Schedule II

Golf Club greens and tees were "not so obviously artificial as to be readily distinguishable from the natural earth surroundings of the rest of the golf course", and accordingly did not qualify as "structures" (class 3). They also were not "similar surface constructions" (class 1).

A 2200 ft. extension to a concrete water intake line that provided water for use in a refinery was not established by the taxpayer to not be a "pipeline" under Class 2.

After noting that the decisions in Nova and in Northern and Central Gas were essentially contradictory on this point, Joyal J. found (following Northern and Central) that compressor stations which permitted the transmission of gas at high pressures through the transmission lines of the taxpayer constituted "equipment ... for the ... distribution of gas" for purposes of Class 2, rather than other equipment described in Class 8, notwithstanding the distinction drawn in industry practice between transmission (at high pressures), and the final stage of distribution (at low pressures) to the customer.

Pipes and valves located between the inlet and outlet connections of the main pipeline and to and from the compressor station and metering facilities were integral parts of the compressor stations and metering facilities rather than integral parts of the pipeline and therefore were not described in paragraph 1(b). In addition, since the sole business of the taxpayer was the transmission of natural gas, and it was not involved in the distribution of natural gas, the pipes and valves were not distributing equipment."

Linefill was not part of a pipeline and accordingly was a Class 8 asset.

The subparagraphs of class 2 were intended to encompass the whole process of the production and distribution of electricity, heat, water and natural gas. Facilities that were an integral part of the taxpayer's system for the transmission of natural gas prior to its ultimate distribution to customers accordingly were a plant "acquired primarily for the ... distribution of gas" within the meaning of class 2(d).

Two shelters which enclosed equipment in order to muffle noise were found to constitute buildings or other structures for purposes of Class 3 rather than manufacturing or processing machinery equipment within the meaning of Class 8, given that the shelters did not perform any work directly relating to the manufacturing or processing of the taxpayer's product.

Golf Club greens and tees were "not so obviously artificial as to be readily distinguishable from the natural earth surroundings of the rest of the golf course", and accordingly did not qualify as "structures" (class 3). They also were not "similar surface constructions" (class 1).

Supporting piers, reinforced concrete foundations and chest walls which facilitated and were necessary for the production of paper nonetheless had no separate existence as tangible capital assets and instead formed part of buildings. Accordingly, they qualified as Class 3 rather than Class 8 assets.

Tanks and recovering units were "structures" and also fell within Class 3.

An operation of fabricating cylinders, pistons, rods or other parts to be incorporated into hydraulic components which customers of the taxpayer had delivered to it for repair constituted a manufacturing or processing operation, with the result that the equipment used to fabricate the parts were Class 29 rather than Class 8 assets. The Crown Tire case was distinguished on the ground that in that case no product was produced by the taxpayer before the work and materials provided became the customer's property by adhesion of the materials.

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 s. 127(10)(c)(i) of the Act and paragraph (a)(i) of Class 29. 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."

Two shelters which enclosed equipment in order to muffle noise were found to constitute buildings or other structures for purposes of Class 3 rather than manufacturing or processing machinery equipment within the meaning of Class 8, given that the shelters did not perform any work directly relating to the manufacturing or processing of the taxpayer's product.

After noting that the decisions in Nova and in Northern and Central Gas were essentially contradictory on this point, Joyal J. found (following Northern and Central) that compressor stations which permitted the transmission of gas at high pressures through the transmission lines of the taxpayer constituted "equipment ... for the ... distribution of gas" for purposes of Class 2, rather than other equipment described in Class 8, notwithstanding the distinction drawn in industry practice between transmission (at high pressures), and the final stage of distribution (at low pressures) to the customer.

Equipment which was designed for use in enhancing the flow of oil at an oil well, but which with a special licence could be driven on a highway as the means of getting to the oil well, was not "automotive equipment", and instead fell in the residual category of Class 8(d).

Linefill was not part of a pipeline and accordingly was a Class 8 asset.

