processing
activity,
but
it
may
be
considered
as
such
for
the
manufacturer.
In
Coca-Cola
cited
above,
Thurlow,
J.A.
of
the
Federal
Court
of
Appeal
made
the
following
statements
concerning
the
means
used
to
remove
the
product
from
the
production
line,
at
pages
79
and
80-81
(D.T.C.
6084,
6085-86):
The
Board's
reasons
for
denying
exemption
under
subparagraph
1(a)(i)
of
Schedule
III,
Part
XIII
appear
from
the
following
excerpt:
The
Board
finds
that
the
bottled
soft
drinks
are
fully
manufactured
at
the
time
they
are
placed
in
the
hand
carriers
and
cases.
They
are
not,
either
at
that
time
or
thereafter,
given
any
new
forms,
qualities
and
properties
or
combinations.
The
manufacture
or
production
of
the
soft
drink
must
therefore
be
regarded
as
having
been
completed
before
the
goods
in
issue
come
into
use.
They
do
not,
therefore,
fall
within
the
exemption
provided
by
section
1(a)
of
Part
XIII
of
the
Act.
I
agree
with
both
branches
of
this
submission.
In
my
view
the
Board
erred
in
applying
to
the
question
whether
goods
which
fall
within
the
meaning
of"
machinery
or
apparatus”
are
for
use
in
the
"manufacture
or
production”
of
goods
a
test
which
narrowly
and
unduly
confines
such
machinery
or
apparatus
to
that
used
up
to
but
not
after
the
moment
when
a
usable
and
saleable
article
is
in
existence
without
regard
for
what
must
happen
immediately
thereafter
to
get
the
article
out
of
the
way
of
like
articles
on
the
production
line.
By
parallel
reasoning
one
would
hold
that
the
rollers
on
the
conveyor
which
come
into
play
after
the
filled
bottles
have
been
capped
are
not
machinery
or
apparatus
used
in
the
production
of
the
bottled
products
because
the
manufacture
or
production
of
the
bottled
product
has
been
completed
before
such
rollers
come
into
use.
Such
a
test,
in
my
opinion,
is
unreal.
In
an
operation
of
this
kind
means
for
removal
of
the
product
from
the
production
equipment
is
as
essential
as
any
other
part
of
the
machinery
or
apparatus
used
in
the
manufacture
or
production
of
the
product
and
is
used
as
directly
in
the
manufacture
or
production
of
the
production
as
any
of
the
other
parts.
The
cases
and
carriers
here
in
question
fall
easily
within
the
meaning
of
"apparatus"
and
are
used
in
the
production
process
at
a
time
when
the
distribution
and
warehousing
operations
have
not
yet
begun.
The
fact
that
the
cases
and
carriers
are
subsequently
used
in
the
warehousing
and
distribution
processes
is
not
relevant
to
the
question
under
discussion.
[Emphasis
added.]
Ryan
and
Le
Dain,
JJ.A.
agreed
with
Thurlow,
J.'s
reasons.
I
believe,
however,
that
one
factor
which
influenced
the
holding
of
the
Federal
Court
of
Appeal
was
that
the
cases
and
carriers
were
also
used
at
the
start
of
the
production
activity,
and
I
cite
at
page
78
(D.T.C.
6083):
In
this
operation
empty
bottles
are
brought
in
the
cases
and
carriers
in
question
to
the
conveyor
where
they
are
placed
on
its
rollers
and
carried
to
a
point
where
the
machinery
removes
the
bottles
from
them.
The
bottles
then
go
in
one
direction
to
be
washed,
filled
and
capped,
the
cases
and
hand
carriers
in
another
direction
in
which
they
are
moved
along,
in
the
case
of
those
made
of
plastic
to
be
washed,
and
thence
in
all
cases
to
a
point
in
the
production
line
where
they
are
again
mechanically
filled,
this
time
with
filled
bottles,
and
thereupon
placed
on
pallets
for
removal
to
the
warehouse.
[Emphasis
added.]
In
that
case,
the
cases
were
loaded
on
pallets
at
the
end
of
the
process.
That
equipment
was
not
included
in
the
application
for
exemption
for
manufacturing
purposes.
It
would
appear
that
it
was
considered
as
being
used
in
the
first
stage
of
shipping
or
storage
activities.
Should
the
matter
be
considered
differently
in
the
case
under
review?
Where
must
the
line
be
drawn
between
manufacturing
and
shipping
activities?
