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.
September 10, 1986
Toronto District Office Chief of Audit Review Business Enquiries Group 146-1-4
P.J. Robinson
Specialty Rulings Directorate Merchandising, Manufacturing and Construction Section E. Mikhail Tel. (613) 957-2097
XXXX
This is in reply to your memorandum of March 14, 1986 and your round trip memorandum of July 24, 1986 is which you asked for our recommendations on the meaning of "producing industrial minerals" in the context of the manufacturing and processing definition and the proper CCA classification of certain equipment.
Both taxpayers are in the business of supplying aggregate material - sand, gravel and crushed limestone - used in the building and construction industry. Sand, gravel and limestone are removed from pits and quarries. Extraction of these materials from rock begins by drilling and blasting the rock in preparation for the crusher. The material is then fed directly into a primary crusher by front-end loaders. The crusher breaks the stone down to facilitate later processing. The crushed stone is then conveyed across the quarry to a 200-ton surge bin. From the surge bin the material is conveyed up the hill and out of the quarry to the main plant where secondary crushers and screeners take over.
The Departuent has accepted the case of Nova Scotia Sand and Gravel Ltd., 80 DTC 6298, as indicated in IT-1458 paragraph 11. Accordingly, the activities of drilling and blasting of rock, the crushing of material by the primary crusher and conveying the crushed stone to the main plant are not manufacturing and processing as defined in paragraph 125.1(3)(b) and Regulation 1104(9)(8). These activities are the production of industrial minerals for purpose of clause 125.1(3)(b)(vit) and Regulation 1104(9)(g) and are thus excluded activities. Subsequent activities performed by secondary crushers and screeners including washing in order to make the product marketable are considered to be processing activities. IT-492 , to which you have referred, comments on the meaning of 'industrial mineral mines' but does not comment on the meaning of "manufacturing or processing" as opposed to "producing". In your situation the matter referred to us requires a distinction in interpretation between "manufacturing or processing" and "producing" which is dealt with in IT-145R .
With respect to the CCA classification of certain equipment used in the quarry and crushing and screening plant we have the following comments to make. We believe equipment, such as dozers, front end loaders, the primary crusher and conveyors used In the production phase should be included is class 10(k). This is equipment "acquired for the purpose of gaining or producing income from a also" for purposes of class 10(k). And according to IT-469 paragraph 9 this equipment should be included in class 10(k) and not 22. We realise that is the case of Nomad Sand and Gravel Ltd., 82 DTC 1070, to which the taxpayer referred, it was held that a front end loader used during the production phase should be included in class 22 and not 10(k). However, this case has been appealed by the Department to the Federal Court, Trial Division. In the meantime the Department's position on the matter remains as stated in IT-469 paragraph 9. Similarly, heavy trucks used in the moving of aggregates within the quarry, from the quarry to various yards, between pits and from yards and pits to customers' premises should be included is class 10. On the other hand, machinery and equipment used in an activity occuring after the production stage is not, in our view, used for the purpose of producing or gaining income from a mine. Accordingly, machinery and equipment used in the processing phase may fall into class 22 or 29 depending on the situation. For example, a dozer or front end loader that is power-operated movable equipment designed for the purpose of excavating, moving, placing or compacting earth, rock, etc. should fall in class 22. This equipment could not be included is class 29 because the equipment would not meet the requirements of paragraph (b) of that class. Secondary crushers, screeners and conveyors would be included in class 29.
We trust this will help you complete your reassessment. If you need any further clarifications, please do not hesitate to let us know.
Original Signed by Original signé par
T. HARRIS
Chief Merchandising, Manufacturing & Construction Section Small Business & General Division Legislative & Intergoveranental Affairs Branch
125.1(3)(b)(vii) Regulation 1104(9)(g) schedule II class 10, 22 & 29.
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