The subparagraphs of class 2 were intended to encompass the whole process of the production and distribution of electricity, heat, water and natural gas. Facilities that were an integral part of the taxpayer's system for the transmission of natural gas prior to its ultimate distribution to customers accordingly were a plant "acquired primarily for the ... distribution of gas" within the meaning of class 2(d).

The Act contemplates that an activity may constitute both manufacturing or processing and construction. Accordingly, it was found that an asphalt processing plant used in construction was "a structure that [was] manufacturing or processing machinery or equipment" within the meaning of class 8 (and class 29).

It was noted that if the plant had not fallen within Class 29, it would have been a Class 10 property ("contractor's moveable equipment") because it was designed to be disassembled and moved, and was assembled so as to preserve that moveability.

The value of customer lists of an accounting practice purchased by an accounting firm was in their intangible value as goodwill. Accordingly, the purchase price was not depreciable as a Class 8 asset.

As part of the purchase of the Financial Times, the taxpayer paid $50,000 for the customer lists of the vendor. Noël J. found that what was of value was the information on the lists and not the value of the lists as documents - they were destroyed a few days after the purchase. Accordingly, an amount had not been paid for the acquisition of a tangible asset.

Equipment which both was "designed" for the purpose of excavating or moving earth and rock (Class 22) and which was acquired for logging operations (Class 10(o)) was Class 10 property because Class 10(o) applied to "property that would otherwise be included in another class".

Pipes and valves located between the inlet and outlet connections of the main pipeline and to and from the compressor station and metering facilities were integral parts of the compressor stations and metering facilities rather than integral parts of the pipeline and therefore were not described in paragraph 1(b). In addition, since the sole business of the taxpayer was the transmission of natural gas, and it was not involved in the distribution of natural gas, the pipes and valves were not distributing equipment."

Equipment which was designed for use in enhancing the flow of oil at an oil well, but which with a special licence could be driven on a highway as the means of getting to the oil well, was not "automotive equipment", and instead fell in the residual category of Class 8(d).

A sand and gravel pit was not a "mine", and front end loaders used in the gravel pit operation accordingly were Class 22, rather than Class 10 assets.

Equipment which the taxpayer bolted or welded to its trucks to be used in its well-pumping operations was held to be contractor's movable equipment (Class 10(h)) rather than a structure (Class 29). It was not built from component parts on the site of the oil or gas well, and accordingly was not a "structure".

Metal sheets that were used by a contractor to construct a form in order to receive wet concrete which form was then disassembled following the hardening of the concrete, constituted "contractor's movable equipment" (class 10) rather than a "mould" (class 12). It was noted, obiter, that there is some authority that the decision to allocate a depreciable asset to a class may be made in light of "the time of the effective usefulness of the depreciable asset."

Metal sheets that were used by a contractor to construct a form in order to receive wet concrete which form was then disassembled following the hardening of the concrete, constituted "contractor's movable equipment" (Class 10) rather than a "mould" (Class 12). It was noted, obiter, that there is some authority that the decision to allocate a depreciable asset to a class may be made in light of "the time of the effective usefulness of the depreciable asset."

When improvements (such as 2 frame buildings and pavement for a parking area) are constructed by a tenant, they normally become the property of the landlord rather than the tenant, and thus fall within Class 13 (leasehold interests). "In order for the buildings and pavement here in question to have retained their identity as chattels and remained the property of the lessee, if it were at all possible, a clear indication of that intention should have been found in the lease [which was not the case]."

The taxpayer acquired a leasehold interest in a drug store. It was found that the terms of the lease were such that a prospective sub-lessee would not pay anything for it beyond assumption of the tenant's obligations under it.

A sum paid in respect of goodwill relating to the favourable location of the store was held to form part of the capital cost of the leasehold interest: "I am unable to divorce the goodwill of a location from the other advantages accruing to the person entitled to possession of that location. When it accrues under a lease, it is part of the leasehold interest".

The cost to the taxpayer (namely, the sum of $108,000 paid by it to terminate a previous franchise arrangment) of obtaining a contractual right to distribute roller equipment in Canada did not represent a franchise for a limited period as it was for an indefinite period (the agreement was terminable by notice on or after a fixed date) and, therefore, did not qualify as the capital cost of a Class 14 property.

