Words and Phrases - "use"


27 September 2021 Internal T.I. 2021-0877001I7 - CERS - Rent paid for unoccupied office space

an unoccupied property was not a qualifying property

An eligible entity signed a pre-construction lease for new office space several years ago and then moved into this location. It attempted to sublease its previous space but was unsuccessful due to the COVID-19 pandemic. Is such unoccupied office space a qualifying property for a qualifying period for purposes of the Canada Emergency Rent Subsidy (“CERS”)?

CRA first noted that

  • the definition of a qualifying property generally required the real property to be used by the eligible entity in the course of its ordinary activities.
  • Ensite found that property was used in a business if it was employed and risked in the business such that the withdrawal of the property would have a decidedly destabilizing effect on the corporate operations.
  • Glaxo Wellcome found that the word “use” connotes actual utilization for some purpose, not holding for future use.

CRA then stated:

[R]egard must be given to the actual use to which the property is put in the course of the eligible entity’s ordinary activities. Generally, property lying idle or not used for any purpose would not be property that is used in the course of the ordinary activities of an eligible entity. ...

[G]iven that the office space was unoccupied since the eligible entity moved to a new office … the old office space would likely not be considered to be used in the ordinary activities of the eligible entity. This is because it does not appear to be employed and risked in the ordinary activities of the eligible entity, and is merely waiting to be subleased.

Words and Phrases

Stark International Inc. v. The Queen, 2019 TCC 248

a use test could be applied by looking beyond the property’s immediate intended use

In order to be Class 43 depreciable property, oil processing equipment of the taxpayer had to qualify as property acquired by the taxpayer to be used directly or indirectly by it in Canada primarily in processing goods for sale - and a similar test applied in determining whether the equipment was “qualified property” for investment tax credit purposes. In the case of some of the equipment, its initially contemplated use (which in fact occurred) was to purify oil for 10 months at the Bruce nuclear power station. This did not qualify as processing “for sale” because the oil in question at all times was oil of the customer rather than being sold to it. Nonetheless, the use test of processing for “sale” was satisfied because the taxpayer’s intention on completion of this contract was to use the equipment for purifying (i.e., processing) dirty oil that it acquired for the purpose of sale in its purified form.

The ITC “qualified property” test (which was easier to work with, because it had an explicit purpose test) was also satisfied.

In finding that safety equipment did not qualify, Sommerfeldt J 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.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 29 oil-processing equipment was for sale even though initial use was to process customer's oil 673

1378055 Ontario Limited v. The Queen, 2019 TCC 149

services respecting proposed development of a property did not constitute a use of the property

The appellant (“137ON”), which was a corporation owned by members or affiliates of the Foley family that owned 10 residential rental properties, including a house on a 10 acre parcel (the “Subject Property”) which it was seeking to develop as a commercial storage site, received services from individuals or companies associated with the Foley family in connection with such property development. Sommerfeldt J stated (at para. 49):

… [A]s 137ON was still endeavouring to obtain the requisite approvals to construct a storage container facility on the Subject Property, it had not yet begun to use the Subject Property in the course of its commercial activities. Accordingly, paragraph (b) in the description of factor B in subsection 169(1) of the ETA is not applicable, with the result that paragraph (c) of that description is the applicable provision. Paragraph (c) requires a determination of the extent (expressed as a percentage) to which 137ON acquired the services of Mark Foley, Deborah Foley, Cole Foley and Lanmark for consumption or use in the course of its commercial activities as distinct from its residential rental activities.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 138 - Subsection 138(1) 2-part test applied for admitting documents after trial 130
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(c) - Subparagraph 3(c)(iii) statement of terms of payment was implied 186
Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(b) - Subparagraph 3(b)(i) failure to quote registration number was fatal 106
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) oral testimony sufficient to determine allocation of invoice between prospective commercial development activity and current exempt residential rental activity 191
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) - Element B - Paragraph (c) invoices allocated between commercial and exempt activities based on general oral testimony 155

Sun Microsystems of Canada Inc. v. Ontario (Finance), 2007 CanLII 4786 (ON SC)

“use” and “consumption” have separate but similar meanings

S. 2(1) of the Retail Sales Tax Act (Ont.) imposed tax on “every purchaser of tangible personal property … in respect of the consumption and use thereof… .” “Consumption” was defined to include the use of tangible personal property.

