Principal Issues: Does the technical position in F9406917 to the effect that a photocopy business could qualify as "manufacturing or processing" still reflect CRA's position?
Position: The position cannot be validated or invalidated.
Reasons: Since the publication of this interpretation, IT-145R was cancelled and replaced with Folio S4-F15-C1 in 2016. Furthermore, there was new jurisprudence from the SCC on the subject in 2000.
XXXXXXXXXX Martine Filiatrault, CPA, CA 2018-078151 March 7, 2019
Dear Madam,
Subject: Photocopy business - Interpretation F9406917
This is in response to your request received by email on October 10, 2018 in which you requested clarification regarding Technical Interpretation No. 9406917 (the "Interpretation") relating to the eligibility of a photocopy business for the manufacturing and processing profits deductions under subsection 125.1(1) of the Income Tax Act (the "Act"). You wish to know if the position taken in the Interpretation still reflects the position of the Canada Revenue Agency (the "CRA").
In the Interpretation, a number of jurisprudential criteria were reviewed to determine whether the photocopy business was engaged in a manufacturing or processing activity. In addition, the photocopying activity was compared to the printing and publishing activities described in paragraph 44 [sic, 42] of Interpretation Bulletin IT-145R, Canadian Manufacturing and Processing Profits - Reduced Rate of Corporate Tax. In the Interpretation, the CRA's position is that "photocopying activities from a photocopier equipped with a computer and the activities of assembling photocopies with a flange constitute the manufacturing or processing of goods for sale."
However, since the publication of the Interpretation in 1994, IT-145R has been canceled and was replaced in 2016 by the publication of Folio S4-F15-C1, Manufacturing and Processing. The example in paragraph 44 of IT-145R, on which the position in the Interpretation was partly based, is not found in the new Folio. Furthermore, in 2000, in Will-Kare Paving (footnote 1), the Supreme Court of Canada pronounced on the interpretation of the term "goods for sale or lease", the expression found in the definition of "Canadian manufacturing and processing profits" in subsection 125.1(3).
Consequently, considering the new case law, the cancellation of IT-145R and the technological progress of the last 25 years in the field of photocopying, we cannot confirm or deny that the position taken in the Interpretation continues to reflect the position of the CRA. If we had a specific file under study, we would have to do a complete re-analysis before making a decision.
We hope that these comments are of assistance.
Best regards,
Michel Lambert, CPA, CA, M. Fisc.
Section Manager
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 Will-Kare Paving and Contracting Ltd v the Queen, 2000 SCC 36