Bonner
J.T.C.C.:—This
is
an
appeal
from
an
assessment
of
income
tax
for
the
appellant's
taxation
year
ending
May
31,
1987.
The
appellant
operates
a
sawmill
in
Grand
Lake,
New
Brunswick.
During
the
year
it
acquired
and
installed
a
double
chip
bin
at
its
mill.
In
computing
income
tax
for
the
year
the
appellant
claimed,
in
respect
of
the
cost
of
the
bin,
an
investment
tax
credit
under
section
127
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act"),
a
manufacturing
and
processing
tax
deduction
under
section
125.1
of
the
Act
and
accelerated
capital
cost
allowance
on
the
bin
as
property
described
in
Class
29
of
Schedule
II
to
the
Income
Tax
Regulations.
The
claims
were
disallowed
by
the
Minister
of
National
Revenue
(the
"Minister").
The
issue
in
this
appeal
is
whether
the
appellant’s
claims
are
well
founded.
Both
before
and
after
the
appellant’s
1987
taxation
year
it
operated
a
lumber
mill
at
Grand
Lake,
New
Brunswick.
Although
the
production
of
lumber
was
the
primary
activity
wood
chips
were
a
by-product
of
considerable
importance.
They
were
produced
from
portions
of
logs
which
could
not
be
sawn
into
lumber.
The
were
sold
by
the
appellant
for
use
in
the
manufacture
of
paper.
The
lumber
mi
fl
operates
18
hours
a
day
five
days
a
week.
Chips
are
produced
continuously
while
the
plant
is
in
operation.
Once
the
chips
are
produced
they
are
screened
to
segregate
out
those
wood
particles
that
are
not
of
the
desired
size.
Following
screening,
chips
must
be
removed
from
the
mill
building.
During
the
year
in
question
the
appellant
installed
at
its
mill
a
new
system
for
the
collection
and
the
loading
of
wood
chips
into
trucks
for
delivery
to
its
customer,
a
paper
mill
in
Saint
John,
New
Brunswick.
The
chip
bin
in
issue
formed
part
of
that
system.
According
to
the
evidence,
the
system
in
place
prior
to
1987
was
unsatisfactory.
Wood
chips
produced
at
the
mill
were
blown
through
a
duct
or
tube
out
of
the
mill
building
and
were
deposited
in
a
large
pile
on
the
ground.
They
were
then
loaded
on
a
barge
and
transported
by
water
to
the
customer's
mill.
The
chips
in
the
pile
were
subject
to
deterioration
caused
by
the
elements
and
to
breakage
caused
by
the
operation
of
a
front-end
loader
which
had
to
be
driven
from
place
to
place
on
the
chip
pile.
As
well
the
chips
were
subject
to
contamination
by
airborne
debris.
Finally
a
layer
of
chips
had
to
be
left
on
the
ground
in
order
to
avoid
contamination
by
mud
and
rocks
when
the
chips
were
scooped
up
by
frontend
loader
for
purposes
of
transfer
to
the
barge.
The
new
system
of
which
the
chip
bin
formed
a
part
was
installed
to
eliminate
the
storage
or
chips
on
the
ground,
so
far
as
possible,
and
thereby
to
improve
the
quality
of
the
chips
delivered
to
the
paper
mill.
The
system
utilized
a
tube
through
which
the
chips
were
blown
out
of
the
mill
building
to
a
cyclone
apparatus
located
on
top
of
a
large
metal
bin.
The
cyclone
served
to
separate
the
chips
from
the
air
which
had
propelled
them
through
the
tube.
The
chips
then
dropped
from
the
cyclone
onto
a
horizontal
auger
and
then
into
the
bin.
The
bin,
viewed
from
the
top,
was
rectangular
in
shape
corresponding
roughly
to
the
shapeof
the
truck
used
to
transport
the
chips
to
the
customer's
mill.
The
auger
served
to
distribute
the
chips
evenly
within
the
bin.
The
bin
was
elevated
to
permit
trucks
to
be
driven
underneath
for
purposes
of
loading
by
gravity
flow.
The
bottom
of
the
bin
was
fitted
with
gates
to
control
the
discharge
of
the
chips
into
trucks.
Because
the
chips
were
produced
continuously
a
two-way
valve
was
placed
in
the
mill
near
the
screen
and
a
second
duct
was
installed
to
permit
chips
to
be
blown
onto
the
chip
pile
at
times
when
it
was
impossible
to
use
the
chip
bin.
