Martin,
J.:—The
plaintiff
appeals,
with
the
consent
of
the
Minister
of
National
Revenue,
by
way
of
notice
of
objection
pursuant
to
section
165
of
the
Income
Tax
Act,
the
Minister’s
determination
of
the
plaintiff’s
refundable
investment
tax
credit
with
respect
to
its
diving
support
vessel
"Balder
Challenger".
The
plaintiff
says
that
the
amount
of
the
investment
tax
credit
(ITC)
should
be
20
per
cent
of
the
$22,022,711
cost
of
the
vessel
or
$4,404,542
while
the
defendant
says
that
it
should
be
7
per
cent
of
the
cost
of
the
vessel
or
$1,541,590.
Because
the
parties
were
able
to
file
an
agreed
statement
of
facts
the
evidence
adduced
at
the
trial
was
minimal
and,
in
the
result,
there
remained
a
single
issue
to
be
determined
by
me.
The
issue
to
be
decided
is
whether,
within
the
meaning
of
subparagraph
127(9)(a.1)
of
the
Act,
the
plaintiff
acquired
the
vessel
for
use
primarily
in
Nova
Scotia.
The
relevant
portion
of
subsection
127(9)
provides
as
follows:
127(9)(a.1)
where,
after
March
31,
1977,
the
taxpayer
has
acquired
a
qualified
property
primarily
for
use
in,
or
made
a
qualified
expenditure
in
respect
of
scientific
research
to
be
carried
out
in
the
Province
of
Newfoundland,
Prince
Edward
Island,
Nova
Scotia
or
New
Brunswick
or
in
the
Gaspé
Peninsula,
an
amount
equal
to
5%
of
the
aggregate
of
all
amounts
each
of
which
is
the
capital
cost
to
him
of
that
qualified
property
acquired
by
him
in
the
year
or
the
amount
of
that
qualified
expenditure
made
by
him
in
the
year,
determined
without
reference
to
subsection
13(7.1),
The
quoted
subparagraph
uses
the
phrase
“qualified
property"
which
has
a
specifically
defined
meaning
for
the
purposes
of
subsection
127(9)
which
meaning
is
set
out
in
subsection
127(10)
the
relevant
portion
of
which,
for
the
purposes
of
this
matter,
is
as
follows:
127(10)
“Qualified
property".
—For
the
purposes
of
subsection
(9),
a
“qualified
property"
of
a
taxpayer
means
a
property
(other
than
a
certified
property)
that
is
(a)
a
prescribed
building
to
the
extent
that
it
is
acquired
by
the
taxpayer
after
June
23,
1975,
or
(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
of
goods
for
sale
or
lease,
(ii)
operating
an
oil
or
gas
well
or
processing
heavy
crude
oil
recovered
from
a
natural
reservoir
in
Canada
to
a
stage
that
is
not
beyond
the
crude
oil
stage
or
its
equivalent,
(iii)
extracting
minerals
from
a
mineral
resource,
(iv)
processing,
to
the
prime
metal
stage
or
its
equivalent,
ore
(other
than
iron
ore)
from
a
mineral
resource,
(iv.1)
processing,
to
the
pellet
stage
or
its
equivalent,
iron
ore
from
a
mineral
resource,
(v)
exploring
or
drilling
for
petroleum
or
natural
gas,
(vi)
prospecting
or
exploring
for
or
developing
a
mineral
resource,
(vii)
logging,
(viii)
farming
or
fishing,
(ix)
the
storing
of
grain,
or
(x)
producing
industrial
minerals,
or
(d)
to
be
leased
by
the
taxpayer,
to
a
lessee
(other
than
a
person
exempt
from
tax
under
section
149)
who
can
reasonably
be
expected
to
use
the
property
in
Canada
primarily
for
any
of
the
purposes
referred
to
in
subparagraphs
(c)(i)
to
(X),.
..
As
the
agreed
statement
of
facts
relates
almost
exclusively
to
the
quoted
portions
of
section
127,
I
will
set
it
out
in
full:
The
parties
hereto,
by
their
respective
solicitors,
admit
the
facts
hereinafter
set
out.
