Words and Phrases - "sale"
29 May 2024 External T.I. 2019-0819561E5 F - Catégorie d’amortissement 53 de l’Annexe II du Règlement
Equipment was acquired by a corporation (“Aco”), wholly-owned by a dental surgeon, to manufacture dental restorative products for use as part of its dental services.
Alternatively, the surgeon could incorporated a second wholly-owned corporation (“Bco”) to acquire the equipment and sell, to Aco, the dental restorative products it manufactured using the equipment.
CRA indicated that the first alternative did not satisfy the requirement, for the equipment to qualify as Class 53 property, that it be used in the manufacturing or processing of goods for sale – as the goods (the dental restorative products) instead were used in providing a dental service.
Under the second alternative, assuming that there indeed was a sale of the manufactured products by Bco to Aco under the governing provincial law, the equipment could qualify as Class 53 property to Bco assuming that the other Class 53 requirements were satisfied.
| Locations of other summaries | Wordcount | |
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| Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 29 | having equipment owned separately from the services business in which its product is used could permit the manufactured product to be “sold” to the services business | 184 |
20 July 2001 External T.I. 2001-0087205 F - BAIL TRAITEMENT DU PRENEUR
In providing background on the announcement in Income Tax Technical News No. 5 of the withdrawal of IT-233, CCRA stated:
[T]he purpose of the guidelines set out in this Bulletin was to prevent abuses through the use of lease agreements in situations where the parties involved in a transaction intended, in substance, to make a sale. The position taken in paragraph 3 of the Bulletin was based on the case law at the time, in particular Foster (51 DTC 232), Lagueux et Frères inc (74 DTC 6569) and Chibougamau Lumber (73 DTC 134), not GAAP. …
… [T]he question of whether a contract is a lease agreement or a contract of sale should be resolved on the basis of the legal relationships created by the terms of an agreement, rather than by an assessment of the underlying economic reality (as indicated by GAAP). Consequently, in the absence of a sham, we are of the view that a lease agreement is a lease agreement and a sale agreement is a sale agreement.
| Locations of other summaries | Wordcount | |
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| Tax Topics - General Concepts - Substance | distinction between a sale and a lease is based on the legal terms of the arrangement | 199 |
| Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(5) | whether a lessee has ownership of a building under an emphyteutic lease is a question of law | 117 |
Pharma Coréalis Inc. v. Agence du revenu du Québec, 2023 QCCQ 156
The taxpayer (Coréalis) which, in addition to performing R&D services, entered into “service agreements” with pharmaceutical companies (the “customers”) pursuant to which it would develop and manufacture clinical lots of solid oral dosage forms (tablets, capsules and granules) containing an active pharmaceutical ingredient provided by the customers. These along with placebos, which were also manufactured and provided by Coréalis, were used in clinical trials of the drugs by the customers.
Whether equipment that Coréalis had purchased and used in manufacturing the clinical lots qualified for investment tax credits under the Taxation Act (Quebec) turned on whether such equipment satisfied the requirement under the description of a Class 29 property that they had been acquired “to be used directly or indirectly by him in Canada primarily in the manufacturing or processing of goods for sale.”
Art. 2103, para. 3 of the Civil Code of Quebec provided: “A contract is a contract of sale, and not a contract of enterprise or for services, where the work or service is merely an accessory in relation to the value of the property supplied.” The ARQ argued that this provision indicated that Coréalis was not making sales to its customers as it had not established that the manufacturing process regarding the clinical lots was more important than the services furnished by Coréalis to its customers, and in this regard further argued that the customers were essentially accessing Coréalis’ expertise and noted that the active ingredient (viewed by the ARQ as the key material) remained the property of the customers at all times.
In finding that Coréalis nonetheless had satisfied the Class-29 requirement for a “sale,” Lachapelle JCQ first referred with approval to the example provided by Joyal J in Ateliers Ferroviaires at para. 69 of a manufacturer using materials with a negligible value who nonetheless could be considered to be selling the manufactured product and to his conclusion (at para. 77) that “work or the service referred to in the third paragraph of article 2103 does not include a manufacturer's work to create property that it supplies to its customer.
Before allowing Coréalis’ appeal, she stated (at paras. 206-208, TaxInterpretations translation):
The ordering of clinical lots by the customers who supplied the active ingredient appears comparable to the ordering of the construction of a house by a customer who supplies only the exotic wood for the living room floor.
The contractor who supplies all the other materials and builds the house except for the exotic wood which it has incorporated into the house has nevertheless entered into a contract of sale since ownership transfers upon delivery of the completed house and payment of the price.
