Words and Phrases - "sale"
Centre de traitement de la biomasse de la Montérégie inc. v. Agence du revenu du Québec, 2021 QCCA 1068
The taxpayer received organic sludge from suppliers in the agri-food industry, and was paid by them for taking over the sludge, which it then treated and transformed, using electricity, into residual fertilizer materials ("RFM"). It then paid companies (the "Receivers") to acquire the RFM, which they recovered for composting, agricultural land application or as an energy source. It profited by paying significantly less to the Receivers than it received from its sludge suppliers.
Although s. 206.1 of the Quebec Sales Tax Act denied an input tax refund for tax on supplies of electricity, s. 206.3 provided an exclusion from this rule where the electricity was used for a purpose that came within the exemption in s. 17(aa) of the Quebec Retail Sales Tax Act (“RSTA”), which exempted “sales of electricity … which a person … uses to produce movable property … intended for sale/” The Court of Quebec followed C.R.I. Environnement in finding that this exemption did not apply. C.R.I. Environnement on similar facts had found that the goods were not intended for “sale” because Article 1708 of the Civil Code of Quebec defined a sale as “a contract by which a person, the seller, transfers ownership of property to another person, the buyer, for a price in money which the latter obligates himself to pay,” whereas there, there was no monetary consideration received from the persons to whom the goods were transferred.
In reversing the decision below, and finding that the exemption applied, Marcotte JCA noted that “sale” was broadly defined in s. 2(9) of the RSTA to include “any other contract whereby, for a price or other consideration, a person delivers or binds himself to deliver, to another, movable property” and that “sale price” was defined in s. 2(7) to include “other considerations or prestations accepted by the vendor as the price of the thing covered by the contract of sale.”
Marcotte JCA quoted (at para. 56) from the statement of Waddams, The law of contracts, that:
A valuable consideration in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment loss, or responsibility given, suffered or undertaken by the other.
She then stated (at para. 57, TaxInterpretations translation):
In this case, by transferring its environmental obligations to the Receivers, the Appellant relieved itself of various environmental obligations or liabilities. In my view, this relief conferred a benefit on the Appellant and, in light of the foregoing analysis, constituted valuable consideration that may be characterized as "any other consideration" within the meaning of section 2(9) of the RSTA.
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|Tax Topics - Income Tax Act - Section 125.1 - Subsection 125.1(3) - Canadian Manufacturing and Processing Profits||a taxpayer made sales of partially processed waste when it paid other processors to complete its processing||354|
During the 2019 calendar year, Mr. X withdrew the minimum amount (as defined in subsection 146.3(1)) from his RRIF ($5,000 – so that a T4RIF slip is issued to him for $5,000), and effected the withdrawal through the transfer to his regular brokerage account at a licensed securities dealer of 100 common shares of a public corporation with a fair market value at the time of transfer of $5,000. Immediately thereafter, he transferred those shares to his TFSA, using his "unused TFSA contribution room," thereby resulting in a disposition by him of those shares. The dealer filed a TFSA annual information return identifying Mr. X's TFSA contribution of $5,000.
Is the dealer required to file a T5008 slip (with a book value of $5,000 and proceeds of disposition of $5,000) in respect of Mr. X's transfer of his 100 common shares to his TFSA? CRA responded:
[T]he meaning of "sale" is not exhaustively defined for the purposes of section 230 of the Regulations. …
The transfer by an individual TFSA holder of securities to his or her TFSA as a contribution in a situation as described above is not a sale for the purposes of subsection 230(2) or subsection 230(6) of the Regulations, even if there is a disposition of the securities at their fair market value by the individual because of the application of paragraph 69(1)(b) and paragraph (c) of the definition of "disposition" in subsection 248(1). The trader or dealer in securities is not required to file a T5008 slip for this transaction.