The
mill
produced
about
600
tons
of
chips
a
day.
The
capacity
of
the
chip
bin
was
approximately
60
metric
tons.
The
capacity
of
the
trucks
used
to
deliver
chips
to
the
customer's
mill
was
30
tons.
Thus
about
20
truck
loads
per
day
were
unloaded
from
the
chip
bin.
The
bin
was
normally
kept
between
50
and
90
per
cent
full.
In
winter,
in
order
to
avoid
problems
created
by
freezing,
the
bin
was
emptied
completely
when
the
mill
was
shut
down
for
weekends.
The
evidence
shows
that
the
chips
remained
in
the
bin
for
a
very
short
time
only
while
awaiting
the
arrival
of
the
next
truck.
Evidence
was
given
by
Gaston
Poitras,
the
operations
manager
of
the
saw
mill
division
of
the
appellant's
parent
company.
That
division
includes
a
number
of
mills
including
the
mill
at
Grand
Lake.
In
his
evidence
Mr.
Poitras
emphasized
that
the
appellant's
customer
imposed
strict
requirements
as
to
the
size
and
quality
of
the
chips
delivered
to
it.
He
indicated
that,
at
least
in
his
opinion,
the
chip
bin
served
no
storage
function
and
that
the
new
system
eliminated
the
problems
which
had
been
created
by
leaving
the
chips
on
the
ground.
Mr.
Poitras
acknowledged
that
chips
are
at
their
highest
quality
immediately
after
the
screening
operation
has
taken
place
in
the
mill
building.
He
agreed
that
the
purpose
of
the
bin
and
of
the
system
of
which
it
forms
a
part
is
the
preservation
of
the
level
of
quality
attained
in
the
production
operations
which
take
place
up
to
the
point
when
screening
is
complete.
Evidence
was
given
by
Maxwell
R.
Cater,
a
registered
professional
forester.
He
possesses
extensive
experience
in
the
industry.
He
described
the
quality
and
characteristics
of
chips
required
by
pulp
and
paper
manufacturers.
As
well
he
expressed
the
opinion
that
what
he
called
the
“chip
handling
system"
in
a
mill
should
be
considered
as
a
single
unit.
The
components
of
a
chip
handling
system
as
defined
by
Mr.
Cater
included
not
only
machinery
and
equipment
for
dealing
with
chips
which
have
already
been
produced
but
also
machinery
and
equipment
used
to
remove
bark
from
logs
and
to
convert
the
wood
into
chips.
Subsection
125.1(1)
of
the
Act
provides
that
a
taxpayer
may
claim
a
manufacturing
and
processing
tax
deduction
in
respect
of
its
“Canadian
manufacturing
and
processing
profits”.
The
term
"Canadian
manufacturing
and
processing
profits”
is
defined
in
paragraph
125.1
(3)(a)
of
the
Act
as
follows:
125.1(3)
(a)
“Canadian
manufacturing
and
processing
profits”
of
a
corporation
for
a
taxation
year
means
such
portion
of
the
aggregate
of
all
amounts
each
of
which
is
the
income
of
the
corporation
for
the
year
from
an
active
business
carried
on
in
Canada
as
is
determined
under
rules
prescribed
for
that
purpose
by
regulation
made
on
the
recommendation
of
the
Minister
of
Finance
to
be
applicable
to
the
manufacturing
or
processing
in
Canada
of
goods
for
sale
or
lease;
ana
.
.
.
.
The
rules
for
computing
"Canadian
manufacturing
and
processing
profits"
are
prescribed
in
Regulations
5200
to
5204.
Regulation
5202
provides,
in
part
as
follows:
5202.
Interpretation.—In
this
Part,
except
as
otherwise
provided
in
section
5203
or
5204,
"cost
of
manufacturing
and
processing
capital"—"cost
of
manufacturing
and
processing
capital”
of
a
corporation
for
a
taxation
year
means
100/85
of
that
portion
of
the
cost
of
capital
of
the
corporation
for
that
year
that
reflects
the
extent
to
which
each
property
included
in
the
calculation
thereof
was
used
directly
in
qualified
activities
of
the
corporation
during
the
year,
but
the
amount
so
calculated
shall
not
exceed
the
cost
of
capital
of
the
corporation
for
the
year.