The most important element in this case is the manufacture of the physical product, the actual capsule, without which the clinical tests of Coréalis' customers could not take place. Of course, the customers call on Coréalis' knowledge, but ultimately they are ordering and paying for clinical lots and thus purchasing and receiving delivery of those clinical lots, which the customer will then use as it sees fit.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Qualified Property - Paragraph (c) - Subparagraph (c)(i) | putting drug companies' active ingredients into capsule form for clinical testing qualified as manufacturing for sale | 289 |
Centre de traitement de la biomasse de la Montérégie inc. v. Agence du revenu du Québec, 2021 QCCA 1068
The taxpayer received organic sludge from suppliers in the agri-food industry, and was paid by them for taking over the sludge, which it then treated and transformed, using electricity, into residual fertilizer materials ("RFM"). It then paid companies (the "Receivers") to acquire the RFM, which they recovered for composting, agricultural land application or as an energy source. It profited by paying significantly less to the Receivers than it received from its sludge suppliers.
Although s. 206.1 of the Quebec Sales Tax Act denied an input tax refund for tax on supplies of electricity, s. 206.3 provided an exclusion from this rule where the electricity was used for a purpose that came within the exemption in s. 17(aa) of the Quebec Retail Sales Tax Act (“RSTA”), which exempted “sales of electricity … which a person … uses to produce movable property … intended for sale/” The Court of Quebec followed C.R.I. Environnement in finding that this exemption did not apply. C.R.I. Environnement on similar facts had found that the goods were not intended for “sale” because Article 1708 of the Civil Code of Quebec defined a sale as “a contract by which a person, the seller, transfers ownership of property to another person, the buyer, for a price in money which the latter obligates himself to pay,” whereas there, there was no monetary consideration received from the persons to whom the goods were transferred.
In reversing the decision below, and finding that the exemption applied, Marcotte JCA noted that “sale” was broadly defined in s. 2(9) of the RSTA to include “any other contract whereby, for a price or other consideration, a person delivers or binds himself to deliver, to another, movable property” and that “sale price” was defined in s. 2(7) to include “other considerations or prestations accepted by the vendor as the price of the thing covered by the contract of sale.”
Marcotte JCA quoted (at para. 56) from the statement of Waddams, The law of contracts, that:
A valuable consideration in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment loss, or responsibility given, suffered or undertaken by the other.
She then stated (at para. 57, TaxInterpretations translation):
In this case, by transferring its environmental obligations to the Receivers, the Appellant relieved itself of various environmental obligations or liabilities. In my view, this relief conferred a benefit on the Appellant and, in light of the foregoing analysis, constituted valuable consideration that may be characterized as "any other consideration" within the meaning of section 2(9) of the RSTA.
| Locations of other summaries | Wordcount | |
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| Tax Topics - Income Tax Act - Section 125.1 - Subsection 125.1(3) - Canadian Manufacturing and Processing Profits | a taxpayer made sales of partially processed waste when it paid other processors to complete its processing | 354 |
12 November 2019 External T.I. 2019-0822161E5 F - T5008 Statement of Securities Transactions
During the 2019 calendar year, Mr. X withdrew the minimum amount (as defined in subsection 146.3(1)) from his RRIF ($5,000 – so that a T4RIF slip is issued to him for $5,000), and effected the withdrawal through the transfer to his regular brokerage account at a licensed securities dealer of 100 common shares of a public corporation with a fair market value at the time of transfer of $5,000. Immediately thereafter, he transferred those shares to his TFSA, using his "unused TFSA contribution room," thereby resulting in a disposition by him of those shares. The dealer filed a TFSA annual information return identifying Mr. X's TFSA contribution of $5,000.
Is the dealer required to file a T5008 slip (with a book value of $5,000 and proceeds of disposition of $5,000) in respect of Mr. X's transfer of his 100 common shares to his TFSA? CRA responded:
[T]he meaning of "sale" is not exhaustively defined for the purposes of section 230 of the Regulations. …
The transfer by an individual TFSA holder of securities to his or her TFSA as a contribution in a situation as described above is not a sale for the purposes of subsection 230(2) or subsection 230(6) of the Regulations, even if there is a disposition of the securities at their fair market value by the individual because of the application of paragraph 69(1)(b) and paragraph (c) of the definition of "disposition" in subsection 248(1). The trader or dealer in securities is not required to file a T5008 slip for this transaction.