The appellant, which maintained a stock of spare parts which were used to repair the computer systems of customers to whom it had provided a warranty, unsuccessfully argued that it was not subject to the tax because it was not “using” such parts, which were instead used by the customers. Low J stated (at paras. 12-13, 15):

[O]n the plain and ordinary meaning of the word “use”, … the appellant is the user of repair parts. The appellant is in the warranty business. …

How does the appellant go about its business? It uses parts that it keeps in inventory to fix customers’ equipment whose parts have become dysfunctional. It keeps a supply of parts in inventory so that when a customer who has bought a warranty requires the appellant to perform under the contract, the appellant has the tangible property with which it can do so in prompt fashion. Once a part has been taken from inventory and inserted into a customer’s piece of equipment, the part has been used in the carrying on of the business of performing repairs under warranty contracts.

I do not view “use” and “consumption” as words redundant to each other and I would construe the terms as having separate though similar meanings.

Words and Phrases
use consumption

The King v. Henry K. Wampole & Co. Ltd., [1931] S.C.R. 494

“use” includes providing free samples

S. 87(d) of the Special War Revenue Act, imposed tax on goods which were “for use by the manufacturer or producer and not for sale,” was found to apply to the distribution by a pharmaceutical manufacturer of drug samples to doctors, but for the fact that the samples had already been subject to tax in the hands of the manufacturer. Anglin, CJ stated (at pp. 496-497):

“[U]se” by the manufacturer or producer of goods not sold includes any use whatever that such manufacturer or producer may make of such goods, and is wide enough to cover their “use” for advertising purposes by the distribution of them as free samples, as is the case here.

However, he noted (at p. 497) that “it cannot have been the intention of the Legislature to tax the same property twice in the hands of the manufacturer.”

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Double Taxation (Presumption Against) no intention to impose sales tax twice on manufacturer 94

The King v. Fraser Companies Ltd., [1931] S.C.R. 490

tax on goods manufactured for own use construed as including goods manufactured for sale and diverted to own use

The respondent was a manufacturer of lumber for sale, but consumed a portion of its manufactured lumber in its construction and building operations. In addition to imposing a sales tax on goods manufactured for sale, s. 87(d) of the Special War Revenue Act imposed tax on goods which were “for use by the manufacturer or producer and not for sale”. The Exchequer Court had found that the manufacturer was not subject to sales tax on the lumber that it so consumed on that basis that such lumber was produced in the ordinary course of business for sale, and not specifically for use by the manufacturer. In reversing this decision, Smith J stated (at p. 492):

To so construe [s. 87] is to put a narrow and technical construction upon the precise words used in clause (d), without taking into consideration the meaning and intent of the statute as a whole. It seems to me clear that the real intention was to levy a consumption or sales tax of four per cent, on the sale price of all goods produced or manufactured in Canada, whether the goods so produced should be sold by the manufacturer or consumed by himself for his own purposes.

Words and Phrases
for use use

Monsanto Canada Inc. v. Schmeiser, 2004 SCC 34, [2004] 1 S.C.R. 902

growing of unlicensed plants containing patented gene was use of that patent

A canola farmer (“Schmeiser”), who did not purchase Roundup-tolerant canola (“Roundup-Ready Canola”) or obtain a licence to plant it, was found to have grown most of his crop in the form of Roundup-Ready Canola. S. 42 of the Patent Act conferred on the respondent (“Monsanto”), which held the patent on the Roundup resistant gene and related modified cells in Roundup-Ready Canola, “the exclusive right … of … using the invention and selling it to others to be used”. Before going on to find that Schmeiser had infringed Monsanto’s patent, McLachin CJ and Fish J stated (at para. 58):

1. “Use” or “exploiter”, in their ordinary dictionary meaning, denote utilization with a view to production or advantage.

