Words and Phrases - "manufacturing"
Coop de travailleurs en serres Belle-de-Jour v. Agence du revenu du Québec, 2019 QCCQ 6609
The taxpayer used approximately 20% of the area within greenhouses to grow cucumbers or other vegetables, or flowers, from seed for sale as grocery items or as little plants that could be transplanted. The taxpayer also annually produced about 85,000 floral arrangements in pots, which it sold to retailers such as Costco. To this end, it purchased already-grown flowers from other growers, and maintained them in its greenhouses pending its use of them for incorporation into the floral arrangements. Between 2012 and 2014, it constructed a biomass system for heating the greenhouses.
S. 1029.8.36.166.40 of the Taxation Act potentially provided an investment tax credit for a Class 29 property, but Regulation 130R12(a) provided that for purposes of Class 29, “manufacturing or processing” did not include “farming.”
In finding that the taxpayer’s floral-arranging activity did not constitute “farming,” Gibbens JCQ noted the element of artistry in this activity, observed that although the flowers would still grow while being kept in the greenhouses, this was not the predominant element in a process that entailed the creation of something new, and stated (at para. 55, TaxInterpretations translation) that the activity:
also entailed an aspect of processing, as the purchased plants … were subject to a series of standard procedures: they were arranged with each other and with other materials and placed in pots in a particular manner according to a precise model. The plants and other material underwent a change in form and appearance to become the final product – the arrangements sold to the customers.
In further finding that the two activities were distinct, so that the flower-arranging activity was not assimilated to the taxpayer’s farming business, Gibbens JCQ stated (at para. 68):
Nothing otherwise suggests that the two activities were dependent one on the other. In particular, the floral arrangements were manufactured exclusively from already-grown plants that had been purchased by the Coop from third-party suppliers and not from flowers that the Coop had grown for sale as small plants to be transplanted.
Respecting the use of the biomass system, although 20% of the greenhouses were used in farming, the greenhouse-heating was not necessary to this business, with the exception of the warming of cucumber seeds in the spring so as to encourage germination, whereas heating was essential to the floral arrangement business, whose focus was on the cold season. Accordingly, the biomass system was used “primarily” in the manufacturing or processing of the floral arrangements.
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|Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) - Paragraph 4(1)(a)||use of greenhouses to further grow flowers before use in making floral arrangements was separate from the taxpayer’s greenhouse plant-growing farming business||213|
|Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Farming||use of greenhouses to further grow flowers before use in making floral arrangements did not constitute farming||157|
Tenneco Canada Inc. v. The Queen, 91 DTC 5207 (FCA)
In finding that a corporation which assembled and installed exhaust systems in automobiles was not engaged in manufacturing ("producing for sale an identifiable article of commerce by assembling parts produced by others" (p. 5208)) or processing (which "occurs when raw or natural materials are transformed into saleable items" (p. 5209)), Linden J.A. stated (pp. 5209-5210):
"The nature of the modern commercial world is that goods often pass through many hands before they reach consumers. At each stage, minor alterations may be made to the goods, or they may be assembled in conjunction with other ready-made goods, before they progress through the commercial chain. The benefit of the incentives cannot be claimed by each of the handlers merely because they altered the goods in some small way. Only those operations which significantly change the character of the goods can truly be described as 'manufacturing' or 'processing' so as to qualify for the special tax incentives."