Jager Industries Inc. v. Canada, [1991] 1 CTC 231

Addy, D.J.:—This is an appeal from the Minister of National Revenue.

The plaintiff manufactures galvanized steel truss plates used in the fabrication of wooden trusses for buildings. The plates are then sold to its customers who manufacture wooden trusses for installation in buildings. The completed trusses are then sold by the plaintiff's customers to third parties, such as building contractors, who incorporate the completed trusses into buildings.

The issue before the Court is a very narrow one, namely whether truss plates are to be considered as fabricated structural steel for buildings and are as such, exempt from federal sales tax under former paragraph 26(4)(d) of the Excise Tax Act, R.S.C. 1970, c. E-13 as it existed prior to July 1, 1985, the said paragraph having been repealed as of that day by S.C. 1986, c. 9, section 15(3).

The relevant portion of former paragraph 26(4)(d) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act") read as follows:

(4) Where a person . . .

(d) manufactures or produces from steel that has been purchased by or manufactured or produced by that person, and in respect of which any tax under this Part has become payable, fabricated structural steel for buildings,

he shall, for the purposes of this Part, be deemed not to be, in relation to any such building, structure, building sections, building blocks or fabricated steel so manufactured or produced by him, the manufacturer or producer thereof.

Various documents were filed as exhibits showing, among other things, that the plates in issue not only served to fasten the members of the truss together at the time of manufacture of the truss, but also are required to possess important load-bearing characteristics in order to withstand the stresses to which trusses might be subject after installation in a building. Canadian standards for this are established and various tests are carried out and inspections made, some of them periodically and others without notice, to ensure that the plates meet the required standard. They must have the required shear strength and breaking strength as well as a gripping capacity.

Each party called an expert witness who found that the plates fulfilled a dual role: in addition to acting as fasteners in the manufacturing of trusses, they have a role to fulfill when the trusses are finally installed in a building. The fastening or gripping capacity of the plates is of some importance but when the trusses form part of a building, the load-bearing capacity of the plates becomes an important requirement. The plates are to some extent similar to nails, spikes, screws, rivets, nuts, bolts and other similar fasteners which are taxable pursuant to section 27(1.4). These fasteners must also possess a certain load-bearing capacity, although they obviously cannot be expected to have nearly the same capacity as plates to withstand the various stresses once the trusses are installed. Their main role is to act as fasteners and, generally speaking, they have been completely replaced in the manufacturing of trusses by truss plates such as those produced by the plaintiff. The plates are more efficient because of their combined load-bearing capacity, their tensile strength, shear strength and lateral resistance but they fulfill basically the same role as the other above-mentioned fasteners.

The case of Harris Steel Group Inc. v. M.N.R., [1985] 1 C.T.C. 181; 85 D.T.C. 5140, a unanimous decision of our Court of Appeal deals specifically with the manner in which subsection 26(4)(d) is to be interpreted. MacGuigan, J., in delivering the reasons for judgment, concurred in by Heald and Ryan, JJ., had this to say on the subject at pages 182-83 (D.T.C. 5141):

The general effect of this subsection is to provide sales tax relief in situations where there might otherwise result serious competitive inequality between goods fabricated off and on construction sites. Hence in the case of (a) prefabricated buildings, (b) structural building sections, (c) concrete or cinder building blocks, or (d) structural steel, manufactured off-site for use on-site, in direct competition with goods like concrete poured on-site (which would not be subject to tax in so far as the labour involved would not enter into the base for sales tax), the off-site manufacturer or producer is not deemed to be a manufacturer or producer in relation to the off-site fabrication. In such cases the only sales tax would be that on the original steel or other material.

[Emphasis added.]

It seems obvious to me that this cannot be a case where [there is] "serious, competitive inequality between goods fabricated off and on construction sites". This probably accounts for the fact that there is no evidence in this present case that the goods manufactured or produced on a construction site are in direct competition with truss plates.

Since the plaintiff company is seeking to qualify for an exemption from a general taxation statute, the onus of proof remains on it to establish the right to that exemption, and specifically in this instance, to establish that as at the date of sale or manufacture, the plates were in competition with similar materials manufactured on construction sites. The relevant date to determine the exemption is the date of sale. See Hawkins v. D/M.N.R., [1957] Ex. C.R. 206 where Cameron, J. stated at page 157:

It seems to me that the question as to whether an article is exempt from tax is to be determined as of the date of sale. The question to be answered is this: “Is the article on the date of sale included in the articles specified in Schedule 1112” If it is, the article is exempt from sales tax.

As of the date of sale of the truss plates to manufacturers of trusses, it cannot be considered that there might exist competitive inequality between the plates and goods actually manufactured on construction sites. Any competitive inequality if it existed would have to be between manufacturers of completed wooden trusses and on-site manufacturers of certain load-bearing materials fulfilling roles similar to that of wooden trusses.

It is interesting to note that the trusses themselves are exempt under paragraph 26(4)(b) of the Act because, although manufactured or produced otherwise than at the site of the construction, they are produced as " building sections for incorporation into such buildings . . . in competition with persons who construct or erect buildings . . . that incorporate similar sections not so manufactured or produced.” On the other hand truss plates should be classified as taxable, pursuant to subsection 27(1.4) as falling within the definition of one of the categories of taxable building materials defined in Schedule 5, Part 1 of the Act. Section 21 of that Schedule refers to "structural metal and fabricated metal for buildings and other structures."

For the above reasons, the action is dismissed with costs.

Appeal dismissed.