21 February 1997 External T.I. 9703835 - MANUFACTURING AND 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.

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.

Principal Issues:

whether binding and laminating are m & p

Position:

they may be, but the goods must be for sale or lease

Reasons:

125.1(3) contains requirement that goods be for sale or lease

970383
XXXXXXXXXX Denise Dalphy
(613) 957-9231

Attention: XXXXXXXXXX

February 21, 1997

Dear Sirs:

Re: Manufacturing or Processing Goods for Sale or Lease

This is in reply to your facsimile transmission of February 11, 1997 wherein you requested our opinion on the application of the above-referenced subject.

It appears that the interpretation you seek relates to specific completed transactions and taxpayers. As such, it is appropriate that a determination as to whether the particular activities described in your aforementioned FAX constitute manufacturing or processing goods for sale or lease be made by the relevant Tax Services Office, which may contact our office if they would like our assistance. Nonetheless, we are prepared to offer the following comments.

Paragraph 44 of Interpretation Bulletin IT-145R describes a number of activities (for example, typesetting, printing, collating, folding) of a printing or publishing firm that qualify as manufacturing or processing. The list is not comprehensive and, depending upon the circumstances, activities such as binding and laminating may also qualify as manufacturing or processing. It is important, however, to note that the definition of "Canadian manufacturing and processing profits" in subsection 125.1(3) of the Income Tax Act (the "Act") (and the income tax benefits associated with manufacturing and processing) refers to manufacturing or processing in Canada of goods for sale or lease. Accordingly, in order to satisfy the requirements in the Act, the goods must not only be manufactured or processed, but the goods must also be sold (or leased).

There is a significant body of caselaw which deals with manufacturing and processing income tax incentives. In particular, you may wish to review the following cases:

Crown Tire, 83 DTC 5426 (FCTD)
Halliburton, 88 DTC 6300 (FCTD)
Nowsco, 90 DTC 6312
Coopers and Lybrand Ltd., 94 DTC 6541 (FCA)
Lehmann Bookbinding, 95 DTC 5063 (FCTD)

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R3, the above comments do not constitute an income tax ruling and accordingly are not binding on the Department. Our practise is to make this specific disclaimer in all instances in which we provide an opinion.

Yours truly,

for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch