6 February 1992 External T.I. 9132065 F - Manufacturing Processing

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Attention:  19(1)

February 6, 1992

Dear Sirs:

Re:     Manufacturing & Processing Profits Deduction

24(1)

This is in reply to your letter dated September 20, 1991 concerning the blending of various raw materials and packaging thereof, from bulk into consumer containers, carried out on your behalf for the purposes of the manufacturing and processing profits deduction ("MPPD") under section 125.1 of the Income Tax Act (the "Act"). The containers are then shipped to retailers for sale to consumers.

We are unable to provide an advance ruling as requested. As stated in our Information Circular 70-6R2 (copy attached), advance rulings will be given only on proposed transactions and are not issued on completed transactions or transactions that are significantly advanced. Accordingly, while we cannot provide confirmation of the income tax effects of the particular situation, we are prepared to offer the following general comments:

Interpretation Bulletin, IT-145R and the Special Release to IT- 145R (copies attached) discuss the meaning of "manufacturing" and "processing" and some of the activities that qualify as manufacturing or processing for the purposes of the MPPD.

Paragraph 6 of the Bulletin states that "the activities of breaking bulk and repackaging for subsequent resale where there is a systematic procedure to make a product more marketable are generally considered to be processing". According to the Special Release, paragraph 4 of the Bulletin confirms that "a corporation which merely sells goods manufactured or processed by another party or supervises the manufacturing or processing of goods where the actual manufacturing or processing is carried on by another party will not qualify for the deduction. However, where the goods are being manufactured or processed by another party on behalf of the corporation and the corporation exercises extensive involvement and control over the content, design, and physical qualities of the goods from inception to completion, the corporation will qualify for the deduction".

Based on the above comments, it is a question of fact to be determined in each particular circumstance whether the activities of a corporation can be described as "manufacturing or processing goods for sale" for the purposes of section 125.1 of the Act. However, where a corporation meets the requirements of the Bulletin and Special Release described above and more than 10% of the corporation's gross revenue from all active businesses carried on in Canada is either from:

a)     the selling or leasing of goods manufactured or processed in Canada by it, or

b)     the manufacturing or processing in Canada of goods for sale or lease, the corporation would normally be eligible to claim the MPPD.

We hope that our comments will be of assistance to you.

Yours truly,

for DirectorManufacturing Industries,Partnerships and Trusts DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch