Transport Jacques Lemieux Inc. v. Minister of National Revenue, [1991] 1 CTC 2612, 91 DTC 503

Dussault, T.C.J. [Orally]:—This is an appeal from assessments by the respondent for the appellant's taxation years ending on February 28, 1986 and 1987. The respondent disallowed the investment tax credit claimed by the appellant for each of these years on the ground that the tanker truck purchased by it during its 1986 taxation year was not "qualified property” within the meaning of subsection 127(9) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") and of section 4601 of the Income Tax Regulations.

At the start of the hearing, counsel were agreed that an error which occurred in paragraph 3 of the notice of appeal should be corrected, to read $82,150 instead of $161,950, and in paragraph 6 to read $5,445.50 instead of $5,750.50, the amount of $350.50 in the same paragraph remaining unchanged.

Facts

In July 1985 the appellant purchased a 1986 International tanker truck to be used to collect, transport and deliver bulk milk. The purchase of the tanker truck seemed justified at the time by the fact that another lower powered tanker truck had become inadequate to meet the appellant's requirements in connection with its ability to perform its obligation to Agrinove under annual transportation contracts between the appellant and that business. Under the contracts the appellant, the business premises of which are located at Cap St- Ignace, is required through Mr. Jacques Lemieux, its only shareholder, first to collect bulk milk from some 70 to 72 farmers listed by Agrinove and scattered throughout the regions of Cap St-Ignace, Montmagny and St-Pierre, located in the county of Montmagny, province of Quebec. This collection is done with a tanker truck, and Mr. Lemieux is required to perform certain checking functions at each place he visits before pumping the milk into the truck. The milk then has to be transported and delivered to one of the Agrinove plants in accordance with the instructions given.

In his testimony Mr. Lemieux provided details of his activities, which may be described as follows:

— the collection, transportation and delivery of milk to one of the Agrinove plants is done seven days a week, at the rate of twice a day;

— each of the 70 to 72 producers is visited every two days in the summer and every three days in the winter, so that Mr. Lemieux collects from about 16 to 18 producers on each of his two daily trips in the summer and about 11 to 12 producers on each of his two daily trips in the winter;

— with an average of ten minutes spent at each producer's premises (from five to twenty minutes at most), each of the daily trips,including delays, may take about three hours and involve travel of about 20 kilometres;

— when the collection is finished, Mr. Lemieux goes to one of the Agrinove plants located one in Ste-Claire, county of Bellechasse and the other at St- Agapit, county of Lotbinière; on average 80 per cent of the transportation and delivery is done to Ste-Claire and 20 per cent to St-Agapit;

— the Ste-Claire plant is located some 102 kilometres and the St-Agapit plant some 121 kilometres from Cap St-Ignace, the appellant's place of business, so that each daily trip to the Ste-Claire factory and back takes about three hours and those to the St-Agapit plant take about 30 minutes more; additionally, on each trip the delivery time at the plant is about 20 minutes;

— in short, about six hours a day are spent making milk collections from producers in the area and 40 kilometres covered for that purpose; transportation, delivery to the plant and the return journey take up a total (for both trips) of six to seven hours a day and involve a total average travel of about 423 kilometres, allowing for the frequency of deliveries at each plant;

— Mr. Lemieux has the training, diploma and permits necessary to collect and transport bulk milk and deliver it to processing and transformation plants. The tanker truck used for this purpose must be subject to periodic checks based on the kilometres travelled. Subsections 127(5) and (9) give a taxpayer an investment tax credit for the purchase of "qualified transportation equipment”. The latter expression means prescribed equipment acquired by him after November 16, 1978 and before 1989. . ." . Section 4601 of the Income Tax Regulations establishes what is meant by prescribed equipment in giving effect to the definition of "qualified transportation equipment" in subsection 127(9) of the Act.

The relevant parts of that section as it applied in July 1985, at the time the tanker truck was purchased by the appellant, are as follows:

4601.

