Whyte v. The Queen, docket 98-1518-IT-G

Date: 19990903

Docket: 98-1518-IT-G

BETWEEN:

GEORGE WHYTE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Beaubier, J.T.C.C.

[1] This appeal pursuant to the General Procedure was heard at Prince Albert, Saskatchewan on August 9, 1999. The Appellant testified and also called Marjorie Cook, the office manager of Farm World Equipment Ltd. ("Farm World") of Kinistino, Saskatchewan (population 653) and David Cook, the president and half owner of Farm World.

[2] The Appellant is a farmer aged 77 who has actively farmed since 1947. He resides near Codette, Saskatchewan and farms 880 acres by himself. He has appealed assessments for his 1993 and 1994 taxation years. Paragraphs 5 to 9 inclusive of the Reply to the Notice of Appeal outline the matters in issue. They read:

5. The Minister initially assessed, as filed, the Appellant's 1993 and 1994 taxation years on May 12, 1994 and May 26, 1995, respectively. In 1993, the Appellant claimed an Investment Tax Credit ("ITC") of $18,450.00, based upon his alleged acquisition for $184,500.00 of a new Combine, Header and Pick-up in 1993. The Undepreciated Capital Cost (UCC) of the Combine, Header and Pick-up was reduced by the ITC claimed, which reduced the UCC and Capital Cost Allowance ("CCA") claimed in 1994.

6. By Notices of Reassessment, each dated May 7, 1997, the Minister reassessed the Appellant's 1993 and 1994 taxation years on the basis that:

a) the Combine, Header and Pick-up were not "new", therefore they were not eligible for SBITC;

b) the UCC was not reduced by any ITC, with the result that CCA claims were adjusted.

7. The Appellant filed Notices of Objection for 1993 and 1994, received by the Minister on June 2, 1997. The Minister reassessed the 1994 taxation year by Notice dated May 12, 1998.

8. In reassessing the Appellant as he did, the Minister relied on the following assumptions of fact:

a) the combine was originally shipped from the manufacturer, Ford New Holland Canada Ltd., to Farm World Equipment Ltd. on September 24, 1993;

b) the Combine was used by Farm World Equipment Ltd. as a Demonstrator;

c) on December 30, 1993, the Appellant purchased the Combine from Farm World Equipment Ltd.;

d) at the time the Appellant acquired the Combine, the Combine had been damaged and repaired under warranty showing another person as the owner;

e) the Header was shipped by Ford New Holland to Farm World Equipment Ltd. on April 27, 1993;

f) Farm World Equipment Ltd. used the Header as a Demonstrator;

g) the Appellant purchased the Header from Farm World Equipment Ltd. on December 30, 1993;

h) at the time the Appellant acquired the Header, the Header had:

i) 213 hours of operating time;

ii) sustained minor damage;

i) the Pick-up was shipped by Precision Metal Fabricating Ltd. to Farm World Equipment Ltd. on July 7, 1993;

j) the Pick-up was on consignment to Farm World Equipment Ltd.;

k) the Appellant received a 10% discount on the price of the Pick-up;

l) the Combine, Header and Pick-up had been used or acquired for use or lease for another purpose before they were acquired by the Appellant.

B. ISSUES TO BE DECIDED

9. The issue to be decided is:

a) whether the Combine, Header and Pick-up were used for any other purpose prior to the Appellant acquiring them.

[3] Farm World is the largest dealer of Ford-New Holland products in the world. In addition to selling in Saskatchewan and western Canada, it also sells in Australia and the Ukraine. It has a shop that can and does repair and service as many as 12 self-propelled combines at once. At times it has 30 or 40 new combines for sale on its lot. The majority of its sales are made as the result of demonstrating its farm equipment in the farmer's field. It also makes sales on its lot and by special order. It employs six salesmen at any one time. At the times in question it had a new, untrained employee who was doing clerical work respecting shop service and repairs. She reported to the shop foreman.