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|Tax Topics - Income Tax Regulations - Regulation 230 - Subsection 230(2)||transfer of listed shares from taxable brokerage account to individual’s TFSA did not generate T5008 reporting requirement||65|
The taxpayer (“Stark”) used three newly-constructed transformer maintenance trailers (which were 50-foot trailers (“TMT 3, TMT 4 and TMT 5”) to purify oil, on site, from electrical transformers and also to purify oil at its Nova Scotia premises for subsequent resale. Furthermore, it had constructed a building (the “Fabrication Shop”) used for the construction of TMTs. In finding that a portion of the cost of the TMTs applicable to the oil processing equipment qualified as the cost of property newly-acquired property acquired by the taxpayer to be used directly or indirectly by it in Canada primarily in processing goods for sale, as required under the definition of a Class 29 property (so as to qualify such property as a Class 43 property) and also for purposes of the similar definition of “qualified property” in s. 127(9), Sommerfeldt J noted (at para. 33) that although Stark’s processing of a customer’s own oil at a customer’s premises did not qualify as a sale of oil:
When Stark used the oil processing equipment in a TMT to process oil at its own premises, the oil in question belonged to Stark and, after the processing was completed, was sold by Stark.
Sommerfeldt J found that certain components of the TMTs did not qualify for ITCs and accelerated CCA, such as used equipment (paras 44 and 45), living quarters (para 46), tool storage (para 48), safety equipment (para 50), a snowblower (para 51), and a used towing trailer (para 52). Respecting the safety equipment, he 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.
The cost of constructing the Fabrication Shop did not qualify given that “although there had been talk of eventually getting into building TMTs for sale, that idea had fallen through” (para. 70).
In finding that the oil processing equipment in TMT 3 satisfied the purpose test of having been acquired primarily for the purpose of processing oil for sale, Sommerfeldt J noted that at a customer site, the TMT was idle 80% of the time in contrast to its use at the Stark premises for processing oil for sale, and on that basis, “when Stark constructed TMT 3, Stark’s intention was to use the oil processing equipment in TMT 3 primarily for the purpose of processing its own oil for sale” (para.. 82).
In the case of the other two TMTs, complicating factors were that TMT 4 was first used for a 10 month contract at the Bruce Nuclear Power Station, and during this use, Bruce Power (a.k.a., Areva) requested that Stark make certain modifications to the standard TMT design in order that TMT 5 (which was then in construction) would be specially adapted for use at the Bruce Power facility. In finding that the oil-processing equipment included in TMT 4 and 5 also so qualified, he stated (at paras. 82-83):
… [T]he oil processing equipment in TMT 4 was also constructed to be used by Stark at its premises …primarily for the purpose of processing Stark’s oil for sale. … Bruce Power’s nuclear power facility … contract with Areva … [was a] situation ... similar to that of the seismic equipment in Capilano International, in that Stark expected to bring TMT 4 back to its premises at Bailey’s Brook and continue primarily to process its own oil for sale, which it did.
… [G]iven that the contract between Stark and Areva was only for 10 months, and given that the expected working life of TMT 5 would undoubtedly have been far greater than that, I find that the oil processing equipment in TMT 5 also comes within the principle established by Capilano International. In other words, the intention of Stark, in constructing the oil processing equipment in TMT 5, was to use it at its own premises primarily for the purpose of processing its own oil for sale.
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|Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Qualified Property - Paragraph (c)||a use test could be applied by looking beyond the property’s immediate intended use||235|
Metropolitan Toronto Police Widows and Orphans Fund v. Telus Communications Inc., 2003 CanLII 25909, 30 BLR (3d) 288;  OJ No 128 (ON SC)
A predecessor of the defendant (“BC Tel”) raised $150 million by transferring receivables to a securitization trust (“RAC”) in consideration for an advance and the receipt of deferred amounts. RAC funded its payments in the commercial paper market and BC Tel serviced the receivables for no fee. The plaintiffs were bond holders who alleged that the use by BC Tel of the advance to redeem the bonds (which bore a high rate of interest) violated a Trust Deed covenant not to redeem the bonds “by the application, directly or indirectly, of funds obtained through borrowings, having an interest cost to the Company of less than 11.35% per annum.”