“qualified
activities’—“
qualified
activities”
means
(a)
any
of
the
following
activities,
when
they
are
performed
in
Canada
in
connection
with
manufacturing
or
processing
(not
including
the
activities
listed
in
subparagraphs
125.1
(3)(b)(i)
to
(ix)
of
the
Act)
in
Canada
of
goods
for
sale
or
lease:
(i)
engineering
design
of
products
and
production
facilities
(ii)
receiving
and
storing
of
raw
materials,
(iii)
producing,
assembling
and
handling
of
goods
in
process,
(iv)
inspecting
and
packaging
of
finished
goods,
(v)
line
supervision,
(vi)
production
support
activities
including
security,
cleaning,
heating
and
factory
maintenance,
(vii)
quality
and
production
control,
(viii)
repair
of
production
facilities,
and
(ix)
pollution
control,
(b)
all
other
activities
that
are
performed
in
Canada
directly
in
connection
with
manufacturing
or
processing
(not
including
the
activities
listed
in
subparagraphs
125.1
(3)(b)(i)
to
(ix)
of
the
Act)
in
Canada
of
goods
for
sale
or
lease,
and
(c)
scientific
research
as
defined
in
section
2900,
but
does
not
include
any
of
(d)
storing,
shipping,
selling
and
leasing
of
finished
goods,
(e)
purchasing
of
raw
materials,
(f)
administration,
including
clerical
and
personnel
activities,
(g)
purchase
and
resale
operations,
(h)
data
processing,
and
(i)
providing
facilities
for
employees,
including
cafeterias,
clinics
and
recreational
facilities.
[Emphasis
added.]
“Qualified
activities”
as
defined
in
section
5202
of
the
Regulations
are
activities
that
are
performed
in
Canada
directly
in
connection
with
manufacturing
or
processing
but
do
not
include
“storing,
shipping,
selling
and
leasing
of
finished
goods".
Therefore,
in
order
to
determine
whether
the
appellant
is
entitled
to
a
manufacturing
and
processing
profits
tax
credit
under
section
125.1
of
the
Act,
it
is
necessary
to
ascertain
whether
the
chip
bin
is
used
in
Canada
directly
in
connection
with
the
manufacturing
and
processing
of
goods
for
sale
or
lease.
The
appellant
submitted
that
the
chip
bin
is
used
directly
in
connection
with
activities
listed
in
subparagraphs
(a)(iii)and
(a)(vii)
of
the
definition
and
that
the
capital
cost
of
the
bin
was
therefore
properly
included
in
the
computation
of
its
manufacturing
and
processing
profits
for
the
purposes
of
section
125.1
of
the
Act.
The
appellant
emphasized
that
the
bin
is
not
used
for
the
purpose
of
storing
or
shipping
but
rather
for
the
purpose
of
manufacturing
and
processing
because:
(a)
it
has
a
small
volume
capacity;
(b)
it
is
not
designed
for
winter
storage
because
wood
chips
stored
therein
overnight
would
freeze
into
a
congealed
mass;
(c)
it
is
designed
specifically
to
receive
and
preserve
wood
chips
discharged
from
the
mill
as
a
necessary
and
final
stage
in
a
continuous
wood
chip
processing
operation;
(d)
wood
chips
are
discharged
on
a
continuous
basis
while
the
mill
is
operating;
(e)
a
particular
wood
chip
will
not
be
held
in
the
bin
more
that
two
hours
while
the
mill
is
operating;
and
(f)
on
average,
a
transport
truck
can
be
loaded
with
wood
chips
from
the
chip
bin
in
approximately
five
to
ten
minutes.
The
Minister
submitted
that
the
appellant
does
not
qualify
for
the
manufacturing
and
processing
profits
tax
credit
because
the
bin
is
used
for
the
purpose
of
storing
or
shipping
finished
goods
which
activities
are
specifically
excluded
from
“qualified
activities".
Subsection
127(5)
of
the
Act
provides
that
a
taxpayer
may
claim
an
investment
tax
credit
which
may
be
applied
against
its
Part
I
tax
otherwise
payable.
Subsection
127(9)
of
the
Act
defines
“investment
tax
credit"
and
“qualified
property"
provides
in
part:
127
(9)
Definitions.—In
this
section
.
.
.
.
"investment
tax
credit".—"investment
tax
credit"
of
a
taxpayer
at
the
end
of
a
taxation
year
means
the
amount,
if
any,
by
with
the
aggregate
of
(a)
the
aggregate
of
all
amounts
each
of
which
is
the
specified
percentage
of
(i)
the
capital
cost
to
him
of
a
qualified
property
.