(c) property that is

(i) a truck, tractor or trailer that

(C) was acquired principally for the purpose of carrying or hauling freight on highways outside of any metropolitan area, city, town, village, municipality or other similar community or area, and

(E) was not acquired principally for the purpose of carrying or hauling

freight locally or making local pickups or deliveries. . .

Clause 4601(c)(i)(C) was repealed by P.C. 1985-2277, SOR/85-696, dated July 25, 1985, applicable on August 7, 1985, that is after the appellant purchased the tanker truck.

Clearly, the difference of opinion between the appellant and the respondent is regarding the words “principally" and “local”. These words are not defined either in the Act or in the Regulations.

While the word “ principally” would seem to cause little difficulty in that it means for the most part or, expressed as a percentage, over 50 per cent, the disagreement seems to be regarding the factors used to describe it. Whereas space is a relevant factor in speaking of the use of real property (see Mother's Pizza Parlour (London) Ltd. v. The Queen, [1988] 2 C.T.C. 197; 88 D.T.C. 6397) and number of flying hours is also relevant with relation to the use of an aircraft (see Yorkton Broadcasting Co. v. M.N.R., [1987] 1 C.T.C. 2222; 87 D.T.C. 165), cases cited by counsel for the appellant, what is relevant with regard to the use of a vehicle, and in particular a tanker truck?

It might have been argued—though it was not—that the kilometres driven for one purpose or another are the only relevant test. I would note that this is also the only one used in the Act to establish in sections 6 and 15 a standby charge for an automobile.

However, the factor of time was emphasized by counsel for the appellant and I feel that it is also relevant here, since there were several activities in connection with use of the truck, namely collecting the milk, its transportation and delivery and finally returning empty for another load on the same day, and so on the following day.

Further, I will simply add that by its use in the context the word” principally” suggests that there can be more than one use.

The word “local” can have several meanings depending on the context in which it is used. Should it be given the meaning accepted in the usual dictionaries referred to by counsel for the appellant as designating a specific place, a conurbation, a town, a village or even a small city, or should its meaning be extended to a region or even to a province as opposed to what is national or even international, as counsel for the respondent suggested?

Part of the answer here lies, I think, in clause 4601(5)(i)(C), repealed after the appellant bought his tanker truck. Analyzing the word "local" in clause 4601(c)(i)(E) in the context of section 4601 of the Regulations read as a whole, that is including clause 4601(c)(i)(C), I come to the conclusion that these words must be interpreted in accordance with the specific geographic location where the activities occurred. Reference is made to transportation "on highways outside of any metropolitan area, city, town, village, municipality or other similar community or area". In the context here the words metropolitan area, city, town" and “similar area" seem less relevant. The appellants activities unquestionably took place in a rural, not an urban area. The mere fact that a list is given of various types of communities or areas in clause 4601(c)(i)(C) indicates that it must be considered whether the transportation activities occurred on highways outside of the community in question, that is here on the highways outside of a village, municipality or other similar community. If we take Cap St- Ignace, where the appellants place of business is, the question is whether the appellants activities are principally transportation on highways outside of this village or municipality or its immediate area.

The analogy made by counsel for the appellant with certain provincial regulations, orders or decrees as to highway transportation, and to the effect that local transportation is meant to be transportation provided within a five- mile radius of a particular place, are not the basis for my conclusion. At most it provides reinforcement. Whether such regulations apply or do not apply to milk transport is also not important in the context of the provision being considered, and when one is only trying to make an analogy with what may constitute “local” transport.

The fact that the appellant received assistance under the Atlantic Region Freight Assistance Act (R.S.C. 1985, c. A-15) seems to me to be more relevant in support of my conclusion, since paragraph 2(2)(i) of the Regulations (the Atlantic Region Selective Assistance Regulations—c. 361) has the effect of excluding from "eligible movements" for purposes of assistance "the pickup and delivery of goods and their transportation within the limits of a municipality, city or metropolitan area and five miles beyond such limits”.