At
the
pallet
stage,
the
container
stage,
or
at
some
other
stage?
The
appellant's
witness
testified
that
this
matter
involved
a
machine
pertaining
to
the
final
stage
of
packaging.
Counsel
for
the
respondent
contended
that
bagging
must
be
considered
as
the
final
stage
of
manufacturing
and
that
palletization
occurs
at
the
beginning
of
shipping
activities.
I
have
come
to
the
conclusion
that
the
pallet
is
an
essential
element
of
shipping,
not
manufacturing.
As
with
the
container,
it
is
a
piece
of
transportation
equipment,
not
packaging
equipment.
The
fact
that
the
size
of
the
pallet
is
standardized
in
the
transportation
industry
adds
weight
to
this
position.
In
this
context,
as
regards
the
shelves,
it
follows
that
they
are
part
of
manufacturing
and
processing
activities
in
proportion
to
their
use
in
storing
packing
bags.
B.
As
regards
the
packing
machine,
the
point
in
issue
is
whether
it
is
qualified
property
entitling
the
taxpayer
to
the
investment
tax
credit
provided
for
in
subsection
127(5)
of
the
Act.
The
definition
of
qualified
property
found
in
subsection
127(9)
of
the
Act
has
already
been
cited.
This
definition
brings
into
play
the
definition
of
Class
29
property
because
qualified
property
must
be
prescribed
machinery.
The
terms
to
be
analyzed
are
"to
be
used
by
him
primarily
for
the
purpose
of
manufacturing
or
processing"
and
"acquired
by
the
taxpayer
and
to
be
used
directly
or
indirectly
by
him
primarily
in
manufacturing
or
processing".
Counsel
for
the
appellant
argued
that
the
test
is
one
of
acquisition,
not
holding,
and
submitted
that,
contrary
to
other
provisions
of
the
Act,
such
as
those
pertaining
to
the
capital
cost
allowance
and
those
relating
to
manufacturing
and
processing
profits
for
the
purposes
of
section
125.1
of
the
Act,
it
is
not
required
that
the
property
remain
the
property
of
the
taxpayer
at
the
end
of
the
year.
He
also
suggested
that
the
purpose
of
the
investment
tax
credit
is
to
encourage
the
acquisition
of
production
and
processing
equipment
because,
if
a
property
is
subsequently
resold
or
returned,
it
is
no
longer
considered
as
a
new
property
and
does
not
entitle
the
taxpayer
to
the
investment
tax
credit.
He
therefore
contended
that
the
packing
machine
was
qualified
property
because
it
was
acquired
in
the
year
by
the
taxpayer
for
manufacturing
purposes.
The
appellant
had
applied
for
the
credit
for
the
1986
taxation
year,
and
the
Minister
had
initially
disputed
whether
the
acquisition
had
taken
place
in
1986.
At
the
hearing,
counsel
for
the
appellant
asked
the
Court
to
determine
whether
the
year
of
acquisition
was
1986
or
1987
because,
in
any
case,
the
assessments
for
both
years
were
under
appeal.
It
seems
clear,
and
this
appeared
so
to
both
parties
at
the
hearing,
that
the
acquisition,
if
any,
took
place
in
the
1987
taxation
year.
It
was
in
fact
in
that
year
that
the
packing
machine
was
taken
possession
of,
paid
for
and
taken
control
of,
even
if
the
order
was
made
at
the
end
of
the
1986
taxation
year.
What
was
disputed
by
the
Minister
was
not
so
much
the
acquisition
of
the
packing
machine
for
manufacturing
or
processing
purposes,
but
rather
its
use.
Relying
on
the
definition
of
“
qualified
property"
and
that
of
Class
29
property
and
on
a
judgment
by
our
Court
in
Canvil
Ltd.
v.
M.N.R.,
[1985]
2
C.T.C.
2451,
85
D.T.C.
699
(T.C.C.),
counsel
for
the
respondent
argued
that
the
words
of
these
definitions
require
actual
use
of
the
property
for
manufacturing
purposes.
However,
according
to
two
recent
decisions
of
our
Court,
it
is
the
purchaser's
intention
at
the
time
of
acquisition
of
the
property
that
counts,
not
the
use
of
that
property.
The
decisions
were
in
Setrakov
Construction
Ltd.
v.
M.N.R.,
[1989]
2
C.T.C.
2147,
89
D.T.C.
