Hawboldt Hydraulics Inc. v. MNR, (1994) 174 N.R. 6 (FCA)

• Judge: Isaac, C.J., Pratte and Heald, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: May 31, 1994
• Jurisdiction: Canada (Federal)
• Citations: (1994), 174 N.R. 6 (FCA)

Hawboldt Hydraulics Inc. v. MNR (1994), 174 N.R. 6 (FCA)

MLB headnote and full text

Her Majesty The Queen (appellant) v. Coopers & Lybrand Limited in its capacity as Trustee in Bankruptcy of Hawboldt Hydraulics (Canada) Inc., successor to Maritime Hydraulic Repair Centre Limited (respondent)

(A-1280-92)

Indexed As: Hawboldt Hydraulics (Canada) Inc. (Bankrupt) v. Minister of National Revenue

Federal Court of Appeal

Isaac, C.J., Pratte and Heald, JJ.A.

August 19, 1994.

Summary:

The taxpayer claimed capital cost allow­ance for certain equipment based on the assumption that the equipment was used primarily in the manufacturing or processing of goods for sale or lease (Class 29 of Sched­ule II of the Regulations). The taxpayer also claimed an investment tax credit under s. 127 of the Income Tax Act. The Minister of National Revenue disagreed that the equipment was used pri­marily for manufac­turing or processing of goods and reassessed the taxpayer, reducing the allow­able capital cost allowances and disallowing the invest­ment tax credits. The taxpayer appealed.

The Tax Court of Canada, per Christie, A.C.J., dismissed the appeal. The taxpayer appealed again.

The Federal Court of Canada, Trial Divi­sion, in a decision reported 55 F.T.R. 68, allowed the appeal and referred the case to the Minister of National Revenue for further consideration and reassessment. The Minister of National Revenue appealed.

The Federal Court of Appeal allowed the appeal, set aside the decision of the Trial Division and restored the Minister of Na­tional Revenue's assess­ment.

Income Tax - Topic 1194

Income from a business or property - De­ductions - Capital cost allowance - Man­ufacturing and processing equipment - The taxpayer was in the business of selling, manufacturing and "repairing and remanufacturing" hydraulic components for industrial equipment - The taxpayer pur­chased shop equipment for business use (e.g., metal lathes, presses, an electric hoist, welder, etc.) - The Minister of National Revenue argued that the "repair­ing and remanufacturing" activities did not consti­tute the "manufac­turing or processing of goods for sale or lease" such as to qualify the taxpayer's equipment for the capital cost allowance in Class 29 of Schedule II of the Income Tax Regula­tions, or for an investment tax credit under s. 127 of the Income Tax Act - The Fed­eral Court of Appeal agreed with the Minister of National Revenue.

Income Tax - Topic 3901

Interpretation - General - The Federal Court of Appeal stated that the modern principle of statutory interpre­tation "is that the words of the statute are to be read in their entire context and in their grammati­cal and ordinary sense har­moniously with the scheme of the Act, the object of the Act, and the intention of Parliament ... As regards the interpretation of taxing statutes courts have been instructed to interpret the words of the statutes in light of the object and spirit of the taxing provisions and in the context of the economic and commerciality of the transaction giving rise to the dispute. ... But these principles are not invitations to courts to ignore other well-accepted rules of construction, such as that which requires courts to construe statutes so as 'to ascribe some meaning to each word used by the legislature'..." - See paragraph 32.

Income Tax - Topic 6873

Computation of tax - Rules for corpor­ations - Investment tax credits - Condi­tions precedent - [See Income Tax - Topic 1194 ].

Statutes - Topic 499

Interpretation - General - [See Income Tax - Topic 3901 and Statutes - Topic 1644 ].

Statutes - Topic 1644

Interpretation - Extrinsic aids - Legislat­ive history - Legislative debates - The Federal Court of Appeal stated that "it is now well settled that in construing legisla­tion courts may consider, as part of the external context, materials such as Reports of House of Commons Debates or of Com­mittees of the House of Commons as aids to discovering the aims of the legis­lating body, the evil of mischief with which it was contending at the time of enactment, and background and purpose of the legis­lation" - See paragraph 27 - The court looked to such items in inter­preting provi­sions of the Income Tax Act - See para­graphs 27 to 31.

