Words and Phrases - "modify"

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.