31 January 1994 Internal T.I. 9328977 F - CCA Class of Building Used in Peat 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.

January 31, 1994

Saint John District Office      Head OfficeBusiness Enquiries      Rulings Directorate     (613) 957-8953

Attention:  Laurie Brine

Classification of building for CCA purposes

You have asked for our opinion regarding the proper classification, for CCA purposes, of a building acquired by a taxpayer in which peat is cleaned, compressed and bagged.

Analysis

A building which would otherwise fall within Class 1, 3 or 6 will qualify for a faster write-down under paragraph (g) of Class 10 if it was acquired principally for the purpose of gaining or producing income from a mine, subject to certain exceptions. The question then is whether income from the cleaning, compressing and bagging of peat falls within the definition of "income from a mine".

Regulation 1104(3) defines mining, for CCA purposes and Schedule II, as including the harvesting of peat. Since harvesting would not ordinarily be considered to be "mining" without this specific inclusion, and since there is no reference in this definition to the processing of peat, those activities would therefore only appear to fall within the definition of mining if they can be said to fall within the definition of "harvesting".

In Nova Scotia Sand and Gravel Limited v. The Queen, 80 DTC 6298 (FCA), the issue before the Court was whether the taxpayer's operations at its plant or plants consisting of washing, screening, sorting, etc. of excavated pit run sand and gravel consisted of "producing industrial minerals" which finding would deny to the taxpayer the benefit of the manufacturing and processing tax credit found in section 125.1 of the Act. The Court found that what the taxpayer did to the excavated product as described above was a processing operation. The Court went on to recognize a distinction between producing (which it characterized as the extraction of raw material) and processing (which it characterized as what one does to the raw material after it has been removed) and concluded, therefore, that the taxpayer should be successful. Applying such analysis to this issue, a very strong argument can be made that the harvesting of the peat from the bog is in the nature of the extraction of raw materials, whereas the cleaning, compressing and bagging of the peat at a separate building, after it has been harvested, is more akin to a processing operation. The conclusion that the operation is a processing operation is one which, in fact, has been accepted by the taxpayer's accountants. It is therefore unlikely, in our view, given this type of distinction, that Parliament intended this latter stage to be included in the definition of harvesting. It is noteworthy that Regulations 1104(5) and (6) list certain processing activities which are to be treated as mining. While the provisions contain cut-offs as to where the mining activity ceases, they also serve to broaden mining to include activities beyond the actual mining activity up to the point of cut-off, but in so doing make no reference to the processing of peat.

Conclusion

We agree with your opinion that while the definition of mining includes the harvesting of peat, that definition excludes the activities in question which are rather in the nature of processing activities as described in the Nova Scotia Sand and Gravel case.

We trust these comments will be of assistance.

Yours sincerely,

Murray Brake for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch