7 December 1993 Income Tax Severed Letter 9331167 - Investment Tax Credit Qualified Transportation Equipment

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 a tow-truck would be considered as
"carrying freight" and would be qualified as "qualified
transportation equipment" for the purpose of the small-
business-investment-tax-credit rules.

POSITION TAKEN:

         It is our view that a tow-truck which hauls other
vehicles such as semi-trucks and buses would be considered
to be "carrying freight" for purpose of clause 4601(c)(i)(B)
of the Regulations.

REASONS FOR POSITION TAKEN:

         Estey, J. commented in the case of Johns-
Manville Canada Inc, 
85 DTC 5373
(SCC), at page 5384, that reasonable uncertainty or
factual ambiguity resulting from lack of explicitness
in the tax statute should be resolved in favour of the
taxpayer.  Given this comment and the relatively
liberal interpretation of the investment-tax-credit
rules by the courts, and given the possible broad
ordinary meaning of the expression "carrying freight",
there is a respectable argument that the tow-truck in
the case at hand is designed primarily for the
purpose of transporting other trucks or buses on
highway from one place to another, notwithstanding
that the transported truck or bus is not loaded on the
deck of the tow-truck and is not totally borne up.

                                             December 7,1993

      Winnipeg District Office               Resource Industries
      B.A. Wood                              Section
      Business Enquiries                     Peter Lee
                                             (613) 957-8977
                                             7-933116

Regulation 4601 — Qualified Transportation Equipment

This is in reply to your memorandum of October 29, 1993 wherein you requested a technical interpretation of the expression "carrying freight" for purposes of clause (c)(i)(B) of the above-mentioned Regulation in the context of a tow-truck which otherwise satisfies all of the requirements of the proposed amendments to section 127 of the Income Tax Act (the "Act") for purposes of the proposed small business investment tax credit and section 4601 of the Income Tax Regulations (the "Regulations") for treatment as "qualified transportation equipment". We acknowledge that your request was precipitated by a request for an opinion by the XXXXXXXXXX

Whether a particular tow-truck that is used mainly for hauling other vehicles such as semi-trucks and buses would be considered to be "carrying freight" for purposes of Regulation 4601(c)(i)(B) would depend upon all of the facts and circumstances of the particular situation. Since all of the facts and circumstances of the particular situation are not available, we are unable to make any such determination.

However, we offer the following general comments which we hope will be useful to you in formulating your reply to XXXXXXXXXX

Relevant Law

1. Clause 4601(c)(i)(B) of the Regulations states:

          (c) property that is

          (i) a truck, tractor or trailer that ...

               (B) is designed for the purpose of carrying
               freight, or hauling a trailer that carries
               freight, on highways, and ...

Our Comments

2. In our view, whether or not a truck, tractor or trailer is designed for the purpose of carrying freight would depend upon interpretation of the words used in clause 4601(c)(i)(B) of the Regulations, based on the ordinary meaning of the words, with respect to a particular situation.

3. The Oxford English Dictionary, (2nd ed — 1989), defines the terms "carry" and "freight" as "transport, convey while bearing up" and "cargo or lading (of a ship); a ship-load; anything carried by sea or land; 'goods' in transit or being transported by rail, road, or sea", respectively.

The Concise Oxford Dictionary, (8th ed — 1990), defines the terms "carry" and "freight" as "transport in vehicle, ship, aircraft, hand or mind" and "goods transported; cargo... a load or burden", respectively.

The Random House Dictionary, (2nd ed — 1987), defines the terms "carry" and "freight" as "take or support from one place to another; convey; transport" and "goods, cargo, or lading transported for pay, whether by water, land, or air", respectively.

The Webster's Third New International Dictionary, (1st ed — 1986), defines the terms "carry" and "freight" as "move while supporting (as in a vehicle or in one's hands or arms); move an appreciable distance without dragging; sustain as a burden or load and bring along to another place" and "something that is loaded for transportation; cargo; load, burden", respectively.

The Black's Law Dictionary, (6th ed — 1990), defines the terms "carry" and "freight" as "to bear, bear about, sustain, transport, remove, or convey" and "goods transported by a carrier", respectively.