.
.
acquired
by
him
in
the
year
"qualifiedproperty''.—"qualified
property"
of
a
taxpayer
means
property
(other
than
an
approved
project
property
or
a
certified
property)
that
is
.
.
.
(b)
prescribed
machinery
and
equipment
acquired
by
the
taxpayer
after
June
23,
1975,that
has
not
been
used,
or
acquired
for
use
or
lease,
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.
.
.
[Emphasis
added.]
Subsection
4600(2)
of
the
Regulations
provides:
4600
Qualified
property.—.
.
.
(2)
Property
is
prescribed
machinery
and
equipment
for
the
purposes
of
the
definition
“qualified
property"
in
subsection
127(9)
of
the
Act
if
it
is
depreciable
property
of
the
taxpayer.
.
.
that
is
.
.
.
(k)
a
property
included
in
any
of
Classes
21,
24,
27,
29,
or
34
in
Schedule
II.
[Emphasis
added.]
However,
for
purposes
of
the
definition
of
“qualified
property"
in
paragraph
127(9)(c)
of
the
Act,
paragraph
127(11
)(b)
of
the
Act
stipulates
127
(11)
Interpretation.—For
the
purposes
of
the
definition
“qualified
property"
in
subsection
(9),
(b)
for
greater
certainty,
the
purposes
referred
to
in
paragraph
(c)
of
the
definition
of
“qualified
property"
in
subsection
(9)
do
not
include
(i)
storing
(other
than
the
storing
of
grain),
shipping,
selling
or
leasing
finished
goods
.
.
.
.
The
appellant
contends
that
the
chip
bin
is
“qualified
property"
for
the
purposes
of
subsection
127(9)
of
the
Act,
and
that
its
capital
cost
is
eligible
for
the
investment
tax
credit
as
calculated
pursuant
to
subsection
127(9)
for
purposes
of
subsection
127(5)
of
the
Act.
The
respondent
argued
that
an
investment
tax
credit
is
not
available
to
the
appellant
because
the
expression
“manufacturing
or
processing”
is
defined
in
the
Act
as
specifically
excluding
“storing
.
.
.
shipping,
selling.
.
.
.
finished
goods”.
The
respondent
asserted
that
the
bin
was
used
either
for
storage
or
alternatively,
was
the
first
step
in
the
shipping
operation,
both
being
uses
that
do
not
qualify
for
the
tax
credit.
Paragraph
20(1)(a)
of
the
Act
provides
for
a
deduction
in
respect
of
the
capital
cost
of
depreciable
property.
Subsection
1100(1)
of
the
Regulations
states
that
for
the
purposes
of
paragraph
20(1
)(a)
of
the
Act,
a
taxpayer
may
deduct
a
specified
percentage
of
the
undepreciated
capital
cost
as
of
the
end
of
the
taxation
year
of
property
included
in
those
classes
defined
in
Schedule
I!
of
the
Regulations.
Class
29
of
Schedule
II
of
the
Regulations
reads
as
follows:
Class
29
(50
per
cent)
Property
that
would
otherwise
be
included
in
another
class
in
this
Schedule
(a)
that
is.
.
.
property
acquired
by
the
taxpayer
after
May
8,
1972,
(i)
to
be
used
directly
or
indirectly
by
him
in
Canada
primarily
in
the
manufacturing
or
processing
of
goods
for
sale
or
lease.
.
.
.;
(b)
that
is
(i)
property
that,
but
for
this
class,
would
be
included
in
Class
8
.
.
.
.
Class
8
of
Schedule
II
of
the
Regulations
comprises
the
following
property:
Class
8
(20
per
cent)
Property
not
included
in
Class
2,
7,
9
or
30
that
is
(a)
structure
that
is
manufacturing
or
processing
machinery
or
equipment:
(b)
tangible
property
attached
to
a
building
and
acquired
solely
for
the
purpose
of
(i)
servicing,
supporting
or
providing
access
to
or
egress
from,
machinery
or
equipment,
(ii)
manufacturing
or
processing,
or
(iii)
any
combination
of
the
functions
described
in
subparagraphs
(i)
and
(ii)
.
.
.
.
A
structure
or
building
not
included
in
Classes
8
or
29
is
normally
included
in
Class
3
of
Schedule
II
of
the
Regulations.
