Pavages Vaudreuil Ltée v. Agence du revenu du Québec, 2021 QCCQ 3890

In addition to being involved in construction (maintenance of roads, streets and bridges), the taxpayer (“PVL”) owned several natural gravel quarries and sand pits and processed sand, river gravel, crushed stone and earth.

PVL purchased three pieces of equipment (a wheel loader, compact excavator, and hydraulic thumb) and used them exclusively for the handling of materials already gathered by a cable shovel in connection with the washing, sorting and crushing of the various products intended either for sale (as to about 73% of the products) or for use by PVL (as to the balance).

In order for the purchases to have generated an investment tax credit for Quebec purposes, they were required inter alia to qualify as Class 29 property, i.e., property acquired by it to be used primarily in the manufacturing or processing of goods for sale. Under Reg. 130R12(c) and (e) (the Quebec equivalent of ITA Regs. 1104(9)(c) and (e)), “manufacturing or processing” was deemed to exclude “construction” and “extracting minerals from a mineral resource.” In finding that the para. (e) exclusion did not apply, and before going on to find that the para. (c) exclusion also did not apply, Bourgeois JCQ stated (at para. 44, TaxInterpretations translation):

The acquired goods were used exclusively for the handling of materials already collected by the cable excavator, in the context of operations necessary for washing, sorting and crushing and then stacking the various products intended either to be sold to third parties (as to 73.3%) or to be used by the plaintiff (as to 26.67%) … .

In addition to being involved in construction (maintenance of roads, streets and bridges), the taxpayer (“PVL”) owned several natural gravel quarries and sand pits and processed sand, river gravel, crushed stone and earth.

PVL purchased three pieces of equipment (a wheel loader, compact excavator, and hydraulic thumb) and used them exclusively for the handling of materials already gathered by a cable shovel in connection with the washing, sorting and crushing of the various products intended either for sale (as to about 73% of the products) or for use by PVL (as to the balance).

In order for the purchases to have generated an investment tax credit for Quebec purposes, they were required inter alia to qualify as Class 29 property, i.e., property acquired by it to be used primarily in the manufacturing or processing of goods for sale. Under Reg. 130R12(c) and (e) (the Quebec equivalent of ITA Regs. 1104(9)(c) and (e)), “manufacturing or processing” was deemed to exclude “construction” and “extracting minerals from a mineral resource.” After finding that the para. (e) exclusion did not apply, and in now also finding that the para. (c) exclusion also did not apply because PVL’s construction and processing operations were distinct, Bourgeois JCQ noted that the operations’ respective customers differed, the processing occurred at sites distinct from the situs of the construction projects, only 26.67% of the processed product was used in the construction operation and, indeed, the two operations could have been operated independently of each other, and there was separate accounting. The appeal was allowed.

In addition to being involved in construction (maintenance of roads, streets and bridges), the taxpayer owned several natural gravel quarries and sand pits and processed sand, river gravel, crushed stone and earth for sale to third parties and for use in its construction operations. It purchased three pieces of equipment for use exclusively for the handling of materials already gathered by a cable shovel in connection with the washing, sorting and crushing of the various products.

In order for the purchases to have generated an investment tax credit for Quebec purposes, they were required inter alia to qualify as Class 29 property, i.e., they were required to have been acquired for use primarily in the manufacturing or processing of goods for sale. Under the Quebec equivalent of Reg. 1104(9)(c), “manufacturing or processing” was deemed to exclude “construction."

In finding that this exclusion did not apply because the taxpayer’s construction and processing operations were distinct, Bourgeois JCQ noted that the operations’ respective customers differed, the processing occurred at sites distinct from the situs of the construction projects, only 27% of the processed product was used in the construction operation, the two operations could have been operated independently of each other, and there was separate accounting. The appeal was allowed.