These
admissions
are
made
for
the
purpose
of
this
proceeding
only
and
may
not
be
used
against
either
party
on
any
other
occasion.
The
parties
may
adduce
further
and
other
evidence
relevant
to
the
issue
not
inconsistent
with
this
agreement:
1.
At
all
material
times
the
"Balder
Challenger"
constituted
“qualified
property"
within
the
meaning
of
paragraphs
127(10)(b)
and
(d)
of
the
Income
Tax
Act
through
its
use
by
Petro-Canada
primarily
fcr
the
purpose
of
exploring
or
drilling
for
petroleum
or
natural
gas.
2.
At
all
material
times,
the
“Balder
Challenger”
was
not
used
for
the
purpose
of
exploring
or
drilling
for
petroleum
or
natural
gas
in
the
Province
of
Newfoundland,
Prince
Edward
Island,
Nova
Scotia,
or
New
Brunswick
or
in
the
Gaspé
Peninsula.
3.
At
all
material
times,
the
plaintiff
expected
the
“Balder
Challenger”
to
be
used
in
Canada
by
Petro-Canada
for
the
purpose
of
exploring
or
drilling
for
petroleum
or
natural
gas,
but
not
to
be
used
for
this
purpose
in
the
Province
of
Newfoundland,
Prince
Edward
Island,
Nova
Scotia,
or
New
Brunswick
or
in
the
Gaspé
Peninsula.
The
evidence
which
the
plaintiff
introduced,
in
addition
to
the
agreed
statement
of
facts,
consisted
basically
of
a
brief
history
of
the
vessel
including
its
acquisition
by
the
plaintiff,
its
lease
by
way
of
charter
to
Petro-Canada
Inc.
(Petro-Canada),
its
management
and
operation
by
a
company
associated
with
the
plaintiff
and
its
eventual
disposition.
I
will
briefly
summarize
the
evidence.
The
vessel,
some
226
feet
in
length
and
having
a
gross
tonnage
of
2508.73
tons,
was
built
by
Marystown
Shipyards
Ltd.
of
Marystown,
Newfoundland,
as
a
specially
designed
diving
support
vessel
for
offshore
oil
and
gas
drilling
and
exploration.
It
had
originally
been
commissioned
by
Petro-Canada
but
prior
to
its
completion
that
company
transferred
its
interest
in
the
vessel
to
the
plaintiff.
The
vessel
was
registered
in
the
name
of
the
plaintiff
at
the
Port
of
Halifax
registry
on
August
19,
1983
having
been
acquired
from
the
shipyard
at
a
total
cost
of
$22,022,711.
It
was
a
part
of
the
arrangement
between
Petro-Canada
and
the
plaintiff
that
upon
acquiring
the
oil
company's
interest
in
the
vessel
and
upon
delivery
of
the
complete
vessel
from
the
shipyard
to
the
plaintiff
that
the
plaintiff
would
charter
the
vessel
to
the
oil
company
for
a
term
of
four-years.
Accordingly,
on
August
19,
1983,
the
plaintiff
entered
into
a
charter
agreement
with
Petro-Canada
for
a
four
year
term
terminable
upon
certain
conditions
one
of
which
was
that
the
oil
company
ceased
to
be
an
exploration
operator
in
the
Eastern
Canadian
offshore.
The
vessel
went
into
service
offshore
Labrador
immediately
following
its
charter
to
Petro-Canada
and
continued
in
that
area
and
other
areas
offshore
Newfoundland
and
Nova
Scotia
until
November
1983.
From
November
5,
1983
to
June
4,
1984
the
vessel
operated
offshore
East
Africa
following
which
it
returned
to
again
operate
on
the
Eastern
Canadian
offshore.
On
December
24,
1986,
with
approximately
six
months
of
its
four-year
charter
remaining,
Petro-Canada
terminated
the
charter
following
which
the
vessel
operated
on
short-term
and
spot
charters
until
the
plaintiff
sold
it
to
Norwegian
interests
in
1988.
Considerable
emphasis
was
placed
upon
the
fact
that
the
vessel
was
crewed
by
Nova
Scotians
and
Newfoundlanders
of
whom
two
were
Inuits
from
Labrador.
