O'Neill v. The Queen, 85 DTC 5026, [1984] CTC 682 (FCTD)

Cullen, J:—This action is by way of an appeal from The Tax Court of Canada, Mr Lucien Cardin, QC, PC, sitting as Chairman. It was agreed between the parties to accept the evidence taken on Friday, the 22nd day of July 1983 before the Tax Review Board.

There is agreement between the parties that prior to the purchase of a piece of equipment called an ABCO air unloader, the plaintiff purchased fish, primarily herring and gaspereau, at dockside from fishermen for resale to fish processing plants. The fish were unloaded from the boats by means of barrels and winches, and judging from the evidence, it was an effective means of unloading fish, albeit not as efficient on all occasions as the plaintiff would like. This method required lowering a barrel, and the fishermen would have to scoop them into it. The efficiency related quite often to the number of fishermen prepared to stay on board and help with the loading. This method also caused more bruising to the fish because they were loaded into barrels, the barrels were handed up through a cable and winch system and then dumped into the truck. This method also left the fish dirty, more apt to bruise and of diminished quality and they were dirty from blood and roe.

From the evidence it is clear that the ABCO air unloader was most efficient. It operated like a large scale vacuum cleaner, removing the fish from the boats and depositing them on the trucks. While this was taking place scales were removed, the fish were clean and the evidence is that they were less likely to be bruised. The evidence also makes clear the fish had rough handling when being shaken from the nets and depositing them on board ship could also be said to likely cause bruising.

The plaintiffs evidence is that he was approached by officials from the Federal Department of Fisheries and Oceans who suggested a grant might be available so “we could up the quality of the fish’’. The Fisheries officials seemed to be the catalysts in moving the plaintiff to purchase the ABCO air unloader and later to order a second one.

The evidence of Mr Roger Davison, a project designer with 12/2 years as an employee of Atlantic Bridge Company, is that he was familiar and involved in the design, selection of material, the purchasing, cost estimating, quotations and commissions. The latter words he indicates means, “‘I have looked after the sale and the start-up of machines’’.

In describing how the machine operates Mr Davison, on pages 102, 103 and 105, states:

51.

The suction . . . is here, carry the fish, up into the cyclone section. At this point, air is passing over the fish, and the fish are carried in an air stream, up into the cyclone. The cyclone discharges the fish vertically down into a water trap which is an aluminum tank, filled with water. That water maintains a vacuum in these pipes.

The fish pour down into the water, and then are elevated out through the weigh station, which Mr Neill referred to, an elevating conveyor, into the truck.

52.

Q. How is it powered? Is it electrically operated?

A. No. Mr Neill’s is a diesel unit. There’s a . .. diesel engine on there which drives a centrifugal fan. The fan draws the water . . . draws the air through the tubes, and is separated here, so what you’re doing in the cyclone is to reduce the air speed, the air velocity, so that fish drop out of the air stream, into the water. This other picture shows the . . . where the fish are discharged out of the tank. This would be the tank section here. Just filled with water.

53.

Q. You’ve described a tank which is filled with water, Mr Davison. What’s the purpose of that tank?

A. Okay, without . . . without the tank of water, the machine wouldn’t operate. You need the water in there, to maintain the vacuum in the suction tubes.

54.

Q. What would happen if there were no water?

A. Then the air would take the path of least resistance, which would be through the cyclone, through the larger opening, as opposed to through the tubes.

55.

Q. And then what would happen? Would the fish be sucked in?

A. They wouldn’t . . . the machine wouldn’t operate.

56.

Q. So, the water . . . the main purpose of the water then, as I understand what you’ve said, is to maintain the vacuuming system so that the sucking or pumping action, would still work?

A. Right.

The evidence is quite clear about what the ABCO air unloader was designed to do.

68.

Q. Mr Davison, you’ve said that . . . that you were involved in the designing of these fish unloaders. What are they designed to do?

A. They are designed to pneumatically discharge fish from a vessel either to a wharf or to a fish plant.

It is also clear from the evidence that the ABCO air unloader removes scales from herring and gaspereau, and cleans them to the point where one of the processes at the fish plant can be eliminated. The more efficient, effective method of unloading fish from the boats is acknowledged by the fish processing people who pay a higher price for the fish than they were prepared to pay under the barrel and winch system.

It should be noted that the machine does not have this ability to remove scales from all fish, and red fish was given as an example by Mr Davison where scales are not removed.

It should also be noted that the machine is not used by the plaintiff when he works the “seiners” and the plaintiff purchases and sells fish in that market.

The primary question for determination in the appeal is whether the ABCO air unloaders are qualified property within the meaning of subsection 127(10) of the Income Tax Act for the purpose of the investment tax credit contemplated in subsection 127(5) of the Act.

The secondary issue to be determined is whether the second ABCO air unloader was acquired by the plaintiff on [sic] the 1979 taxation year.

Under subsection 127(5) of the Income Tax Act a taxpayer is entitled to deduct from tax otherwise payable, a certain amount as an investment tax credit. This provision reads:

Investment Tax Credit

127 (5) There may be deducted from the tax otherwise payable by a taxpayer under this Part for a taxation year an amount not exceeding the lesser of

(a) his investment tax credit at the end of the year, and

(b) the aggregate of

(i) $15,000, and

(ii) /2 the amount, if any, by which the tax otherwise payable by him under this Part for the year exceeds $15,000.

To qualify for an investment tax credit as defined by subsection 127(9) of the Income Tax Act the property must be a “qualified property” within the meaning of subsection 127(10) of the Income Tax Act. For the purpose of this appeal, subsection 127(10) states:

Qualified Property

127 (10) for the purposes of subsection (9) a “qualified property’’ of a taxpayer means

(a) . . .

(i) .

(ii)

(b) prescribed machinery and equipment acquired by the taxpayer after June 23, 1975 and before July 1, 1980,

that has not been used for any purpose whatever before it was acquired by the taxpayer and that is

(c) to be used by him in Canada primarily for the purpose of

(i) manufacturing or processing goods, for sale or lease.

In my view the plaintiffs appeal fails on the ground that the ABCO air unloader was not used primarily for the purpose of manufacturing or processing fish. The benefits accruing to the plaintiff were incidental to the main purpose of his work, namely buying and selling fish. The machine was not designed to scale fish or clean them, and the plaintiff would have no recourse against the manufacturer if the machine failed to scale fish, and as the evidence of Mr Davison makes clear, the age of the fish and the amount of friction determined the amount of scales removed when going through the air unloader. The plaintiff certainly derived business benefits from use of the ABCO air unloader, namely, a more efficient system of unloading and a better quality of fish delivered to the fish processors but it was at best a fringe benefit, and did not put the plaintiff in the processing business.

I am also satisfied with a point made by counsel for the defendant that the ABCO air unloaders were used by the plaintiff in a purchase and resale operation and therefore excluded by subparagraph 127(1 l)(b)(iv) of the Income Tax Act from the list of purposes referred to in paragraph 127(10)(c) of the Act.

For these reasons the appeal must fail and no judgment need therefore be made with respect to the secondary issue.