17 May 1993 Income Tax Severed Letter 9313865 - Mother's Pizza

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.

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

                                           5-931386
XXXXXXXXXX                                 Michel Lambert
                                           (613) 957-8953

May 17, 1993

Dear Sir:

This is in reply to your telephone call requesting our views regarding the entitlement of taxpayers in the business of food preparation to various tax incentives in respect of manufacturing and processing.

You refered to paragraph 45 of Interpretation Bulletin IT-145R , stating that the activities of preparing meals for consumption constitute processing, to the Federal Court Trial Division's decision in Mother's Pizza Parlour (London) Limited et al v. H.M.Q., 85 DTC 5271, and to the Special Release dated February 28, 1986 whereby Revenue Canada indicated that for assessing purposes it would continue to follow the views expressed in IT-145R pending further consideration and the result of the taxpayer's appeal in the above-mentioned case.

As a result of the Federal Court of Appeal's hearing in Mother's Pizza Parlour (London) Limited et al v. H.M.Q., 88 DTC 6397, the taxpayer's appeal was dismissed on the basis that :

"...the part of the building that was used for the sale and consumption of food was, by far, larger than the part used for the preparation of food. For that reason, I cannot escape the conclusion that the building was not primarily used for the preparation of food." (on p. 6399)

Mr. Justice Pratte, delivering an unanimous judgment, had previously said:

"The trail judge based his conclusion that the building in question had not been used primarily for processing goods for sale on the finding that the preparation of food for immediate consumption and sale is not "processing of goods" within the meaning of the Act. I need not, in order to dispose of this case, express any opinion on that finding. Indeed, even if the trial judge were wrong on that point (I do not want to suggest that he was) and if the preparation of food for immediate consumption and sale did constitute "processing of goods" within the meaning of subsection 127(10), it could not be said that the building was used primarily for the purpose of processing goods for sale since, in my view, it was mainly used for the consumption and sale of food." (also on p. 6399)

The Department did not change its assessing policy as a result of the Federal Court of Appeal's decision in Mother's Pizza, supra.

Concerning the investment tax credit, you did not provide enough information to enable us to determine whether the 10% investment tax credit, proposed in the Notice of motion of Ways and means of December 2, 1992, would be applicable or not in a particular case. All the conditions of the definition of "qualified property" as defined in subsection 127(9) of the Income Tax Act will have to be met.

We trust that these comments will be of assistance to you.

Yours truly,

for Director Manufacturing Industries, Partnerships and Trusts Division Rulings Directorate Legislative and Intergovernmental Affairs Branch