Words and Phrases - "integration principle"
The taxpayers were the partners of a limited partnership which constructed a terminal and jetty in St. John to which liquid natural gas would be delivered by tanker (at the jetty), "regasified,", and then delivered to a pipeline for shipment to the U.S. resellers.
The eligibility of the related costs for investment tax credits and classification as a Class 43 asset turned principally on whether it came within the exclusion from Class 1(n) (respecting manufacturing and distributing equipment and plant acquired primarily for the production or distribution of gas) contained in (ii) thereof for “property acquired for the purpose of processing natural gas, before the delivery of such gas to a distributions system.” The Crown’s primary position was that the terminal was not so excluded because it was part of a distribution system, and secondarily took the position that the terminal’s operation was not “processing.”
In rejecting the Crown’s position, Woods JA stated (at para 40) that she agreed with C. Miller J below that the Class 1(n)(ii) exclusion “only makes sense if distribution starts at a pipeline,” and further noted (at para 48):
Northern & Central … stands for the proposition that the term “distribution” can encompass not only short-distance pipelines, in accordance with industry usage, but also long-distance transmission lines. It did not state a broader principle. …
Woods J also rejected a Crown submission that the distribution process started with the tanker, in part because, unlike Northern & Central, the purpose of the processing here was “to make the gas more marketable” rather to merely “provide storage in the course of transmission.”
In also rejecting the Crown’s position on “processing,” she stated (at paras 54 and 56):
… It is clear that the product has been changed when it is transformed from a liquid to a gaseous state. …
Furthermore ...change ... takes place during the facility’s blending operations, and ... in chemical composition… [and] the operations …transform the product from being non-marketable in the North American market, to being marketable… .
Finally, in rejecting a Crown submission that, as a jetty was specifically mentioned in Class 3(h), the Jetty should be so classified, she stated (at paras. 64-65):
…Class 3 only applies to property “not included in any other class.” … If the Jetty falls within Class 43, that is the end of the matter. …
The judge-made integration principle provides that processing includes all activities that are necessary and integral to the processing operation.