2. The basic principle in determining whether the defendant has “used” a patented invention is whether the inventor has been deprived, in whole or in part, directly or indirectly, of the full enjoyment of the monopoly conferred by the patent. …

5. Possession of a patented object or an object incorporating a patented feature may constitute “use” of the object’s stand-by or insurance utility and thus constitute infringement.

Words and Phrases

Gillen v. The Queen, 2017 TCC 163, aff'd 2019 FCA 62

property was not used in a business for s. 110.6(14)(f)(ii) purposes when it was beneficially acquired and dropped-down on the same day

A corporation (“Kinderock”) owned by the taxpayer and his wife applied, commencing on October 4, 2007, to the Saskatchewan government for various potash permits. During the application period, the taxpayer agreed with a semi-retired tax accountant (Carsen) and a former securities broker (Devine) to jointly pursue a potash venture using the permits. In early November 2007, the three of them agreed on the outline of plan for avoiding the two-year hold period under the qualified small business corporation share definition.

As a result:

  • The taxpayer incorporated a new corporation (Devonian) on November 22, 2007.
  • On December 7, 2007, a new limited partnership was formed between Kinderock as the general partner and three limited partners (the Gillen Family Trust, the Devine Family Trust and the Carson Family Trust).
  • On December 7, 2007, the Limited Partnership transferred beneficial ownership of the rights to the pending permits (the “Purchased Applications and Purchased Permits”) to Devonian (while retaining legal title in trust for Devonian until the permits were granted) in consideration for Devonian agreeing to issue 999 shares.

On February 15, 2008, the Limited Partnership entered into an option agreement to sell its Devonian shares to a third-party purchaser for $15 million, with the option being deemed to be exercised once the Saskatchewan government granted the permits, which occurred on and before April 9, 2008.

In finding that the test in s. 110.6(14)(f)(ii) was not satisfied (so that the Devonian shares did not constitute qualified small business corporation shares), D'Arcy J stated (at paras 127-8):

…[W]hile the Limited Partnership may have carried on an active business after December 7, 2007, the Limited Partnership did not use the Purchased Applications and Purchased Permits in that business.

It acquired the Purchased Applications and Purchased Permits from Kinderock on December 7, 2007 and then instantly sold the same property to Devonian. In such a situation, it cannot be said that the Limited Partnership used the Purchased Applications and the Purchased Permits in an active business. As a result, subparagraph 110.6(14)(f)(ii) did not apply since the Limited Partnership did not dispose of all or substantially all of the assets that it used in an active business.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership test of beneficial ownership 112
Tax Topics - General Concepts - Effective Date relation-back theory applied: closing retroactively confirmed previous beneficial ownership transfer 255

Stearns Catalytic Ltd. v. The Queen, 90 DTC 6286, [1990] 1 CTC 398 (FCTD)

stock of spare property was not property "to be used" in M&P

A stock of spare parts which the taxpayer kept on hand for potential use in the event of machine or equipment failure did not qualify as property "to be used" for the purpose of manufacturing or processing goods for sale for the purposes of the definition of qualified property" in s. 127(10)(c)(i) of the Act (now s. 127(9)) and paragraph (a)(i) of the description of Class 29 property. McNair, J. stated (p. 6294):

"The words in subparagraph 127(10)(c)(i) 'to be used' connote an actual physical or functional use of the prescribed machinery and equipment and spare parts stocked on shelves as an assurance against possible mechanical breakdown do not come within that concept of used, regardless of the soundness of the underlying business policy in stocking them."

