Words and Phrases - "acquire"
31 July 2023 Internal T.I. 2021-0876331I7 - SR&ED ITC Recapture Rules
The taxpayer harvests trees, transforms then into logs, and feeds the logs into a new machine being tested for SR&ED purposes. The logs so used in the SR&ED testing are then transformed into finished lumber, which is sold at market prices to an arms-length party. The cost of materials for such SR&ED purposes consists of stumpage fees, harvesting fees, delimbing fees, transportation fees and in-house manufacturing salary and overhead expenses.
After noting that the “the term ‘cost’ includes the full cost of acquiring the property and incorporates all costs that are necessary to put the property into a position to be used,” and that “In general, for a property to be considered to be acquired, an element of beneficial ownership must exist (possession, use, risk, and control,” the Directorate noted that, having regard to s. 127(32), the particular property that was acquired from a transferor appeared to be the trees, for which a stumpage fee was paid and that, conversely, the logs did not appear to so qualify as they were obtained (out of the trees) “as a result of third-party services rendered in respect of the trees.” In addition, since no acquisition of property occurs in connection with manufacturing salary and overhead costs, these amounts cannot be considered an amount paid by the taxpayer to acquire the particular property from a transferor of the particular property.
However, for property manufactured in-house, the cost of each component part and raw material input might qualify as a separate property that was subject to the ITC recapture rules.
GST New Memorandum 8.1, ITCs—General Eligibility Rules, May 2005
Meaning of “acquire”
9. The word “acquire” is not defined in the Act. The ordinary dictionary definition of the term “acquire” is to get, obtain, have control over or possess. With respect to property, relevant case law indicates that property is acquired by obtaining ownership or such normal aspects of ownership as possession, use or risk.
Acquiror usually recipient
62. … The person that is eligible to claim the ITC for the tax paid or payable on the property or service is usually the recipient.
Regan M. Williams, Appellant v. Her Majesty the Queen, Respondent, 97 DTC 887, [1997] 2 CTC 2151 (TCC)
When the taxpayer exercised stock option rights, he did so as nominee for others. Accordingly, he had not "acquired" (i.e., obtained for himself) the shares and, accordingly, was not taxable.
Canada v. Morin, 2006 DTC 6057, 2006 FCA 25
The taxpayer entered into an arrangement with a consultant ("Bobsan") under which Bobsan would recommend to him firms within the high-tech area to whom the taxpayer might apply for a position, and the taxpayer agreed to pay Bobsan the first $100,000 of any employee stock option benefits realized by him from such an employer, plus 1/3 of the excess over $100,000. In finding that an amount paid by the taxpayer to Bobsan pursuant to this arrangement did not qualify as an "amount ... paid by the employee to acquire the right to acquire ... securities" for purposes of s. 7(1)(a)(iii), so that the amount so paid was not deductible under s. 7(1)(a)(iii), Malone J.A. stated (at p. 6059) that:
"An amount paid to acquire property is an amount paid in exchange for title to the property or in exchange for the incidents of title, and here is apparent that the payments made by the taxpayer to Bobsan were not made to acquire the stock options, which instead were received directly from the employer to whom he had been referred by Bobsan, and he was not required to pay any money to that employer for the options."
Kowdrysh v. The Queen, 2001 DTC 5221, 2001 FCA 34
Létourneau J.A. found that in the context of the temporary program for qualified small-business property, the proper interpretation of the word "acquired" refers to the time when farming equipment was purchased by means of a binding and enforceable contract, rather than the later time at which beneficial ownership passed to the purchaser.
Fortin & Moreau Inc. v. The Queen, 90 DTC 1450, [1990] 1 CTC 2583 (TCC)
The Quebec taxpayer was found to have "acquired" trucks pursuant to leases given that it had possession and use of the trucks, it had assumed all risks, it had the option, six months before the expiry of the lease, to purchase the trucks for an amount approximately equal to the fair market value of the remaining lease payment, and it was required to pay the "rent" even if the trucks were destroyed or it no longer had the use of them. However, the taxpayer was found not to be the "owner" of the trucks because, under the Quebec Civil Code, ownership could not be divided between a legal and beneficial owner, and the lessor rather than the taxpayer was the legal owner. Because the definition of "depreciable property" in its amended form required ownership of the property, the taxpayer was not entitled to claim capital cost allowance.
Canada v. General Motors of Canada Limited, [2009] GSTC 64, 2009 FCA 114
The Appellant (a car manufacturer) was the administrator of various defined benefit pension plans for its unionized employees. It was the recipient of portfolio advisory services as it rather than the plans was contractually liable to pay the advisors' fees, and the Crown did not dispute that it also "acquired" those services if s. 167.1 did not apply to deem those services to instead have been acquired by the plans (which it did not).
These services also satisfied the requirement in s. 169(1) that they have been acquired by it in the course of its commercial activities. As noted by the Campbell, J below, its employee compensation program was a necessary adjunct to its making taxable sales, and it was contractually obligated to maintain the plans as part of that program.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 169 - Subsection 169(1) | 99 | |
| Tax Topics - Excise Tax Act - Section 267.1 - Subsection 267.1(2) | administrator of pension trust was not a trustee, and not subject to s. 267.1 | 51 |
| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) | administrator of pension trust was not a trustee | 41 |