| Locations of other summaries | Wordcount | |
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| Tax Topics - Income Tax Regulations - Regulation 230 - Subsection 230(2) | transfer of listed shares from taxable brokerage account to individual’s TFSA did not generate T5008 reporting requirement | 65 |
Stark International Inc. v. The Queen, 2019 TCC 248
The taxpayer (“Stark”) used three newly-constructed transformer maintenance trailers (which were 50-foot trailers (“TMT 3, TMT 4 and TMT 5”) to purify oil, on site, from electrical transformers and also to purify oil at its Nova Scotia premises for subsequent resale. Furthermore, it had constructed a building (the “Fabrication Shop”) used for the construction of TMTs. In finding that a portion of the cost of the TMTs applicable to the oil processing equipment qualified as the cost of property newly-acquired property acquired by the taxpayer to be used directly or indirectly by it in Canada primarily in processing goods for sale, as required under the definition of a Class 29 property (so as to qualify such property as a Class 43 property) and also for purposes of the similar definition of “qualified property” in s. 127(9), Sommerfeldt J noted (at para. 33) that although Stark’s processing of a customer’s own oil at a customer’s premises did not qualify as a sale of oil:
When Stark used the oil processing equipment in a TMT to process oil at its own premises, the oil in question belonged to Stark and, after the processing was completed, was sold by Stark.
Sommerfeldt J found that certain components of the TMTs did not qualify for ITCs and accelerated CCA, such as used equipment (paras 44 and 45), living quarters (para 46), tool storage (para 48), safety equipment (para 50), a snowblower (para 51), and a used towing trailer (para 52). Respecting the safety equipment, he stated (at para. 50):
While safety is a commendable and essential objective of any oil processing business, safety equipment is used for the purpose of promoting and ensuring safety, rather than for the purpose of processing oil for sale.
The cost of constructing the Fabrication Shop did not qualify given that “although there had been talk of eventually getting into building TMTs for sale, that idea had fallen through” (para. 70).
In finding that the oil processing equipment in TMT 3 satisfied the purpose test of having been acquired primarily for the purpose of processing oil for sale, Sommerfeldt J noted that at a customer site, the TMT was idle 80% of the time in contrast to its use at the Stark premises for processing oil for sale, and on that basis, “when Stark constructed TMT 3, Stark’s intention was to use the oil processing equipment in TMT 3 primarily for the purpose of processing its own oil for sale” (para.. 82).
In the case of the other two TMTs, complicating factors were that TMT 4 was first used for a 10 month contract at the Bruce Nuclear Power Station, and during this use, Bruce Power (a.k.a., Areva) requested that Stark make certain modifications to the standard TMT design in order that TMT 5 (which was then in construction) would be specially adapted for use at the Bruce Power facility. In finding that the oil-processing equipment included in TMT 4 and 5 also so qualified, he stated (at paras. 82-83):
… [T]he oil processing equipment in TMT 4 was also constructed to be used by Stark at its premises …primarily for the purpose of processing Stark’s oil for sale. … Bruce Power’s nuclear power facility … contract with Areva … [was a] situation ... similar to that of the seismic equipment in Capilano International, in that Stark expected to bring TMT 4 back to its premises at Bailey’s Brook and continue primarily to process its own oil for sale, which it did.
… [G]iven that the contract between Stark and Areva was only for 10 months, and given that the expected working life of TMT 5 would undoubtedly have been far greater than that, I find that the oil processing equipment in TMT 5 also comes within the principle established by Capilano International. In other words, the intention of Stark, in constructing the oil processing equipment in TMT 5, was to use it at its own premises primarily for the purpose of processing its own oil for sale.
| Locations of other summaries | Wordcount | |
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| Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Qualified Property - Paragraph (c) | a use test could be applied by looking beyond the property’s immediate intended use | 235 |
Metropolitan Toronto Police Widows and Orphans Fund v. Telus Communications Inc., [2003] OJ No 128, 30 BLR (3d) 288, 2003 CanLII 25909 (ON SC)
A predecessor of the defendant (“BC Tel”) raised $150 million by transferring receivables to a securitization trust (“RAC”) in consideration for an advance and the receipt of deferred amounts. RAC funded its payments in the commercial paper market and BC Tel serviced the receivables for no fee. The plaintiffs were bond holders who alleged that the use by BC Tel of the advance to redeem the bonds (which bore a high rate of interest) violated a Trust Deed covenant not to redeem the bonds “by the application, directly or indirectly, of funds obtained through borrowings, having an interest cost to the Company of less than 11.35% per annum.”
In finding that the transfer of the receivables was a true sale rather than a secured loan, so that this covenant was not violated, Ground J stated
- (at para. 40) that “the wording of the Agreement throughout clearly indicates the intention of both parties that the transaction be a true sale,”
- (at para. 43) that although “for all practical purposes the only risk of uncollectibility assumed by RAC was the possibility of an insolvency of BC Tel and accordingly, the inability to be compensated by BC Tel in the event of Purchased Receivables in excess of the amount of the Reserve being uncollectible,” nonetheless “because of that possibility, however remote, RAC did assume some risk with respect to the collectibility of the Purchased Receivables,”
- (at para. 56) that “it does not appear…that the absence of a right in RAC to retain the surplus from the collection of accounts receivable is fatal to a determination that the securitization transaction between BC Tel and RAC was a true sale,”
- (at para. 63) that “the fact that the Agreement contemplated that a particular receivable may, under certain circumstances, be reconveyed to BC Tel, does not…derogate from…[satisfaction of the requirement that] the subject matter of the sale must be ascertainable,” and
- (at para. 67) that “the ultimate test to be applied to determine whether a particular transaction should be interpreted as a secured loan or as a true sale” is that in “a secured loan transaction… the borrower, upon repayment of the debt, [can] require the lender to reassign to it all of the lender’s interests in the assets secured to pay the debt” whereas here (para. 69) “nowhere in the Agreement is BC Tel given any right at its option to repurchase or redeem the Purchased Receivables upon payment of a specified amount to RAC.”