Payments made by the taxpayer to reimburse a pulp company ("Anglo-Canadian") for the costs of installing pipelines connecting the taxpayer's manufacturing plant with Anglo-Canadian's plant as part and parcel of a long-term supply arrangement were not costs of a Class 14 property. "Whatever may be the precise meaning of the expression 'franchise' ... that expression refers to the right, granted to a person, to carry on an activity which, otherwise, that person could not have carried on, at least in the same conditions."

The taxpayer purchased, from an affiliated company, the right to manage two mutual funds (which would entitle it to earn a quarterly fee of 1/8 of 1% of their assets) together with the right to designate selling agents for the sale of shares of the mutual funds and to receive a 2% acquisiton fee on such sales. In dismissing th etaxpayer's position that the purchase price of $1.9 million was depreciable as the capital cost of a Class 14 asset, Spence J stated his agreement with the Investor's Group case.

$70,000 of the $104,000 purchase price paid by the taxpayer for a taxicab business was allocated by it to 14 taxicab licences which had been issued for one year and which would expire within one month (although, based upon the prevailing practice of the licensing board, they would be renewed). This amount represented non-depreciable goodwill rather than the cost of a Class 14 property. Cattanach J stated (at p. 5080):

...the licences granted by the Taxicab Board are personal to the owner...[and] are not transferable in themselves....Therefore ,the appellant did not buy the licences in question but by its purchase of fourteen licensed taxicabs placed itself in a better position from which to apply to the Taxicab Board for licences on its own behalf.

In finding that the purchase price paid for the acquisition of rights under a sales management agreement (pursuant to which the vendor had undertaken to perform certain services to a related entity in return for specified remuneration based on the volume of that entity's sales) was not depreciable as a Class 14 property, Jackett P. found (p. 5122), after accepting the submission of the taxpayer that these words extend "not only to certain kinds of rights, privileges and monopolies conferred by or pursuant to legislation or by government authority, but also to analogous rights, privileges or authorities created by contract between private parties," went on to state that the words "franchise" and "concession" are:

"used to refer to some right, privilege or monopoly that enables the concessionaire or franchise holder to carry on his business, or that facilitates the carrying on of his business; and that they are not used to refer to a contract under which a person is entitled to remuneration for the performance of specified services."

The taxpayer, a manufacturer of geophysical equipment, had granted an affiliated company the exclusive right to market its products for five years throughout the world. Two years into this agreement, it paid the affiliate $150,000 for the assignment of the Canadian distribution rights.

This payment was a non-deductible capital expenditure. Furthermore, although the payment very well might be in respect of a franchise, concession or licence, it was not in respect of property.

A proprietorship was granted the exclusive right to market the products of a manufacturer of vacuum cleaners in the County of York pursuant to an agreement which could be terminated by either party by giving 30 days' notice, and which stated that it was not assignable without prior written consent. The following year, the proprietor transferred this right to a corporation pursuant to a clause which further provided that:

'the Company shall be entitled to all benefits, rights and privileges for a period of ten years under this agreement and as between the parties hereto shall be regarded and construed as a 10 year franchise.'

Cameron J. stated that he was "quite unable to see how a franchise for an indefinite and unlimited term can by the act of the holder of the franchise only, become one for a period of ten years."

A right to use the patents of an individual was a Class 14 property to the corporation that acquired those rights. However, the capital cost was limited by s. 20(4) of the pre-1972 Act, which prohibited a step-up to the capital cost of depreciable property transferred in a non-arm's length transaction.

Létourneau J. A. found that the types of surface construction referred to in Class 17(c) had the following characteristics: first the land which, as a result of the work performed becomes a surface construction should display a clearly discernable change in configuration that goes beyond mere clearing and levelling; the surface construction should occupy a circumscribed space that is identifiable as such and to varying degrees requires the addition of some materials in order to fulfil the intended function; and because of wear and tear there must be a recurring need for maintenance to maintain its identity and purpose. On the basis of these criteria, he concluded that ski slopes of the taxpayer qualified.

