Sivaco Wire & Nail Company, Industrial Fasteners LTD v. Minister of National Revenue, [1981] CTC 2081, 81 DTC 140

D E Taylor:—These are appeals heard on common evidence in the City of Montreal, Québec, against income tax assessments for the years 1972 to 1976 inclusive for Industrial Fasteners Ltd (hereinafter referred to as “industrial”) and for the years 1974,1975 and 1976 for Sivaco Wire & Nail Com- pany (hereinafter referred to as “Sivaco”). For Industrial, the appeals for the years 1972 and 1975, and for Sivaco, the appeals for the years 1974 and 1975 were filed against “nil” assessments and will be dismissed. The hearing therefore dealt only with the taxation years remaining in each case. Although the hearing itself was conducted partially in the French language and partially in the English language, the major documents were filed with the Board in English, and for that reason this decision will be written in English. As in all cases heard by the Board, an official translation is available.

There was no disagreement between the parties regarding the facts on the amounts involved and the point at issue being one of principle and interpretation, it was placed in context by the appellants as follows:

The above adjustments arise as a direct result of certain buildings located in I’Orignal, Ontario, being reclassified as Class 3 by the Federal Tax Department. We contend that these structures are properly classified as Class 6 for Capital cost allowance purposes (Schedule B of subsection (1)(a) of Regulation 1100)

The outside surfaces of these buildings, which are covered by corrugated iron, constitute the majority of the buildings’ surface areas. Accordingly, this is the decisive factor in determining the CCA class.

There is already a precedent established in supporting our contention—Please refer to Tax Board Ruling #50,213—BELGEN INC, [1978] CTC 2099; 78 DTC 1067. The Minister’s assessment is unfounded in both fact and law.

The Minister contended that:

—The basic structural support of the building consists of 30-inch steel girders;

—The basic structural support of the building is covered mostly with galvanized and corrugated iron;

—The building is not a building of galvanized or corrugated construction within the meaning of Class 6 of Schedule B of the Income Tax Regulations;

—The building has properly been determined to be a Class 3 property in accordance with the provisions of subsection 13(6) of the Income Tax Act.

Expert evidence was presented to the Board by the appellants detailing that the material used is the only material which could be regarded, both from an engineering and a construction viewpoint, as that referred to in the Class 6 assets in Schedule B (Regulation 1100 of the Income Tax Regulations) as

“(iv) galvanized iron, or

(v) corrugated iron,” (English version)

and as

“(iv) en tôle galvanisée, ou

(v) en tôle ondulée,”. (French version)

In argument, counsel for the appellants relied upon the expert testimony provided, and upon the decision in Be/gen Inc v MNR, [1978] CTC 2099; 78 DTC 1067. Counsel for the Minister suggested that consideration should be given to the totality of the materials used in the building, including the inner core of steel in the structure itself, and to the fact that the outside covering was made of steel, not iron—as iron is understood in the natural state. In addition, counsel for the respondent noted that some earlier jurisprudence indicated that a certain relationship might be drawn between the percentage rate of capital cost allowance and the relative life-expectancy of the materials used in the asset itself—presumably that steel was more durable than iron, etc.

Findings

As I see it, there are two points in dispute in these appeals. First, whether the metal siding used to cover the buildings comes under the definition for corrugated or galvanized iron, and second, whether the nature of that covering is the deciding factor in the classification of the buildings for capital cost allowance purposes.

On the first issue, the evidence and testimony provided was clear. There is no such thing in general construction usage as corrugated or galvanized iron. It is corrugated or galvanized steel, and whether it is called iron or steel in common usage, it is the material referred to in the capital cost allowance schedules for income tax purposes, in my opinion.

On the second point, the key phrase in Schedule B, Class 6 of the Income Tax Regulations dealing with capital cost classes Is:

. . . a building of... (galvanized iron or corrugated iron)... construction .. (italics mine).

It would appear to me that it is the addition of the outside covering which is the construction, making a simple core structure into a building for purposes of the Income Tax Act. I am not persuaded that the structure could be termed a building for such purposes, before final construction, including the outer covering. I see no reason for the Board to ascertain the nature of anything beyond the kind of construction (materials used) in that outside covering for purposes of the instant appeals. In these cases, there is only once such covering—it is galvanized or corrugated steel (iron). For purposes of the relevant provisions of the Income Tax Act, the buildings are of

.. galvanized iron or corrugated iron construction . . The respondent’s argument that the durability of the materials is the basis for the various cca rates applied may appeal logical. However, there is nothing in the Regulations upon which the Board could rely which would support such a conclusion.

The appeal of Sivaco for the year 1976 and the appeals of Industrial for the years 1973, 1974 and 1976 are allowed and the matter referred back for reconsideration and reassessment accordingly. The appeals of Sivaco for the years 1974 and 1975, as well as the appeals of Industrial for the years 1972 and 1975 are dismissed.

Appeals allowed.