Counsel
for
the
plaintiff
also
had
evidence
to
show
that
the
costs
of
repairs,
maintenance
and
provisioning
the
vessel
were
almost
exclusively
incurred
in
the
Atlantic
provinces.
I
accept
the
fact
that
the
construction,
operation,
repair
and
maintenance
and
provisioning
of
the
“Balder
Challenger"
was
of
considerable
economic
benefit
to
the
Atlantic
provinces
region.
The
principal
moving
force
behind
the
plaintiff
is
H.l.
Mathers
&
Son
Ltd.,
an
old
Nova
Scotian
company
which
first
became
involved
in
offshore
oil
and
gas
exploration
in
1981.
It
caused
the
plaintiff,
another
Nova
Scotian
company,
to
be
incorporated
in
1983
for
the
sole
purpose
of
owning
and
chartering
the
"Balder
Challenger”.
The
issued
share
capital
of
the
plaintiff
was
owned
70
per
cent
by
Balder
Offshore
Canada
Inc.,
20
per
cent
by
Scotia
Energy
and
10
per
cent
by
the
Labrador
Inuit
Development
Corporation.
Balder
Offshore
Canada
Inc.
was
in
turn
100
per
cent
owned
by
H.I.
Mathers
&
Son
Ltd.
The
plaintiff
company
had
no
employees
and
no
office
space.
Its
registered
office
was
in
Halifax
and
the
majority
of
its
board
of
directors
and
all
of
its
officers
were
from
Nova
Scotia.
Once
the
plaintiff
had
chartered
the
vessel
to
Petro-Canada
it
turned
over
the
management
of
the
charter
agreement
to
Balder
Offshore
Canada
Inc.
Under
this
arrangement
that
latter
company,
for
a
fee,
operated
the
vessel
for
the
use
of
Petro-Canada
and
was
reimbursed
by
the
plaintiff
for
all
expenses
which
it
incurred
in
so
doing.
The
revenues
from
the
oil
company
under
the
terms
of
the
charter,
approximately
$20,000
a
day,
were
paid
to
the
plaintiff.
In
the
agreed
statement
of
facts
the
parties
state
that
the
vessel
constituted
“qualified
property"
within
the
meaning
of
paragraphs
127(10)(b)
and
(d)
of
the
Income
Tax
Act,
that
is
to
say
it
was
prescribed
machinery
and
equipment
leased
by
the
plaintiff
to
Petro-Canada
which
could
reasonably
have
been
expected
to
use
the
vessel
primarily
in
Canada
for
exploring
or
drilling
for
petroleum
or
natural
gas.
In
order
to
constitute
the
vessel
as
qualified
property
within
the
meaning
of
paragraphs
127(10)(b)
and
(d)
the
owner
must
establish
the
reasonable
expectation
that
the
vessel
will
be
used
for
the
purpose
named
“in
Canada”.
For
the
purposes
of
the
Income
Tax
Act,
"Canada"
is
described
in
section
255
in
the
following
terms:
For
the
purposes
of
this
Act,
“Canada”
is
hereby
declared
to
include
and
to
have
always
included
(a)
the
sea
bed
and
subsoil
of
the
submarine
areas
adjacent
to
the
coasts
of
Canada
in
respect
of
which
the
Government
of
Canada
or
of
a
province
grants
a
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
any
minerals,
petroleum,
natural
gas
or
any
related
hydrocarbons;
and
(b)
the
seas
and
airspace
above
the
submarine
areas
referred
to
in
paragraph
(a)
in
respect
of
any
activities
carried
on
in
connection
with
the
exploration
for
or
exploitation
of
the
minerals,
petroleum,
natural
gas
or
hydrocarbons
referred
to
in
that
paragraph.
Thus
it
was
because
of
the
vessel's
use
by
Petro-Canada
in
its
exploring
and
drilling
operations
in
the
sea
bed
areas
off
the
coasts
and
outside
of
the
provinces
of
Newfoundland
and
Nova
Scotia,
licences
for
which
had
been
issued
by
the
Government
of
Canada,
that
the
vessel
was
used
“in
Canada"
within
the
meaning
of
paragraphs
127(10)(b)
and
(d).