The expression "carrying freight" in French is "transport de marchandises" which is in equal force as the English expression and has a literal meaning of "transporting goods".

Based upon the above-noted definitions and the French expression "transport de marchandises", it is our view that the expression "carrying freight" could be narrowly interpreted as "transporting without dragging goods that is borne up", and that it could also be broadly interpreted as "transporting goods or any tangible property".

4. In the case of Fortin & Moreau Inc. v MNR, 90 DTC 1450 (TCC), Couture, T.C.J. wrote at page 1463:

          Second, on the question of household waste and
          specifically whether this constitutes freight or
          "marchandises" in the French, I refer to the
          definition of "marchandise" in the Grand Robert de
          la Langue Française: (Translation) "Movable object
          that may be traded or sold... 

          Note also that "freight", used in the English, is
          defined in The Random House Dictionary of the
          English Language as follows: "U.S. and Canada,
          cargo or lading carried for pay either by water,
          land or air".  In view of these definitions, I
          have no hesitation finding that household waste,
          notwithstanding its special nature, constitutes
          freight within the meaning of the Regulation.

In the case of Shore Disposal Ltd. v. Ed DeWolfe Trucking Ltd. (1976), 72 D.L.R. (3d) 219 at page 225, the Nova Scotia Supreme Court, Appeal Division, assumed, at least for purposes of the appeal, that vehicles carrying and disposing of garbage on contract for companies and municipalities were "freight vehicles", within the meaning of the Motor Carrier Act (Nova Scotia).

Based upon this jurisprudence and the definitions of the term "freight" referred to in 3 above, it is our view that in the case at hand, any vehicles such as semi-trucks and buses which are carried or transported by another truck on highways are considered "freight" for the purpose of clause 4601(c)(i)(B) of the Regulations.

5. The courts have interpreted the investment-tax-credit rules in a very broad, common-sense and business approach. For example, in the case of Nowsco Well Service Ltd, 90 DTC 6312 (FCA), Urie, J.A. commented on behalf of the court at pages 6319 and 6320:

          While perhaps initially the vehicles used by the
          Respondent were "designed for use on highways or
          streets" their design was so modified for purposes
          of their utilization, that the limited design
          purpose was of minimal importance.  Their primary
          purpose was to become parts of an integrated
          process for the cementing and/or stimulation of
          oil or gas wells.

In the case of Cumberland Ready Mix Ltd., (FCTD Court No. T-450-88) dated October 20, 1993, Cullen, J.A. relied on the above-noted comments of Urie, J.A., and the decision of the court in the case of Terraco Industries Ltd., 93 DTC 1 (TCC), and concluded that Cumberland's concrete ready-mixer trucks were designed primarily for use in processing and delivering concrete for Cumberland's customer, notwithstanding that such trucks were in fact designed for use on highways or streets and that the exclusionary language of paragraph 4600(2)(e) does not include the word "primarily" or any similar qualification.

6. Estey, J. commented in the case of Johns-Manville Canada Inc, 85 DTC 5373 (SCC), at page 5384:

          ... another basic concept in tax law that where
          the taxing statute is not explicit, reasonable
          uncertainty or factual ambiguity resulting from
          lack of explicitness in the statute should be
          resolved in favour of the taxpayer.

Given the above-noted comments of Estey, J., and the relatively liberal approach to the interpretation of the investment-tax-credit rules reflected by the court decisions referred to in 5 above as well as the court decisions in the cases of Lor-Wes Contracting Ltd., 85 DTC 5310 (FCA), Halliburton Services Ltd., 90 DTC 6320 (FCA), and Bunge of Canada Ltd.,

84 DTC 6276 (FCA), and given the possible broad interpretation of the expression "carrying freight" referred to in 3 above, there is a respectable argument that in the case at hand, the tow-truck is designed primarily for the purpose of transporting other trucks or buses on highway from a place to another place, notwithstanding that the transported truck or bus is not loaded on the deck of the tow-truck and is not totally borne up.

Accordingly, it is our view that a tow-truck which hauls other vehicles such as semi-trucks and buses may be considered to be "carrying freight" for purpose of clause 4601(c)(i)(B) of the Regulations.

If you have any questions or wish to discuss any of the above, please contact the writer.

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