Ferme Lunick – Court of Quebec finds that a farm with a substantial potato-bagging operation carried on a single farming business

The taxpayer operated a four-employee 1500-acre farm that produced potatoes, grains, market garden and dairy products, as well as a 10+-employee processing operation housed in four buildings on the farm, that purchased, sorted, washed and bagged potatoes before their sale. Whether various equipment purchased for use in the processing operation qualified for a tax credit for purchases of Class 29 property used in manufacturing or processing turned on whether an exclusion, from what otherwise would qualify as manufacturing or processing, for the carrying on of a farming or fishing business, applied.

Forlini JCQ confirmed the ARQ position that this exclusion applied given that this was a “vertically integrated” business in which the farming operation “sold” all of its potato production to the processing operation, carried on at the same location, and the processing operation acquired 90% of its purchases from the farming operation. The facts that there was separate accounting for the two divisions, and that each division had a substantial scale of operations, rather than being merely ancillary to the other, did not carry the day. Forlini JCQ concluded “that Lunick Farm carries on a single farming business.”

Neal Armstrong. Summary of Ferme Lunick Inc. v. Agence du revenu du Québec, 2020 QCCQ 1703 under s. 125.1(3) – manufacturing or processing – (a).