Class
3
provides
as
follows:
Class
3
(five
per
cent)
Property
not
in
any
other
class
that
is
(a)
a
building
or
other
structure,
or
part
thereof,
including
component
parts
.
.
.
.
Although
the
terms
"machinery"
or
"equipment"
are
not
defined
in
the
Act,
the
appellant
submits
that
the
chip
bin
is
“machinery
or
equipment"
for
the
purposes
of
paragraph
(a)
of
Class
8
of
Schedule
II
of
the
Regulations
for
the
following
reasons:
(a)
the
chip
bin
is
designed
to
perform
a
specific
function
at
the
mill;
(b)
the
bin
is
a
complex
structure
of
components,
being
a
metal
shell
in
which
are
located
and
to
which
are
attached
several
items
of
motorized
apparatus,
namely
a
cyclone,
an
auger
and
two
automatic
doors;
(c)
each
of
these
components
is
integral
to
its
purpose
and
function;
and
(d)
the
respondent
has
conceded
that
the
cyclone
and
the
auger
attached
to
the
chip
bin
are
equipment
properly
described
in
Class
29
of
Schedule
II
to
the
Regulations.
For
those
reasons,
the
appellant
contended
that
the
entire
chip
bin
unit
has
the
quality
of
"equipment".
The
appellant
stated
that
the
bin
is
an
integral
part
of
the
assembly
of
equipment
by
means
of
which
wood
chips
are
transferred
out
of
the
mill
and
made
more
marketable
thereby
constituting
equipment
that
is
used
directly
or
indirectly
in
manufacturing
and
processing
of
goods
for
sale.
The
appellant
maintained
that
the
wood
chip
processing
activity
is
not
complete
until
the
chips
are
discharged
from
the
bin
into
transport
trucks
because
the
marketability
of
wood
chips
produced
at
the
mill
is
directly
dependant
on
their
quality
which
in
turn
depends
on
the
manner
in
which
chips
are
discharged
from
the
mill.
The
chip
bin
preserves
the
quality
of
the
chips
by
maintaining
their
moisture
content,
brightness
and
size
and
contributes
to
the
cleanliness
of
the
product
by
eliminating
the
need
to
pile
them
on
the
ground.
The
appellant
submitted
that
the
chip
bin
is
therefore
an
integral
part
of
a
continuing
processing
operation.
The
respondent
contended
that
the
chip
bin
does
not
qualify
as
a
Class
29
asset
because
it
is
not
used
directly
or
indirectly
primarily
in
the
manufacturing
or
processing
of
goods
for
sale,
nor
is
it
manufacturing
or
processing
machinery
or
equipment.
The
bin,
it
was
said,
is
merely
a
repository
for
the
manufactured
chips
prior
to
their
transportation.
The
bin
is
being
used
as
a
storage
facility
since
the
chips
have
achieved
their
final
form
prior
to
deposit
in
the
bin.
Storage
is
not
an
element
of
“manufacturing
or
processing"
for
the
purposes
of
Class
8
and
Class
29
of
the
Act.
Alternatively,
the
respondent
asserted
that
the
chip
bin
represents
the
initial
step
or
stage
of
shipping
activities.
In
order
to
succeed
the
appellant
must
demonstrate
firstly,
that
the
chip
bin
is
prescribed
"machinery"
or
"equipment"
for
the
purposes
of
the
relevant
provisions
of
the
Act
and
secondly,
that
the
bin
was
used
directly
or
indirectly
in
manufacturing
and
processing
of
goods
for
sale
in
Canada
and
was
not
used
for
the
purposes
of
storage
or
shipping.
The
Concise
Oxford
Dictionary
of
the
English
Language,
7th
Edition,
defines
the
words
"equipment",
"machinery"
and
"machine"
as
follows:
"machinery"—machine;
works
of
a
machine,
mechanism;
organized
system,
means
arranged
for
doing;
group
ofcontrivances;
“machine”
1.
apparatus
for
applying
mechanical
power,
having
several
parts
each
with
definite
functions;
.
.
.
3.
[Mech.]
instrument
that
transmits
force
or
directs
its
application
.
.
.;
"equipment"—"equipping
or
being
equipped;
manner
in
which
person
or
thing
equipped;
outfit,
tools,
apparatus,
necessary
for
expedition,
job,
warfare,
etc.
Several
cases
dealing
with
the
assessment
of
municipal
or
provincial
taxes
have
considered
the
meaning
of
the
terms
“machinery”
and
"equipment".
