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.