Words and Phrases

Plamondon v. The Queen, 2011 DTC 1137 [at 746], 2011 TCC 47 (Informal Procedure)

each donated dried insect was separate property

Hogan J found that dried insects donated by the taxpayer to Laval University were individually appraised and did not "form an unbreakable set," and thus were not a set (as per s. 46(3)), so that under s. 46(1), each insect had an adjusted cost base of $1,000. Before so concluding, he disagreed with the expansive interpretation of personal-use property in Klotz, stating (at para. 15):

In English, the ITA uses the word "primarily". The Oxford English Dictionary, third edition, defines "primarily" as follows: "to a great or the greatest degree; for the most part, mainly". Thus, the property must unequivocally be for the use and enjoyment of the taxpayer. If Parliament had wanted there to be only two types of property, it could have defined PUP as all property that is not income property… However, that was not what Parliament did.

Here, the taxpayer "prepared them only for donation. There was no real use" (para. 19) (after citing Glaxo Wellcome as to "use").

Words and Phrases
use primarily

Klanten Farms Ltd. v. The Queen, 2007 DTC 1095, 2007 TCC 348

use included holdihg for future uee

The taxpayer unsuccessfully submitted that a property acquired by the taxpayer for farming was a replacement property for a property that was used to earn rental income. Paris J. also stated (at p. 1100) that:

"'Use' in paragraph 44(5)(8.1) does not ... include the notion of holding for a future use."

Words and Phrases

C.A.E. Inc. v. Canada, 2013 DTC 5084 [at 5944], 2013 FCA 92

applied to conversion of depreciable property into inventory

The taxpayer, which leased flight simulators which it had manufactured, subsequently sold those simulators. The Minister denied capital cost allowance claims of the taxpayer made prior to the sales on the grounds that the simulators were inventory.

Noël JA found that as ss. 45(1)(a) and 13(7)(a) applied to conversions of capital property (including depreciable property) from income-producing use into use as inventory (as well as to conversions into personal use), the claiming of capital cost allowance in the initial years was not inconsistent with a subsequent sale of the simulators on income account. It was reasoned that the mere holding of inventory does not constitute a use of the property for an income-producing purpose in the context of considering a conversion of depreciable property to inventory (or vice versa) – whereas inventory should be considered to be income-producing property in the context of a conversion of personal-use property to inventory, or vice versa.

Two of the simulators nonetheless were inventory in the years they were being leased by the taxpayer as two airlines had options to purchase them.

Words and Phrases

Depaoli v. The Queen, 96 DTC 1820, [1996] 3 CTC 2640 (TCC)

maintaining farm land through other farmers' use was continued use of land

Prior to the expropriation of their 33-acre vacant property, which they intended to use on retirement to build a house and operate a farm, the taxpayers rented out the property for small sums to adjoining farmers. The expropriation proceeds were used, in part, to purchase two smaller vacant lots one-half a mile apart, which were intended to be used on retirement in the same manner (although this ceased to be feasible as a result of a proposed landfill site) and, in the meantime, similar farming arrangements with neighbouring farmers were utilized.

In finding that the subsequently purchased lots were replacement properties, Hamlyn TCJ. stated (at p. 1823) that the maintaining by the taxpayers "of farm land to keep it clean by arranging for farmers to cultivate, plant and harvest crops, is the 'use' of former property by the Appellants".

Words and Phrases

Glaxo Wellcome Inc. v. The Queen, 96 DTC 1159, [1996] 1 CTC 2904 (TCC), aff'd 98 DTC 6638 (FCA)

The predecessor of the taxpayer bought an 18-acre parcel of land in 1965 with the intention of using it for an anticipated future expansion of its pharmaceutical business, and sold the parcel in 1988 (and bought a 62-acre site further to the west to meet his future expansion requirements) after realizing that the 18-acre site (which in the meantime had remained vacant) was inadequate for its expansion requirements.

In finding that the parcel did not qualify as a "former business property", Bowman TCJ. stated (at p. 1164) that:

"It was intended to be used, it was waiting to be used, but in any meaningful sense of the term it was not being used."

Words and Phrases

ITC of Canada Ltd. v. Min. of Rev., [1979] CTC 277 (S.C.O.)

