Lapointe Drainage Limited v. Minister of National Revenue, [1983] CTC 2497, 83 DTC 440

The Chairman:—The appeal of Lapointe Drainage Limited is from an assessment of tax with respect to the 1979 taxation year. In issue is the disallowance by the respondent of an amount of $16,825 claimed by the appellant as an investment tax credit.

From March to September 1978 the appellant purchased a bulldozer at a cost of $136,500, a “Laser Plane” for $50,000 and a special excavating machine referred to in the appellant’s return as a “Tile Drain Machine”, at a price of $150,000. This equipment, in the amount of $336,500, considered by the appellant as “qualified property”, is the basis on which the investment tax credit for the appellant’s fiscal year, ending on the last day of February 1979, was claimed.

In disallowing the investment tax credit, the respondent allowed the deduction of additional capital cost allowance in respect of the same property in the amount of $8413 as under Class 22.

The respondent’s position is that the appellant was not entitled to an investment tax credit since the property acquired was not used primarily for the purpose of farming, within the meaning of subparagraph 127(10)(c)(viii) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Summary of Facts

Mr Jean-Guy Lapointe, the President and majority shareholder of the appellant in 1969, was in the farming business and, as such, installed a tile drainage system so as to remove surplus water from his land. He was thereafter retained by some of his neighbors to provide a similar drainage system on their respective farms. His activities in that respect expanded and in 1971 Mr Lapointe incorporated Lapointe Drainage Limited.

The appellant, in making estimates for drainage systems for potential customers, surveys the land and prepares an elevation plan, indicating the depth of the main and the ancillary trenches necessary for a proper draining of the property. The Crawley tractor and a plow controlled by the laser equipment, is used in digging the ancillary trenches which vary from 2 /2 ft to 6 ft deep in which drainage tiles are set. The excavator, which is also movable equipment, is used for excavating the main trenches which measure from 5 to 20 ft in width and up to 10 ft in height. As I understand it, the laser system is used to maintain the necessary depth and proper leveling of both the main and the ancillary trenches. In 1981 the appellant installed this type of tile drainage on some 4000 acres of farmland. Tile drainage systems were also installed on properties other than farm land such as school yards.

It is common ground that the bulldozer, the Laser Plane and the tile drain machine are depreciable capital property. There apparently is no dispute as to the capital cost allowance permitted on each of the said pieces of equipment. There is also agreement that the said equipment was acquired by the appellant after June 23, 1975 and that it had not been used or acquired for use or lease prior to the appellant’s acquisition of it.

The sole question in determining if the equipment is “qualified property” within the meaning of subsection 127(10) is whether it was used primarily by the appellant for the purpose of farming, within the meaning of the Act.

Counsel for the appellant read into the record the definition of farming from page 792 of Webster’s New International Dictionary of the English Language (USA 1912):

farming, p a. Pertaining to agriculture; devoted to, adapted to, or engaged in, farming; as, farming tools. farming, n 1. Act or custom of letting out to farm. 2. Act or business of cultivating land; the conduct or management of a farm.

From the Shorter Oxford English Dictionary Volume 11 the word tillage is defined as follows:

Tillage — 1488 (f Till v 1 + -Age). 1. The act, operation, or art of tilling or cultivating land so as to fit it for raising crops; agriculture, husbandry 1538. b. The state or condition of being tilled or cultivated 1488. c. fig. The culture of the mind or spirit 1555. 2. concr Tilled or ploughed land; land under crops as dist from pasturage; the crops growing on tilled land 1543.

Finally counsel read from the same source the definition of cultivate:

Cultivate: 1. To prepare, or to prepare and use, for the raising of crops; to till; as, to cultivate the soil; specif, to loosen or break up the soil about (growing crops or plants) for the purpose of killing weeds, etc, espc with a cultivator; as, to cultivate corn. 2. To raise, or foster the growth of, by tillage or by labor and care; to produce by culture; as, to cultivate roses; to cultivate oysters. 3. To improve by labor, care, or study; to impart culture to; to civilize; refine. To cultivate the wild, licentious savage. Addison. 4. To direct special attention to; to devote time and thought to; to foster; cherish. Leisure . . . to cultivate general literature. Wordsworth. 5. To seek the society of; to court intimacy with.

In subsection 248(1) of the Act the definition of farming uses the word “includes” to refer among other things to “the tillage of the soil”. Counsel for the appellant submitted that “farming” should be given a wide interpretation. For that proposition counsel relied on a decision of the Judicial Committee of the Privy Council in Rex v British Columbia Fir & Cedar Lumber Company, Limited, [1932] 2 WWR 153.

At p 159 Lord Blanesburgh stated:

The word “income” is in the former class, and their Lordships cannot doubt that in consequence the word, as used in the statute, includes, unless the context otherwise requires, not only those things which the interpretation clause declares that it shall include, but such things as the word signifies according to its natural import.

While the definition of farming shall include those things that are set out in subsection 248(1) of the Act, it appears to me from the above statement that the inclusion of other things in the interpretation of “farming” is conditional upon the import of the word farming. In the present instance the appellant’s business and the use of the alleged “qualified property” must be related to what is generally conceived as farming.

It is not difficult for me to accept the learned evidence of Mr Glen Slater, an agricultural engineer who was accepted as an expert witness, and to conclude that, particularly for certain lands, tile drains and the drainage systems of the type installed by the appellant are recommended for the production of better crops. It is also evident that, in order to install the tile drains and establish a network of draining trenches, the top soil must be broken, the earth removed and the tiles laid.

The question, as I see it, is whether on a contractual basis the act of digging trenches in certain specific areas of the land only and laying of tiles constitute for the appellant the tilling of the soil or cultivation of the land as those operations are understood for the purpose of farming. While the drainage system may improve the overall productivity of the land and be a permanent asset to the farmer, it cannot by itself give rise to the production of any crop. In order to raise crops the farmer, on whose behalf the drainage system was installed, still has to till, plough and sow the land and it is as a result of that work that the land is prepared and made fit to produce crops.

The very purpose of the tile drain machine, the Laser Plane and the bulldozer, which are in themselves quite different from the type of equipment used in farming operations, is to dig trenches of various depths in strategic areas of the farm land to remove excess water. These trenches are not easily comparable to what is generally accepted as the tilling and ploughing necessary for the growing of crops and, in my opinion, are not an integral part of normal farming operations.

In both the dictionary definitions referred to and the definition of “farming” in subsection 248(1) of the Act there is inherent in the word “farming” a direct relationship between tillage, ploughing, sowing, cultivation of land and the actual growing of crops. The digging of trenches with a view of installing a drainage system by a company set up for that purpose does not have that kind of relationship to farming or to the raising of crops any more than would the building by an independent contractor of a barn or fences on a farm.

I must conclude that the appellant was not engaged in the business of farming and that the equipment for which an investment tax credit was claimed, was not “qualified property” within the meaning of subsection 127(10) of the Act in that it was not acquired primarily for the purpose of farming.

For these reasons, judgment will go dismissing the appeal.

Appeal dismissed.