Being
"qualified
property"
of
itself
does
not
bring
the
vessel
within
the
terms
of
subparagraph
127(9)(a.1).
In
order
to
come
within
the
meaning
of
that
subparagraph
the
vessel
must
have
been
acquired
for
use,
not
in
Canada,
but
in
one
of
the
provinces
or
the
region
named,
that
is
to
say
within
the
geographical
areas
comprising
those
provinces
or
that
region.
In
this
respect
paragraph
no.
2
of
the
agreed
statement
of
facts
states
that
the
vessel
was
not
used
in
the
provinces
of
Newfoundland,
Prince
Edward
Island,
Nova
Scotia
or
New
Brunswick
or
in
the
Gaspé
Peninsula.
Not
only
was
the
vessel
not
used
in
these
provinces
or
region
but
it
was
not
acquired
for
Petro-Canada's
use
in
any
of
those
areas.
It
was
acquired
for
PetroCanada's
use
offshore
as
opposed
to
its
use
in
any
of
the
named
provinces.
The
plaintiff
does
not
seek
to
bring
itself
within
the
terms
of
subparagraph
127(9)(a.1)
through
Petro-Canada's
use
of
the
vessel.
Petro-Canada's
use
of
the
vessel
on
the
Eastern
Canadian
offshore
(in
Canada)
is
the
basis
on
which
the
parties
agreed
that
the
vessel
is
constituted
qualified
property
within
the
meaning
of
subsection
127(10).
What
the
plaintiff
submits
is
that
the
plaintiff
acquired
the
vessel
for
its,
as
opposed
to
Petro-Canada's
use,
that
it
acquired
the
vessel
for
its
use
in
Nova
Scotia,
and
that
the
act
of
leasing
the
vessel
to
Petro-Canada,
which
lease
was
executed
in
Nova
Scotia,
constituted
the
plaintiff's
use
of
the
vessel
in
Nova
Scotia.
As
the
entire
act
of
executing
the
lease
took
place
in
Nova
Scotia
the
plaintiff
says
that
its
use
of
the
vessel
was
primarily
in
Nova
Scotia.
In
support
of
this
position
counsel
for
the
plaintiff
cites
the
well-known
quote
of
Estey,
J.
in
Stubart
Investments
Ltd.
v.
The
Queen,
[1984]
1
S.C.R.
536,
53
H.R.
241
at
263-5,
to
the
effect
that
there
should
be
a
broader
interpretation
of
the
Income
Tax
Act
so
as
to
permit
conduct
of
the
taxpayer
which
falls
within
the
spirit
and
object
of
the
Act
and
which
is
not
designed
to
defeat
the
expressed
intention
of
Parliament.
Counsel
also
cited
excerpts
from
budget
speeches
to
show
that
the
ITC
legislation
was
introduced
as
an
incentive
for
investment
in
machinery
and
equipment
used
in
the
production
of
petroleum,
which
legislation
was
intended
to
create
employment,
foster
regional
growth
and
help
venture
enterprises.
When
the
rate
of
the
ITC
was
increased
in
1978
to
the
20
per
cent
rate
which
the
plaintiff
now
seeks
to
have
applied,
the
then
Minister
of
Finance
said
it
was
for
the
purpose
of
giving
increased
support
to
regional
development.
Counsel
then
went
on
to
say
that
because
the
ITC
provisions
of
the
Act
are
not
clear,
and
because
there
are
two
possible
meanings,
I
should
apply
the
meaning
most
favourable
to
the
plaintiff
(Johns-Manville
Canada
Inc.
v.
The
Queen,
[1985]
2
C.T.C.
111;
85
D.T.C.
5373,
at
123,
and
Mother's
Pizza
Parlour
(London)
Ltd.
v.
The
Queen,
[1985]
1
C.T.C.
361;
85
D.T.C.
5271,
at
367).