An Ontario corporation which was engaged in the business of importing films or videotapes from its U.S. parent and making them available to Canadian television broadcasters was "using" them, notwithstanding that it was not broadcasting them. [s.22(1)(l)(iii) of the Corporations Tax Act, S.O. 1972]

Words and Phrases

The Queen v. Farmparts Distributing Ltd., 80 DTC 6157, [1980] CTC 205 (FCA)

Although the portions of a one-time payment attributable to the acquisition of a trade name and logo clearly came within s. 212(1)(d)(i), and a concept or plan of merchandising replacement muffler systems came, within s. 212(1)(d)(i) as being for the right to use a "plan" or, perhaps, a "process," and also for the right to use "property," the portion of the payment attributable to obtaining the exclusive right to buy and resell a type of pipe bending machine within specified provinces could not be said to relate to the use of or the right to use the machine, and did not come within s. 212(1)(d)(i). However, the full amount of the payment was exempt from withholding tax because the Minister had failed to establish what portion of the payment was allocable to the taxable elements.

The fact that the lump sum payment was made irrespective of user meant that it did not constitute rent, royalty or a similar payment, and it accordingly also did not fall within the preamble to s. 212(1)(d). It was noted that if a payment falls within subparagraphs (i) to (x), then it need not qualify as a "rent, royalty or similar payment".

Words and Phrases
use plan

Qualico Developments Ltd. v. The Queen, 84 DTC 6119, [1984] CTC 122, 84 DTC 6126 (FCA)

Thurlow CJ found that buildings (held in inventory) whose surrounding grounds were improved by landscaping were "used ... in the course of a business of constructing and selling them" when they were sold. This, however, did not mean that the landscaping costs could be deducted in the year prior to the buildings' sale during which they were not yet "used" in that business. S. 20(1)(aa) only provided for the deduction of landscaping costs that otherwise would be non-deductible by virtue of ss. 18(1)(a), (b) or (h). It thus did not authorize the deduction of landscaping costs that form part of the cost of land inventory and which, accordingly, would be deductible from income in the (subsequent) year of sale of the inventory. To depart from the normal rule that inventory costs are deductible only in the year of sale would distort the scheme of the Act.

Mahoney JA stated that he agreed with the above reasons, but went on to indicate that the buildings could be considered to be used in the taxpayer's business even in the year in which they were, as yet, unsold, and in which the landscaping costs were incurred. In this regard, he stated (at p. 6124):

[T]he stock in trade of a business is that which the business offers for sale in the ordinary course of is trade. ... [A]n item offered for sale by a business in the ordinary course of its trade is an item used by it in that business.

The concurring judgment of Hugessen JA also agreed that the taxpayer's appeal should be dismissed, but on the ground that the landscaping costs when incurred before the year of sale did not satisfy the "use" test in s. 20(1)(aa) because "use" in this context of a building "requires something more than the passive holding of it, waiting for it to be sold" (pp. 6125-6126).

Words and Phrases
use stock in trade

The Queen v. Sie-Mac Pipeline Contractors Ltd., 92 DTC 6461 (FCA)

Expenses incurred by the taxpayer in entertaining clients at a remote B.C. fishing lodge, including room, food, transportation, fishing licences, alcohol and tobacco, were non-deductible. Linden J.A. noted that "there is no need for the property to be 'owned' or 'rented' or 'exclusively controlled' in order for it to be 'used', as that word is employed here" (p. 6462).

Words and Phrases

Labrador Offshore Shipping Co. Ltd. v. The Queen, 90 DTC 6096 (FCTD)

use of leased property was by lessee rather than lessor

The taxpayer, which was resident in Nova Scotia, leased a diving support vessel to Petro-Canada, which used the vessel outside Nova Scotia in its exploration and drilling operations. The taxpayer argued that the act of leasing the vessel to Petro-Canada, which lease was executed in Nova Scotia, constituted that plaintiff's "use" of the vessel in Nova Scotia. Martin J. held that by the act of leasing the taxpayer had parted with the use or the right to use the property, and that it was not the lessor who was using the vessel, but the lessee who was using it for its own purposes outside Nova Scotia. Therefore, the property was not "used in" Nova Scotia for purposes of former s. 127(9)(a.1).

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 255 45