The
appellant
in
Sogemines
Ltd.
v.
Stoney
Plain
District,
[1971]
5
W.W.R.
481
(Alta.),
claimed
that
silos
were
machinery
or
equipment
used
to
process
cement.
The
Court
noted
that
the
silos
performed
several
functions,
namely
air
separation
and
dust
collection;
the
testing
of
the
product
and
the
provision
of
a
medium
during
the
testing
period;
the
separation
of
five
different
kinds
of
products;
packaging
and
delivery;
enabling
the
use
of
cheaper
power;
a
binning
action;
and
storage.
After
reviewing
several
dictionary
definitions
of
the
terms
"machinery"
and
"equipment",
as
well
as
several
cases
that
interpreted
those
words,
O'Byrne
J.
concluded
at
page
486
that
silos
were
equipment
within
the
meaning
of
the
Assessment
Act,
1960,
S.A.
1960,
c.
5:
In
my
opinion
the
silos
are
in
their
entirety
"equipment"
and
no
distinction
should
be
made
between
the
various
portions
of
the
silos.
One
must
consider
the
purpose
for
which
the
structure
is
used
as
the
determining
factor
and
not
the
nature
of
the
structure.
In
Warren
Bituminous
Paving
Co.
v.
Otonabee
(Township),
[1963]
1
O.R.
29,
35
D.L.R.
(2d)
609,
the
appellant
carried
on
business
as
a
road
building
contractor
and
supplier
of
asphaltic
concrete.
The
appellant
purchased
a
cold
feed
bin
with
conveyor,
power
dryer,
dust
collector,
hot
stone
elevator,
screening
apparatus,
and
various
gasoline
tanks
and
storage
tanks.
At
issue
was
whether
these
items
were
buildings
or
structures
placed
or
affixed
to
the
property
so
as
to
constitute
real
property
as
defined
in
the
Assessment
Act,
R.S.O.
1960,
c.
23
or
whether,
in
the
alternative,
they
were
machinery
or
equipment
used
for
manufacturing
purposes
as
defined
in
the
Act
and
thereby
exempt
from
taxation.
Donnelly
J.
reviewed
the
case
law
dealing
with
the
meaning
of
the
term
"machinery"
and
concluded
at
page
34
that
the
structures
were
machinery
for
the
purposes
of
the
Assessment
Act.
In
coming
to
this
conclusion,
he
underlined
that
it
is
not
necessary
that
equipment
have
moving
parts
in
order
to
qualify
as
machinery.
He
found
that
the
tanks
and
other
elements
were
necessary
appurtenances
for
the
proper
working
of
the
machines,
therefore
bringing
them
within
the
definition
of
"machinery".
The
respondent
has
conceded
that
the
cyclone
blower
and
auger
attached
to
the
chip
bin
are
property
described
in
Class
29
of
Schedule
II
to
the
Regulations.
In
my
view
the
chip
bin
is
an
essential
element
of
the
system
used
to
remove
the
chips
from
the
point
of
production
in
the
mill.
It
is
not
only
the
cyclone
and
auger
which
are
machinery
or
equipment.
In
my
view
the
entire
assembly
comprising
tube,
cyclone,
auger
and
bin
are,
if
not
machinery,
at
least
"equipment"
for
the
purposes
of
the
relevant
provisions
because
all
components
operate
in
concert
to
achieve
the
desired
result.
Next,
it
is
necessary
to
determine
whether
the
chip
bin
is
equipment
used
directly
or
indirectly
in
the
manufacturing
or
processing
of
goods
for
sale.
There
is
no
definition
in
the
Act
of
the
expression
"manufacturing
or
processing".
Although
many
cases
have
dealt
with
the
interpretation
of
the
expression
"manufacturing
or
processing"
only
a
few
are
helpful
for
present
purposes.
In
Federal
Farms
Ltd.
v.
M.N.R.,
[1966]
C.T.C.
62,
66
D.T.C.
5068
(Ex.
Ct.),
the
appellant
company
was
in
the
business
of
preparing
fresh
vegetables
for
market
and
selling
them.
At
issue
was
whether
the
appellant’s
handling
of
carrots
and
potatoes
constituted
processing
of
goods,
thereby
entitling
it
to
the
manufacturing
and
processing
tax
deduction.
Cattanach
J.discussed
the
meaning
of
the
expression
“manufacturing
and
processing"
at
pages
5071
and
following.