Counsel
concluded
that
the
acquisition
and
leasing
of
the
"Balder
Challenger"
created
the
type
of
regional
activity
for
which
the
ITC
legislation
was
introduced
and,
given
a
broad
interpretation
of
the
Act
to
encourage
the
activity
sought
to
be
encouraged
by
Parliament,
there
was
no
reason
why
subparagraph
127(9)(a.1)
could
not
be
interpreted
so
as
to
find
that
the
leasing
of
the
vessel
to
Petro-Canada
in
Halifax
constituted
a
use
of
the
vessel
primarily
in
Nova
Scotia.
The
argument
put
forth
by
counsel
is
almost
convincing.
The
fatal
weakness
in
it,
in
my
view,
is
that
to
accept
it
in
this
matter
would
require
me
to
find
that
the
phrase
"property
acquired
primarily
for
use
in
Nova
Scotia"
is
unclear
and
capable
of
two
meanings
one
of
which
would
include
the
leasing
of
the
vessel
to
Petro-Canada.
I
note
the
observation
of
Rouleau,
J.
in
Mother's
Pizza
Parlour,
supra,
that
subsection
127(10)
is
a
provision
whose
meaning
is
less
than
clear.
However
in
this
matter
there
is
no
difficulty
with
subsection
127(10).
The
parties
have
agreed
that
the
vessel
is
“qualified
property"
within
the
meaning
of
that
subsection.
What
has
to
be
interpreted
in
this
action
is
the
meaning
of
the
phrase
"property
acquired
primarily
for
use
in
Nova
Scotia".
In
my
view
the
use
contemplated
under
the
provisions
of
subparagraph
127(9)(a.1)
does
not
include
the
leasing
of
the
vessel
by
the
plaintiff.
A
lease
of
a
property
or
a
vessel
is
granting
the
use
of
the
property,
usually
the
exclusive
use
of
the
property,
to
the
lessee.
By
the
act
of
leasing
the
owner
or
lessor
parts
with
the
use
or
the
right
to
use
the
property
or
equipment
under
consideration.
It
is
true,
but
imprecise,
for
a
lessor
to
say
that
he
used
his
vessel
to
earn
rent
when
he
leases
it.
In
fact,
in
such
circumstances,
it
is
not
the
lessor
who
uses
the
vessel
but
it
is
the
lessee
who
uses
it
for
his
own
purposes.
The
lessor
gives
the
right
to
use
the
vessel
to
the
lessee
in
consideration
for
the
rent
to
be
paid
to
the
lessor
by
the
lessee.
This
is
but
the
same
principle
followed
in
the
imposition
of
municipal
business
taxes
based
on
the
assessed
value
of
property
used
in
the
taxpayer's
business.
The
landlord
carries
on
the
business
of
leasing
property
and,
in
a
loose
sense,
uses
the
property
in
carrying
on
his
business.
However,
at
least
in
the
jurisdiction
with
which
I
am
familiar,
the
landlord's
business
tax
is
not
based
upon
the
assessed
value
of
the
property
which
he
leases
because,
in
the
accurate
legal
sense,
that
property
is
used
by
the
tenant
and
not
the
landlord
and
it
is
the
tenant,
if
he
carries
on
a
business
using
that
property,
who
will
be
liable
for
the
business
tax.
Counsel
was
able
to
find
one
case
in
which
a
court
found
that
a
lessor
was
using
property
even
though
it
was
leased.
In
Funtronix
Amusements
Ltd.
v.
M.N.R.,
[1989]
2
C.T.C.
2296;
89
D.T.C.
545,
Garon,
T.C.J.
of
the
Tax
Court
of
Canada
found
the
taxpayer
owner
of
electronic
video
games,
which
had
been
placed
in
amusement
arcades
owned
by
others
and
played
and
operated
by
persons
patronizing
the
arcades,
to
be
using
the
machines
to
gain
income.
Revenue
Canada
had
argued
that
the
individual
patrons
who
played
the
machines
from
time
to
time
were
the
users
of
them.
Garon,
T.C.J.
concluded
his
observations
with
these
remarks:
According
to
the
language
of
the
Act,
in
a
lease
context,
the
lessor
is
using
the
property
for
the
purpose
of
gaining
income
therefrom
although
during
the
term
of
the
lease
the
day-to-day
enjoyment
of
the
property
is
that
of
the
lessee.