Additionally, counsel for the respondent submitted, some indication of the legislature's real intention as to the limitations was given when in the budget review of Nov. 16, 1978 and related documents it added “ qualified transportation equipment" as new property eligible for the investment tax credit from 1978 onwards. Reference is even made in the budget review (at page 15)* to “long-distance rail, air, sea or highway equipment", The related budget documents also refer (at page 32) to (long-distance) highway transport. It is also noted (at page 33) that " highway transport plays a significant part in moving processed materials and manufactured goods", that "the investment tax credit for highway operators will reduce overall product distribution costs for Canadian industry” and that “the measure will be especially beneficial in regions where goods transport is increasingly by highway rather than by rail”.

With all due respect, I cannot find in these documents an extrinsic source of limitations regarding the type of transport contemplated which are stricter than those stated in the amendments to the Act and Regulations resulting from adoption of this budget. Clauses 4601(c)(i)(C) and (E) seem to me to indicate with sufficient clarity the limitations contemplated by the legislature. If any doubt still exists, the provision should be construed in a manner favourable to the taxpayer. Reference may be made in this regard to judgments of the Supreme Court of Canada in Lor-Wes Contracting Ltd. v. The Queen, [1985] 2 C.T.C. 79; 85 D.T.C. 5310, and Johns-Manville Canada Inc. v. The Queen, [1985] 2 C.T.C. 111; 85 D.T.C. 5373.

Conclusions

In the case before the Court, the facts show without any question that milk was collected “locally”, that is in the municipalities of Cap St-Ignace, Mon- tmagny and St-Pierre in the county of Montmagny. Indeed, the appellant does not dispute this. However, I conclude that there was also transportation and delivery of bulk milk at least on a regional basis, in that this milk was taken to two processing and transformation plants located 102 and 121 kilometres from Cap St-Ignace, that is, to the Ste-Claire plant located in the county of Be- llechasse and the St-Agapit plant located in the county of Lotbinière respectively. Clearly highways outside the local collection route had to be used. In my opinion, this goes beyond what is meant by “local” collection, transportation or delivery as this limitation is stated in clause 4601(c)(i)(E) of the Regulations. Such an activity constitutes transportation "on highways outside of any metropolitan area, city, town, village, municipality or other similar community or area" within the meaning of clause 4601(c)(i)(C) of the Regulations according to the interpretation given above.

As to whether the tanker truck purchased by the appellant was acquired "principally" for such transportation and delivery of bulk milk as opposed to

* Translated, not quoted, at customer's request—TR

the collection activity, I also conclude that this was the case, in accordance with the two tests mentioned, namely the time spent on each of the activities and the kilometres covered for each of them. Though I feel that more weight must be given to the kilometres covered in the case of a highway vehicle, equal weighting of the time and the distance factors indicates a use ratio much greater than 50 per cent for transportation and delivery of milk as compared with collection. While the collection and transportation times seem almost equivalent (about three hours for each activity) with a slight advantage to the transportation activity when this was carried out at St-Agapit, one has to add to the latter the delivery time at the plant itself (40 minutes a day), delivery which is not “local”. As regards distance, more than 90 per cent of the kilometres covered were for the activity of transporting the milk to the plant and back. Even if one were to exclude from the time and distance calculations the return of the tanker truck empty after milk had been delivered to one or other plant, on the ground that this was not transportation of goods, the ratio between the local collection activity on the one hand and transportation and delivery activities at the plants on the other would still be in favour of the latter activities by over 50 per cent. However, I do not feel that one must go to these extremes in calculation, since the truck obviously has to be emptied if it is to carry a new load on the same day or the following one (see the judgment of the Federal Court of Appeal in Bunge of Canada Ltd. v. The Queen, [1984] C.T.C. 284; 84 D.T.C. 6276).

For these reasons, the appeal is allowed and the assessments for 1986 and 1987 are referred back to the Minister for reconsideration and reassessment in accordance with the findings of this judgment, the whole with costs to the appellant.

Appeal allowed.