He
noted
that
in
absence
of
a
clear
expression
to
the
contrary,
words
in
the
Act
must
receive
their
ordinary,
unrestricted
meaning.
He
refused
to
accept
the
position
of
the
Minister
that
processing
requires
that
a
material
change
be
made
in
the
texture
and
structure
of
the
product.
After
reviewing
various
dictionary
definitions
of
the
word
"process",
he
found
that
the
washing,
brushing,
spraying,
drying,
sizing,
culling
and
grading
of
the
vegetables
constituted
processing
within
the
meaning
of
the
relevant
statutory
provision.
In
Harvey
C.
Smith
Drugs
Ltd.
v.
M.N.R.,
[1986]
1
C.T.C.
2339,
86
D.T.C.
1243
(T.C.C.),
a
’d
[1992]
1
C.T.C.
325,
92
D.T.C.
6349
(F.C.T.D.),
Brulé
J.T.C.C.
commented
on
Federal
Farms
as
follows
at
pages
2347-48,
(D.T.C.
1249):
It
is
essential,
in
the
context
of
section
125.1,
that
the
process,
or
at
least
part
of
the
process,
change
the
product
in
“its
form,
appearance
or
other
characteristic".
I
say
"part
of
the
rocess”
in
that
if
a
corporate
taxpayer
were
involved
in
the
preparation
of
fresh
vegetables,
for
example,
as
was
the
case
in
Federal
Farms
Ltd.,
supra,
and
one
of
the
steps
in
their
preparation
consisted
of
packaging
the
vegetables,
then
the
packaging
activity
would
be
considered
"processing"
even
though
it
did
not
change
it.
.
.
.
The
second
guideline
to
consider
is:—Does
the
process
make
the
product
more
marketable?
(Admiral
Steel
Products
Ltd.
v.
M.N.R.
(1966)
40
Tax
A.B.C.
322,
66
D.T.C.
174
(T.A.B.).
The
marketability
of
the
product
is
an
economic
concept,
not
a
legal
one.
For
instance,
the
legal
requirement
that
a
product
be
packaged
in
a
transparent
container
does
not
increase
the
intrinsic
economic
worth
or
marketability
of
a
product,
although
it
may
be
the
only
legal
way
of
getting
the
product
to
market.
It
is
important
to
establish
the
economic
purpose
of
a
particular
activity
in
order
to
determine
whether
or
not
it
consists
of
processing.
In
Bunge
of
Canada
Ltd.
v.
The
Queen,
[1984]
C.T.C.
284,
84
D.T.C.
6276
(F.C.A.),
the
taxpayer
purchased
equipment
which
discharged
grain
from
its
grain
elevator
into
ships
docked
at
a
wharf
situated
about
200
feet
from
the
elevator.
At
issue
was
whether
this
equipment
was
used
by
the
appellant
“primarily
for
the
purpose
of
the
storing
of
grain”,
thereby
entitling
the
appellant
to
the
investment
tax
credit
claimed.
Pratte
J.
held
that
equipment
required
to
discharge
grain
from
the
appellant's
silos
was
equipment
used
for
the
“storin
of
grain"
because
the
discharge
of
grain
was
a
"necessary
and
integral
part
of
the
storing
of
the
grain".
In
Roy
Legumex
Inc.
v.
M.N.R.,
[1990]
2
C.T.C.
2389,
90
D.T.C.
1858
(T.C.C.),
the
appellant
owned
a
processing
facility
for
vegetables.
The
appellant
used
large
cylindrical
steel
bins
to
hold
and
to
aerate
the
legumes.
The
Minister
classified
these
bins
as
Class
3
assets.
The
taxpayer
argued
they
fell
within
Class
29
of
Schedule
II
of
the
Regulations.
Rip
J.T.C.C.
held
that
even
if
the
bins
could
not
be
said
to
be
an
integral
or
essential
part
of
the
taxpayer's
processing
activity,
they
constituted
ancillary
machinery
or
equipment
acquired
for
use
in
such
activities
(at
page
2396,
D.T.C.
1862):
The
question
is
whether
they
are
processing
machinery
or
equipment.
The
evidence
indicates
that
whether
or
not
the
units
are
by
themselves
processing
machinery
or
equipment
it
is
obvious
that
they
are
used
in
a
necessary
initial
step
in
the
processing
of
the
legumes;
without
the
dehydration
of
the
legumes
carried
on
in
the
units,
processing
of
the
legumes
is
not
possible.