[4] The evidence is clear that the Appellant and Farm World signed a Form A contract under the Agricultural Implements Act of Saskatchewan on October 30, 1993 whereby the Appellant purchased the New Holland TR-96 Combine, Serial #554 446; the New Holland Header, Model 971, Serial #562940 and the Precision Metal Fabricating Pick-Up, Serial #14B-93031 for $184,500.00. In the same document he traded to Farm World a New Holland TR-86 Combine and an Allis Chalmers R6 Combine and other minor equipment for $184,499.00. He agreed to pay $1.00 and to trade the two combines as full consideration for the $184,500.00 purchase price.

[5] Harvesting had been completed in the Appellant's area by October 30. Part of the reason for the Appellant's purchase was to stop using a hired man. He had decided that the problems associated with hiring suitable help had become unsupportable. On November 1, a very heavy snowfall made it impossible to deliver the combine. The Appellant took delivery of it in December, 1993.

[6] The problem is whether the combine, header and pick-up were new. A particular aspect of this is contained in paragraph 5 of the Notice to Admit (Exhibit R-1, A), which was not admitted. It reads:

5. While the Combine was being used by Farm World as a demonstrator, the Combine was damaged and repaired under warranty as follows:

Invoice Number	Invoice Date	Hours	Description	Total
S25093	Oct. 19, 1993	25	Trades – Repair injection pump	608.23
L12439	Oct. 20, 1993	N/A	TR96 Demo – 2 x 9613344 filter	12.42
S25590	Oct. 28, 1993	67	Trades – replace feeder belt	146.18
S24940	Nov. 5, 1993	191	Trades – Hoses, belts, service call	1,875.08
S25384	Nov. 22, 1993	103	Trades – Repair clutch, replace feeder belt, service call	708.65
S25823	Nov. 26, 1993	213	Demo – repair damage to door and support frame, replace electric motor and augar
S25635	Dec. 9, 1993	191	Trades – Service and check-over	981.88
S25923	Dec. 10, 1993	117	Demo – Replace bubble up auger	760.27

The Appellant admitted that the combine had been test driven by other Farm World customers.

[7] Marjorie Cook and David Cook both denied that certain invoices listed after October 28, 1993 related to the Appellant's combine:

S24940 Nov. 5, 1993

S25384 Nov. 22, 1993

David Cook testified that this was a clerical error and that the work was not done on Mr. Whyte's combine. The Court believes this because both the working invoice (Exhibit R-1, 6) and the description in paragraph 5 refer to "Trades". In other records the work appears to have been done on either Mr. Whyte's or other farmers' trade-ins.

[8] S25823 – November 26, 1993

The hand written work sheet for this (Exhibit R-1, Tab 17) refers to owner "Ron and Allan Hounsell ... Birch Hills" which is struck out, and "Demo". It also refers to TR96 554446 and "amount of use 213 hours". Exhibit R-1, Tab 19 refers to the same date, hours and combine and "Demo" and "Hours". David Cook testified that the Hounsells have a similar combine and that this must refer to their combine. This testimony is accepted as true.

[9] S25635 – Dec. 9, 1993

The description for this work refers to "Trades". This appears to mean what it says. That is, the work was done by Farm World on Mr. Whyte's trades.

[10] S25923 – Dec. 10, 1993

This refers to TR96, Serial #554446, "Demo" and 213 hours. The work date was 11/26/93, which relates back to the Hounsell invoices. S25923 is a computer generated document and not hand written in the shop or in the field. Thus, it will pick up on any previous errors and add errors of its own. This is also considered to be entered in error.

[11] But the real question is whether there was a sale on October 30, when the Appellant and Farm World signed their deal in Form A (Exhibit A-1, Tab 1). There was a complete sale that day. Both sets of machines were ready for delivery. But Mr. Whyte did not want delivery of TR96 554446 in early November when there was a very heavy snowfall. He knew his TR96 had been test-driven by others and that those hours were on the TR96 on October 30. He never recorded those hours. He relied on his Form A contract.

