17 February 1988 Income Tax Severed Letter

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.

February 17, 1988

G.R. White Tel. (613) 957-8953

We are writing further to our memorandum of September 4, 1987 in which we took the position that XXXX are catalysts for the purposes of Class 26. We also said that if a submission is made we would be pleased to reconsider the matter. Such a submission has been received from the taxpayer's solicitor.

Our understanding of the facts and definitions as well as the position of both the taxpayer and the Department are set out in the first seven pages of our memorandum of September 4 so we will not repeat it here.

Taxpayer's Solicitor's Position

The taxpayer's solicitor made the following statements in his submission:

1. "Revenue Canada recognized that the XXXX constitutes an asset included in Class 29 for the purposes of capital cost allowances."

2. The descriptive phrase "property that would otherwise be included in another class in this schedule" appears at the beginning of Class 29, and such is not the case for Class 26; therefore, should the catalyst meet the requirements of Class 29, its inclusion in the latter class would be mandatory, even if it is also described in Class 26.

3. The representative submits that convertors are structures that are machinery and equipment within the meaning of Class 8 and the catalyst is a component part of the convertor and should therefore be classified under paragraph (a) of Class 8. Alternatively it is contended the catalyst is property attached to a building and is acquired solely for the purpose of ...manufacturing and processing" within the meaning of paragraph (b) of Class 8.

4. In support of the primary submission that the catalyst is a component part of the convertor the following cases (which are not quoted exactly) are cited:

(a) water tanks filled with sand and placed in line and one above the other to constitute a wall were held to be a structure even if they adhered to the soil only by their own weight (Hobday v Nicol (1944) 1 ALL E.R. 302)

(b) articles affixed to freehold even in a slight way, but appropriate to their use, and showing an intention not of occasional but of permanent affixing it may be concluded that the articles are becoming part of the realty e.g. a built-in safe which could not be removed without destroying part of the realty could be considered an adjunct to a building. (Robert Haggert v Town of Brampton et al 1897 vol XXVIII 174)

(c) racks installed in a building to support barrels of whisky were a part thereof. (Hiram Walker & Sons Limited v The Corporation of the Town of Walkerville 1933 SCR 247)

(d) tuns and vats used in the brewing industry were machinery. (City of London v John Labatt Limited, 1953 OR 800)

(e) under the Civil code of the Province of Quebec the requirement of permanency was held to be met when a machine is placed in a plant to remain there for an indefinite period of time so long as it will work or so long as a better one will not be available. (City of Sherbrooke v Commissaires d'Ecoles de Sherbrooke 1957 SCR 476)

(f) tanks were held to be structures under the common law principles since they have been placed in the accepted sense of having been installed with some idea of permanency and remaining placed so long as they are used. (BC Court of Appeal, Trans Mountain Oil Pipe Line Co. 58 DLR (2d) 97)

5. In support of the subsidiary submission that the "catalyst is tangible property attached to a building and acquired solely for the purpose of manufacturing or processing" within the meaning of paragraph (b) of Class 8 the following cases (which are not quoted exactly) are cited.

(a) buildings means structures and a bridge over a river resting on piers is a structure permanently affixed to the soil and would fulfil the meaning of the word building in a taxing statute (Belair v Ville de Ste Rose, 1922 SCR 526 at P530)

(b) an electric lighting system was a building. (The Lower St. Lawrence Power Company v Imeuble Landry Ltée, 1921 SCR 655)

(c) All of the machinery in question, even though some of it may be removed without injury to itself or to the whole property, is essential to the operation of the business to which the premises are devoted and must be taken to be intended to remain permanently attached to them so long as those premises are applied to their present purpose. (Queens Bench Division, Laing v Bishopwearmouth 1878 L.R. vol III 299)

(d) it is wrong to regard either the concrete or any part of the dock as part of the premises in which this operation takes place. the whole dock is the means by which the operation is performed. (IRC v Barclay Curle & Co. Ltd., 1969 all. E.R. 732)

Comments:

We agree that the convertor is property that is a structure that is manufacturing or processing machinery or equipment as described in paragraph (a) of Class 8. We do not agree with the primary submission that the catalyst is a component part of the convertor and should be classified under paragraph (a) of Class 8 for the following reasons:

(a) The only case cited which was on point dealt with sand filled tanks and there the judgement was in reference to the tanks and not the sand. The issue here is not whether the convertor is a structure but whether the catalyst is a component part of that structure. XXXX (d) If the catalyst is not sold with the convertor and a different manufacturer provides the convertor or if they are available separately then they would be separate properties.

We do not agree with the alternative submission that the catalyst is property attached to a building and acquired solely for the purpose of manufacturing and processing for the following reasons:

1. It is already established that the convertor is not a building but processing machinery and equipment. IT79R states that a building is a structure but not all structures are buildings.

2. Since the catalyst is meant to be replaced and is replaced over the life of the convertor it follows that the catalyst cannot be considered to be attached to a building for the purpose of Class 8(b).

In view of the above we see no reason to change the opinion expressed in our memorandum of September 4.

Chief, Resource Industries Section Bilingual Services & Resource Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch