XXXX Larry Ursacki (613) 995-1178
Dear Sir:
Re: Manufacturing and Processing Definition
This is in reply to your memorandum of April 21, 1982. As stated in IT-145R , paragraph 5, the term "manufacturing and processing" is not defined in the Act. Consequently, the ordinary and everyday meaning of the terms "manufacture" and "process" must be looked to for a definition. The term "processing" normally refers to a "technique of preparation, handling, or other activity designed to effect a physical or chemical change in an article or substance, other than natural growth". Processing is generally recognized as having taken place when there has been a.physical alteration of the product, for example: grain by milling, milk by pasteurizing, live stock by slaughtering. The product would be considered to be a finished good when it has reached the state that it is in when sold to the purchaser.
It is our opinion that the procedures mentioned in your memorandum do not bring about a change in the products but merely maintain and store them in their completed state. The fact that the storage takes place in a state of refrigeration does not change this function. The storage of finished goods is specifically excluded from qualification for purposes of section 125.1 by Regulation 5202, paragraph (d) of the definition of "qualified activities". Also, normal purchase and resale operations would also be excluded from qualification for purposes of section 125.1 by Regulation 5202, paragraph (g).
In our opinion the 1966 Exchequer Court case of Federal Farms Limited vs MNR DTC 5068 may be relevant if the wholesale operations of your client constitute a separate business and the facts are similar to the aforementioned case. A retail grocery operation in our view will not normally qualify for the manufacturing and processing deduction.
Yours truly,
for Director Corporate Rulings Division Legislation Branch