22 March 1990 Income Tax Severed Letter AC74657 - 24(1)

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.

March 22, 1990

24(1) Head Office
Resource Industries
Section
Frank Gillman
(613) 957-9768

24(1) 7-4657

This is in response to your memorandum dated January 17, 1990
concerning the above mentioned taxpayer, wherein you requested
that we inform you whether a certain property within the
operation of 24(1) meets the criteria of
"certified property" as that expression is defined at subsection
127(9) of the Act.

One of the essential ingredients of the definition "certified property" is that the property is part of a "facility" as that word is defined for purposes of the Regional Development Incentives Act ("RDIA"). Since Industry, Science and Technology Canada administer the RDIA, we contacted them to request their advice as to whether the particular property qualifies as a facility.

Their advice to us was as follows:

• "Based on the definition of `facility' under the Regional Development Incentive Act (RDIA) and Regulations, we still maintain that the processing of wood chips using the kraft pulping process or "sulphate pulping" is an `initial processing operation' in a `resource-based industry'. It should be kept in mind that the term `initial processing operation' is defined such that it includes the `production of newsprint' which is a more advanced form of processing and which obviously involves `a significant chemical change'. If this more advanced form of processing is included in this definition it is clear that a more `initial' operation, namely the processing of wood chips via the pulping process to produce pulp, is covered by the same definition. This is why it is necessary to specifically exclude from the definition the processing of wood using the sulphite process by a particular mill prior to January 1972 as a specific exception (b) in order to allow that particular non-repeat initial processing operation in a resource-based industry.

24(1)

• We do not disagree that a significant chemical change takes place during this process but our counter argument is that paragraph (d) does not and cannot apply to processing in a resource-based industry because, as in this case, there is no "product" to process. In a resource-based industry the material used is defined as being in or close to its natural state, as for example, wood chips. Such a material is not a "product" as that word is commonly defined and as used in paragraph (d)."

It therefore follows from this commentary that a pulpmill is not a property that meets the definition of a "facility" as that term is defined for purposes of the RDIA, and accordingly would not conform to the definition of "certified property" for purposes of subsection 127(9) of the Act.

J.T. Gauvreau Chief Resource Industries Section Bilingual Services & Resource Industries Division Rulings Directorate

Document Disclosed Pursuant to the Access to Information Act Document Divulgué en vertu de la loi sur l'accès à l'information