Pavages Vaudreuil – Court of Quebec finds that an operation of washing, sorting and crushing aggregate was separate from a road construction operation

In addition to being involved in construction (maintenance of roads, streets and bridges), the taxpayer owned several natural gravel quarries and sand pits and processed sand, river gravel, crushed stone and earth for sale to third parties and for use in its construction operations. It purchased three pieces of equipment for use exclusively for the handling of materials already gathered by a cable shovel in connection with the washing, sorting and crushing of the various products.

In order for the purchases to have generated an investment tax credit for Quebec purposes, they were required inter alia to qualify as Class 29 property, i.e., they were required to have been acquired for use primarily in the manufacturing or processing of goods for sale. Under the Quebec equivalent of Reg. 1104(9)(c), “manufacturing or processing” was deemed to exclude “construction."

In finding that this exclusion did not apply because the taxpayer’s construction and processing operations were distinct, Bourgeois JCQ noted that the operations’ respective customers differed, the processing occurred at sites distinct from the situs of the construction projects, only 27% of the processed product was used in the construction operation, the two operations could have been operated independently of each other, and there was separate accounting. The appeal was allowed.

Neal Armstrong. Summaries of Pavages Vaudreuil Ltée v. Agence du revenu du Québec, 2021 QCCQ 3890 under Reg. 1104(9)(c) and Reg. 1104(9)(e).