In finding that the transfer of the receivables was a true sale rather than a secured loan, so that this covenant was not violated, Ground J stated
- (at para. 40) that “the wording of the Agreement throughout clearly indicates the intention of both parties that the transaction be a true sale,”
- (at para. 43) that although “for all practical purposes the only risk of uncollectibility assumed by RAC was the possibility of an insolvency of BC Tel and accordingly, the inability to be compensated by BC Tel in the event of Purchased Receivables in excess of the amount of the Reserve being uncollectible,” nonetheless “because of that possibility, however remote, RAC did assume some risk with respect to the collectibility of the Purchased Receivables,”
- (at para. 56) that “it does not appear…that the absence of a right in RAC to retain the surplus from the collection of accounts receivable is fatal to a determination that the securitization transaction between BC Tel and RAC was a true sale,”
- (at para. 63) that “the fact that the Agreement contemplated that a particular receivable may, under certain circumstances, be reconveyed to BC Tel, does not…derogate from…[satisfaction of the requirement that] the subject matter of the sale must be ascertainable,” and
- (at para. 67) that “the ultimate test to be applied to determine whether a particular transaction should be interpreted as a secured loan or as a true sale” is that in “a secured loan transaction… the borrower, upon repayment of the debt, [can] require the lender to reassign to it all of the lender’s interests in the assets secured to pay the debt” whereas here (para. 69) “nowhere in the Agreement is BC Tel given any right at its option to repurchase or redeem the Purchased Receivables upon payment of a specified amount to RAC.”
Respecting whether CRA accepted Sommerer, it stated that the decision stood:
for the general proposition that where property is transferred to a trust by a beneficiary of the trust in return for consideration that constitutes a fair market value, subsection 75(2) will not apply to attribute income in respect of that property to that beneficiary.
Respecting the statement of Sharlow JA that the Crown's interpretation of s. 75(1) was "wrong because it is based on the incorrect premise that 75(2) can apply to a beneficiary of a trust who transfers property to the trust by means of a genuine sale," CRA stated:
As was noted in H. W. Liebig & Co. v Leading Investments Ltd.,  1 S.C.R. 70, "the primary meaning of sale is the transfer of property to another for a price." …[T]he FCA…had a more definitive concept in mind when it referred to a bona fide or genuine sale.
Renaud v. The Queen, 2010 DTC 1094 [at 2994], 2010 2010 TCC 76
The taxpayer made an eligible relocation to a residence in another town. Rather than sell his old residence, he rented it, which effected a deemed disposition under s. 45(1)(a). However, Campbell J. found at para. 9 that, while "sold" means "disposed of by sale," the effect of 45(1)(a) was a disposition other than by sale. Therefore, the taxpayer was not eligible to include the s. 62(3)(f) amount in his claimed "moving expenses."
Home Provisioners (Manitoba) Ltd. v. MNR, 58 DTC 1183 (Ex Ct)
The taxpayer, which sold refrigerators under conditional sales contracts requiring a 10% down payment and the balance payable in 24 monthly instalments, assigned the contracts to a finance company, with the finance company holding back 5% to 10% of the purchase price, and with the taxpayer guaranteeing the payment to the finance company of the instalments.
In finding that the taxpayer had sold the contracts to the finance company, rather than receiving a loan from the finance company, Thurlow J. noted that the assignments to the finance company used the word "sale", and that the taxpayer had no right to get back the refrigerator by refunding to the finance company the money previously received. Accordingly, the reserve under paragraph 85B(1)(d) was not available (except in the amount already allowed by the Minister in respect of the finance company holdbacks).
C.R.I. Environnement Inc. c. La Reine, 2008 DTC 3787, 2007 TCC 206, aff'd 2008 DTC 2471, 2008 FCA 103
The taxpayer, who in consideration for a charge made by it to its customers, sorted, consolidated and reshipped industrial waste produced by them, in consideration for fees paid by them, was found to have under the Quebec Civil Code contracts for services with them rather than contracts of sale, so that it was not eligible for the allowance, given that the definition of sale in the Civil Code required that monetary consideration be received for a sale.
The Federal Court of Appeal noted that the same result likely would have been reached under the common law.