396
(T.C.C.),
and
Dragon
Construction
Ltd.
v.
M.N.R.,
[1989]
2
C.T.C.
2265,
89
D.T.C.
464
(T.C.C.).
I
agree
with
these
decisions
of
our
Court
that
the
actual
usage
is
not
a
condition
set
by
the
Acct.
What
is
a
condition
is
that
the
equipment
be
acquired
for
the
purposes
of
use
in
the
context
of
manufacturing
and
processing
activities.
If
the
Minister
is
of
the
view
that
the
functional
use
of
the
equipment
for
a
given
period
is
also
an
essential
test,
the
legislative
provision
must
be
amended.
Regarding
the
very
subject
of
the
acquisition,
counsel
for
the
respondent
referred
to
a
condition
precedent
that
he
thought
resulted
in
the
dissolution
of
the
contract
of
sale.
It
is
usually
a
condition
subsequent
which
results
in
the
dissolution
of
a
sale.
The
effect
of
a
condition
precedent
in
a
sale
is
that
a
person
becomes
the
owner
only
from
the
moment
the
condition
is
fulfilled.
In
any
case,the
written
documentation
revealed
no
sale
in
which
the
transfer
of
property
was
subject
to
any
condition.
It
was
a
sale
of
movable
property.
The
evidence
did
not
reveal
what
the
legal
basis
of
the
claim
against
the
vendor
was.
Not
being
satisfied
with
the
operation
of
the
machine
acquired,
the
appellant
apparently
asked
to
be
reimbursed.
It
would
seem
that
reimbursement
was
not
easy
to
obtain.
What
was
involved
was
thus
possibly
the
exercise
of
a
guarantee
against
latent
defects.
The
appellant
chose
to
return
the
item
and
have
the
price
refunded.
Under
Quebec
law,
the
relevant
remedy
is
provided
in
article
1526
C.C.L.C.
and
is
known
as
a
redhibitory
action.
A
redhibitory
action
is
different
from
an
action
for
dissolution.
The
effect
of
dissolution
is
to
terminate
the
existence
of
a
contract
retroactively.
This
is
not
the
effect
of
a
redhibitory
action.
What
is
at
issue
here,
however,
is
something
sold
by
a
U.S.
vendor
to
a
Quebec
purchaser.
Which
law
applies,
and
how
should
be
treated
the
issue
of
the
transfer
of
property
and
the
effect
of
returning
something
because
of
a
latent
defect?
This
aspect
was
not
dealt
with
by
counsel,
and
I
therefore
believe
that,
for
the
purposes
of
the
instant
case,
I
may
consider
that
there
was
a
transfer
of
property
and
that
there
was
no
dissolution
of
the
sale.
I
must
therefore
find
that
there
was
acquisition
and,
as
I
am
of
the
view
that
the
legislation
does
not
require
actual
and
functional
use,
the
packing
machine
is
qualified
property
granting
entitlement
to
the
tax
credit
for
the
year
1987.
C.
With
respect
to
the
C.I.P.
equipment,
I
can
come
to
no
other
conclusion
than
that
the
equipment
was
first
leased
before
being
acquired.
This
was
not
a
sale
subject
to
any
condition
or
term
obligation.
What
was
involved
was
a
standard
lease
in
its
form
and
substance.
There
was
a
deed
of
purchase
subsequent
to
that
of
the
lease.
These
were
two
separate
legal
instruments,
and
the
second
constituted
the
conveyance
of
property.
D.
As
regards
the
$242,000
bonus,
the
appellant's
minute
book
contains
no
indication
concerning
the
vote
of
any
such
bonus,
or
the
identity
of
a
recipient.
Nor
is
there
anything
in
the
facts
making
it
possible
to
determine
the
beneficiary
or
beneficiaries
with
any
certainty.
The
appellant
therefore
had
no
legal
obligation
to
pay
this
bonus,
and
the
bonus
in
question
had
no
binding
effect.
It
was
therefore
not
an
expense
incurred
within
the
meaning
of
paragraph
18(1)(a)
of
the
Act.
The
appeal
is
allowed
with
respect
to
the
agreements
made
between
the
parties
prior
to
the
hearing,
to
the
part
of
the
shelves
used
for
the
packing
bags
and
to
the
packing
machine.
Aside
from
that,
the
Minister's
assessment
was
well-founded.
The
appeal
is
allowed,
with
half
costs.
Appeal
allowed.
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