11 June 2013 STEP Roundtable Q. 9, 2013-0480351C6 - STEP CRA Roundtable Q9 - June 2013
Respecting whether CRA accepted Sommerer, it stated that the decision stood:
for the general proposition that where property is transferred to a trust by a beneficiary of the trust in return for consideration that constitutes a fair market value, subsection 75(2) will not apply to attribute income in respect of that property to that beneficiary.
Respecting the statement of Sharlow JA that the Crown's interpretation of s. 75(1) was "wrong because it is based on the incorrect premise that 75(2) can apply to a beneficiary of a trust who transfers property to the trust by means of a genuine sale," CRA stated:
As was noted in H. W. Liebig & Co. v Leading Investments Ltd., [1986] 1 S.C.R. 70, "the primary meaning of sale is the transfer of property to another for a price." …[T]he FCA…had a more definitive concept in mind when it referred to a bona fide or genuine sale.
Will-Kare Paving & Contracting Ltd. v. Canada, 2000 DTC 6467, 2000 SCC 36, [2000] 1 S.C.R. 915 (SCC)
The taxpayer, which paved driveways, parking lots and small roadways, also operated an asphalt-producing plant. 75% of the output was utilized in that paving business, and the balance was sold to third parties. In finding that manufacturing or processing equipment utilized in the plant did not qualify as Class 39 property on the basis that it was not used "primarily in the manufacturing or processing of goods for sale or lease", Major J. noted (at p. 6473) that "the concepts of sale or lease have settled legal definitions", that "Parliament has chosen to use language that imports relatively fine private law distinctions" and that "the technical nature of the Act does not lend itself to broadening the principle of plain meaning to embrace popular meaning". Accordingly, because property and the asphalt transferred to the taxpayer's paving customers as accessions to real property, the equipment did not qualify under Class 39.
| Locations of other summaries | Wordcount | |
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| Tax Topics - Statutory Interpretation - Hansard, explanatory notes, etc. | 11 | |
| Tax Topics - Statutory Interpretation - Ordinary Meaning | word sale should be accorded its private law meaning | 67 |
Renaud v. The Queen, 2010 DTC 1094 [at at 2994], 2010 2010 TCC 76
The taxpayer made an eligible relocation to a residence in another town. Rather than sell his old residence, he rented it, which effected a deemed disposition under s. 45(1)(a). However, Campbell J. found at para. 9 that, while "sold" means "disposed of by sale," the effect of 45(1)(a) was a disposition other than by sale. Therefore, the taxpayer was not eligible to include the s. 62(3)(f) amount in his claimed "moving expenses."
Home Provisioners (Manitoba) Ltd. v. MNR, 58 DTC 1183, [1958] CTC 334, [1958] CTC 333 (Ex Ct)
The taxpayer, which sold refrigerators under conditional sales contracts requiring a 10% down payment and the balance payable in 24 monthly instalments, assigned the contracts to a finance company, with the finance company holding back 5% to 10% of the purchase price, and with the taxpayer guaranteeing the payment to the finance company of the instalments.
In finding that the taxpayer had sold the contracts to the finance company, rather than receiving a loan from the finance company, Thurlow J. noted that the assignments to the finance company used the word "sale", and that the taxpayer had no right to get back the refrigerator by refunding to the finance company the money previously received. Accordingly, the reserve under paragraph 85B(1)(d) was not available (except in the amount already allowed by the Minister in respect of the finance company holdbacks).
C.R.I. Environnement Inc. c. La Reine, 2008 DTC 3787, 2007 TCC 206, aff'd 2008 DTC 2471, 2008 FCA 103
The taxpayer, who in consideration for a charge made by it to its customers, sorted, consolidated and reshipped industrial waste produced by them, in consideration for fees paid by them, was found to have under the Quebec Civil Code contracts for services with them rather than contracts of sale, so that it was not eligible for the allowance, given that the definition of sale in the Civil Code required that monetary consideration be received for a sale.
The Federal Court of Appeal noted that the same result likely would have been reached under the common law.