T. Marcogliese (613) 957-2095
XXXX
June 18, 1987
Dear Sirs:
This is in reply to your letter of June 2, 1987, in which you requested our views as to whether the operations of a newly incorporated company, ABC Co. could be considered to constitute "manufacturing or processing" activities rather than farming as defined in subsection 248(1) of the Income Tax Act (the "Act").
As we understand the situation, ABC Co.
XXXX
In your view, because the definition of farming in subsection 248(1) "includes tillage of the soil", and the method contemplated for growing the XXXX does not require soil, the unique nature of this process excludes it from the definition of farming. You believe that since this process is not specifically included in the definition of farming found in subsection 248(1) of the Act it, therefore, would not be one of the activities excluded from "manufacturing or processing" as defined in paragraph 125.1(3)(b). Accordingly, in your view the operations of ABC Co. would be eligible for the manufacturing and processing profits (MPP) deduction found in section 125.1 of the Act. Similarly, in your view, any equipment purchased to be used in this operation would be eligible for inclusion in Class 29 and for the investment tax credit on the assumption that the other requirements for eligibility are satisfied.
Interpretation Bulletin IT-145R makes the following comments in paragraph 5 regarding the meaning of "manufacturing or processing" for purposes of the MPP deduction.
"The terms 'manufacture' and 'process' do not lend themselves to any simple, all-inclusive definition or explanation. It may be said, however, that the manufacture of goods normally involves the creation of something (e.g., making or assembling machines, clothing, soup) or the shaping, stamping or forming of an object out of something (e.g. making steel rails, wire nails, rubber balls, wood molding). On the other hand, processing of goods usually 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".
It is our view, therefore, that although the XXXX may be grown in an internally controlled atmospheric environment using biotechnological methods, the end product is still the result of natural growth. Consequently, the method of XXXX growing proposed by ABC Co. would not constitute manufacturing or processing of goods for sale or lease for purposes of the MPP deduction, Class 29 and the definition of qualified property in subsection 127(9) of the Act.
You should also note that the definition of "farming" in subsection 248(1) of the Act does not contain an all-inclusive list of the agricultural activities that will be accepted as farming for tax purposes. On this point, The Honourable Mr. Justice Addy in Pollon et al v. The Queen 84 DTC 6139 says at page 6142:
"It seems clear on reading the definition of farming in sec. 248(1) quoted at the beginning of these reasons that, since "farming" is defined as including the raising of poultry, together with other various agricultural activities, the enumeration of these matters is not intended to constitute an exhaustive definition and one must look to the common, ordinary and generally accepted meaning of the word as well as to the specific activities detailed in the statute. It follows that, should I not be satisfied that the activities of the taxpayers fell within the meaning of raising poultry, I must still consider whether they fell within the generally accepted meaning of farming".
On pages 6143-44 he expands on the general acceptability of classifying modern growing techniques as farming activities:
"Since mechanically operated hatcheries are a very recent development, it is not at all surprising that the activity is not specifically included in the dictionary definitions of farming. More and more today because of numerous and rapidly developing scientific and technological methods and procedures in the field of food production, men and manually controlled implements are being replaced by machinery and scientifically developed technical processes. Where the development of the basic food product still involves the growing process and natural biological changes as opposed to artificially manufactured foods or mere processing, I do not feel that, generally speaking, the activity would be considered by the general public anything other than agricultural in nature and would, therefore, generally be considered as a farming operation".
Based on these comments from the Pollon case, the XXXX business venture contemplated by ABC Co. would, in our opinion, most likely constitute a farming operation for purposes of the Act.
We regret that a more favourable response could not be provided.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch