Words and Phrases - "use"

The Petitioner (“Hootsuite”), which provided its customers with an online social media management system, did not itself have the servers and storage facilities to host its platform, and instead accessed those of Amazon Web Services (“AWS”). The Ministry of Finance assessed BC provincial sales tax on the basis that (i) technical support by AWS through an online chat feature (“AWS support”) and (ii) Hootsuite’s access to AWS software allowing users to access remote hardware virtually through the use of a stack of software (“EC2” and “S3”), constituted the provision to Hootsuite of software, and on the basis that (i) above (the AWS support) also constituted, and that Hootsuite’s access to dedicated telecommunication service in the U.S. allowing AWS to maximize the efficiency of its virtual hardware (“AWS direct connect”) constituted a taxable communication service.

The AWS support was provided through a web interface (the “Console”), which was opaque to Hootsuite, with the web browser on Hootsuite’s computer interpreting the information contained on the Console and then rendering the information on Hootsuite’s browser, with no software downloaded or exchanged in the process. However, the Hootsuite web browser temporarily created a cache of files to improve page load times.

Thomas J indicated that the purchase of the AWS support was not a purchase of “software,” whose definition in the PSTA referenced the delivery, accessing, or the right to use, a software program. Thomas J stated (at para. 59):

[T]he key distinction between “software” and a “software program” for the purposes of the PSTA is that a “software program” requires the purchaser to utilize the software as an “application”; that is, the user must be able to interact with the software and create an output based in part on those interactions with the program.

He went on to indicate that although the cached resources constituted software that was for use on or with an electronic device in B.C., they did not constitute a “software program,” as their only purpose was to optimize the efficiency of the web interface between the user’s browser and the Console, and the user could not interact with the cached resources in a meaningful way. In also rejecting a Ministry argument that the Hootsuite use of a B.C. computer to interact with the technical support staff through the Console located outside of B.C. constituted a purchase of software, Thomas J indicated that the web interface was an “opaque application” (para. 66) as the user could not access or modify the Console and the only purpose of the interface was “to facilitate the exchange of technical information from the engineers to Hootsuite (para. 66).

Furthermore, even if there was such a software purchase, in this context “use” required “the user to interact directly with the program to create an output” (para. 68), which was not the case here.

Furthermore, the above findings were “consistent with the fundamental nature of the transaction -- the purchase of technical expertise through which software is only one of several ways in which the information is provided to the purchaser” (para. 70, see also para. 82(a)).

Regarding Hootsuite’s access to the EC2 and X3 cloud-computing (”infrastructure as a service”) of AWS), Thomas indicated (at para. 90) that “EC2 creates a virtual machine to provide computing resources to Hootsuite … [that] is opaque to the user - it cannot be manipulated or directly accessed by Hootsuite” and (at para. 98) that “S3 is a hardware storage product in which users install an application program to store and backup data on the virtual machine.” He stated (at para. 103):

[T]he fundamental nature of both the EC2 and S3 product is to provide an on-demand computer infrastructure service. As such, the products are not subject to PST.

Furthermore, if this characterization was incorrect, a similar analysis to that above would indicate that there was no purchase of a software program. For instance, although a Linux operating system was provided as part of the EC2 service, it was “installed on the virtual machine which, although located in the cloud, is not situated in British Columbia’ (para. 110) and was “solely used on the virtual machine to allow Hootsuite’s application programs, installed on the virtual machine, to interact with the virtual machine” (para. 112).

In order to be Class 43 depreciable property, oil processing equipment of the taxpayer had to qualify as property acquired by the taxpayer to be used directly or indirectly by it in Canada primarily in processing goods for sale - and a similar test applied in determining whether the equipment was “qualified property” for investment tax credit purposes. In the case of some of the equipment, its initially contemplated use (which in fact occurred) was to purify oil for 10 months at the Bruce nuclear power station. This did not qualify as processing “for sale” because the oil in question at all times was oil of the customer rather than being sold to it. Nonetheless, the use test of processing for “sale” was satisfied because the taxpayer’s intention on completion of this contract was to use the equipment for purifying (i.e., processing) dirty oil that it acquired for the purpose of sale in its purified form.

The ITC “qualified property” test (which was easier to work with, because it had an explicit purpose test) was also satisfied.

In finding that safety equipment did not qualify, Sommerfeldt J 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.

S. 2(1) of the Retail Sales Tax Act (Ont.) imposed tax on “every purchaser of tangible personal property … in respect of the consumption and use thereof… .” “Consumption” was defined to include the use of tangible personal property.

The appellant, which maintained a stock of spare parts which were used to repair the computer systems of customers to whom it had provided a warranty, unsuccessfully argued that it was not subject to the tax because it was not “using” such parts, which were instead used by the customers. Low J stated (at paras. 12-13, 15):

[O]n the plain and ordinary meaning of the word “use”, … the appellant is the user of repair parts. The appellant is in the warranty business. …

How does the appellant go about its business? It uses parts that it keeps in inventory to fix customers’ equipment whose parts have become dysfunctional. It keeps a supply of parts in inventory so that when a customer who has bought a warranty requires the appellant to perform under the contract, the appellant has the tangible property with which it can do so in prompt fashion. Once a part has been taken from inventory and inserted into a customer’s piece of equipment, the part has been used in the carrying on of the business of performing repairs under warranty contracts.

I do not view “use” and “consumption” as words redundant to each other and I would construe the terms as having separate though similar meanings.

The respondent was a manufacturer of lumber for sale, but consumed a portion of its manufactured lumber in its construction and building operations. In addition to imposing a sales tax on goods manufactured for sale, s. 87(d) of the Special War Revenue Act imposed tax on goods which were “for use by the manufacturer or producer and not for sale”. The Exchequer Court had found that the manufacturer was not subject to sales tax on the lumber that it so consumed on that basis that such lumber was produced in the ordinary course of business for sale, and not specifically for use by the manufacturer. In reversing this decision, Smith J stated (at p. 492):

To so construe [s. 87] is to put a narrow and technical construction upon the precise words used in clause (d), without taking into consideration the meaning and intent of the statute as a whole. It seems to me clear that the real intention was to levy a consumption or sales tax of four per cent, on the sale price of all goods produced or manufactured in Canada, whether the goods so produced should be sold by the manufacturer or consumed by himself for his own purposes.

A corporation (“Kinderock”) owned by the taxpayer and his wife applied, commencing on October 4, 2007, to the Saskatchewan government for various potash permits. During the application period, the taxpayer agreed with a semi-retired tax accountant (Carsen) and a former securities broker (Devine) to jointly pursue a potash venture using the permits. In early November 2007, the three of them agreed on the outline of plan for avoiding the two-year hold period under the qualified small business corporation share definition.

As a result:

• The taxpayer incorporated a new corporation (Devonian) on November 22, 2007.
• On December 7, 2007, a new limited partnership was formed between Kinderock as the general partner and three limited partners (the Gillen Family Trust, the Devine Family Trust and the Carson Family Trust).
• On December 7, 2007, the Limited Partnership transferred beneficial ownership of the rights to the pending permits (the “Purchased Applications and Purchased Permits”) to Devonian (while retaining legal title in trust for Devonian until the permits were granted) in consideration for Devonian agreeing to issue 999 shares.

On February 15, 2008, the Limited Partnership entered into an option agreement to sell its Devonian shares to a third-party purchaser for $15 million, with the option being deemed to be exercised once the Saskatchewan government granted the permits, which occurred on and before April 9, 2008.

In finding that the test in s. 110.6(14)(f)(ii) was not satisfied (so that the Devonian shares did not constitute qualified small business corporation shares), D'Arcy J stated (at paras 127-8):

…[W]hile the Limited Partnership may have carried on an active business after December 7, 2007, the Limited Partnership did not use the Purchased Applications and Purchased Permits in that business.

It acquired the Purchased Applications and Purchased Permits from Kinderock on December 7, 2007 and then instantly sold the same property to Devonian. In such a situation, it cannot be said that the Limited Partnership used the Purchased Applications and the Purchased Permits in an active business. As a result, subparagraph 110.6(14)(f)(ii) did not apply since the Limited Partnership did not dispose of all or substantially all of the assets that it used in an active business.

Hogan J found that dried insects donated by the taxpayer to Laval University were individually appraised and did not "form an unbreakable set," and thus were not a set (as per s. 46(3)), so that under s. 46(1), each insect had an adjusted cost base of $1,000. Before so concluding, he disagreed with the expansive interpretation of personal-use property in Klotz, stating (at para. 15):

In English, the ITA uses the word "primarily". The Oxford English Dictionary, third edition, defines "primarily" as follows: "to a great or the greatest degree; for the most part, mainly". Thus, the property must unequivocally be for the use and enjoyment of the taxpayer. If Parliament had wanted there to be only two types of property, it could have defined PUP as all property that is not income property… However, that was not what Parliament did.

Here, the taxpayer "prepared them only for donation. There was no real use" (para. 19) (after citing Glaxo Wellcome as to "use").

Prior to the expropriation of their 33-acre vacant property, which they intended to use on retirement to build a house and operate a farm, the taxpayers rented out the property for small sums to adjoining farmers. The expropriation proceeds were used, in part, to purchase two smaller vacant lots one-half a mile apart, which were intended to be used on retirement in the same manner (although this ceased to be feasible as a result of a proposed landfill site) and, in the meantime, similar farming arrangements with neighbouring farmers were utilized.

In finding that the subsequently purchased lots were replacement properties, Hamlyn TCJ. stated (at p. 1823) that the maintaining by the taxpayers "of farm land to keep it clean by arranging for farmers to cultivate, plant and harvest crops, is the 'use' of former property by the Appellants".

The predecessor of the taxpayer bought an 18-acre parcel of land in 1965 with the intention of using it for an anticipated future expansion of its pharmaceutical business, and sold the parcel in 1988 (and bought a 62-acre site further to the west to meet his future expansion requirements) after realizing that the 18-acre site (which in the meantime had remained vacant) was inadequate for its expansion requirements.

In finding that the parcel did not qualify as a "former business property", Bowman TCJ. stated (at p. 1164) that:

"It was intended to be used, it was waiting to be used, but in any meaningful sense of the term it was not being used."

An Ontario corporation which was engaged in the business of importing films or videotapes from its U.S. parent and making them available to Canadian television broadcasters was "using" them, notwithstanding that it was not broadcasting them. [s.22(1)(l)(iii) of the Corporations Tax Act, S.O. 1972]

Expenses incurred by the taxpayer in entertaining clients at a remote B.C. fishing lodge, including room, food, transportation, fishing licences, alcohol and tobacco, were non-deductible. Linden J.A. noted that "there is no need for the property to be 'owned' or 'rented' or 'exclusively controlled' in order for it to be 'used', as that word is employed here" (p. 6462).