Equipment which both was "designed" for the purpose of excavating or moving earth and rock (Class 22) and which was acquired for logging operations (Class 10(o)) was Class 10 property because Class 10(o) applied to "property that would otherwise be included in another class".

A sand and gravel pit was not a "mine", and front end loaders used in the gravel pit operation accordingly were Class 22, rather than Class 10 assets.

The taxpayer, which paved driveways, parking lots and small roadways, also operated an asphalt-producing plant. 75% of the output was utilized in that paving business, and the balance was sold to third parties. In finding that manufacturing or processing equipment utilized in the plant did not qualify as Class 39 property on the basis that it was not used "primarily in the manufacturing or processing of goods for sale or lease", Major J. noted (at p. 6473) that "the concepts of sale or lease have settled legal definitions", that "Parliament has chosen to use language that imports relatively fine private law distinctions" and that "the technical nature of the Act does not lend itself to broadening the principle of plain meaning to embrace popular meaning". Accordingly, because property and the asphalt transferred to the taxpayer's paving customers as accessions to real property, the equipment did not qualify under Class 39.

Seventeen spare parts having a cost in excess of $1 million that the taxpayer purchased to be held until such time as identical parts in a continuous-operation paper machine broke down, represented capital assets (includable in Class 29) rather than inventory. Hugessen J.A. found that the interpretation accorded to the phrase "to be used directly or indirectly by him" in the Class 29 definition had been interpreted too narrowly in the Stearns Catalytic case (90 DTC 6286). In particular, this expression related "to property that is not necessarily used immediately after it is purchased" and "it is sufficient if there is a reasonable expectation that the property would be used in the future" (at p. 6065).

An operation of repairing and "re-manufacturing" hydraulic systems for customers (including the replacement of a part or parts of a customer's hydraulic system with the part or parts manufactured by the taxpayer) was found not to be the manufacturing of goods "for sale" on the basis of the "well-known distinction between manufacturing for the purpose of sale and manufacturing for the purpose of repair services", and in light of Parliament's objective in enacting the legislation, which "was encouragement of increased production of manufactured and processed goods to be placed on the domestic and international markets in competition with foreign manufacturers" (p. 6548).

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 s. 127(10)(c)(i) of the Act and paragraph (a)(i) of Class 29. 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."

Equipment which the taxpayer bolted or welded to its trucks to be used in its well-pumping operations was held to be contractor's movable equipment (Class 10(h)) rather than a structure (Class 29). It was not built from component parts on the site of the oil or gas well, and accordingly was not a "structure".

The Act contemplates that an activity may constitute both manufacturing or processing and construction. Accordingly, it was found that an asphalt processing plant used in construction was "a structure that [was] manufacturing or processing machinery or equipment" within the meaning of class 8 (and class 29).

It was noted that if the plant had not fallen within Class 29, it would have been a Class 10 property ("contractor's moveable equipment") because it was designed to be disassembled and moved, and was assembled so as to preserve that moveability.

For a property to qualify as a MURB to a taxpayer, the taxpayer must have more than one unit in the residential building. It is not sufficient for the taxpayer to have one unit (together with appurtenant common elements) in a building which has been certified to be a MURB.

Estey, J. stated, obiter, that if it were not for the addition of Class 26 to Schedule II, expenditures for catalysts would be currently deductible.

The taxpayer purchased an asphalt plant with the expectation that it would sell up to 40% of the production of the plant to third parties and use the balance in its own asphalt paving business. In fact, only 25% of the plant's production was sold to third parties.

The Tax Court Judge had "correctly ascribed to 'primarily' in this context the meaning of 'most important'" in concluding that the property had not been acquired primarily for manufacturing goods for sale. Furthermore, the Coopers & Lybrand case (94 DTC 6541) had been properly applied in finding that the taxpayer's own use under contracts that were for working materials and not in respect of the sale of goods did not represent the purchase of "goods for sale or lease".