Likewise,
the
same
leasehold
premises
may
also
be
"used"
in
certain
circumstances
by
the
lessee
for
the
purpose
of
gaining
income
therefrom.
In
support
of
his
conclusion
the
judge
referred
to
sections
13
and
45
of
the
Income
Tax
Act
which
sections
establish
particular
rules
for
the
computation
of
income
for
the
purposes
of
that
particular
division
of
the
Act.
They
do
not
apply
to
subparagraph
127(9)(a.1).
As
well
the
facts
in
Funtronix,
supra,
were
substantially
different
from
those
in
the
present
case.
In
that
case
there
had
been
no
lease
of
the
equipment
to
anyone.
The
owner
taxpayer
maintained
complete
control
over
the
equipment.
The
players
or
temporary
users
of
the
equipment
had
a
bare
licence
to
use
them
for
a
few
moments
in
payment
of
a
deposited
coin.
The
judge
seemed
to
recognize
this
when
he
followed
the
above-quoted
conclusion
with
the
following
observations:
The
matter
could
also
be
looked
at
from
another
angle.
In
effect,
the
evidence
clearly
showed
that
the
appellant
was
the
user
of
the
property
in
the
sense
that
it
had
access
to
such
equipment
at
all
times
and
could
alter
the
computer
programs
stored
in
such
equipment.
In
fact,
it
has
been
established
that
these
video
games
depreciate
very
quickly
and
in
order
to
earn
revenue
from
such
games,
there
was
a
requirement
for
the
appellant
to
change
or
alter
the
computer
programs
from
time
to
time.
It
is
not
disputed
that
the
appellant
could
alter
the
computer
programs
by
simply
changing
what
is
referred
to
as
the
EPROM
unit
(the
acronym
EPROM
stands
for
erasable
programmable
read
only
memory).
This
was
certainly
in
my
view,
an
important
use
of
the
equipment
by
its
owner.
I
therefore
conclude
that
the
appellant
was
within
the
purview
of
paragraph
(b)
of
the
definition
of
"general-purpose
electronic
data
processing
equipment”
set
out
in
subsection
1104(2)
of
the
Income
Tax
Regulations
a
“user”
of
the
subject
equipment.
I
do
not
find
that
the
Funtronix,
supra,
decision
is
authority
for
the
proposition
that
the
use
contemplated
by
subparagraph
127(9)(a.1)
is
or
could
be
the
leasing
of
the
vessel
to
Petro-Canada.
In
my
opinion
the
use
contemplated
by
subparagraph
127(9)(a.
1)
is
the
physical
use
of
the
property,
in
this
case
the
vessel
“Balder
Challenger".
Because
the
use
of
the
vessel
did
not
take
place
in
Nova
Scotia,
or
in
any
of
the
other
areas
named
in
subparagraph
127(9)(a.1),
the
plaintiff
is
not
entitled
to
avail
itself
of
the
benefits
of
that
subparagraph.
By
its
ITC
legislation
Parliament
intended
to
confer
benefits
on
regions
of
slow
economic
recovery
and
high
unemployment.
By
subparagraph
127(9)(a.1)
Parliament
designated
the
provinces
and
region
named
therein
as
the
geographical
areas
which
would
be
entitled
to
the
highest
rate
of
benefit
by
allowing
the
ITCs
on
qualified
property
used
in
those
provinces
and
that
region.
The
fact
that
a
vessel
which
was
not
primarily
used
in
any
of
those
provinces
or
that
region
would
have
qualified
for
the
increased
benefit
if
it
had
been
so
used
is
not
sufficient
to
stretch
the
plain
meaning
of
the
words
of
subparagraph
127(9)(a.1)
to
find
that
the
leasing
of
the
“Balder
Challenger"
to
Petro-Canada
for
its
use
outside
of
the
areas
referred
to
in
that
subparagraph
constitute
a
use
of
the
vessel
in
any
one
of
those
areas.
For
the
reasons
given
the
plaintiff's
claim
will
be
dismissed
with
costs.
Appeal
dismissed.
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