Stark International – Tax Court of Canada finds that a use test could be applied by looking beyond the property’s immediate intended use
In order to be Class 43 depreciable property, oil processing equipment of the taxpayer had to qualify as property acquired by the taxpayer to be used directly or indirectly by it in Canada primarily in processing goods for sale - and a similar test applied in determining whether the equipment was “qualified property” for investment tax credit purposes. In the case of some of the equipment, its initially contemplated use (which in fact occurred) was to purify oil for 10 months at the Bruce nuclear power station. This did not qualify as processing “for sale” because the oil in question at all times was oil of the customer rather than being sold to it. Nonetheless, the use test of processing for “sale” was satisfied because the taxpayer’s intention on completion of this contract was to use the equipment for purifying (i.e., processing) dirty oil that it acquired for the purpose of sale in its purified form.
The ITC “qualified property” test (which was easier to work with, because it had an explicit purpose test) was also satisfied.
In finding that safety equipment did not qualify, Sommerfeldt J stated:
While safety is a commendable and essential objective of any oil processing business, safety equipment is used for the purpose of promoting and ensuring safety, rather than for the purpose of processing oil for sale.
Neal Armstrong. Summary of Stark International Inc. v. The Queen, 2019 TCC 248 under Sched. II, Class 29.