Statutes - Topic 1648

Interpretation - Extrinsic aids - Legisla­tive history - Legislative committee reports and minutes - [See Statutes - Topic 1644 ].

Words and Phrases

Manufacturing goods for sale or lease - The Federal Court of Appeal discussed the meaning of this phrase as it was used in s. 127(10)(c)(i) of the Income Tax Act, S.C. 1970-71-72, c. 63, and clause (a)(i) of Class 29 of Schedule II of the Income Tax Regulations - See para­graphs 32 to 45.

Cases Noticed:

Crown Tire Service Ltd. v. Minister of National Revenue, [1984] 2 F.C. 219; 83 D.T.C. 5426 (T.D.), folld. [para. 12 et seq.].

R. v. Lyons, Prevedoros and McGuire, [1984] 2 S.C.R. 633; 56 N.R. 6; 58 A.R. 2, refd to. [para. 27].

R. v. Morgentaler, [1993] 3 S.C.R 463; 157 N.R. 97; 125 N.S.R.(2d) 81; 349 A.P.R. 81, refd to. [para. 27].

Stubart Investments Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 536; 53 N.R. 241; 84 D.T.C. 6305; [1984] C.T.C. 294, refd to. [para. 32].

Golden et al. v. Minister of National Rev­enue, [1986] 1 S.C.R. 209; 65 N.R. 135, refd to. [para. 32].

Bronfman (Phyllis Barbara) Trust v. Min­ister of National Revenue, [1987] 1 S.C.R. 32; 71 N.R. 134; 87 D.T.C. 5059, refd to. [para. 32].

Bronfman Trust - see Bronfman (Phyllis Barbara) Trust v. Minister of National Revenue.

Atco Ltd. et al. v. Calgary Power Ltd. et al., [1982] 2 S.C.R. 557; 45 N.R. 1; 41 A.R. 1, refd to. [para. 32].

Nowsco Well Service Ltd. v. Minister of National Revenue (1990), 108 N.R. 269; 90 D.T.C. 6312 (F.C.A.), affing. (1988), 20 F.T.R. 81; 88 D.T.C. 6300 (T.D.), not folld. [para. 35 et seq.].

Canada v. Halliburton Services Ltd., [1990] 90 D.T.C. 6320 (F.C.A.), affing. 85 D.T.C. 5336 (F.C.T.D.), not folld. [para. 35 et seq.].

Rolls Royce (Canada) Ltd. v. Minister of National Revenue (1992), 151 N.R. 52; 93 D.T.C. 5031 (F.C.A.), refd to. [para. 36].

Canadian Wirevision Ltd. v. Minister of National Revenue, [1979] 2 F.C. 164; 79 D.T.C. 5101 (F.C.A.), refd to. [para. 36].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 20(1)(a) [para. 21]; sect. 125.1 [para. 28]; sect. 127(5) [para. 22]; sect. 127(9), sect. 127(10) [para. 23]; sect. 127(10)(b), sect. 127(10)(c)(i) [para. 26].

Income Tax Act Regulations (Can.), sect. 4600(2)(k) [para. 24]; Schedule II, class 29 [para. 25].

Authors and Works Noticed:

Dreidger, E.A., Construction of Statutes (2nd Ed. 1983), p. 8 [para. 32].

Counsel:

Donald Gibson, for the appellant;

Joel Fichaud, for the respondent.

Solicitors of Record:

John C. Tait, Q.C., Deputy Attorney Gen­eral of Canada, Ottawa, Ontario, for the appellant;

Patterson, Kitz, Halifax, Nova Scotia, for the respondent.

This appeal was heard in Halifax, Nova Scotia, on May 31, 1994, before Isaac, C.J., Pratte and Heald, JJ.A., of the Federal Court of Appeal. The decision of the court was delivered on August 19, 1994, including the following opinions:

Isaac, C.J. (Heald, J.A., concurring) - see paragraphs 1 to 45;

Pratte, J.A. (concurring) - see paragraph 46.