In
Coca-Cola
Ltd.
v.
D./M.N.R.
(for
Customs
&
Excise),
[1984]
C.T.C.
75,
84
D.T.C.
6081
(F.C.A.),
the
appellant
used
reusable
bottle
cases
and
carriers
on
the
assembly
line
before
and
after
soft
drinks
it
manufactured
were
bottled.
At
issue
was
whether
these
reusable
bottle
cases
and
carriers
were
used
in
"the
manufacturing
or
production
of
goods".
Thurlow
C.J.
noted
at
page
80
(D.T.C.
6085):
I
agree
with
both
branches
of
this
submission.
In
my
view
the
Board
erred
in
applying
to
the
question
whether
goods
which
fall
within
the
meaning
of
“machinery
or
apparatus"
are
for
use
in
the
“manufacturing
or
production”
of
goods
a
test
which
narrowly
and
unduly
confines
such
machinery
or
apparatus
to
that
used
up
to
but
not
after
the
moment
when
a
usable
and
saleable
article
is
in
existence
without
regard
for
what
must
happen
immediately
thereafter
to
get
the
article
out
of
the
way
of
like
articles
on
the
production
line.
By
parallel
reasoning
one
would
hold
that
the
rollers
on
the
conveyor
which
come
into
play
after
the
filled
bottles
have
been
capped
are
not
machinery
or
apparatus
used
in
the
production
of
the
bottled
products
because
the
manufacture
or
production
of
the
bottled
products
has
been
completed
before
such
rollers
come
into
use.
Such
a
test,
in
my
opinion,
is
unreal.
In
an
operation
of
this
kind
means
for
removal
of
the
product
from
the
production
equipment
is
as
essential
as
any
other
part
of
the
machinery
or
apparatus
used
in
the
manufacture
or
production
of
the
product
and
is
used
as
directly
in
the
manufacture
or
production
of
the
product
as
any
of
the
other
parts.
The
cases
and
carriers
here
in
question
fall
easily
within
the
meaning
of
“apparatus”
and
are
used
in
the
production
process
at
a
time
when
the
distribution
and
warehousing
operations
have
not
yet
begun.
When
operations
at
the
mill
are
viewed
realistically
it
is
evident
that
great
volumes
of
chips
are
produced
and
that
a
system
for
the
removal
of
them
from
the
mill
building
is
essential.
The
system
put
in
place
by
the
appellant
facilitates
what
is
in
essence
a
continuous
flow
of
chips
from
the
point
of
production
to
the
point
of
discharge
into
the
trucks.
The
contention
that
the
bin
is
used
for
storage
is
unrealistic
having
regard
to
the
fact
that
when
rate
of
production
and
capacity
of
the
bin
are
taken
into
account,
no
individual
chip
can
remain
in
the
bin
for
more
than
two
hours.
Although
the
evidence
shows
that
the
manner
in
which
chips
are
removed
from
the
mill
does
not
enhance
their
quality
but
simply
maintains
it,
it
is
not
necessary
that
every
step
in
a
processing
operation
effect
a
material
change
in
the
texture
or
the
structure
of
the
product.
In
my
view
the
question
whether
the
bin
enhances
or
preserves
the
qua
ty
of
the
product
is
of
secondary
importance.
It
is
the
practical
role
or
purpose
of
the
bin
in
the
overall
entire
processing
operation
which
identifies
it
as
part
of
the
appellant’s
processing
machinery
or
equipment.
Obviously
a
line
must
be
drawn
between
manufacturing
or
processing
on
the
one
hand
and
storing
or
shipping
finished
goods
on
the
other
hand.
Where,
as
here,
the
physical
flow
from
production
to
shipping
is
continuous
the
proper
placement
of
the
line
may
be
a
difficult
task.
In
this
case
the
action
of
the
Minister
in
drawing
the
line
just
before
chips
fall
from
the
auger
artificially
divides
equipment
which
has
been
put
into
place
to
facilitate
the
continuous
flow
of
the
manufacturing
process.
In
my
view
it
is
more
consistent
with
the
reality
of
the
process
at
the
appellant's
mill
to
draw
the
line
immediately
below
the
gates
at
the
ottom
of
the
bin.
Conclusion
The
appeal
will
be
allowed,
with
costs,
and
the
assessment
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
consistent
with
these
reasons.
Appeal
allowed.
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