Clarence Daigle & Fils Ltee v. Minister of National Revenue, [1981] CTC 2770

Roland St-Onge:—The appeal of the company, Clarence Daigle et Fils Ltée, came before me on July 8, 1981, in the city of Fredericton, New Brunswick, and the issue is whether the appellant is allowed to claim an investment tax credit, within the meaning of subsection 127(10) of the Income Tax Act, for a tractor and scarifier-tooth rake purchased in the appellant’s 1977 taxation year. The contentions of the parties are well spelled out at paragraphs 1 to 6 of the Notice of Appeal, and paragraph 3 of the Reply to the Notice of Appeal and I quote:

FACTS

1. The Taxpayer, CLARENCE DAIGLE & FILS LTÉE, (hereinafter referred to as the “Taxpayer”), is a Company incorporated under the laws of the Province of New Brunswick and at all times material to the appeal carried on business in the Province of New Brunswick.

2. In 1977 the Taxpayer purchased one only Fiat-Allis Model 21C Crawler Tractor with specially designed Scarification blade for the purpose of undertaking reforestation activities and was in fact used for the said purpose.

3. Prior to the acquisition of the said equipment the Auditor for the Taxpayer, Mr Charles E Crook, CA, discussed the matter of the availability of the investment tax credit with respect to the said equipment with officials of Revenue Canada at Saint John, New Brunswick, and was assured that the equipment so qualified.

4. For its taxation year 1977 the Taxpayer claimed the investment tax credit with respect to the said equipment in the amount of $13,340 but the same has been disallowed by the Department and the 1977 return reassessed accordingly.

5. The Taxpayer filed a Notice of Objection to the said reassessment on the 5th day of July, AD 1979 and by Notice of Confirmation dated the 14th day of March, 1980, the Minister has reconfirmed the said assessment.

6. This appeal is taken from the Notification of Confirmation by the Minister of the Said assessment dated the 14th day of March, 1980.

3. In assessing the appellant for its 1977 taxation year, the respondent made the following assumption of fact, inter alia:

(a) the appellant’s main business activity was that of excavation, road and gravel contractors;

(b) in its 1977 taxation year, the appellant entered into a contract with the Department of Natural Resources for the Province of New Brunswick (the “contract”);

(c) the work to be performed in the contract was that of “clearing dense hardwood shrubs and other materials”;

(d) the work on the contract was completed in the appellant’s 1977 taxation year;

(e) the appellant acquired a Fiat-Allis Model 21C Crawler Tractor (the “tractor”), one of the attachments of which was a “scarifier” tooth rake;

(f) the appellant exercised an option to purchase the tractor on December 21, 1977, by which time it had paid rental and other charges of $51,840 thereon, the $48,000 rental payments of which were credited to the total purchase price of $172,200.

(g) the tractor was not used by the appellant in logging operations.

At the hearing, the president of the appellant company testified as follows:

1. In 1975, the appellant company started on an experimental base to till the soil for the Department of National Resources, with an old equipment.

2. In 1977, the appellant company was asked by the same Department to operate with a bigger sized equipment.

3. In the same year, two thousand acres were tilled with new equipment to know “crawler tractor, with a scarifier tooth rake”, purchased at the price of $172,200, but the trees were planted by another party.

4. The appellant company intent was to expand and to get into a new field of operation like tilling the land for plantation of trees.

5. This kind of operation was never performed in the following years.

6. In 1977, the appellant company income was some $1,199,000 of which $56,000 was earned for tilling the land.

7. The appellant company witness admitted that the new equipment acquired in 1977 could be used for other work than tilling of the soil, and that in fact, it was used for other work, because the appellant company had to survive.

The appellant company main argument was that the new equipment acquired in 1977 was qualified property within the meaning of paragraph 127(10)(b) of the Act and according to subsection 248(1), “Farming”, which is mentioned at subparagraph 127(10)(c)(viii), includes tilling of the soil. Consequently, for this reason the appeal should be allowed.

On the other hand, Counsel for the respondent argued that qualified property, within the meaning of paragraph 127(10)(b) means prescribed machinery and equipment which according to subsection 248(1), means prescribed by Regulation. Regulations Part XLVI paragraph 4600(2)(e) says, “Property is prescribed machinery and equipment for the purposes of paragraph 127(10)(b) of the Act if it is depreciable property of the taxpayer. . . that is

(e) a property included in paragraph (a) of Class 10, or Class 22 . . .”. The asset in question was put in Class 22, but it was not to be used by the appellant company in Canada primarily for the purpose of farming because, in 1977 and the following years, no part of the appellant’s income was from farming operation, within paragraph 127(1 )(c) and, consequently, the tractor was not qualified property within the meaning of subparagraph 127(10)(c) (viii).

According to the evidence adduced, it is obvious that the appellant company was not in the business of farming. The appellant’s president, Jacques Daigle, testified that the appellant company had to do all kinds of jobs to earn a profit; that the equipment purchased in 1977 could be used for other work than tilling the soil and to use his own words, he said, “We had to survive”.

Furthermore, the appellant company did not have to hire other specialized employees to do the work, wich was effectuated on provincial land. Even if the definition of farming includes tilling of soil, the buying of a 21C Crawler Tractor with a “scarifier tooth rake” to execute a contract of some $56,000 out of a total reported income as contractor of $1,199,000, does not mean that the equipment in question was acquired by the appellant company to be used primarily for the purpose of farming. As a matter of fact the equipment could be used, and was used, for other jobs.

Also, the appellant company’s main business activity, as mentioned in its 1977 income tax return, was that of excavation and road gravel contractor, and the scarification contract with the Department of National Resources was not in the nature to qualify the equipment as being used primarily for the purpose of farming. Taken as a whole, the evidence shows that the equipment, in question, was not acquired in 1977 to be used primarily for the purpose of farming and, consequently, the appeal is dismissed.

Appeal dismissed.