[12] The Court finds that TR96 554446 had 67 engine hours on it when it was sold on October 30, 1993. The evidence is that these represent normal test driven hours by other farmers who were prospective purchasers. On this basis, the Court finds that Mr. Whyte's combine was a new combine when he purchased it on October 30, 1993. The 67 hours at that time were similar to test driving of automobiles by prospective purchasers. The Court also accepts Miss Cook's testimony that 67 engine hours represent about 20 to 25 hours combining, allowing for road travel, idling, and normal engine and combine times run for the purpose of setting up the combine in the Farm World shop or during a field test. For these reasons the TR96 was a new combine within the meaning of the Income Tax Act when Mr. Whyte purchased it on October 30, 1993. The use of Form A as the written contract also gave it a "new" status under the Agricultural Implements Act.

[13] There remains the question as to whether tests by prospective purchasers of the TR96 to the extent of 67 engine hours before the TR96 was purchased by Mr. Whyte mean that the TR96 was not a "qualified property". Under subsection 127(9) of the Income Tax Act the TR96 must be a property

... that has not been used, or acquired for use or lease, for any purpose whatever before it was acquired by the taxpayer ...

[14] David Cook testified that tests of combines for sale are conducted under optimum field conditions and under the supervision of a Farm World salesman (who delivers the combine to the prospective purchaser who is doing the test) for about four hours of combining in that farmer's field. Thus, the question is whether the tests of the TR96 by prospective customers of Farm World before October 30 were such that the TR96 was "used ... for any purpose whatever" before Mr. Whyte acquired it.

[15] The Shorter Oxford Dictionary defines "test" as "That by which the existence, quality, or genuineness of anything is or may be determined." It defines "used" as "That is or has been made use of". Under "use" to make use of is treated as synonymous with "to employ for a purpose". To "employ" is "to apply to a purpose".

[16] To test drive a combine is to operate it in order to determine its quality. In contrast, to use it is to employ it for the purpose for which it was built. The Court takes the word "used" in the context of subsection 127(9) to mean that the TR96 combine has not been used, i.e., has not been employed, for the purpose for which it was built. That employment would be to combine a field of grain and not merely to be test driven by a few prospective purchasers.

[17] David Cook testified that Farm World tried to schedule its tests so that field conditions were at their optimum and the combine was in optimum condition. The purpose of the test is to sell that combine, not to combine a field of grain in normal field conditions. By contrast, a demonstrator combine is placed by the dealer with a farmer to show the qualities of that type of combine over a longer time, unsupervised and under normal field conditions, and not merely to test it so as to sell that very combine. Thus a dealer could "use" a combine for his own farming operations, or "use" it as a demonstrator, or "lease" it to another person, to follow the order of the phrase in subsection 127(9). For demonstration purposes, Ford New Holland has a Demonstrator purchase plan for its dealers. This combine was not on a Demonstrator plan with Farm World.

[18] In the circumstances of the working world and the phrase in question from subsection 127(9) "... that the (combine) has not been used, or acquired for use or lease for any purpose whatever before it was acquired by the taxpayer ..." must have been intended by Parliament to have distinguished the word "used" from "displayed" or "tested" since it is intended to apply to the commercial world. Thus the question is whether the manufacturer or dealer used it for any purpose whatever or it was acquired for use or leasing (i.e., for value) for any purpose whatever. It does not mean that it may not have been displayed or tested for any purpose whatever by the manufacturer or dealer.

[19] The Court finds that the Combine, Header and Pick-up were acquired by the Appellant on October 30, 1993. They had not been used or acquired for use or lease for any other purpose whatever before they were acquired by the Appellant.

[20] The 1993 assessment was a nil assessment. Therefore the Court has no jurisdiction respecting the appeal for 1993.

[21] However, the appeal is allowed for 1994 on the basis of the foregoing reasons and this matter is referred to the Minister for reconsideration and reassessment respecting the Appellant's 1994 taxation year.

[22] In the circumstances, the Appellant is awarded party and party costs.

Signed at Ottawa, Canada, this 3^rd day of September 1999.

"D.W. Beaubier"

J.T.C.C.